Daily Market Reports | Aug 28 2008
By Greg Peel
The Dow rose 89 points, or 0.8%, while the S&P gained 0.8% and the Nasdaq 0.9%. The Dow was up 142 points at its peak before drifting in late trade, but the day was positive from the outset.
The impetus was the July durable goods orders report, which showed a growth of 1.3% against a consensus expectation of only 0.1%. Durable goods are big-ticket items – the sort of products purchased only occasionally such as cars or fridges, as opposed to day-to-day consumer goods. Thus the number can be lumpy and volatile, and in this instance a jump in aircraft orders was cited as the point of difference.
Nevertheless, Wall Street will take what it can get, and in the thin pre-holiday environment, there was no one much around to quell the positive sentiment. Lumpiness aside, commentators point to the benefits of a weaker US dollar over the past year as being a boon to the local export industry and the potential saviour of the US economy in one of its darkest hours.
Which brings us to the financial sector. It was another positive day in the financial world, with the mortgage twins Fannie & Freddie continuing their renewed vigour. More and more, the market is coming to the conclusion that the twins can be “saved” without the government making a full takeover, but rather providing a prop. This is good news for common shareholders, if true. Positive sentiment in F’n’F served to provide a positive day across the financial sector in general.
After the closing bell it was announced that Fannie Mae would make some senior management changes. The chief financial officer and chief risk officer were quietly led away, and the chief business officer will assume greater powers before replacements are announced. The CEO stays put, which has many a trader suggesting the purging is as yet incomplete. Nevertheless, Fannie shares were higher again in after-market trade.
Wall Street was able to rally despite another run in the oil price. Crude jumped US$1.88 to US$118.15/bbl as Gustav continued to track towards oil installations in the Gulf. The first precautionary evacuations of offshore rigs have now begun as the weather bureau so far sticks with its prediction that Gustav will make landfall on the Louisiana coast as a Category 3 hurricane. Cat-3 is hardly pleasant, although far from devastating compared to angry Cat-5 Katrina. Nothing is ever certain in weather prediction however.
Wall Street nevertheless seemed unperturbed as traders reflected on the fact that the oil price would be much lower if not for the weather. Oil’s reaction to Gustav to date has also been relatively muted – more cautious than panicked.
It was a mixed day for the US dollar, which saw gold tick slightly higher again – by US$2.50 to US$826.70/oz – and the Aussie clawed back some ground to US$0.8594.
It was a much more exciting day on the LME, where talk of production cutbacks across the spectrum in the face of falling prices had the obvious effect. Heartened by a mixed dollar on the day, technical buying poured in and pushed lead up a whopping 10%, while nickel and zinc each added 3%. Copper was slightly firmer.
After a couple of days of failed rallies on the local bourse, the SPI Overnight has taken to the upside with a 53 point (1%) jump. Hedge funds spent yesterday trying to turn Macquarie Group into a bed ‘n’ breakfast and it will be interesting to see how the story pans out. They slew David, can they slay Goliath? Or this time have they misjudged the weight division?
