Weekly Stock Market Analysis
The ASX found resistance at key levels this week and is trading lower as we approach the end of the financial year. The leadership spill in the Labor Government resulted in Australia’s first female Prime Minister, Julia Gillard. The initial reaction from the market was positive, especially after the New PM said that the government was prepared to undertake negotiations over the resource super-profits tax (RSPT). However investors soon refocused on the bad news that continues to come from overseas.
Technically most overseas markets are weak, having found resistance around their 50 day moving averages, and they are now trading below their 200 day moving averages and look to be heading towards their recent lows.
US Markets
The economic data from the U.S. was negative this week. The Fed also dampened investor confidence by saying that the economic growth is likely to weaken near term. Reports on the housing sector confirmed this message with new home sales down 33 percent last month and existing homes sales down 2.2 percent in May. The other concern for investors is the ongoing debate over the new financial regulations to be imposed in the U.S. The U.S. markets are trading below their 50 and 200 day moving average, with the Dow Jones at 10,152 and the S&P 500 Index at 1,074.
European Markets
The week started positively for the European markets after Spain agreed to publish the banks “stress test” results in the next couple of weeks, but investors quickly turned their minds back to ongoing sovereign debt issues, which again weighed on the markets. Overnight renewed concerns over the solvency of Greece hit the markets and prompted the European Union (EU) and International Monetary Fund (IMF) to agree to $US155 billion in loans to Greece at below market rates. This move means the Greek government does not need to borrow money on the bond market.
The G-20 meeting is to be held this weekend and the focus there will be on whether the unified approach can continue, in relation to the measures necessary to support the ongoing recovery. In the U.K. the FTSE is lower at 5,199, Germany and the French CAC are trading below their 50 day moving averages.
Asian Markets
The key story in Asia this week has been China saying it will end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency to appreciate in an orderly manner against the US dollar, it will not be a one-off revaluation. China traded flat for the week at 2,555 and Japan’s Nikkei index has weakened below 10,000, while in Hong Kong the market is still trading above 20,000 at 20,733.
Commodities
Gold has backed off its record highs overnight trading at $US1,245.60 and crude oil has also been trading around $US77.
Resource super profits tax
In Australia the resources super profits tax (RSPT) continues to be in focus. The week started off with BHP, Fortescue and Xstrata all still adament that they have not been consulted by the government about the tax. However, one of the first tasks on the agenda for Australia’s new Prime Minister Julia Gillard will be to open up negotiations with the mining industry over the proposed resources super-profits tax (RSPT). Time will tell how this is resolved.
Our View
The ASX 200 has found resistance around 4600, as the confluence of the 50 and 200 day moving averages has provided a barrier to the recent up move.
The key pivot level is still around 4,500 and the key levels for our index next week are 4550 and 4250. Remember that we are trading into the end of the financial year, and this will likely weigh on our markets, as investors take the opportunity to clean up their portfolios.
By Michael Hevern
Head of Research
Tags: asx 200, ASX News, BHP, Commodities, European Markets, labor government, resources super profits tax, RSPT, Stock Market Analysis, stockmarket, US markets
