Daily Market Reports | Feb 02 2010
 By Greg Peel
The Dow rose 118 points or 1.2% while the S&P gained 1.4% to 1089 – reclaiming the 1085 technical level – and the Nasdaq jumped 1.1%.
Good morning and Happy New Year. Gosh, what have you people been up to? I take a break for five minutes and you all lose your bottle. But realistically, the Correction We Never Had in 2009 is playing out in early 2010 just to prove firstly that the GFC has not actually hung up its boots yet, manifested in Greek default fears, Portuguese concerns and, more importantly, the larger economy of Spain being in trouble. This has sparked a rush back into short term US dollar debt (the one month bill turned negative last week – in nominal terms) which has accelerated the bounce in the US dollar and subsequently trashed commodities.
Secondly, China has begun, much earlier than expected, to attempt to once again feather the brakes on its runaway economy. Late last year economists predicted that China would let things run at least until its export industry improved sufficiently, but as the US GDP read suggested inventory restocking has helped Chinese exports along. China has learned from past mistakes that it’s a good idea to respond more swiftly to economic growth surges lest inflation rear its ugly head, and that’s exactly what’s happened.
All of which has scared the bejesus out of the host of commodity funds who blindly bought with their ears pinned back in 2009, despite there being no real demand to support commodity prices. The US dollar was going to hell, they argued, and commodities are the new gold in inflation-fighting terms. Well, see point one.
Oh and President Obama has threatened to have a go at the banks. You could knock me down with a feather.
If you take away the window-dressing of the Santa rally from Christmas to New Year, and the quick-let’s-get-in fund money of early 2010, the correction is not really as bad as it seems. It is nevertheless a reality check for 2010 and we’re about to hit the Australian six-month earnings reporting season in earnest. The unusual thing about this reporting season is that all Australian stocks are now valued by analysts on FY11 earnings and beyond, with FY10 (which can be July-June or January-December for the bulk of companies) simply a rebuilding phase we have to get through. So what will excite us in FY10?
It appeared as late as yesterday’s Asian-zone trade that we were about to hit a serious shake-out, such that no one would have been much surprised if the Dow was down 200-300 points last night. But it wasn’t, and that can largely be put down to some positive manufacturing news across the globe and in the US in particular which drove a knee-jerk bounce on the first day of the new month. The US markets began the session strongly and held that trend to the close, without any soul-destroying late sell-off this time.
It was performance of manufacturing index day across the world yesterday, kicking off in Australia with a regain of positive territory. Australia’s PMI rose to 51.0 in January from 48.5, with 50 being the neutral point. China faced some rare slippage, with its (official) index falling from 56.6 to 55.8, but across the Atlantic the news was more encouraging.
The UK’s index rose from 54.6 to 56.7 when economists were expecting a fall to 54. That’s the best monthly gain in some 15 years, although nobody’s quite sure what it is that Britain manufactures anymore. There are no such doubts about Europe nevertheless, and its index rose from 51.6 to 52.4 when 52 was expected. The US manufacturing sector represents only 20% of output (services represent 80%) but its index jumped sharply from 54.9 to 58.4 and everyone breathed a sigh of relief. It was the biggest jump in five years.
It wasn’t all good news on the US economic front however. December construction spending fell 1.2% when a 0.5% drop was expected, taking 2009’s total fall to 12.4%. The weakness is attributed to ongoing low levels for housing construction and little development from cash-strapped local and state governments. Personal incomes rose 0.4% in December which was heartening, but this figure was clouded by only a 0.2% rise in consumer spending. As we all know, the US is desperate for its consumers to spend, spend, spend so it can increase the timid national debt.
But manufacturing was the focus for those looking for a reason to buy into to a potentially oversold market. The US dollar index, for once, fell slightly, from 79.48 to 79.24. UK and European stock markets unsurprisingly also made reasonable gains.
Base metals managed to claw back some lost ground, although not across the whole spectrum. Copper, lead and zinc put in 1% gains but nickel lost 2.5% on the news an agreement had been reached in the long running Canadian miners’ strike.
Oil had a good day, rising US95c to US$73.84/bbl to some extent on the manufacturing news but also because the weather has closed in once more and a couple more weeks of US deep freeze is anticipated. (Why isn’t Vancouver seeing enough snow for its snowboard courses then?) For that reason, natural gas surged by 5% last night. These moves were a boon for Exxon, which after struggling for some time saw its shares jump a rare 3%. Gas is gas.
The big winner on the night was nevertheless gold, which leapt US$24.10 to US$1105.00/oz after a period in the US dollar doldrums. The manufacturing results turned attention back to inflation, and as gold reapproached US$1100 momentum increased. The Aussie jumped half a cent to US$0.8910.
The SPI Overnight added a welcome 46 points.
I left 2009 making an early prediction of a February rate rise, so I expect today my record will remain intact. But otherwise, it’s good to be back feeling rested. Thanks to Rudi for filling in these past three weeks and residing over the market slide. I blame him entirely of course.
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