FYI | Aug 28 2007
By Greg Peel
It was a familiar trading pattern in the Dow last night. Early weakness driven by the release of housing data gave way to a steady claw-back as some M&A news came in and then in the last hour the market slipped off to close near the lows once more. The difference, however, is that volume continues to be light and the day’s 70-odd point range was tight by recent standards.
The Dow closed down 57 points or 0.4% while the S&P was more dramatic with a 0.8% fall. The Nasdaq lost 0.6%.
Having been encouraged by a better than expected July new home sales figure last Friday, the market might have thought that maybe, just maybe, last night’s July existing home sales figure wouldn’t be too bad either. Unfortunately it wasn’t to be. Sales fell 0.2% to register the twelfth straight month of losses, meaning sales have slowed to the most sluggish rate in six years. More ominously, however, inventories of unsold homes jumped 5.1% to a record 4.59 million units.
These are July figures. The real “credit crunch” is considered to have begun on July 24 when Countrywide announced a 33% drop in profit.
These figures once again brought the R-word to the fore, a portent that might have been reflected in commodity prices had not the LME been quaintly closed for a bank holiday. Without direction from London, New York commodity markets barely moved. Oil did initially take a tumble as might be expected, but was met with crack-spread buyers coming back. Gasoline prices continued to rise strongly as more concerns were raised over refinery problems.
Dampening the potential falls on the NYSE was some M&A news, including US Steel moving on Canada’s Stelco and Taiwan’s computer seller Acer looking to buy US computer maker Gateway. Home Depot provided mixed signals however. America’s largest home renovation supplier did manage to finally put to bed the sale of its wholesale distribution business to private equity, but only for US$8.5bn – US$1.8bn less than the pre-credit crunch price. And to achieve that price, Home Depot itself even had to guarantee US$1bn of the debt taken on by the buyers.
Elsewhere in the markets the yield curve continues to straighten out again with 10-year bond yields falling to 4.57% from 4.62%. The US dollar was once again mixed but this time it was up against the euro and down against the yen. A stronger yen is worrisome for the Aussie but it held its ground at US$0.8281. Gold slipped slightly.
Another breather day for the runaway local market? The SPI Overnight was down 35 points.
And just as a note for those who believe Armageddon has been comprehensively avoided, at 6.50pm eastern tonight the moon will turn to blood.
