Daily Market Reports | Feb 03 2009
By Greg Peel
The Dow fell 64 points or 0.8% to 7936 while the S&P was steady and the Nasdaq bucked the trend by jumping 1.2%.
Wall Street is currently in a state of flux as it awaits the outcome of both the Obama stimulus package and the prospective Bad Bank policy. We left last week with the US$819bn stimulus package having been passed in the House but all Republicans and even a few Democrats voted against it. As the bill goes to the Senate, the Republicans are calling for tax cuts to be included. Obama suggests the objections to the bill are only “modest” and hence a compromise should be reached without too much heartache. Bad Bank, in the meantime, is stalled on some snag that is unclear at present.
A passing of the stimulus bill and a ratification of Bad Bank would be positive for Wall Street but last night the market kicked off with a slew of weak economic data. Consumer spending fell 1% in December marking the six straight month of declines. In real terms (adjusted for inflation) spending fell 0.5% which is a turnaround from November real spending which was up 0.3%. Nominal personal incomes fell 0.2% as lay-offs continue.
Personal savings jumped a solid 3.6%, which is a case of really bad timing. If only the Yanks had saved ahead of the GFC instead of spent (and they are not alone on that score) they wouldn’t be in this position. Now the government wants them to spend, spend, spend via stimulus packages and this time they’re choosing to save. Too much saving, or debt reduction, will render any stimulus package impotent.
The ISM manufacturing index actually rose to 35.6 in January. This sounds promising except that December’s reading of 32.9 was a 30-year low and January’s figure marks twelve consecutive readings under 50 – and a number under 50 means contraction.
Wall Street opened a hundred points weaker on the economic data but as the morning progressed the buyers slowly managed to push the Dow back to almost flat again. There was positive influence coming in from Times Square, where the Nasdaq was doing its own thing and putting in a strong performance. The chips stocks were leading the way. There are many on Wall Street who believe it will be tech stocks which will lead the way out of the darkness this time and not the traditional leaders - financials. However, if we all had a dollar for every time chip stocks took off and then collapsed again in 2008 we wouldn’t care.
When all was looking better around lunch time, department store giant Macy’s came out and declared it was slashing its dividend and slashing its workforce. On that news, the Dow dropped over a hundred points again (even though Macy’s is not a Dow stock). The Dow was solidly under the 8000 mark once more. In the final hour, some tentative buying returned before the close.
Weak economic data in the US and some sad looking figures coming out of Japan were never going to help oil last night, but a steep drop in gasoline prices was a contributing factor to oil’s US$1.57 fall to US$40.11/bbl. Refinery workers had threatened to strike over capacity reductions and lay-offs but a strike has been averted for now as all parties hit the negotiation table.
The US dollar shot up against the pound last night following Moody’s downgrade of Barclays but overall the index was slightly lower. This was ignored by oil but also by gold which fell US$19.80 to US$907.30/oz last night. The size of the fall has been blamed on the rollover of Comex futures last night.
Base metals were mixed and unspectacular, with aluminium and zinc both rising 2%.
The Aussie dollar continues to suffer a combination of the greenback’s anti-gravity act and expectation that the RBA will today slash the cash rate by at least 1%. It has slipped more than half a cent again since yesterday to US$0.6307.
The SPI Overnight gained 7 points.
