FYI | Nov 30 2007
By Greg Peel
A rare night on Wall Street – it was quiet. The Dow spent all day fluctuating in a relatively tiny range before closing up a mere 22 points or 0.17%. The Nasdaq added 0.2% while the S&P managed only 0.05%. After three days of mayhem, exhausted traders were happy just to consolidate. The market did, however, mark three consecutive days of gains. You have to go back to September 24-26 to find the last time this happened, and that move only totalled 111 points. At 568 points, this move is the largest consecutive gain in five years.
Last night saw the official release of the third quarter GDP, which at 4.9% seems pretty damned strong and well ahead of the earlier 3.9% estimate. However, the number was largely ignored being, as it is, now nearly a quarter old and measured during a time when the credit crunch had just set in. The economy lags such immediate events, and the only number anyone is now interested in is the fourth quarter.
More immediate economic data were weak, with weekly jobless claims rising 112,000 – the highest level since late 2005. No one was much surprised by third quarter fall of 0.4% in house prices from the previous quarter. Moreover, the October figures released previously were particularly bleak.
Also bleak was news from large US retailer Sears that its profits had dropped 99% in the third quarter and the outlook was not much better. Sears shares dropped 11%. Computer maker Dell came out after the bell and announced a 27% rise in profit, but missed estimates and its shares have fallen 5% in the after-market.
Despite a Fed rate cut now being fully priced in, the US dollar traded higher last night against all currencies except the yen (which reversed some of yesterday’s selling). The futures are now rating a 25 point cut as a 165% chance, meaning 65% are expecting 50 points. The dollar’s bounce was explained as a technical move, with oversold positions being squared and stop-losses triggered. Gold responded by falling US$11.70 to US$792.00/oz. The Aussie copped it both ways (yen and US) and fell almost US1c to US$0.8820.
There was a bit of a rush back to US Treasuries, with yields losing much of yesterday’s gains.
One big story of the day was an explosion in a major Canada-US oil pipeline in Minnesota. The initial response was for oil to leap US$4 after two days of heavy falls, but eventually it became apparent only one of four pipes was damaged. Oil drifted back to close up only US39c to US$91.01/bbl. Traders did make the point, however, that a week or so ago such news would have sent crude straight through US$100. The fact that it was sold down again means the market has turned short term bearish, and commentators are looking for a move to US$80-85/bbl, barring any further external shocks.
Base metals marked some strong official closes in London to catch up with Wednesday. However, the mood turned later in the session with all slipping back bar copper which held onto a 3.5% gain. Nickel tanked, falling 4.5%. Moves are better reflected in the New York prices.
The SPI Overnight rose 22 points.
One reason the market was quiet last night was because Ben Bernanke is speaking at 11am (AEST). If he says anything interesting, we’ll let you know.
