FYI | Feb 14 2007
By Greg Peel
If America sneezes, Australia catches a cold, but if BHP and Rio bid for Alcoa, suddenly America realises the world’s two biggest diversified miners hail from downunder – not just some strange little man with a misplaced sense of power.
The Alcoa takeover rumours were the headline on Wall Street overnight which, along with some other M&A action, sent the Dow up 102 points or 0.8% to close at 12,655. After a week of drifting, as traders wondered whether the air had gone out of the profit/M&A balloon, this was what the doctor ordered. (Alcoa is a Dow component).
Wary analysts are still pointing out that earnings reports are mixed, however, and there are renewed fears building that when Fed chairman Bernanke reports to Congress on Wednesday the I-word may again take centre (or center) stage. As the oil price heads north again, other Fed officials have already hinted at renewed inflation fears, and the market is again beginning to contemplate the possibility of a rate hike.
Nymex March oil futures closed up US$1.14 or 2% to US$58.95. The oil pit in New York must resemble a coop of headless chooks at the moment. Up, down, up, down goes the price. Last night’s move was supposedly on speculation that US inventory numbers, to be announced shortly, will have retreated from high levels during the warm snap to much lower levels in the cold snap. Well duh. No wonder the US also trades weather futures.
The oil price rise was good news for gold, as was the news that the US trade deficit had widened by 5.3% in December – greater than expected – to be US$61.2bn and a new annual record. The Bush Administration’s trade policies again came under fire.
Spot gold rallied back over US$668/oz on the news, until the announcement was made that North Korea would close its nuclear facilities in exchange for “oil aid” to the tune of 100m barrels. This triggered some “geopolitical risk” selling, resulting in a pullback to US$664/oz.
You’ve got to hand it to Kim Jong-il. Stir up a bit of fear, fire off a couple of pop-guns, and then offer to close down a facility that probably couldn’t produce a decent firework, let alone a WMD, and your oil needs are quickly met. Why this should be considered the removal of a frightening threat is anyone’s guess, and gold only pulled back US$4 on the news anyway.
Speaking of cracker nights, it was a cracker night for base metals. Aluminium up 3%, copper up 4%, nickel up 1.5% and zinc up 3%. This should make for interesting trading in the local miners today, particularly as BHP and Rio were sold off on the Alcoa news yesterday. The SPI overnight was up 34 points.