Daily Market Reports | Dec 07 2010
By Greg Peel
The Dow closed down 19 points or 0.2% while the S&P lost 0.1% to 1223 and the Nasdaq added 0.1%.
Ben Bernanke's Sunday night Sixty Minutes interview, in which he would not rule out an extension to the current US$600bn of QE2 if need be, was the talk of the markets in the Monday northern hemisphere trading session. The interview was actually taped on the Friday on the day the US unemployment rate blew out again from 9.6% to 9.8%. The Fed's aim is to ultimately reduce unemployment by indirectly boosting stock prices.
The mantra now on Wall Street is thus buy stocks and buy gold. If the Fed's intention is to flood the market with money to allow companies to earn more and thus require new plant and labour, the golden rule is “don't fight the Fed”. You buy gold because it is a hedge against the monetary inflation being created by unfettered debasement of the US dollar. Not to mention similar QE efforts in Europe.
It is thus unsurprising that gold jumped US$30 in Friday night's session and was kicking on again last night to a new all-time high, up US$11.20 to US$1425.00/oz. Silver jumped 3% to US$30.20/oz.
US stocks nevertheless struggled all day in a tight but weaker range and without much volume support. The problem is the lingering issue of Europe and the latest suggestions being made from within the EU and IMF as to what to do. The eurozone finance ministers will begin a meeting at 9am Sydney time in Brussels to discuss suggestions of an increase to the E750bn bail-out fund and/or the introduction of a single eurozone bond to overcome the problems of disparate sovereign bond yields. Germany has already voiced its disapproval of both suggestions. (See story today).
The fact there needs to be a “what on earth should we do?” meeting at all, and the fact Germany needs to be an integral part of any plan, only adds to global jitters. It is for this reason Wall Street failed to gain any traction last night. And there were no economic data releases to provide help with direction.
It was also an up and down affair for the US dollar index last night before it settled up 0.6% at 79.63 as the euro fell 0.6% to US$1.33. Both the Fed and ECB were in respective markets buying bonds last night and as such gold doesn't really care which currency wins or loses. It is a global hedge.
Commodities were less enthused on dollar strength but copper still managed to add 0.5% to regain the US$4.00/lb mark while its friends were mixed, and oil ticked up US19c to US$89.38/bbl.
European uncertainty and talk of more Fed bond buying ahead sent money flowing back into US Treasuries, with the ten-year yield slipping from above the 3% mark – down 7 basis points to 2.94%.
The SPI Overnight fell 2 points.
The RBA will meet today to make a “rate decision” and no economist believes it will raise. While this is usually a guarantee the RBA will indeed raise, this time Glenn Stevens has effectively ruled out a pre-Christmas hike in his rhetoric since the November hike.
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