The Overnight Report: Saluting The General

By Fn Arena News | More Articles by Fn Arena News

The Dow gained 32 points or 0.3%, while the S&P added 0.4% and the Nasdaq 0.5%. It was not, however, smooth sailing.

It has to be remembered that we are in the height of the northern summer holiday period, and to top things off this year sees the US Independence Day holiday fall on the Friday of this week. Thursday is thus a half-day on the floor, and traders are thin on the ground. It might have been even more of a holiday week if not for the overhanging ECB rate decision on Thursday, as well as the US monthly employment data which have been brought forward from the usual Friday slot. But volume is nevertheless poor at present.

Wall Street rollercoastered its way to the close overnight, opening weak, rallying back to unchanged, plunging 167 points once more, and then screaming back again.

The first turn around was sparked by the June ISM manufacturing index number. The May figure came in at 49.6, and numbers under 50 imply contraction in the industry. Economists were predicting a fall to 48.5 in June, but the result came in at 50.2. Woohoo!

The positive figure sent stocks rallying back, that is until everyone had a better chance to look at the breakdown of the numbers. Unfortunately one of the components is "prices paid", which means the ISM index can look better with high inflation. Given soaring costs thus provided a lot of the increase, the number was not particularly good after all. Throw in the fact that inventories increased (always a danger in a recession) to add further to the result, and pretty quickly the figure doesn’t look good at all. Indeed both production and employment fell.

Down we go.

There had been a great deal of anticipation surrounding the release last night of the monthly vehicle sales figures for the various car manufacturers. For as long as anyone can remember, General Motors has been the top of the table in monthly sales, but slowly but surely Toyota has been knocking on the door. Given Toyota sells the Prius, and GM is famous for its trucks and SUVs, it was anticipated that Toyota might surpass GM in monthly sales for the first time in history. This would simply have added to GM’s woes. The stock is at a 53-year low.

But GM has been madly discounting its gas-guzzlers recently, and Toyota does also sell the Landcruiser. This proved the difference, and Toyota failed. Analysts had expected GM’s sales numbers to fall some 19% in June, but the number was only 8.3%. Toyota lost 11.2%.

On this news GM shares, which had been down 4% at the time, turned and rallied a staggering 15%. You’d think they’d just released a car that ran on air. But what it proved is that the market is very short. The GM bounce sparked a rally across the boards, including a big jump in financials which have nothing much to do with cars. Short-covering was the name of the game. The Dow peaked up 57 points, before settling back at the death.

Ignored in the scramble were Ford’s drop in sales of 19.1% and Chrysler’s of 27.9%. Honda, which specialises in small cars, saw its sales rise by 13.8%.

Adding weight to the financial rally was perpetual wobbler Lehman Bros, which added 6% in the session. Rumours had been circulating that Lehman was about to announce a "take under". Apparently they were going to sell themselves lock-stock to UK bank Barclays. This is yet to be in any way confirmed.

But we can’t forget the main driver of Wall Street at present – oil. In the latest in the Middle East tub-thumping saga, the US Navy has responded to Iran’s threat to blockade the Straits of Hormuz with "See how you go". No prizes for guessing where a large armada has been sitting for the last few years. The oil price rallied again to hit US$143.05 last night, but once again failed. Analysts are expecting a rise in gasoline inventories in tonight’s weekly release. Oil closed up US97c to US$140.97.

The US dollar was slightly weaker ahead of Thursday’s ECB rate decision. However gold now has a duel reason to rally, being not only the US dollar inflation hedge but also the traditional geopolitical safe haven. Gold jumped US$14.50 to US$939.40/oz. Silver leapt up 4% to US$18.10/oz.

The leap in silver can be attributed to both its precious metal status, and its industrial metal status. Peru is the world’s largest silver producer, and mine workers are on strike. This situation is also pushing up copper, which at US$3.98/t overnight in New York is now looking at possibly breaking through the US$4 mark once again. Mexico is also experiencing strikes. The other base metals remain lacklustre as there are no short-supply concerns at present.

The SPI Overnight lost 11 points.

Well so much for the new dawn. It seems fund manager window-dressing might have been beating off the tax selling last week and Monday, as the local market dropped like a stone yesterday. With the Dow up and the SPIO down, today will again be interesting. Support levels have been broken, but gold and commodity prices were higher overnight and US financials managed to rally.