Daily Market Reports | Mar 29 2008
By Greg Peel
The Dow fell 86 points, or 0.7% on Friday. The S&P fell 0.8% and the Nasdaq 0.9%.
This was the Friday before the Monday close of the first quarter, and trading was best described as lacklustre. The Dow finished the week lower than its previous Friday close, following weak economic data and further concern in financials and retail. While the last day of the quarter is traditionally a day for “window-dressing” – funds push the market up to show better quarterly returns – traders suggest this time it might be a case of hedge funds pushing the market down in order to look more impressive on their short positions. Either way, final days are a bit of a guessing game.
The market opened with the release of the Reuters/Michigan Uni measure of consumer confidence for March. Given the official measure earlier in the week was a shocker, traders had no reason to respond to a fall in the R/MU from 70.8 to 69.5 – far less dramatic than the earlier measure. Nevertheless, the compilers of the index noted that the decline over the past year determined that the US is indeed in a recession, if history is any guide. The reading was the lowest since 1992.
According to the survey, 86% of respondents suggested the US was definitely in a recession. This is sufficiently self-fulfilling anyway. So while George Bush and the Fed can continue to preach “slowdown” instead of R-word no one really cares about semantics anymore. Recession is a state of mind and is not particularly good for anyone.
However, one effect a recession can have is to lower inflation. Recessions usually feature rising inflation going in – inflation which encourages a slow in spending – and then that slow in spending eases the pressure on inflation, at least according to Economics 101. As it was, consumer spending in February came in flat, once adjusted for inflation. While flat is quite a good result given the doom and gloom, economists point to the poor confidence numbers in anticipating a likely fall in consumer spending in the second quarter. Real consumer spending in the US has not registered a quarterly decline since the first quarter of ’91.
Consumer spending reality became more obvious when giant discretionary retailer JC Penney issued a first quarter profit warning, sending its shares down 7.5% and dragging other discretionary retailers with it. JC Penney complained of poor sales in a normally busy Easter period.
There was bated breath as the market opened with respect to the financials sector. Following Thursday’s build up of put buying in Lehman Bros, traders were fearing the worst. But lo and behold, right at the eleventh hour the Citigroup bank analyst issued an upgrade on Lehman from Hold to Buy, suggesting the Fed measures to “back-stop” investment banks post-Bear Stearns has rendered weakness in the stock unfounded. It was convenient timing. Lehman shares rallied on the news initially but failed later in the session, ending the day down over 2%. The financial sector in general was weak.
While Citi was busy upgrading Lehman, Credit Suisse was busy downgrading first quarter profit expectations for Citi. Oppenheimer started the rush on Wednesday, and it is now likely more analysts will mark down profit expectations for the banks next week. Over in Switzerland, UBS management was getting ready for a possible shareholder vote on whether the bank should raise some capital. UBS shares fell 5%, suggesting management should just shut up and do it before they need to issue even more shares.
Over in Iraq, the oil pipeline bombed on Thursday was back up and pumping on Friday. Oil subsequently fell US$1.96 to US$105.62/bbl.
The US dollar was mixed to slightly stronger on the economic news, but gold managed to fall back again by US$15.00 to US$931.50/oz. The euphoria of a couple of weeks ago has drained out of the gold market, and it would take some more significant weakness in the US dollar, or some new financial implosion, to prevent it from drifting back to support. Its more volatile poor cousin also reversed and dropped US76c to US$17.55/oz. The Aussie dollar was steady at US$0.9175.
Base metals largely pulled back on Friday after a week of strength, although traders are suggesting Monday might see a final buying push for the quarter end. Falls ranged from aluminium down 0.5% to nickel down 3.5%.
The SPI Overnight lost 49 points.
