Daily Market Reports | Dec 18 2008
By Greg Peel
The Dow closed down 99 points or 1.1% while the S&P lost 1% and the Nasdaq 0.7%.
It was the day after the momentous Fed monetary policy decision and while some reports suggest Wall Street was still “trying to digest” the new Fed policy it was more a case of “now what?”. There was a whole lotta nuthin going on all day as the Dow opened lower following Tuesday’s big rally, stumbled back up to the flatline, and then dropped 100 points in the final 10 minutes.
With the Fed rate decision in the bag it’s pretty clear nothing much is going to happen between now and the holidays. A chat to an ex-colleague of mine and hedge fund trader who has flown in from London for Christmas confirms what I had already suspected – everyone is over it, everyone is tired, everyone is looking forward to a break and putting 2008 behind them.
Perhaps the only stock market news of note last night was that Morgan Stanley posted a worse fourth quarter loss than expected, following on from Goldman Sachs’ first ever quarterly loss (as a listed company) on Tuesday. But no one much cared. There was some concern, however, that Apple founder Steve Jobs again failed to appear at a conference, raising fresh concern as to his health and highlighting that Apple has no publicly stated succession plan.
The real focus last night was on the OPEC meeting in Algeria. Speculation was that OPEC would agree to a daily production cut of 1.5-2m barrels per day, with the market suggesting that 2m was the number really needed to stop oil sliding further. OPEC announced a record cut of 2.2mbpd, and non-OPEC members Russia and Azerbaijan took the opportunity to announce their own significant production cuts.
But oil responded by falling US$3.46 or 8% to US$40.14/bbl.
If oil’s fall was counter to what production cuts should imply, it was also counter to yet another huge fall in the US dollar. On Tuesday morning the euro was trading at US$1.37, by the close in New York it had passed US$1.40, and last night it moved above US$1.43. A three cent move in one session is quite extraordinary. Two in a row is amazing.
But it has been expected eventually, and so last night gold’s reaction was solid once more without being spectacular. Gold jumped US$12.60 to US$868.00/oz. The talk now is that with the US cash rate (0-0.25%) lower than the Japanese cash rate (0.3%) the US dollar could replace the yen as the carry trade currency. However, we likely haven’t yet seen the last of the monetary policy adjustments in any of Japan, Europe or the UK. The greenback may yet enjoy a bit of a reversal and slow gold’s immediate progress.
The same could be said of the Aussie, which last night added another cent to breach the US$0.7000 mark. But the RBA has more in the tank as well.
Base metals were not quite sure whether oil’s poor response to the OPEC cut or a much weaker US dollar was more important, so they jogged on the spot.
The SPI Overnight fell 45 points.
