Markets have had stellar week, as traders chose to buy in anticipation of additional central bank easing across the globe from the US, China and Europe. European markets continue to hold up and are on track to record a seventh straight week of gains, while the US markets have reached 2-month highs. Asian markets joined in on the party, helped by the Chinese market bouncing off 4-year lows, and commodities have put in their best weekly performance since February, which is supportive for emerging markets.
US stock markets bounced again this week, as traders sent the S&P 500 to 2-month highs after a round of strong corporate earnings this week. All three benchmark indexes are up by around 2% for the week, and the trading volumes have picked up 5% above the 3-month average. The gains have been led by the Materials, Energy and Technology sectors, while the Financials and the Consumer sectors have weighed. Positive investor sentiment was boosted by better-than-estimated earnings, and traders are buying in anticipation that the Federal Reserve will add its monetary stimulus because of the recent disappointing domestic economic data.
European stock markets have climbed again this week and are on track for a seventh consecutive week of gains. Germany gave final approval for the EUR100 billion bailout for the Spanish banks, which is desperately needed as the Spanish debt crisis remains in focus, as their 10-year cost of funding is hovering around 7%, which is seen as unsustainable. The Spanish market has been under pressure, as banks were sold-off after Societe Generale cut its earnings estimates for the country’s banking sector by 12% on average and said it expects earnings to drop by 47% quarter-on-quarter. Banks in Italy also suffered, as Societe Generale estimated Italian banks would see earnings slashed by 75% for the quarter. However the northern European markets remain strong with the German market in a confirmed uptrend, and markets in London and France are within a whisker of confirmation of their uptrends.
Asian stock markets have recovered this week, with China bouncing off 4-year lows and commodities having a strong week. Chinese traders were buoyed by comments from the Chinese Premier Wen Jiabao who said China will increase measures to support growth in the world’s second-largest economy, sparking hopes for global monetary easing and stimulus measures to stop the slowdown in economic domestic growth. Analysts are expecting the announcement of a reduction in the Chinese reserve requirement ratio (RRR), the minimum amount of capital that banks have to keep in reserves. However the mood was tempered as the International Monetary Fund (IMF) has cut its forecast for global growth to 3.5%.
In commodities crude-oil prices bounced again above $US92 this past week, as US inventories backed off again and there is the geopolitical risk to supplies, with tensions in the middle east escalating. The gold price has drifted down after QE3 was set aside and is trading around $US1,580 again. Copper prices have moved higher, bouncing off their 200-day moving average.
The Australian market has traded to the top of its 2-month trading range again, and if the global central banks act this would be a catalyst for our market to push higher. Sentiment has been positive, driven by strong earnings from the US and the eurozone, as hopes of stimulus resurfaced. The 4200 level is the next pivotal resistance level and 4120 is the critical support level for next week.
In our market the defensive sectors continue to outperform, with banks, Telstra, Real Estate REITs and health-care stocks trading higher, as investors seek out stocks that can deliver consistent yield in this low rate environment. The industrials, materials and energy sectors are bouncing off key short-term support levels. The banks have surged and are testing 3-month highs, as investors turn to dividend yield. We are seeing some buying in the energy and materials sectors, but would need to see follow through next week to continue the upward momentum for the market.
Investors should have protection in place for their capital, and could look to reduce their risk by using options and warrants strategies. Look to pick up value stocks that pay consistently high dividend yields, when they reach your buy levels. It may be time to start nibbling away at materials and energy stocks, if they can hold recent support levels.
Remain attuned to the news from overseas, particularly from the eurozone, China and the US, as the US reporting season continues. Monitor the performance of Italian and Spanish borrowing costs, China and the US dollar for a guide to the future direction of commodities and equities prices.
The S&P/ASX 200 index is currently trading at 4210 and is trying to close the week above the 2-month trading range. Key levels for the index next week will be 4120 and 4280, with 4200 the key short term pivot level.
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By Michael Hevern
D2MX Trading Desk
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.
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Tags: asx 200, ASX News, chinese economy, Commodities, european banks, QE3, US markets, Weekly Market Wrap
