Daily Market Reports | Jun 07 2011
By Greg Peel
The Dow fell 61 points or 0.5% while the S&P fell a more substantial 1.1% to 1286 and the Nasdaq dropped 1.1%.
Friday's weak US jobs number continued to resonate through Wall Street last night after traders spent the weekend contemplating the clear slowdown in the US economy. Speaking on CNBC this morning the president of the Boston Fed admitted the central bank had been wrong in assuming an ongoing modest recovery but was still expecting a better performance in the second half. As for QE3, the president suggested it was too early to consider new stimulus at a time when QE2 is due to expire. It will be a case of keeping a close eye on the data.
Which in a way is confirmation that QE3 would be implemented were the situation to weaken further, but if the Fed expects the second half to be better than the first then it is unlikely we will hear any QE3 talk for a couple of months at least.
The Fed was also in the frame on Friday night when a Fed board member outlined in a speech ways that systematically important US banks can carry additional capital requirements under the new Dodd-Frank financial market regulation act. Fears of increased bank capital reserve requirements had the financial sector leading the way down last night.
Wall Street was also under pressure from a euro which rose early but drifted back to the New York close. Euro finance minister leader Jean-Claude Junker suggested last night that the euro was overvalued and that the region needs a better exchange rate policy. It might be a vague statement at this stage but the German finance minister also threw fuel on the uncertainty fire last night by suggesting the second bail-out of Greece – largely agreed on last week – was not a given. If there are two things one can rely on regarding Europe, one is that disagreement and dithering rule the day and the other is one should always be wary of anyone called Jean-Claude.
The result was a 0.3% rise in the US dollar index to 73.98 which did not help oil's cause. Consolidating ahead of Wednesday night's OPEC production quota meeting in Vienna, Brent fell US$1.46 to US$114.48/bbl and West Texas fell US$1.43 to US$98.79/bbl.
The combined weakness in the large cap financial and energy sectors saw the S&P 500 fall in the morning session to below the previous “Libya low” of 1295 where technical support was assumed. The index rallied back to support, fought a battle for a couple of hours and then lost it, accelerating to the downside in the afternoon as technical stop-loss orders were triggered. Next stop 1275 for the tea leaf readers.
Gold was little changed at US$1544.80/oz but silver managed a 1% gain to US$36.78/oz. China was on holidays yesterday which affected low activity on the LME last night. Base metals were mixed with nickel and tin down 1%, lead up 2% and the others slightly positive.
The Aussie was steady at US$1.0716 and the SPI Overnight fell 31 points or 0.7%.
All ears will be on Fed chairman Ben Bernanke who is due to make a speech tonight, and any further hints on monetary policy tweaks will be highly anticipated. Before that we have to get past an RBA rate decision today, and it seems yesterday's lower ANZ job ads number, which confirms a trend now in reverse, was enough to kill off the last economist expectations of a rate rise. Unfortunately this means we'll probably get one. I'll stick by what I said on Sky Business on Friday and that is that a rate rise seems unlikely this month but I would not be at all surprised if we got one given the language of the last RBA minutes and the inflationary numbers hidden in a GDP report dominated by weather-affected exports.
So get set for 2.30pm today.
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