Daily Market Reports | May 16 2008
By Greg Peel
The Dow closed up 94 points or 0.7%, while the S&P gained 1% and the Nasdaq 1.5%.
The rise in the Nasdaq is representative of a buoyant mood sparked by various deals in the tech sector. Billionaire investor Carl Icahn confirmed that he intended to wage a proxy fight in order to force Yahoo to accept a deal from Micrososft. While this spurred on Yahoo shares, analysts asked whether Microsoft, having walked away, would need to return to its most recent US$33 offer if Yahoo now wants to play.
More positive sentiment was provided by a US$2bn offer for leading internet site stable CNet from the CBS Network. Not only was the premium of 45% remarkable in its magnitude, this is not a case of working off a crushed base. CNet has not reached the price being offered in two years. A broker upgrade to Buy for Intel was another fillip in the tech space.
Intel helped to push the Dow along, as did General Motors, which jumped after a strike by Canadian workers was ended. But the big news among the Dow stocks was General Electric, which announced that after 100 years it was going to auction off the division which started it all – appliances. This was well received by investors, who clearly see the legacy appliance business being a drag on the more profitable business of usury.
The M&A news provided a spur for Wall Street which again chose to ignore negative economic data.
Industrial production fell by a greater than expected 0.7% in April, led by falling auto production. Specific factory production (as opposed to mines and utilities) fell by 0.8% – the biggest monthly fall since Katrina.
The New York Fed manufacturing index fell to -3.2 in May from +0.6 in April, while the equivalent Philadelphia number rose to -15.6 from -24.9. The latter was latched onto as positive, yet it still shows a contraction in activity.
Weekly jobless claims showed a slightly worse than expected increase of 6,000 to a seasonally adjusted 371,000.
Wall Street also latched on to a halving of department store JC Penney’s quarterly profit, which wasn’t quite as bad as expected. The stock jumped 5% as the CEO suggested conditions would remain weak for the rest of 2008.
But the rollercoaster award for the day went to oil. Crude closed only US10c down at US$124.12/bbl, but it was a wild ride to get there on what was option expiry day. Oil shot out of the blocks to hit a high of US$126.55, but profit-takers moved in on the news natural gas inventories had grown by more than expected. However, what really sent traders running to the sidelines was news that regulatory bodies were intending to step up their scrutiny of hedge fund activity in the oil market. This sent the price plunging down to US$120.90.
On that basis, you’d have to say the theories of the oil market being run by speculators might be true. However, it wasn’t long before the buyers stepped back in – those who believe the global supply/demand story – and we ended back where we started. The stock market, however, claimed the oil pullback as a bullish sign.
It was a funny old night for the US dollar, which set off to the downside on economic data, but later rebounded against the euro when the EU CPI showed a fall in April in annualised terms from 3.6% to 3.3%. This further allays fears of a possible ECB rate hike, but the rate is still well above the central bank’s comfort level top of 2%. On the flipside, Europe’s two biggest economies of Germany and France posted better than expected first quarter growth, pushing the EU GDP up 0.7% to an annualised 2.2% growth. Given the world is waiting for the European economy to slow down, this was confusing.
It didn’t confuse gold, however, which took off on the weak US economic data despite the US dollar retracing early falls. Gold rallied US$16.00 to US$879.70/oz, which suggests that like the stock market, the gold market is looking for any excuse to buy. The Aussie also rebounded, finishing up US0.6c to US$0.9406.
Come in China! While early weakness in the US dollar provided support, the base metal spectrum was again lacklustre except for the two “giants” – copper and aluminium. A sudden wave of Chinese buying sent both metals surging, before settling back in late London trade to be up 2.2% and 2.4% respectively. The two metals have wallowed a bit of late in the absence of the usual Chinese activity. Did the buying have anything to do with massive reconstruction that will be needed in Sichuan? Who knows.
Unlike Wednesday, Wall Street was not hit with a late wave of selling last night. However, the indices are bumping into the ceiling of the 200-day moving average and volume has dropped off to very little. There is still plenty of cash on the sidelines, and investors are waiting to see whether Wall Street can punch through, but this may take some ongoing positive earnings stories (which could mean waiting another quarter). The VIX volatility index continues to worry some, as it is now back to the October level – the point at which the second wave of selling began after the initial credit crunch collapse-and-bounce. The market is poised.
The SPI Overnight rose 61 points. The local market has performed better than Wall Street, but only two sectors – materials (and related services) and banks – are actually strong. Everything else is flat. Those two sectors have been boosted this week by M&A activity and rumours of M&A activity. As we look ahead to 6000 in the ASX 200, we similarly see a level that may have to be breached with gusto if we’re going to confirm a real bull rally.
