Daily Market Reports | Jul 03 2008
By Greg Peel
The Dow fell 166 points or 1.5% to 11,215. The S&P fell 1.8% to 1261. The Nasdaq fell 2.3% to 2251.
Both the Dow and the Nasdaq are officially in a bear market – for what it’s worth – on last night’s closing levels, being over 20% below their October highs. The S&P is basically sitting right on that level. The March intraday low on the S&P is 1256, which remains as one level of support yet to be tested.
Wall Street was quiet on the open but began to slip late morning. It recovered again over lunch, but then plunged. Volume was light, and the suggestion is traders were selling out of positions ahead of tomorrow’s half-day session – which could potentially be volatile given the ECB and jobs numbers and hardly anyone around to trade – and the long weekend. Whatever the cause, it has become apparent over recent weeks that Wall Street always had to trade to these lows before it could decide what to do next.
Oil, of course, is very much part of it. Morgan Stanley made the call a couple of months ago that oil could see US$150 by the Fourth of July weekend, and that prophecy has almost been fulfilled in a way that suggests it just had to be. Oil rose another US$2.60 last night to US$143.57/bbl, but was already trading above US$144 in the after-market. Will it make US$150 tomorrow? The rise was attributed to another fall in crude inventories, and a less than expected rise in diesel inventories.
The big news of the day was a report from Merrill Lynch on troubled auto manufacturer General Motors. Yesterday GM saw its shares surge as monthly sales figures came out not as bad as expected. Last night the shares fell 14% as Merrills declared it was not beyond the realms that the General could go bankrupt if conditions continued to deteriorate. GM is a Dow component, and once the bellwether stock for the US economy. Last night it was showing a capitalisation of only US$6bn. By comparison Toyota’ capitalisation is US$148bn.
Adding to weakness was the ADP private jobs number, which usually bears little relationship to the official number, but at 79,000 jobs lost for the month of June the number was bad enough for the Street to pay heed anyway. The official number is due tomorrow. Conversely, factory orders rose 0.6% in May, but this was as expected.
It was a mixed day in the financial sector. Shares in Lehman Bros rose another 7% as speculation continues to mount the thin-ice investment bank will be swallowed. Shares in Merrill Lynch (voted second most likely to be the next Bear Stearns, after Lehman) fell 3.5% as Oppenheimer suggested the bank could write down as much as another US$5.8bn in the second quarter. Across the pond the news was more positive as German investment banking leader Deutsche Bank announced it will not have to raise more capital and may even make a profit in the second quarter. Deutsche shares rose 2.5%.
The US dollar was again slightly weaker, ahead of the ECB rate decision tonight which everyone in the world now believes will be a 25 point hike. The attention is now focused on just how hawkish the accompanying statement will be, and thus whether more hikes can be expected. The fall in the US dollar helped oil to rally, and pushed gold up another US$5.70 to US$945.10/oz. The Aussie has also had a kick along, rising over US0.6c to US$0.9616.
Commodity fund buying was allegedly behind a splurge on the LME last night as the two metals of the moment – aluminium and copper – were highly sought. Aluminium jumped 2% but copper leapt 3% to US$4.10/lb in New York – not far from the all-time high. Copper in particular is being aided by strike activity in Latin America, but both metals are in tight supply. The other metals are not currently in tight supply, and they all fell around 2%.
An interesting development on Wall Street last night was the weakness across the board, including in the energy and materials sectors. Despite record oil, Exxon fell 1% and Chevron 1.6%. Steelmakers took a tumble after a good run lately, and the big surprise was coal. After a stellar performance recently the coal index fell a massive 11% last night. While there were rumours circulating that BHP and Rio may have artificially pushed up prices to secure positive contract settlements, the fall is more likely to be rooted in take-the-money-and-run redemptions from commodity funds. With Wall Street slipping into bear market mode, and the US economy looking ever weaker, it may be time to take some money off the table in the sectors where profits still exist.
The SPI Overnight was down 101 points. If that prediction is correct the ASX 200 will trade below 5000 today – below the March intra-day low of 5039 and below that psychological “big figure”.
