Daily Market Reports | Nov 19 2010
By Greg Peel
The Dow rose 173 points or 1.6% while the S&P gained 1.5% to 1196 and the Nasdaq jumped 1.6%.
The timing, in the end, was exquisite.
General Motors first listed on the NYSE and a comment made by its 1953 CEO has since been misquoted into the folkloric “What's good for General Motors is good for America”. After a couple of decades of sheer bloody-minded incompetence, GM went bust in mid-2009.
It then became a case of “what's bad for General Motors is bad for America” and so the government spent US$50bn of taxpayer money to bail out the company. After the closing bell on Wednesday, an “initial” public offering was made by the government for two-thirds of its stake at US$33ps. Previous pricing had assumed a US$29-39 range.
Had the listing occurred on Tuesday, after the Dow was down 200 points, it might have been a different story. At that point, it looked like Ireland might implode and China might kill off its economy with a rate rise. On the Monday, the New York Fed had announced its Empire State index of manufacturing activity had fallen from plus 16 to minus 11 against an expectation of plus 15. It was not a good time to be thinking manufacturing.
But right next door to the Fed region of New York, which takes in New York state, is the Fed region of Philadelphia, which takes in most of Pennsylvania and all of New Jersey and Delaware. These two regions, along with the neighbouring Richmond region, are America's manufacturing heartlands. Last night it was reported the Philadelphia manufacturing index rose from plus 1 in October to plus 22.5, to mark the highest reading in nearly two years.
On Monday, the New York index barely rated a mention. Last night, the Philly index sent Wall Street off to a flyer. When GM hit the boards, it traded at US$35 or a 6% stag.
Underpinning enthusiasm for GM and risk assets in general last night was news the Irish government had agreed to assistance from the EU-IMF emergency fund to shore up its crumbling banking sector. Gee, you could have knocked me down with a feather.
There was also news from China yesterday that Beijing had taken steps to fight food inflation specifically, rather than just the overall CPI, given it is headline inflation in China which poses the biggest threat to a nation with a still mostly poor population by Western measures. The poorer you are, the more the weekly food bill is a proportion of all household spending.
Beijing will increase government food supplies, increase low-income food subsidies, and crack down on food-hoarding market speculators. This was more comforting news for Wall Street, which had feared a blanket rate hike. There probably still will be a rate hike but that didn't seem to matter last night.
The news out of Ireland finally allowed the euro to post a rally after several days of weakness, sending the US dollar index down 0.6% to 78.61. This was a red rag to the risk trade bulls after, again, several days of weakness.
The Aussie risk indicator jumped a cent to US$0.9886, gold jumped US$18.10 to US$1353.40/oz and silver jumped 5%.
Oil rose 2% or US$1.59 to US$82.63/bbl and base metals rose 1-4% in London, with copper up 2.5%.
With the Fed in buying another US$7bn of QE2 Treasuries, the ten-year bond yield still rose 2bps to 2.90%.
The GM IPO represented the second biggest in US history in nominal terms, superseded only by the Visa listing a couple of years ago. In a reflection of such size, trading in GM represented more than a quarter of all of last night's NYSE volume. What a pity that the average American taxpayer, who funded the bailout, was given no preferential treatment in the distribution. The IPO was conducted like any other, underwritten by the major Wall Street firms who would have satisfied their own institutional clients and proprietary desks first. A late plea by the government to give the retail buyers a look-in would have been received with a guffaw.
No 10% discount for Queenslanders here.
So what do we make of last night's action? Well clearly the Irish threat has now abated, as it was always going to eventually, and China has yet to spoil the party. With GM exuberance driving Wall Street last night, it's a bit hard to separate the real sentiment, just as it's hard to corroborate the back-to-back New York and Philly indices.
The Conference Board's leading economic index for October was also released last night. The 0.5% gain matched the same figure in September, leading economists to suggest the US economy is showing sign of dragging itself out of its summer slowdown. But the stock market, which is considered the ultimate leading index, was up strongly in both September and October on QE2 speculation, and stock market performance was the biggest driver of the Conference Board's number. To me, that's double counting.
The SPI Overnight was up 30 points or 0.7%.
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