Daily Market Reports | Mar 02 2010
By Greg Peel
The Dow rose 78 points or 0.8% while the S&P added 1.0% to 1115 and the Nasdaq surged ahead 1.6%.
It was performance of manufacturing day across the globe yesterday for the month of January. While different industry bodies compile the indices in different regions, each works on an equivalent measure such that a reading over 50 indicates growth.
Australia kicked off with a healthy reading of 53.8 compared to December's 51.0. China's "official" index slipped from 55.8 to 52.0, surprising economists who had pencilled in 55.4. The UK ticked down from 56.7 to 56.6 against a forecast of 56.4, while Europe's eurozone managed an increase from 52.4 to 54.2 despite recent woes. The US wrapped up the numbers with a drop from 58.4 to 56.5 when 58.0 was expected.
While both increases and decreases were recorded, the good news is that all of the numbers suggest mild industry growth, rather than contraction. In some cases, including in the US, growth has been registered now for several months.
The news was not so good for the US on the construction spending front. It fell 0.6% in January to register the third straight month of decline and was worse than the 0.5% fall expected by economists. A big factor is this number has been the drop off in demand for new apartment blocks.
Consumer spending also worried Wall Street. While nominal spending in January rose a seasonally adjusted 0.5% – quite a healthy number in this year's particularly snowbound month – personal incomes only gained 0.1%, and that was the weakest number in four months. With consumers now trying to stay away from credit, clearly income rises are needed to provide the means for consumer spending to stage a solid recovery.
There has been much discussion recently regarding the historically high levels of snowfall in parts of the US over January and February and how that might affect economic data over the period. Of most concern is the impact on the unemployment numbers, given heavy snow shuts down industries and projects and leads to temporary lay-offs. With the February employment data due out on Friday, economists are bracing for a tick back up in unemployment for the month which may be misleading on a trend basis.
But while the economic data were mixed last night, Wall Street was happy to embrace another spate of merger and acquisition activity. A handful of deals were announced. The biggest news was the sale by troubled insurance giant AIG of its Asian life insurance business for a handy US$35.5bn to Britain's Prudential. Analysts have noted that the ability of the S&P 500 to be now roughly where it was at the start of 2010 is almost entirely due to takeovers and consolidation.
Markets across the globe were also buoyed by the news late last week that a state-owned German bank would buy Greek bonds in an effort to provide support against default. It is anticipated the EU will announce a package which involves several European state-owned banks combining for a rescue effort.
The news was not so exciting in the UK, where the locals now fear Greece was just the warm-up act for the real European debt crisis. For months it had appeared Gordon Brown's embattled Labour Party would be trounced in the upcoming June election by a resurgent Tory Party. But while David Cameron's party once enjoyed as much as a 26 point lead in the polls, this weekend's latest poll had the Tories in front by a mere two points.
Nervousness surrounds the UK's massive debt problem and the approaches either party might take to addressing it. Clearly the British are becoming less certain now about which party might be the safest to choose. News of the latest poll sent the pound crashing last night by as much as 2% at one point against the US dollar.
This had the effect of pushing up the dollar index by 0.5% to 80.72. And thus we experienced one of those unusual sessions in which both the US dollar and stock markets rise.
Precious metals ignored the dollar's move nevertheless and remained largely unchanged. Base metals in London were mixed on mostly small movements with the exception of copper. Copper jumped strongly from the bell as traders contemplated the impact of the Chilean earthquake on the country's globally significant copper production. It settled back later to be up 2%.
The stronger US dollar and weak personal income number nevertheless impacted on oil, which fell US96c to US$78.70/bbl, indicating once again that US$80 is a largely impenetrable barrier at this point.
The Aussie dollar has mostly been doing its own thing since Friday as expectation mounts the RBA will hike the cash rate by 25 points this afternoon. The manufacturing data were the latest in a string of positive local economic news since the February RBA meeting. The Aussie is up half a cent from Friday at US$0.9004.
The SPI Overnight added 24 points or 0.5%.
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