Daily Market Reports | Jan 28 2010
By Rudi Filapek-Vandyck
The Dow gained 41.87 to close at 10,236.16 (up 0.41%), while the S&P500 managed a gain of 5.22 pts to close at 1097.50 and the Nasdaq closed 0.80% higher at 2221.41.
Technology revolutioniser Apple finally revealed the details of its latest invention, this time targeting the online publishing sector. The company unveiled a tablet computer, named iPad, that can display full web pages, books and iPhone applications, featuring a touch-screen keyboard that’s almost full size.
The 16-gigabyte version will have an initial price tag of US$499, the 32-gigabyte version will cost US$599. Industry anaysts and investors responded favourably to the official launch, allowing Apple shares to reverse course and wipe out earlier losses during last night’s session.
The biggest news event, however, was the decision by the Federal Reserve Open Market Comitee to leave interest rates on hold (as expected) with one dissenter. The accompanying statement was widely perceived as “seeking middle ground”, with the Fed seen as keen to not upset anyone.
Interest rates are still going to stay low for an extended period of time, while US economic growth is expected to remain “moderate” for an extended period of time (this is seen as a minor growth forecast upgrade). US inflation is expected to remain subdued for an extended time.
The Federal Reserve also restated its intention to cease buying US$1.25 trillion of mortgage-backed securities in March.
Wall Street, which had been in negative territory without interruption during last night’s session up until that point, put in a rally of some 50 in the Dow and subsequently struggled to remain in positive territory, until a final half hour surge all but secured a gain for the day. Next thing on the agenda is president’s Obama’s State of the Union speech.
Earlier, equities in Europe had another tough night on worries about Greece and China and due to expectations that central bankers and governments in Europe and the US will move faster in rolling back economic stimuli. The US dollar had another positive session. Caterpillar disappointed with its earnings report release, while another disappointment came in the form of a decline in US home-sales.
It was reported that new-home purchases in the US declined 7.6% to an annual pace of 342,000, the fewest since March. For all of 2009, sales slid 23% to 374,000, the lowest since records began in 1963.
Greek bonds tumbled, driving the 10-year note yield up 51 basis points to 6.76%, the highest since 1999. One-month US Treasury bill rates turned negative earlier for the first time in 10 months on demand for safer assets.
The DJ Euro Stoxx 50 fell 1.4% to 2828, the German DAX declined 0.5% to 5669 and the FTSE ended yesterday’s session 1.1% lower at 5277.
US bond yields rose sharply after policy makers at the US Fed Reserve decided to maintain low interest rates and affirmed plans to move support for financial markets in March. A plunge in both US new home sales and Greek bonds also increased the safe haven appeal of US debt. Further, the US Treasury sold $42bn of 5-year debt at an yield of 2.37% (bid-to-cover ratio of 2.80). The yield on 2-year notes surged 10bps to 0.907%, whilst the 10-year yield rose 2bps to 3.640%.
The Australian SPI 200 Mar 10 futures contract is indicating a slightly higher opening on Thursday morning, oblivious to the fact that commodities had another nightmare session last night.
Crude oil futures temporarily broke below US$73/bbl last night, continuing their relentless losing streak. Crude oil continues to struggle with sluggish demand and too much production on a global scale, this in sharp contrast to overall market positioning. March futures contracts are now sitting on the 200-day moving average, widely regarded as a key support level. Were the price to drop further from here on, this is likely to trigger a wave of automated selling orders.
Such a wave of selling orders hit metals on the London Metals Exchange last night, when, in “kerb” trading, traders started selling as copper had fallen through technical support during the day’s trading session. Copper continuously bounced around support at its 30-day moving average, at around US$7,285/tonne yesterday, but when it ultimately closed below the level a bearish technical signal had formed on price charts.
This triggered technical selling and copper instantly lost another US$200, trading as low as US$7,035.75/t. Technical analysts report the metal has little major support until the US$6,995/t level last seen on December 24. This would indicate that with key support now broken, further losses should be on the near-term horizon.
To make things worse for copper, inventories rose 5,025 tonnes overnight to 538,600 tonnes, marking an 11-month high.
Other metals enjoyed a similar fate, suffering losses of multiple percentages. Lead prices were hammered lower to US$2,070 per tonne, falling to their cheapest since early October last year. LME stocks rose a net 1,725 tonnes to 155,775 tonnes, the highest since late September 2003.
Zinc also fell to two-month lows at US$2,203 per tonne. Chartists report the next support level is at US$2,127/t, a level last seen on November 27. Stocks jumped 2,275 tonnes to 496,200 tonnes, the highest since late October 2005.
Aluminium equally plumbed to new depths of US$2,146/t in the aftermarket from a US$2,180 close, the metal’s cheapest price level since December 9. Stocks fell a net 3,900 tonnes to 4,623,800 tonnes.
Tin was spared by the late sell-off, last trading at US$17,700/t after closing down US$125 at US$17,850 during the day session. Stocks jumped 430 tonnes to 27,640 tonnes, the highest since November 2002.
Spot gold declined as the US dollar strengthened, fall 0.1% to US$1,086.65 an ounce. The market is eagerly watching key support at US$1080/oz.
Crude oil’s fate received another blow last night as the Centre for Global Energy Studies predicted the combination of sluggish oil demand growth and rising supply means that “there is little prospect of global oil inventories being drawn down this year”. This is a key feature in the oil bulls’ forecasts for 2011.
Fitch Ratings featured in some news headlines with the prediction that European governments may need to borrow 2.2 trillion euros, some 19% of GDP, from capital markets in 2010.
The World Economic Forum in Davos starts today.
Greg Peel will resume writing the Overnight Report from Monday onwards.
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