Weekly Market Wrap
Overseas markets started the week trading lower but this has given investors a chance to step in and pick up stocks that have been heavily oversold. The economic news in Australia continues to surprise to the upside. The mining sector and Merger & Acquisition activity picked up this week on the resolution of the RSPT. Improving investor sentiment was also supported with the better-than-expected employment report and the International Monetary Fund’s (IMF) upgrade of its economic growth forecasts.
Markets worldwide continued higher overnight as the IMF upgraded its 2010 global growth forecast to 4.6 percent (from 4.2 percent), citing robust expansions in Asia and renewed U.S. private demand. It warned that the EU debt issues pose a significant risk to recovery and expect the Asian regional economy to grow 7.5 percent in 2010 (up from 7 percent).
US Markets
The U.S. markets have traded higher for a third straight day for the first time since April. Investor sentiment was supported after the Department of Labor said new claims for US unemployment benefits had dipped more than expected last week, with initial claims falling to 454,000 in the week ending 3 July (from 475,000 in the previous week).
The recovery this week has been broad-based across all sectors. Overnight the Dow was up 120 points, or 1.2 per cent, to 10,139. In the broader market the S&P 500 index was up 10 points (or 0.9 per cent) to 1,070 and the tech-heavy Nasdaq ended up 16 points or 2.8 per cent at 2,175.
European Markets
Overnight the European Central Bank (ECB) and the Bank of England (BoE) both confirmed that they will leave their interest rates at historic lows. Banks have led the European markets higher this week as investors are becoming more comfortable with the stress test methodology that the banking system will undergo, as it shows the EU regulators are serious. EU regulators have confirmed they will carry out their “stress test” on 91 banks (14 from Germany, 6 from Greece and 4 from the U.K.), accounting for 65 percent of the bank areas. The test will review whether the banks could withstand a shrinking economy and a drop in government bond values (assuming a 17 percent loss in Greek government debt and 3 percent loss on Spanish bonds). The results will be released on 23 July on a bank-by-bank basis. This news helps the European markets. In London the FTSE 100 index was up 90 points (or 1.8 per cent) to 5,014 points, the German DAX was up 43 points, or 0.7 per cent, to 6035 points, while in France the CAC rose 54 points, or 1.6 per cent, to 3,538 points.
Asian Markets
The key news in Asia continues to point to a slowing economic recovery. The markets were mixed overnight with Chinese shares drifting lower after posting early gains, as investors remained cautious ahead of Agricultural Bank of China’s market debut on July 15. This IPO is set to be the world’s largest. In Japan the Nikkei index of the Tokyo Stock Exchange was up 2.7% to end at 9,535. The benchmark Hang Seng Index was up 1.0% at 20,050 and China was down 6 or 0.3% at 2,415.
Commodities
Oil prices were up this week on improving investor sentiment and the IMF upgrades. The benchmark was up for crude NYMEX in July and delivery up US$1.37 to settle at US$75.44 a barrel. Copper prices rose above the key $US3.00 a pound, at $US 3.0155 a pound. Gold has dropped over 4% this month with August gold down $US2.80 overnight to settle at $US1,196.10 an ounce.
ASX News
Earlier in the week the RBA left interest rates on hold as expected. The mining Merger & Acquisition activity started to pick up with the Government’s evolution of the RSPT to the Minerals Resource Rent Tax (MRRT), which is a watered down version of the RSPT. On Monday we had over $5 billion worth of M&A deals including Centennial Coal and CSR. Bargain hunters have stepped into the market, but they would be well advised to stick to liquid stocks at this stage. Investors have been bolstered by the improving employment and upgrades in world economic growth forecasts by the IMF.
Our View
Markets have bounced this week, and we may see come consolidation next week. The key support level is still around 4,200 and the key levels for our index next week are 4550 and 4250. Overseas markets will be keenly anticipating the EU bank “stress tests” due out 23 July. The positive economic news in Australian should support our market next week.
By Michael Hevern
Head of Research
Tags: Asian Markets, ASX, ASX News, Commodities, European Markets, overseas markets, RBA, Stock Market Analysis, US markets, Weekly Market Wrap
