* U.S. finished down for the first week in nine. Unrest in Egypt sent U.S. stocks tumbling. Investors were derisking their portfolios, seeking the safety of the U.S. dollar and U.S. Treasuries. The stock market’s VIX (the fear gauge) leapt to a 2-month high.
* Expect cautious U.S. trading this week, with continuing corporate earnings reporting, and release of the ISM report and the Non-Farm jobs report.
* European markets sold off Friday and finished the week lower, as unrest in Egypt triggered fear that troubles may spread to other middle eastern Arabic countries.
* Regional markets are expected to trade lower today, given the negative leads. Asian markets ended mostly lower Friday, but mixed for the week. This week China will report on its PMI data and will have a shortened trading week due to the Lunar Near Year celebrations.
* Commodities prices were higher, led by crude oil.
The SPI Futures is backing off a key level of 4820, as the SPI Futures closed down -1.0% (or -49 pts) at 4,708. The key levels for our index this week are 4800 and 4650. M&A activity continues to drive specific stocks.
The ASX is set to trade lower, as we had negative leads from overseas markets. Expect broad-based weakness, as tensions in Egypt heighten. Chinese trading will be subdued by Lunar Near Year celebrations and in the U.S. the overbought markets may see the current catalysts as a trigger to take profits. See below for stocks in the news today.
Economics News Today
* TD Securities Inflation Gauge for January
* Financial Aggregates, including Private Sector Credit for December
* International Reserves & Foreign Currency Liquidity for December.
U.S. Markets
U.S. markets finished down, for the first week in nine. Investors were de-risking their portfolios as they sought the safety of the U.S. dollar and U.S. Treasuries. The stock market’s VIX (the fear gauge) leapt to a 2-month high.
Unrest in Egypt sent U.S. stocks tumbling on Friday, for their biggest 1-day decline in since 16 November. Oil prices surged on the potential of supply disruptions in the middle east and the possiblity of the Suez Canal being closed if the geopolitical tensions rise. U.S. economic data was disappointing with the U.S. 4Q GDP rising at an inflation-adjusted annual rate of 3.2% in the fourth quarter, below analyst estimates of 3.5%. Consumer spending, which accounts for about 70% of demand in the U.S. economy, rose at a 4.4% rate in the fourth quarter.
In U.S. corporate news:
* Ford reported an unexpected drop in profit: shares plunged 13% after Ford reported an unexpected decline in 4Q earnings as a result of rising costs in North America and losses in Europe
* Microsoft fell 3.9% after posting a slight drop in quarterly profit. Revenue rose 5% on strong demand for its Kinect videogame device and Office software
* Chevron fell 1.5% after reporting its 4Q earnings jumped 72% on strong oil prices, improved refining margins and an asset-sale gain
* Amazon slumped 7.2% after reporting a 36% surge in 4Q sales, which were below estimates.
* Shares of tankers and shippers climbed as investors bet on a shutdown of the Suez Canal, with Frontline jumping 7.7%, Overseas Shipholding up 6% and General Maritime rising 10%.
The Dow closed down -1.4% (or -166 points) at 11,824 (down -0.4% for week), while in the broader market the S&P 500 was index down -1.8% (or -23 points) at 1,276 (down -0.6% for week) and the tech-heavy Nasdaq ended down -2.5% (or -68 points) at 2,687 (down -0.1% for week), despite having its biggest 1-day drop since 11 August. The sell-off for the session was broad-based, with the worst performers being Industrials down 1.9%, Financials down 1.7% and Materials down 1.6%.
Investors will be busy again this week and are expected to be trading cautiously, with continuing corporate earnings reporting and the release of the ISM report and the Non-Farm jobs report.
European Markets
European markets sold off Friday and finished the week lower, as unrest in Egypt triggered fear that troubles may spread to other middle eastern Arabic countries.
The benchmark Stoxx Europe 600 Index fell 0.3 percent last week a second straight weekly decline, but the gauge has rallied 21 percent since its low in May 2010 amid optimism that the U.S. economy is strengthening and as European governments implemented policies to support indebted countries using the single currency.
In London the market traded lower when the U.K.’s gross domestic product (GDP) shrank 0.5 percent in the December quarter, after increasing 0.7 percent in the previous quarter (below analysts’ forecast of a 0.5 percent gain). Financials weighed on the markets, down 1.3 percent, as a plan by the Spanish government to strengthen its indebted savings banks failed to convince investors. Ireland’s PM will dissolve its parliament on Tuesday ahead of elections.
Egypt has deployed the military on Cairo’s streets, and the news sent U.S. stocks reeling as Egypt’s ruling regime faced its biggest challenge Friday, with its fourth consecutive day of street protests. President Hosni Mubarak declared a curfew in an attempt to quell the riots in the street and army tanks combed the streets to beat back crowds of protesters. Egyptians are protesting their suffering from food inflation of 10% per annum and the fact that they have to spend 66% of their consumer spending on food. The Egyptian leader has since annonuced that the Egyptian government will resign.
In London the FTSE 100 index closed down -1.4% (or -84 points) at 5,881 (down -0.3% for week), the German DAX down -0.7% (or -53 points) at 7,103 (up 0.6% for week), while in France the CAC was down -1.4% (or -57 points) at 4,022 (down -0.4% for week).
Asian Markets
Asian markets ended mostly lower Friday, but mixed for the week. The Japanese market slid after Standard & Poor’s cut the country’s sovereign-debt rating for the first time in 9 years, cutting the credit rating to AA- from AA. This spurred broad profit-taking from financials and the technology exporters and South Korea’s Kospi slipped 0.3% on risk aversion.
