The Overnight Report: A Breather

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By Greg Peel

The Dow closed up 38 points or 0.3% while the S&P clawed back 0.6% and the Nasdaq 0.8%. It was one of the tightest ranges seen for months.

Wall Street wasn’t quite sure what to do last night, so it didn’t. At the moment it’s a waiting game in regard to the fate of Lehman Bros.

Lehman Bros brought forward the release of its third quarter profit result estimation, as flagged, which was a US$4bn loss. It cut its dividend by 93% and announced that it would sell a 55% stake in its investment management business and spin off its commercial real estate holdings to shareholders.

Um, sell to whom? And, “spin off to shareholders”? Make no mistake: Lehman is gone. Its shares fell another 7%. My bet is there’ll be another Fed meeting this weekend. Last night both S&P and Moody’s put Lehman on “negative watch”.

The financial sector index fell a bit over 1%. The earnings report from Lehman was not a surprise.

The International Energy Agency last night lowered its global oil consumption forecast by 100,000 barrels per day to 86.8 million bpd. That figure implies a 0.8% increase over 2007 consumption, but the reduction is from the IEA’s forecast made only last month. Its 2009 forecast dropped by 140,000bpd to 87.6mbpd.

The IEA changes its forecast every month, implying, at the least, that its forecasts are a load of bollocks, or at best, such a moveable feast as to be completely useless. However, the downgrade managed to cancel out the announced cut in production quota from OPEC made in yesterday’s Asian time zone session, and everybody knows OPEC “quotas” are a load of bollocks. So the market weighed up all the bollocks, and oil fell US68c to US$102.58/bbl.

The US dollar slipped slightly on the Lehman announcement, and then turned around to rally once more. As a result, gold fell another US$24.10 to US$751.80/oz. That’s US$50 in two sessions. Commodity funds are desperately deleveraging and are now scrambling over each other to sell gold. Gold is getting close to potentially the lowest price it will ever be again.

Base metals in London managed to stabilise and rise slightly in the session despite a stronger dollar, but it was still a wild ride to get there. Aluminium, copper, lead and zinc all finished around 1% up.

The SPI Overnight rose 12 points. Shares in BHP Billiton ((BHP)) fell again in London but bounced back 5% in New York from Tuesday’s 9% fall.

Gold is down US$50 as the Fed start’s to look at whether it actually has the balance sheet capacity to bail out another major financial institution. Late in yesterday’s local trading session, a rumour came out that Goldman Sachs was buying Lehman. Five minutes later the rumour switched to a Korean bank buying Lehman. Lehman announced an asset sale program, but no buyer. These are interesting times.

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