Daily Market Reports | Dec 20 2010
By Greg Peel
Whatever problems Europe might have at present, it doesn't seem to be bothering the Germans. On Friday it was revealed the IFO index of German business sentiment had risen to 109.9 from 109.3 last month to a post-reunification high. Economists had expected only 109.4.
This had Europe off to a good start until enthusiasm waned following news of the outcome of the EU leaders' meeting in Brussels. The leaders had agreed to change the EU Treaty to include a permanent bail-out fund to be put in place when the current emergency fund expires in 2013. While this is all well and good, markets were looking for more action sooner rather than later. There remains concern that Portugal and Spain are in trouble, and hope had been centred on an increase to the existing fund in the short term and the possible introduction of a eurozone bond.
It was known before the meeting that Germany was opposed to both ideas, and indeed is pushing for the restructuring of distressed members' debt after 2013 if need be, and it seemed Germany won the day. The meeting's outcome was thus at the lowest end of the market's expectation scale, and hence the euro slipped.
The US dollar index thus pushed up 0.4% to 80.39. Aiding the dollar's popularity was the release of the Conference Board leading US economic index which was up 1.1% in November for its biggest rise since March. This provided further confirmation that the US economy is indeed on the mend, albeit slowly.
But it was a Friday, it's beginning to look a lot like Christmas, and Wall Street was rather disinterested all round. It was also a “quadruple witching” options expiry which can spark volatility, but didn't. There was a large number of open call options at the 1250 level on the S&P which had traders hoping for a push towards that mark, but no go. Indeed, the VIX volatility index dropped 7% on the front month expiry and at 16 is now very much in complacency territory.
The last time the VIX was this low was in April.
In the end, the Dow lost 7 points and the S&P rose 0.1% to 1243.
Base metals were mostly positive despite the US dollar in response to the IFO and Conference Board indices, with copper running up again but ultimately settling back to a 1.4% increase. Oil has been ticking steadily up given the burst of cold northern hemisphere weather, and finished up US32c at US$88.02/bbl.
Gold found some buying after its recent pullback and rose US$6.30 to US$1376.50/oz while the Aussie was steady at US$0.9886. The US ten-year bond yield saw a pause in its rally at 3.33% as European disappointment held sway.
The SPI Overnight was up 8 points or 0.2%.
It's Australia's turn for leading economic indices next week, with the Conference Board releasing its October calculation on Tuesday and Westpac its equivalent on Wednesday. As far as economic releases go, that's it for the week in the rundown to Christmas. The RBA will nevertheless release the minutes of its December meeting on Tuesday.
I stand by my prediction that the RBA's claim its interest rate setting is now appropriate for its economic “outlook” implies no interest rate rise for at least six months, barring any significant left field events in the meantime. The minutes will hopefully provide further clues.
It's a bit busier this week in the US and economic releases kick off tonight with the Chicago Fed national activity index. Wednesday brings existing home sales, the FHFA house price index and the final revision of the third quarter GDP. Economists are expecting the result, which will incorporate the month of September and thus complete the calculations, will show an increase to 2.8% from the 2.5% implied by the July-August extrapolation in the previous revision.
On Thursday it's new home sales, durable goods, personal income and expenditure and the final Michigan Uni consumer sentiment index read for the year. The US will take Friday as its holiday in lieu of Christmas falling on the Saturday and all markets will be closed.
Note that Australia will take its Christmas Day holiday on the Monday, and its Boxing Day holiday on the Tuesday, such that next week the ASX is closed on both days. On Friday (Christmas Eve) the ASX will close early at 2.10pm. The ASX will also close at this early time on New Year's Eve and take Monday, January 3, as the holiday in lieu.
This is the last Monday Report for 2010. The Monday Report will return on January 17.
Rudi will make his final 2010 Lunch Money appearance on Sky Business on Thursday at noon.
Please note that FNArena will take its Christmas break from December 24 to January 17. There will be no Broker Call and no new stories published in this time and offshore prices will not be updated through this period. The ASX data (including stock prices) will nevertheless update as usual, and the website will still be fully accessible.
The FNArena calendar is also fully up to date throughout the period. Note also that relevant Broker Call entries will be updated subsequently such that 2011 begins up to date. Bear in mind that stock analysts all take a break too, however.
For further global economic release dates and local company events please refer to the FNArena Calendar.
