Daily Market Reports | Mar 24 2010
By Greg Peel
The Dow rose 102 points or 1.0% while the S&P gained 8 points to 1174 and the Nasdaq added 0.8%.
It was only a couple of weeks ago that the words “double dip” were firmly back on the agenda. But having shrugged off Greece – a problem which is nevertheless far from resolution – Wall Street managed to push the S&P through the technical resistance level of 1150 and technicians heralded the next leg in the advance. They are being fulfilled.
One is reminded of the early stages of the rally a year ago – remember “green shoots” – when momentum was driven by a thesis of “less bad”. If bad economic numbers were becoming less bad then the next step would be that they would stabilise and turn “good”.
Last night it was announced US existing home sales fell 0.6% in February. The seasonally adjusted rate of 5.02m sales is the lowest level in eight months following three months of lower sales results. Inventory levels of existing homes are now at their highest since September. The FHFA house price index also fell 0.6% in January to be down 3.3% on the year and 13.2% below the peak.
In 2010, all US housing data have been poor. It's no great surprise given the level of government stimulus provided in 2009. Stimulus was watered down after November, and remaining government support will end with contract exchanges by April 30 and subsequent sales by June 30 – unless of course the program is again extended given all the money President Obama has lying around to spend.
Those in the housing market are definitely worried about a double dip. But economists were expecting existing home sales to have fallen 1.0% in February, so 0.6% was actually taken as a “good” result, or at least a “less bad” one. In the meantime, the Richmond Fed manufacturing index rose to 6 this month from 2 in February (zero-neutral) which was clearly good.
The Richmond index is not as influential as the the indices of the larger Fed manufacturing areas of Philadelphia and New York State nor the goods trading centre of Chicago. However, manufacturing numbers in the US have clearly improved, although they, too, have wobbled a bit lately. Also wobbling has been consumer confidence.
Yet it's onward ever upward for the stock indices at the moment, aided now by the end of uncertainty over healthcare reform and the approach of the end of the first quarter next week. Volumes, of course, have been pitiful, and they were once again tepid last night. But as I have noted previously in this Report, Wall Street probably needs to adjust to the concept of lower volumes now rather than making comparisons to pre-GFC levels. There is a lot of money “balanced” in cash and bonds, and high frequency trading has died off with the death of volatility. The VIX is now at 16. We're looking at early 2007 numbers.
All last year and into early 2010, investors were very keen to snap up short-end US Treasuries as a safe haven but less keen on longer dates given inflation fears related to the deficit. Funding for the deficit may have been weighted to the short-end, but at least there was funding. Last night the latest auction of US$44bn of two-year notes met a disappointing response.
The amount of US$44bn was the highest this year (auctions occur monthly in each maturity) and while the issue was oversubscribed with the help of domestic investors, foreign central bank participation fell to 34.8% compared to the four-month running average of 44%. Last week Ben Bernanke noted that the world remained happy to buy US debt.
I mentioned that the Greek issue is far from resolved, and the latest rumour is that France now agrees with Germany in allowing IMF support. It is only a rumour however, and we will need to wait till Friday night for confirmation of the EU's thinking. The euro nevertheless fell again last night sending the US dollar index higher to 80.82 having initially fallen in the morning.
The fall and rise in the US dollar affected the opposite in commodity prices. Gold traders again tried to force the metal down through US$1100 but again gold rebounded, this time to add US$4.00 to US$1105.50/oz. Base metals in London closed before the late surge in the Dow, and were again mildly mixed with the exception of lead (down 3%).
Oil was all over the shop before closing up US31c to US$81.91/bbl in the new front-month May delivery contract.
So the stock market went up, the dollar went up, and within the S&P the iron and steel sector was the biggest gainer followed by precious metals. That's a trinity you don't see too often. Iron ore stocks were driven by news Vale had asked for a 114% increase in contract prices (See story today).
The Aussie was too confused, and trod water at US$0.9194.
The SPI Overnight jumped 35 points or 0.7%.
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