Daily Market Reports | Feb 27 2008
By Greg Peel
Last night the US PPI registered its highest annual rate of increase since 1981. Consumer confidence hit the lowest level in five years. All of the April, May and June crude oil futures contracts closed at new highs above US$100/bbl. The US dollar index hit a new low. And the Dow was…up.
The Dow closed up 114 points, or 0.9%. The S&P and Nasdaq were each up 0.7%. The Dow turned around from an early low of down 58, but didn’t quite sustain a high of up 164. Wall Street is threatening to post its first up-month since November. Is it always darkest just before the dawn?
The January producer price index (PPI) released last night showed an increase of 1.0%, more than twice expectation. The PPI is an indicator of inflation at the wholesale, or input, level. The core PPI, which excludes food and energy, rose 0.4% against expectation of 0.3%. The consumer confidence index for February fell to 75.0, down from 87.3 in January, and the lowest level since the 64.8 registered in February 2003. One month later, the US invaded Iraq.
Oil closed up US$1.65 at US$100.88/bbl last night, having hit US$101.15 in the session – a new high. Apart from all that’s going on in the world, a late season cold snap in the US helped to make the push. Traders noted there were a lot of “buy stops” over US$100, meaning uncertain speculators have decided if oil pushes past US$100 again it will go higher, and they want in. Not only did the front month April contract close over that mark, but the May and June contracts also passed the ton as the forward curve spreads contracted. This is a bullish sign for oil. Ironically, traders also suggested the rally in oil was assisted by the rally in the stocks.
For the rally in stocks would tend to indicate the market is looking past the gloomy data and on to the Great Recovery, which is not going to get much help from +$100 oil. Last night’s jump was sparked by an announcement from Dow component and tech stalwart IBM that it would buy back no less than US$15bn worth of its stock. The company also raised its 2008 guidance, allowing Wall Street to feel more comfortable that all is not doom and gloom. An IBM buyback is not unusual – the company has spent a mere US$94bn buying back its own stock since 1995, including $19bn worth in 2007. However, the fact that it intends to continue the trend in a supposedly recessionary 2008 is a positive light in an otherwise dreary landscape.
IBM was up 4% on the day. Funnily enough, the tech stock of the twenty-first century – Google – fell another 5% last night, exacerbating its very weak 2008, as it was revealed the number of clicks on Google ads is in decline. But let’s go with the veteran.
Assisting oil’s upward push last night was the US dollar, which didn’t really pay any attention to IBM. On the weak economic data the greenback fell to its lowest ever level on an indexed basis. Unsurprisingly, gold found renewed vigour and traded up US$9.50 to US$949.00/oz, closing in on its all-time high close once more. The Aussie had nowhere to go but up, finishing another 55bps higher over the 24 hours at US$0.9328.
Base metals also found new enthusiasm in late London trading. Copper pushed up another 1% while tin hit another new high and aluminium posted a 3% jump.
The SPI Overnight closed up 61 points.
Footnote – Apparently Arthur C. Clarke denied that his choice of “HAL” for his famous computer was anything to do with shifting one letter backward from “IBM”.
