Daily Market Reports | May 19 2010
By Greg Peel
The Dow fell 114 points or 1.1% while the S&P dropped 1.4% to 1120 and the Nasdaq fell 1.6%.
Make no mistake – Wall Street is currently trading in lock-step with the fate of the euro. Traders and investors with specialities in all things equity have either become instant experts in forex market trading or simply realise it's safer to go with the pack.
Following Monday's recovery in the euro which saw a bounce from the depths of around US$1.22 to US$1.24 and saw Wall Street stock markets follow suit, US stocks opened stronger last night. From the opening bell, the euro was holding its ground and the Dow was up 94 points.
Athens confirmed that it had received a further E14.5bn from eurozone members on top of the E5.5bn already received from the IMF as part of the specific EU-IMF bail-out fund for Greece – not to be confused with the larger pan-eurozone stability fund. The injection comes ahead of tonight's deadline for Greece to roll over E18.5bn in sovereign debt.
The euro continued to hang in there even as the German ZEW investor confidence measure was released, which showed a plunge to 45.8 in May from 53.0 in April. In the US, April housing starts showed a 5.8% gain to an 18-month high but building permits – the precursor to starts in the next couple of months, showed a drop of 11.5% to the lowest level in six months. After two months of gains, the US producer price index fell 0.1% in April, giving the Fed no reason to contemplate raising rates at this stage (CPI result tonight).
But in the UK, the consumer price index rose to 3.7% in April despite a Bank of England target of 2% and the new Tory Chancellor of the Exchequer expressed concerns about new rules to regulate hedge funds and a proposed process for EU members to review the budgets of other members. While rising inflation in the UK should be a reason to buy the pound, the greater uncertainty created by a new and inexperienced government saw the pound tip over. And the euro followed.
Then Germany announced it intended to now ban short-selling of certain stocks, European government bonds and credit default swaps. A similar belated regulatory move was made by the US government in 2008. It was as much of a sign of panic then as it is now.
The euro sell-off continued for the rest of the session to US$1.2176 and the Dow duly turned its gain into a loss. The US dollar index jumped 1.3% to 87.32, sending the Aussie crashing 1.6 cents to US$0.8615.
Base metals in London nevertheless ignored the dollar and staged a recovery after yesterday's panic selling, posting gains of 1-4%, but traders suggested it was not a convincing bounce. Oil continued its demise however, falling another US67c to US$69.41/bbl.
Despite the substantial rise in the dollar index, gold held steady at US$1223.70/oz, but there was a renewed rush into US Treasuries, with the benchmark ten-year yield falling 11 basis points to 3.35%.
The SPI Overnight fell 52 points or 1.2%.
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