Daily Market Reports | Sep 04 2009
By Greg Peel
The Dow closed up 63 points or 0.7% while the S&P gained 0.9% to 1003 and the Nasdaq added 0.8%.
Having opened to the upside, Wall Street struggled throughout most of the session and was flat at 3pm. Only a late spate of buying spurred a solid close ahead of tonight’s crucial jobs data.
The latest hobby on Wall Street is China-watching, and the US markets have been spooked recently anytime there’s Big Trouble in Little China, sending indexes lower. I say Little because China’s economy is still only one quarter the size of the US economy, albeit growing, and one is bemused to see the once mighty US squirming with China’s every move. More understandable is Australia’s connection to China, and yesterday a 4.8% bounce in the Shanghai Index – the first decent bounce in a 20% correction – helped counteract a weak lead from Wall Street on Wednesday night.
The Shanghai move was cited as one reason Wall Street did finish higher last night, and the sector most affected by China is obviously Materials.
No more evident is the world’s obsession with China than last night’s trading in lead on the London Metals Exchange. Lead popped 9%, responding to news that the Chinese government was further intensifying its stand against environmentally inefficient lead smelters, closing down many that have been accused of poisoning local residents in nearby provinces to the lead smelting centre in Yunnan. Basemetals.com reports 400,000t per year of smelting capacity has already been forcibly shut down, with another 500,000t capacity under threat.
But while lead may have shot up 9%, it had nothing to do with “real” commercial traders – they just stood on the sidelines and shook their heads. Commodity fund buying and technical trading caused the scramble, while commercial traders vainly attempted to point to the latest LME inventory figures, which moved up to a near six-year stockpile high of 121,600t. Basemetals.com suggests commercial traders are not inclined to push metal prices any higher at present.
A combination of the 4.8% bounce in Shanghai and the lead surge sent the other metals higher as well, with tin and zinc up around 3% and copper and nickel 1.5%. The metal price bounce sent US resource stocks higher on the day, driving the bulk of gains. But also chiming in was the gold sector, which had another strong night.
Having broken out of its medium term trading range on Wednesday, gold jumped another US$15.40 to US$993.40/oz last night, with the magic US$1000 clearly now in sight. Once again gold stocks outperformed the metal itself to the upside, posting 5% gains to the metal’s 1.5% rise. Gold stocks have been relatively somnolent during the recent Wall Street rally, prompting a sudden scramble back in. But gold traders point to the fact most major gold producers across the globe have now unwound hedges which might otherwise have dampened earnings, making them more “pure-play” than ever before.
But if gold is the precious metal in focus, one might spare a thought for silver. Silver rose 4.6% to US$16.10/oz last night to mark a new 52-week high.
The enigmatic precious metal had long been considered a mere by-product of base metal mining, but a valuable by-product nevertheless, the sale of which could help fund a zinc mine’s expansion for example. But despite the significant loss of silver demand from a now digitised photographic industry, silver’s industrial applications are growing by the day. Thus as a precious metal, one might say silver offers a “free put option” as an industrial metal. Many an avid precious metal trader sees more upside potential in silver than in gold.
Oil could not get excited about China last night however, with crude falling US9c to US$67.96/bbl. Weighing on oil was a big jump in weekly natural gas inventories, which sent the natural gas futures contract down 7.6% in the session. There is growing excitement around the natural gas industry at present, particularly in Australia, but the world is coming to realise the crude oil alternative is clearly rather abundant. (More on that next week.)
Trading in commodities last night, including precious metals, was unaffected by the US dollar which trod water at 78.46 on its index. The Aussie nevertheless added another half a cent to US$0.8393.
The positive influence from commodities was otherwise dampened by economic data on Wall Street last night. With the jobs report out tonight, all focus was on the weekly new jobless claims figures. They fell 4,000 for the week, but economists were hoping for a bigger drop. In the meantime, the continuing claims figure again rose, to 6.23m. In June the monthly US unemployment number stood at 9.5%, and economists were expecting a tick up to 9.6% in July. When July came in at 9.4%, Wall Street rallied. Tonight economists expect a return to trend and another 9.5% reading.
Yesterday it was revealed Australia’s AiG performance of services index rose from 44.1 in July to 48.0 in August, which indicates contraction but at a slower rate. Last night the equivalent US ISM index jumped from 46.4 to 48.4 – just slightly higher than expected – to imply a similar trend.
I find it bemusing that each month when the US ISM manufacturing index is released, Wall Street is all over it like a rash. But when the ISM services (non-manufacturing) index is released shortly after, you really have to go looking for the result. Yet services represent 80% of US output, and manufacturing only 20%. America remains fixed in an archaic industrial mindset, still worshipping the Rockefellers and Fords while remaining suspicious of the Gates and Jobs.
Speaking of Ford, last night Moody’s announced a double-step upgrade to the company’s credit rating – a move that would have been unthinkable only months ago. Ford shares jumped 6%.
Major US retailers released their monthly sales figures last night, with the recent trend of discount stores doing well and department stores badly continuing. The mood was otherwise upbeat however, with youth market discretionary stores the real star. Outlooks were more positive, and another week of back-to-school sales is expected to be solid.
Focus was also on Europe last night, where the ECB left its cash rate unchanged at 1.0% as expected. ECB president Trichet warned the EU economy is not necessarily performing as well as some might think, with unemployment revealed at 9.5% this week and retail sales falling.
The SPI Overnight rose 28 points or 0.6%.
Tonight in the US it’s all about, as Malcolm Turnbull would say, jobs, jobs, and jobs.
