Daily Market Reports | Oct 27 2011
y Greg Peel
The Dow closed up 161 points or 1.4% while the S&P gained 1.1% to 1242 and the Nasdaq managed 0.5%.
Perhaps Axl Rose said it best: all we need is just a little patience. If only the United Nations could have declared a global financial market holiday from about two weeks ago, with markets not to open again until the absolutely one hundred percent final announcement was ready in Europe, then we could have all saved ourselves this endless waste of time and worry.
As I write, nothing much new has transpired in the way of Final Solution structure, although a plethora of news wire reports flew around the globe last night. By the time you read this something may have been announced, but given the eurozone finance ministers meeting, which was previously scheduled for last night, has now been rescheduled to begin on November 6 (after the G20 meeting), we may still be in for another week of greying hair. It hasn't stopped every news service on the planet, and maybe some interested observers from beyond, camping outside the EU summit venue in Brussels, nevertheless, in the hope of any crumbs.
In essence there has been no diversion from the three magic numbers – E1trn, E100bn and 60% – as this meeting unfolds. Even if those numbers do end up being slightly different, there is a pervading feeling that the elements of the plan will remain intact and have largely been ratified, that is leveraging the EFSF, recapitalising the banks, and forcing a haircut on Greek debt. All that really remains is the detail, but for once, the world is assuming, European leaders and officials are on the same page. It still hasn't stopped markets jumping at news wire shadows, however,
Wall Street opened strongly last night, with local data and earnings again prevailing in an atmosphere of “she'll be right” re Europe. From the outset, earnings beats from Boeing (Dow), ConocoPhillips and Ford featured in a generally positive result session. The poor result from Amazon posted late on Tuesday was thus overcome, although Amazon's 12% drop did rather crimp the Nasdaq.
September new durable goods orders came in with a 0.8% decline, but we must always break this number down given the lumpiness of the transport component which includes aircraft. Ex-transport, orders rose 1.7% and “core capital goods”, which economists consider the essence of the data and the best economic indicator, rose 2.4%. All numbers exceeded expectations.
New home sales posted their first gain in four months in September, and the 5.7% jump sent up a cheer. Sales hit an annualised average of 313,000 when 300,000 was expected. Lower mortgage rates and a 10% year-on-year fall in the average house price were offered as drivers. (That average is US$204,400 which would get you a bed-sit next to an abattoir in Sydney).
On the back of the above, the Dow was trading within half an hour at around where it ultimately closed. But it wouldn't be Wall Street 2011 if we didn't have a rollercoaster ride in between.
Just after 10am NY a statement came out from the EU leaders and everyone thought “Here it is!”, but then it didn't have any numbers. Omigod, they can't agree. Or at least that was the fear, and down we went all the way to square again. Then around 1.30pm NY, a news story came right out of left field.
China, it would seem, is prepared to support the EFSF. At least China is prepared to pitch in as long as it involves investment in AAA securities and none of this dodgy funny money from the peripheral sovereigns. The news makes perfect sense – China has been desperately trying to diversify its trade surplus reinvestments away from the US dollar and had previously chosen the euro as obvious number two choice, with unfortunate results. If Beijing can be guaranteed some quality then such a deal would be mutually beneficial.
There was also side-bar news out that Italian prime minister Silvio Berlusconi had survived a challenge and that this time – cross his heart and hope to die – he really would introduce a new raft of budget cut measures and actually implement them. He promised the same thing in August before running off to party and doing nothing more.
And so Wall Street recovered all its lost ground to the close.
By the end of New York there has been little net move in the euro, and the US dollar index is little changed at 76.19. But while the euro has been the focus of all attention, the yen has once again risen to toy with new record highs, sparking speculation of another Bank of Japan intervention.
The Aussie has spent the last 24 hours dancing to its own tune. Economists had expected the September quarter CPI to rise 0.6% and for the RBA's trimmed mean (core) CPI to rise by the same amount. The headline came in as expected, implying annual inflation of 3.5%. The June quarter saw a 0.9% rise to imply 3.6%. But it was the trimmed mean which shocked, rising only 0.3% which, apparently, is the lowest quarterly move on record. The annual core rate is thus 2.45% and right in the middle of the RBA's comfort zone.
Dilemma. In isolation, this result is enough to suggest the RBA is justified – or even compelled – to trim its cash rate from the “slightly restrictive” 4.75% to a more neutral 4.50% in order to provide relief to Australia's suffering non-mining sectors. And with commodity prices having fallen substantially, even the mining influence is now watered down. But once again I ask: will the central bank feel comfortable making a policy change ahead of the Final Solution being ratified? A positive reception could have markets soaring again and inflation pressures right back in the frame.
Earlier this week RBA deputy governor tantalised the markets by suggesting there was room for a cut “if needed”. To me, that “if needed” is the key. Does “if needed” imply “only if things take a turn for the worse in Europe”? I reckon the chances of picking a winner on Cup Day are still just as much of a guess as picking the right horse.
The Aussie has fallen 0.3% to US$1.0393 although it was lower immediately after yesterday's CPI release. Having broken up through its most recent trading range on Tuesday, gold kicked on last night as investors continued to hedge their bets on the EU. It rose US$18.10 to US$1720.20/oz.
For once, the base metals complex moved individually last night, with fundamental considerations actually having an impact. I know, fundamentals? Seems ludicrous doesn't it. Low stocks of copper and zinc had those metals rising a couple of percent while aluminium was steady and everything else fell a couple of percent. Brent oil fell US$1.63 to US$109.30/bbl and West Texas fell US$2.39 to US$90.78/bbl.
The SPI Overnight rose 27 points or 0.6%.
Tonight the first estimate of September quarter GDP is released. And as for Europe, well…
Said woman, take it slow / It'll work itself out fine…
Rudi will appear on Sky Business today at noon and at 4.30pm you can catch FNArena's latest Market Insight program on the BRR network.
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