Daily Market Reports | Nov 17 2009
 By Greg Peel
The Dow rose 136 points or 1.3% while the S&P jumped 1.4% to 1109 and the Nasdaq also added 1.4%.
The mood began positively on Wall Street last night following strong gains in Asia in response to the Japanese third quarter GDP. Japan’s economy beat all expectations last night by showing 4.8% growth in the third quarter off the back of 2.7% growth in the second. The surprising result was accredited to a solid rebound in the domestic economy.
And the mood on Wall Street continued to brighten on the release of the October retail sales number, which showed a 1.4% gain compared to 1.0% consensus expectation. Just after 10am, the Dow was up 130 points. More importantly however, at the same time the S&P 500 broke through its previous post-GFC high in a big way, putting to rest any notion of a double-top. At 1109 the S&P has closed not only above its previous high close but also above its previous intra-day high, suggesting blue sky ahead.
While the retail sales number was met with cheers on Wall Street, economists noted the underlying numbers were not quite as great as they seemed. Economists had expected a big bounce in auto sales in October (the numbers are seasonally adjusted) following the 14.3% plunge in September, which in turn followed the cash-for-clunkers expiry. And bounce they did – more than expected at 7.4%. This left retail sales ex-autos up 0.2% for October when economists had expected 0.3%. Take out the artificial ebb and flow of auto sales and general retail sales are still rather tepid.
Business inventories nevertheless gave cause for excitement, falling 0.4% in October. Inventories had fallen 1.5% in September to continue many months of destocking, and economists were expecting a 0.7% fall in October. That the figure was only a 0.4% fall implies that the cycle may well now be turning. For all of 2009, the bulls have been staking a lot on an eventual need for businesses to restock their inventories, thus driving the economic rebound. This was taken as good news.
Realistically it was all over on Wall Street after half an hour. There were some minor fluctuations throughout the session, but a close of up 136 on the Dow showed little further conviction.
Just after lunch, the world had held its breath. Fed chairman Ben Bernanke was delivering a speech to the Economic Club of New York. In it he reiterated his low interest rate policy stance and his belief that economic growth would be positive but moderate, and his belief that inflation thus posed no threat. Wall Street was once again able to tick the “no interest rate rise” box.
Where does that leave the US dollar? It is not the practice of the Fed to comment on the dollar – that responsibility is usually left to the Treasury Secretary. However Bernanke is clearly fully aware of the dollar weakness encouraged by his low interest rate policy. To that end he offered without provocation that the Fed was “attentive to implication of changes in the value of the dollar” and that the Fed would “help ensure that the dollar is strong and a source of global financial stability”.
At that point, when the US dollar was already weak on the day due to the stock market surge, the greenback spiked up on short-covering. Was Bernanke implying central bank intervention? Funnily enough though, the stock market did not turn tail. It was just as well, because a Q&A session following Bernanke’s speech drew a surprising comment. When asked whether he thought a weak dollar was causing a dangerous asset price bubble (in stocks and commodities) Bernanke pointed out that the dollar was no weaker now than it was in 2008. It was subtle, but Wall Street took the implication to mean “I might say we’ll support a strong dollar but we don’t see any reason to support it just yet”.
So the US dollar immediately returned to weakness on what was considered a green light from the Fed to keep selling. The dollar index closed down half a percent to 74.91 and the stock market held on to its gains to the close.
In commodity markets however, the moves were more extreme.
Oil was already provided impetus by the Japanese GDP, US retail sales, inventories, and also the Empire State activity index which remained in expansion territory despite a small drop from October. The weaker US dollar and Bernanke’s green light did the rest. Oil was up 3.3% or US$2.55 at US$78.90/bbl.
Gold jumped another US$20.60 to US$1137.70/oz, while silver surged 5% to US$18.34/oz.
Having spent the past several sessions in the indecisive doldrums, base metals suddenly sprung back into life as technical traders moved in and options expiries forced some covering. With the exception of tin, all metals exploded to the upside. Aluminium, nickel and zinc added 4% while copper and lead added 5%. Such a move in copper is rarely experienced, and the bellwether metal is now back at 14-month highs.
The Aussie responded with a 0.3% gain to US$0.9363 and the SPI Overnight joined the party, jumping 49 points or 1%.
The ASX 200 closed yesterday at 4755 – still 104 points or 2% shy of the earlier 4859 high. Having corrected harder than New York, the local market has further to claw back than the S&P 500 before blue sky can be seen. Today the index might give it a red hot go.
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