Daily Market Reports | Jun 18 2010
By Rudi Filapek-Vandyck
There are few certainties in life, outside death and taxes, but concluding that Tony Hayward had different ideas about his job when he accepted the role of CEO at BP can easily be named as number three on the list.
For those readers who got up early this morning and didn't switch to South African worldcup football, the grilling of Hayward by angry and disgruntled members of US Congress would have made for the modern equivalent of a public lynch party.
One of the party poopers showed his prowess in maths when he pointed out Hayward had responded 65 times with “I don't know”.
One buzz going through the global rumour mill is that BP is planning to sell US$10bn in bonds to finance future clean-up liabilities in the Gulf of Mexico. The spill there remains unresolved. The main question asked by the media, of course, is how much more time Hayward has left as CEO of the troubled oil giant.
In the meantime, there is clear divergence in financial markets, with commodities taking the lead from rather disappointing US economic data, but with currencies and equities taking a glass half full approach.
And so it was another late rally that kept US equities in positive territory. The Dow Jones Industrial Average gained 24.71 points, up 0.2%, to close at 10434.17. The Nasdaq Composite Index and the S&P500 each rose 0.1%. The latter was led by its utilities sector, up 0.8%, and its consumer-staples category, up 0.7%.
Market bulls will take heart from the fact the S&P500 remained above its 200-day average for a third day after sinking below it for about a month.
Shares in Apple were in demand and this soon extended to technology stocks in general. Bloomberg reports the MSCI World Index is now on its longest advance in 11 months. The euro tried again to take the US$1.24 hurdle and gold put in a rally on the weakening greenback.
Crude oil and metals, however, refused to join the buyers' party and gently declined in what is probably best described as “lacklustre” trading. WTI futures contract for July decreased 1.4% to US$76.60 a barrel. LME copper fell 3.1% to US$6,446/t. For other prices: see the FNArena Cockpit.
One would expect the divergence between commodities on one hand and currencies and equities on the other hand to be resolved in due course. But does this mean equities are due for a breather? Or does it merely indicate copper, crude oil et al haven't risen far enough yet?
If it were up to economic data, and only to economic data, surely commodities would be showing the way forward? During the overnight session it was announced the Federal Reserve Bank of Philadelphia’s general economic index slid to a 10-month low of 8, less than half the 21 reading economists were expecting.
In addition, initial US jobless claims rose to 472,000 last week, indicating firings remain elevated even as the economy recovers. The index of leading indicators climbed 0.4% in May, compared with expectations of a 0.6% advance, while consumer prices decreased 0.2% in May.
The US dollar weakened against both the euro and the yen. The US Dollar Index, which tracks the reserve currency against a basket of six others, fell around 0.5% to 85.70. US bonds staged a rally. The yield on 2-year notes decreased 3bps to 0.702% and the 10-year yield decreased 7bps to 3.189%.
Australian bond futures underperformed the US Treasuries. The implied yield on 3-year bond futures was little changed at 4.880% (price at 95.120) and the implied yield on the 10-year bond futures lost 2bps to 5.360% (price up 2bps to 94.640).
At the time of writing this story there had been no action registered as yet in the local SPI futures trade. Given all of the above, however, I wouldn't expect too much excitement today.
Also, here's one extra observation from the team of market watchers at the National Australia Bank: Turnover in stock markets has slowed dramatically, apparently due to World Cup fever. For the S&P500, in the first three days of this week, turnover averaged 880m shares per day, but in late May, turnover was as high as 2bn per day! Go Argentina.
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