Daily Market Reports | Jul 01 2008
By Greg Peel
The Dow gained 3 points, the S&P gained 0.1%, and the troubled Nasdaq lost 1%.
It was not all deathly quiet on the market on the last day of the first half, as the Dow moved through a range of down 59 and up 87, but it was not a bumper day. The movements in the stock market correlated with movements in the oil price. Oil is easily now the dominant factor as the US enters the second half of its accounting year.
Oil’s influence comes despite a total of US$300bn to date in credit security write-downs in the financial sector – the other dominant, although linked, factor of the past year. Oil has risen from US$96/bbl to US$140/bbl in less than six months. The Dow has fallen 14.5% over the past twelve. The index lost 7.5% for the quarter and nearly 20% for 2008.
The oil price traded to a new high above US$143 in electronic trading overnight as Iran countered an increasingly bellicose Israel by threatening to blockade the Strait of Hormuz – through which most of the world’s export oil passes – were it to launch any sort of attack. A Wall Street Journal article also suggested the US has stepped up covert activity inside Iran. Iran remains the biggest threat to the oil price not being able to fall naturally.
But as a new record gasoline price was announced in the US in the height of the summer driving season, oil traders looked to falling demand as a reason to sell back down. A CNBC survey has also found that 45% of Americans are planning to abandon their usual summer holiday plans this year. Oil finished its day-session down US21c to exactly US$140/bbl.
The economic data point of note last night was the June Chicago purchasing managers’ index, which managed a rally back from 49.1 to 49.6, but anything under 50 still means contraction.
The US dollar managed to put in a small rally after a week of weakness. A 25bps rise in the European cash rate on Thursday is now factored in, although traders are looking ahead and deciding a slowing European economy should prevent any further rise. Were the ECB not to hike, it would seem the dollar might go for a bit of a run.
The rising US dollar helped contain oil, while gold fell US$1.90 to US$924.90/oz and the Aussie slipped back to US$0.9586.
The rising dollar also prevented a follow-through of strength in base metals, with copper earlier threatening to run up on the back of the Peruvian strike situation. Movements in the end were muted.
The SPI Overnight gained 19 points.
A stable night on Wall Street should likely allow for a more positive day on the local bourse. The tax selling is over, and the new year of FY09 dawns. It is also rate day in Australia, but the RBA is not expected to make any change.
