Daily Market Reports | Feb 04 2009
By Greg Peel
The Dow added 141 points or 1.8% while the S&P rose 1.6% and the Nasdaq 1.3%.
While the Dow closed lower in Monday’s session, it twice fought back from being kicked in the teeth by weak data, either economic or corporate. It seems at present as if the bulls are trying hard to win the battle. Last night’s session was similar as the Dow started the day going nowhere much but then rallied steadily as the session progressed.
There was some supposedly good news on the housing front, as December pending home sales were reported to have jumped 6.3%. Wall Street took this as a positive sign, although a bit of selective hearing is going on. Last week a similar jump in existing home sales also spurred the market until a record low in new home sales snapped everyone back to reality. Pharma giant Merck posted a solid quarterly earnings result last night which was another reason to cheer. Never mind all the bad results on other fronts. Healthcare has been an outstanding sector amidst the gloom of late nevertheless. And tech is trying hard to be so too.
Monthly car sales figures were released and I must warn readers – some of these numbers may be disturbing. General Motors saw sales fall over 50%, Ford over 40% and Toyota over 30%. But shares in General Motors, for one, closed higher on the day. Is it a case of it can’t get any worse?
The latent positivity on Wall Street this week also belies the fact that the powers that be are still madly throwing ideas around willy-nilly with regard to the TARP, the stimulus package, Bad Bank, the role of the Fed and so forth. Each day that passes we seem no closer to a definitive solution.
There is meant to be some sort of decision on Bad Bank next week – maybe even by Monday – but now the talk involves not buying on all the toxic assets in the market and putting them in one big Bad Bank, but rather insuring all those assets instead. This is not what Wall Street wants to hear, for one of the best things about the Bad Bank idea is transparency. Look – there they all are – all those evil securities – altogether in one vault. Families would buy tickets to go and view them. But if the government simply insures each bank’s toxic waste, then Wall Street will still have no idea of who has what lurking in the basement.
Some sort of decision is expected next week, and some sort of resolution is also expected on Obama’s stimulus package, allowing it to pass through the Senate. There is, furthermore, talk going on that perhaps the Fed could become the ultimate regulator of the derivatives market, and also that the Fed might be given what’s left of the TARP to be put on its balance sheet so it may leverage up some loans for consumers and small businesses, among other rescue efforts.
Everything is on the table, nothing is yet clear. Yet while a lack of resolution should be worrisome, Wall Street is in a bit of a buying mood. Newbie Treasury secretary Geithner made a point last night that he would not make the same mistakes made by Japan in the deflationary 1990s and would be very “aggressive” in policy decisions. This was also a fillip.
Mind you, in your typical case of chicken and egg, stock market traders currently suggest the buying comes in when the US dollar falls, while currency traders suggest they decide to sell the dollar when the Dow rallies. The idea is that a fall in the US dollar implies money is going back out of the supposed “safe haven” currency and back in the scary, higher-yielding world. Risk appetite is thus returning. Maybe it’s just the blind leading the blind.
The dollar took a dive last night – hence the argument – but the star currency on the upside was the Little Aussie Battler. Why? Because everyone had become so caught up in the doom and gloom that expectations of the magnitude of the RBA rate cut were talked up from 75 basis points, to 75-100 basis points, to definitely 100 basis points, to maybe even 125, to “it has to be 125”. Thus, when the winner was 100 basis points, the market went into rapid reverse. The ASX 200 dived and the Aussie – which had been beaten to a pulp in the lead up – shot up. In 24 hours the Aussie has gained more than two cents to be back at US$0.6534.
The supposedly disappointing rate cut put a dampener on the bank sector rally underway yesterday and on the earlier announced round two of Pennies from Kevin, which had everyone in a buoyant mood. Can somebody please explain to me why single people don’t seem to exist in the Australian economy? (Yes I know, we are not a big enough voting bloc).
The drop in the US dollar had a positive effect on commodities as well. Oil clawed back US70c to US$40.78/bbl, while they all went a bit berserk in London, where aluminium was up 1%, lead, nickel and zinc 3%, tin 4% and copper 6%. A little bit of short covering going on there, methinks.
Yet it just couldn’t happen for gold, which fell another US$9.80 to US$897.50/oz despite a weaker greenback. I suggested in my gold feature last week it may take some time to decidedly breach the daunting barrier at US$900/oz and that seems to be the case so far. Gold had run up hard, so it is having a pullback.
The SPI Overnight gained 27 points.
