Daily Market Reports | Aug 20 2010
Greg Peel
The Dow closed down 144 points or 1.4% while the S&P fell 1.7% to 1075 and the Nasdaq fell 1.7%.
Trigger-happy traders once again showed last night that when investors are disinterested, and volumes are thin, the market will trade in a vacuum. Tuesday saw a 100 point pop on the back of a surprisingly good industrial production number, and last night saw a 100 plus point drop on a surprisingly weak jobless claims number.
Economists had expected a slight decrease in the volatile weekly new jobless claims number last week but were shocked by a 12,000 gain. This took the total to a psychologically ominous figure of 500,000. While claims reached to over 700,000 at the height of the crisis, by last March they had fallen to 427,000. But it's since been all down hill again.
Adding insult to injury was the monthly Philadelphia Fed manufacturing index. Considered a bellwether for the nation, the Philly index fell to minus 7.7 this month from plus 5.1 in July. Economists had expected a rise to plus 7.0.
This is a zero-neutral index in which numbers over 20 indicate rapidly accelerating growth. When jobless claims were bottoming in March, the Philly index hit 21.4. A slowing from that level is no great surprise, but by falling into the negative the index suggests contraction. Grave fears are now held for the nationwide ISM manufacturing PMI which has been ticking down towards the neutral 50 level the past couple of months. If the August read, due on September 1, is below 50, watch the stock market take a tumble.
At least the Conference Board's measure of leading economic indicators as at July was less perilous, showing a 0.1% rise. Economists had expected a 0.2% rise so it was disappointing nevertheless. But the result does support the wide-held assumption that the US economy will simply bungle along on tepid growth rather than collapse back into recession. In June, the index fell 0.3%. In May it rose 0.5%.
I have always been dismissive of specific stock market reactions to the leading economic index release given the stock market is considered a fundamental leading economic indicator and is indeed part of the Conference Board's equation. It would be illogical to react on the day to a number which encompasses what the stock market did last month. We know that already.
But barely positive growth is not the stuff of strong stock markets, and more weak earnings reports from lesser-lights in the US retail sector last night only added to renewed bearishness. After the bell, leading computer hardware manufacturers Dell and Hewlett Packard (Dow) both posted results which disappointed as well.
Last night's sell-off was nevertheless simply market-wide and not sector specific. At its worst, the Dow was down 199. Bonds were once again the investment of choice, with the ten-year Treasury yield falling 6 basis points to 2.58%. All the talk at present is of a dangerous “bond bubble”, but until economic data improve and the Fed stops buying Treasuries there is simply no reason for yields to rise.
The US dollar index was slightly higher last night at 82.47, and the Aussie risk indicator fell 0.6 of a cent to US$0.8928. While weak US data is looking deflationary, gold continues to grind out small gains in expectation of further Fed quantitative easing ahead. Gold rose US$3.10 to US$1232.40/oz, but one gets the feeling it won't take much for gold to lose its bottle were something to give.
The weak US data were not well received in commodity markets, with oil falling US99c to US$74.43/bbl and base metals mostly shaving 1-2% in London.
The SPI Overnight fell 67 points or 1.5%.
There are no major economic data releases in the US tonight. There are several corporate earnings reports out in Australia today, including one analysts are rather worried about – Billabong ((BBG)).
And the Australian market is, of course, poised ahead of what might transpire tomorrow. Given the way recent polling has become less and less indicative of a clear winner, we may not even know the result by Monday morning.
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