Stock Market Analysis
Overseas Markets biggest fall since May; ASX to focus on the Resource Super-Profits Tax (RSPT)
U.S. stocks ended the week with the biggest fall since May. GDP growth was trimmed but Financials recovered somewhat after Congress passed a “diluted” FinReg bill.
The SPI Futures is below the key level of 4500 the ASX is set to open lower as the SPI closed down 3 points (or 0.1%) at 4,414. Key levels this week are 4550 and 4250. Expect our market to trade flat today. The proposed RSPT tax will continue to be in focus, with the new PM prepared to negotiate with the interested parties, the G-20 meeting report and FinReg in the US will be key this week.
US Markets
U.S. stocks ended the week with the biggest fall since May. Stocks generally fell 5 to 7 per cent for the week, with energy and high-tech stocks particularly hit hard. The U.S. economy GDP grew at 2.7 per cent annual rate in the first quarter, lower than previously forecast. However the Financials sector saw some bargain hunting on Friday up 2.7% after Congress passed a “diluted” FinReg bill, designed to curtail risk taking and increase capital reserve requirements. The bill limits rather than prohibits the ability of federally insured banks to trade derivatives and invest in hedge funds and/or private equity funds.
The Dow is down 9 points, or 0.1 per cent, to 10,143 (down 3.0% for week), while in the broader market the S&P 500 index up 3 points, or 0.3 per cent, to 1,076 (down 3.7% for week) and the tech-heavy Nasdaq ended 0.3 per cent higher at 2,223 (down 4.0% for week).
European Markets
European shares again slumped Friday night, as German car makers were downgraded causing the Automakers index falling 2.6 per cent. Spanish utilities weighed when the government said it would suspend any increase in electricity prices. Adding to BP’s worries is a forecast of a hurricane to enter the Gulf, further hampering any cleanup efforts. BP fell to 14 year lows down another 6.4%. The Euro managed to rise to $US1.2375. The G20 meeting was in Toronto this weekend, the security bill alone was over $900 million. G20 members are looking to endorse targets to tackle government deficits.
In the U.K. stocks fells for a fourth day with energy and miners weighing around 3.5%. In the London FTSE 100 index fell 53 points (down 4.0% for the week), or 1.05 per cent, to 5,046 points. The German DAX down 45 points, or 0.7 per cent, to 6,070 points (down 2.7% for the week), while in France, the CAC 40 fell 33 points or 0.9 per cent, to 3,522 points.
Asian Markets
Asian markets traded lower Friday. At the G-20 China is expected to push for a bigger role in reshaping the global economy, post the GFC. In Japan the Nikkei index of the Tokyo Stock Exchange down 1.9% to end at 9,737. The benchmark Hang Seng Index was down 0.2% at 20,691 (up 2.1% for week), and China was down 0.5% at 2,552 (up 1.8% for week).
Commodities Overview
Oil prices jumped 3% above US$77 a barrel Friday night on hurricane concerns in the Gulf. The benchmark for crude NYMEX for July delivery up 2.6 per cent to settle at US$79.91 a barrel. Copper prices finished above the key $US3.00 a pound, Copper for July delivery up 4 cents to settle at $US 3.009 a pound. Gold closed higher, with August gold up 0.2% to settle at $US1,256 an ounce.
Key International News Drivers Today
G20 – meeting was in Toronto this weekend. The security bill alone was over $900million. Members are looking to endorse targets to tackle government deficits.
CHINA – At the G-20 China is expected to push for a bigger riole in reshaping the global economy, post the GFC.
GDP - U.S. GDP for their first quarter 2.7% (lower than previously calculated).
BP – shares fall to 14 year lows as a result of the oil spill in the Gulf of Mexico.
YUAN – China to end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency appreciate in an orderly manner against the US dollar. The yuan has been pegged at 6.83 against the US dollar since mid-2008. It will not be a one-off revaluation.
OIL – Goldman Sach’s cuts its oil price forecast last week to $US87 for the next few months (vs previous $US96).
