Short day, but no shortage of action. Markets closed lower on the day by 1.7% after the surprise from the Dubai shook world markets. Despite this, markets still finished flat on the week. Volume was heavy for a holiday shortened trading day and breadth was negative. Daily Futures has the action from all markets:
Surprise From Dubai
Yesterday, the government of Dubai surprised the markets when they asked creditors to suspend the debt re-payments of Dubai World, their large, state-run conglomerate, until May 30, 2010. The December U.S. dollar index is steady to higher.
It is unclear just how much debt is at risk. According to Reuters news, The Bank of America said that the the debt for Dubai World is estimated at $59 billion and Dubai’s total debt is $88 billion. Today’s article from the BBC explained that, while the United Arab Emirates (of which Dubai is a member) has oil revenues, Dubai does not, and the UAE has shown signs of limiting its aid to Dubai.
The news from Dubai dominated the markets early today. Will this create a new trend in the markets or just be a temporary blip? Mohammed El-Erian of Pimco told CNBC that he believes the effects will be temporary. So far, the December 2010 eurodollars are steady to higher, a mild flight to safety.
Grains and Cotton – Soybean Exports Jump Again
The USDA said that, as of last week, 2009-2010 exports of:
Corn fell from up 8% to up 6% from a year ago.
Soybeans jumped from up 24% to up 37% from a year ago.
Wheat remained down 32% from a year ago.
Cotton slipped from down 34% to down 35% from a year ago.
Today’s report marked the third consecutive week of surprisingly strong soybean exports and puts the current pace far above the USDA’s estimate of a 3% increase in 2009-2010. The USDA will likely reduce its ending stocks estimate for soybeans in upcoming reports. January soybeans are steady.
The USDA said that net sales of beef totaled 8,300 tons last week.
March sugar is trading higher with ongoing support from tight world supplies.
The ten-day forecast for Florida looks safely warm, but January orange juice is trading higher, helped by this season’s smaller crop of oranges.
December gold sold off sharply this morning on the surprise from Dubai, but has regained much of the loss while the market digests the news.
January crude oil is trading lower, but there is no evidence that the United Arab Emirates, of which Dubai is a member, is in financial trouble.
Bloomberg news reported that Europe holds $87 billion of debt from the United Arab Emirates and roughly $50 billion of that is held by British banks. The Royal Bank of Scotland is said to have the biggest exposure to Dubai World, with $2.3 billion of its debt. The December British pound is trading lower, but up significantly from this morning’s low.
Economic expansion and deflation? Japan’s unemployment rate improved from 5.3% to 5.1% in October, much better than expected for the third consecutive month. Also, the Statistics Bureau said that consumer prices were down 2.5% in October from a year ago. The December Japanese yen is trading higher.
Japan’s Finance Minister said that the high price of the yen was hurting the economy, but the declining unemployment rate says otherwise and no plans for intervention have been announced.
Statistics Canada said that exports were up 2.7% in the third quarter to C$90.3 billion. Imports were up 5.4% to C$94.2 billion.
Several markets close early today after yesterday’s Thanksgiving holiday.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.