Daily Market Reports | Mar 07 2011
By Greg Peel
Colonel Gaddafi on Friday night rejected a proposal by Venezuelan president Hugo Chavez that he act as mediator between the Libyan government and the opposition movement. The United Nations is moving closer to imposing a no-fly zone over Libya and President Obama is quietly moving military assets into the region ahead of any need for intervention.
The news, while no great shock, came as a big disappointment to Wall Street which on Thursday had rallied strongly, believing it could now focus on the situation at home – that situation being all about jobs. Friday's figure for February came in at 192,000 new jobs added which in isolation was a very solid result. However Wall Street had been expecting at least 200,000, as well as hoping for an upside surprise, when buying was all the rage on Thursday to send the Dow up 200 points.
So the scene was set for at least a slight pullback, but throw in the resumption of the oil price rally on the Libyan news and the Dow closed down 88 points or 0.7% and the S&P lost 0.7% to 1321. The Dow had been down as much as 179 points before late buying saved the day. The US unemployment rate actually did provide positive surprise in falling to 8.9% from 9.0%, but it was cold comfort.
Brent crude rose US$1.18 to US$115.97/bbl, while the Americans were watching WTI which rallied US$2.51 to US$104.42/bbl.
Without any assistance from the jobs numbers the US dollar slipped again to be at 76.39 while the Aussie also dropped slightly to US$1.0143. Gold nevertheless turned around after its drop on Thursday and shot back US$15.20 to US$1430.80/oz while silver posted another soaring session, adding 4% to US$35.59/oz. US bonds also reversed, with the ten-year yield falling seven basis points to 3.49%.
Base metals remain stuck in a limbo land of good news and bad and a lack of actual industry interest at present. Prices were little changed on Friday.
There was some good news on Friday in the form of US factory orders, which rose 3.1% in January to mark the steepest rise since 2006. But this result was not in focus.
The SPI Overnight fell 28 points or 0.6%.
Global stock markets are currently being held hostage to the oil price and the immediate focus of oil markets is Libya. One feels Gaddafi is making a death or glory stance and will not be shifted without outside help. Were this to occur, one assumes there would be no outrage across an Arab world undergoing a transition and by virtue in support of the Libyan people, not the government.
Even if the removal of Gaddafi were swift, Libya is not the only hot spot in the region. Oil uncertainty will be with us for some time.
It's a quieter week in the US this week on the economic front. Tonight sees consumer credit, and Wednesday wholesale trade, while Thursday brings the monthly trade balance and Treasury budget data. On Friday it's business inventories and the fortnightly consumer sentiment survey along with the all important retail sales result for February.
The US Treasury will auction US$67bn of three and ten-year notes and thirty year bonds at what is an interesting time in the bond markets.
It's a busy week in Australia however, beginning today with the ANZ job ads survey along with the TD Securities inflation gauge and the construction PMI for February. Tomorrow it's the NAB survey of business conditions and Wednesday brings the Westpac consumer confidence survey along with monthly housing finance and investment lending data. On Thursday it's unemployment.
It's that week of the month when China releases its monthly round of economic data. The trade balance will be out on Thursday and then on Friday we have retail sales, industrial production, fixed investment and the focus of all current attention – the inflation numbers (PPI, CPI).
The Bank of England is not expected to raise its cash rate from 0.5% on Thursday night but more interesting will be the accompanying rhetoric. The ECB dropped a very big hint last week that it would be raising rates perhaps as early as next month and the BoE is not expected by markets to be too far behind. The expectation of European rate rises is keeping solid downward pressure on the US dollar. This, in turn, fuels headline inflation across the globe.
The RBNZ will also make a rate decision on Thursday, in the wake of the Christchurch earthquake.
Readers should take note that while the local earnings season is done and dusted, we're now in “ex-div” season in which companies start handing out the cash. Each distribution reduces a company's share price value by that amount and collectively these adjustments drag on the index. Bear in mind it's still a zero sum game. However, what we will also experience is “DRP selling”.
The idea of a dividend reinvestment plan is that companies might choose to offer investors the opportunity to take new stock at a discount as a distribution instead of cash. For the companies it's really just a back-door capital raising while for fund managers it represents an opportunity to try to lock in that discount for profit by selling the fresh stock immediately. So look out for downward pressure on some individual stock prices for about the next three weeks.
Rudi will be appearing on the Sky Business channel's Lunch Money on Thursday at midday. I believe I am scheduled to appear on Business View on the Friday at 2pm. Rudi will also be on BoardRoomRadio's Friday Afternoon Round Table this week.
For further global economic release dates and local company events please refer to the FNArena Calendar.
