Daily Market Reports | Feb 24 2010
By Greg Peel
The Dow fell 100 points or 1.0% while the S&P lost 1.2% to 1094 ans the Nasdaq gave back 1.3%.
It has oft been noted in this Report that the US consumer represents 75% of the US economy. Thus while the US is a significant exporter on a global scale, it is domestic consumption amongst 300 million-odd Americans which makes the US economy by far the largest individual economy on the planet. It has also oft been noted that the funding behind this consumption is extraordinary amounts of debt.
Whether debt-funded or not, America needs its consumers to consume in order to drag the economy emphatically out of recession. And to spend money, US consumers have to be confident – confident about jobs and mortgages and general economic well being.
US data released over the last few sessions have been largely positive, notably in the housing and manufacturing sectors, but even so economists were expecting the monthly Conference Board consumer confidence measure to slip from January's 56.5 to 55.0. Instead, it plummeted to 46.0, and sent shock waves around Wall Street.
This is not a 50-neutral index, as so many indices are. A healthy economy is historically represented by a reading over 90. Having been as low as 25.3 in February 2008, the index has recently spent a lot of time around the 50 mark. But clearly it is struggling to break up into more confident territory. Probably no great surprise when unemployment is near 10% and mortgage defaults continue to rise.
The shock US confidence result came hot on the heels last night of a private German business sentiment measure. The Ifo Institute index slipped from 95.8 in January to 95.2. Well that's hardly anything to write home about, one might say – a small drop which has followed all sorts of crises in Europe, but the point is this is the first monthly drop in ten. And that had European markets spooked.
Last night also saw the release in the US of the Case-Shiller 20-city house price index for December, which fell 0.2%. The market actually took some heart from this result, given it indicates the pace of house price deterioration is at least slowing and stabilisation is occurring. Adjusting for seasonality, the December reading was actually up 0.3%. Case-Shiller prices are now down 3.1% in twelve months and 26% from the 2006 peak. If you bought your house in 2003, you're about square.
House prices may be stabilising but the fact remains that mortgage delinquencies are still on the rise in the US, and likely will continue to rise until unemployment has definitively peaked. In the meantime, US retail chains have been announcing better than expected earnings in the current season. But like the two quarters prior, earnings gains have been rooted in aggressive cost cutting. Sales growth remains sluggish.
If the US Treasury could pick a good day to sell US$44bn of two-year notes, this was the one. While demand is waning for longer term US debt, the shorter end is still enjoying safe haven buying. Weak confidence measures would have influenced part of the strong demand for the two-years last night, and foreign central bank buying of 53.6% was the highest proportion in eight months. The ten-year yield fell a significant 11 basis points to 3.68% in response.
The US dollar index duly rose as the stock market and bond yields fell, adding 0.4% to 80.84. In response, commodity prices tumbled.
Gold fell US$10.20 to US$1104.20/oz. Oil fell US$1.45 to US$78.86/bbl in the new April front month. Base metals were slaughtered in London, with aluminium and nickel falling 1.5%, tin 2%, copper and zinc 3% and lead 5%.
The Aussie lost over a cent to US$0.8904 and the SPI Overnight fell 54 points or 1.1%.
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