Daily Market Reports | Feb 25 2010
By Greg Peel
The Dow rose 91 points or 0.9% while the S&P gained 1.0% to 1105 and the Nasdaq added 1.0%.
It can only be said that then recently installed Fed chairman Ben Bernanke was very slow, through 2007 and 2008, to see the gravity of the credit crisis situation which had developed and was thus tardy in his response. It will also be a matter of debate in history books and classrooms from here to eternity as to whether not rescuing Lehman Bros was the right or wrong decision.
However, it can only be said, whether you agree with his policy or not, that this celebrated student of the Great Depression has been a rock through 2009 and into 2010. Quite simply, while Wall Street has panicked itself into buying one day and panicked itself into selling the next as it has tried to preempt monetary policy, Bernanke has never wavered. There's been a little bit of fiddling with the timing of the exit from various quantitative easing measures but when it comes to interest rates, Bernanke has never changed his tune from “exceptionally low rates for an extended period”.
Why will Wall Street never believe him? Or more specifically, why does Wall Street need almost weekly affirmation? Last night Bernanke began his two-day, regular biannual testimony to Congress and told the committee that the US economic recovery was slow and would remain slow for some time and thus interest rates would remain low for some time. He might as well have just sent in a tape. The story has not changed for months and months.
The statement was nevertheless enough to bounce Wall Street back from Tuesday night's consumer confidence plunge. Rates will be kept low for an extended period? Oh thank God. One can only wonder how long it will take for the goldfish to swim around the bowl once more before noticing a castle.
The strong rally, which all but reversed Tuesday's session, was even more remarkable given last night's release of January new home sales. Wall Street surged on some very, very old news, and ignored an 11.2% fall in new home sales to a seasonally adjusted average of 309,000, which represents the lowest figure since records began being kept 50 years ago. Economists had expected new home sales to rise in January.
I am only surprised that we have not suddenly been peppered with re-emerging “double-dip recession” warnings. Or perhaps we would have if the US business channels were not running blanket coverage of Toyota's public lynching. Between falling confidence, falling home sales, and yet another round of quarterly earnings showing little revenue improvement, what might be a “slow” recovery is now looking a bit more like a stumble. But then some numbers, particularly in manufacturing, have been positive. Manufacturing, however, only represents 25% of US output.
There was likely also a positive response last night to news that Standard & Poor's had decided to maintain its BBB+ credit rating of Greek bonds, for now. But S&P did warn that within a month, after which time Greece will have submitted its budget reduction plan to the EU, the rating could slip by one or even two notches.
The result of all of the above was mixed markets beyond the strong stock markets.
The US dollar index was little changed by the end of the session, at 80.83, while gold dropped another US$9.10 to US$1095.10/oz on the startling revelation that the Fed would not be raising the cash rate any time soon (ie no inflation problem). The Aussie recovered a little bit of ground to US$0.8925.
Oil jumped US$1.14 to US$80.00/bbl because the market got the weekly inventory numbers completely wrong yet again. Crude inventories fell, but more importantly gasoline demand rose over the week.
Base metals regained some of Tuesday's losses last night with mostly 0-1% increases, although nickel rose closer to 2%.
Over in Treasury bond world, the euphoria of Tuesday's heavily supported two-year note auction waned following a tepid response to the offer of US$42bn in five-year notes. Foreign central banks bought only 40% of the offer compared to a recent average of 50%. Given a similarly lacklustre response to a three-year note auction earlier in the month, as well as the sevens and tens, the conclusion can be drawn that the world will happily buy two-year US debt as a safe haven play but beyond that…well…America, you're on your own.
The SPI Overnight rose 22 points or 0.5%.
Look out today for the local release of important quarterly private capital expenditure and expenditure intentions data. The RBA will be watching closely.
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