Daily Market Reports | Jan 19 2011
By Rudi Filapek-Vandyck
The DJIA was up 0.5% to 11844, the S&P 500 was 0.1% higher at 1295, and the Nasdaq 0.3% stronger at 2762.
More hope in Europe that a solution will be found, and put in place, to the region's financial worries assisted by stockbrokers increasing their forecasts for commodity prices kept overall investor sentiment in positive territory overnight. Banks in Europe had a good day, but sector sentiment in the US received a hit from a disappointing Citigroup result. Apple CEO Steve Jobs' health leave saw the shares down by some 2% but on this account too most stockbrokers in the US were quick in responding in unison: Buy, Buy, Buy.
The mood was further strengthened by positive results releases by both Apple and IBM after the market's close.
As stated in the opening sentence, US markets finished on a positive note, following a positive lead-in from Europe. The German DAX closed the session 0.9% higher at 7143, the Euro Stoxx 50 rose 1.2% to 2946 and the FTSE 100 gained 1.2% to 6056.
The shift from US Treasuries into equities accelerated during the session with the yield curve steepening as US Treasuries sold off. Longer-term inflation concerns saw the difference in yields between 2-year and 30-year Treasuries widen to the highest level since Bloomberg started recording the data in 1977. This is despite the Federal Reserve purchasing as much as US$21.5bn in debt this week as part of QE2. The 2-year yield remained broadly unchanged at 0.576% and the 10-year yield rose 2.6bps to 3.353%. There is some talk this morning (Sydney time) about one erroneous order having impacted on price action, though official data show both China and Russia have been selling too.
Currencies and commodity markets were rather mixed, albeit with a similar positive bias towards more risk appetite. Crude oil declined marginally after a choppy night of trade. Prices were weighed down by the restart of Alaska's pipeline and an International Energy Agency announcement that OPEC has been raising output, although the weaker USD provided some offset. The WTI futures contract for February dipped 0.2% to US$91.32 per barrel.
Spot gold rose through the European session on the back of solid Asian physical demand and the softer USD, although gains were partially unwound later in the session. Gold is 0.3% higher at USD1366 per ounce.
On the LME copper rose 0.7% to US$9700 per tonne on the back of the weaker USD and recovery on global bourses. Nickel outperformed, rising 1% to an eight-month high on reports of strong Chinese demand in 2010, while aluminium was 0.6% higher. But a surge in inventories saw lead prices decline 0.7%, and zinc fell 0.8%.
Agricultural commodities were stronger in overnight trade. Wheat prices improved 2.6% on persistent solid demand despite weather-related supply concerns in China, the US and Australia. The move supported a rise in corn (+1.7%) to new 30-month high, while soybeans gained 0.5%. Sugar traded 0.7% higher, and palm oil is up 0.5%.
The Aussie dollar tried to move above parity against the USD, but failed once again. AUD opens at .9980 in Asian trade; AUD/EUR opens at .7456; AUD/GBP opens at.6253, AUD/NZD opens at 1.2953. The lack of RBA interest rate support is no doubt weighing on Mr Market's mind.
EUR/USD, however, rallied strongly overnight pushed initially higher on headlines that Russia is considering buying Spanish debt again. However, some market commentators believe the swift retreat later in the day on news that the Euro Group had rejected an expansion of the EFSF shows there is little desire to take the euro above 1.35 in the short term. USD/JPY had a quiet session trading in the 82.35/80 region and opens at 82.62 in Asian trade. The US dollar index fell to the bottom of its six-week range in Europe, currently 78.97.
Economic data in the US remain patchy at best. The US Empire Manufacturing Index (Jan) came in at 11.9, from 9.9 last month, which was a touch below consensus of 12.5. The NAHB Housing Index (Jan) was 16, same as last month and below consensus of 17. In Europe, the German ZEW Survey (Jan) was 82.8 versus consensus of 83.7.
Further fueling risk appetite in Europe, Jose Manuel Barroso, President of the European Commission, through an aide, flagged that the European Financial Stability Facility would be expanded and reinforced before the EU European Union summit on 4 Feb. One proposal is that the bail-out fund be permitted to buy bonds from distressed Governments, a "chore" currently undertaken by the ECB.
SPI futures are indicating a positive opening of Australian equities on Wednesday morning.
Greg Peel will return from holidays after Australia Day.
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