Daily Market Reports | Dec 03 2009
By Greg Peel
The Dow closed down 19 points or 0.2% while the S&P rose less than a point to 1109 and the Nasdaq added 0.4%.
Wall Street attempted to pick up where it left off last night, rallying early to set a new intra-day high in the S&P 500 at 1115. But thereafter December looked like it might already be a one-day wonder, as volume failed to materialise and the indices drifted lower. The first day of the month started with a bang on Tuesday as new money entered the game and shorts were hastily covered on the realisation Dubai was not the disaster it might have first appeared. But lack of interest last night meant lack of follow-through.
Ahead of the bell, ADP announced 169,000 private sector jobs were lost in November. Reaction was mixed. Economists had variously decided losses in November would be 150,000-160,000 jobs so the number was to the weak side, but by the same token this is the lowest reading to date and job losses have fallen each month since the peak in March at 736,000. The trend is thus positive, and economists are expecting that Friday’s official numbers will show an unemployment rate unchanged from October at 10.2%.
After lunch the Fed released its Beige Book – a monthly report on economic activity in the 12 Fed regions. The rhetoric was a little more upbeat than October, suggesting the US economy was “improving modestly”. Though the number of regions reporting improvement remained at 8 out of 12, with 4 reporting no activity was unchanged or “mixed” (read: weak). The Fed was pleased with increased activity in consumer spending, manufacturing and housing, but just when you thought it might be safe to go back into the water the central bank suggested conditions in commercial real estate remained “bleak”.
Wall Street wasn’t quite sure what to do with this information, so the market drifted on little interest. There was interest, nevertheless, in financial stocks, which came under further pressure. It was reported members of the Bank of America board had thrown up the idea of splitting the monolith in two, while talk from JP Morgan is that intended changes to derivatives regulation will have a material impact on the bank’s bottom line. A couple of broking houses downgraded a couple of banks, and all in all the mood remained dour.
It was a different story, however, in the commodities space.
On Tuesday, gold rallied back almost US$20 to reset itself just under the US$1200/oz mark. Short positions established on the Dubai news were hastily covered and momentum was once again to the upside. And from this base camp, the gold market decided it was ready to make the assault on the next summit. Speculative money flooded into Comex futures and gold exchange-traded funds last night, taking positions in those instruments back to all-time highs. Gold thus burst through, adding US$16 to US$1212.10/oz to a new all-time closing high. This time the 1.5% rally in gold left silver behind and bemused with only a 0.5% rally.
This was a “dislocated” day’s trading for gold, given the US dollar index rose 0.4% on the day to 74.67. Since the beginning of September, the US dollar index has fallen 5% and USD gold has rallied 23%. The euro has pushed back above US$1.50 in that time but EUR gold is up 17%. Gold is not simply rallying because the US dollar is weak, it is rallying as a global monetary inflation hedge. In the meantime, global price and wage inflation remains not only low, but disinflationary signs continue. Of particular note is testimony from banks across the world that they are just not seeing demand for loans. If there is no lending, money is not multiplying or speeding around the economy (velocity) to inspire inflationary pressure. But on the other side of the coin (so to speak), fiscal and monetary stimulus via printed currency is making up the difference. That’s what gold buyers are hedging against.
The rise in the US dollar index came about largely because of more talk from Japan. But it remains only talk. New-boy prime minister Yukio Hatoyama was quoted as saying the yen cannot remain “as is”, meaning something will shortly have to be done about the yen’s rise and its impact on Japan’s export industry. But another cabinet minister was quick to qualify his leader’s words by suggesting they didn’t mean the government was about to intervene (buy US dollars). So the talk in Japan remains just that.
Oil’s response was more text-book, falling on the stronger dollar and on news that weekly inventories were up last week when – lo and behold – analysts expected them to be down. Oil fell US$1.77 to US$76.60/bbl to give back yesterday’s gains, which were made on a weaker US dollar and the aforementioned inventory expectations.
Base metals were thus stuck in a conundrum of gold up and oil down, but metals long ago left behind any concept of actual demand and, like gold, are trading as a monetary hedge – the “reflation trade”. Only the commodity funds are playing, ignoring last night’s news that LME inventories have hit a new all-time high at a level of US$17bn. Aluminium and zinc were up 2% and copper 1%.
The Aussie drifted slightly lower on the stronger greenback, after Tuesday’s rate rise surge. The Aussie is marking US$0.9239.
The SPI Overnight rose 6 points.
Stand by today for Australian retail sales for October.
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