Daily Market Reports | Nov 11 2011
By Greg Peel
The Dow closed up 112 points or 1.0% while the S&P gained 0.9% to 1239 and the Nasdaq managed 0.1%, weighed down by a downgrade in forecast for Apple iPad sales.
Italy held an auction of E5bn of 12-month bills last night and and bids exceeded supply by more than twice over. This seems like very good news except that the yield achieved was 6.09% when only last month a similar auction settled at 3.57%, reflecting the sudden jump in risk premium in the interim and the underlying political turmoil.
It is at least positive that there are buyers willing to back resolution in Italy and thus jump on what might prove a very good rate. Such a view appeared also to be reflected in Italy's ten-year bond yield last night. Following on from Wednesday night's spike which, as was noted in this Report, was as much about a sudden substantial increase in clearing house margins as much as increased perceptions of risk, last night the ten-year yield fell back to just under that “line in the sand” of 7%.
Last night the Italian president appointed former economics professor and former EU commissioner Mario Monti “senator for life”. Thank God we don't have such appointments in this country. The move has been assumed by markets to imply the president has annointed a new prime minister who will lead a “technocratic” (not interested in politics) unity government through the initial minefield of austerity bills and budget promises required to satisfy the EU, appease the markets, and stymie Italy's runaway credit spread ahead of a formal general election next year. It is only an assumption at this stage, and Italy's constitutional processes are complex, but the hope is that by the weekend Italy will have gone the Full Monti.
The birthplace of democracy also became a technocracy last night as Greece's political parties agreed to the appointment of former ECB vice president Lucas Papademos as prime minister. This is also a popular move as far as the markets are concerned, and again implies an interim unity government will steer the nation through to the ratification of budget bills which, in Greece's case, also assure bail-out funds.
On that note, a rumour flew around the world last night that some sort of bail-out had been organised for Italy. It was a plainly silly rumour, but markets are in no position to dismiss anything at this point. The rumour was later dismissed.
Slightly more disturbing was an electronically generated announcement out of Standard & Poor's that France's credit rating was being reassessed. A red-faced S&P later apologised for the technical glitch and confirmed France would keep its AAA for now.
Wall Street opened to the upside last night after Wednesday's big fall, with bargain hunters no doubt out and about. Positive impetus was also provided by a positive weekly new jobless claims number and response to Wednesday's strong after-the-bell earnings result from Cisco, which saw its shares up 6%. Thereafter, as might be assumed from the above wax and wane of news flow, Wall Street chopped around all session. The Dow was almost back to square again in the morning and up 180 points at lunch time before wobbling to the close. Volumes in Wednesday's big sell-off were closer to average rather than heavy, but volumes last night were very much on the light side.
As well they might be. We head into this weekend hoping the immediate Italian situation will be resolved, that the immediate Greek situation is now resolved, and that we can get on with life once more. But how many weekends have we had like that this year? Clearly enough for traders and investors to remain cautious and enough to be cynical about any thoughts of “this is nearly over now”.
Where has that damned Fat Lady gone this time?
Currency markets were much steadier last night after Wednesday night's plunge in the euro, with the US dollar index easing back 0.3% to 77.69 and the Aussie little moved at US$1.0143. Gold lost another US$4.80 to US$1760.90/oz.
Base metals were a little less forgiving but mixed, with copper, lead, tin and zinc down 2% and aluminium and nickel up 1%. Oil continued its push higher as the background noise of Iranian nuclear capability appeared to overcome an IEA report suggesting China's rapid growth in oil demand was showing signs of easing in pace. Brent rose US$1.99 to US$113.90/bbl and West Texas added US$1.96 to US$97.70/bbl.
The US ten-year yield fell sharply on Wednesday despite underwhelming demand for the Treasury's ten-year auction on the night, and last night the thirty-year auction met with a tepid response as the ten-year yield bounced back 10bps to 2.06%.
The SPI Overnight recovered 28 points or 0.5%.
It's Veterans Day tonight in the US which closes banks and the bond markets, although stock and commodity markets remain open.
Rudi will appear on the BRR Network's Round Table at 3pm.
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