Daily Market Reports | Jun 06 2009
By Andrew Nelson
The Dow finished 13 points, or 0.15% higher, while the S&P 500 slipped 0.25% and the Nasdaq was down a marginal 0.03% on weakness in the chip-makers.
Stocks spent most of the day 30-40 points above the gain-line until a run of normal afternoon indecision made sure the final scores remained a mystery until the bell. But despite the mixed finish today, it was another up week that again extended the broader market rally that has been in place since early March. The Dow has now gained in 11 of the last 13 weeks, adding more than 30%, and making it the gauge’s best 13-week run since the period ending November 1982, according to Dow Jones market data.
Gains for manufacturing stocks like Boeing and Caterpillar were offset by drops for DuPont, which suffered an analyst downgrade, and Merck, which is shelving plans to seek approval for a new heart-failure drug this year. Energy stocks were also pretty much down across the board after crude-oil futures slipped at the end of what was another strong week.
One of the main reasons the Nasdaq finished in the red was a pretty poor day for semi conductor stocks, which should come as no surprise after yesterday’s news the Semiconductor Industry Association (SIA) now expects global chip sales to fall 21% this year, which is more than it had previously forecast. Sales projections for 2010 and 2011 were lowered, but at least they are expected to grow around 6.5% in each of those years.
However, company specific news was of secondary importance across most markets, with investors far more focussed on US employment, the greenback, commodities and bonds.
Investors initially cheered news that non-farm employers cut payrolls by 345,000 last month, which was well below the 525,000 drop expected. Adding to the good news, the previous month was revised to show fewer jobs were lost than initially reported. The positive read also served to corroborate other recent readings on the labor market, such as the weekly jobless claims numbers out earlier this week. That meant that today’s smaller than-expected decline was embraced, especially in early trading, which helped stocks rally sharply after the opening bell.
However, the reality that a recovery in the labor market typically lags a broader recovery sunk in, and this was reflected by a rise in the unemployment rate. A separate survey showed the unemployment rate rose to 9.4%, a 26-year high, from 8.9% in April and higher than the rise to 9.2% that was expected. The news was an effective dampener to the earlier read and saw economists at BNP Paribas, for example, tell clients that the data indicates a job market that is “gripped in a very severe recession”, according to the Wall Street Journal.
Ultimately, experts remain divided on whether the worst is over for the labor market. In particular, the bankruptcy filings of Chrysler and General Motors could well result in even more significant job losses. And speaking of GM, today was the last day for the iconic auto-maker as a Dow component. On Monday it will be swapped with tech leader Cisco Systems.
Separately, GM will reportedly help finance private equity firm Platinum Equity’s purchase of bankrupt auto parts supplier Delphi Corp and will also sell its Saturn brand to car dealership operator Penske Automotive Group .
After the employment report, Treasury prices dropped, pushing yields up sharply. The 10-year Treasury yield was off 21/32, yielding 3.798%, near a six-month high. Yields on foreign government debt also surged, with the 10-year bund (Germany) and the 10-year gilt (UK) hitting their highest yields since November. The US dollar also rallied, hurting commodities and commodity stocks across the board.
After the recent sustained weakness, one can’t be blamed for asking why the US dollar is once again on the rise?
Well, better economic news implies higher rates, which makes the US dollar more attractive as an investment. Today, the dollar index rose more than 1.5% to reclaim the 80 mark and more for the first time this month, posting gains versus the Aussie, the euro and yen.
This led to a big drop in Gold, which more than wiped off yesterday’s US$17.50/oz gain, which itself was a reversal of Wednesday’s similar drop. All up, gold was US$28.00/oz, or 2.8% cheaper than it was yesterday at US$953.40/oz, while in percentage terms, silver was hit even harder, dropping 3.7% to $15.27/oz. Both were slugged by the aforementioned double whammy of a stronger US dollar, and an improving US economic outlook which makes the safe-haven trade just that little bit less attractive.
And after topping US$70 a barrel earlier in the day, crude oil fell US37c to settle at US$68.44 a barrel on the New York Mercantile Exchange. Again, the stronger dollar was the main culprit, and in oil’s case, was helped by worries over weaker demand due to a 28 year high unemployment rate, which was finally able to remind traders that the fundamentals of crude oil are still bearish. Let’s not forget that just two days ago the Energy Information Administration advised that US commercial crude inventories for the week ended May 29 reached 366 million barrels, up 2.9 million barrels.
The outcome for base metals on the LME was a little more subdued, although trading wasn’t. Basementals.com talked about some vicious swings, after the US jobs report initially sparked a run right across the commodity spectrum, before a subsequent steep reversal. At the end of the open-outcry session, base metals across the spectrum were mixed, with both gains and losses fairly modest. Copper and zinc were down a little, while tin, and aluminium were up a little, with the latter well supported by speculative buying and short-covering, reports basemetals.com.
As far a mining stocks go, the world’s biggest and third biggest miners traded completely outside of what was happening in metals. World number three, Rio Tinto, jumped 6% after walking away from its proposed deal with Chinalco and instead said it would sell over US$15 billion worth of shares. The company also unveiled a joint venture with world number one BHP Billiton, whereby the two big Aussies will combine their iron ore operations . BHP shares also rose 6%.
Citigroup was in the spotlight following a report that the FDIC is mulling over a shake-up of the bank’s top management, including the dumping of CEO Vikram Pandit. The all things financial firm has received billions in US government aid and was also recently told to raise US$5.5 billion as a result of the government “stress tests.” Today was also Citi’s last day as a Dow component and on Monday it will be swapped with insurance firm Travelers.
Back in Australia, the SPI Overnight rose 14 points. Don’t forget that Monday is the Queen’s birthday holiday for most of Australia, so the ASX will be closed for all bar WA. As such, Rudi, Greg and the rest of the team will not be in action on Monday.