Daily Market Reports | Feb 12 2009
By Greg Peel
The Dow rose 50 points or 0.6% while the S&P gained 0.8% and the Nasdaq 0.4%.
Not having a doctorate in US Government myself, these last twelve months or so have been somewhat of a crash course in the vagaries of the process of US law. Last night an agreement was reached on the stimulus package. The process has been that the Obama administration first proposed a stimulus package, the House of Reps then passed a pared back version, and then the Senate did some further tweaking before passing its own version.
Stop me if I’m wrong, but I believe in Australia that if the Senate wants changes to a bill it sends that bill back to the Reps first and will continue to do so until it is satisfied before passing the bill, which then becomes law. In the US last night, members of both Houses had to sit down and attempt to reach agreement on how the two separately passed versions could be moulded into one. This was achieved, and thus the bill can now be sent to the President for his signature. Only then does it become law.
The US now has a US$789bn stimulus package at the ready which contains both handouts and tax cuts among other incentive programs. This news, which came late in the session, provided a small boost to the stock market which had otherwise been wallowing on the flatline around 2pm, despite earlier gains. The earlier gains were no doubt a consideration that Tuesday’s sell-off was excessive, or perhaps short positions were covered. Then again, perhaps Tuesday’s sell-off was as much about “sell the fact” on Secretary Geithner’s TARP announcement as it was a poor response to its lack of detail.
Either way, it seems Wall Street is not quite sure what to do next. As I write, the CEOs of the leading US banks which were recipients of capital injections under TARP I are being grilled by a Senate committee. Before handing over any more money for TARP II, the Senate understandably wants to know why billions in funds provided to the banks late last year appear to have achieved nothing. Bank share prices are as low or lower than at the time the money was injected and credit markets seem little thawed. This should be a constructive session, but as always there’s a lot of recrimination being attempted by frustrated Senators. Not only are recriminations unhelpful at this point, for the most part these are the replacement CEOs – the men (and they all are) who were brought in after the real villain CEOs were executed some time last year.
For the moment, Wall Street is waiting to see what comes of this process, and hoping for some more clarification on the detail of Geithner’s package. This holding pattern is not healthy for the markets in general. Nowhere is this better demonstrated than in the “flight to quality” assets – the US dollar (via Treasury securities) and gold. These two are meant to move in opposition but last night the market was again buying back yen and buying US dollars while gold shot up another US$23.30 to US$940.30/oz. This is not specifically a reaction to the vast amounts of paper money required by TARP II, it is currently more of an uncertainty trade.
Oil had another bad night, falling US$1.50 to US$36.05/bbl as it was revealed oil inventories in the US have risen for a seventh consecutive week to an 18-month high. Not helping oil’s plight is any sense of positive action on the economy front as offered by a vague TARP and a still being negotiated (oil had already closed) stimulus package.
Base metals were also dealing with growing inventories, but after Tuesday’s falls were content to do mostly little last night. Copper fell 2.5% and nickel 3.5%.
The SPI Overnight gained 13 points.
