Daily Market Reports | Dec 12 2009
By Andrew Nelson
The Dow rose 65.67 points, or 0.6%, to 10471.50, the S&P 500 advanced 0.37%, while the Nasdaq was the odd man out, finishing down 0.03%, just a couple of ticks below flat.
Something happened today that we haven’t seen for a while, stocks were up and so was the US dollar. Better-than-expected reports on retail sales and consumer sentiment provided much of the push, especially for blue chips, although the gains were limited by weakness in technology, while the strength of the US dollar also limited at least some of the upside.
Alcoa was the Dow’s strongest component in percentage terms today, up 8.2% on the back of a rise in aluminium prices and an increase in JP Morgan’s profit estimate for the company .
United Technologies was also among the biggest gainers on the Dow after the company said late yesterday it expects profits to increase in 2010 after falling this year. In fact, the company’s projected revenue was above recent consensus estimates, while the top of projected EPS also came in above the market.
Trading was again light today and as explained in detail in yesterday’s Overnight Report, volumes have been light and more volatile than normal all this month as investors look to shut their books early to take a break from the end of this tumultuous year. However, this recent decline in volume could be reflecting more than just the time of year, with demand for stocks possibly decreasing as we approach the uncertainty of next year.
The day’s good news started with the US Commerce Department, which reported that retail sales increased 1.3% last month, which was far better than the 0.7% increase that was expected. The read served to support hopes that consumers were starting to buy again. This not only provided a bit of optimism for retailers this holiday-shopping season, but more generally was seen as supportive of hopes for a broader economic recovery.
Things looked even better on the consumer front after the University of Michigan/Reuters preliminary consumer sentiment index jumped to 73.4 in December from 67.4 in November, its highest level since September.
All of the good news helped markets do what they haven’t done in a while, which is advance in tandem with the greenback. The increasingly positive consumer outlook saw big consumer stocks like Coca-Cola, McDonald’s and Walt Disney end the day among the Dow’s biggest gainers. Conglomerates such as General Electric and 3M also gained on the uplift in economic optimism.
However, the prospect of an improving economic outlook has been a double edged sword for stocks of late, as a healthier economy raises the prospect of sooner rate increases from the Fed to head off the as yet to appear spectre of inflation. This fear of rate rises has been running rampant though the market for weeks now, providing much of the basis of the US dollar’s recent strength.
So it’s damned if you do, damned if you don’t. A stronger economy should be good news, but it brings forward the potential timing of a rate rise, which is not good news.
The dollar advanced versus the Aussie, euro, yen and most other major currencies as well, pushing it to its highest level in two months. Losses notched up early during European and Asian trading hours were quickly reversed when the upbeat consumer reports started to hit. The US dollar index, a measure of the US currency against a trade-weighted basket of rivals, rose to 76.572 from 75.996 Thursday.
As usual, the stronger US dollar took some of the shine off of gold’s appeal as bulwark against currency depreciation. Gold dropped US$16.20/oz to US$1,115.10/oz, reaching its lowest level in nearly a month and also booking its second weekly loss.
The story was the same for oil, which fell for an eighth straight session, its longest losing streak in more than six years. Crude futures got off to a good enough start after the International Energy Agency raised its forecast for next year’s global oil demand and China said its industrial production accelerated in November to the fastest rate this year. But the dollar soon struck and crude oil for January delivery eventually finished down US67c, or 0.9%, at US$69.87.
In London, base metals got off to a good enough start, then began to steadily track back from intraday highs as the US dollar started to advance. Only aluminium, which has been fairly bullish of late, managed to buck the trend, with prices rising 3.9% to hit 14-month highs for the third day in a row.
Elsewhere outside the US, news that China’s exports improved last month provided yet more evidence that the world’s third-largest economy is recovering at a healthy pace. Chinese exports posted their smallest drop in a year last month, down just 1.2%, following a 13.8% tumble in October. Chinese imports surged 26.7%, their first rise in 13 months. Industrial growth in November accelerated to 19.2% from a year earlier, not only beating market expectations, but now moving at its fastest pace since June 2007.
European markets were mostly higher last night, with London’s FTSE 100 up 0.3%, the German DAX 0.8% higher and France’s CAC 40 rising 0.1%. Asian markets also rose yesterday, with the Japanese Nikkei at the fore, adding 2.5%.
Australian investors were content to watch the party from the sidelines last night, sending the SPI Overnight 3 points lower to 4656.
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