Daily Market Reports | Feb 21 2011
By Greg Peel
If there was any doubt the persistent rally in US stocks – last week marked a third consecutive week of gains – is being led by the big caps then Friday night's trade should have provided stark proof. The Dow Jones Industrial Average rose 73 points or 0.6% while the S&P gained only 0.2% to 1343 and the Nasdaq was as good as flat.
While it is true the big US companies are benefiting from their growing proportion of revenues sourced from exports, it is also a good time to be reminded that the Dow is an anachronistic price average of the thirty “top” US stocks (yet Apple is not in there, yet) and as such is not a viable indicator. But tradition is tradition, and the Dow still carries psychological weight no matter how misplaced.
Blue chip manufacturers led the charge on Friday, with oil stocks also strong as unrest escalates in the Arab world. Brent crude nevertheless closed flat at US$102.52/bbl. Material stocks were muted following another incremental tightening measure from Beijing – this time another tick up in the bank reserve requirement – but metals in London were all up around 1% bar copper. Copper fell 0.5%.
Middle Eastern uncertainty, including Iran's determination to send warships through the Suez, continues to send money flowing towards the safe haven currency. However, it is the Swiss franc which has settled into this role of late given Washington's hardworking printing presses. The US dollar index fell another 0.5% on Friday to 77.64. The Aussie ticked up further to US$1.0142 and gold was steady at US$1386.10/oz.
Bernanke was again forced to defend those printing presses as he spoke on Friday to the meeting of G20 finance ministers in Paris. It was the same tired old exchange in Paris, with the US telling China its pace of currency revaluation is too slow and China telling the US its pace of deficit reduction is too slow. This Mexican stand-off is major reason QE2 is in swing, given a decent revaluation of the renminbi would go a long way to addressing global imbalance and affecting a contra devaluation of the dollar.
The G20 finance ministers did at least agree on how currency valuations should be measured (aside from simple exchange rates) such that imbalances can be generically defined. That was about it.
Mention must be made of silver, which is currently on quite a tear. Warnings have long been made that silver could run into a short squeeze given a balance of precious metal safe haven demand, industrial demand, physical supply and futures positions. Silver has left gold in its wake these past weeks and is building momentum. Friday saw another 2.5% jump to US$32.52/oz.
Despite the rally on Wall Street, the SPI Overnight fell 12 points or 0.2% most likely responding to Chinese tightening.
Strap yourselves in – this week is one of the busiest of the year on the Australian stock market calendar as the interim reporting season hits its peak before coming to a sharp halt on February 28. There are too many stocks to highlight here so be sure to check the FNArena calendar (link below) for details.
More subdued will be the economic data flow locally this week, although the mostly fourth quarter releases will have economists tinkering with their fourth quarter GDP estimates (due March 2). Today we have housing affordability, followed on Wednesday by construction work done and wage cost, with capital expenditure out on Thursday. Thursday also sees the Conference Board leading economic index released for December.
The anaemic US housing market will be back in the frame this week given a number of data releases. The week in the US starts on Tuesday given tonight markets are closed for the Washington's Birthday public holiday.
Tuesday sees Conference Board consumer confidence, the Richmond Fed manufacturing index and the Case-Shiller house price index. Wednesday it's existing home sales and Thursday new home sales, along with the FHFA house price index, durable goods and the Chicago Fed national activity index.
The US Treasury will auction US$99bn of bonds across twos, fives and sevens during the week. On Friday the first revision of US fourth quarter GDP is due. I have stated here previously that fourth quarter revisions should show an uptrend given the growing momentum of economic recovery, and forecasts have a tick up to 3.3% from 3.2%.
The UK will release its first estimate of fourth quarter GDP on Friday. With the US on holiday tonight, attention will turn to Germany's monthly IFO business survey for clues to the health of the eurozone.
Rudi will be making his regular appearance on Lunch Money on Sky Business at midday on Thursday.
For further global economic release dates and local company events please refer to the FNArena Calendar.
