Daily Market Reports | Dec 10 2010
By Greg Peel
The Dow closed down 2 points while the S&P added 0.4% and the Nasdaq added 0.3%.
European officials have been trying to “talk the euro down” as a means of re-righting the eurozone ship. A lower euro means better export competitiveness and receipts for big exporters like Germany, and less spending power for the southern recalcitrants. But the problem is the US is also attempting to devalue the US dollar through both monetary and fiscal means, even if officials would never suggest that publicly.
So what it means is we're still stuck in a Currency War of sorts as the world's two largest economies of the US and the eurozone battle to get to the bottom – each thwarting the other's efforts. European officials needn't have worried about “talk” last night as rumours spread the ratings agencies were looking at downgrading Italy for the first time, sending the currency a bit lower.
It's a bit of a stalemate, because Wall Street wants to be bullish on QE2 and tax cuts but Europe still hangs like a cloud. December had been tipped to see a mutual fund scramble to re-weight equity positions but that has not eventuated to date.
Wall Street tried to open higher last night as traders attempted to see good news in a better than expected weekly jobs number, but last week's unemployment rate increase rather takes the fun out of it. More promising were October wholesale inventory and sales data. Inventories jumped 1.9% versus a 0.8% expectation and sales jumped 2.2%, albeit the latter was impacted by rising food costs.
Having opened higher, Wall Street then drifted lower before pretty much drifting aimlessly for the rest of the session. The VIX volatility index is now down to 17 which is a level at which any sensible portfolio manager should be looking at buying cheap protection even if it may never be needed. Europe could still blow up at any moment, but put options can be hoarded for a song.
The US dollar index was a whisker higher at 80.04 but the Aussie is up half a cent on yesterday's jobs report. Economists now expect rate rises early next year having only five minutes ago suggested no rise for months. I think the famously fickle economists are wrong and I don't believe, for several reasons, we will see a rate rise for six months. For one of those reasons, look out the window. That wet stuff has not been factored in by anyone anywhere. But that's just one of the reasons and I'm not going to go into it all here (check out Business View today).
The precious metals appear to have ended their dump with gold up US$4.20 to US$1385.20/oz last night. On the other hand, surging base metals pulled back a bit last night with aluminium and nickel losing 2% and copper again retreating from the US$9000/t mark – a technical barrier.
Oil was up US8c to US$88.37/bbl.
The big news of the session was the US Treasury's thirty-year bond auction. Given the weak response to this week's three and ten-year auctions and the biggest two day move upon in rates since Lehman, bond traders were assuming a similar lack of demand for the long bond. But there are plenty of export economies out there wondering where on earth to reinvest their foreign reserves, and the Fed is not buying at the long end. Yields have risen substantially since the equivalent auction round last month so perhaps it not a surprise that heavy demand saw the US$13bn of thirties on offer settle at 4.41% – much lower than expected. Foreign central banks bought 50% up from a previous average of 36%.
It surprised the market, but it does not detract from the fact mortgage rates in the US – which are set off the long bond rate – have been steadily rising while house prices continue to fall. This is not a catalyst for a housing recovery.
The SPI Overnight was down 7 points or 0.2%.
China's monthly trade balance is out today which will provide more grist for the interest rate mill – both there and here – and the US trade balance is out tonight.
As noted, I'll be on Business View on the Sky Business channel at 2pm.
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