Daily Market Reports | May 10 2011
By Greg Peel
The Dow closed up 45 points or 0.4% while the S&P gained 0.5% to 1346 and the Nasdaq added 0.6%.
Remember MENA? While disturbing vision of carnage in Syria has been dominating the television news, ongoing news of the protracted battle in Libya has slipped further down into the “seen it” slot. Indeed, news of the death of one of Gaddafi's sons last week was quickly overshadowed by the death of Osama Bin Laden. Since then we have witnessed a panic exodus of speculative positions from commodities, particularly oil and precious metals. Osama's death was simply a trigger, as good as any other, for the silver bubble to burst, which in turn sparked the big commodity sell-off.
Last night it was reported that NATO warships had fired on the Libyan port city of Misurata. The city is rebel-held but under siege, and the ships have been there to clear mines in the harbour to secure the passage of aid. Gaddafi's forces have previously attacked oil storage tanks at the port. This news reminded oil traders that supply risks still linger in MENA.
And the Mississippi River is flooding in the mid-west, threatening to impact not only on refinery production but also crude pipelines. Put these two fundamental elements together with last week's big speculative/technical sell-off in oil and suddenly the buyers were back last night. Both US gasoline and West Texas crude rose strongly, with WTI up 6% or US$5.86 to US$103.04/bbl. Brent jumped 6% or US$6.77 to US$115.90/bbl.
Precious metals, which had been more heavily sold than oil last week, also accelerated their rebound last night. Gold rose US$18.10 to US$1513.50/oz and silver leapt 6% to US$37.85/oz. With the momentum-trading speculators buried in the silver market last week, silver traders point to the metal's growing industrial use, including in the likes of solar panels and mobile phones/tablets, as a fundamental reason to be long.
Commodity prices were helped by a slight dip in the US dollar last night after a few sessions of strength. The dollar index fell 0.4% to 74.66. The euro had been weaker earlier, on the news of the Greek bail-out restructure and a (shock, horror) downgrade of Greek debt by S&P, but after its big plunge last week, some buying returned to see the euro close only slightly weaker. Stock markets were nevertheless weak in Europe.
Base metals have not been nearly as volatile as precious metals given their greater weighting to fundamental demand/supply issues rather than just an inflation trade. While weaker last week, base metals closed only around 1% higher last night.
Which was all enough to drive the Aussie higher again, ahead of tonight's Budget. Another cent back to US$1.0808 is not helping the local stock market cause.
The rally on Wall Street last night was all about the energy and material sectors unsurprisingly, with other large sectors like financials left behind.
No doubt eyeing the stronger Aussie, the SPI Overnight fell 3 points.
NAB pulled a swifty on the FNArena calendar yesterday and released its monthly business survey a day earlier than its usual schedule. Conditions and confidence slipped in April following a big jump in March, weighed down by the currency impact and speculation of another RBA rate rise. The indices remain just on the positive side of neutral.
Today will will see monthly trade balance results from both Australia and China ahead of tonight's Federal Budget.
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