Daily Market Reports | Mar 16 2010
By Greg Peel
The Dow closed up 17 points or 0.2% while the S&P managed only a half point gain to still be stuck at 1150 and the Nasdaq fell 0.2%.
The Dow was down as much as 54 points mid-session before a late rally which again suggests traders neither want to sell this market nor buy this market at present with any sense of conviction. The Dow outperformed slightly given a broker upgrade for major component Wal-Mart, while the Nasdaq underperformed due to a reinforcement of Google's threat to abandon China under protest of intellectual property tampering.
Traders realise it is foolhardy to assume the European sovereign debt issue has been resolved with a simple austerity plan for Greece, and the world is currently awaiting news from a meeting of eurozone finance ministers from which a specific backstop plan for Greek debt is supposed to emerge. No plan has yet emerged, and once again the ministers were playing down the urgency of any bail-out, thus still playing true politicians to the last. The euro was sold last night on a lack of new news.
This helped to push the US dollar index higher, although a set of mixed economic data releases were also held responsible.
Economists had expected US industrial production to break a seven-month string of increases in February due, once again, to the heavy snowfalls. But as each day passes it seems as if the snow was simply a figment of everyone's imagination. IP rose 0.1% to mark an eighth straight month despite consensus expectation of a 0.2% fall. In hard hit New York State, however, there was a pull back in activity, but again not as much as expected. The Empire index fell to 22.9 in March from 24.9 in February.
The US housing market continues to cause concern. The National Association of Home Builders housing market sentiment index was expected to remain flat at 17 this month but instead fell to 15 (and this is a 50-neutral index), with home builders citing tight credit conditions and rising foreclosures as prime factors. Concern is heightened by the knowledge that at the end of this month the Fed is scheduled to exit one of its last quantitative easing strategies, being the purchase of mortgage-backed securities. Already 30-year Treasury bond yields (upon which mortgage rates are based) have been drifting up given a waning in demand for long-term US debt.
Long-term capital flows into the US tell the tale. January showed a net increase of total US dollar asset holdings of US$19bn but this is down from US$63bn in December. In December foreigners purchased US$54bn of dollar assets but in January they net sold US$33bn. Economists cite foreigners allowing short-term Treasury holdings to mature without rollover as immediate global risk begins to ebb. But there is little corresponding desire to finance the US deficit out to time.
Nor did it help last night that ratings agency Moody's declared the AAA economies of the US and the UK to be “well positioned” despite “stretched finances” but that “risks remain”.
The net result was a 0.6% increase in the US dollar index overnight to 80.24. There is a lingering belief the Fed will soon have to raise interest rates despite the struggling US economy simply to attract enough foreign lending, although others scoff at such an un-American suggestion.
The numbers did not help the oil market last night. Once again traders have had to consider whether struggling global economic growth and now Chinese tightening can justify oil over US$80/bbl. OPEC will meet in Vienna on Wednesday night to discuss production quotas, but no change is expected. Yet traders are forced to acknowledge the perennial problem that OPEC members agree to restrictive quotas at the meetings and then ignore them five minutes after walking out the door. Oil fell US$1.44 to US$79.80/bbl last night.
Base metals in London also met with selling pressure, with zinc down 3% and the others down 1-2%.
A stronger US dollar might otherwise send gold south, but as soon as sovereign AAA ratings are brought into question gold remembers it is also a safe haven against fiat currency demise. Thus gold rose US$6.10 last night to US$1107.60/oz.
The Aussie slipped slightly to US$0.9154.
The US financial sector held its breath last night on the release of the draft financial regulation reform bill. There was nothing particularly innocuous in the draft, and indeed commentators suggested it was a more watered down version than the earlier proposals put by Banking Committee chairman Senator Dodd. Fundamental in the bill is a move to establish a systemic risk monitor within the Federal Reserve to prevent “too big to fail” from ever happening again. Wall Street has few qualms with this aspect, although there remains lingering doubt over the so-called “Volcker Rule” addition of possibly banning banks from owning and operating hedge funds.
Given the whole process will take plenty of time, financial sector investors were last night more focused on recent consumer credit card data. The data showed that – net – credit card defaults have risen in the last month, but that the number of cards falling into delinquency has fallen. The latter suggests a possible peak in the former.
The SPI Overnight fell 5 points.
Look out today for the minutes of the March RBA meeting and tonight for the Fed monetary policy meeting outcome.
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