Daily Market Reports | Nov 16 2010
By Greg Peel
The Dow closed up 9 points or 0.1% while the S&P lost 0.1% to 1997 and the Nasdaq lost 0.2%.
US retail sales jumped 1.2% in October against expectations of 0.7% to mark the biggest move since March and the fourth monthly gain. With the US consumer the major driving force of the US economy, Wall Street liked this result and started buying again after last week's weakness.
Helping the mood along were a spate of M&A announcements, the biggest being Caterpillar's US$7.6bn bid for mining equipment maker Bucyrus. At a standard premium of 30%, Caterpillar cited its robust view on commodities given the ongoing urbanisation of the emerging world as the impetus for the bid. Wall Street liked the deal, pushing Cat's shares up slightly as well as accommodating the premium into Bucyrus's share price.
For some reason companies seem to like to make M&A announcements on a Monday, leading to the oft used expression “Merger Monday”. Between Australia and the US, there certainly have been a few in the last 24 hours.
Momentum drove the Dow to be up over 80 points at 2pm, but then the sellers moved in once again.
Perhaps crimping the enthusiasm was the US dollar index, which rose consistently on the day to 78.63 as the euro sank slowly into the west. The euro fell another 1% to be under US$1.36 as speculation of an Irish bail-out moved towards crescendo. At the end of the day, negative market sentiment will usually force one's hand, be one an investment bank or a nation.
But the US data were not necessarily as spectacular as they first appeared either. For starters, economists prefer to take the volatile and lumpy auto sales number out of the monthly retails sales figure to better gauge the mood of the consumer. Ex-autos, October sales were up only 0.4% which was bang on expectation.
Secondly, the State of New York's predicament seemed to get lost in the morning session despite the Empire manufacturing index falling from plus 15.7 last month all the way to minus 11.1 this month. That's a big turnaround, especially when you consider economists had expected only a fall to plus 15.0. Big drops in both new orders and shipments were to blame.
This result can be put in the context of the release of the September business inventories result, which showed a 0.9% gain against 0.8% expectation and the 0.6% rise in August. Inventory growth drives economies, but only if you ultimately sell your stuff.
And the stock market may also be now looking across warily to the bond market. While for all of 2010 the stock market has lamented that all the money seems to be going into bonds, driving yields ever lower, the sudden and delayed post-QE2 bond sell-off has really accelerated. The ten-year yield was up another 14 basis points last night to 2.92%, and it seems hellbent on racing back through 3%. Are inflation fears driving the exodus? If so, Wall Street knows that stock prices don't like inflation as it undermines nominal earnings.
So that's the state of play in this post-QE2 maelstrom, with Europe in the firing line, China set to tighten further and debt markets sending all sorts of negative messages. The Fed is just getting on with it, last night making its second increment of Treasury purchases.
Precious metals attempted to rebound from their big Friday sell-offs early in the session, as did the Aussie, but they couldn't fight the US dollar tide. Gold finished down US$9.50 to US$1358.60/oz and silver down 2% to US$25.57/oz. The Aussie slipped further to US$0.9842.
Commodities played similar up and down games, with oil finishing off US2c to US$84.86/bbl and base metals mixed. Aluminium recovered 1% but then lead and zinc both fell 1.5%. Copper is still sitting under US$4/lb.
The SPI Overnight fell 3 points.
Today in Australia we'll learn just what the RBA was thinking in raising its cash rate this month while tonight in the US the PPI release will be a hint as to how US inflation is actually performing.
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