FYI | Aug 25 2007
By Greg Peel
The summer vacation period in North America is quietly drawing to and end, with officially one week to go before the kids are back in school. For many a Wall Street trader it was the summer vacation they never had, so with relative calm descending on markets this week it’s hardly surprising that a Friday should see a thinning of interest in real world activities.
Only 1.18 billion shares changed hands on the NYSE last night – very much an August Friday volume and a good 20% of the sort of volume being traded last week. But is wasn’t all a matter of disinterest, as two rather important pieces of economic data were released. And they had an impact.
Analysts had expected July durable goods orders to rise by a modest 1%. When the number came out at 5.9% – the biggest rise in 10 months – it was hard to know what to think. Durable goods include non-consumed items such as cars, fridges and furniture, as well as big ticket business purchases such as IT hardware. Traders can be forgiven for expecting that under the current circumstances, orders for such goods should have dropped off.
But then these numbers reflect orders that would have still been made before the real panic hit the Street. There is still very much a “rear view mirror” aspect to them. And the other problem is that the market wants the Fed to cut the cash rate, and numbers like these are hardly going to expedite that decision. Never mind, no doubt the July new home sales number will be a shocker.
But it wasn’t. New homes sales actually rose 2.8% in July, following a 4% fall in June. What’s going on here? Has the market simply overcooked the panic about a housing market collapse? Or are these numbers simply too old to be representative of the new world order?
Either way, it was a positive for stocks in general. The Dow trended up higher all day and kicked on the death to close up 143 points, or 1%. The Nasdaq put on 1.4% but importantly, the S&P 500 closed up 1.1%.
The reason this was important is because the positive economic data pushed the S&P (the index that most traders focus on) towards its 50% correction retracement level. There was a fair amount of shorting into this level from hedge funds expecting that it would represent the end of the correction of the correction. But the buyers were winning, and so the final kick into the green was as much about fresh short covering as it was about anything else as the 50% level was exceeded.
For the price of oil, if it’s not hurricanes one day it’s fires the next. A fire in a large Chevron refinery in Mississippi resulted in the company declaring force majeure on crude purchases. The refinery could now be running at only 50% capacity for four months, a spokesman said. Oil jumped US$1.26 for October delivery to US$71.09/bbl.
Oil helped push up gold, which put on a solid US$7.90 to US$667.40/oz aided by a weakening US dollar. The dollar continued its fall against the euro and pound, once again eyeing off the 80 level in its index. A breach of this level would be historically significant. But yen selling again picked up pace, suggesting carry trading continues to make some sort of comeback. The Aussie dollar, which last week was looking at US$0.77, is now pushing back towards US$0.83.
Base metals had another good night, spurred on by the positive US data. All bar nickel, which was steady, put on 1-2% while lead kicked on with another 3.6%.
The SPI Overnight rallied 97 points.
