Daily Market Reports | Jun 13 2009
By Andrew Nelson
The Dow closed up 28 points or 0.3%, the S&P 500 added a more modest 0.14%, while the Nasdaq was unable to follow suit, closing almost 0.2% lower.
The Dow opened lower and spent most of the day trading sideways, just below the gain line. A 30 point run in the mid-afternoon pushed the market into the black, but this bounce petered out and for all money it was looking like a down day for Wall Street. With less than 15 minutes left, the gauge was back in the red on late selling, but a frenzy of even later buying in the last minutes of trade saw the Dow jump back close to its intraday highs to finish in positive territory for the year for the first time since the first week of January.
While the gain on the S&P 500 was a little less pronounced, the broader market measure also rallied in a late flurry to close just off intraday highs at 946.21, tacking on a couple of more points to yesterday’s 944.89 close. As we pointed out yesterday in the Overnight Report, 944.74 had become a pretty important level of resistance, as it marked the previous top the recent rally had reached on June 2nd, but two consecutive closes above this mark (even if the increases are minuscule) should be noted.
For most of the session weakness in energy and gold prices dragged on oil and metal stocks. But the selling eased up later in the session, and was offset by strength defensive sectors like pharmaceuticals. Given the lower Nasdaq, it was little surprise that tech stocks were under pressure for most of the day. News that National Semiconductor posted a steep loss in its fiscal fourth quarter was at least partly to blame.
Financials had a pretty good day, with Bank of America shares jumping nearly 5% after Stifel Nicolaus raised its price target on the stock to US$22 from US$18, saying it expects the firm to pay back all of its TARP loan by early 2010. Also helping was a report from the Wall Street Journal, which said that big financials like JPMorgan and Morgan Stanley will start repaying government bailout funds next Wednesday. Stocks in both JPMorgan and Morgan Stanley finished higher despite BA-Merrill Lynch slashing its second-quarter earnings estimates for each. Merills also cut its forecasts for Goldman Sachs, but it was also up on the day.
BlackRock is set to become the world’s largest money manager on plans to buy BGI, the investment unit of British bank Barclays, for US$13.5 billion. But the news did little to help the shares of either company, with BlackRock dropping 5% and Barclays down 3%.
Speculation that incumbent Iranian leader Mahmoud Ahmadinejad had lost the nation’s presidential election in a landslide to reformist former premier Mir Hossein Mousavi provided some of the afternoon’s upward push. However, the picture was soon clouded by claims from Iran’s state news agency, which reported that Ahmadinejad had actually prevailed.
In economic news, US consumer sentiment was little changed in early June, with the read falling just shy of forecasts. The University of Michigan’s consumer sentiment index rose to 69 from 68.7, versus forecasts for a rise to 69.5. Import prices picked up 1.3% in May, in line with forecasts, but the good news is that this was the largest monthly increase since last July. However, the monthly increase was due largely to a jump in petroleum prices, which rose 1.1% in April and thus does little to help the picture of a reviving consumer segment. On the other hand, the year on year import price read fell 17.6%, which if anything suggests that the resurfacing of inflation fears may not be substantiated. I guess we can call it a draw on the consumer outlook.
Also adding to the confusion of the day was a server issue at the New York Stock Exchange, which briefly interrupted the flow of orders for about 200 stocks in the late morning. While the affected stocks continued to trade electronically and outside the NYSE, they were temporarily halted on the exchange. All up, there were few who cited the issue as having caused any major dramas in trading.
Treasury prices were once again in focus, climbing despite a report in The Wall Street Journal that the Fed is unlikely to undertake any significant increase in its purchases of US Treasury and mortgage-backed paper when its interest-rate committee meets June 23 and 24. The two-year note was up 3/32, yielding 1.276%. The 10-year note rose 19/32 to yield 3.790%.
In response, the US dollar continued its recent trek higher, spurred on by hopes that the Fed would essentially be protecting the greenback’s value by abstaining from any new meaningful Treasury purchases, which would end up driving rates down. The dollar gained versus the Aussie, euro and the yen, pushing down the prices of commodities in general, and oil futures in specific. Crude, which has been bouncing to new highs for the year over recent sessions, pulled back US64c to US$72.04 a barrel.
Unsurprisingly, gold also had a bad day, giving up US$14.90/oz to US$939.00/oz after being hit by the two-punch combo of a lower US dollar and the year on year import price drop, which took some of the shine off the inflation hedge trade. However, it wasn’t all doom and gloom for the commodities sector, especially for materials, after the Chinese reported better-than-expected factory output in May, while Japan made upwards revision to its industrial output in April.
But the good news from Asia wasn’t enough to stave off the effect of a higher US dollar on the base metals complex. It was a good week that saw some multi-month highs, but a correction was on the cards. That said, losses were limited and basemetals.com cites “analysts” as expecting another push higher next week, claiming “commodity bulls remain firmly in charge for now”.
I guess you can’t argue the fact that base metals trading has become increasingly active since the start of the month. Investment funds have been moving back into the commodity sector en masse on the back of the recent flow of data that is suggesting “green shoots” are emerging for battered global economies. Today’s industrial production data from China can only help.
However, Australian speculators seemed little impressed by the bullish commodities talk, with the SPI slipping 2 points to 4058.
