FYI | Dec 15 2006
By Greg Peel
The Dow breached 12,400 for the first time in history last night in an orgy of buying that added 99 points to 12,416. The Nasdaq was up 21 points and the S&P500 12, rounding out an across the board surge of 0.8-0.9%.
Perhaps Wall Street suddenly remembered it’s historically supposed to rally before Christmas. Santa would say this is because of the good cheer generated ahead of the ho-ho-holidays. The Grinch would say it’s because the US accounting year ends in December for a lot of companies and it’s the time to dress up the books, particularly if you’re a fund manager.
However you view it, there was no denying a raft of strong quarterly profit results out of the banking, retail and computer sectors was a pretty good fillip.
Adding to the euphoria was news that US unemployment had plunged again. Huzzah! said the traders. This means the economy is not slowing as much as we thought.
Curious, really. While the US economy may not be in as bad a shape as perceived earlier, low unemployment usually points to higher inflation ahead. A full workforce will be better remunerated and ready to spend, spend, spend, and this is good for profits, but isn’t this what the Fed’s rather worried about?
There now has to be serious doubts as to whether the interest rate cuts previously expected in 2007 will ever materialise. There may even be cause for the Fed to raise again. Last May the bull market collapsed on a Fed rate hike. Why is it different now?
Adding to the confusion was news from OPEC that they won’t cut production right now, but they will cut in February. Those who believe what OPEC says pushed the oil price up US$1.13 to US$62.50/bbl on Nymex. This should actually put a dent in consumer spending, but what the hey. Airlines were sold down.
Gold went through another one of its identity crises: oil price good, inflation good, US dollar bad; before drifting off to US$625.10/oz. Gold is proving reasonably resilient against recent US dollar strength and is yet to test support levels.
As for base metals, blimey. Haven’t we been talking about weakness ahead for 2007? Overnight aluminium was up 2.5%, copper 2%, lead 3.5%, nickel 3.5% and zinc 2.5%. It could be one helluva ride today on the local bourse, which is already charting blue sky. The SPI overnight was up another 40 points.
Ho, ho ho.