Traders continued to take profits off the table this week, but markets remain at key multi-month and multi-year highs. The US and benchmark European markets remain in the upward channels that have been in place since May. In Asia markets are backing off 6-month highs, with the exception of China which is testing 2000, a level not seen since the end of the GFC.
US stock markets had recorded five straight days of falls, with the S&P500 posting its longest retreat since July, as concern grew over a worsening euorzone debt crisis and comments from the President of the Philadelphia Federal Reserve, Charles Plosser, who said new bond buying (QE3) announced by the Fed this month probably will not boost growth or hiring.
Despite the rise in the US markets last night, overall the markets are still lower for the week. The Volatility Index has been on the rise this week as investors buy options for protection near-term. The Dow Jones and the S&P500 are both close to the all-time highs of October 2007, as investors pushed equity prices higher due to optimism about better-than-estimated earnings and central bank stimulus measures. The Dow Jones is around 6% from its peak and the S&P500 is just 9% away. Trading volumes on the NYSE continue to grow and remain above the three-month average.
European stock markets have recorded their biggest drop in two months this week, with a slight relief rally overnight. The Stoxx Europe 600 Index plunged -1.8% in a single session, its largest drop since late July, however this index is still up 16% from its June lows, as the European Central Bank policy makers approved a plan to implement an “unlimited” bond-buying program.
Traders were spooked by the Ifo Economic Institute report that German business confidence fell for the fifth straight month to the lowest level since February 2010. The reading was worse than forecast and confirms that the eurozone debt crisis is impacting the region’s economies, which are falling deeper into recession. Investors were already nervous about the leaders of Germany and France being in conflict over plans to unify the debt-laden European banking system. Also weighing on trader sentiment were riots over austerity measures, news that Spanish bond yields surged back above 6% (the highest level in three weeks), concerns over Spanish and Greek debt escalating, and the downbeat comments from the US Federal Reserve member suggesting the QE3 bond buying program may not be enough to stimulate the job market in the US.
Asian stock markets are looking to end flat for the week, as they recover from growing concerns over slowing global economic growth and an ongoing territorial dispute between China and Japan weighed on sentiment. The MSCI Asia Pacific is now up around 5% this quarter, on the back of central bank easing in Europe, the US, Japan and China as they took action to stimulate economic growth, while it is up around 8% for the year. During the week the Japanese market recorded its largest daily percentage decline since May, as the strong yen and the ongoing territorial dispute between China and Japan continued to weigh on sentiment. The Shanghai Composite had fallen -7.7% this year on concern the government is not loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The index sold down to the 2000 level, as traders vented their concern. This has prompted the PBOC to act on stimulus as Chinese stocks have now risen for the first time in three days after reports that the People’s Bank of China added a record net 365 billion yuan ($US56 billion) to the financial system this week (a form of quantitative easing), as cash demand rises before their week-long holiday.
In commodities crude-oil prices fell below $US90 this week, the lowest level in two months, but crude-oil appears to be rebounding in the short-term at least. On the flip side gold prices at around $US1,750 are on track to record their best quarterly gain in over two years, currently up 10% since the start of July, due to central banks boosting stimulus measures to support global growth. Copper remains near 4-month highs and is on track to finish up around 7% for the quarter.
The S&P/ASX 200 index is currently trading at 4380 and is looking to close the week lower. Key levels for the index next week will be 4330 and 4450, with 4360 the key short term pivot level. Traders are squaring off their accounts for the end-of-quarter and now need to decide if all this stimulus will be enough to boost global growth. The mining and mine services sectors have been in focus this week, as commodity prices have continued to pull back and data showed slowing global growth.
In our market the defensive sectors supported the market this week, as investors took profits on their growth-sensitive stocks near-term. Telstra, Real Estate REITs and health-care stocks saw buying in to the end-of-quarter. The financials and materials sectors have resumed their upward path. The financial and info-tech sectors held around 12-month highs. The materials, industrials and energy sectors eased over the week, as trader optimism over the central bank stimulus faded.
Remain attuned to the news from overseas, particularly from the eurozone, China, Japan and the US. Monitor the performance of Italian and Spanish borrowing costs, China-Japan tensions and the US dollar for a guide to the future direction of commodities and equities prices.
Protection is very cheap at the moment and investors should have protection in place for their capital, and could look to put their money to work while reducing risk by using options and warrants strategies. Contact me at D2MX Trading on 1300 610 024 and I can help you trade using a number of strategies that will give you the tools to navigate this market and help you improve your returns on investment.
Investment Adviser D2MX Advisory
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.
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