Daily Market Reports | Jun 10 2008
By Greg Peel
The good news is there was no Black Monday, as some had feared. This has been a common pattern in history, that a big fall on the Friday sparks a build up of fear over the weekend, and Monday sees a disastrous selling wave. The camera crews had set up outside the NYSE for just such an occurrence, but went home disappointed.
The other good news is that oil fell US$4.19 to US$134.35/bbl. However, the two-day net rise is still around US$7 and given the scramble to cover shorts and stop-losses on Friday following shock comments out of Israel the pullback was no great surprise.
The oil pullback offered some relief for the stock market, and the Dow was up 122 in early trade, but by early afternoon that gain had been completely wiped out again. There followed an attempted bounce and subsequent failure, before the reserves bench substituted and the usual late rally ensued. The Dow closed up 70 points, or 0.6%.
The 30-stock index was nevertheless positively weighted by two stocks in particular – McDonalds (+4.1%), which posted a strong monthly same-store sales result, and Alcoa (+7.5%), which was boosted by a Barrons report that was bullish on aluminium and the aluminium producer. But the broad market S&P 500 managed a gain of only 0.08% and the Nasdaq fell by 0.6%. Tech stocks have been the recent darling, driven by a belief the US economy was not as bad as it looked, but as that belief was shattered by the unemployment number on Friday the tech selling continued into Monday.
It is now officially summer in the US – a time when the number of traders on the floor of the NYSE dwindles and volumes fall to low levels. Volume on Monday was thus poor, leading to a choppy market. As summer continues we can expect to see a higher overall level of volatility persisting.
But summer is not promising lazy hazy days for the financial sector. In response to heightened speculation over its solvency, Lehman last night provided a second quarter profit preview, and it was not good. At US$2.8bn the loss was more than Wall Street had expected, and a capital rasing of US$6bn – about 25% of the existing capital base – was also more than had been anticipated. Lehman shares fell another 9% and the whole financial sector was once again pummelled after a bad day on Friday.
The financial sector index is now trading below its March low – the low set just before the Bear Stearns rescue. A breach of this level is technically ominous, although reports suggest traders were selling, not buying, financial index puts at this level in a day of strong option volume. The implication is that traders can’t see financials losing much more from here. They can only fall so far.
The US dollar managed to rally back as well last night, supported by some slightly more positive news on pending home sales (a rise of 6.4% in April), and a comment by US Treasury secretary Hank Paulson that US dollar intervention could never be ruled out. The jump in the greenback must have found a lot of empty desks in Australia for the long weekend, as the Aussie fell a whole US1.3c to US$0.9499.
After a big rally on Friday, gold fell back US$10.00 to US$892.20/oz.
It was also a quiet day on the LME, and metals mostly drifted a bit lower following Friday’s strength.
The SPI Overnight was open, and it rallied back 28 points for a two-day net result of down 88. A move of that magnitude in the ASX 200 would see 5500 being tested once more.