Morning Market Wrap
A broad recovery overseas gives positive lead for the ASX!
U.S. and U.K. markets surged higher overnight. The surge was sparked by China’s report that exports are up 48% and the British press reported that the Australian Government is close to compromising on on the Resources Tax. The sell-off in the previous session hinted of the liquidation of a hedge fund, though not confirmed at this stage. Volumes overnight were below average which may indicate that much of the move overnight was driven by short covering.
The SPI Futures is above the key level of 4500 the ASX is set to open sharply higher as the SPI closed up 68 points (or 1.6%) at 4,509. Key levels today are 4350 and 4550. Expect our market to trade higher, take this opportunity to hedge long positions ahead of the long weekend.
Note that both the prime minister and BHPs CEO have refuted the overnight British reports of a RSPT compromise, saying the dispute over the resource rent tax is ongoing and the government is not about to offer a compromise. The better than expected unemployment report yesterday (rate is now down to 5.2%), will be an added bonus for our markets today.
US stocks surged overnight on a short covering rally as hopes rose that the global economic recovery is still on track, boosted by returning a recovering euro and positive economic news in Asia. The Dow Jones industrial average vaulted 273 points, or 2.8 percent to 10,172, while in the broader market the S&P 500 index rose 31 points, or 3 per cent, to 1086 and the tech-heavy Nasdaq index climbed 59 points, or 2.8 percent, to 2218. The S&P energy sector gained 4.9 per cent, as BP shares jumped 12.3 percent to $US32.78 a day after posting a near 16 per cent decline.
In London, the FTSE 100 closed up 46 points, or 0.9 percent, at 5,132 points, while across in Germany the DAX 30 closed up 71 points, or 1.2 percent, at 6,056 points and in France the CAC 40 closed flat. The Euro bounced overnight to $US1.2105 and the Australian dollar rose more than 1 US cent higher at over $US0.85, as Asian economic data buoyed investor sentiment on the global economic recovery.
China’s exports surpassed forecasts, unemployment rates fell in South Korea and Australia. Japan reported its economy expanded more than previously estimated in the first quarter. Chinese exports jumped 48.5%, the most in six years, but property prices also rose at a record pace up 12% last month. Investors took the view that the data is confirming the economy is weathering the sovereign debt crisis in Europe. However it should be noted that there is a still a risk of the Chinese economy overheating, which will force the government to impose more stringent monetary tightening measures.
Asian markets were mixed with Japan’s Nikkei 225 index ended up 1.2 percent, at 9,542, off its lowest close since late November, key support is at 9,400 points. In Hong Kong stocks closed flat at 19,632. In China, the Shanghai Composite Index ended down 21 points, or 0.8 percent, to 2,562 points.
Oil prices rose for a third day buoyed by strong Chinese exports data and an upbeat energy demand outlook from the International Energy Agency (IEA). The NYMEX main futures contract, light sweet crude for delivery in July, rose $US1.10 to settle at $US75.48 a barrel. Gold fell 1 per cent, as a sharp Wall Street rally and recovering risk appetite prompted investors to switch funds out of precious metals and into assets perceived as risker. Spot gold closed lower at $US122.80 o the NYMEX.
Key International Drivers
The US government reported that the number of new filings for unemployment benefits fell less than expected last week, while the international trade deficit widened slightly in April, pointing to a moderate economic recovery.
US markets regulator the Securities and Exchange Commission has approved new circuit-breaker rules on stocks trading in response to last month’s ‘‘flash crash’’.
The new rules will trigger when stocks move 10% up or down in a short period and in an attempt to smooth market volatility, trading will be paused to enable the markets to settle.
The European Central Bank (ECB) kept its main interest rate at a record low of 1.0 per cent, while the Bank of England (BoE) left its base interest rate at a record low of 0.5 per cent for the 16th consecutive month as the economic recovery remains fragile and public spending cuts are expected to hamper future growth
BP finally bounced despite fears that President Barack Obama will exact a heavy price from the British energy giant for the Gulf of Mexico oil spill.
