FYI | Sep 26 2007
By Greg Peel
And so it has come to pass that Wall Street is no longer able to find a reason to sell stocks. Good news is always good news, but bad news is good news too because it only strengthens the case for another rate cut which the Fed has indicated it is more than willing to make. There was bad news last night – some of it even worse than expected in the circumstances – and the Dow closed up 20 points. The S&P and Nasdaq posted similarly insignificant moves.
Before the bell, home builder Lennar Corp followed up yesterday’s profit warning with the real numbers which were even worse than the market expected. The stock fell another 4%, dragging down the whole building sector. Lennar further announced it had cut 35% of its workforce to date and more jobs were expected to go in the fourth quarter.
The retail sector was also hit heavily as Target and home renovation specialist Lowe’s (not to be confused with its Australian namesake) both announced downgrades to sales forecasts for the Christmas period ahead. Target fell 4.6%, Lowe’s 6.7%, and the rest of the sector took a sympathetic beating.
Then we had the new home sales figures, which no one ever expected to be good. Sales fell for the sixth month in a row in August to hit a five-year low. The Case-Shiller home price index of ten US cities fell 4.5% in July, hence accelerating the losses which have been recorded for every month of 2007. (Readers who watched the ABC’s Four Corners program last week will remember Prof Shiller and his Amsterdam graph). Prices in sixteen of the twenty largest US cities fell in July.
Feeling confident? Well the Americans aren’t. Consumer confidence was expected by analysts to fall from 105.6 in August to 104.5 in September on the index but the actual reading was 99.8. This is the lowest reading since November 2005 when oil prices skyrocketed in the wake of Katrina/Rita.
In any other world, the above numbers might have sent Wall Street spiralling. They have recession printed all over them. But not in this world.
In this world bad news is good news as traders are already beginning to factor in the next Fed rate cut. Rate cuts rarely come in ones. So you might as well attempt that triple somersault with double twist off the trapeze as there is a great big safety net underneath you. The Dow fell 63 points in early trade and then turned around.
There was some good news however. The Richmond Fed manufacturing index for September rose from 7 to 14. And the oil price – which had begun to become a source of some consternation – fell US$1.42 to close at US$79.53/bbl for the November contract, which seems a lot less ominous than the October close at US$83.32/bbl. Oil has been overbought, and traders are becoming less worried about tropical storms in the Gulf which to date have fizzled out benignly.
The US dollar closed mixed last night as it continued its fall against the euro but rallied against the pound. (Battler US$0.8730). Gold rallied US$1 however, despite the fall in oil. Base metal prices were largely weaker with the exception of aluminium, which gained 1.5%.
The SPI Overnight was down 10 points.
The big news today locally will be the release of BHP Billiton’s annual reserve update. The world’s largest miner has put on about 8% in the last two trading days as rumours unfolded of pots at the end of the rainbow. Sell the fact? Or is there more to come?
