Daily Market Reports | Jan 27 2010
By Rudi Filapek-Vandyck
The Dow closed down 2.79 at 10,194.07, while the S&P500 lost 4.62 pts (0.4%) to close at 1092.16 and the Nasdaq ended 7.07 pts lower at 2203.73.
SPI futures are indicating a cautious to lower opening when trading resumes in Sydney today.
US equity indices spent most of the time in positive territory, having closed marginally higher on Monday following some savage sell-offs last week with accumulated losses of more than 5% over two days amidst market volumes that were more than double the volumes recorded this week.
I spotted one macro-economic report on Friday that was titled “The Rules Of The Game Have Changed”. I repeat it here because I think that title captures the essence of what is happening in financial markets across the world this month. And investors better pay attention.
More signals that Chinese authorities do mean it when they say “banks will stop lending” plus President Obama’s intention to propose a three-year spending freeze further added to the “changing rules” on Tuesday. Meanwhile, equity investors tried to take guidance from positive economic data and corporate releases, but it all fell apart towards the end of the session when all gains for the day quickly evaporated.
Earlier on the day, Wall Street had opened in a slightly negative fashion on news the Chinese authorities had singled out a few banks and once again reiterated their previous message: stop lending. European shares and commodity markets had initially responded to the news in a negative manner, but US investors soon started taking guidance from positive economic data and corporate results.
The Conference Board announced US consumer confidence improved in January, rising to 55.9, from December’s upwardly revised level of 53.6. This was better than expected as economists had expected the consumer confidence index to show milder growth with a January reading of 53.5.
The S&P/Case-Shiller 20-city home price index showed a 0.2% dip in November, following an upwardly revised drop of 0.1% in October. Year-over-year, prices were off by a higher-than-expected 5.3%.
Home prices, as measured by the Federal Housing Finance Agency Home Price Index, meanwhile, rose 0.7% in November, exceeding the slight 0.1% increase that economists had been anticipating.
Also, the US budget deficit is expected to reach US$1.35 trillion in 2010, according to an estimate from the Congressional Budget Office. The figure was largely overshadowed by reports that President Obama will propose a three-year spending freeze to lower the deficit when he gives his State of the Union address on Wednesday night. That news gave the US dollar a boost on Tuesday (US time), further adding to commodity woes.
On the LME, copper suffered a loss of 1.1%, and aluminium (down 1%) hardly did better, but nickel (up 0.3%) and zinc (up 0.2%) still managed to avoid closing in the red. Softs were mostly weaker with sugar dropping 1.7% in price, wheat falling 0.9% and cotton off by 0.2%.
Crude oil futures continue to battle with downward pressure and last night -again- saw WTI oil falling by half a US dollar to US$74.67/bbl (note how crude oil remains captured within the US$70-75 trading range of late last year). Crude oil prices are now at a five-week low. Gold remains below US$1100/oz, but managed to record a minor gain last night (up $2.40). Gold closed at US$1099.20/oz.
The euro continues to suffer from global concerns over the fiscal prowess of the socialist government in Athens. The euro fell to US$1.4086 last night, near levels not seen since August and compared to US$1.4154 late Monday. The USD index rose to 78.47.
The AUD/USD traded within an overnight range of 0.8936-0.9027. The currency has opened Wednesday’s Asian session at 0.9015 and National Australia Bank anticipates a range today of 0.8935-0.9035.
More good news came from the IMF’s updated growth forecasts. The IMF has revised its global growth forecast for 2010 to 3.9% (from the 3.1% projected in October) while global growth for 2011 is now anticipated to rise to 4.3%.
On the negative side, S&P lowered the outlook on Japan’s AA sovereign credit rating to “negative” on concerns about the country’s rising public debt, which could see a downgrade “unless measures can be taken to stem fiscal and deflationary pressures.”
The US government sold US$44 billion in two-year notes in the afternoon. The auction resulted in a high yield of 0.880%. The bid-to-cover ratio came to 3.13 after hitting the 2.91 mark in December. Indirect bidders, or that group that includes foreign central bank purchasers, bought 43%.
Ex-Citi division, Travelers, was one of the best performers on Wall Street today, after reporting a 60% surge in fourth-quarter earnings plus an improved investment portfolio. On the other hand, Verizon quickly became one of the worst performers on the day as Q4 sales did not meet market expectations (as opposed to profits). US Steel profits fell short plus management warned of a wider-than-expected loss for the first half of 2010.
Interestingly, after a rather bumper entry into the new calendar year, US shares will have to put in a few bumper sessions this week or January risks becoming the first month of negative returns since February last year.
While I would not subscribe to the predictive powers of January for the rest of the year myself (I wrote a story about this last year), research conducted by US-based Ned Davis Research offers some interesting thoughts. Ned Davis has looked into early-year performances from 1900 through 2009 and found that in years during when the Dow rose in January, the median gain for the rest of the year was 10.4%. However, in years when the Dow fell in January, the median rise for the next 11 months is just 0.28%.
Greg Peel is back from holidays but we granted him a “soft” entry into the new year. He’ll be back writing the Overnight Report… soon.
FNArena subscribers are advised to also read “Commodities: Not So Simple This Year” as well as this week’s editorial, Rudi On Thursday, which will be availabe on the website later today.
[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]
