Daily Market Reports | Aug 30 2008
By Greg Peel
The Dow fell 171 points or 1.5% while the S&P fell 1.4% and the Nasdaq 1.8%.
I did warn on Tuesday that Australia would do well to ignore Wall Street this week given the holiday period and a distinct lack of conviction on market direction were conspiring to produce only very light volumes and elevated volatility on the NYSE. Indeed, the week produced three different sessions when the Dow moved by close to or more than 200 points, all for a net result on the week of down 85. At the close on Friday, the ASX 200 was up a bit over 100 points ahead of what will likely be some weakness on Monday, all things being equal. The SPI Overnight was down 29 points on Friday night.
I also noted last week that the strong second quarter result from Hewlett Packard had restored Wall Street’s faith in tech stocks, at least for the week, but “come back to me next week”. Late on Thursday another major US tech – Dell – reported a poor second quarter earnings result and so that faith is lost once more. The Nasdaq thus had a heavy fall on Friday.
But come back to me next week.
Apart from this weekend being a long one in the US at the height of summer and the end of the month – thus sending traders to the sidelines – Wall Street is keeping a wary eye on Hurricane Gustav which is still predicted to make landfall on Monday as a Category 2-4. Despite this threat the oil price remains in its current mid-teen range and there is also a lack of conviction among oil traders to take a position either way. If you buy oil and Gustav fades to a rain storm then chances are US$110 will quickly be tested again. If Gustav proves destructive, on the other hand, the government will release strategic reserves, making a long-side play a bit pointless anyway. If you sell ahead of Gustav’s arrival well there’s a small matter of Tropical Storm Hanna looming in the Atlantic. What to do?
Oil was down US13c to US$115.46/bbl.
Thursday’s big rally in the Dow was all about the strong US GDP number, and on Friday Wall Street should have been heartened by some more good news. The Michigan University measure of consumer confidence rose to 63 in August from 61.2 in July following the 28-year low in June. The Chicago purchasing managers’ index jumped from 50.8 in June to 57.9 in July.
But instead, the market was fixated on two other data releases. Personal incomes fell by 0.7% in July when a fall of only 0.1% was expected, and retail sales rose by only 0.2% in July following June’s 0.6% rise. Adjusted for inflation, retail spending was actually down 0.4% in July. The US consumer, who represents 70% of the US economy, has stopped spending money and is now losing income as well. Retail sales are unlikely to improve any time soon.
That was about all that mattered on Wall Street on a quiet Friday, although it was notable that despite the index falls, the financial sector index closed a tad higher.
The US dollar fell early on the income and sales data but rebounded later in the session on the consumer sentiment number to post another up-day. The Aussie fell back to US$0.8576. Gold slipped another US$3.50 to US$829.90/oz, thus ending its worst monthly performance in US dollar terms in 25 years.
End of the month squaring on the LME was to the weak side on the stronger greenback, sending the week’s star performer, lead, down 3% and everything else off slightly.
As noted, the SPI Overnight fell 29 points.
Markets in the US are closed on Monday but thereafter it’s back-to-work time after the summer break. Will volumes shoot up next week? Probably not a lot. No one is quite sure what to do at the moment. Unless something remarkable happens, there will be no Overnight Report on Tuesday morning.
