Daily Market Reports | Mar 04 2011
By Greg Peel
The Dow rose 191 or 1.6% while the S&P gained 1.7% to 1330 and the Nasdaq jumped 1.8%.
I suggested yesterday that trading on Wall Street had become a day to day proposition, with newsflow from abroad competing with economic data at home. Last night's session fell exactly into that mould as pent up demand for stocks was unleashed on, unusually, a day before a jobs report.
It has been developments in Libya which have provided weakness and uncertainty to Wall Street this week, translated into the rising oil price. Last night the word was that fellow OPEC member Venezuela was attempting to mediate a resolution between the government and opposition forces. We recall that early rumours had suggested Gaddafi had fled to Caracas to hook up with his old mate Hugo Chavez.
That Chavez – hated by the US – might act as counsel in this case does not surprise me. While he is a fellow dictator of an oil-rich nation, he is also Marxist and a protege of Fidel Castro. So whatever empathy Chavez might have for Gaddafi, he must also be supportive of social reform for the Libyan masses (if perhaps not a big fan of democracy).
It is little but a rumour at this stage, but the news did serve its purpose last night in taking the pressure off the oil price. Brent crude fell US$1.51 to US$114.84/bbl. WTI traded down towards US$100 although it did drift back up later in the session.
It's not exactly a major reversal, but it was enough for Wall Street to relax for a moment and look to the local economic recovery once more. And last night it was all about jobs.
I have said often enough in this Report that the weekly new jobless claims number is too volatile a figure to be used as a spot indicator. More valuable is the underlying trend. So while Wall Street may have jumped at the sudden 20,000 drop in claims when a rise was actually expected, the total claims number of 368,000 is the lowest since May 2008. It was not that long ago that commentators were saying, “if only jobless claims could fall below 400,000”.
Add this to Wednesday's ADP report which showed a bigger than expected jump in new private sector jobs, and Wall Street has already decided that tomorrow's non-farm payroll number will be a cracker. Expectations are for 200,000 new jobs.
Well I hope they're right, given experience suggests jobs numbers rarely come out the way economists expect. Wall Street will need a number at or above 200k to justify today's rally. There was more good news last night in the form of the US services PMI. It rose to a six-year high 59.7 from 54.9 in December when economists had expected a steady result. The services PMI follows on from the very strong manufacturing PMI released earlier in the week on a day when Libya dominated the session.
Australia's services sector also improved last month, with the local PMI rising to 48.7 from 45.5. But the sub-50 result indicates only an easing in the pace of contraction – now in its fourth month – rather than any growth. According to HSBC, China's services PMI ticked down to 51.9 from 52.0 to a level of very modest growth.
The reversal of fortunes on Wall Street, led off by weaker oil, also saw a corresponding “flight out of quality”. All the safe havens were dumped. Gold gave back a chunk in falling US$18.80 to $US1415.60/oz, the US ten-year bond yield jumped 10 basis points to 3.57%, and the Swiss franc was heavily sold.
The Swissy sell-off should have by rights meant a stronger US dollar, were it not for the euro. Last night ECB president Jean-Claude Trichet left the eurozone cash rate at 1% but sent his strongest signal yet that a rate rise was just around the corner due to building inflation pressures. The euro thus rallied hard and the end result was a US dollar index down 0.2% to 76.49. The Aussie was relatively steady at US$1.0160.
Base metals in London tried to rally with Wall Street but were sold off late to post only modest gains. Observers suggest there is little industry activity on the LME at present – merely commodity funds and speculators battling it out.
It should also be noted that money has been flowing out of Middle East exchanges to find sanctity elsewhere, with Wall Street an obvious choice. Yet volumes last night were fair at best and lately volumes have been heavier on down-days than up-days, which is not a sign of inherent strength. Technicians would have taken note last night, however, that the Dow Transport average shot up 2.5%.
The SPI Overnight rose 49 points or 1%.
It's US jobs tonight. A solid result is already baked in.
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