FYI | Oct 03 2007
By Greg Peel
The Dow closed down 40 points or 0.3% last night while the S&P lost only 0.03% and the Nasdaq gained 0.2%. The Dow remains above 14,000. It was a day for concentrating on specific stocks and sectors following yesterday’s surge. The focus now turns to Friday’s employment numbers which, again, will have a bearing on whether or not a recession looms.
Not that a recession can be declared overnight, and nor is it the result of simply one bad number. It might take six months yet to decide whether the US economy has slowed more than anticipated. But the real focus is not on the recession itself, but on the chance of an October Fed rate cut to follow up September. Presently it’s hard to find anything that’s going to set this market falling again. If the jobs number on Friday is bad, that means more chance of a cut. If it’s good, that means less chance of a recession. Win-win.
Last night was a night for more grim housing data, but then no one is expecting anything but grim housing data. That story is factored in. Pending sales of existing homes fell 6.5% in August month-on-month, and 21.5% year-on-year. September auto sales were down 3% overall with some pretty mixed results among the big manufacturers. Ford’s sales fell 21% after a 60% reduction in sales to car rental companies.
These numbers are currently not surprising anyone, and we have a situation where the sectors that were trashed during the credit crunch are now the stars given the news could hardly get any worse. That’s why home builders surged again on the housing data, most auto manufacturers closed up, airlines have been rising despite the higher oil price and financials are in raptures when Citi reports a 60% loss.
The US dollar managed to put in a second consecutive positive session last night which was enough to finally tip gold over. It’s been all one-way traffic from US$670 to US$750/oz so something was always going to give. US$750/oz was the next anticipated resistance level after US$700 and when the profit taking began the trickle turned into a flood. Gold fell US$17.60 to US$729.20/oz. The Aussie dollar came under similar pressure after its unbroken run, falling a full cent in local time yesterday and staying that way offshore. The Aussie currently stands at US$0.8837. The square-up was probably prompted by today’s pending rate decision from the RBA.
In gold’s case, the bulls see this fall as a healthy pullback in a strong rally but others warn prolonged consolidation of the US dollar could spark a more significant fall . Tomorrow night both the ECB and BoE make rate decisions and it is unclear as to what those will be, although cuts seem to have the lower odds. The price of oil, which last night slipped slightly to US$80.05, can also affect gold.
Base metals were largely quiet again in London last night with nickel bouncing back 1% and lead rising 2%.
The SPI Overnight was down a whole 1 point.
