Daily Market Reports | Jun 03 2010
By Greg Peel
The Dow rose 225 points or 2.3%, while the S&P kicked 2.6% to 1098 and the Nasdaq rose 2.6%.
It has been clear Wall Street has been desperate to consolidate around these levels, looking to cash in on seemingly oversold conditions. Last Thursday brought a near-300 point rally in the Dow, which offered some hope, but the relentless stream of bad news off the wires that has been the feature of 2010 has just not abated. The market remains nervous, and that nervousness is just as evident on the upside as on the down.
Wall Street has now rallied only five times in the last 20 sessions, and after last night the truth is the best run so far is still one in a row. However psychology is clearly playing its part, given each time the Dow approaches or crosses the 10,000 mark to the downside a snap-back rally follows. Last night's bounce to 10,249 came off Tuesday's close of 10,024.
Most traders nevertheless dismiss the Dow as an anachronistic and flawed indicator, with the S&P 500 being the true market gauge. But 1070 has been to the S&P what 10,000 has been to the Dow these last several sessions, and last night's close brings once more into focus a psychological S&P level at 1100. Can we put two positive sessions together?
The excuse provided for last night's rally was a positive read on US pending home sales, which rose a better than expected 6.0% in April following a 7.1% rise in March. But while this might again return focus to what appears to be a steadily recovering US economy, the truth is every man and his dog appreciates that the government's first home buyer stimulus expired at the end of April and that the next set of numbers may well look grim.
And the other reality is that we are now in another cluster period in which no-doc adjustable rate mortgages – which were issued in the last throes of mortgage insanity in 2007 – are reaching the end of their “teaser” rates. Many holders of these mortgages never had any intention of paying the new rate, rather seeing the three-year teaser period as the equivalent of cheap rent on a big house for three years of livin' high on th' hog. The US Mail has been jingling again.
There was at least some more genuinely positive news from the auto industry. On a year-on-year basis, GM sales were up 17%, Ford 22% and Chrysler 33%.
This may have provided some impetus for the rapid rebound in energy stock prices last night. Exxon was up 2.5%, but many of the beaten-down oil service stocks posted much stronger rallies. Their demise of late has of course been oil spill related, and Tuesday's late announcement that the US government would investigate possible criminal charges against BP and others involved saw the sector slide down a slippery slope of despair. This piqued the interest of the value-buyers from last night's opening bell.
The Dow was up around 130 points at lunchtime before it began to lose momentum, but another buying wave flowed in with no apparent impetus before the last half-hour featured a typical short-covering rush.
But perhaps we can dismiss pending home sales and look for another clue to the rebound elsewhere.
Yesterday the Japanese prime minister Yukio Hatoyama resigned over funding scandals and US military base back-flips. The yen thus fell against the US dollar while the euro remained relatively steady, and hence the world's favourite risk indicator – the euro-yen – marked a 0.5% gain. It's not a lot, but jumps in the euro-yen have been rare of late, and if buyers were hunting for a value point with the Dow around 10,000 then the euro-yen perhaps provided a little confidence.
The net result was a slightly weaker US dollar index (86.74), but it seems where goeth Wall Street goeth the Aussie dollar at present, which is the other risk indicator. (Or risk recipient, whichever way you like to look at it.) So while little moved by yesterday's local GDP result, the Aussie added nearly a cent to US$0.8408 overnight and chiropractors braced themselves for another round of forex trader appointments.
It is also easy for the news services in Australia to focus on commodity price movements when looking for a reason behind any day's move. This is an erroneous endeavour at present given commodities and commodity stocks are almost completely decoupled. Last night material stocks on Wall Street put in solid gains, including a couple of large Aussie listings, while on the LME aluminium and copper fell 2% and lead, nickel and zinc fell 5%.
Once again “technical” selling was cited, and the truth is the LME pits are now completely dominated by decapitated poultry representing speculative funds running backwards and forwards in a total disconnect from any form of reality.
The same cannot be said for gold, however, which is still hanging in there, albeit down US$1.10 to US$1224.00/oz last night.
Despite buyers looking to pick up cheap oil names on stock markets last night, crude itself managed only a US28c rally to US$72.86.
So might we see the first two-in-a-row streak after tonight's session? Maybe, as long as the next bit of disparaging news doesn't come out of the blue from somewhere. But Friday night is jobs night in the US and that's when a true economic indicator, and perhaps the most important of all, will provide direction.
Except it's going to be confused by census workers having ended their temporary assignments.
The SPI Overnight rose 81 points or 1.9%.
[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]
