Daily Market Reports | Oct 30 2012
By Greg Peel
The NYSE, Nasdaq and other smaller US exchanges were closed last night for all forms of trading by agreement of those exchanges. As night approaches on the US east coast, so is Hurricane Sandy, which is expected to make landfall on the Jersey Shore this morning Sydney time. Officials have now decided to cancel Tuesday's session as well before reassessing thereafter.
Energy and commodity markets were open for electronic trade.
The US bond market traded an abbreviated session last night before shutting down for the rest of Monday and all of Tuesday, at this stage. The US ten-year yield is down 3bps at 1.72%.
The Dow futures contract closed trading at 9.15am NY and was down 69 points or 0.5%. It has since reopened this morning down a net 99 points from Friday (live).
An initially sharp downside move may be expected as investors reflect on the cost of the hurricane, both physically and opportunistically. Physical damage will run into the billions and rebuilding will take time and effort as well as money the US doesn't have. Also costly will be the loss of business during the shutdown period, and any period thereafter due to store and infrastructure damage, all the way from a Central Park hot dog cart to an already struggling stock broking and trading industry for whom one day's lost turnover hits hard on the top line.
We need not discuss insurance companies.
However, there is always a flipside, and in the case of natural disasters it is the materials and manpower needed to repair and rebuild and the employment and sales opportunities that implies, even if the relevant city, state and federal governments will need to draw on more debt. Japan saw a surge of activity after the tsunami and Christchurch is slowly picking up after the earthquakes, for example, albeit the ultimate financial impact is not net zero.
Markets open elsewhere experienced light trade. The US dollar index is up 0.3% to 80.24, gold is down US$3.10 to US$1709.00/oz and the Aussie is down 0.4% to US$1.0334.
Base metals in London traded lower, with copper weakest on a 1.3% fall. Brent crude is down US11c to US$109.44/bbl and West Texas is down US37c to US$85.17/bbl. Spot iron ore is up US40c to US$120.00/t.
European markets were closed by early afternoon in New York. UK stocks are down 0.2%, German 0.4% and French 0.8%. The news out of Europe last night is that an angry former Italian prime minister, Silvio Berlusconi, has been charged with tax evasion and as a result has threatened to withdraw the support of his allies within the tenuous (when are they not?) Italian mixed coalition, which forms the current “caretaker” government under technocrat appointee Mario Monti, and re-form to contest next year's election.
All pasta and no sauce? Either way, Berlusconi's threats helped the euro lower and thus the US dollar index higher, and Italian stocks fell 1.5%.
The SPI Overnight closed up 7 points or 0.2%. Look out today for building material suppliers to the US such as James Hardie ((JHX)) and Boral ((BLD)), as well as pallet provider Brambles ((BXB)). Also watch QBE Insurance ((QBE)) on the other side of the ledger.
The US exchanges have decided this morning to definitely close tonight as well and perhaps even Wednesday and beyond. To not open Wednesday would cause all sorts of problems, as it is the last day of the month, for which fund managers need price points in order to mark investment portfolios to market and report to investors. It is even for some funds the end of the tax year.
Again there is a flipside, however, being that the longer the exchanges remain closed, the less likely there will be a sharp knee-jerk reaction from traders to the downside. Time provides the opportunity to think things through. However as noted earlier, days of lost business will hurt stock brokerages and related businesses and the spectrum of businesses all over the affected areas.
The exchange closures and city shutdowns have also thrown US earnings report and economic data release calendars into chaos. Companies will no doubt simply hold back their reports while on the economic front, we did not see scheduled US personal income and spending data last night and we will not see consumer confidence and probably not the Case-Shiller house price index tonight. Wednesday, the ADP private sector jobs number is due and on Thursday we are due the manufacturing PMI among other releases. It is not clear at this stage as to when these reports will be issued. Perhaps they may all come at once at week's end.
Sandy has also thrown last-minute US presidential campaigning into chaos, with state-hopping plans cancelled by the president, who is on deck with FEMA as one would expect, unless one were George W. Bush. One presumes the Republican camp will not look to take politically distasteful advantage, while no doubt ruing Obama's potential “finest hour” opportunity ahead of next Tuesday's election.
Sandy is not exactly what the doctor ordered at this time.
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