Daily Market Reports | Nov 04 2011
By Greg Peel
The Dow rose 208 points or 1.8% while the S&P gained 1.9% to 1261 and the Nasdaq added 2.2%.
Madman or wily old fox? While it may have seemed that Greek prime minister George Papandreou's intentions on Monday were to uphold the purest tenets of the world's original democracy in taking a vote to the people, irrespective of the global incredulity the suggestion sparked, now it seems like it may have been just a bit of crafty politics.
The Greek government needs the support of the Greek opposition to get the new austerity bill, which is necessary in order for Greece to continue to receive bail-out funds, through parliament. The opposition was immediately dead against the idea of a referendum, so last night Papandreou offered a deal. He would call off the referendum if the opposition guaranteed to pass the bill. They did, so the referendum is off.
All the world can thus now relax. Or can it? Apparently the opposition added a caveat to its compliance, and that is that Papandreou must resign and a snap election be held. Papandreou has not resigned, and instead will carry on with the confidence vote in his leadership tonight. Enough government members were dead against the idea of a referendum to suggest that if that were still Papandreou's intention, he likely would have lost the vote. Now he must himself be confident that his government will be confident in him, given he has both called off the referendum and ensured opposition support for the austerity bill.
Except that the opposition leader stood up in parliament and spat the dummy, calling Papandreou everything under the sun. Has the opposition thus reneged? The Greek finance minister has since turned the tables and made out the opposition to be the bogey man. Perhaps this puts the opposition in a too hard position not to pass the bill.
So the point is, the situation remains fluid. It appears at this stage, nevertheless, that the referendum is off. We know that the Greek opposition supports the European rescue plan otherwise it wouldn't have put up a fight against the referendum. It would be a bit hard them to not now pass the austerity bill because come mid December, if Greece does not receive the next tranche of this year's bail-out fund it will run out of money.
In another shock European development last night, incoming ECB president Mario Draghi immediately stamped his authority by cutting the eurozone cash rate to 1.25% from 1.50%. Two months ago economists were all but pleading with Jean-Claude Trichet to make a cut given the turmoil unfolding, but given lingering inflation Trichet simply refused. Draghi, on the other hand, suggests that the eurozone will be in “mild” recession by the end of the year. He is thus confident that inflation will subside and hence his rate cut will be justified.
The rate cut was not expected, but rather than fall as one might expect a a currency to do in such circumstances, the euro rose. The news flow out of Greece was otherwise steady all session, looking bad one minute and good the next, ensuring a rock and roll ride for stock markets. In the end, the French and German markets closed up almost 3% and after some scary to-ing and fro-ing from the open, Wall Street began to steadily rise to the close as well.
There was also news out of the G20 leaders meeting which boiled down to France and Italy, with support from the US, banding together to push for the ECB mandate to be extended such that the central bank continues to buy sovereign eurozone debt without having to declare an emergency. Germany has always been dead against this idea, given it will be Germany indirectly providing most of the funding. But if the US is in there batting as well, perhaps Germany may have to reconsider.
So the bottom line is, there is no bottom line. Anything can still happen in Europe and probably will.
In the meantime, gold was a major beneficiary of last night's going on. The euro's rise sent the US dollar index down 0.5% to 76.75 which obviously helped but safe haven status appears the main driver behind gold right now, which rose US$28.10 to US$1763.50/oz.
The Aussie is up 0.7% to US$1.0414 in the wake of mixed data releases yesterday. A better than expected retail sales number did little to fire up the stock market but we also had the October service sector PMI falling into contraction – to 48.8 from 50.3 in September. China's equivalent also fell on the official number, to 57.7 from 59.3. That's a slowdown, but still a rapid pace of growth. And the HSBC independent measure, which leans more towards SMEs, rose to 54.1 from 53.0.
Mixed messages all around.
The US service sector PMI also fell, but only to 52.9 from 53.0 which wasn't going to curb the “no referendum” rally.
Base metal moves were minimal and mixed last night while Brent crude rose US$1.57 to US$110.73/bbl and West Texas rose US$1.65 to US$94.16/bbl.
The US bond market did not reflect moves on the US stock market on Wednesday night but last night gave up some ground, with the ten-year yield rising six basis points to 2.06%.
The SPI Overnight appeared to want to catch up given a weak physical market yesterday, so it's up 88 points or 2.1%.
As we head into the weekend we know the G20 leaders meeting will continue, and in theory the eurozone finance ministers will meet on Sunday. That meeting has been postponed once already and seems a bit fluid given circumstances keep changing, particularly in Greece. They may continue to change, so all we can do is watch the headlines. Papandreou faces that confidence vote at midnight in Athens (tomorrow morning Sydney time).
The US jobs number is out tonight which clearly has the power to move Wall Street regardless and on the weekend the US goes off summer time. That means that as of next week the NYSE will close at 8am Sydney time.
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