Daily Market Reports | Mar 17 2010
By Greg Peel
The Dow gained 43 points or 0.4% while the S&P added 0.8% to 1159 and the Nasdaq rose 0.7%.
The close in the S&P 500 at 1159 is significant given the extent of technical resistance at 1150. The index had been stuck on this level for the last three days but in theory this “break-out” should signal a new leg to the upside as far as the tea leaf readers are concerned. However, is it “real”?
Strictly we shall not know until next week. There appears to have been a deal of artificial market-pushing since late last week in what can only be described as a very thin market. While traders will often attempt to push a price through a level to trigger such technical signals, of more influence this week is the upcoming “quadruple witching” expiry on Friday, in which quarterly stock, stock index, stock futures, and stock index futures options all expire. Not only is there a very large open position in S&P calls at the 1150 strike, the number of open calls at 1175 far outweighs the number of open puts at 1125 as well. In other words, traders want the S&P to reach as high as possible by Friday's close. After that they don't care.
They're the shenanigans, now back to the real world. Once again Wall Street has been playing the goldfish game such that every month, without fail, the market seems to forget that Fed chairman Ben Bernanke has said over and over again that interest rates will “remain at exceptionally low levels for an extended period”. How long is an “extended period”? Well one presumes it's longer than a month. But with economic data supposedly looking a bit better in the US, and inflation an ever lingering longer term, if not shorter term, possibility, Wall Street had again managed to talk itself into believing that perhaps this would be the month that Bernanke would provide a hint of specific timing on when the first interest rate rise could be expected. To that end, the buyers have been holding off.
He didn't.
The statement on monetary policy released today following the FOMC meeting was so near identical in wording to last month's statement that economists nearly had to match up every word to spot any difference. All they managed to find was a subtle upgrade in assessment of the US economy, which specifically gave a nod to unemployment having at least apparently stabilised. Other than that, both interest rate policy and expiry date of Fed mortgage-backed security purchases (March 31) remain intact. Given the exit of quantitative easing is itself a quasi rate rise, it's little wonder the Fed is not yet ready to change its “extended” policy.
But Wall Street breathed a sigh of relief anyway, and bought stocks from the 2.15pm release to the close. Volume was better than recent sessions but still moderate. And the expiry discussed above does somewhat cloud the issue.
Have I mentioned the snow at all? Last night it was revealed February housing starts fell 5.9% in the US which is not a good omen, but then economists pointed out it's pretty hard to build a house in a blizzard. Nevertheless, building permits are an un-weather-affected precursor to housing starts and they fell 1.6%. The good news is that single-family home permits are up 32% since the depths of a year ago. Apartment blocks just aren't on the radar, however.
On the shocking news that the Fed intends to keep rates long for a while yet the US dollar index fell 0.75% to 79.65. Aside from no interest rate rise support, the dollar fell against the euro given influences from across the pond.
Last night Standard & Poor's affirmed its BBB+ credit rating for Greece and removed the rating from its CreditWatch. But curiously the agency also downgraded its outlook on Greece from stable to negative. Go figure that one.
On Monday night the eurozone finance ministers stated that if it were necessary to help out Greece then a decision has made about how to do so. They're just not going to let on what that plan might be, despite a market looking for reassurance, because they suggest it likely won't be necessary. It's all electorate-calming politics. The European Union finance ministers meet next week and are expected to officially endorse Greece's austerity plan. All of the above has led to a return to strength for the euro, including a solid move last night.
The fall in the US dollar index last night and flipside strength in the euro is leading commentators to once again talk of secular US dollar decline – a return to where we were going before the whole Greece issue blew up. If that's the case, then the “reflation trade” is back on – the one where you buy commodities not on any demand-supply fundamental consideration but on a weak US dollar equation.
That's what happened in the oil market last night. One day the oil pit is worried about Chinese tightening and a possible US double-dip and the next day it just sees a weak greenback. Oil was up US$1.90 to US$81.70/bbl last night. For gold, it's not just about a weak dollar but about the undermining of currencies in general through massive sovereign debt. The gold pit had this in mind last night as gold rose US$20.60 to US$1128.20/oz.
Early weakness in the US dollar sent base metals higher in London but they pulled back ahead of the close to await the Fed decision. Given LME trading is all over before the release of the Fed statement we have to wait until tonight, all things being equal, to see just what the reaction will be. In the meantime, all base metals closed up 1-2%.
While on the subject of currencies, the declaration over the weekend by Chinese premier Wen Jiabao that the renminbi would not be revalued anytime soon has prompted a bipartisan group of 130 Congress members to write an open letter to President Obama calling for China to be officially branded a “currency manipulator” and for subsequent trade sanctions to be imposed. This is protectionism by any other name, however despite the no doubt insular views of various Congress members attempting to protect industry in their own states from cheap Chinese exports, they have a point. The renminbi is being artificially pegged so as not to undermine China's important export industry, and local US manufacturers cannot compete.
It is this ongoing face-off between China and the US which is also holding back Wall Street at present. China is trying to exert its muscle now that America is effectively on the ropes, including forcing issues on arms sales to Taiwan, recognition of the Dalai Lama, and not being seen to bow to US pressure on currency. The battle rages on.
The Aussie was higher last night on dollar weakness, rising to US$0.9184.
The SPI overnight matched the S&P 500 in rising 0.7%, or 35 points.
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