Daily Market Reports | Jul 01 2009
By Greg Peel
The Dow fell 82 points or 1.0% to close the quarter under 8500. The S&P fell 0.9% to 919 and the Nasdaq fell 0.5%.
The S&P 500 finished the quarter up 15% – its best quarterly performance since 1998. The Dow finished up 11%, having replaced two of its non-performing constituents along the way, and the Nasdaq starred with a 20% rise. The final session was hit by one piece of data. The indices fell for half an hour from 10am and then flatlined for the rest of the session.
The US consumer confidence readings for April and May had been very strong, helping to fuel the rally. As to whether confidence was strong because of the rally or the rally was healthy due to positive consumer confidence is a case in point. But the fact remains that June has been a flat month for stocks, but not for gasoline prices. It is not that surprising the confidence surges of April and May should wane somewhat.
The consumer confidence index fell from 54.8 in May to 49.3 in June, with “difficulty in finding a job” a pervasive factor. The fall below 50 was symbolic of a slip back into wary mode, although the long-run average of the index is actually 70. These numbers are still very low as a whole.
The consumer measure overshadowed other more positive data released last night. The Chicago purchasing managers’ index registered 39.9 in May and economists were hoping for a rise to 39.0. The result of 39.9 was positive, but anything under 50 definitely means contraction in this measure. There’s still a long way to go.
The Case-Shiller 20-city home price index fell another 0.6% in April, for a fall of 18.1% year-on-year and a 33% fall from the peak. While this news is hardly encouraging, what was encouraging is the magnitude of the monthly drop. The March drop was 2.2%, and Case-Shiller acknowledges that the pace of contraction appears to now be slowing. This “less bad” result is reminiscent of the original “green shoots” which sparked the rally, rather than the fruit trees Wall Street has been expecting more recently.
One thing is fairly clear – there will not be a rush back into economic strength and fresh boom times. The “V” will not be completed. For the next couple of weeks, barring any shock economic data, Wall Street will probably go into summer hiatus as it awaits the beginning of the month-long quarterly result season.
There was not great news across the oceans last night either. Japanese unemployment rose to 5.2% in May – the worst level in five years for a country which prides itself on “full employment” and employer/employee loyalty. That result was, however, tempered by news that Japanese retail spending finally posted a monthly rise after 16 months of falls. Over in the UK, first quarter GDP was revised down from the 1.9% contraction estimated last month to a 2.4% contraction – the worst quarterly contraction since 1958. There was no good news.
This again puts Australia’s first quarter growth into context, but we have entered FY10 with no resolution yet on Chinese iron ore prices.
A weaker stock market in the US had the US dollar fighting back last night, rising 0.4% to finish the quarter at 80.19 on the index. The dollar is 6.4% lower for the quarter. Gold fell US$11.50 to US$925.90/oz on US dollar strength, while the Aussie again moved only slightly to US$0.8064.
Oil behaved normally for once, although not before hitting an intraday high of US$73.38/bbl – its highest level in eight months. Oil eventually fell back on consumer confidence, dropping US$1.60 to US$69.89/bbl.
Base metals prices all fell around 1-2%.
June has been a month featuring a lot of focus on the US 10-year Treasury bond. The yield on the bond peaked at 4.0% early in the month when inflation fears were at their most urgent, based on spiralling US debt, but finished the quarter at 3.5% as such fears eased on apparent ongoing disinflation, brought about by the very slow pace of what may or may not be economic recovery at this point – and on the world’s apparent ongoing willingness to lend the US bucket loads of money.
Another measure to make note of at the end of the quarter is the VIX volatility index, which closed the quarter meaningfully below the psychological 30 mark at 26. It has only been in the last week or so that the VIX has finally eased. While this can be taken to represent an easing in general market fear, it can also be a sign Wall Street might be becoming a bit complacent. Were the VIX to fall below 20, it would certainly be a warning sign of the latter.
After a strong books-close on the local bourse yesterday, the SPI Overnight fell 24 points or 0.6%.
Happy New Year.
