The Australian Market Tracks Higher on a Robust Earnings Season
Global markets continued to trade higher this week following a positive start after the resignation of Egyptian President, Hosni Mubarak. Investors have chosen to ignore the tensions simmering in the Middle East and North Africa, and the crude oil price has held steady around $US86.
Trading in the Australian market has been dominated by the corporate earnings season, which has generally produced robust results. The ASX All Ordinaries held above the 5000 level, while the S&P ASX200 looks set to test 5000 in the near-term.
US Markets
The US markets continued their melt-up this week, with the Dow Jones and the S&P500 continuing to trade above the key threshold levels of 12000 and 1300. The S&P500 stock index has now doubled from its GFC low, with the market capitalisation of the S&P 500 now about $US12 trillion, compared to the $US6.9 trillion during the sell-off in early 2009. M&A activity has again been a key driver for the US markets.
Overnight, the Dow closed up 0.2% at 12,318, while in the broader market the S&P 500 index rose 0.3% to 1,340 and the tech-heavy Nasdaq ended up 0.2% at 2,832.
European Markets
European stock markets rose this week to a two-and-a-half year high, led by the financials. Investor sentiment was boosted by some solid earnings news as the French and German markets rose to levels unseen since 2008.
The Stoxx Europe 600 index has rallied nearly 6% in 2011 (YTD), rising 0.2% overnight and is up for a fifth straight session to its highest close since at least August 2008. The Bank of England (BoE) has forecast that the British economy will likely avoid a double-dip recession, despite suffering contraction in the final quarter of last year. The FTSE is up 3.2 percent for 2011 (YTD), and up 73 percent since March 2009. The French CAC is testing multi-year highs and in Germany the market has now doubled from its GFC low and is at 2-year highs.
Overnight in London the FTSE 100 index closed flat at 6,087, the German DAX was down -0.1% at 7,406, and in France the CAC was flat at 4,171.
Asian Markets
Asian markets have been trading higher this week. The Chinese and Hong Kong markets have bounced off key support levels following China’s release of January inflation data which rose less than expected. The consumer price index (CPI) rose 4.9% (vs expectations of 5.4%), while wholesale inflation rose at a faster-than-expected annual rate of 6.6%. The Japanese market has hit a 9-month high with some sector rotation from the high-flying tech stocks into exporters that have lagged in performance for the year-to-date.
Yesterday in China the SSE Composite closed down marginally -0.1% at 2,927, while in Hong Kong the Hang Seng Index was up 0.6% at 23,302 and in Japan the Nikkei 225 Index was up 0.3% at 10,837.
Australian Earnings Snapshot
Some general themes that have come from this week’s earnings report are:
* Resource companies are confident of the outlook for commodities as emerging markets continue to drive growth.
* Energy stocks will continue to benefit from the high crude oil prices.
* Airlines are seeing improvement in global aviation markets.
* Real estate trusts look to be turning the corner.
Among the upbeat results:
* BHP Billiton reported a 71.5 percent rise in 1H11 net profit.
* Qantas delivered stronger-than-expected 1H11 results.
* Santos, the oil and gas producer, reported a 15.2 percent increase in FY net profit.
* Westfield Group has returned to profitability with more than $1 billion in profit.
* Wesfarmers increased 1H11 profit by 33 percent.
On a negative note, we saw biotech disappoint and uranium producers struggle:
* Biota Holdings, the influenza vaccine developer, slumped 28% after reporting a 1H11 loss.
* CSL, the global blood products and vaccines maker, reported a 19 percent fall in 1H11 profit, and expects FY11 profit to decline.
* Paladin Energy has increased its 1H11 net loss by 55 percent.
Our View
Next week we should see the S&P ASX200 continue to track towards 5000, though we are due for some consolidation. Currently trading at 4925, it’s above its key weekly resistance level around 4860. The focus for next week will be on the unrest in the Middle East, Asian concerns over inflation, European debt concerns and, locally, the continuing earnings reporting season. Key levels for next week will be 5000 to 4800.
Investors need to monitor the tensions simmering in the Middle East and North Africa, with unrest in Libya and Bahrain, and tensions between Iran and Israel over the Suez Canal. Be prepared to hedge your positions, as the current low options volatility provides investors holding long term portfolios an opportunity to hedge their positions cheaply.
By Michael Hevern
Head of Research
