Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar

November 27th, 2009  by Katy Loi

Closing Data

	Current	Change	%
Dow Jones	10464.4	30.69	0.3%
NASDAQ	2176.05	6.87	0.3%
S P 500	1110.63	4.98	0.5%
FTSE 100	5194.13	-170.68	-3.2%
Nikkei 225	9383.24	-58.4	-0.6%
ASX 200	4,709	-13.6	-0.3%
COMEX Gold - Dec 09	1187	21.2	1.8%
COMEX Silver - Sep 09	18.768	0.313	1.7%
COMEX Copper - Sep 09	316.5	5.15	1.7%
WTI Spot	76.91	0	0.0%
AUD-USD	0.9141	-0.018	-1.9%
Aluminium	2009.5	2.5	0.1%
Copper	6904.5	-9.5	-0.1%
Lead	2344	-10	-0.4%
Nickel	16775	-25	-0.1%
Tin	15025	25	0.2%
Zinc	2242	-6	-0.3%

European stocks fell the most in seven months and bonds jumped as Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar slid to a 14-year low against the yen.  Europe’s Dow Jones Stoxx 600 Index retreated 3.3 percent at 3:35 p.m. in New York as a gauge of volatility posted its steepest surge in a year. The Shanghai Composite Index slumped 3.6 percent, the largest drop since August, and Brazil’s Bovespa Index slipped 2 percent. Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt.  The gold spot price surged to $1,195 this morning raising hopes that central banks would jump in to buy more bullion in their effort to hedge against a falling currency.  Yesterday, demand was buoyed by a news report that India may consider buying more bullion from the International Monetary Fund. The IMF also confirmed that Sri Lanka had bought 10 tonnes of gold. India bought 200 tonnes of IMF gold ealier this month triggering the recent leg up in the rally in bullion.  It's not just India or China, but most of the central banks, as well as funds, have changed their portfolios to include gold.

Without a lead from Wall St, closed for the Thanks giving holiday, Australian stocks are set to pull back - BHP and RIO are down 4 per cent in London trade on Thursday. Australian share index futures were down 41 points, a 31.6 point discount to the 4,708.6 close in the underlying.   The question now becomes where capital will go for the next several months as investors feel far less confident about moving to The Gulf.  Money could flow to gold, the USDollar; perhaps to Canada, Australia, New Zealand and Europe. This might be the news that pushes the US dollar materially higher. The Thanksgiving holiday will give the US the chance to consider what has happened in the Gulf. The news may be taken mildly over the next few days.  As Gold sits around the 1200 level, it will be interesting to see if the speculation takes the price higher.  In the property stocks, LEI may be one to stay on the side lines with its exposure to Dubai.  Depending the extent of the sell off today, buying opporuntiies may present themselves after the market settles late during the day, as the market prices in the news. Otherwise, we may wait for Monday to enter the market to take a lead from the US.

The companies with AGMs today are Macquarie Telecom Group in Sydney, MacMahon Holdings in Perth, and Retail Food Group and Sunland Group on the Gold Coast in Queensland. The Warehouse Group holds its annual general meeting in Auckland. Checking ex-dividends and Campbell Brothers is going today with a 45 cent 50% franked dividend. And on Monday, BT Investment Group and Graincorp are among those going ex-dividend.

Note from Neil Gynther

Our market is now down 130 points and just about all stocks have come off substantially. Many clients were exercised yesterday and have cash to invest. Our general opinion is that we wait until Monday before re-entering the market. We are conscious of the short month (expiry is the 17th December) and our clients desire to earn premium. However, we feel that we should let the US absorb the news from Dubai. Generally we feel that the US will probably shrug off the news unless one of the big US Banks has exposure. We think our market is totally over-reacting. The commentary out of the BHP AGM yesterday was very positive on demand and prices for their products yet BHP is down 4%. Monday may show that today was the best day to buy, but we are erring on the side of caution and advising investors to wait for the news to settle, wait for the US to react and look to re-enter on Monday.
Another benefit to our clients of this sell-off is that volatility should increase and improve the premiums we are able to write.
Please do not hesitate to call your adviser to discuss the market or your portfolio.

 

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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