Daily Market Reports | Nov 11 2009
 By Greg Peel
The Dow closed up 20 points or 0.2% to another new high at 10,246. The S&P was down but by less than one point, thus remaining on 1093. The Nasdaq lost 0.1%.
If you’re a bull, you’d say that the fact the Dow held its ground last night after two very big up-moves, also marking a new high for the second day in a row, is a bullish sign. If you’re a bear, you’d say the DJIA is a pretty meaningless indicator and you’d point to the broad market S&P 500 which again failed to break above the previous high of 1097 at any time last night. From a technical and psychological perspective, the creation of a lower high on this latest up-leg is a harbinger of another big fall to come. Indeed, a meaningful drop in the S&P would complete a head-an-shoulders top – arguably the most feared of all top formations.
But let’s not get ahead of ourselves. Money is free and the indices could well power into blue sky yet, thus reversing bearish technical fears. Volumes were tepid last night and will likely be thin tonight as America celebrates Veterans Day. Stock and futures markets are open but bond markets are not.
The British pound was under pressure yesterday when the head of sovereign ratings at the Fitch agency, speaking at a conference in Tokyo, warned the UK was the developed nation most at risk of losing its sovereign AAA-rating. The comment puts pressure on the Brown government not to introduce another consumer stimulus package ahead of the upcoming (must happen before June) election it appears destined to lose. Fitch is sticking with a “stable” rating on the UK for now however, expecting a post-election consolidation of fiscal measures.
In other words, Fitch expects the Tories to win and to move quickly to sort out fiscal policy. (How they do that is anyone’s guess.) But while the pound initially dropped on the news, sending the US dollar index higher, the reality is Fitch said exactly the same thing four months ago. The news is not new. The pound recovered.
Movements in the US dollar index last night were not sharp but they were significant. The euro once again traded up to US$1.50 early on, sending the dollar index down to 74.95. The 52-week low is 74.93. But here the dollar bounced back to 75.27 before settling almost unchanged over 24 hours at 75.03. Clearly there is support at the previous low and some jitteriness amongst the vast shorts.
The euro failed to go on with it following the release of the German ZEW economic expectations index – the bellwether EU sentiment indicator. From a reading of 56 in October economists were expecting a tick down to 54, but a fall to 51.1 caused some concern. Traders suggested Europe is coming to terms with what will be a recovery, but a slow and bumpy recovery.
There was also surprise in Japan yesterday when it was announced the current account surplus had increased by 0.2% in September instead of decreased by 2.5% as consensus suggested. Japanese exports fell 32.1% from September 2008 but a 37.7% drop in imports made the difference. The export number was nevertheless better than the 37.1% fall experienced August to August. But if world economies are going to correct their imbalances, it will require a reduction in current account surpluses such as Japan’s and a reduction in current account deficits such as America’s. At present, the opposite is still true.
This is no doubt one reason why we continue to see solid support for US Treasury auctions, with US$25bn in ten-years being issued last night without a hitch. Foreign central banks bought 47.3% of the issue compared to 45.7% last month. Given the Fed has firmly anchored its free money policy for all eternity based on low price/wage inflation expectations, Treasuries remain a viable investment option. The irony is that monetary inflation will also remain no threat if everyone, both domestically and internationally, remains content to lend the US government whatever it wants. No short term threat anyway. The ten-year yield fell a couple of bips to 3.47%.
The US dollar was thus choppy in a smallish range last night, and thus the stock market followed suit. There were no economic data releases of note so it was a good day to take a breather.
Oil tried US$80 again but slipped back to be down US38c at US$79.05/bbl with nothing new to report on the weather front. Gold edged up US$2.50 to US$1104.70/oz and the Aussie was slightly higher at US$0.9302.
Base metals continue to be aimless in London. Moves were inconsequential but for a 3% fall in nickel. Traders are finding it difficult to find a reason to buy while the US dollar seems supported at its lows, but are not keen to sell either. Last night’s news that net LME inventories had hit a six-month high had no impact. Inventory increases were mostly booked in Singapore and Busan (Korea) and Basemetals.com reports stocks are expected to increase in East Asia as China exports some of its overproduction. That can’t be screamingly bullish.
The SPI Overnight was up 21 points or 0.4%. Yesterday the ASX 200 closed at 4733, still 126 points or 2.6% shy of the previous 4859 high.
Watch out today for Australian consumer confidence, and more importantly a raft of Chinese monthly economic data. Incitec Pivot ((IPL)) will also report its full-year result.
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