Daily Market Reports | Jun 26 2009
By Greg Peel
Yesterday I highlighted the disparity between movements in the Dow and the S&P and the relative independence of the Nasdaq. Last night the Dow and Nasdaq both rose 2.08% and the S&P rose 2.14%. That’s 172 points up in the Dow and a 920 close in the S&P 500. I meant what I said though.
Last night’s movement is best put down to a conflagration of various positives in a market yearning not so much for a reason to buy, but a reason not to buy. For a while there the cops had turned up to the party to insist the music must be turned off, but last night they decided not to kill the party after all. The alcohol started flowing again before any hangover set in.
The market opened to the upside and continued in a steady path upwards all session, closing almost on its highs. An increase in the weekly new jobless claims number was dismissed. A home builder and a home furnishings company each posted much better results than expected, and there was news of consolidation in the retail sector via a takeover bid. The money is passing from weak hands to strong.
On Wednesday Wall Street was spooked when the Fed “announced”, by way of making no contrary announcement, that it was happy with its previously stated quantitative easing volumes and saw no reason to increase such volumes. The stock market feared the bond market might respond with a sell-off, pushing yields much higher and making stocks less attractive. Last night a record auction of 7-year US Treasury notes was well received, completing the greatest week of Treasury borrowing requests in history. Wall Street has been very concerned the world would abandon the profligate borrower and send the US into Banana Republic status, as one ex-politician might have described it. At the completion of all of this week’s auctions, Wall Street breathed a very big sigh of relief.
It also breathed a sigh when Fed chairman Ben Bernanke fronted a tribunal and proclaimed his innocence.
There has been much finger-pointing and general wailing and gnashing of teeth around both Wall Street and Capitol Hill for a while now, culminating in specific allegations this week. Apparently someone gave Ben Bernanke a free pick-up truck which he didn’t declare. Former Treasury secretary Hank Paulson was complicit, but kept Mum. For the past two weeks, Congress has done nothing but play handbags at ten paces across the chamber about the issue, calling for sackings here and resignations there. In the meantime, vital legislation has had to be put on the backburner. There are more important things in life than running a country.
The risk is that Congress – what we would call Parliament – has now lost its last shred of any credibility in the eyes of the constituency. But hey – we vote for our elders and betters for their wisdom. Who are we to question?
The reality is Bernanke denied he forced Bank of America to take over Merrill Lynch last year under duress, while not revealing the true, parlous state of ML’s balance sheet. The denial was enough, apparently, for everyone to go back to the real task at hand. This denial has been accredited as a vital reason why the stock market surged last night. And I did not have sexual relations with that woman.
We are also nearing the end of the June quarter – the first positive quarter in seven. It is in the interest of fund managers to close the index as high as possible in order to attract shell-shocked investors back into the market.
The US dollar index was slightly higher last night, but commodities chose to rally regardless on the more positive mood. Oil jumped US$1.75 to US$70.42/bbl. Base metals were all 1-2% higher.
Gold added to its recent strength, buoyed by one analyst’s suggestion that the Chinese government needed to buy more gold reserves. The fact that the Chinese government managed to buy a small mountain of gold domestically last year without anyone noticing didn’t seem to matter. Gold rose US$8.30 to US$938.90/oz. The Aussie rose 0.7 of a cent to US$0.8025.
The SPI Overnight jumped 32 points, or 0.8%.
