Daily Market Reports | Apr 09 2010
By Greg Peel
The Dow closed up 29 points or 0.3% while the S&P gained 0.3% to 1186 and the Nasdaq added 0.2%.
In the clearest signal to date that Greece is heading for default, ECB president Jean Claude-Trichet last night said it isn't. One is reminded of the famous last words of the Lehman Bros CEO who said publicly the bank was not in any trouble the day before it went down.
One is also reminded that Trichet was at first “very, very angry” about any IMF involvement in an EU rescue package for Greece, and the next day “very happy”. And that Trichet had pledged to exit the ECB quantitative easing strategy – that of extending low collateral emergency loans – as scheduled and that schedule would not be affected by the problems of one individual country. That program has now been extended.
In his usual press conference following a rate decision meeting – last night the ECB cash rate was unsurprisingly left at 1.0% – Trichet denied the above backflips and used the tired old excuse of suggesting he was “taken out of context”. He also dismissed the notion of a Greek default on the basis that the EU-IMF rescue package was a “workable solution” and represented a “serious commitment”. Again, all the more reason to now assume Greece is going down.
The reality is, of course, that the EU won't allow Greece to go down but only because it is part of the EU and eurozone. Greece is not an economy in isolation. A sovereign default would spark Greek bank defaults and corporate defaults and a stock market crash, all of which would impact on Greece's major public and private lenders – EU banks, particularly in France, but spread far and wide from the UK to Germany and beyond. And the euro would collapse as well. That's why Greece can't go down.
It is also a reality that Trichet is merely a spectator. The ECB's role is to protect the euro but it is up to the EU members to protect their own. Can Germany, France, the IMF and Greece all come to an arrangement that suits everyone, most particularly the citizens of countries involved? That's the conundrum. But it will be fresh in the memory of EU members that the Fed and US Treasury thought the best thing to do was to let Lehman go down. It is up to Greece to trigger its rescue package, and the fact it is currently strenuously arguing the cost is evidence enough that the fire engines have already been scrambled.
But Trichet's comments were sufficient to affect a light bounce in the euro last night, sending the US dollar index down slightly to 81.50.
Wall Street had opened lower before Trichet's comments but was turned around by an astonishingly good result on the retail sales front. Last night the collective same-store sales of major US chain stores were reported to have risen 9.1% in March, year-on-year. Economists had been expecting a good result, but only as good as 6%.
Hallelujah, the American consumer is back.
It didn't take long for the sceptics to start pulling the number apart. Aside from these numbers being quite volatile anyway, commentators pointed to the fact the previous March represented the market's, and consumer confidence's, nadir, meaning it didn't take much to look good this March. Then there was the fact the US experienced an early rush of Spring in March in the wake of the February snow, sending everyone rushing off to buy warm weather clothing. And Easter was early this year, meaning March would have stolen sales from numbers typical in April.
But the bulls were happy to thumb their noses, and Wall Street was also able to pass over a poor weekly jobless claims number. New jobless claims rose by 18,000 last weak when economists had expected a drop.
The last of this week's Treasury auctions saw reasonable demand for the US$13bn 30-year bonds on offer, but some in the market were disappointed demand did not reach the dizzy heights of the three and ten-year auctions held this week. Foreign central banks bought 37%, up from the 35% average. The benchmark ten-year yield ticked up 4 basis points to 3.89%.
With only a slight change in the US dollar, there was little action in commodities last night. Despite the strong retail numbers, oil slipped another US49c to US$85.39/bbl as it deals with another burst of self doubt. Gold was up less than a dollar to US$1150.20/oz. Base metals struggled to move 1% in either direction.
With all that's hanging over Wall Street at present, it's interesting to appreciate the S&P 500 is a mere 3 points shy of a 52-week high, which would in fact be an 18-month high. When Wall Street broke down on Lehman's demise, the S&P broke down through 1200.
Wall Street is currently “climbing the wall of worry”, and is in many eyes going up only because it can't seem to go down. As was the case all through 2009, there are many who wish it would correct at least 10% in order to return to a healthy up-trend. The longer it doesn't, the more the market becomes concerned that it must. Next week Alcoa will announce its March quarter profit result, which is the traditional flag-wave that begins the quarterly reporting season.
Thereafter we will shift into corporate earnings mode, and distractions like Greece will no doubt fade. Analysts have been steadily increasing their earnings expectations of late, so some are worried over-enthusiasm might backfire. There's already a lot priced in. But strong earnings numbers, as long as they are accompanied by strong revenue numbers, could well be the catalyst Wall Street needs to break up through that Lehman barrier and declare a new horizon.
We can only hold our breath. But reporting season in the US lasts a good six weeks or so, thus it won't be any overnight sensation.
The Aussie rose slightly last night to US$0.9284.
The SPI Overnight was up 27 points or a solid 0.6%. It's Friday. Claret Run or profit-taking?
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