Daily Market Reports | Nov 30 2011
By Greg Peel
The Dow closed up 32 points or 0.3% while the S&P rose 0.2% to 1195 and the Nasdaq lost 0.5%.
Wall Street held its breath last Friday to see whether the US consumer would stay hunkered down this Christmas or come out to play. Black Friday sales proved ultimately very pleasing, and with last night's Conference Board consumer confidence survey one can probably see why. The November reading jumped 15 points to 56.0.
While a reading of 56 is still a vast distance away from readings around the 90 mark which signify a truly “confident” consumer, and such a level was last seen in July before everything went pear-shaped, the 15 point jump is the biggest monthly move since 2003. What on earth is putting a smile on the American consumer's face?
It's not as if the world is suddenly looking rosy again. Europe is still at the stage where it has a plan to formulate a plan which may not be amenable to all eurozone members and may yet take months to achieve. And there remains no guarantee at this point that the eurozone will survive in its current, or any, form. It is also now a given that Europe will fall into recession. Is this just a Little Orphan Annie response? Are Americans just sick of the gloom, and want to feel a bit of good old-fashioned Christmas spirit again?
House prices are certainly nothing to feel confident about. The Case-Shiller 20-city house price index fell 0.6% in September to a year-on-year fall of 3.6%. The FHFA house price index, measuring prices of houses with Fannie/Freddie mortgages, rose 0.9% but annually is now at 2004 levels.
Over in Italy last night the government received strong demand for an auction of three-year bonds. As well it might – at 7.9% the yield is an Italian record in the euro era. Bonds were also auctioned for maturities in 2020 and 2022 and they also saw yields over 7%.
As we speak, eurozone finance ministers are meeting in Brussels ahead of tonight's meeting of all EU finance ministers. On the table will be the latest suggestions of a move toward closer fiscal union, and there is also now talk the earlier ambitious plan to leverage up the EFSF will be scaled back somewhat. In the meantime, the ECB has announced that it has not been able to “sterilise” quite all of the Italian and Spanish bonds it has been buying.
Sterilisation occurs when the central bank buys bonds on the one hand and then issues loans on the other, thus maintaining a consistent balance sheet size. Non-sterilisation expands money supply, which is really what QE is all about. The Fed has not been sterilising, it has simply allowed its balance sheet to expand. As has the UK and others. What the world wants to see is some serious non-sterilisation from the ECB to fix the overall European problem.
But it won't happen before there's a closer fiscal union, given Germany is calling the shots.
And just as an added distraction, markets are concerned that by next week the US will stop importing oil from Iran as part of the planned sanctions. While Saudi Arabia has suggested it will look to increase production as a result, and Libyan oil is now back in the market, the likely loss of Iranian supply has been helping to push up oil prices over the last few sessions. Brent was up US$1.82 to US$110.82/bbl last night and West Texas rose US$1.56 to US$99.77/bbl.
That's all we need as the threat of European recession looms – an Arab oil shock.
It was ultimately a bumpy ride on Wall Street last night, with the Dow up 100 points at one stage but was unable to hold that to the close after Monday's big move. It does appear as if traders are trying to put a floor under this market as we head into famed “Santa Rally” territory, hoping more promising US data can be underpinned by at least some sort of progress in Europe. There remains an underlying feeling that if we really do see something more definitive out of Europe, the market would really run.
Or not, if global recession is the likelihood as Europe falls apart.
Base metals were mixed last night as gold rallied US$8.70 to US$1717.10/oz. The US dollar index slipped 0.3% to 79.00 but the Aussie continues on its tear, adding another 1.5 cents since this time yesterday. US bargain hunters are looking at Australia as the safer risk bet, it would seem, given two solid sessions in both stocks and the currency.
The SPI Overnight is nevertheless down 24 points or 0.7%, probably bemoaning the lack of sufficient US follow-through last night.
The government pulled a swifty yesterday and released the third quarter capital expenditure numbers a day ahead of calendar expectations, and the numbers were solid as anticipated, helping to drive the Aussie. Tonight in the US sees the monthly ADP private sector unemployment number.
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