Daily Market Reports | Aug 04 2009
By Greg Peel
The Dow closed up 114 points or 1.3% to 9286. The S&P gained 1.5% to 1002. The Nasdaq added 1.5% to 2008.
The S&P 500 conquered 1000 last night, marking its highest level since November. The broad market index has now rallied 50% from the beastly March low of 666. On a retracement basis, the S&P has taken back 37% of the bear market from the high of 1565 marked in October 2007.
The Nasdaq closed over 2000 for the first time since October to mark a 58% rally. The 30-stock Dow average has only managed a 41% rally, but is no doubt thinking 10,000 looks like a nice number.
The assault on 1000 was driven by global manufacturing data. As the Sun passed over the Earth yesterday, July performance of manufacturing indices were ticked off one by one. Australia’s index rose from 38.4 to 44.1 to its highest level since last September. China’s index (independently estimated by CLSA) rose from 51.8 to 52.8 (highest since last August). The UK saw a rise from 47.4 to 50.8 (April 2008). Europe scored 44.8 to 48.9 (September). And finally the US posted a rise from 44.8 to 48.9 (August).
The global manufacturing sector is on the road to recovery. Bear in mind that in each case a level above 50 means growth while below 50 means contraction. Hence while China has now seen actual growth for four consecutive months, and the UK has just turned positive for the first time in sixteen months, Europe, the US and Australia are still suffering from manufacturing contraction. Europe and the US are now tipped to see growth in the August numbers while Australia is the laggard.
But then Australia’s manufacturing industry is not a primary GDP driver. As a supplier of raw materials, we look more keenly towards the Chinese numbers. In the US, manufacturing is only about 25% of its GDP as well. Germany, on the other hand, is a major manufacturer.
There was more good news to come in the US last night. June construction spending was expected to fall by 0.5% but rose by 0.3%, pushed along by government stimulus. But the real shock came from auto sales, because Ford announced a 2.3% monthly increase.
This is the first rise in monthly sales of Fords since November 2007. The rise has been attributed to the US government’s introduction of a European initiative known as “cash for clunkers”. Drive in any old bomb and the government will give you US$4500 off the price of a new vehicle. The deal has actually now expired but expectations are for an extension, particularly given the US Big Three have been the major beneficiary of the deal thanks to patriotic Americans.
But if Americans are being patriotic, they’re not doing themselves any favours. Taxpayers own two automakers – GM and Chrysler – and while Ford saw a 2.3% jump in sales against an 11% fall at Toyota and a 17% fall at Honda, Chrysler (which will quietly be absorbed by Fiat) still saw a 9% fall and GM another big 19%. These numbers are, in each case, a lot better than previous months (in which 30% falls have been de rigueur) but obviously patriotic Americans still feel it’s safer to stick with Henry’s marques rather than those on life support.
Analysts may have spent the last month arguing over whether postive company earnings reports were all about cost cutting and nothing about earnings growth, but these economic data are a little bit more real. And they sparked a new level of confidence last night, illustrated by a big fall in the US dollar index and a fall in the yen. The carry trade currencies are being used to finance risk investment. At 77.58, the dollar index is now at its lowest level since last October.
Risk appetite was also evident in a rush out of US bonds. Now that the latest round of major auctions is complete, investors jumped out of the ten-years to invest elsewhere, sending the yield up 14 basis points to 3.64%.
Manufacturing numbers up – US dollar down. Where might that put commodities?
Oil jumped another 3%, adding US$2.13 to US$71.58/bbl to be over the 70 mark again for the first time since early June. But this move was sedate compared to base metals in London. Aluminium jumped 4%, copper and lead 5% and nickel, tin and zinc 6%.
The Aussie surged another half cent since Friday night to US$0.8420, while gold managed only a US$1.70 gain to US$956.20/oz. While gold is being pushed along by a falling US dollar, it is also a safe haven. Thus when safe havens are exited as risk appetite grows, bonds and gold are usually victims.
The SPI Overnight added 56 points or 1.3%. At yesterday’s close in the physical at 4263, our market is only up 35% from its lows.
It’s rate day in Australia today. Will the RBA still be indicating an easing bias, or will the first hints of tightening accompany the unchanged 3% cash rate?
