Daily Market Reports | Nov 18 2011
By Greg Peel
The Dow fell 134 points or 1.1% while the S&P lost 1.7% to 1216 and the Nasdaq dropped 2.0%.
We saw it late on Wednesday night on Wall Street – a very sudden plunge in indices that really could not be justified by an obvious comment from the Fitch ratings agency. With trading volumes currently anaemic as investors wait for some sign – any sign – of a more positive outlook in Europe, all it takes is one decent portfolio sell order, stop losses to be set off, and high frequency computers to spring into self-fulfilling action.
Last night the story appeared to be the same. The Dow was bungling along the flat line until midday when suddenly it fell off a cliff. Commentators scrambled to find the reason for the sudden plunge but realistically there was no new news of any note out of Europe, or any other obvious justification. When the S&P 500 broke technical support at 1225 it was on.
Most likely the lack of new news out of Europe is an underlying source. And while nothing has been happening, eurozone bond yields have continued to scare. Italy's ten-year managed to slip just below the 7% mark but Spain has become the real worry now, rising again last night to 6.5% as we head into the Spanish general election this weekend. And if that's not enough of a concern, the French yield is also quietly on the rise. The longer it takes for the EFSF to find its leverage solution, the more nervous markets become. We had a decent rally to this point, but now investors are losing the faith.
The pendulum of concern is also now swinging back to the US. We've had some pretty positive data from the US of late, and last night's weekly new jobless claims data were the best in seven months, but the influential Philadelphia Fed manufacturing index has fallen to 3.6 this month from 8.7 when economists had expected a rise to 10.0. More ominously, the inter-party committee charged with the task of sorting out the US debt ceiling/budget cut battle was last night rumoured to be – surprise, surprise – in a stalemate as the deadline looms.
There are stock option expiries approaching tomorrow, and many commodity futures contracts are also closing in on front month expiries. These excuses were used as some way of justifying indiscriminate and sudden selling in all commodities last night, including gold. Exacerbating the issue is the MF Global demise, as traders can now shift positions held to another clearing broker and are finding higher margin costs, which force them into selling. The commodity sell-off coincided with the stock sell-off, providing questions of chicken and egg.
In the oil pit, traders claim the US$3.64 drop in West Texas to US$98.95/bbl was largely a reversal of Wednesday night's rally as traders came to realise the “pipeline reversal” announced last night is not going to be quite so straightforward. But Brent fell US$3.42 to US$108.46/bbl so general commodity selling was still very much a part.
A 3.7% fall in copper led all base metals down in London by 2-3% while gold dropped US$43.80 to US$1724.40/oz despite the US dollar index being little changed at 78.26. Someone, it seems, is selling everything. The Aussie copped it, falling a cent to US$0.9989.
The SPI Overnight was down 64 points or 1,5%.
What can we read into the last two sessions on Wall Street? Not a lot, I believe. Quite simply, no one wants to play meaning anyone who does want to play is very lonely and very influential on prices. But as I suggested, the longer it takes to get some positive news out of Europe, and to get those bond yields down, the more likely it is we'll go back and test those September lows.
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