Daily Market Reports | Dec 24 2009
By Greg Peel
The Dow rose 1 point while the S&P managed a 0.2% gain to 1120. The Nasdaq starred with a 0.8% jump.
The jump in the Nasdaq reinforces the ever growing importance of the tech sector to the US stock market, being a major export industry. Yesterday in the US, all Blackberries crashed due to a technical problem. Thus investors raced into the buy Google shares and those of other companies making Blackberry substitutes, but by the same token brokers advised any drop in Research In Motion shares – Blackberry’s maker – should be bought on temporary weakness. So they were.
But heading south from Times Square to Broad Street (did you know that the entrance to the stock exchange is actually around the corner from Wall Street?), as the tumbleweeds rolled through the NYSE last night, the session began with the release of the November US personal consumption and expenditure numbers. American wages grew 0.3% last month, the biggest rise since April, while personal income grew 0.4%, the biggest rise since May. The numbers were consistent with the blip down in unemployment in the month.
Spending grew by 0.5%, driven by retailers frantically discounting Christmas stock, but growth in October was 0.6% and in September 0.7%. The savings growth rate remained steady at 4.7%.
While Wall Street initially rallied slightly on what looked like okay data, economists were disappointed, particularly on the spending front. With a tick up in wage growth economists hoped more would find its may into consumption rather than savings, as is needed to drive US economic growth. The irony here of course is that the government would like consumers to spend now to help the economy out of its slump but ultimately it doesn’t want a return to indiscriminate borrowing, which would exacerbate the deficit problem and put us right back where we started in 2007.
It was all academic nevertheless, because next came the November new home sales numbers. With Tuesday’s existing home sale numbers coming in at a shock 7.4% jump, hopes were high. But hopes were then shattered on the announcement of an 11.3% drop. The Dow subsequently “crashed” from about up 30 to about down 30.
Economists had hoped for at least a small gain. But realistically, new home sales – which represent only 15% of all home sales – were facing a couple of headwinds. The first is the originally scheduled expiry of first homebuyer grants on November 30 which had those looking for a new home rushing in to do so in earlier months. September and October saw very good sales. The second, and less encouraging, is that foreclosure sales are usually executed as quickly as possible at whatever available price, and ongoing growth of foreclosure numbers has seen existing home values discounted below those of new home equivalents. In other words, the shock 7.4% jump in existing home sales in November can also be explained by the shock 11.3% fall in new home sales. Net the two out, and the picture is not all that rosy.
The home sales news finally brought the US dollar’s recent rally to an end. The dollar index fell 0.5% to 77.89, reinforcing the data which suggest speculative dollar positions are no longer net short but square. So it appeared that for the third day in a row, stocks and the dollar would move in concert. But the dollar’s fall finally gave commodities reason to be cheerful.
Gold did not exactly take off, posting a US$6.30 gain to US$1090.00/oz, but oil shot up US$2.27 or 3% to US$76.67/bbl. Aside from a weaker dollar, oil was driven by a bigger than expected drop in crude inventories last week and a much bigger than expected drop in gasoline inventories. Woohoo! This must mean US demand is surging!
No it doesn’t. Christmas is a time of goodwill, so for my last Overnight Report for the year I will not spoil the mood by suggesting oil traders are by far the biggest idiots of all global financial markets. Crude oil inventories dropped because imports fell, and gasoline inventories dropped because refinery production fell. When does one import less crude and refine less gasoline? When there’s no demand for the stuff. Crude inventories in the US remain at record levels.
The jump in gold and oil was nevertheless enough to stop stocks falling, and allowed a rebound back to the flat-line. And the previously somnolent London base metals market was again aroused – mostly on end of year “window dressing” – seeing aluminium, lead and tin up 1.5%, copper up 2% and nickel and zinc up 3%.
The Aussie regained a bit of ground after drifting lower in the local session yesterday, finishing up 0.3 of a cent to US$0.8799 over 24 hours.
And all ended on a rather weak note on Wall Street when the final Michigan Uni consumer confidence survey for the year (these are fortnightly surveys) showed a drop in the index from 73.4 to 72.5 when economists expected a rise to 73.8.
Despite what was mostly a glum day, and one where there were only about three people actually trading, hopes are still high for the famous Santa rally. Strictly, Santa starts buying on Christmas Eve and continues through to the first couple of days after new year, or so tradition has it. Realistically, fund managers take advantage of very thin holiday volume to push prices up and make their annual returns look a bit better, without having to buy too much stock. The average return over time in the Santa rally period on Wall Street is 1.4%.
If this does occur, then the US stock indices will push further into new 2009 high territory. The S&P 500 ticked up an extra 2 points into blue sky last night. So will end a year which, if you take it in isolation, looks like a fabulous one for stocks but, if you look at a net over two years, is not exactly something to cheer about. The ASX 200 closed at 4739 yesterday, leaving another 2.5% to add before reaching the previous 2009 high of 4789, set in October.
The SPI Overnight added 12 points or 0.3%. Note that the ASX will close at 2.10pm Sydney time today.
Well that’s it from me. As noted, this will be the last Overnight Report for the year and my last until after Australia Day. FNArena will nevertheless restore the Overnight Report on January 12. I hope that readers have found this report – which attempts to cut through the you know what of overnight events – useful over 2009. Thank you to all those readers who have provided such feedback.
Please note that overnight prices will continue to be updated over the next two weeks, including tomorrow for the keen.
Merry Christmas to all. Go well.
