Daily Market Reports | Feb 02 2008
By Greg Peel
The Dow rose 92 points or 0.7% on Friday. The S&P gained 1.2% and the Nasdaq 1%.
Microsoft once stood alone at the top of the technology mountain – a phenomenon so revolutionary as to become ubiquitous almost overnight. The software company ruled the world, and the world looked upon Microsoft with awe. But then Google came along.
Pride comes before a fall. Both the software giant, and similarly spectacular internet search engine Yahoo, soon realised the cost of their complacency over the last few years as a new phenomenon called Google emerged to out-innovate the innovators. The incumbents were looking the other way, and suddenly realised they had a lot of catching up to do. But then Microsoft saw an opportunity. Yahoo’s shares had fallen from US$34 to US$19 since November. Separately the two had failed. Together they had a chance. And so it was that Microsoft announced an unsolicited bid for Yahoo last night.
This was no ordinary bid. At US$31 per share it represented no less than a 62% premium to the previous close. Clearly Microsoft has estimated the synergies, and then added a bit more to make sure the deal could not be contested. For Wall Street, this was a sign. All is not lost.
Before this bombshell, the highlight of Friday’s session was always going to be the job numbers for January. The Street was looking for around 70,000 jobs to be added. As it was, 17,000 were lost. Then it was announced construction spending had dropped 1.1% in December – twice as much as estimates. Consumer confidence measures were also, unsurprisingly, weak.
The most emphatic pointer to a recession is falling employment. But it usually takes several months of falling employment before a true recession begins. So far, this is the first. But Wall Street wobbled anyway, and the US dollar tanked and gold took off to US$940/oz. The Aussie leapt to US$0.9039.
Nevertheless, the weakness wasn’t to last long. Economists had expected the ISM manufacturing index to fall to 47 in January from 48.4 in December. The release of the December figure caused a big drop in the stock market last month, as a number below 50 signifies contraction. But last night the January number came in at 50.7. How on earth is anyone meant to correlate these economic data?
With the ISM and Microsoft, the weakness evaporated. The Dow ran up to post its 92 point gain. The US dollar bounced hard, suggesting the world had been short ahead of the jobs figure. Gold collapsed to be down US$17.50 on the session, suggesting the world is long. The oil market probably wondered which numbers to use as a lead, and decided the weak jobs number and a dollar bounce was good enough to sell crude down US$2.79 to US$88.96/bbl.
And adding to a more bullish sentiment was rumours about a consortium of banks gathering to bailout Ambac – the country’s biggest bond insurer – and thus to prevent its de-rating. A de-rating of bonds would be devastating for the banks, and so a dollar spent could mean many dollars saved. The only problem is, which banks have any capital left to deploy? At this stage it is still a rumour.
Base metal prices posted solid official closes in London, before drifting off in the confusion of the US session.
But perhaps the most interesting move in markets on Friday night was in the SPI Overnight. The physical ASX 200 added 3.4% on Friday, and then the SPI rallied a further 3.5%, or 202 points, on Friday night.