Daily Market Reports | Aug 12 2008
By Greg Peel
The Dow closed up 48 points or 0.4%, while the S&P added 0.7% and the Nasdaq 1.1%.
If this had been early July and not early August, the Russian invasion of Georgia would have sent oil over US$150/bbl and gold over US$1000/oz. The Caspian region is a major area of oil export. Oil began the session in rally mode last night as concerns over the conflict pushed in the buyers, but pretty quickly the commodity bears won out again. The bottom line is the world economy is slowing, and that means less demand for oil, war or no war.
Oil fell to as low as US$112.72 at one point before profit-taking on the short side corrected the market for a US75c fall on the day to US$114.45/bbl. If the conflict in the Caucuses is not going to push the oil price up, then look out US$100.
Also helping the oil price fall of late has been the return to strength of the US dollar, again driven by weakness in the economies of the rest of the world. The euro has now crashed back through US$1.50 and has reached US$1.49. The pound has also been sold off, but the yen is hanging in there as speculators unwind carry trades into commodity currencies, meaning they need to buy back yen. It also means they are selling the Aussie, and it fell another half cent last night to US$0.8837.
The real victim last night, however, was gold. Gold began another drift down in the morning in New York as the oil price fell once more, but at midday it hit the big support line of US$850 – the previous all-time high from 1980. Below US$850 a black hole was waiting. The precious metal fell US$32.00 to close at US$823.50/oz. There’s not much in the way of support before US$780.
Having surged over 300 points on Friday, the Dow had Wall Street excited once more by rallying as much as 133 points by lunch time. Retailers have been the popular trade of late, driven by the oil price and some not-so-bad sales results (on stimulus cheques). The financials also had a great morning, although they drifted off in the afternoon. The Dow slipped back as well as the oil price fought back some profit-taking came in.
The financial sector became concerned on a report from the Fed that 75% of US banks surveyed in July had tightened their prime mortgage lending conditions. This figure was up from 60% in April. If the banks are making it harder to get a prime mortgage (and subprime mortgages now have a display at the Smithsonian) then it’s going to be a long time before the US housing market can recover. Prices are heading lower still.
Moody’s also downgraded Morgan Stanley in the after-market, but this was no great surprise.
Commodity funds continued their relentless divestment of base metals in London, with aluminium falling another 1% and copper 2% to reach multi-month lows. Lead was hit another 3.5%.
The SPI Overnight was up 19 points.
