Investors had plenty of news to digest this week, but the major market mover has been the Greek debt-swap deal, which was at risk of being derailed by the private-sector bond holders.
Traders pushed markets down for their biggest single day losses since last November, with the Dow Jones recording its first triple digit loss for the year. The selling was sparked by renewed concerns that the private-sector was reluctant to participate in the Greek debt-swap, which was crucial for Greece to gain access to its second bailout funding.
US markets have backed off key levels this week, with a sharp dip coming after Greece had debt-swap issues, but the markets have since recovered to record their best two-day rally for the year. Commodity prices were sold-down sharply earlier in the week as traders took their profits off the table, but they appear to be finding support again in recent days. There will be some telling data released tonight, with the Non-Farm Payroll monthly employment report, which is expected to report an unemployment rate that will hold steady at 8.3% in February, and that the economy added 213,000 jobs. On the corporate front Apple has released a new product suite and has reached $US500 billion in market capitalisation.
European traders have driven global sentiment this week, with troubles over the participation rate of private-sector creditors in the Greek debt swap. However news overnight has confirmed that the participation rate will be high enough for Greece to get the second bailout package, worth EUR130 billion, and avoid a “disorderly” default. At last report private-sector creditors representing 75% of outstanding Greek debt have agreed to exchange their holdings for new debt.
Italian government bond yields fell to 4.8% overnight, their lowest level since mid-2011, while the euro dollar climbed sharply against the US dollar. The other issue for the week was the slowing eurozone growth rate, as the ECB and the Bank of England held interest rates steady, but the ECB has said that eurozone economic growth will shrink by 0.1% this year (down from 0.3% growth), and the ECB now expects 2013 growth of 1.1% (down from 1.3%). In Germany however, the market has been supported by news that industrial production for January exceeded expectations, as production rose 1.6% on the previous month.
Asian markets remain at multi-month highs, with Japanese stocks benefiting from a weaker yen and the Chinese Shanghai Composite Index holding above 2400, its key 6-month pivot level, after traders cheered the news that the Chinese central bank is considering further easing. The Hong Kong and South Korean markets are at levels not seen since July last year, as traders shrugged off comments from Chinese Premier Wen Jiabao, at the annual National People’s Congress, that the Chinese economic growth target was cut to 7.5% for 2012, after keeping it at 8% for the past eight years, while the annual inflation target was set at 4%.
Commodity prices initially sold-down on the news about slowing growth in the eurozone, China and Brazil, but they have since recovered as we finish off the week, with the gold and silver markets and the crude oil prices all bouncing off six-week support levels.
The Australian earnings season continued this week, and the dividend season is drawing to a close. We have been driven by global forces this week, with the materials sector suffering from lower commodity prices.
The Aussie market has broken down through its 50 day moving average, and the index is attempting to find support at its six-month pivot level around 4180. On the S&P/ASX 200 the 4180 level is the crucial support level and the 4320 level becomes increasingly more important each time it is tested. This week we found support around the 4150 level but we are now trading higher again. A number of the S&P/ASX sectors are bouncing off their 150 day moving averages, having found support after their sell-off earlier in the week. These include Energy, Consumer Discretionary, and Industrials. There continues to be rotation out of the more defensive sectors like Utilities and Telecoms, while Materials and Financials have broken down from their 50 day support levels.
Traders are eager to lock in profits in this market, so reduce your risk by using options strategies. The MDS Financial Advisory Services team can help with these trades. Call 1300 610 024 for further information. Investors should also be looking to utilise options strategies to protect their positions, as options are a relatively cheap form of insurance, even though volatility has picked up of late.
Keep an eye on the Aussie reporting season as it winds down and remain attuned to the news from overseas, particularly from the eurozone and China in relation to easing policies, and the US as their markets hover around multi-year highs. Monitor the performance of 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 4198 and is holding above the key medium-term pivot level around 4180. Key levels for the index next week will be 4140 and 4280, with 4200 being the key pivot level.
By Michael Hevern
MDS Trading Desk
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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 MDS Financial Services Pty Limited ABN 28 088 190 283 AFSL No. 333298 (MDS), 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 MDS Financial Services Pty Ltd, 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.