Daily Market Reports | Mar 28 2012
By Greg Peel
The Dow closed down 43 points or 0.3% while the S&P lost 0.3% to 1412 and the Nasdaq dropped 0.1%.
One cannot read much into last night's closing prices on Wall Street and if anything the quarter-end appears to be having its influence as I've suggested. The Dow chopped around all day but only in a tight range and little attention was paid to economic data releases. The average was square at around 3.30pm and only then did some sharp selling into a thin market make the session appear weak. It's not so surprising after Monday's big rally.
The Conference Board's measure of US consumer confidence for March fell to 70.2 from 71.6 in February and no one was much alarmed. A confident market would show a reading of 90 while the GFC depths saw numbers around 50 so we're in the middle, nicely reflecting tentative economic improvement. Higher gasoline prices are the swing factor at present.
The Case-Shiller house price index for January showed a 0.8% fall for a 3.8% reduction year on year and this was in line with expectations. Housing data have been mixed to slightly better of late and last month Professor Shiller suggested the US housing market may be reaching a bottom but is unlikely to rebound for some time. There remains just too much foreclosure inventory out there.
Meanwhile, manufacturing activity in the Richmond Fed area continued to expand this month albeit it at a slower pace than the previous month. The composite reading came in a 9 on the zero-neutral scale, down from a pretty hot 20 in February.
Drawing a lot of attention lately has been the price of US natural gas futures. Abundant supply – ever increasing from midwest shale production – and the mild US winter are being blamed for natgas prices falling to their lowest level since 2002, last night hitting US$2.20/MMBtu. Unlike West Texas Intermediate futures, which up until Brent took over were long considered the world's benchmark oil price, the Henry Hub natgas price is very domestically oriented and does not impact directly on prices achieved by, for example, offshore WA producers selling on long term contracts to Japan.
The US never expected to be a gas exporter and has little in the way of LNG facilities, so the gas passing through the Henry pipeline hub simply has to be used, unlike crude which can be easily stored. It is expected the US will become an exporter but we're talking a 2015-17 time frame. In the meantime, despite strong oil prices the weak natgas price is acting as a drag on US energy stocks which form 12% of the S&P 500.
As for other markets, the Bernanke-inspired big “risk on” session on Monday gave way unsurprisingly to a bit of reversal last night. The US dollar index rose 0.3% to 79.12, gold fell US$10.30 to US$1681.60/oz, and the Aussie has fallen back 0.7% to where it had been at US$1.0471.
Base metals were mixed on small moves in London other than a 2% fall in nickel, while the oil prices were lower but little changed around the 125/107 marks.
The stock market may have largely ignored the somewhat more tepid economic data but the bond market paid more attention. The US Treasury auctioned two-year notes last night and while the 0.36% settlement price was the highest since last July, demand was still robust. With inflation at around 2%, Americans and the rest of the world just love those negative real yields. The benchmark ten-year yield fell 5 basis points to 2.19%.
The Australian market was stronger yesterday without setting anything on fire or matching Wall Street's gains, and the late dip on Wall Street last night sees the SPI Overnight down 21 points or 0.5%. Local fund managers will be playing the same sort of quarter-end games but with much less enthusiasm given the local market's dreary underperformance. Remember when 5000 was the brick wall resistance for the ASX 200? Well now the question is as to whether we can ever break back through 4300.
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