Weekly Stock Market Wrap – Mixed Signals
Overseas markets generally traded higher again this week, as the reporting season expanded to Japan and Europe. Markets are generally trading above their 200 day moving average, with the exception of China and Japan. European banks have been mixed this week, as the reporting season heats up. In Asian markets news of bank “stress tests” in China dampened sentiment late in the week and there are also concerns that this may dampen demand for commodities near term. In commodities, copper and crude oil are highlights both trading around 3-month highs, while in soft commodities wheat is trading at 23-month highs.
In Australia we had some good economic data this week with a record trade surplus, and the RBA left rates on hold. Investors have been setting their portfolios up for the local company reporting season and the M&A activity continues to drive specific stocks.
U.S. Markets
The U.S. has been digesting mixed economic data this week as consumer spending and income came in flat, while pending-home sales and retail sales fell, weighing on sentiment.
On a positive note, stocks gained when the Institute for Supply Management’s gauge of service industries rose to 54.3 (versus an estimate of 53) and the US manufacturing sector expanded for the 12th straight month in July. The reading beat analysts’ expectations and the Commerce Department reported that construction spending increased 0.1 per cent in June.
In July, the Fed Chairman pointed to an “unusually uncertain” economic outlook and cited high levels of unemployment as one of the key factors keeping interest rates at a record low near zero since December 2008. Tonight investors will be focusing on the Non-Farm Payrolls report. This government report records the monthly tally of payrolls and the unemployment rate. Tonight particular attention will be paid to private sector employment figures.
This week the U.S. market has been supported by the Materials, Energy and Financial sectors. Overnight, the Dow closed down marginally -0.1% at 10,675, while in the broader market the S&P 500 Index was marginally down, -0.1% at 1,126 and the tech-heavy Nasdaq ended down -0.5% at 2,293.
European Markets
European stocks generally traded higher, though trade volumes were not convincing. The German market continues to outperform and looks set to test a key breakout level at 18-month highs. Central banks ECB and BoE left rates on hold as expected. European Central Bank (ECB) President Jean-Claude Trichet said the Eurozone economy is strengthening, but has warned that current expansion rates are unlikely to be sustained after the summer.
Overnight in London the FTSE 100 Index closed down -0.4% at 5,366. The German DAX was flat at 6,334, while in France the CAC was down marginally 0.1% at 3,764.
Asian Markets
Asian markets had a solid week. Japanese investors started the week with bargain hunting for shares and robust earnings, helped by a weakening Yen, but the market is still range-bound.
In China, however, investors started profit-taking. Chinese shares fell on reports that the government plans to tighten mortgage lending in some cities and the China Banking Regulatory Commission ordered banks to conduct stress tests evaluating the impact on their loans and credit quality, based on an extreme scenario in which property prices plunge by around 50 per cent. Chinese investors remain cautious ahead of China’s July data due next week.
Overnight in China the SSE Composite closed down -0.7% at 2,621, while in Hong Kong the Hang Seng Index was flat at 21,552 and in Japan the Nikkei 225 Index was up 1.7% at 9,654.
Commodities
Copper continued to shine this week, trading at 3-month highs. 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 are also trading at 3-month highs with the benchmark crude NYMEX for September delivery down 0.4% (or $US0.40) to settle at $US82.01 a barrel. Gold has traded higher in the past seven sessions. Overnight December gold was up again 0.3% at $US1,195.90 an ounce.
ASX News
The election took a back seat to some good economic data this week. The trade surplus surprised to the upside when mining income surged last month driving Australia’s trade surplus to a record high. Exports jumped 7 percent which was impacted by an 11 percent jump in mining income in a month, while Australia’s imports were flat. Asian markets were key to the surplus, with exports to China up 7.7 percent, exports to Japan up 5.1 percent and exports to India jumping 13.2 percent. Australia’s exports exceeded the imports by $3.5 billion in June which is the most in 40 years. The RBA also left interest rates on hold.
One of the sectors that is currently outperforming the All Ords is the Oil and Gas Exploration sector. In our Analyst’s Eye this week we have identified stocks from this sector that look set to add to traders’ portfolio performances.
Our View
Markets have again drifted higher, but trading volumes were not convincing. The earnings season begins in earnest next week in Australia and may be the catalyst to push markets through current key levels. Next week investor sentiment will be guided by responses to Chinese Economic Reports and details of the Bank “stress tests”, the U.S. Fed meeting, and the U.S. employment report of the Non-Farm Payroll due out tonight.
The S&P ASX200 is currently trading around 4550. The key support level on the ASX is still around 4,200 and the key levels for our index next week are 4650 and 4350, with pivot at 4500. Positive momentum should develop if the ASX200 can push through the 4600 level.
By Michael Hevern
Head of Research
Tags: Asian Markets, ASX, ASX News, Commodities, Commodities Market, European Markets, Nikkei, S&P500, spi, Stock Market Analysis, stockmarket, Trader Dealer, trading, US Market wrap, Weekly Market Wrap
