Daily Market Reports | Oct 22 2010
By Greg Peel
The Dow closed up 38 points or 0.4% while the S&P managed only 0.2% to 1180 and the Nasdaq only 0.1%.
The Dow was up over 100 points at 11am as a round of earnings reports once again beat the Street. Solid earnings growth from Dow components such as Caterpillar and AT&T and from economic bellwether United Parcel Service pushed Wall Street on in another attempt to regain the post-GFC peak set in April.
Yet ongoing guidance from such companies was not as positive as the results themselves in most cases, and even if it was, profit-taking at these lofty levels is suggesting the previous peak will act as tough resistance, particularly ahead of any news on QE2.
Another point of peak resistance of note is the US$1.40 level in the euro. We recall that the euro was sitting at US$1.40 before the debt crisis began early this year and to suggest that the crisis is now completely nullified is misguided. But the euro is not rising specifically on European strength but on a weak US dollar.
What is there to like in Europe at the moment? The UK government has announced extensive government spending cuts, UK retail sales unexpectedly showed a fall last night, French workers are planning to down tools to protest against a two-year increase in the retirement age and an estimate of the October composite PMI for the eurozone hit a 12-month low last night.
Suffice to say, the euro and pound were both sold off late in the European session last night suddenly sending the Dow, which had already lost momentum, into the red as the US dollar subsequently bounced. The Dow was down 40 points before finding some buyers once more.
Exacerbating US dollar “strength” is a desire by short dollar holders to square up ahead of this weekend's G20 meeting in Korea just in case there is some resolution of the Currency War. A resolution is completely unlikely of course – in any forum, and certainly at a G20 meeting – but it's better to be safe than sorry.
The US bond market is in a similar mindset, with the ten-year yield last night jumping 6 basis points to 2.54%. In the end the dollar index rose only a net 0.4% to 77.48 but that was enough to spook the stock market.
It was certainly enough to spook the gold market, in which constant talk of a US dollar likely to see a more sustainable correction in the short term rattling the late-comers and sending gold down another US$18.40 to US$1325.60/oz last night. The Aussie dutifully fell back almost a cent to US$0.9778.
The story of the US earnings season to date is a familiar one – results are beating expectations on the earnings line but still revenue growth fails to excite. After a strong market run-up over the past month and a half, traders are taking advantage of any share price “pops” on a good result to take profits. And still the overriding influence is QE2.
Last night the US weekly jobless claims showed a fall, but both the Conference Board leading economic index and the Philadelphia Fed manufacturing index reiterated signs the US economy is slowing to a crawl. This once again reinforces expectations of QE2, albeit last night St Louis Fed president James Bullard, who is slated to join the FOMC next year, voiced his support for an incremental approach to QE rather than an upfront attack.
Recent whip-sawing in the US dollar has heightened interday volatility in commodities, and last night oil fell back US$1.98 to US$80.56/bbl while falls of 0.5% to 2% were marked on the London Metals Exchange.
The SPI Overnight gained 4 points.
We have another week and a half of QE2 speculation and ongoing third quarter earnings results in the US. After the bell on the NYSE this morning American Express (Dow) and Amazon failed to excite with their earnings reports, with Amazon in particular down 4% in the after-market. Tonight's earnings highlight will be telco Verizon (Dow).
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