Daily Market Reports | Jan 27 2011
By Rudi Filapek-Vandyck
DJIA closed up 8.25pts to 11,985, while the S&P500 gained 5.45pts to 1296 and the Nasdaq closed up 20.25pts at 2739.50.
First it was Barack Obama's State of the Union speech. Then it was speculation about what the Fed's monetary meeting might deliver. Then it was the outcome of the Fed's meeting. Buyers found enough reasons to move back into global equity markets and other risk assets on Wednesday. The Dow Industrials traded above the magical 12,000 level for most of the day, while the S&P500 continued threatening a break above 1300, but as the last hour of the overnight session kicked in, so too did selling orders and US indices closed well off their highs on the day.
Another chance missed to take the 12 for the Dow and the 13 for the S&P500.
There was a positive print from the US housing market to fuel overall optimism earlier on the day. US New Home sales proved stronger than expected increasing to 329,000 up from a revised 280,000 and higher than market consensus at 300,000. Economists were quick in pointing out the jump came off ultra-depressed levels and new homes sales remain at "extremely depressed levels" – Mr Market wouldn't have any of it and took the glass as being half full. Never mind that many an economist believes that, with mortgage rates rising in recent months, sales could decline further over the coming months (double-dip for housing anyone?).
On the other hand, the optimists can counter that the overnight release marked the biggest increase in sales in 18 years and the highest level of sales in eight months.
Before the opening bell on Wall Street, European investors were equally in a positive mood. The German DAX closed the session 1.0% higher at 7127, the FTSE 100 rose 0.9% to 5969 and the Euro Stoxx 50 rose 0.3% to 2968. Obama's speech did not only mention "spending freeze", the President also proposed to cut the corporate tax rate.
Buying orders started accelerating once it had been confirmed the US Federal Reserve kept the federal funds target rate unchanged between zero and 0.25%. The Fed pretty much stuck to its views from late 2010 and will thus continue expanding its holdings of securities as outlined after the November meeting.
Economists at CIBC summed it up as follows:
"As expected, the Fed left interest rates unchanged at zero, and announced no change in its QE2 program, leaving rates at exceptionally low levels for an "extended period". The description of the economy was not much changed from the November meeting, seeing household spending picking up (previously described as only moderate) along with business equipment, but ongoing weakness in housing, and inflation stable. That slightly better description doesn't alter the view that the pace of growth is still "insufficient" in terms of generating job growth, and not a threat to inflation. QE2 plan stays at $600 bn, and there is no longer a vote against it, with Hoenig having dropped out as a voter, and Plosser, a QE critic, not opting to vote against the statement. No market impact likely, although the curve has priced in some rate hikes for late 2011 that we see as highly unlikely."
Currency markets didn't really know what to make of it all and big movements remained absent last night. The euro held between US$1.3650 and US$1.3715 over European and US trade and was near US$1.3680 in late US trade. The Aussie dollar eased from US99.95c to US99.30c in European and US trade but was near US99.55c in late US trade. And the Japanese yen eased from 82.00 yen per US dollar to near JPY82.55, and was near JPY82.50 in late US trade.
US treasury prices hit session lows (yields higher) following the Federal Reserve statement. A better-than-expected new home sales result and increased supply of bonds combined to weigh on prices. On Wednesday US$35 billion of five-year notes were sold and US$29 billion of seven-year notes will be sold on Thursday. US 2yr yields rose 5pts to 0.64% and US 10yr yields rose 9pts to 3.43%.
Crude oil and base metals markets recovered strongly from steep losses in the previous session. The Nymex crude oil contract rose by US$1.14 to US$87.33 a barrel. Base metal prices on the London Metal Exchange equally took their cue from general optimism. Zinc rose 2.7%, lead rose 2.5% and nickel rose 2.3%. Share prices of mining stocks responded accordingly.
Precious metals had a better session as well with silver significantly outperforming gold.
Agricultural commodities were also mostly carried higher. Sugar was the biggest mover, rising 4.1% on renewed concerns about global supply this year. Wheat was also up strongly, rising 2.2% after Algeria reported it had accelerated its grain imports to try to head off possible social unrest over higher food prices. Corn rose 2.1% while soybeans rose 0.8%.
Central bankers in New Zealand and Japan have kept interest rates unchanged, while India tightened. Later today we will welcome weekly jobless claims, durable goods orders and pending home sales data in the US. During the local session we will see the first corporate results and more trading updates and quarterly production reports being released. See our calendar for more details.
Greg Peel returns on Monday. I will be on Sky Business today (Lunch Money, 12-1pm)
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