Daily Market Reports | Feb 04 2011
By Greg Peel
The Dow gained 20 points or 0.2% while the S&P added 0.2% to 1307 and the Nasdaq also added 0.2%.
Australia's December trade balance surprised economists yesterday by recording a similar surplus to November of about $2bn. Expectations were for $1.6bn. The result gave the Aussie another kicker given, all things being equal, a strong surplus implies pressure on the RBA to raise. However, it will no doubt be a different tale in January when weather impacts really start to make their mark.
As we contemplate the effects of lost exports, both resource and agricultural, and lost tourism which is also an “export”, we note the service sector in January was even more dour than the manufacturing sector. The manufacturing sector managed to slightly slow its rate of contraction but service sector contraction picked up pace with the PMI dropping to 45.5 from 46.4 in December.
China does not separate out a construction sector number but rather notes manufacturing (55% of the economy) and non-manufacturing (45%). The non-manufacturing PMI slipped to 56.4 in January from 56.5 on Beijing's numbers. Meanwhile the UK service PMI surged to 54.5 (49.7), the eurozone's ticked up to 55.9 (54.2) and the US came in with 59.4 (57.1). That's the best US result since 2005, and services represent over 70% of the US economy.
Again we see the “old world” forging ahead as the “new world” eases back. The UK results have been no less than astonishing.
Wall Street nevertheless opened weaker last night, spooked by a weak result from Dow component Merck and ongoing uncertainty in Egypt and despite the positive service PMI and surprisingly healthy chain store sales for a snowbound January. But then along came Uncle Ben.
The Fed conceded late last year that perhaps it was time to address its longstanding policy of aloof detachment – one which sees the issue of official statements and minutes, appearances before government and financial industry groups, and not much else. Taking a leaf out of the ECB's book, the Fed has decided it's time to open up to “the people”, and as such last night Ben Bernanke participated in a “meet the press” session which to date has been a very rare thing indeed.
Unsurprisingly, Bernanke was hammered with questions about QE2 but clearly he needed only to point to the improving US recovery for justification. Indeed, Uncle Ben suggested the US economy was running even better than hoped, and despite recent data supporting that view and despite stock prices quantifying that view Wall Street took this as good news and the market turned around.
The indices moved into the black in the last hour ahead of tonight's all important monthly jobs data. Economists are looking for 145,000 new jobs to be added.
The strong US services PMI and talk from Uncle Ben helped to push the US dollar index higher, up 0.8% to 77.75. The Aussie nevertheless marched to its own tune of strong surplus and added 0.7 of a cent from 24 hours ago to US$1.0160. Gold suddenly decided last night that yes, the Middle East is a worry and yes, perhaps some safe haven investment might be sensible. It rose US$18.20 to US$1354.50/oz.
Oil is playing an uncertain game around this US$90 level in WTI, and last night fell back US16c to US$90.71/bbl. The WTI is no doubt being affected psychologically by the other “big” oil contract – Brent – which is wondering whether or not to push on above US$100/bbl. It was a steady night for base metals in London.
Strength in the US dollar was also assisted by last night's ECB monthly monetary policy decision. The central bank left its rate on hold at 1.0% and Jean-Claude Trichet talked down current inflation pressures much to the surprise of economists. It will be a watch and wait game in the eurozone.
The SPI Overnight rose 13 points or 0.3%.
Rudi will be a guest on BoardRoomRadio's Friday Afternoon Round Table this afternoon which will be available for live video streaming from 3pm and for download from 4pm.
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