Daily Market Reports | Dec 10 2009
 By Greg Peel
The Dow closed up 51 points or 0.5% while the S&P gained 0.4% to 1095 and the Nasdaq added 0.5%.
One wonders whether analysts from ratings agencies get together occasionally over a beer and suggest, “I’m a bit bored, let’s do something”.
Last night Standard & Poor’s placed Spanish sovereign debt on negative watch, having downgraded Spain from AAA to AA plus in January. S&P had warned earlier this week of possible downgrades for Greece and Portugal. Yesterday Fitch downgraded Greece from A minus to BBB plus while Moody’s decided to downgrade various state-owned company debt issues in Dubai. Last night Moody’s also decided to place various state-owned enterprises in the United Arab Emirates on negative watch.
Never rains but it pours.
Wall Street took all the news with a shrug. S&P might have Spain on AA plus and negative watch, but Moody’s and Fitch still rate the debt AAA. And as was the case with both Greece and Dubai, the news was ultimately not much of a shock. Greece and Spain have long been recognised as two of the biggest problems in Europe from the very early days of the GFC. What’s more, ratings agencies lost any iota of credibility over the GFC by first accepting payment to rate risky mortgage-backed CDOs as AAA, and later downgrading any institution that held them.
Wall Street preferred last night to concentrate on local news, the most positive of which was the October wholesale inventories release. After thirteen straight months of declines, inventories rose 0.3% in October against economist expectation of a 0.5% fall.
One of the major planks of the bull platform over the past several months has been the expectation of eventual restocking. Past recessions have featured suppliers and distributors being stuck with truck loads of stock they can’t sell. This leads to oversupply, falling prices, job lay-offs and general deflationary pressure. But in the computer age of “just in time” inventory management, the usual trap of excess stock has largely been avoided as suppliers moved quickly to run down their warehouses. Retailers were very quick to discount products and shift stock when stimulus money was flowing.
Hence while thirteen months of destocking does not bode well for economic growth, the belief that suppliers would at some point have to begin restocking empty warehouses does bode well. October’s surprise increase in inventories may be a blip, or it may be an indication the turning point has now been reached.
In other news, an analyst upgrade on Post-it maker 3M last night turned that stock around to retrace its falls from Tuesday, while on the negative side Citigroup shares remained under pressure as talk continued of an equity issue – perhaps US$20bn – in order to help pay back US$45bn in TARP funds. Unable to make the repayment out of its own funds, Citi has decided to go to the market to finance this year’s Christmas bonuses for its staff. Where do I sign?
TARP-funded US banks have been all but prevented from paying bonuses due to a near-100% tax imposed by the government on such payments while taxpayer money is invested. Goldman Sachs, for one, was quick to pay back its TARP funds in time to announce its hefty bonuses for the year. Meanwhile last night in the UK the government announced all bonuses paid by UK banks which have received government capital injections will be taxed 50% in the next four months. Gordon Brown is also getting in ahead of Christmas and attempting to ensure government funds go into lending to businesses and not into lining traders’ pockets.
It is also the last gasp of a surely defeated government.
The US dollar drifted back last night after Tuesday’s surge, falling 0.3% to 76.04 on its index. The dollar index fluctuated around the 76.00 mark all session, and stocks dutifully fluctuated in converse in thin volume. The Dow added its fifty points in the last hour.
Despite a retraction in the dollar, gold has lost its fizz. Potential buyers were too wary to return to the yellow metal and the price fell US$1.00 to US$1127.10/oz. Nor could oil break its losing streak – now stretching to six sessions – as weekly inventory builds once again hammered home the reality that demand for crude is weak. Oil fell US$1.95 to US$70.67/bbl.
Base metals closed in London before the late Wall Street rally, and were mostly undecided. Only aluminium much troubled the scorers, rising 2% on what was described as technical trading. Again – actual demand for metals is weak.
And so we remain stuck with a US market which can’t really move much in either direction, crimped, as it is, by the counter-effect of movements in the US dollar. Sovereign debt issues offshore remain a concern, but locally things appear to be improving, as a fall in unemployment and a rise in inventories indicate. Whatever the surprise is ahead that will snap Wall Street out of its slumber, it will have to be a big one.
The SPI Overnight gained 5 points or 0.1%.
Australian unemployment numbers today.
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