Daily Market Reports | Jul 02 2009
By Greg Peel
The Dow closed up 57 points or 0.7% while the S&P managed only a 0.4% gain to 923 and the Nasdaq added 0.6%.
Wall Street managed to put in a more positive start to the quarter than Australia managed yesterday for the new year. I did warn, however, in this week’s The Week Ahead not to pay too much heed to trading activity surrounding year-end. While news services scrambled for economic data releases and Wall Street lead-ins to explain the up 68 for the ASX 200 on Tuesday followed by down 80 on Wednesday, the reality is fund managers bought stock they didn’t want on Tuesday – in order to dress up annual returns as much as possible – and then sold it immediately yesterday. The two-day net result was down 12, and realistically it is more sensible to consider today to be Day One of new year trading.
All the action on Wall Street was again limited to the first hour last night as the market responded to economic data. The Dow shot up 133 points but then waned gradually on holiday-light volumes for the rest of the session. There was also little desire to take a big punt ahead of tonight’s jobs report.
The Institute for Supply Management announced its index of manufacturing activity rose in June to 44.8 from 42.8 in May. Economists had hoped for a number above 45, but the quiet tick up towards the 50 neutral mark, above which the sector is deemed to be growing again, was well received. The index has been rising since the 28-year low mark of 32.9 in December.
The National Association of Realtors announced its index of pending home sales rose 0.1% in May, when economists had expected a drop. This is the fourth straight month of increases, and another part of the “green shoots” story.
The unofficial ADP jobs survey nevertheless brought a dose of reality, assuming it is accurate. ADP said 473,000 jobs were lost in the private sector in June. Official job losses (non-farm but including the public sector) were a surprisingly low 345,000 in May and economists had pencilled in an even lower 325,000 for June, but the ADP number let a lot of the wind out of the sails.
Wall Street puts an awful lot of focus on jobs numbers, for obvious reasons, but the truth is companies don’t line up to sack people in an orderly fashion in a recession. There is no reason why the number can’t fluctuate from month to month, and revisions often follow anyway. But what is important is the trend, and while May’s number suggested the pace of losses might be slowing, more than one month’s data will be needed for confirmation.
Wall Street was still feeling net positive in the wash-up, and assistance was provided by yesterday’s healthy Chinese PMI release. In Japan, the quarterly Tankan survey showed the first improvement in manufacturing sentiment since December 2006 as the index rose from negative 58 in March to negative 48 in June. Zero is obviously where pessimism turns to optimism, so it’s early days yet.
After the bell, more good news was hinted at by an IMF representative being interviewed by CNBC. He let slip that the IMF’s global economic forecast would show an upgrade in its release on July 7 due to better than expected improvement in emerging markets.
The stronger economic data were enough for risk to be embraced once more, and this usually means weakness in the US dollar. The dollar index fell back 0.7% to 79.65, falling heavily against the euro. The ECB holds a monthly monetary policy meeting tonight, and traders suggest that if Jean-Claude Trichet announces the ECB is happy with policies currently in place, and no intention to step up easing measures, the US dollar will fall further against the euro.
The weak dollar allowed gold to pick itself up again, rising US$14.40 to US$940.30/oz. The Aussie was slightly stronger at US$0.8082 having battled with mixed local data yesterday.
Base metals were unleashed into the new year on the weaker US dollar and stronger global manufacturing data, belying yet another increase in inventories. Aluminium and tin shot up 2%, copper, lead and zinc 3% and nickel 6%.
Oil tried to join the party, but for the second session in a row was scuppered by market-specific forces. Weekly inventory data showed demand remains weaker than was hoped. Opinion is growing that oil has run ahead of itself in reaching over US$70/bbl (the June quarter saw a 41% gain – the biggest in 19 years) and that a short term correction is on the cards.
The SPI Overnight rose 16 points or 0.4%.
