Weekly Market Wrap – Stress Relieved
Overseas markets generally traded higher this week after the successful completion of the ECB Bank “stress tests”. Banks benefited, trading higher this week. Markets are generally trading above their 200 day moving average, with the exception of China and Japan, and Copper has again been a highlight, rising to a 10-week high.
The positive sentiment resulting from the earnings season has been tempered this week, as economic data in the U.S. pointed towards a slowing economy. Consumer confidence has slumped and durable goods orders dropped last month, raising concerns that the economic rebound is slowing as the government unwinds stimulus programs. This may be confirmed if the U.S. gross domestic product data, due out tonight, shows growth has slowed (the forecast is for a GDP of 2.6 percent in the second quarter). Overnight the Dow closed down -0.3% at 10,467, while in the broader market the S&P 500 index was down -0.4% at 1,102 and the tech-heavy Nasdaq ended down -0.6% at 2,252.
European stocks advanced this week on the back of the successful completion of the ECB Bank “stress tests”. The results showed only 7 out of 91 banks failed the test which was fewer than expected, but analysts questioned whether the tests were tough enough, as they only showed $US3.5 billion needed to be raised to prop up capital adequacy (previous estimates had ranged from $75 to $85 billion). The UK economic data was also positive showing the economy grew at the fastest pace in four years in the second quarter as rebounding services, manufacturing and construction, supported more bullish sentiment. The Swiss banking giant UBS, upgraded its weighting on European equities to neutral from underweight. There appears to be a rotation to more positive sentiment in Europe as shown by the Euro being up above $US1.31, its highest since May. Overnight in London the FTSE 100 index closed down marginally, -0.1% at 5,314, the German DAX was down 0.7% at 6,135, while in France the CAC was down -0.5% at 3652.
Asian markets had a solid week. Chinese equities continued to rise as the Central Bank said China’s economic fundamentals are “good”. The Chinese index is up 11 percent from its yearly lows, as the jump in industrial profits and the prospects for increased spending and tourism boosted the domestic economic outlook. Japan is also in focus this week with the reporting season starting off well, sending the index to its biggest gains in 3 weeks. The Yen reached its lowest level against the Euro since May. This helped exporters rise, and overnight in China the SSE Composite closed up 0.6% at 2,648, while in Hong Kong the Hang Seng Index was flat at 21,094 and in Japan the Nikkei 225 Index was down -0.6% at 9,696.
Copper continued to shine this week, rising to an 11-week high on signs that growth is sufficient in China and the U.S. to spur demand. Copper prices rose to new monthly highs, above the key $US3.00 a pound, up 1.4% (or 4.4 cents) at $US3.2850 a pound. Oil prices held up this week with the benchmark crude NYMEX for September delivery rising 1.7% (or $US1.37) to settle at $US78.36 a barrel. Gold broke below key support. Overnight August gold was up $US8.80 at $US1,171.20 an ounce.
The election dominated the news this week, but there were few surprises. Overseas market movements have dictated Aussie investor sentiment. Improvements in China have seen commodities prices continue to rise, while in Europe sentiment in improving.
Markets have again drifted higher as trading volumes continued to pick up this week. There does not appear to be a catalyst that will push markets through current key levels. China and Japan have been positive for Asian markets. The U.S. economic data is disappointing while Europe appears to be improving.
Overseas markets are keenly anticipating the U.S. GDP report and the European unemployment and consumer price index due out tonight. China also report their PMI data on Sunday. The outcome of these reports will set the tone for next week.
The S&P ASX200 is currently trading around 4485. The key support level on the ASX is still around 4,200 and the key levels for our index next week are 4600 and 4350, with pivot at 4450. The pending elections will have a dampener on the markets near term.
By Michael Hevern
Head of Research