Daily Market Reports | Dec 21 2010
By Greg Peel
The Dow closed down 13 points or 0.1% while the S&P gained 0.3% to 1247 and the Nasdaq added 0.3%.
Asian stock markets took a dive yesterday sending the Australian market lower in the afternoon session. It was all about fears the planned South Korea-US military exercises near the North Korea border would spark the North into some form of retaliation, so reinstating the Korean War.
But by late in the Asian session the North had had a quick look and decided they'd okay the exercises, which may have had something to do with the Yanks saying “call that a gun?” Either way, Asian stocks managed to pull back some of their losses.
Wall Street was thus able to open higher, but not for long. Pretty soon the Dow was down 50 points as the world again despaired over European procrastination.
On Friday markets were disappointed that a meeting of EU leaders in Brussels resolved to set up a permanent European emergency fund after 2013 when the current one expires but did not go as far as to announce an increase to the current fund. The world is worried that the current fund is not enough to cover a blow up in Spain as well as Portugal. But if that weren't enough, data released last night showed the ECB had sharply reined in its purchases of European sovereign debt last week.
With the EU bickering as usual, the world has at least felt comfortable with expectations the ECB would hold the fort. But why is it pulling back on bond purchases? Just a blip, or something else?
Whatever the answer, it was back into the US dollar for everyone and the dollar index jumped sharply in the morning session. For the bulls, or perhaps for underweight mutual funds, this represented a buying opportunity and Wall Street managed to claw its way back to square in the afternoon. Banks were popular, as were energy stocks given the current Northern freeze. Not even Bing Crosby can dream that much.
After a year of hell for the airline, hotel and travel-related industries, which has seen volcanoes, crippled aircraft and rising oil prices, the Northern snowfalls are threatening to turn the important Christmas travel period into a disaster as well.
On the economic front, the Chicago Fed national activity index slipped to minus 0.46 in November from minus 0.25 with employment related indicators dragging down the aggregate. Retail analysts were nevertheless upbeat having haunted the shopping malls over the weekend and reported that they were chocka. But discounting is still the rage.
While a stronger US dollar again held any momentum in check in US stocks, commodities largely ignored the currency. The dollar index closed up 0.3% to 80.60 but oil rose another US38c to US$88.41/bbl and natural gas continued its recent rise from the dead, gaining 4% as the Northern hemisphere shivers. Base metals came off their highs in London for a mixed result, but copper once again closed stronger. Traders warned that dealing rooms are already emptying to leave only skeleton staff on board, meaning the next couple of weeks could see volatility.
Gold continued its steady return to favour, rising US$7.40 to US$1383.90/oz, while the Aussie also bucked the buck and jumped half a cent from Friday's close to US$0.9937.
Without any follow through of Korean tensions, the SPI Overnight reflected a reversal of yesterday's ASX weakness in rising 24 points or 0.5%.
Today sees the release of the minutes of the RBA's December meeting. Economists will be looking for more clues as to just how long the central bank will keep rates on hold for in 2011.
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