The United States trade deficit expanded a notch in April, led by a surge in goods imports from China, government data showed amid a rising US outcry over Chinese monetary policy. New claims for US unemployment benefits fell to 456,000 last week, according to government data, in the latest sign of a slowly improving job market.
China is taking steps towards imposing its own resources tax, undermining the miners case against the RSPT tax here.
Markets Overview
Markets surged higher lead by Miners, Financials and Energy
SP500: up 2.9% at 1,087 – Above “Flash Crash” Lows
DOW up 2.8% at 10,172 – Above 10,000
NASDAQ: up 2.8% at 2,219
Dollar Index: lower at 87.01 on Higher Euro
A$ lower at 87.10 (above 10-month Lows)
FTSE: up 0.9% at 5,132 – Energy & Financials Lead Recovery
DAX up 1.2% – Still in Uptrend
CHINA: down 0.8% at 2,563 – 13-month Lows as Suport becomes Resistance
HSI up 0.1% at 19,632
Oil: up 2.1% ($75.48)
Short Covering Rally in Energy
Gold: down 1.0% at ($1,220)
Commodities Higher
SPI: At key Level 4500 ASX
SPIup 1.6% at 4,509
ASX News
The SPI Futures is above the key level of 4500 the ASX is set to open sharply higher as the SPI closed up 68 points (or 1.6%) at 4,509. Key levels today are 4350 and 4550. Expect our market to trade higher, take this opportunity to hedge long positions ahead of the long weekend.
Note that both the prime minister and BHP’s CEO have refuted the overnight British reports of a RSPT compromise, saying the dispute over the resource rent tax is ongoing and the government is not about to offer a compromise. The better than expected unemployment report yesterday (rate is now down to 5.2%), will be an added bonus for our markets today.
AUD – higher at 84.84, above 10 months lows.
APK – Australian Power & Gas has secured a wholesale electricity supply agreement for its entry into the Queensland market, raised
its forecasts for customer growth and announced a convertible note facility to raise funds. Shares were up 24%.
ASX – the Stock exchange operator has committed approximately $32 million to the construction of a new data centre.
CTX – upgraded to Buy by UBS, expecting better-than-expected profit. Shares up 4.9%.
CWT – Challenger Wine Trust has forecast a 9% drop in the value of its vineyard properties as an oversupply of wine impacts grape prices.
MQG – has been named as one of the underwriters for the Agricultural Bank of China’s proposed IPO, which received approval from Chinese regulators on Wednesday and could raise between $24.72 and $37.08 billion.
OEC – shelves a planned capital raising because of volatile conditions on global equity markets.
SUE – Australian hedge fund Basis Capital has filed a $US1 billion lawsuit against Goldman Sachs and its Australian offshoot, saying it was misled after one if its funds bought a security packed full of US subprime mortgages that eventually contributed to its collapse.
WDC – preparing to launch a Australia’s first virtual shopping centre.
TCL – the tollroad operator said it completed its $542.3 million equity raising Thursday, however retail investors largely shunned the offer to help fund its $630.5 million acquisition of Sydney’s Lane Cove Tunnel with only 5% uptake from eligible retail investors. TCL said the 27.8 million new securities not taken up by retail investors in the 1-for-11 entitlement offer, failed to achieve the A$4.60 clearance price under a book build and will be taken up by underwriters UBS and sub-underwriters to the issue.
Economic Reports out today:- None
Market volatility will continue near term, some speculative accumulation is underway.
We the suggest trading strategy is to tighten stops. Be prepared to take profits, look for value stocks.
Market Summary
ASX – to open higher, giving opportunity to take profits ahead of the long weekend
US & UK/Europe – Positive Leads
US ADRs – Broadly Higher!!!…
BHP up 6.4% & RIO up 7.6%; AWC down 1.9%
ANZ up 6.6% & NAB up 6.9%
NEM up 0.8%, JHX up 1.9%, NWS up 4.5%
Commodities Stock Index up 4.1%
Gold Stocks Index up 1.1%
Oil Stocks Index up 5.3%
By Michael Hevern
Head of Research