Disappointing corporate earnings pushed the Hong Kong market lower, while the Chinese Shanghai Composite edged higher. Large-cap China property developers extended recent losses after two of China’s largest cities introduced property tax trials. The Indian Sensex dropped, led by declines in interest-rate sensitive sectors amid continued concerns about inflation, after data released Thursday showed food inflation above 15% for a fourth week. Auto shares fell on concerns that rising interest rates, high fuel prices and soaring input costs will hurt profits in coming quarters.
Miners and energy stocks drove the region’s stocks lower. Gold miners led the drop after the price of the precious metal fell to a near 4-month low. However, the gold price did bounce over the weekend.
This week China will report on its PMI data and will have a shortened trading week due to the Lunar Near Year celebrations.
In China the SSE Composite closed up marginally 0.1% (or 4 points) at 2,753 (up 1.4% for week), while in Hong Kong the Hang Seng Index was down -0.7% (or -163 points) at 23,617 (down -1.1% for week) and in Japan the Nikkei 225 Index was down -1.1% (or -118 points) at 10,360 (up 0.8% for week).
Commodities
The Dollar Index was up marginally 0.2% at 78.13 on a lower Euro, while the Australian Dollar last traded flat at 99.28. Commodities were generally higher, led by crude oil which has bounced higher.
For the session the Benchmark crude NYMEX for December delivery was up sharply 4.3% (or $US3.70) to settle at $US89.49 (up 0.4% for week). Copper prices backed off around 2-year highs, and copper for December delivery was up 0.8% (or 3.4 cents) at $US4.3495 (up 1.0% for week). Gold prices were off all-time highs again, with December gold up 1.7% at $US1,338.00 (down -0.4% for week).
ASX Market News
AFI - Australian Foundation Investment Company increased its 1H11 profit 30.6 percent as many companies increased dividends as operating conditions and cash flows improved.
AGO – Atlas Iron is on track to double its export rate by the end of 2012 and is currently generating its strongest ever cashflows, with spot prices of over $US150 per wet tonne.
ALS – Alesco Corporation’s 1H11 profit plunged 82 percent as the seller of building products to truck tyres took an impairment charge against its water products division.
BPT - Beach Energy says revenue rose 16 percent in the 4Q, due to higher realised oil prices, despite of a 7 percent fall in production.
CCC - Continental Coal says it has received Kenyan government permission to take part in coal exploration and development of the country’s Mui coal basin, 180km northeast of Nairobi.
CNA – Coal & Allied, the Rio Tino Ltd managed coal miner, has reported a jump in annual net profit, despite wet weather hampering production late last year.
CXY – Cougar Energy has shelved its underground coal gasification (UCG) plant in the Queensland’s southeast, causing the company to halt trading on the sharemarket, after a Queensland government directive. Other companies that may suffer from the decision include LNC down 6.6%, and CNX down 8.1%.
ERA - Energy Resources of Australia has reported an 83 percent plunge in calendar year net profit and will temporarily suspend processing operations at its Ranger mine in the NT. Shars fell 12.9%.
HOR - Horseshoe Metals Ltd shares have tripled after a high grade copper strike at its flagship project in WA.
ILU – Iluka Resources Ltd has discovered an inferred resource of 3.3 million tonnes of heavy mineral for the Atacama deposit in its South Australian Eucla Basin. Shares fell 4.2%.
LNG – Liquefied Natural Gas has confirmed it has agreed to sell a 20 percent stake to Chinese state-owned oil and gas giant CNPC for around $25.6 million. Shares rose 10%.
MYX – Former Woolworths CEO Roger Corbett has been elected chairman of pharmaceutical company Mayne Pharma Ltd.
GOLD – Gold stocks were slammed Friday after the price of the precious metal slipped: NCM down 3.6%, MML down 7.7%, RMS down 5%, DOM down 7.6%, KCN down 6.6%.
NWS – Takeover canidate BSkyB announced soaring profits as the British pay-TV giant awaits a possible full takeover by News Corp. News will launch its new iPad-only newspaper, The Daily, this week.
RMD – ResMed the medical equipment maker, increased 1H11 net profit 31 percent as demand for sleep-disorder breathing products grew
SLR – Silverlake Resources, the gold miner, is on track to meet full year production guidance, after strong output in the December quarter. Shares rose 10%.
TEN - Network Ten Holdings Ltd has invested in The Roar Sport Media, for an undisclosed sum, website for The Roar www.theroar.com.au
WPL – Woodside Petroleum has signed a deal with Malaysia’s Petronas for up to 19 cargoes of liquefied natural gas (LNG) from its Pluto project in WA.
Local Corporate Reporting
AWE – Australian Worldwide Exploration December Quarterly Report
ORG – Origin Energy Ltd Quarterly Production Report
ROC – Roc Oil Ltd Q4 2010 Activities Report
CRG – Crane Group Ltd Interim 2011 Results
WES – Wesfarmers Ltd Q2 2011 Sales
NEC – Northern Energy Corporation Full year 2010 Results
PLA – Platinum Australia Limited December Quarterly Report
Market Summary
ASX – to open lower
US & UK/Europe – sell-off
US ADRs – Broadly Lower
Commodities Stock Index down -0.7%
Gold Stocks Index up 0.4%
Oil Stocks Index down -0.9%
By Michael Hevern
Head of Research
