Morning Market Wrap
Pessimism rules as bears take control late in the session.
After trading flat for the bulk of the day, the bears stepped in late to sell-off the markets, despite good US economic reports regarding manufacturing and construction from earlier in the day.
The SPI Futures is below the key level of 4400 the ASX is set to open lower as the SPI closed down 44 points (or 1.0%) at 4,366. Key levels for the SPI today are 4250 and 4450. Expect our market to trade lower, following the U.S.
The Reserve Bank (RBA) has left its cash rate at 4.5% and is sticking with its upbeat view on the economic recovery, which it says is on track despite recent turmoil in Europe and growing fears of a double-dip global recession. Though it did say it is reviewing the effects of Europe’s debt crisis, but the world’s growth prospects remained healthy
Financial and Energy sectors were the biggest drag, down over 2% on the day. The selling was triggered by the government on the possibility of criminal charges into the Gulf of Mexico oil spill and ongoing concerns about Europe’s financial sector. BP PLC was heavily hit because it operated the rig that caused the spill, it fell almost 15 per cent.
European stocks had a mixed day with continuing concerns over debt, and employment. In the 16 nation eurozone (EU), the unemployment rate rose to a record 10.1 per cent in April from 10 per cent the prior month, official data showed. Eurozone manufacturing activity slowed in May to a level not seen since the collapse of the US investment bank Lehman Brothers, in September 2008, according to a purchasing managers index (PMI) compiled from an industry survey.
In the U.K. London’s FTSE index closed down 25.13 points, or 0.48 per cent, at 5163, while in Europe Germany’s DAX closed up 16.94 points, or 0.28 per cent, at 5981 while in Paris, the CAC 40 index closed almost flat, down 4.48 points, or 0.13 per cent, at 3503.
The euro slid as low as $US1.2112, its lowest level since April 2006, before climbing back to $US1.2298.
Oil prices slid on concerns over slowing economic growth, particularly in China and the EU. NYSE main contract, light sweet crude for delivery in July, closed at $US72.58 a barrel, down $US1.39. In London, Brent North Sea crude for July dropped $US1.94 to settle at $US72.71.
Gold had its highest close in two weeks, in a flight to safety as the commodity was bought up after a report said European banks face sizeable write-offs. Gold for August delivery added $US11.90 to settle at $US1226.90 an ounce. In July contracts, copper lost 4.15 US cents to settle at $US3.063 a pound and silver gained 12.9 US cents to $US18.551 an ounce.
U.S. Markets Sees Selling After Long Weekend
SP500: down 1.2% at 1,070 Energy & Financials Weigh
DOW down 1.1% at 10,024
Just Holds Above 10,000
NASDAQ: down 1.5% at 2,222
Dollar Index: Up at 86.85 on Lower Euro
A$ lower at 83.20 (towards 10-month Lows)
FTSE: down 0.5% at 5,163 – Financials Weigh
DAX up 0.3% – Europe Debt sitll Concerns
CHINA: down 0.9% at 2,568 – Suport beComes Resistance
HSI down 1.4%
Oil: down 1.9% ($71.90)
Oil spill in Gulf of Mexico Still a Problem
Gold: up 1% at ($1,224.90)
SPI: Below Key 4400 ASX
SPI down 1.0% at 4,366
The SPI Futures is below the key level of 4400 the ASX is set to open lower as the SPI closed down 44 points (or 1.0%) at 4,366. Key levels for the SPI today are 4250 and 4450. Expect our market to trade lower, following the U.S. The Reserve Bank (RBA) has left its cash rate at 4.5% and is sticking with its upbeat view on the economic recovery, which it says is on track despite recent turmoil in Europe and growing fears of a double-dip global recession. Though it did say is reviewing the effects of Europe’s debt crisis, but the world’s growth prospects remained healthy
ABS – Australian Bureau of Statistics releases national accounts figures, including gross domestic product for the March quarter. The market forecast is for an increase of 0.5 per cent in the March quarter, down from 0.9 per cent for the December quarter.
AUD – weakens, towards 10 months lows.
AXA – has extended an exclusivity agreement with NAB, as the NAB looks for ways to satisfy the competition watchdog in its attempt to buy the wealth manager.
BANKS – Downgraded. Morgan Stanley remains cautious on sector, saying Australian banks still rely heavily on wholesale funding and revenue headwinds are significant. NAB is their preferred. Targets cuts: CBA to $47.30 (vs $54.00), ANZ to $21.00 (vs $23.00), WBC to $22.90 (vs $27.30). Goldmans also trimmed their banks tragets similarly.
DOW – Downer EDI share price plunged, as its Fitch credit rating was downgraded to one notch above junk bond status, after it reported a substantial cost blowout for a government train project and tax impairments on other assets. Its NSW train carriages project required an additional $190 million, while it will also book a $66 million impairment on other assets. Shares down 26% at $4.58.
JHX - will hold an EGM in Amsterdam for a shareholder vote on the second stage of its proposed move of its domicile to Ireland.
LEI – Friction due to board’s knocked back of a takeover bid for Leighton this year is likely to boil over, as CEO Wal King and his fellow Leighton Holdings directors are headed for a showdown with directors of the group’s German parent, Hochtief, at a board meeting in Hong Kong on Sunday.
MTS – reported a 12.4% rise in annual net profit and forecast up to 8% earnings growth in the current fiscal year.
RIO – says it paid an average effective tax rate in Australia of 35.6% over the decade to the end of calendar 2009, in stark contrast to goernment reports. CEO Tom Albanese said the new RSPT tax could lift the company’s effective tax rate in Australia to “well over 50%.”.
Miners will be presenting at the two day conference in Canberra.
Market volatility will continue near term, with pressure still to the downside.
We think the trading strategy is to accumulate, using covered calls and tight stops. Resources Rent Tax will continue to be topical.
ASX – to open lower
US & UK/Europe – US and Europe end lower
US ADRs – Broadly Lower
BHP down 3.4% & RIO down 2.9%; AWC down 3.2%
ANZ down 3.8% & NAB down 3.8%
NEM up 1.5%, JHX down 1.7, NWS down 2.7%
Commodities Stock Index down 3.7%
Gold Stocks Index down 0.6%
Oil Stocks Index down 5.1%%
By Michael Hevern
Head of Research