FYI | Sep 18 2007
By Greg Peel
The NYSE experienced its second lightest daily volume of the year last night as traders lay in waiting for tonight’s Fed rate decision. The Dow fell 39 points or 0.3%, while the S&P lost 0.5% and the Nasdaq 0.8%.
Further losses were experienced in the financial sector ahead of this week’s profit reports as the fallout of the Northern Rock dilemma continued. Particularly hit was Merrill Lynch which fell 2.4% after announcing it would be shedding an undisclosed number of jobs. The FTSE 100 continued its regionally specific weakness, falling another 1.7% irrespective of what the Fed decision tonight might mean for world markets.
Online broker E*Trade suffered an 8.5% fall as the company announced it would spend up to restructure its business away from wholesale mortgage markets and concentrate on retail broking. Management announced new 2007 EPS guidance of US$1.05-1.15, down from previous market consensus of US$1.60.
The big move of the day came in the oil price which, having come off its highs largely on profit taking these last couple of days, shot up close to 2%, adding US$1.47 to reach another new all-time high at US$80.57/bbl. Direct impetus came from forecast upgrades from Goldman Sachs, which lifted its year-end forecast to US$85/bbl and 2008 to US$95/bbl. Goldmans famously predicted US$100-plus per barrel oil back in 2005.
But indirectly there has been a growing concern about the supply side, and that has a lot to do with Iran. If we didn’t have enough cause for volatility on the Street this week, it is also a week when the previous sanction framework against Iran from the US expires and a new framework is decided upon. Vice President Dick Cheney has been rattling the world with his bellicose talk of military action or, at the very least, sanctions against Iranian oil exports. While this is hardly new news it is clear Iran has paid little attention to US calls for a cessation in its nuclear program, and thus the next round of sanctions should only prove more severe. To enter into yet another war at this juncture would not be met well by financial markets, but in the meantime the risk of stifled supply out of one of the world’s leading oil producers is enough to push the price of crude ever higher as attention begins to turn from summer driving to winter heating.
Gold posted a similar response last night, rising US$8.80 to US$717.40/oz driven by posturing ahead of an expected rate cut, the rise in the price of oil, and the general desire for a safe haven status as Northern Rock spooks the markets and geopolitical tensions accelerate.
Gold’s move came as the US dollar ended mixed against the euro and yen. The pound has suffered falls as the Northern Rock story plays out and the Aussie suffered from surprising weakness last night without any significant movement in the yen. Despite the expectation of a US rate cut, the Aussie fell sharply from its recent highs over US$0.84 to be closer to US$0.83 once more.
Base metal markets closed largely mixed in London last night as they, too, await the Fed decision.
Australia will listen intently as RBA governor Glenn Stevens addresses the Asia Society today, hoping for clues on monetary policy. However, such clues might be more forthcoming after tonight. The SPI Overnight closed down 5 points.
