Daily Market Reports | Nov 24 2009
By Greg Peel
The Dow closed up 132 points or 1.3% while the S&P gained 1.4% to 1106 and the Nasdaq added 1.4%
On Friday the European Central Bank suggested it would be moving to wind down fiscal stimulus as conditions in Europe improve. The ECB’s monetary stimulus is already set to wind down as per schedule, and president Jean-Claude Trichet said governments should follow the lead and begin organising exit strategies ready for global economic improvement.
Trichet’s comments fell on deaf ears across the pond, where on the weekend St Louis Fed president James Bullard (who joins the FOMC voting panel next year) suggested he would like to see the Fed’s asset buying program (mostly mortgage-related and part of over all quantitative easing) extended beyond the already extended March deadline, but at a low level.
Currency traders responded by selling US dollars against the euro, believing US interest rates now seem set to remain low for the rest of eternity. To rub salt into the disparity wound, last night’s EU purchasing managers’ index data across industry sectors were better than expected. The euro subsequently pushed back up towards US$1.50 and the US dollar index crashed back once more, down 0.7% to 75.10.
The weak dollar meant Wall Street was on the fly right from the opening bell, peaking at 10.30am with the Dow up 177. And after a week of disturbing housing data last week, faith was restored last night with an announced 10% jump in existing home sales in October.
The annualised rate of sales rose to 6.1m in October from 5.5m in September, and economists had predicted a rise to only 5.7m. The jump was attributed to falling prices (the median price was down 7.1% year-on-year in October) combined with government first home-buyer stimulus. But while the news was well-received, some analysts pointed out that a turnover of existing homes is not much of a lead indicator – it’s new homes that make the impact on economic growth. Those October numbers are due on Wednesday.
And when all said and done, the home sales number did not have too much of an influence on stock indices which were already up on the weak US dollar. The rest of the day was spent whittling away that gain as volumes deteriorated down to pitiful levels (albeit not unusual in a Thanksgiving holiday week). A last little kick ensured the Dow closed up 132.
Also taking some of the wind out of the home sales sails was the Chicago Fed’s national activity index, which fell further into the negative in November. A reading of minus 1.08 was down from minus 1.01 in October, and the three-month moving average also fell into the negative – for the first time in 2009. The Chicago Fed suggested that taken on face value, the three-month reading is indicating the beginning of a recession.
There’s one for the double-dippers.
The asset of the moment is currently gold, and last night Comex options for the December delivery contract expired. There was a very large open interest of US$1200 calls which has no doubt been influencing trade in the last few days, but despite reaching as high as US$1172 last night the options remained unexcercised. The weaker US dollar was nevertheless sufficient catalyst as gold began moving up sharply in the Asian time zone yesterday. And gold also enjoyed one of its forgotten roles as safe haven against geopolitical crises last night after the Iranian air force began conducting exercises on Sunday intended to show Israel that Iran could protect its nuclear facilities.
Gold ultimately slipped back later in the session however, closing up US$14.60 from Friday at US$1164.60/oz. It is notable that while silver had chimed in with the influence of the Indian gold buying surge, and indeed silver has out-rallied gold this year, in these last few days silver has simply watched gold run amok. The other precious metal was little changed last night, suggesting we’re currently looking at what is just a “gold thing”. This “gold thing” also has traders warning that what goes up in a hurry could just as easily come down in a hurry in the short term.
Base metal prices were similarly mixed, as commodity funds looked to buy on a weaker dollar but “real world” factors offered resistance. The six-week long copper strike ended in Chile with a settlement, removing that upward influence on the copper price. Copper nevertheless finished up 0.8%. Across the spectrum traders are noting orders books for physical metal are beginning to empty as industry buyers elect to defer usual year-end purchases out to the beginning of the new year, being reluctant to pay what are seen as artificially inflated prices. Nickel, lead, tin and zinc finished 0.5-1.5% higher but aluminium fell 1.5%.
Oil, on the other hand, was never going to shrug off a weak dollar and Iranian war games. Crude rose 2.8% or US$2.18 to US$79.65/bbl.
The US Treasury began yet another round of extensive bond sales last night, offering US$44bn of two-year notes. With US interest rates now expected to be low for about forever, confidence has returned to the bond market and investors have been keen to take what yield they can get in the “riskless” asset class. The auction went off without much fuss. The ten-year yield remained unchanged at 3.36%.
As US investors return to the comfort of a bond weighting in their portfolios, it is notable that the VIX volatility index on the S&P 500 fell 4.5% last night to 21.2 on the Wall Street surge. The VIX has not managed to close below 21 lately (and since before the GFC) before a drop on Wall Street has sent it scurrying back up into the higher twenties. Numbers below 20 traditionally indicate complacency has set in. The S&P 500 closed at 1106 last night, still slightly below its post-GFC 1110 high of last week.
The Aussie recovered from a recent bout of weakness – likely linked to foreigners taking profits in Australian stocks (particularly banks) – and shot up close to a cent from Friday to US$0.9242.
The SPI Overnight gained 33 points or 0.7%.
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