Daily Market Reports | Jul 15 2010
Greg Peel
The Dow closed up 3 points and the S&P was flat at 1095 while Intel helped the Nasdaq to a 0.4% gain.
Firstly an apology – it seems the US earnings calendar I am referencing runs a day ahead for some reason. So to correct from yesterday's Overnight Report, there were no major earnings reports out on Wall Street last night. AMD, Google and JP Morgan will report tonight and Bank of America, Citigroup and General Electric will report on Friday night.
Wall Street was anticipating markets to jump out of the blocks last night following Tuesday's after-market Intel result. Intel shares did indeed leap from the open, but having moved up steadily ahead of the result it was time for some profit-taking. A 7% gain became only a 1.7% gain. The Dow, on the other hand actually fell on the open before rallying to be up 40 points at noon.
Early weakness is attributable to the release of the June retail sales number, which fell 0.5% when a fall of 0.4% was expected. Take out lumpy motor vehicle sales however, and the fall was only 0.1%. Perhaps more disappointing was the May rise in business inventories of only 0.1% when 0.3% was expected, and a 0.9% decline in business sales – the first decline since March 2009.
These numbers provide further confirmation the US economic recovery is decelerating, but the indices still managed to kick on after absorbing the news. While the data might be bearish, the bulls consider that the market reached its 15% down trough based on double-dip fears, whereas the data are simply confirming a long-held expectation that recovery from the GFC will be slow and bumpy. So then it just comes down to earnings, and the season has only just begun.
But earnings are still only a near-term consideration. As FNArena editor Rudi Filapek-Vandyck suggested in our 2008 DVD release “Dealing With The Bear”, the most likely shape of US and thus global recovery out of the GFC is not a V, not a W or a square root sign, but a soup bowl. A soup bowl shape implies an extended, shallow curve from recession to recovery. The minutes of the last Fed meeting, released last night, indicate Ben Bernanke is beginning to agree:
“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation … most expected the convergence process to take no more than five to six years.”
Bernanke suggested the recovery outlook had “softened” between April and June, leading the Fed to downgrade its GDP forecasts. It now sees 3.0-3.5% US growth in 2010 and 3.5-4.2% growth in 2011. Earlier forecasts had the top ends at 3.7% and 4.5% respectively. He also noted that members were canvassed for their thoughts on preparing another quantitative easing plan in case the current problem, ie Europe, suddenly worsened substantially.
According to CNBC's “eye on the floor of the NYSE” Bob Pisani, when the “five to six years” news hit the screens traders on the floor audibly groaned. Then they sold, sending the Dow down 60 points. The recent trend of rising US bond yields reversed sharply, sending the ten-year yield down 7 basis points to 3.04%. Caution lingers.
Yet the indices recovered once more to reclaim the flatline at the death. The buyers still appear to be winning, and the Dow did actually mark its seventh consecutive up-day, but the broad market S&P 500 slipped by a tad. After such a strong run, it would not be surprising now to see a combination of profit-taking from the more optimistic and “selling into the rally” from the more pessimistic. It will still, nevertheless, be dependent on ongoing earnings results. They need to be good.
When it comes to forecasting, doesn't Wayne Swan have some impressive crystal balls? There we were thinking a watering down of the RSPT to a less onerous MRRT would now wipe a couple billion off the Treasurer's three-year budget return-to-surplus forecast, but no. Silly us – we neglected to appreciate that in the space of one week the expectations for bulk mineral price increases in the interim would need to be substantially upgraded. Having made the obvious upgrades, the net result is another…omigod…two billion. So we can now all breathe a sigh of relief, and the Treasurer must be extremely happy that such revisions were possible just before an election. The rest of us have been watching the iron ore spot price sliding south.
Just what sort of complete morons do politicians think Australians are? And I mean that in regards to both sides of the chamber.
We must however acknowledge that the Treasury's Australian GDP growth forecasts are actually more modest than the RBA's, although the RBA forecasts are also much higher than economist consensus.
Elsewhere in the markets overnight, currencies made small moves which saw the US dollar index tick down 0.2% to 83.37 while the Aussie remained flat at US$0.8840.
The euro's rise was crimped by the release of the eurozone's May industrial production number, which rose only 0.9% when 1.3% was expected. The adjusted projection nevertheless has eurozone IP averaging 2.5% growth for 2010 which, under the circumstances, is pretty positive. The UK also last night noted a tick down in its unemployment rate to 7.8%.
Commodities had a quiet night. Gold fell US$2.80 to US$1208.50/oz, oil fell US14c to US$77.04/bbl and London base metals barely moved.
News from the Gulf is that BP delayed progress on the well cap by about a day as it decided to do some assiduous tweaking of the apparatus just to make absolutely sure. We may yet hear good news as early as this weekend.
The SPI Overnight fell 16 points or 0.4%.
Aside from ongoing US earnings reports, Wall Street movement tonight, and local movement today, will be impacted one way or another by today's release of monthly Chinese data on industrial production, retail sales and inflation, and more specifically by the release of China's second quarter GDP.
[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.]