Markets Overview
U.S. Markets were Flat; ASX will Focus on G-20 Reports &; RSPT Progress
SP500: up 0.3% at 1,076 – Below 200 day Moving Average (down 3.7% for week)
DOW down 0.1% at 10,143 – Above 10,000 (down 3.0% for week)
NASDAQ: up 0.3% at 2,223 (down 4.0% for week)
Dollar Index: lower at 85.13 on Higher Euro
A$ higher at 87.48
FTSE: down 1.05% at 5,046 – Financials & Miners Weigh (down 4.0% for week)
DAX down 0.7% at 6,070 – Off Highs but Still in Outperforming (down 2.7% for week)
CHINA: down 0.5% at 2,552 – Currency Allowed to Revalue (up 1.8% for week)
HSI down 0.2% at 20,691 (up 2.1% for week)
Oil: up 2.6% ($79.91) (up 3.5% for week)
Good Week Ahead of Start of Hurricane Season
Gold: down 0.2% at ($1,256) (up 2.7% for week)
Commodities Higher
SPI: Below key Level 4500 ASX (down 3.7% for week)
SPI down 0.1% at 4,414
ASX News Today
The SPI Futures is below the key level of 4500 the ASX is set to open lower as the SPI closed down 3 points (or 0.1%) at 4,414. Key levels this week are 4550 and 4250. Expect our market to trade flat today. The proposed RSPT tax will continue to be in focus, with the new PM prepared to negotiate with the interested parties, the G-20 meeting report and FinReg in the US will be key this week.
AUD – higher at 87.48
AAX – A subsidiary Ausenco the engineering and project management group has won an $8 million contract
AGK – AGL plans to fast track its Macarthur wind farm project following changes to the Renewable Energy Target scheme approved by the Senate on Wednesday.
EXT – Extract is moving its base to London as it seeks to develop the world’s second biggest uranium mine, expecting production in 2014.
FGL – China’s BrightFoods is reported to be interested is selected wine assets, primarily those in NSW.
GFF – Goodman Fielder says NZ’s removal of building depreciation for tax purposes will result in a non-cash write down in deferred tax assets by $13 million.
IRN – in a trading halt, Indophil Resources is seeking a buyer for its stake in the Tampakan copper-gold project in the Philippines after China’s Zijin Mining Group abandoned a $545 million takeover bid for the company.
M&A – activity has been crushed since the proposed RSPT was announced with M&A this quarter at totaling $879million (versus deals worth $9.1billion last year) according to a Bloomberg Survey.
MCC – Chairman calls on New Prime Minister Julia Gillard to remove revenue from a proposed tax on resources from budget forward estimates.
MOS – Mosaic Oil has sold its PNG subsidiary for $12.7 million in cash to an unidentified party described as a major international oil and gas company.
MQG – Macquarie says market conditions are adversely affecting some of its business activity levels for FY11. This prompted concerns that it may be the next to downgrade earnings. Shares dived 4.7%.
PPT – Perpetual the Funds manager expects the Australian share market to continue on its uncertain trajectory for the
next six to 12 months. Suggesting the ASX200 will trade between 4300 to 5000 for the next year.
RIO – Rio Tinto Ltd has formally opened a high-tech operations center in Perth that remotely controls the mining giant’s vast network of mines, rail systems, infrastructure facilities and port operations in WA’s Pilbara.
RSPT – any compromise reducing the RSPT tax take will constrict government spending budget.
SSN – Samson Oil & Gas has entered into a binding deal to sell 24,166 acres of its 40,240 acre holdings in Wyoming, for up to $91.5 million.
SDL – Sundance shares remain suspended from trading while the company rearranges its corporate governance.
SVW – Seven Group is investing $287.16 million in the IPO which will see the last of China’s big four banks float its shares. Qatar’s heavy weight investment fund, have stumped up $6.26 billion for the Agricultural Bank of China IPO even before the share sale officially starts.
Economic Reports out today: New PM – watch out for more commentary on RSPT tax
Market volatility will continue near term, some speculative accumulation may surface in the miners, in anticipation of the resolution of the RSPT. We the suggest trading strategy is to tighten stops. Be prepared to take profits and open/hold short positions. We are trading into the end of the financial year, so its the last chance to cleanup your portfolios.
Market Summary
ASX – to open flat
US & UK/Europe – Generally Lower…
US ADRs – Mixed!!!…
BHP flat & RIO down 0.4%; AWC up 2.0%
ANZ down 0.3% & NAB up 0.5%
NEM up 4.6%, JHX up 3.3%, NWS down 1.2%
Commodities Stock Index up 1.2%
Gold Stocks Index up 3.3%
Oil Stocks Index down 0.6%
By Michael Hevern
Head of Research
