Daily Market Reports | Dec 22 2010
By Greg Peel
The Dow rose 54 points or 0.4% while the S&P gained 0.6% to 1254 and the Nasdaq added 0.7%.
Yesterday the Chinese vice premier Wang Qishan declared his endorsement for the efforts being made by the EU and IMF to support the troubled eurozone countries and his hope that the measures been taken would soon have their desired effect. As well he might. While it is easy to assume the US must be China's biggest export customer, that award actually goes to Europe.
While 2010 has been a year in which Beijing has applied the brakes to the Chinese economy, it has done so with a constant watch on the events unfolding in the eurozone. When Europe has wobbled, Beijing has backed off. When Europe has steadied, Beijing has tightened once more. Hence it is perhaps of little surprise that Wang went one step further and actually offered China's help with sovereign debt issues.
America has throughout history been lauded as the nation which came to the rescue of the allies in both World Wars. But it was not without a cost. Britain only made its last payment to the US on its WW2 fee about a decade ago, and US banks profited by financing both sides of the campaign. No doubt Beijing is eyeing an opportunity to provide assistance to Europe – this time purely financial – in exchange for some future pound of flesh, possibly couched in trade agreements. But that's the way the world turns, and it's currently turning Asia's way.
One might have expected this news to spark a rebound in a besieged euro, but Moody's chose last night to threaten a further downgrade to Portugal's debt, having last week put Spain in the cross-hairs. It's ridiculous roundabout of course which again highlights the pathetic role of the ratings agencies. Bond markets sell down sovereign debt, raising the cost of borrowing to that nation. The ratings agency then factor in a higher cost of borrowing, see greater difficulty in making payment, and so downgrade that debt. The bond markets respond by selling down that debt, the ratings agencies…
The sooner ratings agencies are regulated into oblivion the better off mankind will be.
The end result was a euro finishing slightly lower, sending the US dollar index slightly higher to 80.71. But this time Wall Street was not hamstrung by a stronger greenback and its implications. With no economic data releases of note last night, attention turned to some fresh M&A activity.
Like Australia's banks, Canada's banks have come through the GFC with little relative damage. Last night Canada's second largest bank Toronto Dominion – now the sixth largest bank in North America – announced it would buy Chrysler Financial Corp from its private equity owners for US$6.3bn in cash. CFC is to Chrysler what GMAC is to General Motors and neither are now owned by the car companies themselves.
The deal was enough to spark a bit of excitement in the financial sector, and that sector led the indices higher.
Support also came from the materials sector as copper jumped another 2% to just under US$9400/t, and with nothing but blue sky above, traders are expecting the US$10,000/t mark to be reached sooner rather than later. Last night's jump was sparked by a fatal mine accident in Chile which caused Xstrata to shut the mine and declare force majeure on shipments. Copper inventories are already very tight, leaving the metal more susceptible than usual to supply shocks.
Copper had aluminium, tin and zinc rising in sympathy, while gold was quiet with only a US$1.50 gain to US$1385.40/oz in the wake of the stronger greenback. The Aussie rose another 0.3 of a cent to US$0.9963 to post a second session in which it has defied the US dollar index, of which it is not a constituent.
The January delivery oil contract has now expired, leaving the February contract to rise US45c to US$89.80/bbl last night.
Having suffered a quite severe sell-off, US bonds have now quietened down as we approach year-end. There's a load of US economic data out in the next two sessions and the Treasury's final auction round for the year is next week, the Fed is in there buying and the ratings agencies are playing their games in Europe. The ten-year yield last night fell 4bps to 3.31%.
The SPI Overnight was up 14 points or 0.3%.
Westpac will release its leading economic index for Australia today and tonight in the US sees the final revision of third quarter GDP.
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