Daily Market Reports | Dec 12 2008
By Greg Peel
The Dow fell 196 points or 2.2% while the S&P fell 2.9% and the Nasdaq 2.2%.
A weak opening on Wall Street saw a recovery to the flatline for most of the morning until lunchtime brought in the sellers. For a Thursday it looked very much like a Friday as another big jump in commodity prices brought not more buying but selling to capture profits from a solid week of gains. Volume was again decidedly thin, suggesting it is only the short term traders playing the game at the moment. They probably all have Christmas lunches booked tonight so it was a case of squaring up early.
The feature of the day was a big slide in the US dollar. The greenback has been teetering of late after its solid run up in past months. As the run-up was precipitated largely by weak economic conditions catching up in the rest of the world, it was only a matter of time before equilibrium was reached. Dollars have been flowing back home from offshore and emerging market investments, but that flow had to eventually weaken.
And there was sufficient catalyst for an isolated dollar fall last night anyway. The weekly new jobless claims number came in at an alarming 58,000, but the real surprise was an increase in the US trade deficit. Economists were expecting the deficit to contract but an increase in oil imports swung the numbers in the opposite direction. Note that this does not imply an increase in net oil demand, just more imported than local oil being purchased. An increased deficit is bad for the greenback.
Equally bad were comments from a European Central Bank member that another rate cut in January should not be considered a fait accompli. Axel Weber noted the ECB has never cut to below 2% before and suggested there would not be enough fresh information between now and January to make such a decisive call. The market had been assuming a cut, so the euro took off against the US dollar on the news. Having breached the technical level at US$1.30 on Wednesday, the euro surged ahead to over US$1.33.
A weaker US dollar over recent sessions has sparked a recovery in commodity prices, but last night saw oil leap as much as 12% to its highs. It settled up 8.5%, adding US$3.73 to US$47.25/bbl. Hopes of a big OPEC production cut grow, but there was also some interesting news from the International Energy Agency last night.
The IEA is expecting 2008 oil demand to show a fall of 0.2% over 2007 – the first fall in global oil demand since 1982. The agency then expects 2009 to see a 0.5% recovery. But most notable in the figures is that none of the 0.2% fall includes a reduction in Chinese oil demand, which is expected to remain steady.
Gold continued its recent strength and climbed another US$10.80 to US$819.90/oz. The Aussie added over a cent to US$0.6705.
Base metals in London were mildly stronger, with nickel again starring with another 6% gain on top of Wednesday’s 11%. Aluminium added 3%.
The SPI Overnight lost 46 points or 1.3%.
Aside from profit-taking, commentators are contributing last night’s fall partly to growing a belief the US$15bn auto rescue package will not pass Congress in its current form. The longer Congress argues the more the automakers burn cash. A resolution in this particular deal, which could take more than a week, will no doubt remove lingering fears even if the final decision is to let the Big Three go into bankruptcy and then sort them out.
A quiet Thursday featuring profit-taking likely means Friday’s session will be hardly worth turning up for. It’s also the second last Friday before Christmas in Australia today which is arguably a more popular day to hold the staff Christmas lunch than the last Friday. I won’t be around to find out – I have a lunch on.