FYI | Aug 30 2006
By Greg Peel
It’s summer in North America, and as the result the floor of the NYSE resembles a bit of a ghost town following the end of the reporting season and the height of the tanning season. Such it was that an 18 point rally in the Dow, to 11,370, lacked any real conviction.
The morning session saw activity in the doldrums, as the release of worse than expected consumer confidence figures – the worst since November last year – and a rising bond market affected an apathetic drift off in the index of about 10 points.
Crude oil also continued its downward drift, with the spot crude price finishing the day under US$70/bbl. While Lebanon seems relatively settled, Iran has temporarily left the front page, and Hurricane Ernesto has deigned not to make the anniversary of Katrina even more devastating, the risk premium afforded oil above its supply/demand fundamentals continues to erode.
Oil brought gold down with it in the morning session, to around US$607/oz, until the release of the minutes of the Fed meeting earlier in the month – in which it was decided not to raise rates for the eighteenth time – affected a recovering rally.
Wall Street digested the news positively as well. The minutes suggested the decision not to raise was a close call, but the new projections suggesting below-trend economic growth for the next eighteen months tipped the balance. The fear is that another hike will be overly detrimental for an economy suffering from falling housing prices and lower household disposable income.
This doesn’t mean the spectre of inflation has gone away, but the Fed did suggest it sees core inflation pressures beginning to ease in the coming quarters.
Once traders had had a chance to sift through the Fed document, renewed confidence turned the Dow around and a rally ensued in very light volume. Gold also left its oil connection behind and focused on a slowing US economy, and as such a weaker dollar, as it pushed back to US$614/oz.
There was little direction in the SPI contract overnight, finishing up 2 points. Metals prices came under some pressure, with nickel in particular down 4%. Is Foster’s under threat of takeover? That appears to be the story of today (following on from yesterday).