Daily Market Reports | Sep 22 2009
By Greg Peel
The Dow closed down 41 points or 0.4% and the S&P lost 0.3% to 1064. The Nasdaq, however, rose 0.2%.
Friday was option expiry day in the US – a day which will always draw a big jump in volume and is usually directionally meaningless as traders with long and short options positions battle it out to push stock prices back and forth across exercise prices. Volumes of shares traded on Friday on the NYSE reached 2.3m and directionally we had a small down.
With that out of the way, Wall Street opened decidedly weaker last night in a session that would only see 1.2m shares trade hands. Tonight the two-day Fed FOMC meeting begins ahead of an announcement at 2.15pm Wednesday, and then on Thursday the two-day G20 leaders meeting begins in Pittsburgh. This week will be a bit of a waiting game as traders shy away from taking big risks either way ahead of any major announcements.
As far as the Fed meeting’s concerned, there is no doubt the funds rate range of zero to 0.25% will be maintained as the Fed has indicated clearly the rate is in place “for an extended period”. Wall Street will also be looking for an economic update within the accompanying statement but given Ben Bernanke last week declared the recession “likely over”, there is not much chance of any surprise there either. What Wall Street will be looking for, again, is any hint of an “exit strategy”.
We know that the Fed is maintaining its original quantitative easing volume intentions, but backing off the frequency and extending the expiry date. Wall Street suspects the Fed might this week suggest a similar alteration to its mortgage security buying program, given clear evidence of at least a slowing in the housing market retreat and a relaxation of tight credit markets. But what Wall Street would really like to know is when the Fed will raise its funds rate. If Bernanke is particularly upbeat about the economy, then it’s time the “extended period” for zero rates was defined.
Wall Street has been waiting for such an announcement for a while now, and won’t necessarily get one on Wednesday. In the meantime however, there is little point in taking a big risk on the US dollar. The world is currently very short US dollars, and any little trigger could start at least a temporary but sharp correction rally. Such a trigger could come from any exit strategy talk, and thus traders were more inclined to buy the US dollar last night to square rather than maintain risk positions.
The same can be said of the G20. It is unlikely anything important will actually be resolved at the G20 meeting itself – it never is – but motherhood statements are usually issued after the event to imply solidarity over one thing or another. The G20 finance ministers recently indicated their ongoing commitment to fiscal and monetary stimulus, and the leaders are expected to do the same this week. However if, again, there is any mention of exit strategies, there could be a resultant move in the dollar. There might also be a move in the US dollar based on any other statements made with regard to reserve currencies etc.
As we know, the US dollar has recently been in a near perfect negative correlation with the stock market as money leaves the “safe haven” for the “risk trade”. Last night the stock market opened weaker and the dollar stronger, but as to who was leading who is unclear. The rising dollar pushed commodity prices lower to influence stock market weakness, but the stock market is independently also a bit skittish at this level, ahead of this week’s developments, given how far it has run.
It looked a bit ugly from the open, with the Dow falling 95 points. The US Conference Board chimed in with its index reading of leading economic indicators from August, which showed a rise of 0.6%. This was slightly shy of economist predictions of a 0.7% rise, but given it was the fifth consecutive monthly increase it was positive nevertheless.
But is it “new” news? With all and sundry, including Bernanke, declaring the US recession over we are again looking more at confirmation than another reason to push the market higher. This is exactly the mood that developed a few weeks ago when Wall Street also looked weak, and ready for a pull-back, but the pull-back only lasted five minutes. If all goes well this week we might see another push to the upside. If we do see a pull-back, it will again likely not be substantial.
Nevertheless, what might have been an ugly day was ultimately saved by the tech sector. Computer giant Dell announced a takeover bid for smaller Perot Systems, sending Perot’s shares up over 60% on the day and encouraging wider buying in tech. The Nasdaq response served to dampen weakness in the broad index, such that the final close was not as bad as the morning might have been suggesting.
The US dollar index closed up 0.5% to 76.79, sending gold below US$1000/oz. But gold managed to rally later with stocks to close at US$1003.50/oz – down US$3.50 from Friday.
Base metals were similarly weak early in London, before the stock market and US dollar reversed somewhat to affect a similar bounce in metals. Aluminium was the worst performer with a 2% fall, but the other metals did not exceed 1% movements, and copper actually finished 0.5% higher.
Oil was a bit more emphatic, falling another 3% or US$2.33 to US$69.71/bbl. Aside from specific dollar movements, Nymex traders are currently questioning actual oil demand at levels over US$70 in the current climate.
The SPI Overnight fell 15 points or 0.3%.
The local market was a bit undecided yesterday, but like Wall Street it wasn’t too keen to buy. With little in the way of economic data releases locally we might be in for a quiet time until at least Thursday, post-Fed, notwithstanding any out-of-the-blue announcements.
It is the equinox today (cue Twilight Zone theme).
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