Daily Market Reports | Jan 23 2012
By Greg Peel
Progress is being made in Athens, apparently, with regard to negotiations over the haircut and bond-swap deal between private sector creditors and the Greek government. While the interest rate on the new longer-dated bonds seems to still be a point of contention, Wall Street was happy on Friday to assume a deal would soon be announced. The euro again ticked higher and the US dollar index lower.
With this assumption in place, all that was left for Wall Street on Friday was to respond to the day's major quarterly earnings reports, most of which had been released in the after-market on Thursday. Google's result was poorly received and its shares fell 8.4% while Morgan Stanley satisfied for a small gain. Among the Dow stocks, American Express was a little weak and General Electric neither here nor there but Microsoft, IBM and Intel all posted strong results. Hence while Google led the Nasdaq to slight dip, the Dow rallied 96 points or 0.8%. In the middle the S&P gained less than a point to 1315.
For commodities markets, attention turned to HSBC's “flash” estimate of China's manufacturing PMI for January. While the result of 48.8 was a tick above December's 48.7, the number still implies contraction. Traders are concerned China's economy will continue to slow in 2012. Base metals posted a mixed response, with copper down 1.7%, while Brent crude fell US$1.52 to US$109.88/bbl and West Texas fell US$2.19 to US$98.20/bbl. Oil traders are inclined to assume Iran's threats to block the Straits of Hormuz are hollow.
If Wall Street was feeling confident about Greece, gold traders took the lack of any announcement on Friday as a good enough reason to keep buying. Gold thus rose US$13.30 to US$1666.30/oz. The US ten-year bond rate otherwise reflected the return to the “risk on” trade in stocks over the week, rising from around 1.85% early in the week to 2.03% by Friday.
The SPI Overnight was a bit of a wet blanket, falling 6 points.
The January rally on Wall Street is somewhat remarkable, not just because the Dow is now a mere 150-odd points from a 52-week high, but because not a lot has actually happened. But that's often the way when a market turns – it does so not suddenly on some glaring news but surreptitiously as fear begins to ease. Fear has been easing this month largely due to successful European sovereign bond auctions, expectations of a resolution in Greece (for now) and reasonable US earnings results.
The VIX volatility index in the US is now at 18. A level of 15 is where sensible investors would pick up some put option protection at a good price and although the VIX can stay at 15 for some time, the past few years have always eventually heralded another stock market drop when this low volatility level is reached. There is nevertheless a complication nowadays in such a prediction, and that is the amount of cash being held by investors. Cash positions are a substitute for put option positions, so a low VIX is also reflective of a lower need for protection. And if the rally continues, that non-working cash will have to start returning to the market, potentially increasing momentum.
Or then again, Europe may simply turn pair-shaped once more.
The US earnings season will be definitely gaining momentum this week as hundreds of companies report. On Wednesday the Fed will release its latest policy statement and hold the first of four press conferences for the year. President Obama will make a State of the Union address to the nation on Wednesday as well, all ahead of the first estimate of US December quarter GDP being released on Friday.
In between we'll see the Richmond Fed manufacturing index on Tuesday, pending home sales and the FHFA house price index on Wednesday, durable goods and new home sales on Thursday, and the final January consumer sentiment measure on Friday.
Important data out in Europe this week include the estimate of the eurozone's composite PMI on Tuesday and Germany's influential IFO survey on Wednesday. The UK will provide its initial fourth quarter GDP estimate on Wednesday.
Its Chinese New year next week which shuts down mainland Chinese activity completely, including the stock market. Kung Hei Fat Choy.
While it's a relatively quiet week for Australian data releases, one – the December quarter CPI on Wednesday – will be vital to the RBA's decision whether or not to continue rate cuts into 2012. The RBA meets on February 7. The PPI is out today, tomorrow brings the Conference Board leading index for November and Wednesday sees Westpac's equivalent calculation.
Australian markets will be closed for Australia Day on Thursday, in which case we can pretty much write off Friday as well although the markets will be open. If you're Chinese-Australian, next week's just one big party. While we're all feeling patriotic on Thursday there'll be a sneaky rate decision from across the Ditch.
On the local stock front there'll be a raft of resource sector quarterly production reports out this week, with the biggest chunk tomorrow. Oil Search ((OSH)) and Newcrest ((NCM)) are two of the highlights, while on Friday sleepy ResMed ((RMD)) will post a quarterly earnings result.
Rudi will make his weekly appearance on Sky Business this week on the Wednesday.
For further global economic release dates and local company events please refer to the FNArena Calendar.
