Daily Market Reports | Nov 15 2011
By Greg Peel
The Dow closed down 63 points or 0.5% while the S&P lost 0.9% to 1252 and the Nasdaq dropped 0.8%.
Italy held an auction of E3bn of five-year bonds last night and although well subscribed the settlement yield of 6.29% was the highest paid by the government since the euro began and much higher than the 5.32% paid just one month ago.
Such a rate suggests the formation of a new technocratic government in Italy (and in Greece) is not being seen by the market as any sort of silver bullet, perhaps because the market has been let down by so many assumed silver bullets in recent months. Mario Monti may be a competent leader with multi-party support but that does not in anyway suggest Italy's debt problems will go away.
Spain will have a regular general election on Sunday and polls suggest the ruling socialist party will be ousted in a landslide to the opposition conservatives. The good news is that the conservatives are pro austerity measures and intend to raise taxes so we shouldn't be worried, we hope, that Spain will be the next eurozone basket case in which self-serving local politicians hold the world to ransom.
But bond markets are worried, or perhaps forcing the issue. Spain's ten-year yield rose towards 6.5% in August but came crashing right back down when the ECB stepped in and started buying. Recent sessions have seen that yield accelerating northward again and last night it jumped 23 basis points to 6.1%.
Meanwhile, the managers of the EFSF have been forced to deny a newspaper report that the facility resorted to buying its own bonds in the recent auction in order to make up the shortfall. Ratings agency Moody's has accepted the denial but is questioning the ability of the EFSF to support eurozone debt.
And just in case Moody's is not getting enough of the spotlight at present, it also put Swiss banking giant Credit Suisse on negative watch last night pending a credit rating review.
To top things off, the eurozone's industrial production fell 2.0% in September after rising 1.4% in August reflecting exactly the sort of slowdown widespread austerity measures should produce. It was the biggest monthly fall in over two years albeit economists had pencilled in a 2.3% drop.
It's not difficult to see, given all of the above, why last week's late euro exuberance reversed last night and the currency fell 1.3% against the greenback. The US dollar index rose 0.7% to 77.46 and the long-lingering European story again weighed on Wall Street after the big jump on Friday. The Dow did recover from being down over 120 earlier in the session but volume was basically pathetic.
The flipside of European bond markets is the US bond market and last night the ten-year yield dropped a couple of basis points to 2.02%. That doesn't seem like a big reaction except that the US bond market was closed on Friday and thus missed a possible rally in yield as stocks surged. As it was, the ten-year traded as high as 2.12% early last night before the euro really began to fall.
Gold is again just hanging in there waiting to be given some more definitive direction. It fell US$5.50 last night to US$1781.80/oz. The Aussie lost 0.8% to US$1.0194.
Movements on base metals were mixed with copper rising 1% and nickel falling 3%. Traders decided oil had been running a bit hard and sold last night, with Brent falling US$2.74 to US$111.99/bbl and West Texas losing US76c to US$98.23/bbl.
The SPI Overnight fell 36 points or 0.8% after offering no response yesterday to Wall Street's big move up on Friday.
The RBA will publish the minutes of the Cup Day meeting today while tonight will bring a raft of interesting data beginning with an estimate of eurozone September quarter GDP. The US will see retail sales.
Commonwealth Bank ((CBA)) will provide its quarterly update today.
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