Daily Market Reports | Nov 20 2009
By Greg Peel
The Dow closed down 93 points or 0.9% while the S&P lost 1.3% to 1094 – back under the psychological 1100 level – and the Nasdaq lost 1.7% following a broker downgrade of the chip sector.
Wall Street plummeted from the opening bell last night following the release of economic data. The Dow was down 170 points at 10am before spending the rest of the session clawing back losses. The US dollar initially followed stocks, then turned tail and rallied up to 75.55 on the index before drifting back to 75.30 – up 12 ticks. While the dollar-stock relationship looked a bit more like that which we’ve become used to last night, the inverse relationship was still a bit shaky. Volumes on the NYSE were once again low.
Current jitters are all about the US housing market. This week we saw the housing industry sentiment index stall after months of improvement, and monthly housing starts plunge 10.6%. Last night the Mortgage Bankers Association added to the woes, announcing that as at the end of the September quarter a record one in seven US mortgages were either in foreclosure or behind at least one payment. Loans in foreclosure rose to 1.42% from 1.36% in June, while adding in delinquencies took the number to 14.4% and the highest level since 1972.
No prizes for guessing what’s behind the delinquency jump. The MBA expects the numbers to continue to increase into 2010 in line with increasing unemployment. The bulls shrug the data off on the basis unemployment is a lagging indicator, but a housing recovery is vitally important to overall US economic recovery and more and more homes for sale will not help.
From the leading indicator perspective, the Conference Board announced its index of leading economic indicators rose 0.3% in October. The index has now been on the rise for a while but September’s figure was 1.0% and economists had expected at least 0.4% in October. It is nevertheless a bit pointless the stock market reacting to the index given the stock market makes up a large proportion.
There was some good news, but mortgages took the limelight. The Philadelphia Fed economic activity index rose to 16.7 this month from 11.5 last month when economists were expecting only 12.0. This is a zero-neutral index and is a popular indicator given the intensity of industry in the region.
The weekly new jobless claims numbers, for what they were worth, came out flat when a fall of 5,000 was expected, just to reinforce the unemployment issue.
Among the commodity spectrum, oil showed the only meaningful response last night. The US dollar ended only slightly higher but oil fell US$2.12 to US$77.46/bbl despite a slight drop in weekly inventories. Mortgage delinquencies do not bode well for consumption.
Gold finished barely moved at US$1144.60/oz while base metals were moderately weaker, with 2% falls in nickel and zinc the highlight.
The Aussie dollar copped a hiding last night however, falling a full cent in 24 hours to US$0.9186. With the US dollar stuck around 75 on its index and Wall Street finding it difficult to establish any real trend near its highs, patience seemed to run out a bit last night. And there remains a debate as to whether or not the RBA will raise in December.
All talk on Wall Street is now focusing on the prospect of a “double-dip”. If one wishes to pay any attention to supposed definitions, having posted a 3.5% increase in the September quarter the US economy would have to see negative growth in both the December and March quarters to officially return to “recession”. Economists are nevertheless expecting the December quarter, at this point, to show 2.3% growth, which would then push any double-dips out to mid-2010.
But if one sensibly ignores such definitions, the fact remain that expectations for December growth are below those of September and with unemployment rising the possibility of a weak number in March remains strong. Thus while the US economy may not double-dip all the way back to recession, it will most likely dip nonetheless. Moreover, even the Fed has declared the first September quarter GDP estimate to look a bit dodgy, suggesting the first revision may see the number fall from 3.5% all the way to 2.5%. That revision is due next Tuesday night.
In the meantime, Wall Street continues to look past such dip by pricing in earnings expectations for recovery. The famed US$3.3 trillion of “cash on the sidelines” appears to still be ready to buy on dips in the market, although as bond yields tick lower again it is clear not all cash is earmarked for stock investment. Yet in the last two days the close on the exchanges has featured a gradual recovery from an initial plunge. Anaemic volumes nevertheless suggest sideways drift from here is the most likely scenario, barring any sudden shocks.
The SPI Overnight fell 45 points or 1.0%.
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