Daily Market Reports | Mar 11 2011
By Greg Peel
The Dow fell 228 points or 1.9% while the S&P lost 1.9% and the Nasdaq lost 1.8%. All three averages/indices fell down through their 50-day moving averages, triggering technical selling. The Dow fell below 12,000 and the S&P below 1300 to 1295, exacerbating the psychological element.
The interesting thing about last night's move on Wall Street is that oil was actually weaker. Brent fell US64c to US$115.20/bbl and WTI fell US$1.77 to US$102.62/bbl. With the Dow down 200 points, it would have been reasonable to assume a higher oil price was to blame.
But it's also reasonable to assume that a sell-off of last night's magnitude had been building in the US and that it was only a matter of time. This was not a panic session, it was simply a step to the sidelines on a confluence of negative newsflow. Volume was pretty tepid, and the VIX volatility index closed under 22. After a two-year rally which has seen the market double in value, profit-taking does not need too much encouragement.
The reason oil was down was partly because of the weak Chinese trade data for February, which was the trigger to send the ASX 200 plunging in yesterday's Asian session. While Chinese exports and imports had grown by 38% and 51% respectively in January, in February those numbers were a mere 2% and 19%, sending the monthly trade balance into a rare deficit. The fear of Chinese slowing has pervaded global markets for some time, but unrest in MENA has diverted the spotlight.
The unrest had also largely diverted the spotlight from eurozone sovereign debt fears, at least until Moody's downgraded Greek debt earlier in the week. Last night it was Spain's turn, as the ratings agency decided the zone's fourth biggest economy was underestimating the amount required to recapitalise the country's banks. The government last night targeted E15bn but Moody's believes it will cost a lot more.
If it were not already enough, the US weekly jobless claims number was a disappointment. And then later in the session unconfirmed reports emerged that shots had been fired on protesters in Saudi Arabia, ahead of tonight's planned mass rally.
Any one of the above factors would be enough in one session to spark some selling. Together, it's almost “too much information”.
The world has become rather short of US dollars of late as it contemplates a possible QE3, and rather long of euro as it anticipates an ECB rate rise. Last night that trade turned and a 0.8% drop in the euro helped the US dollar index to a 0.8% gain to 77.31. The Bank of England left its cash rate at 0.5% and as such the pound was also weaker.
The sudden bounce in the dollar helped oil to fall, and sent gold down US$17.30 to US$1412.30/oz. Not that gold can't do its own thing in times of geopolitical turmoil, but last night was more of a shift to cash. Having fallen steeply on Wednesday night, base metals were mixed on small moves in London.
The offset to money flowing out of the “risk trades” of stocks and commodities last night was strong demand for an auction of US thirty-year Treasury bonds. The benchmark ten-year yield fell ten basis points to 3.37%. The Aussie risk indicator finally broke down last night, falling over a cent to US$0.9994.
Devastation? No. Economists were quick to point out that Chinese New Year celebrations fell in the month of February, and they had a big impact on the Chinese numbers as they do each year. There is always a flurry of activity before New Year, so if one takes the January and February trade numbers together and averages them, the trend is still solid.
As for the downgrade in Spain, well the silver lining is that perhaps it will provide a swift kick up the backside for eurozone members dithering on decisions about a longer term strategy of debt containment. And maybe, finally, restructuring will occur among the PIIGS and we can all just get on with it.
Saudi Arabia is more of a concern, but then not exactly a shock either. Were it a shock oil would be a lot higher, not lower.
Global financial markets are currently uncertain, but not panicked. Every now and again it feels safer just to walk away fro a while until the dust settles.
The SPI Overnight fell 34 points or 0.7%.
I will be appearing on Business View on the Sky Business channel at 2pm today and at 3pm Rudi will be a guest on Boardroom Radio's Round Table.
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