Daily Market Reports | Nov 02 2010
By Greg Peel
The Dow closed up 6 points while the S&P was up 0.1% at 1184 and the Nasdaq fell 0.1%.
I suggested yesterday there would probably not be a lot of movement on Wall Street ahead of tonight's mid-term elections and Wednesday's QE2 announcement and a flat close last night would tend to support that theory. However, the flat close belies the fact that at 10.30am the Dow was up 124 points and at 3.30pm it was down 58 points before closing up 6.
Morning strength was all about manufacturing. Yesterday was global manufacturing PMI day and all results were positive (except that the EU reports tonight).
Australia's manufacturing sector proved to be the only one in contraction but a rise to 49.4 in October from 47.3 in September at least showed a move in the right direction. Of more importance to the world were the Chinese numbers, and a jump to 54.7 from 53.8 again eased fears of a forced Chinese hard landing. The independent HSBC calculations were sufficiently consistent (See Chinese Manufacturers Enjoy Growth Acceleration).
The UK surprised itself with a move to 54.9 from 53.5. Following a better than expected GDP result and now a good PMI, Britons are starting to wonder what all the austerity fuss is about. Yet the winner on the day was the US with a jump to 56.9 from 54.4.
Now here comes the interesting part. The US figure was released at 10.00am (bell goes at 9.30am) so the Dow was already up on the Chinese result to again hit its April closing high of 11,205. It has found the sellers at this level about three times now and last night was no exception. The US dollar played its part and fell as stocks rose.
But then the US PMI was released and it was very good. Previously this might mean a stronger dollar on easing expectations of required QE2 and thus a pullback in stocks. But while the US dollar duly rose, so did the Dow, all the way to 11,244. This would tend to suggest Wall Street is now so convinced it knows what the QE2 package will look like that it doesn't have to respond with any uncertainty anymore.
Ah, but then the sellers began to win, and they drove the Dow all the way back to 11,150 at 11.30am where it stayed till 2.00pm. There are clearly a sufficient number of traders who, at least ahead of this week's events, believe anything above the April high is a place to take profits or even go short.
At 2pm it was announced the SEC is investigating a claim made against JP Morgan that it colluded with a hedge fund to allow improper mortgages to be included in a mortgage CDO. This is a similar claim as was made against Bank of America a couple of weeks ago and once again proves the “cockroach theory”, as was anticipated. (If you find one cockroach, you always know there's more.)
So at 2pm traders started slapping the financial stocks once more and an hour or so later the Dow was down 58 points. But here the buyers sparked into action and pretty soon we were flat again. If you'd only looked at the closing number you'd be forgiven for thinking it was a quiet night, as expected.
What Wall Street did rather ignore at the opening bell, as it focused first on the Chinese and then on the US PMIs, was that the September personal income and expenditure numbers showed a fall of 0.1% in incomes when a rise of 0.2% was expected. Spending rose by 0.2% against a 0.3% expectation.
In isolation, both numbers are disappointing. Together they imply that Americans are again dipping into their savings to purchase goods. This might be something the consumer discretionary sector can take heart in for the short term, but with 10% unemployment how long can savings be once again diminished and debt replenished? I know! Let's print a trillion more dollars and throw that at the market. That'll help! No bubbles here.
The US dollar held on to most of its gains by the close to finish up 0.3% on its index at 77.29. The Aussie thus gave back 0.3 of a cent to US$0.9861 and gold fell US$8.20 to US$1351.60/oz.
The US ten-year bond yield ticked up two basis points to 2.63%.
Commodities ignored the US dollar and focused instead on the positive global PMI numbers. Oil was up US$1.52 to US$82.95/bbl while base metals were around 1% up in London.
It was a strong day on the local bourse yesterday with the positive Chinese PMI a driver. The flat result on Wall Street will thus seem a disappointment, so the SPI Overnight was down 17 points or 0.4%.
Today in Australia there will be just the slightest doubt about the RBA rate decision meaning a few disgruntled souls will have to be at hand when the RBA announces its decision at 2.30pm which will be “no change”. Everyone else will be at lunch.
Tonight's earnings reports in the US (no we haven't forgotten earnings season) will include those from BP, Mastercard, Newmont and Pfizer (Dow). To date 70% of the S&P 500 has reported for an average 30% earnings growth compared to 24% expectation. Revenues are up 7% as expected.
The latest on tonight's midterms is that a landslide swing is expected towards the Republicans which will see them take a majority in the House. The Senate, nevertheless, is still touch and go. We do not expect to know the result at this time tomorrow.
My tip for the Cup? Good luck getting a cab in Sydney this evening.
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