Daily Market Reports | Nov 03 2009
 By Greg Peel
The Dow closed up 76 points or 0.8% while the S&P managed 0.6% and the Nasdaq struggled to 0.2%
It was manufacturing day across the globe yesterday. As the sun tracked across the planet it progressively fell on performance of manufacturing data in Australia, China, the EU, UK and US. And the warmth was embraced.
Australia, unfortunately, let the side down nevertheless. The AiG performance of manufacturing index fell to 51.7 in October from 52.0 in September. But the good news is that any number over 50 implies expansion, that September’s number surprised everyone anyway, and that Australia’s manufacturing industry is not exactly the major factor impacting on GDP. Australia is a commodity export economy – end of story.
Elsewhere, however, the news was all positive. China’s PMI rose from 55.0 to 55.4 in October to its highest level in 18 months. The timing was similar in Europe and the UK, with both hitting expansion territory. The EU PMI rose from 49.3 to 50.7 and the UK PMI rose from 49.9 to 53.7. The figure is particularly important in Europe, where Germany remains the world’s biggest exporter of manufactured goods. In the US, the ISM PMI was expected to rise quietly from 52.6 to 53.0 so a reading of 55.7 was a positive surprise.
It was enough of a positive surprise to send the Dow up nearly 150 points at 10am, as the US dollar index headed to its 11am low of the day of 75.93. But that was the end of the story. Stock indices faltered at the top, and as the dollar found buyers the Dow fell to be down 34 points just after 2pm. Both corrected once more to achieve a Dow close of up 76 and a US dollar close of 76.24, which was slightly lower than Friday’s close.
There were more positive data to contend with early in the session. Pending home sales had been relatively flat in August but rose 6.1% in September to the highest level since December 2006. The gauge has now registered eight straight months of gains, which has never happened in the data’ s eight-year history. And construction spending rose 0.8% in September when a fall of 0.2% was expected.
That last number looks pretty good, but when one considers the August number was last night revised down from a 0.8% gain to a 0.1% loss then one might as well dismiss it as unreliable noise.
Indeed, all US data are really little more than noise at present. It may be good news that the US economy continues to show signs of recovery but the stock market has already factored such a recovery in. All eyes will be on the jobs number on Friday, which provides a more realistic window into the world on Main Street. In the meantime the stock market is responding only to movements in the US dollar, which is currently the dominant factor. The world is so short US dollars it just won’t go down, and if the dollar won’t go down then the stock market cannot go up.
Gold can go up, however, and despite expectations of an overdue bounce in the US dollar, gold is hanging in there playing a wealth storage role as volatility reigns once more. The US dollar index only fell slightly last night close-to-close but gold rose US$10.30 to US$1056.60/oz. The Aussie was up a third of a cent to US$0.9038.
It was a more timid result in real commodities. Oil closed up US13c to US$78.13/bbl while base metals in London hardly much troubled the scorer. Nickel fell 1% to post the only full percentage move.
If gold is playing safe haven again the case is not true for US bonds. The ten-year yield ticked up 4bps to 3.42% last night and is firmly stuck in a range. The VIX volatility index fell slightly to 29.99, which is still on the cusp of “fear” territory.
In earnings news, Ford posted a quarterly profit when analysts had expected a loss and its shares were up 8%. The gloss was taken off by failed lender CIT, which will be de-listed tonight after filing for bankruptcy. CIT was a big lender in commercial real estate, and commercial real estate is still high on the “fear factor” list. Many expect a delayed collapse, and even the Fed is getting worried.
The SPI Overnight was up 25 points or 0.6%.
I hope everyone picks a winner today – I’m backing 25 bips.
Please note that the US went off summer time on the weekend, and as such the NYSE will now close at 8am Sydney time until March.
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