'Fear Factor' retreating from market
April 7th, 2009 by Bryden Elssmann
Closing Data
| current | change | % | |
|---|---|---|---|
| Dow Jones | 7975.85 | -41.74 | -0.5% |
| NASDAQ | 1606.71 | -15.16 | -0.9% |
| S P 500 | 835.48 | -7.02 | -0.8% |
| FTSE 100 | 3993.54 | -36.13 | -0.9% |
| Nikkei 225 | 8857.93 | 108.09 | 1.2% |
| SPI Futures | 3732 | -32 | -0.9% |
| All Ords | 3,696.00 | 22.3 | 0.6% |
| Oil | 51.1 | -1.42 | -2.7% |
| Gold | 872.8 | -24.5 | -2.7% |
| Silver | 12.11 | -0.625 | -4.9% |
| Aluminium | 1448 | 37.5 | 2.7% |
| Copper | 4330.5 | 200.5 | 4.9% |
| Lead | 1312 | 29 | 2.3% |
| Nickel | 10800 | 490 | 4.8% |
| Tin | 11075 | 75 | 0.7% |
| Zinc | 1341 | 28 | 2.1% |
Wall Street
The Dow fell 41.73 points, or 0.5 percent to 7975.85. The index closed below the psychological 8000 level. The market was dragged lower by weakness from bank and tech shares as merger talks between IBM and Sun Microsystems broke down. Shares in Sun fell 25% and IBM slipped 1.2%. The S&P 500 closed down 7.02 points, .83 percent to 835.48. Traders are being cautious with first-quarter earnings season commencing this week. While analysts are warning that US bank stocks still have a long way to go before they are out of the woods.
On a more positive note, the volatility index VIX has broken below 40. The index is calculated on options contracts on the S&P500 comprised of the puts and calls giving investors a sense of how options traders view the market during the next 30 days. The VIX traditionally measures the level of “fear” in the market. The VIX was 80 at the zenith of the markets distress, a record. It is not surprising that the volatility index is retreating as the swings on the market are becoming less dramatic. The average daily move on the S&P500 is now 2 percent down, from its high of 3.2 percent. What does this mean? Historically the VIX tends to shrink in a bull market. I am in no way suggesting that the bull market is back, however, falling volatility coupled with increasing market volumes may suggest the legs to any sustained recovery are beginning to form.
The consensus on Wall Street is that first-quarter earnings in S&P500 companies will be down 36 percent. Has the market already factored in reduced earnings? Investors are divided as to how the market will react to reduced corporate earnings. We will have to wait and see.
Rate Cut?
The RBA meets today to decide on interest rates. According to many market commentators the financial markets have fully priced in a 25 basis point cut. The official cash rate currently stands at a 45 year-low of 3.25 percent. The RBA has aggressively reduced the rate by 400 basis points since September. Economists argue that signs of recruitment freezes and evidence that inflation is manageable are cause for a rate cut.
Telstra
The Australian government has announced that it has no successful bidder in the National Broadband Network (NBN) after Telstra was excluded from the bid for a non conforming tender. The government will now establish a company that will build a network and is asking the private sector to invest. The government will be the majority shareholder in the new company contributing A$4.7 billion and will be asking the private sector to invest A$43 billion (as much chance as a snowball in hell). The surprise announcement by the Rudd government is expected to benefit Telstra in the long run as it has already begun launching its own network. Watch TLS today…
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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