Weekly Market Wrap
Markets globally remain around multi-year highs (with the exception of China) and are on track for a solid third quarter performance. However traders remain cautious ahead of the looming US budget negotiations and the impending debt ceiling limit.
In the US stock markets have been drifting, but overnight they snapped their longest losing streak since last December, as investors come to terms with the Federal Reserve tapering down the road and the debate over the US debt ceiling and threatened government shutdown. The three benchmark indexes are hovering around all-time highs – the S&P 500 is only -1.6% off all-time highs and is up 6% for the quarter. Traders have been cautious as they await this weekend’s Senate vote on a bill designed to prevent the US government from running out of money on 1 October, but this gives the House only one workday to act (the stumbling block is centred around the 2010 health-care law). Elsewhere Congress needs to take action by 17 October to avoid the US breaching its debt ceiling limit.
Also in the US, trader sentiment has been dampened by a Commerce Department report stating July and August saw the worst new home sales this year, as demand has been impacted by the jump in mortgage rates to a two-year high and major consumer discretionary stocks such as Apple, Walmart and JC Penny are seeing signs of weaker consumer demand, as US consumer confidence slumped to a four month low. However overnight sentiment was boosted as the Commerce Department reported GDP rose from the second quarter to an annualised 2.5 percent and the Labor Department reported the number of Americans applying for unemployment benefits unexpectedly fell last week. There is plenty to look out for next week with the Budget negotiations and the monthly employment report.
European stock markets have been drifting this week, trading down three of the past four days and there appears to be some distribution occurring at these levels. The Europe Stoxx 600 index is down -0.4% for the week, but is still up around 5.3% for the month and setting up for the best September performance in two years. The index is also up 10% for the quarter, after hitting its highest level since June 2008, as the ECB said it remains accommodative. In London the stock market is trading around 6-week highs. The index is up 2.4% for the month of September so far and is up 5.6% for the quarter. The German market has had a muted reaction to the government elections, but is up over 12% for the year and is trading around all-time highs.
Asian markets have generally rebounded to trade around 4-month highs, led by Japan, but Chinese stocks continue to be under pressure. The MSCI Pacific Index is up 8% for the month and has been up for sixteen of the past twenty sessions, trading up around 4-month highs. The Chinese economy is stabilising, with the Chinese HSBC Flash PMI coming in at 51.2, a six month high and up from 50.1 in the previous month (the official figure will be released next week). However the Chinese Shanghai Composite slumped to near 3-week lows, as companies exposed to the new Shanghai trading zone saw profit taking after a strong run. The Chinese market will be closed 1-7 October for national holidays.
The Hong Kong market eased back down from its highest close since May and has rebounded over 20% from its June lows. The Japanese market jumped and is trading near 8-week highs. Exporters rose after a report showed exports jumped the most since August 2010 and the trade deficit narrowed. There was also speculation that the government will evaluate a corporate tax cut and advise that the Government Pension Fund should hold more risky assets.
The Australian equities market has rebounded to fresh 5-year highs this week as we come into the end of quarter, with the gains being driven by the energy, industrials and financials sectors. The chase for yield continues, as RBA interest rates remain around record lows at 2.5%. We saw some further short covering over the banks, 45 days out from their next dividend season, while energy stocks rose after presenting at the CLSA Conference in Hong Kong and on speculation that crude oil may be close to finding a base around current levels. Industrial stocks were sought after as a play for a cyclical upturn into the end of the year. We also saw gains in the mining sector and buoyant commodity prices, as the US Fed’s decision not to taper is seen as support for economic growth. The Australian dollar drifted below the US94c level.
Traders will be looking forward to a resolution in the US over the budget, the US employment report and the official Chinese manufacturing PMI data due out next week.
Key levels for the ASX 200 index next week will be 5230 and 5330, with 5260 the key near term pivot level. Note volatility has eased again this week, despite the showdown in the US Senate. Investors should be looking to take this opportunity to use options to protect their portfolio near-term, warrants can also be used. The ASX 200 and All Ords are trading at new 5-year highs, so we may see some profit-taking near-term.
Remain attuned to the news from overseas, particularly from the eurozone (Italy), China (economy – PMI) and the US (budget and debt ceiling). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact me at D2MX Advisory on 1300 610 024 and we 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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