Daily Market Reports | Jan 27 2009
By Rudi Filapek-Vandyck
We could be talking “technical rebound”, or “short covering”, or a “renewed boost in investor confidence”, “hope about the Obama stimulus package”, an “overdue rally in financials”, or the “return of risk appetite”, but what investors have been witnessing over the past two trading sessions is more than likely a combination of all of the above.
The result has been for strong gains, especially for those assets that had been in the doldrums recently; banks, energy and resources.
Yesterday, continued news (hope) about the Obama stimulus package to create new jobs and support the US economy, plus surprising data on the US housing market plus confirmation of a major take-over in the US pharmaceuticals sector pulled the buyers out of their caves. As a result, share markets in the US hardly spent any time in negative territory. The overall mood was further buoyed by some positive earnings surprises (for a change), Freeport-McMoRan Copper & Gold in particular.
Commodity markets surged, with the exception of crude oil which had posted a big price jump in the preceding session, as the overall return of risk appetite brought out the buyers in those markets too. This had the shorters in frantic covering mode. Financials recovered strongly in European markets too with Dutch based ING Group and London-headquartered Barclays leading the pack with more government support and reassuring statements to the market respectively.
At the closing bell, the Standard & Poor’s 500 Index had gained 0.6% to 836.57. The Dow had risen 38.47, or 0.5%, to 8,116.03. The Russell 2000 Index gained 1.3%.
Home Depot shares advanced 4.7% after the company announced it would cut 7000 jobs. Freeport-McMoRan, the world’s largest listed copper producer, surprised with a 6 cents profit for Q4 compared with a market expecting to see US1c only. Leading healthcare-lobbyist Pfizer is buying fellow-drug developer Wyeth for US68bn. Although the news had been in the market for weeks, it still boosted the market upon official confirmation yesterday.
As far as economic data go, the National Association of Realtors said sales of previously owned homes unexpectedly rose 6.5% in December, albeit from record low level. More hopeful news came from the Conference Board’s index of leading economic indicators which climbed 0.3%, marking the first gain in six months.
The overall return of risk appetite caused the broad USD Index to weaken by 1.50% over the Australia Day long weekend. The EUR strengthened 1.50 US cents to around EUR/USD1.3160, and similarly, the GBP rose to back above GBP/USD1.3960 from below 1.36000. The JPY weakened above USD/JPY89.00. The AUD managed to climb back above AUD/USD0.6600 from a low of 0.6420 on Friday evening.
Crude oil prices momentarily rallied before retreating as concerns over the global economy ultimately resurfaced. Crude oil for March delivery fell 1.5% to US$45.77 a barrel.
Spot gold, however, is trading back above the US$900/oz level, adding another 0.7% to US$906 an ounce.
Over at the London Metals Exchange, copper futures are now trading at a 7-week high on a combination of short covering, better US housing data, a weaker US dollar and a surprising result by the world’s largest copper producer (see above). Copper pulled along all the other metals.
Agricultural commodities had a similarly positive session. US wheat futures rose 1.7% on improved demand factors and as decreased crop plantings last year and poor weather conditions continued to support the price of wheat. Corn futures rose 0.8% and soybean futures were unchanged. All benefited from a weaker greenback, and the return of funds buying.