FYI | Nov 30 2006
By Greg Peel
While Tuesday night’s sell off on Wall Street indicated a pall of nervousness overhanging the bourse, with all eyes peeled for the next economic indicator, it seems deep down traders are still itching to buy. So it is that any positive news tends to overshadow any negative news.
There was no doubting that a third quarter GDP growth figure of 2.2% was a positive when the Commerce Department had forecast 1.6% and consensus was pegged at 1.8%. This was the impetus needed, as lately the data have not been particularly exciting, and the dollar breakdown has been the elephant in the room. The Dow closed up 90 points, or 0.7%, at 12,227, while the S&P500 rose 0.9% and the Nasdaq 0.8%.
The dollar did manage a bit of a bounce against the euro, although it could hardly be called a major reversal, and response against other currencies was mixed.
The GDP news served to reinforce the “soft landing” scenario that many economists are tipping (hoping for?). It stands in contrast, however, to news earlier in the week that durable goods demand fell 8.3% in October following an 8.7% rise in September, that sales of new homes fell 3.2% in October, and that consumer confidence continued to decline in November for a second month.
Ben Bernanke has been out and about reinforcing warnings about the evils of inflation, but cynics suggest it’s a thinly veiled attempt to prop up an ailing greenback.
Gold drifted off on US dollar strength, but was buoyed by the continuing reversal in the oil price. US$640/oz is proving stiff resistance, but experts are confident this level will be broken.
There was also further speculation about central banks looking to buy gold, with India now throwing its hat in the ring with Russia, China, Dubai and others. All talk and no action so far, although it could prove interesting if there was a central bank rush.
Base metal prices did nothing spectacular last night, and despite a solid rally on the local bourse yesterday, the SPI overnight was up 42 points. Oil companies may be set to lead more of a rally today, ahead of a possibly quiet Friday as traders drift off after lunch to take in the Second Test.