Daily Market Reports | Dec 15 2009
By Greg Peel
The Dow rose 29 points or 0.3% while the S&P jumped 0.7% to 1114 and the Nasdaq added 1.0%.
Volume was again December-thin, but all three indices hit new 2009 closing highs (but not intraday highs) last night, with the Dow settling just over 10,500. The Dow average had been running ahead of the other two indices of late, but last night there was a bit of catch-up. Weighing on the Dow was a 4.5% drop in its biggest component, Exxon Mobil.
Exxon announced a US$31bn all-stock takeover of natural gas producer XTO Energy. XTO’s shares jumped 15% and the rest of the natural gas sector also improved on implication. The announcement was seen as a positive for the energy industry, albeit with a decent bit of dilution for Exxon shares. One wonders how far the gas bubble can continue to expand. The move might, nevertheless, help Woodside ((WPL)) put away its placement.
The overridingly positive news on Wall Street last night was, however, an announcement that head UAE emirate Abu Dhabi had shifted US$10bn of petrodollars into neighbouring Dubai, quelling immediate debt default fears and sending the Dubai stock index up 10%. While Wall Street had already mostly recovered from the Dubai jitters, and the Greece and Spain jitters, there has still been a lingering pall of uncertainty.
There were no economic data releases in the US last night, and the indices all traded in tight ranges with little excitement despite new highs being set. While the Dubai news should have been a positive for the financial sector by association, financials were again weak, led by Citigroup falling another 4%.
Citigroup is in a mad rush to clear out its TARP obligations ahead of year-end. The final US$20bn of the total US$45bn TARP injection will be paid after Citi issues a total of US$20.5bn in new stock and debt. The US$300bn debt-sharing arrangement with the government will end, and the government will sell out of its ordinary and preferred stock investments. Citi’s obligations under TARP will then cease.
On the weekend, Treasury Secretary Geithner said the government’s TARP program will be extended out to October 2010. While the full US$780bn-odd of initially pledged TARP funds was never fully invested, Geithner sees sufficient cause, being sufficient lingering financial uncertainty, to extend the time limit on the program. But of the big banks, only Wells Fargo remains with a TARP injection now that Bank of America and Citi have moved swiftly to exit their obligations this month. Ironically, despite picking up stranded Wachovia last year, Wells has been seen as one of the stronger commercial banks, alongside JP Morgan. Yet Wells so far appears in no hurry to give up its government support.
So the obvious question is: Are BA and Citi really now out of the woods, profiting happily with the GFC now a distant memory? Or is this all just about being released from obligations so they can pay end-of-year bonuses? The answer is clearly the latter, and it is somewhat confusing as to why the government would accept such a swift exit. In recent weeks, talk has continued to mount that one or both monoliths will break up into separate “good” and “bad” banks, being commercial and investment, to alleviate the lingering “too big to fail” problem. Leading US bank analyst Dick Bove sees Citi’s move only as a bonus stunt, while Meredith Whitney has warned there are more loan losses to come for all the big banks – a view echoed in a warning from JP Morgan CEO Jamie Dimon on the release of the bank’s quarterly result.
If only Barnaby understood such matters, maybe he wouldn’t be quite so quickly dismissed.
The Dubai news also took some pressure off the US-dollar-as-a-safe-haven trade, allowing the dollar index to fall back 0.25% to 76.36. We thus reverted to trend as stocks rose and the dollar fell. On that basis, gold picked up US$12.00 to US$1126.10/oz and the Aussie rose half a cent to US$0.9166.
One wonders, also, what effect the news of the US government’s additional US$1.1 trillion budget commitment made on the weekend had on the dollar. As far gold, it’s a bit of an Arthur and Martha deal at the moment. Indian buying dislocated gold from the US dollar in the recent blow-off, and fears of a Fed rate rise following better than expected economic news have since sparked a dollar rebound. Thus gold has fallen sharply, despite being (a) a hedge against geopolitical uncertainty and (b) a hedge against inflation. Last night’ comforting Dubai news actually sent gold higher. The world really is upside down at the moment.
Despite a weaker dollar, and Dubai uncertainty lifting, and the Exxon deal, oil marked it’s ninth consecutive fall last night, dropping US36c to US$69.51/bbl. A nine-session drop has not occurred in eight years. The oil market simply cannot shake off the reality that demand is weak and will remain weak for the time being. It is certainly not strong enough to support a US$80/bbl price no matter what the dollar is doing.
The base metal market is yet to cotton on to reality however, and despite more announced inventory increases London prices rose last night with the exception of aluminium, which had been surging already. Aluminium fell 0.5% while copper, lead, tin and zinc all rose 0.5-1.5%. Nickel was the stand-out with a 3% rise.
The SPI Overnight could not get excited about new highs on Wall Street, and fell 7 points.
It’s a big night in the US tonight. Data releases will include industrial production, long term US dollar capital flows, the PPI, the Empire State manufacturing index and the housing market index. But markets will probably remain calm ahead of the Fed’s “rate decision” on Wednesday night.
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