Daily Market Reports | Nov 12 2008
By Greg Peel
The Dow closed down 176 points or 2% while the S&P and Nasdaq lost 2.2%.
It was Veterans Day in the US last night – the US version of Armistice Day – and while the stock market was open the bond market was not, and there were no official data releases. While there may have been no direct news on the economy, there was still plenty to dwell on and the mood remains sombre. Volume, as ever, was light.
It was also another case of “rolling thunder” as weak markets in one time zone beget weak markets in the next. The Chinese stimulus package lit a fire under Asia on Monday and was followed up by Europe on Monday night, but when the US shrugged and sold the Asian markets subsequently threw up their arms on Tuesday and headed for the hills once more. In Australia it was as if the market had been told there was no Santa Claus, leaving only domestic economic realities to bite – a bad business confidence survey (now there’s a shock), Asciano in trouble, speculation the banks may have to raise more capital or cut dividends or both and warnings from big miners.
Europe thus responded in kind, meaning the US opened with another round of selling of its own, sending the Dow down 300 points by midday. There were bad sales figures from alleged coffee seller Starbucks, and concern for the future of luxury home builder Toll. The future of General Motors is still unknown. Might bankruptcy actually be a sensible option? There were no buyers around to argue.
Then came some good news. The Federal Housing Finance Agency – the body now in control of Fannie Mae and Freddie Mac – announced a range of measures under the loose heading of “mortgage forbearance”. While the details were vague and confusing, either way the intention of the plan is to relieve pressure on millions of homeowners in delinquency by either forgiving or delaying principal payments, reducing interest rates and extending loan periods. Even if banks are forced to “forgive” part of the principal on mortgage loans, the controlled losses resulting are a much more palatable option than extensive losses that would result from ongoing rolling foreclosures.
At the same time, an offhand comment from a BlackRock executive that a US$30bn Bear Stearns mortgage portfolio could be worth more than current market valuation gave Wall Street some heart.
So up we went – all the way back to square before 3pm. Then at 3pm, in came the sellers. It doesn’t seem to matter what good news you throw at Wall Street at the moment – Chinese stimulus, mortgage market rescue – it will sell anyway. Wall Street is simply looking toward a bleak 2009, the buyers see no need to rush in, and there is still forced selling out there.
And when there is selling about it implies investments being turned back into cash, which in turn supports the US dollar. Selling in the stock market also prompts selling in commodities, and when the stock market sees commodity prices falling, it sells once more. The falling market and rising US dollar thus took their toll on commodity prices again last night.
Aside from general global economic weakness, the news on the oil front has all been good lately (assuming you like higher oil prices). There is Chinese stimulus, although the market realises this is not an overnight phenomenon, but last night China announced its crude imports had jumped by 28% in October from a year ago. Saudi Arabia told Asian refiners it would cut back supply by 5% in December and Nigerian militants threatened fresh attacks on oil pipelines. What did the market do? Sold!
Oil fell US$3.08 to US$59.33/bbl – its lowest level since March ’07 and a clear breach of the US$60 support level. Does this mean US$50 is next? There doesn’t seem to be much support to stop it. Having jumped about 8% on Monday, natural gas gave it all back last night.
Base metals reacted accordingly, with copper, lead and nickel all falling around 6%.
Gold also fell on the stronger greenback, dropping US$14.40 to US$731.80/oz. The Aussie fell close to another cent to US$0.6578.
The SPI Overnight fell 69 points. Will the thunder continue to roll into the local market today?
