Daily Market Reports | May 17 2011
By Greg Peel
The Dow closed down 47 points or 0.4% while the S&P lost 0.6% to 1329 and the Nasdaq lost 1.6%.
It was a bit Arthur and Martha on Wall Street last night with light volume the result of traders not quite sure how to respond to various pieces of information. The Dow fell on the open, rallied to be up about 50 points mid-morning and then oscillated a few times before finally closing lower.
Top of the uncertainty list was the news of the arrest of IMF managing director Dominique Strauss-Kahn on sexual assault charges. DSK, as he is known, is seen a primary driver behind the resolution of the European debt crisis and some in the market fear a rudderless IMF will derail the latest attempts to sort out Greece.
But on the other side of fence, many argue that the IMF is not a one-man band and there are capable deputies available to fill the void. German Chancellor Angela Merkel suggested last night that its too early to discuss a specific successor but that Germany was against any idea of breaking up the eurozone, which suggested to the market that a Greek debt restructure may not be imminent. This was enough to turn the euro's initial fall around to provide a rally on the day of 0.6%.
This meant a weaker US dollar which coincided with stock market strength at the time but as the euro lost momentum late in the session the dollar index regained ground to be down only 0.2% on the day at 75.60.
Overriding currency market movements was the fact the US last night hit its statutory US$14.3bn debt ceiling. That ceiling is expected to be raised, and President Obama will be pushing for an unprecedented 50% increase to US$21bn (stack that amount from the ground in hundred dollar bills and you'd probably reach Mars) but that will mean strict cuts to government spending before Congress would allow any increase.
Sounds a bit like a very large Greece.
Spending cuts at this stage of the tenuous US recovery are not an encouraging short-term impact despite the benefits down the track. They also mean a stronger dollar short term which is why silver lost its bottle again last night and fell 5% to US$33.55/oz, while gold slipped US$5.30 to US$1489.40/oz having traded back up to 1500 earlier on dollar weakness.
Then there is the swollen Mississippi River. The decision was made last night to open a spillway upstream from New Orleans which will flood vast areas of farmland but save the city, and in doing so save the concentration of refineries and other oil infrastructure in the area. Oil prices have been stronger recently on supply disruption fears but the spillway news alleviated those concerns and hence West Texas crude fell US$2.65 to US$97.00/bbl and Brent fell US$2.97 to US$110.31/bbl.
Base metals were victim to fluctuating currencies and hence turned earlier losses into small falls by session end, with the exception of a 2% drop in tin.
US Treasury international capital flows for March, being the net of foreign investment in to/out of the US in the month, fell to US$24bn from US$27bn when economists had expected an increase to US$57bn. Typically-large US investors like China, Singapore and Mexico reduced their purchases in March so its not hard to see where some of the pervading US dollar weakness has come from.
Last month the Empire State (NY Fed) manufacturing index hit its highest level for the year at 21.7 but this month it plunged to 11.9 to be the lowest level for the year. The big drop surprised economists.
The NAHB housing market sentiment index remains stuck on 16 in this 50-neutral measure.
Recent US quarterly results have centred on the retail sector and they have been very mixed as evidenced last night by a 2.7% jump in department store JC Penney and a 3.6% fall in home improvement chain Lowe's. There was also renewed talk of the government introducing and internet sales tax which had Amazon, for one, down 5%. That's why the Nasdaq outperformed to the downside last night.
All in all a lot of uncertainty along with more evidence the pace of the US economic recovery is slowing as we head towards the northern summer and the end of QE2 (sort of), with government debt levels causing heartache. The VIX rose again last night but is still only at 18 so there's no sign of panic.
The SPI Overnight fell 16 points or 0.3%.
Rudi will presenting the ASX Investment Hour at the ASX in Sydney today at 12pm, speaking to "Stocks That Consistently Beat the Market".
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