Daily Market Reports | Aug 29 2008
By Greg Peel
The Dow rose 212 points or 1.9% while the S&P added 1.5% and the Nasdaq 1.2%.
The 29th of August is the third anniversary of the day Katrina made landfall. Three years on, New Orleans is battening down in preparation for the arrival of Gustav. Having learnt from the woeful mistakes of 2005, the mayor has mobilised the troops and put into place a comprehensive readiness plan which may see the first evacuations from the city this holiday long weekend. In 2005 the responses from both the city and the federal government were too little, too late. And in 2005 it took some time before President Bush released oil from the strategic reserve, but last night the government announced it stood ready to release oil as soon as is necessary.
As dawn broke over Wall Street the Gustav projections were grim. Oil jumped to over US$119 and gold surged as much as US$17.00. But as the day wore on the weather bureau began to temper its view. Gustav is still likely to hit the Gulf coastline, probably on Monday, but it now appears it may only peak at Category 3 or maybe 2 as opposed to the 4 that was previously expected. Such moderate strength will not be overly destructive.
As the oil price began to respond to this tempered prediction, news was released that natural gas inventories had seen a massive jump in the week before. The gas price fell 7% and the government added its strategic reserve announcement, sending the oil price crashing back. Oil closed down US$2.56 to US$115.59/bbl.
With the oil price surging ahead of the opening bell it looked like Wall Street might be in for a rough session, but that pressure was easing just as the announcement was made that the revised second quarter GDP measure, which had last stood at 1.9%, was now 3.3%. Economists had been hoping for perhaps 3.0%. Recession? What recession?
The jump in the number was put down to the surge in US exports in the climate of a weaker US dollar. This is good news. However, there was also an element of inventory build. This might seem positive, but it is also dangerous. Economists are still predicting growth of only 2% in the third quarter and perhaps a contraction in the fourth. Inflation stands at 4.2%.
But the three people on the floor of the NYSE and not on holidays took the GDP number as a positive sign and started buying freely. Leading the charge was the financial sector, and its index closed up over 4% on the day.
Fannie and Freddie were again strong as Lehman Bros analysts joined the chorus, suggesting the twins’ capital positions may not be as bad as the market is fearing. Fannie shares are now up 60% for the week, and Freddie 85%. Shares in bond insurer MBIA leapt 35% when the company announced it would be insuring billions in new municipal bonds. This is a sign MBIA is still healthy and able to conduct new business.
The US dollar had been weaker ahead of the GDP announcement, but turned around to close up mildly higher on the day against the European currencies, but not quite against the yen. The Aussie was thus able to tick slightly higher once more to US$0.8618. Gold ultimately finished up US$6.70 at US$833.40/oz.
Base metal prices in London were again topsy-turvy, but after some big gains on Wednesday the complex closed the day 1-2% lower.
The SPI Overnight closed up 83 points. We seem to have broken out of August’s consolidation range to the upside.
After the bell, computer giant Dell spoilt the mood by missing on its quarterly earnings report. Its shares were down 10% in the after-market.
Today is the last day of the reporting season in Australia (woohoo!). As the US celebrates a long weekend after tonight’s session, stock analysts all across Australia, too, are packing their suitcases and checking their tickets – or maybe this year it’s a case of putting the tent in the boot. Either way, we will go into a couple of weeks of research desert from here until the AGMs begin to build.
