Daily Market Reports | Feb 26 2010
By Greg Peel
The Dow fell 53 points or 0.5% while the S&P fell 0.2% to 1102 and the Nasdaq fell 0.1%.
I mentioned yesterday that I was surprised we hadn't heard the words “double-dip” once again bandied around on the business channels given weak consumer confidence, housing and inflation data, but that an obsession with broadcasting the Toyota hearings probably deflected attention. Well last night was all about a dreaded double-dip recession and suddenly the words were everywhere.
Wall Street is currently doing a very good impression of a headless chook. On Wednesday night, a rebound rally following Tuesday's weak consumer confidence number was driven by nothing new, being Ben Bernanke's testimony to Congress that interest rates would remain low for an extended period. Hooray! The economy's so bad interest rates won't be going up soon!
This sentiment was mirrored in Australia yesterday, when a very strong capex number – indicative of a healthy economic rebound – suggested a rate hike is pretty certain next week and sent stocks tumbling. This is despite Glenn Stevens earlier suggesting there are at least two to three rate rises to come. Obviously a woeful result from Toll Holdings had a lot to do with it, but we nevertheless fell on what is otherwise good news and irrespective of a solid bounce on Wall Street.
If the spectre of double-dip hadn't yet re-emerged on Wall Street this week, last night the weekly jobless claims numbers were enough to have everyone spooked. This is a highly volatile and often misleading number but 22,000 new jobless claims were added last week when economists had expected a fall. The same happened the week before. Can the optimists still blame the snow?
It was goodnight sweetheart. The Dow plunged 189 points from the bell and sentiment was not helped by the release of the January new durable goods orders number. While orders rose a hefty 3.0% in January, it was all about some lumpy orders for new aircraft. Take out transport, and new orders actually fell 0.6%.
Fresh housing price data from the Federal Housing Finance Agency were mixed. The FHFA tracks the prices of those homes under an agency mortgage (ie Fannie and Freddie), meaning only average to lower-priced houses. Prices fell 1.6% in December, seasonally adjusted, after two prior months of gains, but the fourth quarter fall was only 0.1% from the third. This data back up the claim by Mr Shiller of Case-Shiller fame that the decline in US house prices is at least slowing.
But there was nothing here to stem the opening panic, and Wall Street spent the morning bumping around its lows. Thrown into the mix again was Greece. On Wednesday night Standard & Poor's held Greece's credit rating firm at BBB+ but warned the rating could drop one or two notches if Greece fails to come up with a reasonable budget plan. On Wednesday night Wall Street saw “no change”, but last night it saw “one or two notches”. There was no new news, other than Moody's coming out to make a similar claim last night.
You don't have to be Einstein to figure out that if Greece fails to satisfy the EU with an aggressive budget-slashing plan, it would not bode well for credit ratings. Traders would sell Greek debt long before any announcement from the agencies. But all global stock markets should ignore Greece at their peril, even if lately they've been a bit selective (or blind?) in their views.
Just when Wall Street thought it was all over bar the shouting, the buyers arrived at lunch time. The government's covert Plunge Protection Team perhaps? No, we won't go there. Suffice to say afternoon buying momentum drove a recovery to leave the Dow down only 53 points, despite a lack of any particular impetus other than an initial overreaction.
The US dollar also had a roller coaster ride, peaking at a nine-month high of 81.13 before actually ending down slightly at 80.70. The Aussie fell close to half a cent to US$0.8883.
Base metals closed in London before the Wall Street rebound reached full swing, leaving aluminium and copper down 1-2% and lead and zinc down 3%. Oil fell US$1.83 to US$78.17/bbl.
Despite the US dollar's initial gain, gold managed to add US$11.10 to US$1106.20/oz. Greece is back in the spotlight, but likely pushing gold as well was an unsubstantiated report in a Russian newspaper that China was considering taking out the remainder of the IMF's gold on offer.
I said it on Tuesday and I'll say it again today. If the US Treasury wants to sell bonds it should always try and orchestrate a down-day in the stock markets. Demand for the US$32bn of seven-year notes on offer last night was reasonably solid. However, foreign central bank buying represented only 40.3% compared to the recent running average of 54.4%, and that's worrying.
Despite the net fall on Wall Street the SPI Overnight gained 11 points, clearly paying homage to yesterday's big drop on the local bourse.
Look out today for Australia's monthly private sector credit numbers – another RBA focal point, and for India's fourth quarter GDP. And speaking of GDPs, both the UK and US will make first revisions to their previously estimated numbers tonight. If the US number is dramatically slashed from the original 5.7% estimate, we could see a shocker overnight.
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