Daily Market Reports | Jan 26 2011
By Rudi Filapek-Vandyck
The Dow fell 3.33 points overnight to close at 11977.1, the Nasdaq closed up 1.70 points, or 0.1%, to 2719.25 and the S&P500 posted a gain of 0.34 point, or less than 0.1%, to 1291.18.
Investors received a reality check on Tuesday with official data revealing the UK economy unexpectedly contracted in Q4 (-0.5%), with the US housing market increasingly showing all the characteristics of "double dipping" and as key corporate results disappointed, either on the face value EPS/sales growth, or on the publicised outlook. Crude oil and base metals had an absolute horror session, taking prices back to levels last seen in 2010 – despite continued weakness in the US dollar.
An announcement by a White House official that President Barack Obama will use his State of the Union address later today to call for a five-year freeze on nonsecurity, discretionary spending sparked a turn around and US equities rallied whole the way back to erase all losses booked earlier in the session.
After the bell Yahoo surprised with better than expected quarterly results (both EPS and sales) but the company's outlook proved a disappointment. Yahoo shares are under pressure in after-hours trading.
Earlier during the session, shares of American Express, 3M, Texas Instruments and Johnson & Johnson all faced selling pressure after the release of disappointing results. After narrowly missing a return to the magical 12,000 level the previous day, it seemed the Dow Industrials was poised for a quick return to 11,900 instead. The late rally on the back of the White House announcement has pushed the index back to within breathing distance of 12,000 again.
According to Dow Jones, the news wire, the Dow hasn't closed above 12,000 since June 19, 2008.
Earlier on the day, a surprise GDP release in the UK, disappointing corporate releases and sobering economic data pushed indices firmly into negative territory. The latest update from the S&P Case-Shiller index of 20 cities revealed home prices weakened in November, falling 1.6% from a year earlier. In addition, the Richmond Manufacturing Index undershot market expectations at 18 against an expected 23. The Conference Board's consumer confidence index did manage to deliver a positive surprise, moving to 60.6 in January whereas economists were only expecting to see 54.4, but the negative mood had already kicked in by then.
Base metals were hit by a combination of disappointing economic data, continued concerns about further tightening in China and technical analysis-related selling. The LME quickly turned into a bloodbath with prices falling to levels last seen in December. Copper lost more than 2.5%, so did lead, while zinc lost more than 3%. Tin managed to hold steady and nickel managed to keep losses limited to 1% only.
Crude oil prices equally faced continued selling pressure as OPEC does its best to convince investors it will keep global markets sufficiently supplied. The March WTI futures contract sank below US$87/bbl overnight, a far cry from the widely predicted US$100/bbl price levels for the first quarter of the new year.
Surprisingly, the US dollar continued to weaken further as well, making for a rather bizarre trading session with both metals and crude oil selling off, alongside the USD. The USD Index weakened below 78 during the Wall Street trading session and the index has fallen further since. Gold and silver futures equally failed to capitalise on the weaker greenback.
Unsurprisingly, demand for US Treasuries increased, with yield on the two-year note down slightly and yield on the 10-year note falling to 3.33%. Also, international investors reportedly poured into the first bond issued to fund a new European Union facility to save euro-using governments from default, underscoring confidence in the EU's efforts to safeguard the euro.
Australian equity and bond markets will remain closed today as the nation celebrates Australia Day.
Greg Peel will be back in action on Monday. I will make my first appearance on financial television for the new year on Thursday (Lunch Money, Sky Business, 12-1pm).
Happy Australia Day to you all!
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