FYI | Sep 08 2006
By Greg Peel
The Dow was down again last night, falling 75 points or 0.66%. Similar falls were experienced in the Nasdaq and S&P500.
On Wednesday it was higher than expected labour cost growth numbers that set Wall Street to thinking perhaps the prolonged period of monetary policy tightening was not over as was hoped. This sparked a 63 point fall.
Last night it was time to reflect on the other side of the balancing act – a US economic slowdown. Several homebuilding companies reported that the slowdown in housing, from both the building side and the existing homes sales side, was worse than had been previously considered. This brought back concerns that the US economy may suffer more of a hard landing than a soft one.
To make matters more confusing, the San Francisco Fed president noted the problems in the housing market before once again warning that inflation needed to be kept in check.
After trading up in August on thin summer volumes the market was happy to take profits again in the face of data that seems to be negative either way. As to what the Fed might chose to do at the next meeting is a bit of a lottery at this stage.
The US dollar didn’t quite know what to do, given Wednesday’s inflation concerns and last night’s economic concerns, so it settled for a fall against the yen and rallies against the euro and pound.
Another slip in the oil price, largely credited to higher than expected gasoline inventory numbers, along with news that China’s gold production had increased by 9% in the first half of 2006, and that South Africa’s Gold Fields was planning mine expansion, sent the gold price crashing a further US$17/oz to US$616.50/oz. A stronger dollar added to the negativity.
Yet gold traders continue to be unconcerned. Technical analysts have been hoping for consolidation around the US$600/oz level and fundamentalists are even more convinced the Asian wedding season will see a big drive in jewellery demand given prices are currently not daunting.
Try and find anyone who doesn’t expect the next round number in gold to be US$700/oz.
It looks like volatility will persist on Wall Street for at least a while yet.