FYI | Oct 20 2006
By Greg Peel
What’s going on in the US economy? No one seems to know.
On Wednesday the Dow Jones had another go at the 12,000 mark when, lo and behold, September housing starts were up – yes up – 5.9%, following the August number of down 4.9%. Hooray! And there we were thinking there was a housing crisis! The Dow surged about 90 points and 12,000 looked like history.
Then out came housing permits – down 6.3% in September. “Permits” are required before you can make a “start”, meaning the permits number leads the starts number by one to two months. Groan.
There was also news that consumer prices had fallen 0.5% in September. Hooray! And there we were thinking the Fed was really worried about inflation. But it turns out year-on-year core inflation was up 2.9%. Groan.
The Dow slipped back some 50 points in the afternoon, failing to set a close above the magical 12,000 mark.
While all this has been going on, US companies have continued their quarterly reporting. Last night tech stocks were generally strong again, and a surprisingly good result was posted by Coca-Cola. The Dow burst through the barrier again. Would it hold this time?
No.
All eyes were on the Philadelphia Fed manufacturing activity number. Why is such a specific figure important? Because last month it was negative for the first time in a very long time, and this spooked the market. This time the market expected a positive.
It was disappointed. The index figure fell from minus 0.4 in August to minus 0.7 in September, against expectations of a 7.8 rise. To top things off, the oil price, which has been bouncing around most nights lately, bounced up again on more Saudi cut back talk. Once again, the Dow slipped.
But it recovered, and more positive reporting finally saw the Dow stumble over the line to close at 12,011 – up 19 on the day.
The gold price was stronger on the back of the oil price, and a weaker US dollar sparked by the Philly number. The US dollar appears trapped in a range of 1.25 to 1.29 against the euro at present, so a breakout could well prove significant. Gold is trying hard to attack the US$600/oz level, although it is still rather fragile. It finished in New York at US$598.80 bid last night, but the bellwether Comex contract did close above the US$600/oz mark for the first time in a while.
Base metal prices were generally stronger, and all up overnight. SPI traders factored in a return to the positive in Australia today, with the December contract closing up 22 points.