Daily Market Reports | Feb 19 2010
By Greg Peel
The Dow rose 83 points or 0.8% while the S&P added 0.7% to 1106 and the Nasdaq also added 0.7%.
Blame the snow. That's what some commentators had to say about a surprise rise in US weekly new jobless claims last night. Heavy snow falls in parts of the US have left some people unable to work, and so they were amongst the 31,000 new claims recorded when economists had expected a reduction. But the four-week running average of new jobless claims fell 1500 to 467,500, down 20,000 over 2010.
So that was good news. Good news also came in the form of the Conference Board measure of leading economic indicators for January, which rose 0.3% against an expected 0.2% rise. Leading indicators attempt to provide an indication of economic conditions 3-6 months hence, and January marked the tenth consecutive monthly increase.
But the really good news as far as the commentary is concerned was the sixth consecutive monthly rise in the Philadelphia Fed's manufacturing index, from 15.2 in January to 17.6. This is a zero-neutral index measuring manufacturing activity in an area of high manufacturing concentration, which is thus taken as a bellwether indicator. The result was, nevertheless, in line with expectation.
All of the above was enough to send Wall Street on a continuing upward path of retracement of the Europe-related correction. And what's happening in Europe? Well, nothing at the moment – that's the point. Out of sight, out of mind.
While Europe might currently be on the dark side of the moon, the action has not exactly ceased. Having trashed Greek debt, thumped Portuguese debt and had a good go at Spain, bond traders have now turned their attentions to Italy. The recent news is that Italian municipalities are up to their eye balls in derivative contracts which will require ongoing servicing for twenty to thirty years. The government has ordered a “please explain”. One is reminded of Australian municipal councils who, prior to 2007, thought these CDO things were a bit of a lark.
Action in currency trading was choppy last night and the end result was only a small tick up in the US dollar index to 80.45. Aside from the positive economic data above, the US also had to deal with a producer price index jump in January of 1.4% compared to a 0.9% expectation. Higher energy costs were blamed for the surprise, although the core (ex food & energy) PPI rose 0.3% against a 0.1% expectation.
The US economy appears to be bouncing back, and the concern is that inflation is the next hurdle. Tonight will see the release of the US consumer price index. Inflation is not what Ben Bernanke has been expecting, particularly given the collapse in US money supply brought about by what is still a largely paralysed lending market. His fellow Fed board members are arguing for a rapid exit from quantitative easing strategies, and Wall Street is beginning to brace for the first post-GFC interest rate rise.
This is evident in the US bond market. Last night the ten-year Treasury jumped another 5bps to 3.78%, breaking through what had become stiff resistance at 3.75%. The spread between the two-year and ten-year yields blew out to a record 293bps. What this suggests is that investors are still happy to park their hard-earned in the safety of the US Treasury, but only in the short term. In the longer term, the spectre of rampant, deficit-driven inflation still lurks. Last week's Treasury bond auctions were nothing short of poor, and the weakest response was to the 30-year bond. Foreign central banks made up only about a quarter of buyers, down from an average around 40% in recent months.
Europe might be the no-go zone right now, but the global desire to keep lending the US money out to time is waning fast.
Positive manufacturing data are nevertheless good for commodities, and so base metals in London put in further gains last night. Copper, lead, nickel and tin were all up 1-2%. Oil also jumped another 2% or US$1.73 to US$79.06. The Philly index was held up as a reason, along with a fall in weekly inventories of distillates (petrol, diesel etc). The Nymex ignored the fact crude oil inventories actually rose more than expected.
Gold is back in favour since passing through the US$1100 mark again, and last night rose US$6.00 to US$1122.00/oz. The Aussie was up slightly at US$0.9014.
The SPI Overnight was up 45 points or 1.0%. It's a Friday. Take profits?
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