Stock Market Analysis
Negative Leads From Overseas; ASX to open flat; New PM
U.S. stocks continued their slide overnight, as the Fed says that the debt issues in Europe pose a threat to the U.S. recovery and it will continue it’s low interest rate policy. Our market will trade flat to lower with negative leads from the U.S and Europe. Expect to see some profit taking ahead of the month end, remember the options expiry today.
The SPI Futures is below the key level of 4500 the ASX is set to open flat as the SPI closed up 8 points (or 0.2%) at 4,481. Key levels this week are 4450 and 4650. Expect our market to trade flat to lower today, remember it is options expiry today. The focus today will be on the new Prime Minister following the leadership ballot that was held this morning. Miners will be keenly interested as it will impact the proposed Resource Super Profit Tax (RSPT).
The primary news overnight was the leadership spill for Prime Minister. Kevin Rudd stood down as the Prime Minister and now Julia Gillard in Australia’s first female PM. The reasons cited for the challenge included the proposed RSPT tax and the decision to delay the emissions trading scheme which would have placed a price on carbon (after 2013).
US Markets
The US markets traded lower falling for a third day as housing sales fall to record lows, with new home sales down 33 percent last month and existing homes sales down 2.2 percent in May. The Dow up 5 points, or 0.1 per cent, to 10,298, while in the broader market the S&P 500 index lost 3 points, or 0.3 per cent, to 1,092, and the tech-heavy Nasdaq ended 0.3 per cent lower at 2,254.
European Markets
European shares generally fell overnight, ahead of the G20 meeting. Reports on business activity growth in the EU showed growth slowing in June for a second month. On a positive note a survey of 13 Bloomberg strategists suggest that earnings of European companies will be boosted by 25 percent in the next year owing to the devalued Euro. These strategists recommend buying into European stocks forecasting the global economic rebound will overwhelm any concerns about the mounting government debt. They also cited the demand for Spanish, Portuguese and Italian government bonds in June is showing the worst of the sovereign-debt crisis is over.
In the U.K. the London FTSE 100 index fell 68 points, or 1.3per cent, to 5,178 points. The German DAX up 64 points, or 1.1 per cent, to 6,204 points, while in France, the CAC 40 fell 63 points or 1.7 per cent, to 3,641 points.
Asian Markets
Asian markets sold off yesterday. In Japan the Nikkei index of the Tokyo Stock Exchange down 1.9% to end at 9,924. The benchmark Hang Seng Index was up 0.2% at 20,856, and China was down 0.7% at 2570.
Oil prices falls sharply below US$77 a barrel overnight as U.S as inventories unexpectedly rise. The benchmark crude NYMEX for July delivery down US$1.50 to settle at US$76.35 a barrel. Copper prices finished below the critical $US3.00 a pound. Copper for July delivery down 5.65 cents to settle at $US2.9355 a pound. Gold again closed below record levels, with August gold falling $US6 to settle at $US1,234.80 an ounce.
Key News Drivers Today
US housing sales fall to record lows, with new home sales down 33 percent last month and existing homes sales down 2.2 percent in May.
A survey of 13 Bloomberg strategists suggest that earnings of European companies will be boosted by 25 percent in the next year owing to the devalued Euro.
G20 – meeting to be held in Toronto this week. Key issues will be the Chinese currency revaluation and the cut backs in stimulus spending and their impact on global growth.
U.K. – In London the government announced an emergency package of higher taxation and further spending cuts to address their spiraling debt.
BP – bounce off 13 year lows as a result of the oil spill in the Gulf of Mexico.
YUAN – China to end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency appreciate in an orderly manner against the US dollar. The yuan has been pegged at 6.83 against the US dollar since mid-2008. It will not be a one-off revaluation.
OIL – Goldman Sach’s cuts its oil price forecast to $US87 for the next few months (vs previous $US96).
Markets Overview
U.S. Markets Weaken Technically; ASX to Trade Lower
SP500: down 0.3% at 1,092 – Below 200 day Moving Average
DOW flat at 10,298 – Above 10,000
NASDAQ: down 0.3% at 2,254
Dollar Index: lower at 85.81 on Higher Euro
A$ higher at 87.37
FTSE: down 1.3% at 5,178 – Financials Weigh
DAX down 1.1% at 6,204 – Still in Outperforming
CHINA: down 0.7% at 2,570 – Currency Allowed to Revalue
HSI up 0.2% at 20,856
Oil: down 0.7% ($75.81)
U.S. Inventories Up
Gold: up 0.3% at ($1,237.30)
Commodities Lower
SPI: Below key Level 4500 ASX
SPI up 0.2% at 4,481
ASX News
The SPI Futures is below the key level of 4500 the ASX is set to open flat as the SPI closed up 8 points (or 0.2%) at 4,481. Key levels this week are 4450 and 4650. Expect our market to trade flat to lower today, remember it is options expiry today. The focus will be on the Prime Minister, miners will be keenly interested as it will impact the proposed RSPT tax.
AUD – higher at 87.37
AEJ – Alinta Energy says it has received takeover offers as the power station owner attempts to reduce debts.
MAP – say it will use the proceeds from the sale of Copenhagen Airports (CPH)’s interest in ITA to retire debt.
NQM – North Queensland Metals says a cash and scrip takeover offer from its largest shareholder Conquest Mining (CQT) is inadequate. The offer is 0.5 of its CQT shares and 10 cents for each share in the target.
PPT – CEO David Deveral resigns for personal reasons, but will stay on until a replacement is found.
SONRAY – Sonray Capital collapsed owing tens of millions of dollars, stranding over 3000 client accounts, tied up in a pooled account.
SUN – Suncorp-Metway aims to more than double new life insurance business over the next three years by building its presence in the direct sales and financial advice markets.
SVW – Seven Group agrees to invest $287.16 million in Agricultural Bank of China.
TLS – CIO John McInerney resigns suddenly, he had been working on the final stages of a new customer billing system.
WPL – Woodside is ramping up efforts to return striking staff at its Pluto LNG project to work, saying it will apply to authorities to suspend the industrial action.
Economic Reports out today:
Westpac – reports on industrial trends
NAB – CEO to address a Trans-Tasman Business Circle meeting
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 and open/hold short positions, remember options expiry today and we are trading into the end of the financial year.
Market Summary
ASX – to open flat to lower
US & UK/Europe – Negative leads…
US ADRs – Broadly Lower!!!…
BHP up 2.1% & RIO up 2.3%; AWC down 3.3%
ANZ up 0.1% & NAB down 1.1%
NEM down 0.7%, JHX down 4.1%, NWS down 0.2%
Commodities Stock Index up 0.4%
Gold Stocks Index up 0.3%
Oil Stocks Index down 0.9%
By Michael Hevern
Head of Research
