Daily Market Reports | Sep 17 2010
By Greg Peel
The Dow closed up 22 points or 0.2% while the S&P was flat at 1124 and the Nasdaq was also flat.
For the third session in a row, Wall Street opened lower (Dow down 50) before struggling back toward the close. Volume was again poor. With mixed US data continuing to roll in, even Wall Street day-traders are struggling to find any impetus in this market.
Last night's data included weekly new jobless claims, which fell 3,000 to 450,000 to continue a recent mildly positive trend. However it is considered that average claims must at least fall to 400,000 before the unemployment rate has a chance of also falling.
The benchmark Philadelphia Fed manufacturing index rose to minus 0.7 this month from minus 7.7 last month. Economists had expected a zero reading (which implies perfectly flat activity). While a positive move is good, a negative result still implies contraction. Again, it shows the US economy is just bungling along the flatline.
The US producer price index rose 0.4% in August with the core rate (ex food & energy) rising 0.1%. This was bang on expectation and provides confirmation that deflation fears are overblown but there is very little in the way of inflation either. On an annual basis, wholesale inflation is running at 3.1% or 1.3% core.
Last night included some out of season profit reports. FedEx, which is seen as a good economic bellwether, announced it had doubled its profit in its first quarter on a year on year basis, which was a positive, but second quarter guidance disappointed analysts, which was a negative. FedEx shares stood still. After the bell, and thus a precursor for tonight's trade, tech giants Oracle and Research in Motion both blew The Street away with their earnings reports. Oracle's shares up up 4.5% in the after-market and RIM's are up 6%. Stand by for a big opening tonight on the Nasdaq.
The 200-day moving average is providing a brick wall for the S&P 500. Crashing through that level is clearly going to take more than mixed data and earnings reports, and will certainly require some conviction volume. If everyone's back at work after their summer vacations now they must either be taking very long lunches or they are playing in some other market altogether.
Forex is the market du jour and the yen stayed relatively steady last night in anticipation of further Bank of Japan intervention. The euro was nevertheless stronger, rising to US$1.31 as Spain once again comfortably put away an auction of sovereign bonds. Meanwhile the US took out its veiled anger at Japan on China, with Treasury Secretary Timothy Geithner again pushing Beijing to revalue the renminbi quickly and meaningfully while stopping short of declaring China a “currency manipulator”. One presumes it's a bit hard to point the finger at Beijing when Tokyo is openly and substantially manipulating its own currency.
Yen intervention has turned attention back on the artificially undervalued renminbi. While the world's three biggest economies (US, EU, Japan) fight a currency battle in order to gain advantage over the same small export customer pool, China (now level pegging with Japan) sails merrily on keeping a close eye on inflation. In one fell swoop, China could revalue the renminbi and affect global inflation/deflation balance but a too swift move would quite simply derail the Chinese miracle. As always, Beijing is taking a “softly-softly” approach.
The US dollar index last night dropped 0.3% to 81.25 while the Aussie was also slightly lower at US$0.9366. After pausing for a session while the BoJ played games, gold resumed its rally last night as the currency of last resort, gaining US$7.30 to US$1275.50/oz and some more blue sky.
A major oil pipeline from Canada to the US is set to reopen shortly after being closed for repairs, and that news was enough to send oil down US$1.45 to US$74.50/bbl. London base metals hardly troubled the scorer. The correlation of movement between stocks and commodities has been so close to 100% in 2010 that one might safely assume they will simply move in lock-step. This lack of variation in markets, driven by simplified investor access to commodity funds and ETFs, worries commentators. Markets need diversification to prevent violent volatility.
The US ten-year bond yield rose 4 basis points to 2.74%. Last night the Treasury released its long term capital flow numbers for July, noting a $61.2bn net inflow as China, Japan and the UK all increased Treasury bond holdings. In the meantime, analysts warn Treasury bond prices are now under pressure as investors switch into the raft of corporate paper now on offer at higher, albeit historically very low, yields.
The Australian market looked rather sick yesterday. However, one needs to take into account the expiry of the September SPI futures which appeared to apply non-market related downward pressure on the physical market as arbitrage positions and hedges were unwound or rolled over. Early weakness then likely sparked a bit of profit-taking as this 4600 level in the ASX 200 equates to 1125 in the S&P 500, ie a tough wall to break.
Last night the SPI Overnight, now trading as the December contract, rose 24 points or 0.5% despite a flat S&P 500. This supports the theory that yesterday's weakness was more of a rollover blip than anything much else.
Tonight in the US sees the August CPI and the fortnightly Michigan Uni consumer confidence measure.
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