Daily Market Reports | Mar 04 2010
By Greg Peel
The Dow lost 9 points, the S&P did not move off 1118 and the Nasdaq was dead square.
If you were walking past a newsagent in Athens overnight the newspaper headline outside would have likely been “Beer, Cigs Up”.
Having not satisfied the European Union with its first set of proposed budget cuts, Greece was sent back to the drawing board having been told to get tougher. The new package, announced last night, includes wage freezes and cuts and increased taxes on alcohol, tobacco, petrol and luxury goods, to save 4.8bn euros or 2% of GDP. While the EU is yet to officially respond, the new budget measures were met with immediate approval from credit rating agency Moody's and from the International Monetary Fund.
And so the market was also relieved, sending the euro back over US$1.37 and thus the US dollar index down 0.7% to 79.97. The news also helped Wall Street off to a good start, with the Dow heading north by some 60 points.
Aside from Greek relief, Wall Street responded positively to economic data. On Monday night the US manufacturing index for January registered a better than expected gain, further into growth territory, but manufacturing only represents 25% of US output. The other 75% of output comes from service industries, and last night this ISM measure of performance showed a jump in February to 53.0 from 50.5 in January. Economists were hoping for 51.0.
These performance indicators give heart to Wall Street that a double-dip recession may not be on the cards after all, but ongoing weak numbers in housing and consumer spending are the offset. That's one reason why we're in a bit of a limbo at the moment.
And then there's unemployment. The official figures are due out on Friday but last night's public sector ADP numbers showed a loss of 20,000 jobs, consistent with expectation. But just to show why one should never, ever take economic data for granted, the previous January reading of 22,000 jobs lost was revised to 60,000 jobs lost.
If these numbers are going to be so wildly different the second time around, why put out initial estimates in the first place?
We now move to speculation about what the official figures might show on Friday, but economists concede this month it's all a bit of guess and giggle. A significant number of jobs would have been lost, even if temporarily, due to about two-thirds of the country being snowbound in February. But at the same time the US has begun its latest census, and to do so is temporarily hiring thousands.
How much impact might there be on either side of the equation? No one really knows. There's tentative consensus that the unemployment rate will tick back up from 9.7% to 9.8% but anything is possible, and whatever the number no trend assumption can honestly be made. It will all swing back the other way in the next couple of months, perhaps.
So Wall Street was looking a bit stronger as it went to lunch but after lunch the Fed released its monthly Beige Book.
The Fed compiles its Beige Book by having a chat to the twelve Fed regions and basically asking them how things are getting on. Nine regions suggested things had improved in February but only modestly, while St Louis and Atlanta said economic activity was mixed and Richmond had simply disappeared under a white blanket.
We haven't heard the last of the “snow effect”. Do we surmise that mild improvement in February was a great result because of the amount of snow, or that modest gains were all that could have been expected? Either way, Wall Street was unconvinced and sold off in the afternoon just as it had done the night before.
Commodities, however, just love a weak US dollar.
I had a few emails last month when Greek fears surfaced asking me why gold was falling at a time when sovereign risk had heightened. Surely it should be the other way around? Gold is definitely a place to run to in times of trouble but so has been the US dollar and short term US Treasuries of late, so a falling euro meant a rising dollar and thus too much of a headwind for gold.
So now we're seeing the opposite effect, in which resolution of the Greek problem should see gold easing off but instead it's rising – by another US$7.10 to US$1139.40/oz last night – as the US dollar is again falling.
Base metals also responded to the weaker dollar, adding to recent upward momentum with 1-2% gains in all bar copper. Last night copper had a bit of a breather with only a 0.7% gain after a couple of strong sessions.
When the dollar is on the move, energy traders ignore fundamentals and simply become currency speculators. Weekly crude inventories rose more than expected last week, it was learned last night, yet a weaker dollar sent oil finally pushing to a close above US$80. The contract added US$1.19 to US$80.87/bbl.
The Aussie also gained further from a weaker greenback and is now up at US$0.9057.
The SPI Overnight gained 8 points.
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