Daily Market Reports | Apr 22 2009
By Greg Peel
The Dow rose 127 points or 1.6% while the S&P rose 2.1% and the Nasdaq 2.2%.
On Monday JP Morgan analysts declared that major US banks will need further injections of TARP capital as the US economy falls deeper into recession. US Treasury Secretary Tim Geithner came to the rescue of the banks last night, suggesting the “vast majority” will not need new capital, and added that the Treasury will welcome any repayment of TARP funds from banks.
Goldman Sachs is one bank which has been very vocal about intending to release itself from government restrictions, but the question has been raised as to whether Treasury would allow any bank to fly solo again so soon, or whether the government would want to first hold on to its investment at least long enough to see some return. But Geithner knows that if he told banks they couldn’t pay back their TARPs yet, Wall Street would not be amused.
Geithner is supposedly in a good position to decide whether banks need more capital or not, given he has been furiously “stress testing” a wide range of US national and regional banks. The results are due out on May 4. However, while Wall Street responded favourably to Geithner’s comforting words last night, and banks led the indices back into recovery mode, there are many on Wall Street who are fundamentally sceptical of the whole “stress test” process.
Why would you inject public money into a bank, stress test it, and then declare “Omigod we’re going to do our dough”? The reaction in credit markets and on the stock market could be devastating. Better to stress test and then declare the system sufficiently healthy to battle its way out of the recession. Maybe sacrifice a couple of marginal lambs just for show. In reality, the whole “stress test” game could all just be one big propaganda exercise aimed at reassuring both Wall Street and Main Street.
There was also a Citigroup shareholder meeting last night – no love lost in that room – and CEO Vikram Pandit took the opportunity to suggest his bank’s “vital signs” were improving and Citi was poised to benefit from an economic recovery. This also helped to reassure Wall Street, and Citi shares rebounded back 10%. Pandit, and his board, all managed to be re-elected despite some significant disapproval from the floor.
Other bank stocks, trashed yesterday, also saw decent recoveries. On the earnings front, there was good news from Texas Instruments and Dow component United Technologies, but while there might be hope in the ephemeral world, back in the real world things are not quite as rosy. Both Caterpillar and DuPont (both Dow components) posted ugly results, with chemical maker DuPont citing “a severe decline in global industrial demand”.
Such a gloomy picture from the industrial space sent copper lower once more, falling another 1.3% after Monday’s sharp drop. But copper and other metals had been much lower during the session until some buying returned, encouraged by the US dollar retreating once more. Aluminium finished up 1% while nickel suffered a 3% drop.
Oil managed only to tread water, up US63c to US$46.51/bbl. The May delivery contract rolls into June tonight, and last night June closed a mere US4c higher at US$48.55. But don’t be fooled by US$2 worth of move tonight to the upside which represents the contango curve only (cost of storage) as we shift months.
The IMF also issued its six-monthly report last night and declared global credit-related losses would eventually top US$4 trillion (remember when US$500m to $1tr was the call in early 2008?). Mind you, the “forecasters” at the IMF also said the New York Giants would win the 2008 Superbowl and that Barack Obama would edge out Hillary Clinton for Democrat nominee. In another six months they will have caught up even further.
A slightly better than expected result in a German investor sentiment index helped to turn the euro around last night after its thumping on Monday. The weaker US dollar and selective encouragement from the better US earnings results aided a return to risk appetite. The Aussie shot back over a cent to US$0.7116. Gold held its own nevertheless, falling only US$0.70 to US$884.00/oz.
The VIX volatility index fell back 5% to 37.1.
The SPI Overnight rose 37 points or 1%.
There’s another round of important US earnings releases tonight, including Morgan Stanley. Yahoo posted a popular result in the after-market and its shares are up 4% in late trading. Are we risk-hungry now or risk-averse? Each day is a new one.
