Daily Market Reports | Jun 18 2009
By Greg Peel
The Dow closed down 7 points or 0.1% while the S&P lost 0.1% and the Nasdaq gained 0.7%.
After two days of solid slides, Wall Street settled somewhat last night. The market was volatile but only in a tight range of down 43 to up 59 in the Dow. Focus last night returned to the banking sector, which has been taking a bit of a back seat to materials and other sectors recently.
President Obama unveiled his proposed regulatory reform bill, which held no surprises either fundamentally or based on earlier leaked information. (See Monday’s Overnight Report ). Basically, two new layers of regulation will be placed over existing layers, with a focus on consumer product level controls on the one hand and overall market systematic risk controls on the other. Supporters of the legislation call it a necessary move in order to prevent the excesses of the past from happening again. Critics say it’s just two more layers on top of several existing and disparate regulatory bodies, and that those bodies have already clearly failed. A more sweeping reform and consolidation is necessary, they suggest.
The banking sector was weak on the day, but not so much due to the unsurprising reform proposals. Ahead of Obama’s speech, ratings agency Standard & Poor’s downgraded the credit ratings of 18 “big” US banks, suggesting increased regulation amidst ongoing volatility will hurt an already weakened sector. Although the 18 were at the larger end of the market cap scale, only Wells Fargo was singled out among the more prominent names.
In the meantime, 10 of the more prominent names completed their total US$68bn in TARP repayments last night. The group included JP Morgan, Morgan Stanley, Goldman Sachs, Amex and State Street but not Wells Fargo, nor Citigroup or Bank of America.
On the economic data front, the May CPI was expected to show an increase of 0.3% but managed only 0.1%, echoing the weaker PPI released on Tuesday. The core (ex food & energy) also came in at 0.1%, but that was as expected. Retail stocks had already taken their hit on Tuesday as a weak PPI signalled suppressed demand for goods. As the CPI was not too shocking, that sector actually saw gains on the day after big falls.
FedEx was a party pooper last night. The parcel delivery company, considered a valuable indicator of general economic health, reported a much greater than expected quarterly loss. Although the result included some one-offs, FedEx warned the next two quarters would be “extremely difficult”. On a brighter note, however, the company did suggest the worst of the downturn appears to be over.
The weak CPI sent the US dollar lower once more, falling to 80.23 on the index. Gold ticked up another US$3.10 to US$937.80/oz, while the Aussie trod water at US$0.7941.
It was options expiry day on the Nymex, leading to volatility in oil trading. The theme of recent weakness saw oil trade as low as US$69.00/bbl in electronic trade early on, but a weaker dollar and the weekly inventory data reversed the flow. A bigger than expected drop in crude supplies met a big jump in gasoline supplies, but the latter was tempered by the Energy Administration’s gasoline demand number – up 1.1% from the same week last year. Oil finished up US56c at US$71.03/bbl.
Base metals also began weaker but pared back losses as Wall Street stabilised. Only aluminium made a move of any significance, rising 2.5% in the face of yet another record inventory announcement. It is understood there is a very big short position in aluminium out there.
The SPI Overnight fell 8 points or 0.2%.
