FYI | Sep 07 2006
By Greg Peel
It’s still summer holiday mode in the US, so any significant moves have to be cautiously considered. However, the fact the Dow fell 63 points or 0.5% is not so vital other than the reason for the fall.
Firstly, the productivity figure for the second quarter was revised up to 1.6%, which was welcome news in a market concerned with rising inflation and a slowing economy. But just when further Fed tightening seemed even less of a possibility, the labour cost revision came in at 5%, which equals the fastest pace of labour cost growth since 1990.
August has seen a gradual rally from the Dow, so it was not great surprise to see this news spark a bit of profit-taking. It is unusual for August to be a positive month. The Nasdaq copped worse however, falling 38 points or 1.7%. This reflects the fact that techs have had an even more positive August than the broad market.
Assisting the Nasdaq fall was a 0.7% slap to Intel, which announced it would only cut 10% of its workforce. The market was expecting more.
The oil price continued its downward drift, which really has to be put down to the “no new news” factor. The oil price had built in a significant geopolitical/hurricane premium, and its all quiet on those fronts (pardon the pun). This could all turn on a dime of course.
After a strong few days, gold drifted back US$5/oz to US$633.40/oz as the US dollar picked up again on renewed rate hike speculation. Gold traders are actually pleased with the pullback, because it will encourage physical buyers – jewellery makers ready for the wedding rush – into the market and actually help build the base for a run up to US$700/oz by the end of the year, as many observers are expecting.