Daily Market Reports | Aug 21 2008
By Greg Peel
The Dow closed up 68 points or 0.6% while the S&P added 0.6% and the Nasdaq 0.2%.
Wall Street was up, down and all around last night in not much of a range as advancers equalled decliners on another summer’s day. Influencing the Dow to the positive was the better than expected quarterly result from component Hewlett Packard. HP’s shares jumped 6% and restored faith in the large-cap techs, at least for this week.
Come back to me next week.
The financial sector was once again in the spotlight, highlighted by mounting belief the US government will indeed step in and nationalise Fannie and Freddie. Their shares both fell about 25% again to multi-decade lows – effectively to lows so low it really doesn’t matter anymore. All the while Freddie’s CEO was bleating how the company has never before had as much capital as it has now. Really? So why is the government about to bail you out mate?
But the F’n’F story is getting old hat now, and it’s not going to stop investors who are still looking for bargains in the sector. Readers will remember a couple of weeks ago Merrill Lynch sold most of its CDO portfolio for 22 cents in the dollar, and at the time the market had to adjust to the fact every other institution would thus have to reprice its CDOs likewise. This meant more downgrades. House prices also continue to fall, which naturally means more downgrades anyway.
Yesterday we reported that after the bell Goldman Sachs had taken the knife to the earnings expectations of the big names in the sector, forecasting big third quarter write-downs to come. Well it seems this is exactly what the market was expecting, for last night the bargain hunters moved in a bought said names. The financial index thus jumped 2%. This included Lehman up 5%, and Lehman is probably not long for this world.
Last night another department of Goldman Sachs analysts was back in the oil price prediction game. Goldman’s oil analysts made a name for themselves a few years ago when they called oil to US$105 (It was about US$50 at the time) much to everyone’s amusement. No one was laughing, however, when we sailed through that price. Before the northern summer Goldman’s then said oil would go to US$150 in the driving season, and maybe, if certain adverse events were to transpire, even US$200. This report sparked headlines around the globe screaming “Oil going to $200!”.
It didn’t, of course, and nor did it actually reach US$150. Now Goldman’s is suggesting US$149 at year’s end, from the current US$114. Did this send the oil price rocketing? No. Oil rose a mere US45c to US$114.98/bbl.
And this paltry rise also defied the news that US gasoline supplies had fallen by 20m barrels in the last month. This might also have sent the oil price northward, except that no one is that surprised that refineries are cutting back their production capacity in the face of weak demand. Refineries normally go into a hiatus in September, after the summer, but this year they’ve simply moved forward.
But the other reason the crude price didn’t jump is because last week US crude inventories jumped by their biggest weekly amount since 2001. The refiners might be cutting back, but there’s plenty of raw material backing up. The reason for the large jump was a break in the weather. Tankers which deliver crude to the mainland from the Gulf oil rigs had been holed up on hurricane watch after the earlier Tropical Storm Edouard, but last week all made a dash for the coast before TS Fay rolled in.
Venezuela also chimed in and announced it would be pushing for production cutbacks at the next OPEC meeting. Yeah – pull the other one Hugo.
Put all this together and there wasn’t much of substance. Hence oil was up only US45c, having dropped sharply earlier in day. Tonight the September delivery contract rolls into October, which is US58c higher on the curve to start with.
The US dollar saw a return to strength last night, although the Aussie did its own thing and ticked up further to US$0.8737. Oversold? Gold slipped US$1.30 to US$812.30/oz.
There was mayhem in London, with base metal traders not knowing really what to do right now. When oil initially fell the metals all tanked again, but on its reverse whipped back. When the dust settled aluminium copper and lead were all down about 1%, while nickel kicked up another 3%. Best to stand back and be a spectator in this market at the moment.
The SPI Overnight was up 37.
Getting a bit bored with 5000 now, but a quick check of the graph shows August has brought the longest periods of consolidation in the ASX 200 since the credit crunch began. I wonder what that means.
