Daily Market Reports | Apr 29 2009
By Greg Peel
The Dow fell 8 points last night or 0.1% while the S&P and Nasdaq each fell 0.3%.
The Dow fell 87 points on the opening bell last night but was back in the green 30 minutes later. It traded mostly sideways before rising to be up 66 points at 2.30pm but then retreated. Trading was quiet ahead of tonight’s first estimate of US first quarter GDP and the Fed’s FOMC meeting. The former is a number that has the capacity to be revised – dramatically – several times in coming months. The current estimates are around negative 5%. In the latter case, there will be no rate change but the Fed might pull some other rabbit out of its hat.
Apart from going quiet ahead of a major economic release, sideways drift tends to imply some level of indifference. That is not, however, the case on Wall Street at present. It is more a case of an equally-matched battle of wills between the bulls and the bears. The VIX volatility index refuses to fall much lower than 38 and that is still a historically high level. This implies the non-believers are still paying up to buy put option protection. In other words, risk aversion is still heightened.
The initial drop on the bell can be largely put down to swine flu. More cases were recorded overnight and just after the bell yesterday the World Health Organisation moved its pandemic risk alert from 3 to 4. Apparently 4 means a pandemic is “likely but not inevitable”, which implies, one assumes, that 5 means “inevitable” and 6 means “bring out your dead”.
But while doctors’ waiting rooms across the globe may now be crowded with those with a slight cough, Wall Street is not panicked. It prefers to ignore swine flu and focus back on “less bad”.
The Case-Shiller 20-city house price index fell 2.2% in February to an 18.6% twelve month decline. That’s the thirty-first consecutive month of decline. However in January prices fell a record 2.8% for a 19% yearly decline. Less bad.
The Conference Board measure of consumer confidence leapt from 26.9 in March to 36.2 in April – the fourth biggest one-month gain in the 32-year history of the gauge. The number of consumers saying conditions were “bad” fell from 51% in March to 45.7% in April, suggesting more people are now positive rather than negative about life. However, the number suggesting conditions were actually “good” only rose from 6.9% to 7.6%. One might say there’s an indirect connection here to a VIX of 38.
The shock of the day came from IBM which, despite releasing an indifferent quarterly result last week, announced it would raise – yes raise – its dividend by 10% and also buy back US$3bn in stock. An IBM executive citied “the strengthening of our business” as the reason for the dividend hike, but when you consider the company has increased its dividend thusly for the last 14 years in a row there is an element of reverse psychology here, methinks. If this was the first year IBM didn’t raise the div, what signal would that send?
Germany’s investment bank powerhouse Deutsche Bank announced it made a profit of 1.2bn euro in the first quarter compared to a loss of 131m euro in the first quarter last year. The bank cited revenue from bond sales and trading as the big contributor, although further write-downs were also taken on exposures to bond insurers.
Deutsche did little to inspire the American banks, as a Wall Street Journal report suggested both Bank of America and Citigroup would have to go back to the government for even more capital after the release of the stress tests. The two led the banking index down another 3% last night. Wall Street can’t wait for May 4 to arrive to put an end to all this stress.
After jumping on swine flu fears yesterday, the US dollar drifted off again last night. Commodities did not reverse however, with oil drifting another US22c lower to US$49.92/bbl. Base metals attempted to make another big dive in London last night, but once again, as Wall Street recovered, so did metals fight back. Copper, lead, nickel and tin nevertheless closed 3-4% lower.
Gold took a dive last night, dropping US$12.80 to US$893.40/oz. Gold had recently jumped back above US$900 as the safety trade kicked back in, mostly driven by stress test stress, but also helped by a bit of swine fever. Given the swine factor is having little impact on Wall Street, the safety trade is waning. Throw in the news over the weekend that China had bought a lot of gold domestically without moving the market, and that factor is gone as well.
Gold demand is thus dropping off again, but another factor to consider is that the Akshaya Tritiya holiday has now ended. This Indian religious festival usually sparks gold jewellery demand, although demand has not been strong at these levels. Either way, the end of this season marks the beginning of the dark zone for gold – several months of jewellery demand vacuum.
The Aussie slipped back a bit under half a cent to US$0.7067 last night despite the weaker greenback.
The SPI Overnight managed to add 29 points or 0.8% to shrug off any Wall Street vacillation.
