FYI | Jan 23 2007
By Greg Peel
The Australian market rallied to new highs yesterday on the back of bouncing commodity prices. With the exception of copper, metal prices were strong again overnight which should provide the impetus for the local market to overcome the effects of a downbeat night on Wall Street.
The Nasdaq had a bad run last week – down 3.4% – and the wobbles continued with concerns about the upcoming Microsoft result given disappointment from Apple and Intel. The Nasdaq was down another 20 points (0.8%) to 2,431.
The Dow was down 0.7% or 88 points to 12,477, with its worst performer, Boeing, continuing to drag the team down. Caterpillar also copped a 2% thumping, down to a 52-week low in an otherwise strong market over the period.
Gold tried to hit US$640/oz last night as the oil rally continued, but failed as oil reversed. It seems gold’s fortunes are now back to being tied to oil again, as well as the US dollar influence, as we appear to be standing on the cusp of the moment of truth for oil. Was the run up to US$78/bbl just hysteria? Will we, as some pundits are tipping, see oil back into the US$30s again?
A lot of credit has been given to a balmy US winter, which was enough to send the oil price tripping through major support levels over this new year. What has largely been ignored is the fact that Goldman Sachs downgraded oil within its commodity index, which has the self-fulfilling effect of sending oil lower still as funds managers adjust. The US is now looking at some more familiar colder weather ahead. Will oil bounce, or has the hoodoo been broken? And has China just suddenly shut down or something?
Disagreement over where the oil price will go next has flowed over to gold. Gold bugs have become less exultant in their rhetoric of late, looking for US$650 to break for a run to US$676 (we were meant to be at US$700-750 by now). However, even the bulls feel gold may yet undergo another correction towards US$600. If the US dollar remains strong, it’s hard to see a break out on the upside.
An interesting day ahead for the local bourse, with the SPI Overnight down 20 points. After a good day yesterday there may be some profit taking, but it’s hard to ignore those metal prices, and brokers continually banging on about cheap resources stocks.