* U.S. stock markets declined for a fourth straight week, giving the U.S the first month of consecutive weekly losses since the GFC in June 2008.
* European stock markets closed lower for a fourth week as sovereign debt concerns escalated. Resources stocks offered support as commodities prices rose.
* Asian markets have fallen for a fourth week, due to concerns over a faltering global recovery. Many markets have had their biggest string of consecutive losses in two years.
* Commodities prices continued to recover.
The SPI Futures is trading below the key level of 4800, rising 0.1% (or 5 pts) to 4,695. The key levels for our index this week are 4780 and 4600.
Australian shares are expected to trade flat today as markets fell for a fourth week across the world, with China leading the declines. Banks were the worst hit in our ASX Top 20 stocks last week. The mining tax will be in focus again this week after the WA Government sharply increased the state iron ore royalities from the miners by $2 billion. The spectre of the carbon tax is also weighing on sentiment.
The Australian GDP figures are due out this week and comments from the Treasurer are not very reassuring, as he said the natural disasters in Australia probably cut more than 1 percent from economic growth in the first quarter. He went on to say “… 85 percent of Queensland’s 57 coal mines suffered production losses in the early part of the year”. The OECD has forecast the Australian economy will advance 2.9 percent this year and accelerate to 4.5 percent by 2012.
See below for ASX listed companies in the news today.
Economic News Today
* Q1 Business Indicators Company Profits & Inventories.
U.S. stock markets declined for a fourth straight week, giving the U.S the first month of consecutive weekly losses since the GFC in June 2008. To date the pullback has been measured with stocks down only 2.4% during the four-week sell-off.
The U.S. markets appear to be following the same script as this time last year. Despite the Japanese earthquake disaster thowing a spanner in the works, the other issues that are impacting the markets are similar to that of this time last year. The jury is out as to whether the Fed will still hold to its commitment to turn off the QE2 tap in June.
Economic data continues to disappoint with the latest data showing weekly jobless claims exceeding 400,000 for a seventh straight week. Consumer spending growth has been revised down from 2.7% to 2.2%, while economic growth for the first quarter remained at 1.8%.
A recent survey from the American Association of Individual Investors showed the bullish numbers shrinking to less than 26%, the smallest since last August, as investors have withdawn nearly $US5.8 billion from U.S. stock mutual funds so far in May, while redeploying funds into more defensive positions with more than $US16.5 billion invested in bond funds even as yields are miserable. This could be setting up for another bullish run in the next quarter, as the VIX volatility index remains at 3-year lows showing investors are not actively buying put options to protect their positions, ie. the fear gauge is currently running low.
Commodity prices have supported the markets recently with crude oil prices hovering around $US100 after having slumped 12% in May, copper rebounding 5.5% over the past three weeks, and gold has bouncing above the $US1,500 level again.
The Dow Jones closed up 0.3% (or 39 points) at 12,441, the S&P 500 index closed up 0.4% (or 5 points) at 1,331, the Nasdaq ended up 0.5% (or 14 points) at 2,797, and the smaller cap Russell 2000 was up 0.6%. The U.S. market in on holiday tonight.
All ten company groups that make up the S&P index traded higher: the Financials sector was higher by 0.7%, Materials were up 1.1%, Industrials were up 0.5%, Consumer Staples were up 0.3%, Technology was up 0.5%, while the Energy sector was up 0.3%.
European stock markets closed lower for a fourth week as sovereign debt concerns escalate. The Stoxx Europe 600 index ended down -0.2% for the week. The debt issues are most problematic in the PIIGS economies in particular Greece, Portugal and Spain.
Resource stocks were among the best performing of the 19 industry sectors in the Stoxx 600 last week, while Russia has announced it will cease its ban on wheat exports on 1 July.
The European Central Bank is signaling that it remains on track to raise interest rates further despite the continent’s debt crisis.
In London the FTSE 100 managed to finish in the green on Friday, as the miners and energy majors again provided support, making up some ground after losses of the past few weeks. In Germany markets recovered on Friday as the sentiment for banks improved as the Fitch Ratings credit ratings agency said it does not foresee any rating action on German banks as a direct result of their exposure to Greek sovereign debt.
The FTSE 100 index closed up 1.0% (or 58 points) at 5,939, the German DAX was up 0.7% (or 49 points) at 7,163, and the French CAC was up 0.9% (or 4 points) at 4,062.
Asian markets have fallen for a fourth week, due to concerns over a faltering global recovery as many markets have experienced their biggest string of consecutive losses in two years.
