Daily Market Reports | Apr 08 2011
By Greg Peel
The Dow closed down 17 points or 0.1% while the S&P lost 0.1% to 1333 and the Nasdaq also lost 0.1%.
Wall Street was shaken out of its complacency about an hour into the session when news hit of a 7.4 aftershock off the coast of Japan and the subsequent issuing of a tsunami warning. The Dow was just into the green at the time and then immediately plunged 100 points without as much as a blink.
The market then rocked and rolled for an hour as opportunist buyers fought with panic sellers before another news alert informed the tsunami warning had been withdrawn and no damage had been reported. Wall Street then limped to the close, shaken by the reminder that the Japan story is not over yet. The VIX volatility index spiked as stocks fell, but settled back by the close to remain around 17.
One is reminded that it was six months between the first quake in Christchurch and the more devastating aftershock.
In Washington, the Republicans agreed to a stop-gap bill to avert the temporary loss of 800,000 public sector jobs tonight in a government shut-down which pushed the deadline out one week. Negotiations are still underway and both sides talk of compromise being reached on budget cuts but the Republicans are holding the Administration to ransom over funding for birth control and environmental protection efforts which the Tea Party – the people that evolution forgot – wants withdrawn.
Either way analysts suggest a government shutdown is unlikely to derail Wall Street.
Across the pond, the Bank of England decided not to raise its cash rate from 0.5% and to maintain its QE measures despite the problem of rising inflation. Austerity measures are yet to bite in the UK, the BoE suggested, unemployment is thus set to rise further and the economy remains subdued.
It was a different story in Europe where the ECB raised its cash rate by 0.25% to 1.25% in a direct attack on inflation. The move was well factored in, but markets were surprised when the ECB suggested it made no decision on this being the first in a series of rate rises, albeit Jean-Claude Trichet noted the central bank will “always do what's necessary”.
That the ECB should raise when Portugal has asked for a bail-out and the peripheral eurozone states are still battling with budget deficits has some commentators scratching their heads. One is reminded that the last rate rise was in July 2008 – two months before the fall of Lehman – when the ECB lifted its cash rate from 4.00% to 4.25% in the last attack on inflation. The Fed was at the same time slashing like a cane farmer.
Then, as one presumes is the case now, the ECB pointed out that unlike single-state central banks it had no mandate to control economic growth. That was the responsibility of member states (and look where that's got us). The ECB only has a mandate to control inflation and that's what it has done.
The euro dipped somewhat on the back of the “no decision” on the next rate rise while a panic withdrawal of carry trades on the quake news saw the yen jump back up once again. The moves canceled out in the US dollar index and it was steady at 75.54. The Aussie dipped slightly to US$1.0458 while gold was also steady enough at US$1458.30/oz after a quick quake-related blip.
On the economic front, US chain store sales for March came in better than expected and a 10,000 drop in weekly new jobless claims saw the monthly new claim average drop to its lowest level since July 2008.
Wall Street was also wary that “oil” closed above US$110, with West Texas jumping US$1.57 to US$110.40/bbl last night. Brent added only US37c to US$122.67/bbl. Base metals had been stronger in the London session before the quake news sparked some profit-taking. The complex closed 1% higher on average.
The SPI Overnight fell 9 points or 0.2%.
I will be appearing on the Business View program on Sky Business at 2pm today before Rudi joins BoardroomRadio's Round Table at 3pm.
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