Daily Market Reports | Mar 02 2012
By Greg Peel
The Dow closed up 23 points or 0.2% while the S&P gained 0.6% to 1374 and the Nasdaq added 0.7%.
Aside from a couple of pullbacks on the way, oil prices have run very hard to the upside in 2011. Underlying improvement in the US economy and possible resolution in Europe have helped, but tensions with Iran have brought a good deal of speculation into the market. Credit Suisse notes, nevertheless, in relation to the global benchmark Brent crude price, that there are further factors at work. North Sea production continues to disappoint, strikes in Yemen have disrupted supply, wells have been shut down in South Sudan over royalty disputes, and production in Syria has waned in the face of civil unrest.
Last night, however, news came in late in the Wall Street session of a pipeline explosion in Saudi Arabia. Already under upward pressure, Brent crude surged, rising US$5.04 to US$127.70/bbl on FNArena's 24-hour mark. West Texas rose US$2.23 to US$109.30/bbl. But as I write, Saudi officials have issued a statement suggesting the explosion rumour is not true. By the time you read this, oil prices should have pulled back somewhat.
The late jump in the oil price put paid to another attempt to rally on Wall Street. The Dow had been up by as many as 80 points early in the session before once again consolidating and dancing along the 13,000 line. The lack of follow-through saw enthusiasm begin to wane as we moved into the afternoon, before the Saudi news sparked a more significant sell-off. The Dow pulled back to flat for the session, and then right on the death the explosion denial hit the wires.
The early rally had come despite a disappointing US manufacturing PMI result. Economists were looking for ongoing improvement and that did not show up in the fall to 52.4 in February from 54.1 in January, albeit the PMI remains in expansion territory.
Australia's equivalent also slipped, to 51.3 from 51.6, but any expansionary number is seen as a good result in the face of the strong Aussie. The UK was disappointed by its fall to 51.2 from 52.0 and while the eurozone improved to 49.0 from 48.8 the result marked the seventh straight month of contraction.
In all-important China, an official increase to 51.0 from 50.5 was heartening but HSBC's independent measure, weighted to smaller businesses, remained in contraction at 49.6, up from 48.8.
Yesterday global markets responded to Wall Street's drop on the sudden omission of any talk of QE3 from the Fed. Australia's market was not helped by what was a weaker than expected December quarter capital expenditure result, which, along with a weaker than expected construction work result the day before, has had economists warning of downside to GDP growth estimates of 0.7%. The capex result may have been weaker than expected but it is still a huge jump on 2010 – all of it thanks to the resources sector where delays are a simple part of life.
Further US economic data released last night showed decent gains for chain store sales last month, but the more detailed personal income and spending data for January disappointed with a 0.1% gain in incomes and a 0.3% gain in spending.
Trading on Wall Street last night nevertheless had more of a “risk on” feel to it after Wednesday's “risk off” session, with the financial sector leading the way. The US dollar index was little changed at 78.83 but the Aussie jumped 0.6% to US$1.0793. After having been hammered US$100 on Wednesday as wobbly longs bailed on the sudden lack of QE3 talk, gold last night rebounded US$34.30 to US$1724.40/oz with the oil price no doubt adding some assistance. Silver also recovered 4%.
Base metals really seem stuck in dull mode at present, probably waiting to see solid evidence that China has moved into restocking after a period of destocking. Aluminium, copper and nickel were all up 1% last night nevertheless, while lead fell 1%.
The SPI Overnight rose 25 points or 0.6%.
There had been a bit of talk around before last night that perhaps the oil price had run a bit too far, too fast, and that speculation was breeding speculation despite little change in the Iranian situation. Last night's sudden surge suggests perhaps a few traders had positioned themselves a bit short as a result, so look out if something real does happen.
It is also worth noting that Wall Street has now become a bit bored with Dow 13,000 talk (hear, hear) given the average just continues to bang around the level, and has now moved on to cheering the Nasdaq instead. With Apple its driving force, and cloud computing companies threatening to be the dotcoms of the twenty-tens, the Nasdaq 100 keeps approaching the 3000 mark. A breach of that (it closed at 2988 last night) could be even more psychologically influential than a Dow breach, some commentators have suggested.
It's a good day for cloud computing in Sydney today.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here.
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