Resource stocks have provided support in the region on the back of the recent rising commodities prices, with crude oil holding around $US100 after Goldman Sachs and Morgan Stanley raised their 2011 and 2012 forecasts earlier in the week. There have been pockets of investor bagain hunting for stocks that have been sold-off recently, but the broader markets continued their falls.
In the course of the week the Japanese Nikkei Index fell 0.9%, South Korea fell 0.5% and the Aussie S&P/ASX 200 dropped 1%. Hong Kong finshed 0.4% lower, while the Chinese Shanghai market plunged 5.8% for the week, its fifth loss in six weeks and is 11.4% off its mid-April high.
Credit Suisse the investment house noted that the Shanghai Composite Index is now well below its 200-day average and is trading at 15.3 times profits, below the average 16.9 multiple seen over its last three troughs in 1996, 2005 and 2008.
However Chinese data continues to point to slow growth in the world’s second largest economy, as data showed a preliminary HSBC Purchasing Managers Index had slipped to a 10-month low, pointing to a slowdown in manufacturing.
In China the SSE Composite was down -1.0% (or -27 points) at 2,710, while in Hong Kong the Hang Seng Index was closed up 0.9% (or 217 points) at 23,118 and in Japan the Nikkei 225 Index was down -0.4% (or -40 points) at 9,522. The South Korean KOSPI was up 0.4%, while Indian market was up 1.2%.
The Dollar Index was lower at 74.95 on a higher Euro, while the Australian Dollar last traded lower at 106.96. Commodities prices rose.
For the session the benchmark crude NYMEX for June delivery was up 0.4% to settle at $100.75. Copper prices are higher but still below 2-year highs as Copper for June delivery was up 1.7% (or 7.3 cents) at $US4.1760. June gold was up 0.9% (or $US13.50) at $US1,536.50.
ASX Market News
AJL – AJ Lucas Group, the resources services provider, has downgraded its full year earnings guidance, and flagged asset sales to reduce its debilitating debt.
ALL – Aristocrat Leisure Ltd our largest poker machine maker is business as usual after governments from around the country failed to reach a consensus on reforms to limit problem gambling.
AUN – Austar United Communications the Pay-TV provider has had a takeover bid from Foxtel, valuing the company at $1.93 billion.
CIL – Centrebet International the internet gaming and wagering company has agreed on a scheme by which the London-based online gaming company Sportingbet Plc will acquire the company for $183 million.
CTX – Caltex says refiner margins continued to contract in April, as the price of crude oil rose on tight supply after the Japanese earthquake and Libyan conflict.
CXY – Cougar Energy will open an office in Beijing to help support the growth its underground coal gasification (UCG) projects in China and Asia.
FPA – Fisher & Paykel returned to profit in the year to March, but its revenue for the latest 12 months fell 3.7 per cent from the year before to $NZ1.12 billion ($A850.84 million).
GNC – Graincorp, the grain handler and marketer, has posted half year net profit up 66 percent, and has lifted guidance for earnings and profit for the full year.
ILU – Iluka Resources Ltd, the mineral sands producer, plans to boost production of zircon and high grade titanium ore after achieving price increases in the first half of calendar 2011.
LLC – Lend Lease Group the construction company and property developer, is on track to deliver its target full year return on equity (ROE) of 15 percent.
NHC – New Hope Corp has updated its JORC compliant reserves and resources statement, increasing coal resources by 56% to 1,539Mt while coal reserves increased by 12.4% to 544Mt.
ORG – The Origin majority-owned Contact Energy has welcomed the granting of resource consents for 168 wind turbines and transmission lines to its proposed Hauauru ma raki wind farm in Waikato.
OZL – OZ Minerals, the single-mine gold and copper producer, will trade on a post consolidation basis from Monday 30 May until 10 June. The number of shares on issue will reduce by a factor of 10 to 324 million.
TWR – Tower, the insurer and fund manager, says 1H11 net profit fell 54 percent to $A9.7 million, with the result including the impact of earthquakes in Christchurch and a loss due to changes in the global investment market.
VBA – Virgin Australia has to wait until June for final approval of its proposed partnership with Delta Air Lines on trans-Pacific routes after the US government extended the comment period by a week. While locally Virgin Blue Holdings has suffered a fall in domestic and international passenger numbers in April.
Local Corporate Reporting
ASX – to open higher
US & UK/Europe – higher but down again for the week
US ADRs – Generally Higher
Commodities Stock Index up 0.3%
Gold Stocks Index up 1.9%
Oil Stocks Index up 0.3%
By Michael Hevern
Head of Research
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Written on 30 May, 7:15am