Daily Market Reports | Sep 03 2009
By Greg Peel
The Dow closed down 29 points or 0.3% while the S&P lost 0.3% to 994 and the Nasdaq slipped only 0.1%.
It was a choppy day of trade in a low range. The Dow fell to its low of down 48 around 10.30am, following the release of the ADP jobs number. It quickly recovered to the flat line, and then wobbled around “unchanged” for the rest of the session until dipping right on the death. Conviction was clearly low ahead of the official jobs figures due on Friday night.
Payroll firm Automatic Data Processing (ADP) began tracking private sector employment movements in the US in 2000. Once largely ignored as being a volatile and inaccurate indicator of the official government figures, the ADP report has taken on much greater significance as unemployment has risen in 2009. What’s more, it recently appears to have become a far more accurate indicator. The official number is always released on a Friday at the beginning of the month, and the ADP number is always released on the Wednesday prior.
Unemployment is arguably the most vital economic data point at present given it determines the basis for everything from mortgage foreclosures to consumer spending, and in turn the GDP. Having expected unemployment to reach 10% by next year, Wall Street was surprised last month when the figure dipped from 9.5% to 9.4% when 9.6% was expected. Suddenly Wall Street wondered whether unemployment may have already peaked. Many considered perhaps it was just a blip, but clearly forecasts for Friday night’s August figure could surprise either way.
Economists were expecting private sector job losses of 213,000 in August but the ADP number came in at 298,000. That number still suggests the lowest rate of monthly unemployment growth in 2009, but being more than expected meant a poor reaction from stock markets. Tonight brings the weekly new jobs claims figures, which again were once considered too volatile to be meaningful but now are awaited with baited breath. Then on Friday we see whether the government can produce a number that either stalls this apparent pull-back mood or heightens it.
A funny thing happened in currency markets last night. When Wall Street fell on the jobs number, the US dollar dutifully rose. But it quickly began to fall again as traders began switching into yen instead. The new Japanese government has indicated it intends not to interfere in currency markets, whereas the former longstanding government was always in the market trying to prevent the yen rising too far and making Japan’s vital exports too expensive. The yen’s rise last night suggested to traders that perhaps it was becoming more attractive as a safe haven currency than a highly indebted dollar (not that the yen isn’t pretty highly indebted as well, although as an export economy Japan does usually carry a current account surplus).
Also helping the US dollar to weaken were the minutes of the last Fed monetary policy meeting. Wall Street has long been waiting for clues as to what the Fed’s exit strategy is for quantitative easing now that economic recovery is expected (including by the Fed). Yet again, there were none.
If the stock market truly is in a pull-back mode now, then in theory the US dollar should rise in response – that has been the way of things in 2009. This makes gold a tricky commodity to play, given a pull-back implies gold becomes attractive as a safe haven once again, but a rising dollar suggests gold should fall.
Last night gold shot up US$21.80 to US$978.00/oz. Several months ago twenty dollar moves were frequent, but as Wall Street has rallied gold has become stuck in a tight range around US$950, with a five dollar movement being a big day. With Wall Street now looking at least temporarily shaky, and the US dollar not responding as it should, there was a sudden rush into gold.
History notes that the worst month for the US stock market on average is September (not October as many might have assumed). History also notes that September is the on average the best month for gold. Historically, the period between May and August is a tough one for gold, given it is the quiet period between Asian holiday seasons, such as the bi-annual Indian wedding seasons. These kick off again toward the end of each year, and beforehand jewellery makers begin ordering in their gold so they can start fashioning trinkets ahead of the jump in demand.
Unlike past years, gold has not fallen heavily in the May-August gap in 2009 as many had assumed it might. Talk of US$750/oz was not uncommon. The reason can be assumed to be the ongoing concern over US debt, which has gold bugs screaming US$1200/oz once more, but nor has the US dollar collapsed – so far – as many expected. Thus gold has been stuck in limbo around the US$950 mark. Last night’s surge would have woken up a few dozing gold traders however, and given the traditional fourth quarter rise in the gold price (if that is what is to occur) is based off US$950, and not US$750, then one assumes a breach of US$1000/oz is on the cards once more.
Gold helped to keep stock market indices looking a little healthier last night, as despite gold’s rally only representing 2% the major US gold producers – which have also been quietly nodding off of late – saw share price jumps of 6-7%.
There was no equivalent reaction among the “real” commodities however. Believe it or not, oil finished the session “unchanged” at US$68.05/bbl. When did that last happen? Nor did base metals much trouble the scorers in London; tin being the only stand-out with a 2% gain. It would seem commodities are now on hold ahead of Friday’s US employment data.
All of the above might have meant limbo for the Aussie dollar as well, but it finished up 0.8c over 24 hours to US$0.8341, spurred on by yesterday’s strong second quarter GDP result (plus 0.6%).
The SPI Overnight fell 17 points or 0.4%.
Today in Australia we learn the July trade balance. Earlier in the week economists were surprised by the blow-out in the current account deficit over the second quarter, affected by a weaker trade balance. July’s result will provide the first clue as to how the September quarter is fairing.
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