Daily Market Reports | Mar 05 2009
By Greg Peel
The Dow closed up 149 points or 2.2% while the S&P gained 2.3% and the Nasdaq 2.4%.
After five days of relentless weakness, exacerbated by technical traders attempting to force the issue, Wall Street bounced. To say that an up-day was long overdue is an understatement, and given the extent of doom, gloom and despair that has been pervading the market lately, a bounce is no surprise. Tuesday’s session on Wall Street provided a clue that there are some value-buyers and bottom-pickers out there. All that was needed was a trigger to turn a bit of fossicking into a flood. The market had become short to the gunnels. The sharpest and strongest rallies always occur in a bear market.
And so last night saw a lot of short-covering. It was hardly convincing – 2.2% is a bit of a poor effort. The indices rallied from the bell but once again the sellers won the last hour. The Dow was up 253 points at its height.
Triggers don’t need to be much. Yesterday the former head of the Chinese statistics bureau told reporters that Premier Wen Jiabao would announce a stimulus package in his address to the Peoples’ Congress today. The news came following the release of the monthly purchasing managers’ index, which rose to 49 in February from 45.3 in January, indicating a turn in sentiment. Output and new orders were seen to have picked up, suggesting Chinese manufacturers may have run out of inventory to de-stock. China may need to start buying commodities again.
On that note, the Shanghai index jumped 6%. Emerging market indices across the globe had a run. Commodity prices soared as a short-covering scramble ensued. In London, aluminium, nickel and tin rallied 3%, copper 6%, and lead and zinc 7%. Oil rallied 8.5%, jumping US$3.54 to US$45.19/bbl. Commodity prices, from sugar to steel, surged.
This will, of course, be China’s second stimulus package, coming in the wake of an initial US$600bn kicker that appears to have done little. China is following in the footsteps of the likes of the US and Australia in moving to have another go at it. Yesterday in Australia we learned the result of the previous Pennies from Kevin was a 0.5% fall in GDP. While prices across the globe are deflating (except last night obviously), governments can throw as much money at us as they like.
Wall Street was clearly happy to back the emerging world last night, however, believing it to be the most likely saviour if there is any saviour at all. Economic data releases in the US last night painted the usual depressing picture, beginning with the ISM services index for February falling to 41.6 from 42.9. The result was nevertheless slightly better than the 41.0 expected. The ADP employment number – watched by Wall Street as a clue to the official employment data despite never being even remotely close – showed 697,000 Americans lost their jobs last month. The Fed opened a rather ugly Beige Book – its monthly anecdotal survey of business conditions across the country – and one commentator described it as “a pretty straightforward rendition of the doom and gloom”. Shares in General Electric tanked once more as it became clear the company’s AAA rating is now tenuous.
Everyone’s a bit sick of gloom, however, so the hallelujah chorus was happy to ignore anything real and concentrate on a rapid reversal of risk aversion, even if it’s only for five minutes. US Treasuries were heavily sold, the US dollar had a rare thrashing, the Aussie shot up another cent (which is actually two cents, as the GDP result saw it fall back a cent initially yesterday) to US$0.6518. Gold continued its slide, losing another US$10.50 to US$905.60/oz. The Obama administration also revealed further details of its mortgage relief plan, which was another little positive.
The SPI Overnight rose 72 points.
Enjoy it while it lasts.
Breaking news: ASIC has decided to extend the short selling ban on financial stocks in Australia until May 31st.
