Daily Market Reports | Feb 12 2008
By Greg Peel
The Dow closed up 58 points, or 0.5%. The S&P gained 0.6% and the Nasdaq 0.7%.
Once again the feature of the rally was light volume, whereas down movements tend to be supported by heavier volumes. The catalyst for the early drop-off of 113 points was news from Dow component American International Group.
FNArena has spent many months now highlighting potential risks in the credit default swap market. To date, banks and brokerages have written-down a lot of their CDO valuations, but the CDS has only sat in the background as perhaps something people don’t want to think about. Last night AIG announced it may have to alter the way it values default swaps over CDOs. Auditors found AIG had “material weakness in its internal control over financial reporting and oversight”. The suggestion thus is there will be further losses booked by AIG and the shares subsequently fell over 11%. As banks and brokers may suffer a similar fate, the whole financial sector was sold again.
But there was some good news amongst the bad, with Hasbro putting in a strong fourth quarter performance and shares in Dow component General Motors rising 6% ahead of its profit report. The news was also that Yahoo had rejected the Microsoft bid at US$31, with analysts now suggesting Microsoft may have to move to US$34-35 to secure the search engine. This gave the Nasdaq a boost.
The buyers moved in early in the session, and the Dow rose steadily all day. There remains a feeling that the heavily trashed sectors such as financials, and home builders and retail, have all been sold down enough as to account for whatever may still happen. But that feeling is not universal, as is evidenced by the lack of conviction in buying volumes.
There were fun and games in the oil market overnight, as Venezuelan president Hugo Chavez threatened to cut off oil supplies to the US in retaliation for a move by Exxon to freeze Venezuelan assets. Oil jumped another US$1.82 to US$93.59/bbl.
The US dollar fell on more hawkish comments coming out of the ECB, but pulled back toward the end of the session. The Aussie dollar posted an 84 basis point gain over the 24 hours to US$0.9039, but the rally occurred in the local session following more inflation warnings from the RBA. Gold added US$1.50 to US$924.4/oz.
There were some strong price jumps in the official London base metal price fixes, but these were mostly catching up to Friday’s trade. In later trade copper and lead managed to keep rising (1% and 3% respectively), but the others metals trod water or sagged.
The SPI Overnight was up 12 points.
