Weekly Market Wrap
The bulls remain firmly in control, as bargain hunters have been rewarded again this week, when they bought into the dip that was created when geopolitical tensions escalated in the Ukraine. The Russian President Putin soothed investor nerves by saying he sees no need to invade Ukraine and Russia will only use force if there is a threat of war.
The Aussie bulls have held their nerve again this week, with the ASX200 index holding above the 5350 level and is again testing six year highs. Volatility has picked up again due to the Ukrainian situation, but the better than expected local trade and retail sales data has given consumer stocks a boost, as the RBA left rates on hold as expected. Those investors that took last week’s opportunity to establish some protection, in order to either insure that they hold on to their recent gains and still get to participate in this upside move, were rewarded.
US stock markets are edging higher rising to new record levels, after recovering from their biggest slump in a month. Traders are keeping a wary eye on developments in the Ukraine, but domestic data has trumped sentiment, with weekly jobless claims falling to a three month low. The three benchmark indexes are easing off new record highs, as the S&P500 eased after hitting new all-time highs and the Nasdaq hit 14 year highs overnight. It is five years since the market bottomed after the GFC. In economic data weekly jobless claims fell to a three month low and factory goods orders fell -0.7% in January (down from -0.5%). The Fed’s Beige Book showed that eight of the twelve districts reported a “modest to moderate” improvement in activity, despite the severe winter, while the ISM non-manufacturing index fell to 51.6 in February (down from 54), showing US service industries are expanding at their slowest pace in four years as economic activity was hit by recent severe weather conditions. The NFP month employment report is due out tonight and this could be the catalyst for traders to trigger the next market push, with investors having already taken the weakness resulting from the Ukrainian tensions, as yet another opportunity to go bargain hunting.
European stock markets have been volatile, with all eyes on the situation in the Ukraine. Markets managed to record their best rally since July earlier in the week and are holding on to recent gains as the ECB and BoE kept rates on hold. The Europe Stoxx 600 is hovering near its highest level since January 2008, with trading volumes on the rise up over 35% above the monthly average. Bargain hunters have been rewarded again, as geopolitical tensions eased when the Russian President Putin said he sees no need to invade Ukraine. The ECB kept rates at 0.25%, as expected, citing recent better-than-expected economic data and in the UK the BoE left its rates at 0.5% and said it will continue its GBP375 billon bond buying program. The European Commission (EC) has raised its forecast for2014 economic growth in the eurozone to 1.2% (up from 1.1%), while the eurozone PMI for services industries rose to 52.6 in February (up from 51.7 forecast by Markit), while PMI for services industries in Germany was up to 55.9 (up from the 55.4 forecast) and the UK expanded faster than forecast. The German market is around all-time highs, while the London market is edging towards its highest level since December 1999, after earlier jumping the most in eight months as Ukraine concerns eased.
Asian stock markets are on track for six week highs, as investors monitor the Ukranian tensions and as the Chinese NPC meeting is in progress. The MSCI Pacific Index is up 5.9% from its February lows, following positive sentiment from the EU and the US and is holding around its highest close since mid-January. In China, the Shenzhen Composite is on the rise now that the National People’s Congress (NPC) meeting is underway and investors are looking for clarifications on reforms to address the credit crunch, shadow banking and infrastructure investment. Leaders reaffirmed their 7.5% growth target for 2014, indicating that the country’s $US21 trillion worth of debt will expand, but they also signalled limits to reduce pollution and credit expansion. The Hong Kong market has recovered from a three week low. The Japanese market edged higher this week, with the index trading above psychological 15,000 level, as export stocks rose as the yen eased. Bargain hunters went shopping after news that the advisory committee advised that the world’s largest pension fund does not need a domestic bond focus, which should be supportive of equities going forward.
The ASX market is again testing six year highs, as the bulls have reasserted themselves, with the 5460 level is key near-term. Traders managed to put aside rumours that the Ukraine is at risk of a significant downgrade and chose to focus on local data. There has been a raft of data this week, with the ABS official retail sales and the trade surplus data coming in stronger than expected. Australian trade data for January recorded a surplus of $1.43 billion, over 5 times the market expectation; the ABS said that this is a 142% increase on the surplus recorded in December. In other news Retail Sales seasonally adjusted estimate rose 1.2% in January, up from a rise of 0.7% December and Australian turnover rose 5.6% in January.
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The Australian share is market looking to finish at its highs for the week. Key levels for the ASX200 index next week are around 5380 and 5480, with 5420 the key near term pivot level. Note volatility has picked up this week as the market bounced sharply. Investors should be looking to take this opportunity to use options to manage their recent portfolio gains.
Remain attuned to the news from overseas, particularly from the eurozone (ECB), China (NPC) and the US (Employment). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact me at D2MX Advisory on 1300 610 024 and we can help you trade, using a number of strategies that will give you the tools to navigate this market and help you improve your returns on investment.
Investment Adviser D2MX Advisory
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.