Daily Market Reports | Feb 17 2010
By Greg Peel
The Dow rose 169 points or 1.7% while the S&P was up 1.8% to 1094 and the Nasdaq gained 1.4%.
A bomb went off in the lobby of a building in Athens last night, the tenants of which include US banking major JP Morgan. It was not a big bomb intended to kill and maim, but more of a small note of anger. No one was hurt. A Greek revolutionary group is suspected as the culprit, as such a group has laid claim to similar small bombs attacking Western banking interests in the past, even before the latest crisis surrounding the Greek economy.
The bomb is just another indication of tensions running high in Europe. But global financial markets took the bomb in its stride, just as easily as they took in their stride the latest announcement from Brussels, in which a euro-zone finance ministers' meeting concluded with ratification of the earlier EU plan that Greece must slash its budget from 13% to 3% of GDP by 2012, including a 4% decrease in 2010, and must provide its plans to do within a month.
There was nothing new here. On that basis, one might have been forgiven for expecting financial markets would not react too kindly to yet another lack of specific detail on just how Greek debt is going to be protected from default. At the moment, it's all up to Greece. And to make matters worse, revelations surfaced over the weekend that Greece has been hiding a great proportion of its immediate borrowings by using long-dated currency swaps which have been converted into securitised bonds and kept off the Greek “balance sheet”. It's the sub-prime crisis all over again. Goldman Sachs has been chief engineer behind the swaps, and it is now not clear just how much debt Greece really does have.
All of this could have added up to another trouncing of the euro. But it didn't. Instead, the opposite was true. The dam broke last night on a market overly short in euro as well as short commodities and materials companies and short banks and other risky cyclical stocks.
Behind the bounce was a plethora of data and events not related to Greece.
It began with the monthly release of Germany's ZEW economic sentiment survey, which showed a read of 45.1 down from 47.2 in January. While this is a fall, with all that's being going on in Europe this past month economists were bracing themselves for a big drop down to 40 on the index. So this was actually great news, and suggests the German economy is showing resilience.
Next was the quarterly profit from British bank Barclays, which showed that earnings had increased ten-fold from the fourth quarter last year. A lot of the difference was the sale of Barclays' investment banking arm, but overall improvement meant the result still well exceeded expectations. Barclays shares closed 6% higher in London and 14% higher in New York.
Moving across the pond, the New York Fed announced its Empire State manufacturing activity index had jumped from 15.9 in January to 24.9 in February – well above expectation. (This is not a 50-neutral index.) Then the US National Association of Home Builders announced its housing market sentiment index had risen by two points to 17 in February after two months of falls. (This is a 50-neutral index, which just goes to show how far off a real US housing recovery still is.)
Next, Simon Property Group, the biggest owner of shopping malls in the US, made a hostile US$10bn takeover offer for its immediate competitor, the recently bankrupted General Growth. The deal would allow General Growth to emerge from Chapter 11 protection.
And more big news came in the form of Bank of America, which announced “significant gains” via the government's mortgage modification program (which encourages the modification of delinquent mortgages in order to avoid default), sending BA shares up 5% and sparking a general financial sector rally.
The result of all of the above “reasons to be cheerful” was a sudden and swift turnaround in everything that has been sold off this past month. And it appears that markets are at least content for now that something is being done about Greece. The euro shot up 1.1% to US$1.3756, sending the US dollar index tumbling 0.8% to 79.70.
This sparked a big rally in commodities, no doubt led by short-covering. Gold rose US$19.90 to US$1119.40/oz. Aluminium, copper and lead rose 3-4% in London while nickel and zinc rose 5%. [Note that US spot metal moves as shown in the FNArena Cockpit represent two day's worth of moves over the public holiday.]
Oil jumped 4%, or US$2.88 to US$77.01/bbl, assisted by ongoing tensions with Iran.
Wall Street was driven higher all day, led by banks and materials stocks, with some help from industrials. Defensive stocks stood still. Happy days are here again, or so it would seem. But warnings persist that any short term relief rally might yet prove to be just that. Greece has not gone away.
There was a slight wobble when the US Treasury announced total net foreign investment flows into US dollar assets in December slowed to US$63bn from US$126bn in November (which in turn was down from October) as foreigners pulled back from buying US Treasuries. But optimists grasped on to the fact the number was still positive. When it turns negative, then there's cause for concern. Greek debt looks a little trivial when held up against US debt.
The Aussie gained over a cent to US$90.27.
The SPI Overnight was up 61 points or 1.4%.
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