Daily Market Reports | Dec 01 2009
By Greg Peel
The Dow closed up 34 points or 0.3% while the S&P gained 0.4% to 1095 and the Nasdaq added 0.3%.
Wall Street fluctuated last night – the Dow was variously up and down 50 points before flat-lining for most of the session. Late news broke that Dubai World had organised to restructure US$26bn of its total US$60bn debt and that provided a late spark to send stocks higher on the close. Previous news that the UAE would to some extent underwrite Dubai debt had also provided comfort. At the end of the day, the US banks are only mildly exposed to Dubai by comparison to their British and European counterparts – a reality that had stock markets across the pond all down over 1% once more. Net moves since the Dubai revelation have thus been UK-Europe down around 3% and the US down 1%.
The net move in Australia however, where Dubai exposures are not material, has been as good as zero over two sessions. Aside from bouncing back from Friday’s initial Dubai overreaction, news closer to home helped take Dubai off the front page in the Asian time zone.
A raft of data released in Australia yesterday further fuelled the debate as to whether the RBA will raise today. On the back of a 0.8% jump in inventories in the third quarter and an 8.7% jump in house prices year-on-year in October, one side of the equation suggests the RBA has no choice but to raise. The inventory number in particular, and the flow-on to housing construction implied by the healthy housing market, will both contribute to upward revisions of the third quarter GDP, due for release on December 16.
On the flipside, a flat month for private sector credit growth after a 0.1% fall in September has some saying the RBA would be mad to raise until credit demand is seen to be picking up of its own accord. To do so would be to risk stalling what recovery there is in the economy. But take out a 0.7% increase in housing finance in October along with a 0.6% jump in consumer credit, and what you’re left with is only business credit dragging the chain. The RBA has pointed out for several months that a lack of demand for business credit has coincided with a collective surge in corporate capital raisings. In other words, companies have turned to equity or equity hybrids for fresh capital and shied away from bank debt – not surprising given lenders are still wary post-GFC but the stock market has rallied 60%. The weak business credit number therefore does not fully imply weak demand for capital.
And then there’s India. On the back of a very solid Chinese third quarter GDP, India yesterday announced a 7.9% jump in the September quarter – well ahead of the second quarter’s 6.1% and, most importantly, still streets ahead of the 6.3% result economists were suspecting. The big increase was attributed to government stimulus measures. India is not yet China, and not yet as important a trading partner to Australia, but it’s on its way. The RBA will have taken note.
The Indian result will have provided some offset to what was otherwise a disappointing Japanese industrial production number – up 0.5% in October when 2.5% was hoped for.
Stand by for a 25 point rate hike today.
Focus in the US last night was on Black Friday retail sales. Evidence to date suggests shopper volumes were about what was expected, with more shoppers through the doors than last year paying less than last year for already discounted goods. The numbers were not divergent enough from expectation to cause any great move either way, although traders traditionally buy the retail sector ahead of Black Friday and sell afterwards, which is exactly what happened last night.
Good news also came early in the form of the Chicago purchasing managers’ activity index. This 50-neutral measure rose to a better than expected 56.1% from 54.2% last month to reach its highest level since August last year. Meanwhile, the similar but zero-neutral Dallas Fed activity index swung from minus 3.3% in October to plus 0.3% this month. This is the first positive reading since July last year.
But at the end of the day it was another end of month session, and another reason for hedge funds and trading desks that have booked good profits this year to stay right away from the action lest they blow their Christmas bonuses. Despite weak volume all month however, November has provided the strongest monthly move since July.
Even the energy sector was quiet last night, despite fresh geopolitical developments.
Over the weekend, the International Energy Agency requested Iran cease work on its nuclear enrichment facility. How did Iran respond? By announcing it planned to build ten new enrichment facilities. And next we learned the Iranian navy had detained a British racing yacht and is holding five British nationals. Speculation has it that the yacht, which was on its way from Bahrain to Dubai (of all places) to compete in a Gulf race, may have inadvertently strayed into the Iranian side of the Gulf.
This event had two effects – one was to push the price of oil up US$1.23 to US$77.28/bbl, but the other was to focus attention on the relationship Dubai has with Iran. Iran is a big investor in Dubai, and somewhere around a quarter of the emirate’s population is Iranian. It is believed Iran overcomes international sanctions by importing goods from Dubai which Dubai has imported from the West. One can imagine that talk of a Dubai default would not be going down well in a nation which thumbs its nose at Western capitalists.
Oil’s rise came on the back of an only slightly weaker US dollar, which retreated to 74.87 on the index following its earlier Dubai-scare surge. Gold recovered ground – up US$8.20 from Friday to US$1179.60/oz. Base metals in London also picked up lost ground for a steady monthly close, with aluminium, tin and zinc up over 2% and copper up 1.5%.
It’s been a rollercoaster ride for the Aussie dollar lately, which dipped below US$0.9000 at one point in recent trade but has since recovered on the back of both an ease in the US dollar and yesterday’s local economic news. From Friday’s close the Aussie is up a cent to US$0.9149.
The SPI Overnight was up 11 points or 0.2%.
Stand by today and tonight for both the RBA decision and for monthly performance of manufacturing indices in Australia, China, Europe, the UK and US.
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