Daily Market Reports | Mar 25 2009
By Greg Peel
The Dow lost 115 points or 1.5% while the S&P lost 16 points or 2% to 806 – not far above the 802 technical break-out point. The Nasdaq lost 2.4%.
The Dow opened nearly 100 points lower, which is unsurprising given the near 500 point surge of exuberance posted on Monday. It managed to rally into the positive around lunch time nevertheless, but met sellers once more. The bulk of the afternoon selling came in the last half hour. Given the Dow jumped an extra 100 points in the last half hour on Monday, if you take out the last minute scramble trades on both days you’re left with a simple up 400.
We thus return to our oft mentioned history of sharp rallies. Day One after a sudden strong rally is almost always one of profit-taking. The confirmation of a sharp rally thus falls to Day Two. If Day Two is positive then the rally might have legs (even better if Day Three is also). If Day Two is negative then chances are the rally will fail. But we are also looking at this micro-rally in the context of the lager macro-rally which began over a week ago. The S&P is still up 20% from its lows on last night’s close.
A loss of 100 points last night failed to dampen the return to a bit more confidence. Hence it is possible to see this rally continue into April and maybe even May, but it could still do so as only a bear market or “sucker’s” rally. There was some more good news on the US housing front last night however, with the government measure of house prices jumping 1.7% in January (seasonally adjusted). The latest housing market numbers are also providing a bit more confidence, but every day yet another listed company announces hundreds or thousands of lay-offs. Growing unemployment does not help house prices to rise.
What was probably most notable last night was activity outside the stock market. Basically everything that has been happening over the last week or two has gone into reversal mode.
The US dollar has been trashed ever since the Fed announced it would commence quantitative easing. Last night the dollar was stronger against all currencies (except the pound – more on that in a moment). The Aussie gave back a cent to US$0.6943. Gold had surged briefly on inflationary effect of quantitative easing but last night saw another pullback, down US$14.30 to US$925.00/oz.
Base metals in London were rather disappointing. On Monday the moves were mostly to the upside along with stock market exuberance but not remarkably so. Last night all metals gave back ground and some fell to below Friday’s levels. Nickel was only down slightly but all of aluminium, copper, tin and zinc lost 1-2%. Lead lost 5%.
Base metals have been rallying strongly since the US dollar collapsed last week, driven by the inflation trade but also by some pretty frantic short-covering. Market commentators now suggest shorts that needed to be covered have been, leaving only reality left in prices. The reality is no fresh real demand, and also a US dollar that has clawed back some ground.
Oil managed to hold its ground to some extent nevertheless, falling only US23c to US$53.57/bbl. Expectation is that tonight’s release of weekly inventories will show a fall in gasoline and heating oil inventories. Last week the market got a shock when these inventories rose. Given the weekly inventories are ridiculously volatile, only the day-traders in the Nymex pit put much stake in weekly fluctuations as opposed to bigger picture trends.
The SPI Overnight fell 25 points or 0.7%.
There was surprise in the general media last night that the S&P 500 jumped 7% overnight but the ASX 200 managed only a paltry 0.8% rally. Bless ’em. What the general media, in its typically ignorant way, failed to realise is (a) news of the Geithner plan was leaked in the US on Sunday, allowing Australia to react in anticipation with a 2.5% jump on Monday ahead of New York; (b) the ASX 200 put on another 2.5% jump in early trade yesterday and thus provided perfect opportunity for some profit-taking; and (c) the Australian market has been far less volatile than the US market of late (we don’t have bank stocks trading at $1) and had not fallen as far this time around, hence (b).
The reason why the pound defied other currencies and rose against the US dollar last night was the release of the UK CPI for February. Economists had expected a 0.2% rise but got a 0.9% rise. This means that annualised inflation is growing at 3.2% and not 2.5% as expected.
The point of interest here is that while all the focus has been on the US and its quantitative easing, bank rescues and seemingly endless flow of support packages, the UK had already began quantitative easing a while back, has all but nationalised half of its banking system, has cut its interest rate to the lowest level in 300 years, and basically has been throwing a whole lot of printed pound notes at its economy just as the US has been doing. Is this reflation policy now showing up in the inflation numbers?
