Daily Market Reports | Mar 22 2010
By Greg Peel
The Dow broke its eight-day winning streak on Friday as it fell as much as 85 points before a late burst saw the average close down 37 points. The S&P 500 followed a similar pattern, ultimately closing down 0.5% to 1159.
The “quadruple witching” options expiry came into play although traders suggested volumes were not so great as to suggest major push-pull battles. Of more influence on turnover was the quarterly rebalancing of S&P 500 weightings. This quarter-end featured a lot of adjustments for issues of fresh equity made over the quarter, particularly in the well-weighted financial sector, which force index-tracking funds to buy and sell accordingly. Volume was thus much better than it has been over the month, but not as strong as has been the case in previous expiry/rebalancing sessions.
Despite the shenanigans, the theme of the session was definitely weak. The US dollar index climbed another half percent to 80.72 to reach almost its earlier “Greek” high, and hence reignited some risk aversion. The reason was another weak session for the euro, which of course was all about Greece.
The Greek prime minister told the EU on Friday that Greece was very close to not being able to borrow any more funds via bond issues. It's all very well for the EU to “endorse” austerity measures, but at the end of the day someone still has to buy the bonds which need to be issued to fund Greece's overblown deficit. And the market is staying away in droves.
Germany and France have to date stopped short of specifying any Greek rescue package, vaguely arguing that “it won't be necessary anyway”. But on Friday German officials suggested they would support a combined EU and IMF bail-out if needed. This put Germany at odds with France, given France has argued from the outset that any involvement of the IMF brings into question the capacity of the EU to look after its own, and thus the EU and eurozone as stable trading blocs.
This infighting is not what the market wants to hear and hence we saw weakness in the euro and ultimately US stock market. Nor did it help that while the world has been focused on Chinese monetary policy lately, India came out of the blue on Friday and raised its benchmark rates by 0.25%. India cited rate rises in Australia and Malaysia as inspiration as the global economic recovery – at least outside of old-world economies – gathers pace.
Throw in Norwegian and Israeli rate rises earlier on and we now have five central banks back in tightening mode, with Canada expected to be very close as well.
The irony here is that rate rises are spooking the stock market, and every ex-US move is in theory putting more pressure on the Fed. Higher funding cost – lower returns. But this sort of attitude is really one which suits a strong economy which is being reined in, rather than a weak economy which appears on the recovery trail. In theory global rate rises from emergency levels should be a positive indicator, given they indicate global economic growth. Are stock markets just a bit too overbought right now?
Unsurprisingly, the stronger greenback provided downward impetus for commodity prices on Friday. Base metal falls were fairly minor but oil fell US$1.52 to US$80.68/bbl and gold fell US$19.50 to US$1107.20/oz. One day you buy gold on Greek troubles, next day you sell it.
The Aussie lost half a cent and the SPI Overnight fell 19 points or 0.4%.
It's a quiet week for Australia this week on the economic front. Vehicle sales are released on Monday and skilled vacancies on Wednesday. On Thursday the RBA releases its half-year financial stability review which will no doubt provide an even rosier picture than the last one, speaking to Australia's financial market health. On Friday the Conference Board publishes its January index of leading economic indicators. The market will look for confirmation of the strong numbers suggested in Westpac's similar index released last week, and the RBA will keep watch.
The RBA will also be out and about this weak, with Assistant Governor (Economic) Philip Lowe speaking on Thursday at 10.00am and Governor Stevens speaking on Friday at 9.15am. Clues for monetary policy (rate rises) are likely within.
It's a bit busier in the US next week, beginning with the Chicago Fed national activity index on Monday. Tuesday sees existing home sales, the FHFA house price index and the Richmond Fed index. On Wednesday its durable goods orders and new home sales. On Friday the fortnightly Michigan Uni consumer confidence index is released, along with the final revision of US fourth quarter GDP. First estimate was 5.7%, first revision 5.9%, and the final revision is also expected to be 5.9%.
While Greece might be having trouble issuing bonds, Ben Bernanke told Congress last week that the US Treasury appears to be having no trouble at all. It has nevertheless been noted that Chinese participation is waning. Treasury will auction US$44bn of two-year notes on Tuesday, US$42bn of fives on Wednesday and US$32bn of sevens on Thursday.
There is nothing of any great note being released in other centres this week, although New Zealand will announce its fourth quarter GDP on Thursday.
On the local stock front there's another round of ex-dividends this week, while Sigma Pharmaceuticals ((SIP)) issues its full-year profit result on Tuesday.
For further global economic release dates and local company events please refer to the FNArena Calendar.
