Daily Market Reports | Jun 14 2012
By Greg Peel
The Dow closed down 77 points or 0.6%, while the S&P lost 0.7% to 1314 and the Nasdaq dropped 0.9%.
Wall Street fell from the open last night as JP Morgan CEO Jamie Dimon sat down in front of a senate committee. While Dimon was there to explain why his company managed to lose at least a couple of billion in “hedge” trades without any alarms going off, Wall Street's wider financial community is not as concerned so much about the loss itself, but more about its implications for forthcoming market regulation. The loss has the potential to derail the free market fight against tighter banking restrictions and the possible forced separation of investment and commercial banking operations.
The general consensus is that Dimon put in a solid performance and that the committee's interrogation was not as harsh as had been feared. Result? Stocks turned around and rallied back to square, led by Dow component JP Morgan. By lunch time it was a case of: what now?
There had been two major economic data releases to contend with during the morning session. US retail sales fell 0.2% in May to mark a second consecutive fall, which has not happened for two years. The fall was nevertheless in line with expectations and largely reflected lower oil prices. Oil prices were also behind a full 1.0% drop in the May producer price index – the biggest drop in three years. While such a sharp drop in the PPI could be seen as indicating a slowing US economy, the core reading, ex-food and energy, rose 0.2%, and both numbers roughly met with expectations.
What these data, and the most recent string of monthly data, are telling us is that while the US economy has clearly slowed from its new year up-spike (which all agree was due to the unseasonable weather), it is not slowing enough in isolation to prompt the Fed to take any further drastic action on the monetary policy front. Last month's tick-up in unemployment was a disappointment, and the Fed's primary concern is to bring that number down, but one monthly tick-up is no cause for panic. If the Fed is to announce any policy changes next Wednesday, bearing in mind Operation Twist is due to expire at the end of this month, then the impetus will have to come from across the pond.
Sunday sees the second Greek election and there's little point in trying to predict the outcome, or the global response, until it has occurred. Spain has become more of a worry in its own right in between the Greek elections, and Italy is not far behind. Last night's session on Wall Street smacked of simple jockeying for position ahead of the unknown. It's an expiry week, and as we head towards Friday, expiry-related volatility will likely continue.
The Dow was down over 100 points in the last hour before staging a slight recovery to the close. As stocks fell bond prices rallied, with the US ten-year yield falling back once more to 1.60%. In sharp contrast to Tuesday's three-year auction, last night's Treasury auction of ten-years was well bid. Are global markets anticipating a big player about to come in and start buying? (Read: QE3).
Movements in other markets were minimal last night. The US dollar index slipped 0.2% to 82.24, gold rose US$6.70 to US$1617.20/oz, and the Aussie is off a bit to US$0.9936. Base metals were mixed on small moves. Brent fell US19c to US$97.14/bbl and West Texas lost US72c to US$82.60/bbl.
The SPI Overnight fell 15 points or 0.4%.
The US CPI is out tonight, and Friday brings industrial production and consumer sentiment data along with the Empire State manufacturing index. These numbers are unlikely to have a major impact ahead of the weekend, and ahead of plunging into the great unknown next week.
Rudi will be appearing on Sky Business today at noon.
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