Daily Market Reports | May 15 2009
By Greg Peel
The Dow closed up 46 points or 0.5%. The S&P added 1.0% to 893 – still shy of the 900 technical level. The Nasdaq jumped 1.5%.
Wall Street posted an up-day last night after three days of pretty solid selling. The “selling” over the past three days has been largely related to new capital issues across the broad market and particularly from the banks. Last night was suddenly a quiet one in terms of such secondary offers, although that’s not to say the raisings are over. Some buying came in to what might be considered “bargains” in terms of the pullback from the peak, but volume was suddenly quite low and the rally lacked any real sense of conviction.
Given increasing fear that the wider rally has been overdone, Wall Street did nevertheless hold up pretty well. The indices were on the positive side of the line from almost the open and the Dow managed to rise 92 points at its high. The S&P reached as high as 898 but as the session drew to a close, interest faded.
Wall Street did, however, manage to shake off the weekly new jobless claims number which came in at a higher than expected increase of 32,000 to 637,000. There are now a record (they’re all records) 6.56 million Americans actively looking for a job. Weekly job figures are volatile, but after Wednesday’s retail sales number rather broke the spell of “green shoots” and “less bad” one might have expected a larger than expected jump in jobless claims might have been more cause for panic, particularly given last Friday’s surprisingly “good” jobs figure.
Retail chains are currently reporting their first quarter sales results, and those results have been mixed but not too bad. High-end chains such as Macy’s have copped it, but the discount store end has provided investors with some optimism. Last night the granddaddy of the low end – Wal-Mart – posted flat sales and second quarter guidance that was in line with expectation. A couple of weeks ago this would have been seen as a “less bad than perhaps it might have been” result. Last night Wal-Mart was sold down 1.9%.
The April producer price index was released but caused no anguish. The headline PPI jumped a higher than expected 0.3% due to higher food costs, but the core PPI rose only 0.1%, suggesting wholesale inflation is steady. A big fall in this number would allude to dangerous deflation. A big rise might portend monetary inflation. Flat is thus good, however one must consider just how hard commodity prices rallied in April. This effect may not come in until the May numbers, but a flat PPI in the face of strong commodity prices does rather smack of deflation in wholesale goods prices.
It’s a big night tonight for economic data. It’s also a Friday, and Fridays are often when traders square up ahead of the weekend. Are they long?
Tonight sees the release of the CPI, industrial production, capacity utilisation, long term US dollar fund flows, the New York state manufacturing index and the Michigan Uni consumer confidence measure. It also sees the release of the EU CPI and the latest update of EU first quarter GDP.
But the most critical aspect of tonight’s trade is that it is stock option expiry day.
The VIX volatility index has now fallen to 31. While 31 seems very low in the context of the numbers reached since October last year (as high as 90), in historical terms a 31 reading still implies a large amount of put protection has been acquired. In the same rally this time last year, the VIX fell into the teens as the market breathed a sigh of relief after Bear Stearns. This time last year, 30 was considered a high number.
Unsurprisingly, it is the bank stocks which have drawn the most put option interest. The market has bought up the bank index to over 80% above its lows but wary traders have bought insurance along the way. If they decide to reinstate that insurance past the May expiry, market-makers will need to sell stock into a more fragile market.
The US dollar fell back again last night after its spurt on Wednesday. The Aussie leapt back up 0.7 cents to US$0.7600. There was very little action in commodities. Gold added US20c to US$926.20/oz while base metals in London were mostly unchanged.
Oil was a bit more lively nevertheless. The International Energy Agency announced a revised forecast for 2009 oil demand of 2.6m barrels per day lower than 2008. This is a 200,000 barrel greater loss than the agency forecast in April. Oil fell sharply on the news but rallied back as the session progressed, spurred on by a weaker US dollar and a stronger stock market. It closed up US60c to US$58.62/bbl.
Whatever’s driving oil at the moment it certainly isn’t increased demand.
The SPI Overnight rose 11 points or 0.3%.
Yesterday’s big sell-off in the ASX 200 saw a fall to 3723, and there was no support offered as the market crashed back through that January high of 3779. This means that level again becomes a resistance point just as 900 is significant in the S&P 500. Above that, 3941 is the rally high. If this rally still has legs that number has to be taken out convincingly. It’s 5.8% away.
