Daily Market Reports | Nov 29 2012
By Greg Peel
The Dow rose 106 points, or 0.8%, while the S&P gained 0.8% to 1409 and the Nasdaq was also up 0.8%.
If it wasn't already pretty clear, last night's action made it perfectly clear that Wall Street is no longer trading on any concept of known fundamentals, but is trading purely on the fear of Cliff, or lack thereof. Tuesday night was a bad night for Cliff when the Democrat senate majority leader got tough, voiced his disappointment with the slow pace of negotiation and suggested it was time to “end the happy talk”. But last night was a good night for Cliff because of…well…happy talk.
“I am optimistic that we can continue to work together to avert this crisis sooner rather than later,” said Republican House majority leader John Boehner, in a press doorstop.
“My hope is to get this done before Christmas,” said the president, in a televised news conference.
Hope is great stuff, but what of substance? We are yet to hear news of any compromise reached on any little detail of Cliff and his problems. Realistically, we can't expect much yet given each day different delegations of business and community leaders are trundling in and out of the White House, providing their own specific views on how to handle Cliff. Presumably all voices must be heard before we then get down to the nitty gritty.
In the meantime, the best we can hope for is a stock market that will swing backward and forward on the ebb and flow of Cliff PR. If 90 points down in the Dow on Tuesday and 100 points up in the Dow on Wednesday all looks a bit silly, consider that there are few investors actually in there playing. To pick up on what my colleague Max Ludowici was explaining in yesterday's afternoon report, algorithmic computer models, or “algos”, are dominating trade in an otherwise low volume environment. Algos like to exploit momentum and momentum is something that feeds on itself. What might only really be worth a 25 point Dow move becomes 50, and if it's 50 it becomes 100. Then the next day it all goes back the other way.
We also have to consider that the S&P 500 is trading around the technically significant 1400 mark, and hence we have tech models in there moving things around as well.
So, on to real world issues.
US new home sales fell 0.3% in October when economists had expected a flat result. This is disappointing given the apparent recovery in US housing and the faith put in such a recovery. However, breaking down the numbers reveals we're now beginning to see the real effects of Sandy in the data. Sales in Sandy-impacted areas were down big, understandably, while midwest numbers surged. The south was a bit weak to add a dose of reality, but year on year sales growth of 17.2% is nothing to be sniffed at.
The Fed's Beige Book also leant a bit more towards Sandy than Beige on the Dulux colour chart this time around. On a net basis the US economy appears anecdotally to be growing at a “measured” pace, with positive consumer spending and housing offset by ongoing weakness in manufacturing and little progress on hiring. The latter two are accredited to fears of Cliff. On the breakdown, the districts of Boston, New York and Philadelphia were clearly Sandy-blasted.
Gold fell US$22.00 to US$1741.10/oz last night, which left a few commentators scratching their heads. The US dollar was only a smidge lower at 80.30, base metals were mixed on small moves, spot iron ore was steady at US$117.90/t, and the oils both slipped about US50c. Why was gold so weak?
There were a couple of theories. Gold has had a decent rebound recently from its low below 1700, hence there is some encouragement to take profits. ETF investors do not know what Cliff has in store for them tax-wise in 2013, so best to pay 2012 rates now. And daily trickles can quickly become floods. Or, we could say that any positive, “happy” talk regarding Cliff in theory lessens the need for QE4, which implies less monetary debasement and less reason to hold gold. And again, trickles become floods.
And suddenly, nothing happened in Europe.
The Aussie is getting cocky again nevertheless, and is up 0.4% to US$1.0480. After deciding it was time to sell yesterday, Bridge Street looks like having to reverse that today given the SPI Overnight was up 18 points or 0.4%.
Local new home sales data are out today, and one of the most important constituents of next week's September quarter GDP release – private sector capex and capex intentions. This is the one the RBA is watching most closely, given it provides clues as to just what sort of mining sector spending pullback we might be in for.
Rudi will be on Sky Business today at noon and again at 7pm for the Switzer Report.
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