Daily Market Reports | Mar 18 2011
By Greg Peel
The Dow rose 161 points or 1.4% while the S&P gained 1.3% to 1273 and the Nasdaq closed up 0.7%.
If I had told you last week that the Dow was up 160 points on a night oil was up four dollars you'd have thought it was a typo. But that's where we find ourselves, only one week after a period in which rising oil simply meant falling stocks.
Last night MENA was firmly back in the frame. Tensions continue to rise in Bahrain and last night the largest Bahraini opposition group called for a withdrawal of Saudi troops. Meanwhile Shi'ite Saudis have held protests in Saudi Arabia in support of their oppressed Bahraini brothers. Tension on the peninsular is as much about the Islamic sectarian divide as it is about a push for democracy.
Meanwhile in Libya, Colonel Gaddafi has proposed a ceasefire on Sunday to allow the opposition rebels to negotiate ahead of what he clearly sees as the inevitable retaking of Benghazi. Observers suggest this is yet another Gaddafi ploy, intended to disrupt building support for a full-scale UN intervention. The US has finally backed the no-fly zone, but the UN has now proposed “all necessary measures” to protect Libyan civilians. It will come down to whether Russia and China vote against the proposal or simply abstain.
So there is a possibility of a more protracted battle in Libya, but realistically it is Saudi Arabia the world is worried about on the oil front. Last night Brent crude jumped US$4.10 to US$114.90/bbl for the new May delivery contract. April WTI jumped US$3.54 to US$101.52/bbl.
The oil price spikes were not just about MENA, but also about a growing confidence that the Japanese nuclear crisis will be contained. There has been no new news overnight to support such a belief, although one might suggest at this time that no news is better than catastrophic news. Now that the initial commodity fund exodus appears over, the market was able last night to focus on the fact Japan's lost nuclear power will mean more demand for crude along with petroleum products, LNG and coal.
The oil price was also helped by a big drop in the US dollar index, which fell 0.9% to 75.97. The fall came despite a sharp reversal in the yen ahead of expected G7 intervention to cap the currency. G7 leaders are meeting tonight, and it is considered to be in everyone's interest that a coordinated currency policy be implemented rather than leaving the BoJ with the burden.
The euro also rallied strongly in the wake of a successful Spanish bond auction. Post the new rescue fund measures agreed upon by the EU this week, Spain was able to sell E3.2bn of ten-years at a lower yield than the previous auction last month. This is in contrast to the recent Portuguese issue which saw a much steeper yield.
As noted, there is nothing new to report on the nuclear front. But that didn't stop traders piling back into commodities last night as they, too, decided that things were looking better rather than worse, and focused on the increased demand the Japanese reconstruction will bring. Zinc was up 1%, aluminium 2%, copper and lead 3%, nickel 4% and tin 5%.
Commodity price rises were enough to have material stocks bouncing strongly in the US last night, and once again the US followed the Asian session in which Australian stocks opened weakly and then spent the day rallying all the way back. But for the US, the pause in the nuclear newsflow allowed traders to again turn to domestic news.
Economic bellwether FedEx came out with fourth quarter earnings that easily beat the street and FedEx shares jumped 4%. The Conference Board leading economic index rose 0.8% in February to mark its eight consecutive monthly increase.
Industrial production surprising fell 0.1% in February but the drop was put down to a big fall in the utilities component. January had the US snowbound but February suddenly brought unseasonably warm weather. The Philadelphia Fed manufacturing index has nevertheless jumped to 43.4 this month from 35.9 to its highest level since 1984.
Jobless claims fell last week, and the consumer price index rose 0.5% in February on the headline with food and energy the culprits. Economists had expected 0.4%. The core reading saw a rise of only 0.2% however, which is nothing to alarm the Fed.
Gold traded higher again last night, rising US$8.40 to US$1405.10/oz. Silver rose 0.5% but the Aussie was a little weaker at US$0.9804 as Japanese investments continue to be liquidated. It's unusual to see the Aussie timid in a session when commodity prices surge.
And US bonds were finally sold last night after a week of safe haven buying. There is some concern Japan may need to dump out of a big chunk of its significant US bond holdings in order to finance reconstruction given its steep budget deficit. That would send US bond yields soaring, but it would also send the yen soaring and that's contrary to the need at present. So wiser heads see no large scale Japanese exit of US bonds. The ten-year yield rose 5 basis points to 3.25% last night.
The SPI Overnight was up 18 points or 0.4%.
While a rebound from the correction now appears to be underway, the situation in Japan remains fluid. It is unlikely US traders will do anything rash tonight ahead of the weekend, and as such some squaring may result. It's also quadruple witching tonight, in which stock and stock index options and futures all expire together, and that can often cause some non-macro shifts.
Confidence is building but there has been no green light given. Let's say the engines are revving on amber.
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