Daily Market Reports | Apr 07 2011
By Greg Peel
The Dow closed up 32 points or 0.3% while the S&P rose 0.2% to 1335 and the Nasdaq added 0.3%.
Wall Street had been concerned that a failure of the S&P 500 to breach 1333, and a subsequent pullback for some reason, would mean an ominous “double top” at this level which represents the 100% rally from the March 2009 low. So a close at 1335 has relieved those fears, apparently. The actual February high is at 1343 and a two-point breach is hardly champagne stuff, but then tea leaf readers are a funny bunch.
The big news last night was that Portugal has been forced to ask for a bail-out. The caretaker government's auction of a mere E1bn of 12-month bonds cost a whopping 5.9% which is simply untenable. The snap election is not until June, but the opposition party, which forced the election by refusing to pass the most recent austerity package, did not hesitate in agreeing a hand should now be stuck out.
Once upon a time such news would have sent markets plunging, but a Portuguese bail-out has been anticipated for so long – pretty much ever since Greece was bailed out a year ago – that last night markets didn't blink. Indeed, it's almost a positive as it removes lingering uncertainty. The euro actually jumped up 0.8% to US$1.43, given the ECB can now afford to be more aggressive on rate rises if Portugal is out of the equation. Just don't mention Spain.
Curiously, Portugal did not actually go cap in hand to the EU-IMF fund set up exactly for this purpose. The caretaker prime minister simply appealed for foreign aid. This, in theory leaves the door open for a sovereign wealth fund to jump in, or maybe China? But then why? Perhaps the obvious white knight would be Brazil (reverse colonisation – I like that idea). Or perhaps, as markets expect, the job will simply fall to the EU-IMF.
The big move up in the euro sent the US dollar index down 0.4% to 75.56, but the US dollar is now at a six-month high against the yen at Y85.45. Since the initial quake-related repatriation flows back into yen, which forced a coordinated G7 central bank intervention, the yen has been dropping fast as risk appetite has returned and the yen carry trade has been re-established in earnest. Which currency is one of the major recipients of the yen carry trade? The Aussie. Last night it hit further post-float blue sky at US$1.0444, up 1.1%.
The drop in the US dollar index gave base metals a boost last night, but it's also that time of the year when we focus on the Centro de Estudios del Cobre y la Mineria Las Urbinas, of course. CESCO, as it is known, is a Chilean non-profit organisation which translates into the Centre for Copper and Mining Studies, and each year it holds a global gathering of copper and other metal miners. The delegates usually go along and talk up their books, and everyone ends up excited about the prospects for metal markets.
Throw the commodity funds and technical traders into the mix, and last night we had copper up 3%, along with aluminium and tin up 1%, lead and zinc 2% and nickel 4%. Oil didn't play the game last night, and Brent was steady at US$122.30/lb. Despite the drop in the US dollar, gold was only up US$3.30 to US$1460.10/oz after Tuesday night's surge.
Wall Street in the meantime maintained its upward bias on lack of volume and a VIX of under 17 as it awaits the reporting season. The big news in the US at present is that the government may shut down on Friday given the Obama Administration and the Republican majority Congress cannot agree on the extent of budget cuts required. A shut-down is not unprecedented – it last happened under Reagan – and at this stage Wall Street is indifferent. The situation might change, however, if the stalemate lasts any more than a day or two.
Over in the bond market, yields have been rising steadily this week on inflation talk and rate rise talk out of both Europe and the US, as well as being helped along by budget worries. The ten-year benchmark rose six basis points to 3.55% last night and once again the market is looking for 4% or beyond by year-end. We've been down this path a few times in the past 12 months.
The SPI Overnight gained 5 points. Yesterday's close of 4912 puts the ASX 200 a mere 26 points shy of its February high.
It's unemployment day in Australia today and economists are expecting a tick down to 4.9%. Then the real fun starts over in Europe when first the Bank of England will announce a rate decision, and then the ECB.
Rudi will not be making his regular appearance on Sky Business today as this week he's been bumped for something more interesting.
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