Daily Market Reports | Dec 24 2008
By Rudi Filapek-Vandyck
One cannot open a newspaper these days or there is a mentioning of The Rally, hopefully in the first half of next year. Meanwhile my inbox is getting clogged up by on-line newsletters that want to assure me The Bottom is now in place. Time to buy some shares!
I don’t want to spoil anyone’s party this close to Christmas, but facts are what they are and until this very day economic data from around the world, including leading indicators for major economies, are still coming out worse than their predecessors, or worse than expected, or both.
What is even more disconcerting is that more and more indications for global trade are worsening, and at a rapid pace too.
Yesterday in the US saw economists’ forecasts confirmed that the world’s leading economy (sorry, but it still is unfortunately) contracted by 0.5% in the third quarter of 2008. The good news about this is that at least the number wasn’t revised to something much worse. The bad news is, however, that every economist on Wall Street (and beyond) is convinced the present quarter will be much, much worse. I have seen predictions for a contraction of 6% in the past few days.
Let me recap that figure: minus 6%, not minus 0.6%. And with leading indicators signalling it is still getting worse, what is that first quarter of next year going to look like?
US new home sales fell by 2.9% in November to 18-year lows. The good news was that supply on unsold new homes eased from 11.8mths to 11.5mths. US existing home sales fell by 8.6% in November but here there was no good news: the supply of unsold existing homes rose from 10.3mths to 11.2mths. There’s still a widespread view that the US housing market needs to start improving before the US economy can. So far, it just aint happening and indications are -like more supply of unsold homes- that the future continues to look bleak.
Here’s the opening paragraph from a Bloomberg news report on the data:
“Sales of single-family houses in the US dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing speculation the market was close to a bottom.”
At least US consumer sentiment rose from 55.3 to 60.1 in December. Does anyone believe this will have translated into more frenetic Christmas shopping as well?
Throw in some lingering doubts whether the bailout of US auto makers will actually generate a positive result and it is not difficult to see why US equity markets are in no mood at the moment to stage at least a mini-rally, if only for Santa’s sake.
The Dow Jones industrial average fell 100.28 points, or 1.18%, to end at 8,419.49. The Standard & Poor’s 500 Index lost 8.48 points, or 0.97%, to finish at 863.15. The Nasdaq Composite Index shed 10.81 points, or 0.71%, to close at 1,521.54.
Two more worries are hitting the markets these days: one is that Europe is simply not doing enough to solve the world’s problems. Sure, Europe’s hesitation thus far has helped pull the euro to elevated levels against the US dollar – but is that really good news?
This is how US based trading guru Dennis Gartman formulated it yesterday (in other day of technical woes in a New York hotel room): “The markets are concerned, and properly so, that the US government has led the way toward lower rates, but that the ECB still fears inflation in a world of deflation. We find the ECB’s concerns about inflation almost comical in nature, for rather than an inflationary world we live in a rapidly deflating one instead.”
The second worry is that China is not only facing a rapidly decelerating economy, but its leaders are issuing disconcerting statements. Yesterday The China Daily, in essence the public communication channel of the ruling Communist party, stated that “China’s increased purchases of US Treasury Securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis… The current strong foreign appetite should not be taken by the US government as solid proof of the long term value of its Treasury securities.”
(The above statement was made in English so there’s no chance of false translations or misinterpretations as has happened in the past).
It is statements such as these that confirm that China is seeking its own (enlarged) role in tomorrow’s New World Order and no doubt new president elect Barack Obama will be paying attention.
Major currencies were becalmed in thin European and US trade on Tuesday. The Euro held between US$1.3920 and US$1.4020, heading into the US close near US$1.3960. The Aussie dollar traded between US67.80c and US68.50c, heading into the US close near US68.15c. The Japanese yen held between 89.90 yen per US dollar and JPY90.80, heading into the US close near JPY90.65.
For Crude oil prices, however, the story has remained the same. I forgot to mention earlier that GDP figures showed the UK economy contracted by 0.6% in the third quarter. Some traders in the oil market believe the double US-UK whammy pushed oil prices further down yesterday. But what about recent data, including from China, revealing that global auto sales are falling off a cliff?
OPEC’s president tried to keep hopes alive for the remaining oil bulls and announced OPEC may call an emergency meeting before March if oil prices continue to slide. The February NYMEX contract fell by US93c or 2.3% to US$38.98.
Base metal prices were generally weaker. The price of gold acted in line with other commodities. The most active February Comex gold contract fell by US$7.50 an ounce or 0.9% to US$839.70.
ANZ Bank’s Head of Commodity Research, Mark Pervan, believes the trend for base metals is likely to remain weak into the new year, with zinc a potential differentiator as reports have indicated Chinese authorities are looking to boost strategic supplies – possibly partly confirmed by a sharp drop in Shanghai zinc stocks last week.
Gold prices should ease on mild profit-taking, Pervan believes, though he notes any sharp moves in the USD will dictate sentiment. ANZ is still forecasting lower oil prices.
Coal prices should fall tracking a lower oil price, says Pervan. He adds last week’s Newcastle price drop may have squashed hopes among some investors that the previous week’s increase was the start of a price recovery. In addition, he reports, the latest China trade data also show a sharp drop in coal imports for November. China has now turned into a coal net exporting position for the first time since July. Reports that Asian power utilities are well-stocked until the end of March won’t improve overall sentiment either.
Six more trading days to go but it would seem 2008 will end on the same note as the year started. This probably doesn’t bode well for the fresh start in January either.
This is the final Overnight Report from us in 2008. Apologies for not doing it with a more upbeat tone, but as I stated above: facts are facts and we can either pay attention or dismiss them at our own peril. FNArena will be back on January 7.
Best Wishes for the new year.
