FYI | Oct 24 2006
By Greg Peel
It’s a terrible thing this US economic slowdown. It just seems to be impacting right across markets sending the US into morbid doldrums. Not.
Wall Street will take any excuse. Economists across the world have been calling an “inevitable” fall in the US dollar for some months now, and must be starting to wonder. The greenback remains as strong as ever, apparently still hanging in there as the investment of choice. What is also supporting the dollar is the latest thinking surrounding US rates.
It only seemed like yesterday that everyone in the US was terrified about inflation, and potential Fed rate rises. Then the housing crisis kicked in, and forecasts swiftly turned to expectations of Fed easing. However, the Fed has continued to preach concern over inflation, such that rates are not necessarily expected to be cut any time soon.
And that is positive for the US dollar. Only months ago talk of unchanged rates would have been negative for the greenback.
Wall Street doesn’t need much in the way of a push at the moment. The oil price fell again last night, by 3% to US$56.82 on Nymex, which might be bad news for energy companies, but it’s part of the good news for everybody else. In the meantime, profit reports continue to surprise on the upside. Third quarter earnings look set to grow by 18%, ahead of the 14% forecast. Over 70% of the 150 S&P500 companies reporting quarterly have surprised on the upside.
AT&T was a biggie last night, suggesting the consensus Overweight calls on the telco sector in the US are on the mark. Hello Telstra? Wal-Mart also thrilled the market by suggesting it would significantly reduce capital expenditure. Even GM looks like posting a good result, which offset the mood from a shocker from Ford.
The Dow Jones flew higher into blue sky, gaining 115 points to 12,117, or nearly 1%. The Nasdaq and S&P500 were both up 0.6%.
Oil and the dollar conspired to deflate any chance of another run at US$600/oz in the gold price. Gold fell heavily to US$581.30 despite reports buying out of India remains healthy. The bulls are still putting much stock in the Indians, but it doesn’t seem to be having a lot of impact. At least it should provide a floor. Pundits who expect gold over US$700/oz by year-end, due to the “inevitable” fall in the US dollar, must be scratching their heads.
The oil price continues to find downside, despite talks of OPEC cuts. The reality is, however, that many OPEC countries are not actually producing at capacity now, so cuts in quotas will thus have no real effect. A quieter night for base metals saw a mixture of small moves.
The Australian market took a breather yesterday, after a week of media fuelled frenzy and persistent takeover rumours of just about every stock in the market. With the SPI up 20 overnight, a more positive tone will likely emerge, except in the energy and gold sectors.