Daily Market Reports | Jun 01 2011
By Greg Peel
The Dow closed up 128 points or 1.0% while the S&P gained 1.1% to 1345 and the Nasdaq added 1.4%.
Asian markets were boosted yesterday by the release of Japan's manufacturing PMI for May which showed a bounce-back to 51.3 from 45.7 in April. The April number was a two-year low but unsurprising given the impact of the tsunami on manufacturing, yet the May number showed a return to expansion for the first time in three months which is quicker than expected and indicates that supply chains are being restored and production lines are moving again. Japanese rebuilding is underway.
Over the next 24 hours, manufacturing PMIs from Australia, China, the UK, eurozone and US will be released.
The news from Japan provided a fillip for Wall Street before the bell, with traders returning from their long weekend break. More inspiring was a Wall Street Journal report which suggested Germany was prepared to abandon its push for an early restructuring of Greek sovereign debt and may agree to a further bail-out injection from the various parties of E30bn. That amount is considered to be the shortfall in the Greek budget target at present, albeit the IMF is yet to deliver its interim report.
The Dow thus opened up 133 points as the risk trade returned once more from hiding and the euro gained 0.8%. The Dow is currently closely correlated with moves in the euro. The initial excitement nevertheless waned as yet again more weak US economic data hit the screens.
The Conference Board monthly consumer confidence measure was expected to rise to 67.5 in May from 66.0 in April in line with the increase in the similar Michigan Uni consumer sentiment index, but instead it fell to 60.8. Economists suggests the CB index is more closely aligned with the labour market than the MU index which might explain the discrepancy, but either way traders pointed to still-high petrol prices, falling house prices and floods and tornadoes as reason enough for the US consumer to lose enthusiasm.
On the subject of house prices, Messrs Case and Shiller last night officially declared a double dip in the US housing market. The Case-Shiller index of prices in the 20 major cities fell 4.2% in the March quarter alone to be down 5.1% year on year.
Economists had expected manufacturing activity in the Chicago region to slow in May in line with the general US slowdown, such that the Chicago PMI would fall to 60.0 from 67.6. But it fell to 56.6. Most alarming was the build-up in inventories within the data, implying goods have stopped moving off the wholesale shelves.
It is pretty much an ongoing tale of woe for the US economic recovery, and one which continues to spark talk of QE3 as being inevitable. The Fed has spent more time talking about how to get out of QE2, but it has also suggested that more accommodation would be considered if the economic situation warranted.
The weak data had the Dow slipping to be only around 50 points higher by lunch time, however the euro also trimmed gains at this time before kicking towards the New York close. So Wall Street kicked as well, and we closed up nearly as much as we had opened up.
It was also month-end, and there was perhaps a bit of the usual window-dressing going on in what was otherwise a 2% down May for Wall Street.
The US dollar index finished the session down 0.4% to 74.93 which provided commodities with their usual boost. Brent crude rose US$1.70 to US$116.73/bbl and West Texas rose US$2.00 to US$102.59/bbl. Base metals posted small to 2% gains with the exception of zinc which slipped slightly.
Gold might have been higher on the weaker greenback except for the implications of relief on Greek debt. Thus gold dropped US$4.80 to US$1534.40/oz while silver still managed a 1% gain to US$38.47/oz.
US bond yields might have been higher on the implications of Greek relief except for the implications of a slowing US economy. The ten-year yield is now at 3.05%, matching the lows seen last December before QE2 really started to kick in.
The VIX volatility index is now sitting at 15.5.
The Aussie might have been higher on the weaker greenback except for yesterday's weaker than expected March quarter exports number which had economists hastily revising down their GDP forecasts. Consensus is now around negative 1.1% from an earlier negative 0.3%. Economists will be put out of their misery this morning when the figure is actually released. The Aussie slipped slightly over 24 hours to 1.0669.
The SPI Overnight gained 21 points or 0.5%.
Stand by today for the Australian March quarter GDP and all the manufacturing PMIs. Tonight in the US sees the ADP private sector employment number ahead of the official jobs number on Friday.
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