Daily Market Reports | Dec 22 2009
By Greg Peel
The Dow rose 85 points or 0.8% while the S&P added 1.1% to 1114 and the Nasdaq jumped 1.2%. The S&P has again hit its 2009 high close.
It was an extraordinary day on Wall Street when suddenly merger and acquisition activity was all the rage. This included no less than five separate deals in the healthcare sector, ahead of healthcare reform laws moving closer to settlement, led by a takeover bid by French-based Sanofi-Aventis for US Chattern Inc. At the same time, a local mining equipment maker announced it had bought the mining equipment division of a rival firm, and Dutch car-maker Spyker Cars put up a fresh bid to take Saab from General Motors. Alcoa announced a US$11bn joint venture in Saudi Arabia and its shares jumped 8%.
A broker upgrade for Intel set the tech sector rolling, while Goldman Sachs moved fertiliser companies to its “Conviction Buy” list and the big banks came in for some positive commentary as well. Suddenly Wall Street is acting like a kid counting the sleeps before Christmas.
Traders suggest Wall Street is also anticipating some positive economic data releases ahead in this short week, which include home sales, personal expenditure and durable goods orders. Tonight sees the final revision of the US third quarter GDP, and consensus is for another reduction from 2.8% to 2.7% (first estimate was 3.5%). However, economists are now forecasting fourth quarter GDP growth in the region of 3-4%.
This sudden burst of positive energy had the stock market once again deciding it would ignore the US dollar for the day. The dollar index was up 0.4% from Friday night at 78.04 to mark its eighth consecutive up-day. The dollar is now up 5% from its last low, but last night the S&P 500 once again tested its 2009 high. Clearly the once perfect inverse relationship between the US dollar and stocks has become tenuous.
Volume on the NYSE was not unreasonable last night, considering recent poor numbers. However, with those traders still left on the floor and at dealing desks suggesting most of their colleagues and peers have already left for the year, the bulk of the volume was assumed to be computer-based high frequency trading. Short term players love M&A activity because it throws up various “risk arbitrage” opportunities and allows algorithmic models to come into their own. So the rally may yet have been a bit smoke and mirrors, and an explanation as to why the dollar was ignored.
There was no ignoring the bond market last night however. Again attributed to expectations of positive economic data flow this week, the ten-year yield leapt 14 basis points to 3.68%. What’s going on? Dollar up, stock prices up, bond prices down – you’d think we’d suddenly woken up in a “normal” world.
Commodities were also playing to the script. Gold plunged US$21.70 to US$1090.40/oz, completing a 50% retracement of the rally from the break-out above US$1000 in October. Technical analysts have been anticipating such a retracement, and those who joined in the Indian-driven euphoria of past weeks are no doubt capitulating on positions now ahead of year-end. The Indian gold purchase from the IMF in early November sent gold exploding up from the US$1060/oz level. That will now be support, if a 50% retracement is not enough.
It was expiry day for oil futures on the Nymex exchange, and the January delivery contract ended at US$72.47/bbl, down US89c. The February contract fell US70c to US$73.72/bbl, so tomorrow we will have an apparent price jump of over US$1 for oil in the rollover, all things being equal.
Base metals nevertheless joined in with stocks in ignoring the greenback. All bar lead were mildly higher, with the exception of nickel. News that Russia is to reinstate a 5% export tax on nickel sent the stainless steel component up 3%. The positive moves in metals belied news of further increases in LME inventories.
The Aussie took a beating, down 0.8 of a cent to US$0.8818 since Friday night, while the SPI Overnight rallied 33 points or 0.7%.
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