Daily Market Reports | Apr 05 2008
By Greg Peel
Friday’s March jobs report showed a loss of 80,000 – the worst figure since March 2003. The January and February figures were revised down by 67,000 and the unemployment rate rose to 5.1% – the highest level for three years. 232,000 Americans have lost their jobs in 2008.
This was pretty bad news. However, it was not particularly unexpected. Prior to Friday, predictions ranged from +33,000 as projected by the ADP number, Thompson’s forecast of -15,000, supposed “economist consensus” of -50,000, and at least one other forecast of -150,000. So how do you gauge a response from that lot?
Sell the Dow down 100 points, was the initial response. But the market soon recovered into the green, before concluding the week with the Dow down 16 points, The S&P barely changed and the Nasdaq ended up 0.3%.
One could look at the response in one of two ways. Either the jobs number was not considered bad enough, and thus buyers moved in on weakness, or there were buyers poised to dive in, but the jobs number was a bit weak. The result is that the raging volatility of 2008 has now settled back to a period of benign movement. It seems the market really, really wants to go up, but investors are just not quite confident enough yet. We’ve had the “Bear Stearns bounce” from disaster, but now it’s a case of “What next?”
It doesn’t look like poor economic data are going to have the same negative effect as they have done previously as we move forward. Fed chairman Ben Bernanke this week became the third last man on earth to admit the US is probably in recession. Once Henry Paulson capitulates, and someone explains it to George Bush, it will be unanimous. However, while such admission has proven a cathartic process, allowing the stock market to put the worst behind it and focus on the future, it really does now come back to basics. A stock’s value is simply discounted representation of future earnings, and as companies release their first quarter results and second quarter guidance in the next few weeks the market will have a better handle on just how bad/not so bad the situation really is. In the meantime, it’s a bit of a time-out. Unless some other major disaster befalls.
While the stock market might be vacillating, the US dollar had little doubt about its required response on Friday. It was sold down quite heavily. The Aussie jumped US0.8c on a 24-hour basis to US$0.9235 having been initially sold down on Friday in the local time zone, following the release of poor retail trade data.
The door was thus open for commodities to rally back further, and so gold added US$9.70 to US$913.70/oz and oil added US$2.40 to US$106.23/bbl. Base metals also found some momentum with copper rising 1.5% and aluminium and zinc around 2%. At US$3.98/lb, copper is creeping ever closer to the US$4 break-out level.
The SPI Overnight gained 39 points.
As Wall Street scratched its head over the correct response to a much anticipated jobs number, the gasoline price quietly crept up to a record high of US$3.30 a gallon. Refiners are cutting back on production while crude oil prices remain over US$100/bbl, sending gasoline prices ever higher as the summer driving season approaches. Refiners also face more stringent emission restrictions as of this summer, which is also leading to lower output. It takes time for unemployment to rise in a recession – it’s very much a lagged response. Similarly, it takes time for higher fuel prices to filter through to the cost of pretty much everything. Americans are paying about A$1.50/l to fill their tanks.
