Daily Market Reports | Oct 14 2009
By Greg Peel
The Dow closed down 14 points or 0.2% while the S&P lost 0.3% to 1073 and the Nasdaq was steady.
While not irrelevant, last night’s session on Wall Street was mostly a quiet one in which traders shied away from taking big bets ahead of the September quarter result from Dow component Intel, released after the closing bell. Intel’s result is considered important because the company is the world’s largest chip-maker and has ancillary businesses in computers and software. It is a bellwether for the “new world” of information technology and is a major US exporter.
Intel didn’t disappoint. Wall Street had expected earnings of US28c per share on revenue of US$9.04bn but the result came in as US35c and US$10.22bn. The gross margin figure also came out a winner and December quarter guidance was sufficiently upbeat. The result was actually down 8% year on year but the point is not what the nominal profit result is, the point is whether or not it is better than expectations.
We can’t yet tell what the after-market reaction is in Intel shares because the company has gone into a trading halt pending an analyst conference call. But one assumes the reaction will be positive despite the shares being up 70% from their lows.
Wall Street opened lower in last night’s session as financial stocks took an early tumble. Banks have been a leadership group in the rally’s recent surge on expectation of strong earnings, but last night poster-girl bank analyst Meredith Whitney downgraded flagship Goldman Sachs from Buy to Neutral and sparked general profit-taking across the sector. Whitney also reduced her earnings estimates for Bank of America and Citigroup. All three banks repost this week, along with JP Morgan.
Whitney had moved the bank sector to Buy following the June quarter but by last night her last remaining Buy rating was Goldmans. With it downgraded, Whitney is now Neutral on the financial sector overall, deeming the recent rally to have fairly priced the relevant components.
The Dow fell 70 points in the first half hour but stumbled back up to the flat line by lunch time. While Italian traders were back sporting hangovers, volume was nevertheless comparatively light and overall the market seemed tired. Adding to weakness was the result from consumer staple Dow component Johnson & Johnson which beat on earnings but, unlike Intel, missed on revenue. This implies cost-cutting is behind the better earnings result, rather than improved consumer spending.
America’s third largest rail company, CSX, reported a 23% drop in profit but suggested the worst of the recession was now past. CSX beat on earnings and matched revenue expectations.
The bond market was back from its holiday, and quickly responded to comments by Fed vice-chairman Donald Kohn that US economic recovery would be moderate in the rest of 2009 before finding some strength in 2010. This sent the two-year Treasury yield dropping 7bps to 0.9% – its biggest day’s fall in four months. It was a curious reaction given Kohn was only reiterating what Bernanke has said several times now, but it goes to show there remains scepticism at this level of the risk-rally, forcing investors into continuing to favour bonds at negative real rates.
Aiding the stock market’s mid-session recovery was our old friend the weak US dollar, which fell to a 14-month low of 75.80 on its index before bouncing sharply (and suspiciously) at 2.30pm. This led gold to a new high above US$1068 but the late dollar recovery had gold closing at US$1062.20/oz, up US$6.90.
The Aussie was also higher in the session on US dollar weakness but settled back on the death to be slightly lower at US$0.9054.
Elsewhere in commodities there was a general dislocation. Oil responded to the weaker dollar but was also buoyed by a global demand upgrade from OPEC. The cartel suggested 2009 demand would average 84.2m barrels per day, up 200,000 barrels from its previous estimate, but still representing a decline of 1.4m barrels from 2008. OPEC added 700,000 barrels to its 2010 estimate. Oil thus finished up US88c to US$74.15/bbl.
It was a very different story in London nevertheless. Base metals did try to struggle higher on early US dollar weakness, but even as the greenback was heading for its lows, the tide suddenly turned. News out of Chile was that the expected miner strike may not occur, and that sent copper south by over 2%. This sparked a rush of selling from commodity funds, apparently now concerned they may have pushed things just a little too far.
Aluminium fell 1%, tin 2%, nickel and zinc 3% and lead 4%.
Ah hah. Intel has come out of its trading halt and as I write the shares are up 5%. This will set the tone for a positive opening on Wall Street tonight, all things being equal.
After another strong day yesterday on the local bourse, the SPI Overnight is down 13 points or 0.3%.
Today in Australia sees the release of the monthly Westpac consumer confidence measure. However, judging by the way the market shrugged off a slight dip in business confidence yesterday, one assumes its impact may be muted either way.
Tonight in the US sees retail sales, along with quarterly results from Intel’s main competitor Advanced Micro Systems, as well as Citigroup, Goldmans, Google and IBM. One might call it an “anything could happen” night.
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