Commodities Support Consolidation in Global Stock Markets
Investor nerves have again been tested this week. After heavy selling early on in the week the market has bounced off key levels to finish in consolidation.
The early sell-off came as investors exercised caution ahead of key IMF and EU finance minister meetings which discussed the plight of economies in Portugal, Greece and Spain. The spectre of a debt restructure is still hanging over Greece, but Portugal received a bailout package. In the US technology stocks led markets lower, but IPO activity and a bounce-back in commodities prices have driven a recovery.
Australian Market
The ASX All Ordinaries and the S&P/ASX 200 rebounded off key levels this week as commodities started to see some buying after a few weeks of selling. Mining stocks have driven the index higher but the strong Aussie dollar is still weighing on company profits and forecasts. Banks contributed to the weakness in the index after being downgraded by Moody’s ratings agency.
US Markets
US stock market indices staged their second straight gain overnight after weakness earlier in the week, led by the technology sector as HP produced disappointing results. Since then however stocks have been given a boost by Dell reporting better than expected results. Professional networking site LinkedIn had a successful IPO, closing up 109% at $94.25, making it the best-performing initial public offering for the year. This success has raised hopes that more IPOs may come to the market to help drive more capital off the sidelines.
Resource stocks have been supported after it was announced there would be a scale back of the $US11 billion Glencore International IPO, which is seen as a litmus test for the commodities super cycle going forward. Material and energy stocks were the biggest gainers, as oil futures again reached $US100 a barrel for the first time in a week, while in soft commodities prices stopped their slide after floods damaged wheat, corn and soybean fields, raising the spectre of a supply shortage leading to higher prices.
Overnight, the Dow Jones closed up 0.4% at 12,605, the S&P 500 index closed up 0.2% at 1,343, the Nasdaq ended up 0.3% at 2,823, and the smaller cap Russell 2000 was up 0.2%.
European Markets
European stock markets are ending the week in consolidation. The weak US economic and corporate data fuelled concerns that the global economic recovery may be faltering and put pressure on shares, however they recovered after the US markets continued with their gains.
The IMF and the EU finance ministers have made progress by signing off on a EUR78 billion bailout package for Portugal. Meanwhile the European Central Bank is attempting to manage the prospects for a restructuring of Greek sovereign debt, needed to fund the EUR60 billion gap for Greece for this year and next. The IMF is also now searching for a new chief after Dominique Strauss-Khan resigned, while being held in the U.S. on sexual assault charges.
Overnight in London the FTSE 100 index closed up 0.5% at 5,956, the German DAX was up 0.7% at 7,358, while in France the CAC was up 1.3% at 4,027.
Asian Markets
Asian share markets are ending the week flat. The major news from the region has been confirmation of the slowing growth in Japan. Recent data is showing that the Japanese economy contracted sharply in the first quarter of 2011, as the March earthquake and tsunami resulted in gross domestic product (GDP) contracting -0.9% in this quarter, and is now tracking at a -3.7% annualised decline. The fall marked the second consecutive quarter of contraction, taking Japan into what economists consider a “technical recession”.
The Chinese and Hong Kong markets have been treading water this week, even though there was a report from Credit Suisse that maintained an overweight stance on the Chinese market also helped, despite noting that China is among the worst performing markets for the past 12 months.
Overnight in China the SSE Composite was down -0.5% at 2,859, while in Hong Kong the Hang Seng Index closed up 0.7% at 23,164 and in Japan the Nikkei 225 Index was down -0.4% at 9,620. The South Korean KOSPI was down -1.9%, while the Indian market was up 0.3%.
Our View
The Australian share market has had a strong rebound this week, despite early weakness. As the week progressed investors have added risk to their portfolio positions, taking advantage of the sharp sell-off in commodities prices in the past few weeks.
The S&P/ASX 200 index is testing its 200-day moving average, and the recent recovery in commodities prices has added support around these levels. There are still headwinds with the strong Aussie dollar continuing to weigh on the market and the mining resource tax is resurfacing after the WA government’s charges for iron ore royalties increasing by $2 billion.
The S&P/ASX 200 is currently trading at 4735, having found support around the 4,640 level this week. There is likely to be further consolidation near-term where the focus will continue to be on corporate earnings reports, the Aussie dollar and commodities prices, particularly copper, gold and crude oil. Key levels for the index next week will be 4850 to 4600.
By Michael Hevern
Head of Research
Tags: Asian Markets, ASX, ASX News, Commodities, European Markets, mining, Stock Market Analysis, stockmarket, Trader Dealer, trading, US Market wrap
