Daily Market Reports | Sep 24 2010
By Greg Peel
The Dow closed down 76 points or 0.7% while the S&P fell 0.8% to 1124 and the Nasdaq lost 0.3%.
We know that there are no real investors playing on Wall Street at the moment, only technical traders, day traders and computers. And they're all carrying on like a bunch of headless chooks.
Some respected traders even dismiss monthly data as being too volatile to justify a knee-jerk reaction and that underlying trends should always be the benchmark. This says little for weekly data, and it is well understood that weekly jobless claims numbers are volatile, very hard to predict, and often surprising. But at least there is a monthly average to consider.
So it was that last week's new claims jumped 12,000 to 465,000, surprising economists who had predicted 455,000. Given the last couple of weeks of data showed falls, this result was enough to send the Dow down 100 points from the opening bell. Prior to 2007, a 100 point fall in the Dow would have required a nuclear bomb to have gone off somewhere.
Never mind that the four-week average of new claims actually fell 3,250 to 463,250.
But it's okay, because shortly after the August existing home sales numbers were released showing a 7.6% increase to a seasonally adjusted annual rate of 4.13m. By 11.30am the Dow was back at square. Never mind that sales in July fell 27%, that August's net result was still the second lowest on record, or that the 11.6 months of inventory overhang is the second highest level since the mid eighties.
It was mayhem in the barnyard.
The Conference Board also released its index of leading economic indicators as measured from August last night, which showed a 0.3% increase following July's 0.1% increase. Economists had expected 0.2%. Sounds encouraging, except that the six-month growth average has slowed to 2% as compared to the 4.8% reading in the prior six months. This is nevertheless consistent with recent economic forecasts which have US third quarter GDP struggling to even reach 2% growth.
The attention now is not so much on the specific GDP growth number as it is on inflation data, given they are the Fed's new QE2 trigger. One might also assume that weaker European economic data should be a given, since that's exactly the sort of outcome one expects from strict austerity measures. Yet Europe was a tad surprised last night to learn the composite purchasing managers' index (manufacturing, services and construction PMIs) for the eurozone fell to 53.8 from 56.2 last month when economists had expected 55.9. The individual composite PMI for Germany fell to 54.8 from 58.4.
Realistically, these are exactly the sort of numbers the eurozone should be expecting and one must remember numbers over 50 still indicate growth. Europe had a bit of a second-quarter-in-the-sun of surprisingly strong growth, but it was all fuelled by strong exports, in turn fuelled by the weak euro at the time. The euro was weak because of the sovereign debt crisis. Now that sovereign debt fears have eased, albeit not disappeared, the euro is stronger once more and that removes the export advantage.
Europe has to deal not only with the fact the US dollar is toast, given impending QE2, but also that Japan has put a lid on the yen to prevent its own exports becoming less and less competitive.
The euro slid back a bit last night allowing the US dollar index to tick up 0.4% to 80.12. European stock markets were weaker but nevertheless not overly fussed. The Aussie took a hit, finally, slipping back 0.8 of a cent to US$0.9488.
I mentioned that European sovereign debt fears had not quite gone away. Ireland was forced to nationalise the Irish Anglo Bank in the wake of the GFC, and a local newspaper report suggested last night that bond holders are not guaranteed to get their money back on maturity. This again raised the issue of Ireland needing to seek outside help – a claim denied by both Ireland and the IMF – and Irish sovereign debt spreads last night blew out once more to their highest level on record.
As all of this transpires, gold inches ever higher, rising US$1.30 last night to US$1292.50/oz.
And commodities are not far behind. Despite the weak European data, a stronger US dollar, and China and Japan both being on holiday, base metals rose again London by 0.5-2%. Oil also finished higher for once, up US47c to US$75.18/bbl.
By the afternoon, Wall Street simply drifted away to the close and once again volumes failed to pass the billion mark.
The SPI Overnight didn't like any of it either, outpacing the S&P 500 with a 45 point or 1.0% fall.
Tonight in the US sees new home sales and durable goods orders.
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