Weekly Market Wrap – Market “Flash Crash” Lows Looming
Markets are generally trading lower for a third week, particularly in the US and Europe. In Asia the markets have been mixed, but they are still trading below their levels of 3 weeks ago. Most markets look set to test the “flash crash” lows of last May, near term. M&A activity in August has been the busiest in decades, however this has not been enough to support the underlying markets.
This week Australian company earnings reports were mixed, and this was reflected in shares activity. Forecast earnings are generally uncertain.
Within this weekly market wrap, we have outlined below some investment themes to consider.
US Markets
US markets generally traded lower this week on the back of weak economic data. Overnight, concerns remained over the uncertain outlook for jobs. There was also caution as the Fed Chairman, Ben Bernanke, will speak tonight, and also the gross domestic product data (GDP) is due to be released (estimates are for 1.4% growth).
Overnight the CBOE Volatility Index, known as the market fear gauge, has risen to 27.4, reflecting investor concerns and expectation of more drops in stocks. The Dow closed down -0.7 at 9,986, while in the broader market the S&P 500 index was down -0.8% at 1,047 and the tech-heavy Nasdaq ended down -1.1% at 2,119.
European Markets
European stocks have fallen for a third straight week. Concerns over the faltering US recovery have outweighed any good news from Europe. Financials have been under pressure on continuing worries over sovereign debt, particularly in Italy and Spain, with a debt rating downgrade. Overnight in London the FTSE 100 index closed up 0.9% at 5,156. The German DAX up marginally 0.2% at 5,913, while in France the CAC was up 0.8% at 3,475.
Asian Markets
Asian markets generally traded lower this week. Japan continues to trade below its 8-month lows and below the key 9,000 level. The Japanese export-driven economy is still suffering from the Yen trading new 15-year highs.
Hong Kong stocks are also being sold down and are trading at 5-week lows. Chinese investors remain cautious as uncertainty remains over whether the government will relax the tight credit polices which it is using to rein in growth. Overnight in China, the SSE Composite closed up 0.3% at 2,603, while in Hong Kong the Hang Seng Index was down marginally -0.1% at 20,612 and in Japan the Nikkei 225 Index was up 0.7% at 8,906.
Commodities
Wheat prices are again trading towards 2-year highs. Oil prices continued to trade below key support levels, as a weakening outlook on the economic recovery stoked fears of dropping oil demand. Overnight the benchmark for crude NYMEX for September delivery was up 0.8%, to settle at $US73.09; Copper prices have backed off 3-month highs. Copper for September delivery was up 9.5 cents at $US3.3010. Gold prices rose above the key $US1,200 psychological level and look to be heading for new record highs, with December gold down marginally -0.2% at $US1,237.70.
Overnight the US Dollar Index was down -0.4% at 82.90 but is still at 5-week highs against the Euro, while the Australian Dollar last traded lower this week at 88.33.
Investment Themes to Consider
As mentioned earlier, this week Australian shares have been mixed as company earnings reports were also mixed, and forecast earnings are generally uncertain. However there are still some opportunities in this market, including:
* Gold: For the past 10 years Gold has made two thirds of its annual gains in the last one third of the year and September has been the best performing month. So traders should keep gold and gold stocks in their sights in the next month.
* Agricultural: overseas investors are active in this segment of the market and BHP’s hostile bid for Canada’s Potash Corp has also helped. Refer to our review of trading by sectors.
ASX News
An election outcome is still at least a week away. Investors do not like uncertainty and the Australian stock market has been trading lower as a result.
At the same time investors have had to digest another barrage of company reports. The reporting season has been mixed, but the key theme is that companies remain uncertain about the economic outlook for the rest of the year.
Our View
Markets have traded lower this week. Asian, European and US markets are all trading at or below their key support levels. In the US the Fed and GDP will be reporting tonight. Markets look set to trade down to their “flash crash” lows. The key driver will be the investor reaction to the slowing global economic growth. The earnings season has been mixed this week and the cautious company forecasts for future earnings have continued to weigh on investor sentiment. Investors need to concentrate on those companies that continue to grow their earnings with strong balance sheets.
The S&P ASX200 is currently trading at 4335, the lower third of the current trading range. The bear flag pattern mentioned last week resolved itself to the downside. The key support level on the ASX is still around 4,200 and the key levels for our index next week are 4450 and 4200, with pivot at 4300. The momentum is to the downside and the 4200 will be key for support near term.
by Michael Hevern
Head of Research
Tags: Asian Markets, ASX, ASX News, Commodities, Dow, European Markets, MDS Financial, Nasdaq, Nikkei, oil, S&P500, spi, stock market, Trader Dealer, US Market wrap, Weekly Wrap
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