Daily Market Reports | Jun 21 2008
By Greg Peel
The Dow fell 220 points or 1.8% while the S&P lost 1.8% and the volatile Nasdaq lost 2.3%.
The fall in the Dow took it through the 12,000 mark emphatically for the first close below that level since March. At 11,842 the close was also well below the previous closing low of 11,951 on March 17. The next stop is the intraday low of 11,650.
The broad market S&P 500 is yet to reach the same levels, although the technically significant level of 1320 was breached on Friday. The S&P closed at 1317 – still above the March closing low of 1276 and intraday low of 1256. While the Dow is spotlight index on Wall Street, serious investors focus closely on the S&P. A breach of broad market lows would not bode well.
Friday was “quadruple witching” – the day when quarterly stock futures, stock options, stock index futures and stock index options all expire, forcing some pretty hefty book-squaring. The bias was clearly to the downside, but wise heads often dismiss expiry day as being simply a session of volatile squaring and not necessarily indicative of the market’s true trend. However, there is little to suggest the market’s trend is presently up.
Which is as much to do with oil as anything else. I was discussing oil over a beer with my colleague Rudi on Friday evening, ahead of his appearance on Business View on Saturday (Sky Business 9am). Rudi is convinced oil will soon pullback to lower levels, and while not disagreeing I noted “All it takes is for Israel to say or do something stupid and we’ll shoot back up again. And OPEC could well decide not to increase production, for what it’s worth”.
Well whaddya know – on Friday the Pentagon revealed that Israel had earlier in the month conducted military exercises involving over a hundred jet fighters and supporting fuel tankers and helicopters, described by the Pentagon as a “rehearsal”. Realistically it is a show of strength for Iran’s benefit. Oil jumped again – by US$2.69 to US$134.62/bbl. The move was not as significant as the US$10 jump resulting from previous Israeli sabre-rattling, given the market is awaiting the outcome of the OPEC meeting in Jeddah on the weekend. But the Saudis would have to announce something pretty substantial in Jeddah to make a great deal of difference.
So oil once again weighed on Wall Street sentiment on a day devoid of any economic data. Financials were again in the frame, as Merrill Lynch analysts decided to slash earnings estimates for regional banks. Merrill Lynch itself was also the subject of unsubstantiated and most likely apocryphal rumours that the investment bank would shortly issue its own profit warning. A Merrills spokesperson did the right thing and declined to comment. A “we’re in great shape” statement could have meant instant death.
Also providing gloom for the market was an announcement that ratings agency S&P has placed all of General Motors, Ford and Chrysler on negative credit watch. They all fell 7-8%. GM shares are now trading at lows not seen since at least 1982. Beyond that the records are uncertain. Ford also announced it was rethinking the planned release of its latest F150 pick-up.
As financial sector woes continue to reach further into the market it is becoming even less likely the Fed will raise the cash rate next week, although consensus already had the Fed on hold. This means the US dollar was again weaker on Friday, sending gold up US$4.20 to US$901.40/oz and the Aussie ticking ever higher to US$0.9533.
With the US dollar down base metals were also able to continue their upward bias, with aluminium and copper rising 1% and lead 3%.
The SPI Overnight fell 69 points. The close below 5300 in the ASX 200 on Friday means there is nothing of support above 5000. It is very clear the credit crunch impact still has to work its way through the wider market before any faith can be restored. And no faith will be restored on a higher oil price.
