Daily Market Reports | Jul 11 2008
By Greg Peel
The Dow rose 81 points or 0.7% while the S&P rose 0.7% and the Nasdaq 1.0%.
It was another night of up, down and all around as Wall Street battled with conflicting influences. The Dow was up 123 at 2pm and down 61 at 3pm. Probably the most notable factor is that in the last two sessions the oil price-stock price inverse relationship which has dominated over the last month or so seems to have disconnected. Last night stock indices rallied on the death after the high-to-low fall driven by a late spike in the oil price. The oil market closes officially at 2pm, and oil had been up about US$2 all session. Then right at the very close, it spiked to be up US$5.60 to US$141.65/bbl.
The impetus was a combination of factors. Iran test-fired another missile. Nigerian rebels announced they would end a cease-fire which has been in place for two weeks. And the International Energy Agency announced it expected global oil demand to rise by 1% in 2009 because the increase in developing nation demand would more than offset a fall in developed nation demand. On Wednesday the US Energy Information Administration suggested US demand would fall.
The late spike suggested quite a few players had decided to get themselves short over the previous two sessions, in which oil fell over US$9. They tried to hang on, but cracked at the last moment. Either way, the stock indices rallied back despite the oil price jump, which is a rather new phenomenon.
And the stock indices rallied despite financial stocks staring into the abyss. Last night saw the beginning of testimonies to the House Committee charged with the task of pursuing financial market reform. At one point US Treasury secretary Hank Paulson made the fateful comment “For market discipline to effectively constrain risk, financial institutions must be allowed to fail”. Paulson implied that the government could not be expected to bail out troubled financial institutions.
On that news, Lehman fell another 12%. Lehman was singled out by the market within the banking sector, as other commercial/investment bank share price movements were mixed. However, the terrible twins – Fannie and Freddie – were once again trashed, falling 14% and 22% respectively. Freddie Mac is now an US$8 company, having been worth US$70 in late 2007. It is these two Paulson is desperate to see recapitalise and come to the rescue of potential homebuyers. The market has decided both will struggle to simply raise the capital they need to survive, let alone save the world.
Further news that disturbed the market last night were the weekly jobless claims data. While new jobless claims actually fell 58,000 in the week – the biggest fall since April – continuing claims rose by 91,000 to 3.2m. That’s the highest level unemployment benefit recipients since December 2003.
There was also good news. Chemical giant and Pamela Anderson’s favourite company, Dow Chemical, made a US$15bn all-cash bid for rival Rohm & Haas. This was enough to give the market some hope, and enough to fuel the late rebound.
Concern over the financial sector sent the US dollar falling once more, while gold responded to a weaker dollar and the acceleration of geopolitical tension with an US$18.40 rally back to US$946.50/oz. The Aussie finished half a cent higher at US$0.9616.
On the LME, most traders are now suffering whiplash. Last night China’s biggest aluminium producer Chalco announced that China’s top twenty aluminium smelters had all agreed to a 10% production cut from July in order to ease China’s power shortage problems. Is this congenital or does it have something to do with an upcoming sporting event? Either way it is well understood that China’s continuing economic growth is at risk from the country’s struggling power supply. Aluminium jumped 3% to a new record high.
Zinc jumped 5% and lead 9% while copper and nickel slept.
The SPI Overnight was up 39 points.
If there is any conclusion to draw from last night, it’s that order is descending into chaos. VIX-watchers will, however, be disappointed to note that the index only struggled up towards 26. We are now not far off from cab drivers suggesting they are looking for a VIX over 30. Tonight sees General Electric reporting its second quarter earnings. GE’s first quarter earnings were both a shocker and a shock, and Wall Street was sold off heavily on the day.
