Daily Market Reports | Apr 04 2008
By Greg Peel
It was the financial market equivalent of the moon landing last night as Wall Street all but shut down to spend the day glued to television screens. In the morning Ben Bernanke continued his two-day testimony to Congress along with the governor of the New York Fed, but the afternoon’s grilling of the CEOs of Bear Stearns and JP Morgan was what traders were intent on observing.
The Dow ultimately closed up 20 points on low volume, and nor did the S&P or Nasdaq make much impression on the green side.
There was bad news and good news during the day, but it appears the market is not prepared to carry through with recent optimism until tonight’s jobs numbers are out of the way. The expectation is currently for a loss of 50,000 jobs. One suspects a number significantly better than that would spark another jump. The Dow is only about 200 points away from breaking out of the trading range established for most of 2008.
The initial bad news, providing a precursor for tonight, was the weekly jobless claims figure. It jumped to 38,000 for an annualised figure of 407,000 – the highest level since the aftermath of Hurricane Katrina. In further news the ISM non-manufacturing index for February came in at 49.6 following January’s 49.3. This still indicates contraction, but economists had pencilled in 48.5.
There was initial weakness based on the jobless claims but this was erased when the CEO of Merrill Lynch – the third biggest investment bank – made what seems to be a bit of an offhand comment to a Japanese newspaper that the investment bank had enough cash and would not be needing to raise capital. As this is in contrast to the belief of some bank analysts, it was enough to reverse the market into the green, but thereafter followed the action in Washington and the Dow drifted to its conclusion.
There was not much to take out of the testimony, as the lack of market movement might indicate. The only notable points included the belief by all parties – Bear, JP Morgan and the Fed – that to not act would have meant a devastating collapse of the US financial system. The initial US$2 per share price pitched for Bear was not dictated by the Fed, but rather a token amount put up by JPM with only 48 hours to complete due diligence. JPM was of the belief the US$300bn of Bear assets it would take on to its balance sheet had more significant downside than upside. The ultimate US$10 bid simply represented a bit more time to evaluate those assets, including Bear’s actual office block.
It was also notable that apart from the US$29bn guarantee the Fed provided to JPM, the bank has since gone to the discount window to borrow US$25bn, mostly reflecting the fact the Fed guarantee was not available immediately. This shows that JPM is behind a sizeable chunk of the (anonymous) US$37bn accessed from the window since, and not that all banks have been madly dipping in.
What was figuratively advertised on billboards as a grilling – the Rumble on the Hill – from the democrat-led Senate committee, was largely a benign and polite bout of mutual appreciation. I’d give it two stars.
The general quiet descended on all markets, resulting in little movement in the US dollar, the Aussie dollar (US$0.9154), gold (down US80c to US$904.00), or oil (down US$1 to US$103.83). Base metals opened weaker but closed mixed and uneventful on later short covering.
The SPI Overnight lost 24 points.
The local market opened yesterday looking like the ASX 200 would still have to do some work around 5500, but quickly breached that level and shot straight to 5600. The next level of resistance is 5700 – the high point reached twice following the post-SocGen bounce in January.
The US market did not provide a big follow-through for the Tuesday rally last night, but nor did it falter. The testimony drew attention away, and the jobs number tonight will be significant. Thereafter, it becomes a story of first quarter earnings as results begin to come in more rapidly. It should be a return to the real drivers of equity markets.
Also, RBA Governor Glenn Stevens is due to present his semi-annual testimony today (at 9.00am Sydney time) with his comments anticipated to shed more light on the monetary policy outlook.