Traders held their nerve this week, as they awaited news from the ECB as to when the “unlimited” bond buying program would commence. In the US traders are also watching out for the Non-Farm Payrolls employment report due out tonight.
US stock markets have closed higher every day this week and the three benchmark indexes are up around 1.4% for the week so far. In the broader market all 10 industry groups in the S&P 500 are on the rise, with the financials and commodity-related sectors rebounding and leading the gains. The home builders and coal stocks were among the best performers this week. The crucial Non-Farm payroll employment report is due out tonight and analysts expect the government jobs report to show that the economy created 115,000 jobs last month and the unemployment rate increased to 8.2 percent (up from 8.1 percent last month). The S&P 500 has rallied 16% for the year, as central banks in the US, Japan, the ECB and China have introduced measures to stimulate economic growth. In the US the Federal Reserve last month announced a third round of quantitative easing by purchasing mortgage-backed securities at a pace of $40 billion per month until labour markets improve.
European stock markets have bounced off 3-week lows, as traders await news on when the ECB bond-buying will begin. The Stoxx Europe 600 Index is up 1.5% this week and the index has climbed 11% for the year as ECB policy makers agreed on an “unlimited” asset-purchase program to bring down borrowing costs in Spain and Italy and as the Federal Reserve announced a third round of quantitative easing. The ECB President Mario Draghi has reaffirmed that the central bank is ready to start buying government bonds as soon as the necessary conditions are fulfilled, as they kept the benchmark interest rate at a record low of 0.75 percent, as expected. Traders are still waiting on the Spanish government to request a bailout from the ECB and Spanish three-year borrowing costs increased to 3.95% (up from 3.85%) at a debt auction overnight. The beginning of the ECB bond-buying will be the next catalyst for the markets.
Asian stock markets have generally risen this week, but a number of markets have had a holiday-shortened trading week, including India, Hong Kong and mainland China. The MSCI Asia Pacific Index is heading for its highest close in a week, on the back of a 4% rise in September due to speculation that China will add to stimulus measures, following moves by the ECB and central banks in the US and Japan, to ease monetary policy through quantitative easing. The Chinese market has been closed this week. In Japan the central bank is in a 2-day policy meeting, which last month boosted its asset-purchase program to YEN55 trillion ($US700 billion), as deepening pessimism among manufacturers is prompting the central bank to do more to combat deflation and address economic growth.
In commodities crude-oil prices have been volatile this week, but are looking to close the week around $US92 again, as prices rebounded strongly overnight on the back of geopolitical tensions in the Middle East. The gold price reached 11-month highs and is again trading around the $US1,800 level, as traders price in the global quantitative easing. Copper remains near 4-month highs.
The Australian market has broken the 4450 level as we predicted last week, and is looking to push towards the 4500 level, given the coordinated global central bank action designed to boost economic activity worldwide. The Australian market has edged higher, closing at the highest level since August 2011, as traders bet that the Reserve Bank of Australia will follow this week’s interest rate cut with another reduction in November. This would bring the cash rate to 3% which would be a 50-year low and the lowest since back at the height of the GFC.
In our market the growth-sensitive and defensive sectors have supported the market this week, as investors took their cue from the central banks and continued going long this market. The financials and materials sectors have resumed their upward path. The financial and info-tech sectors held around 12-month highs. The materials, industrials and energy sectors eased initially but have rebounded towards the end of the week, as trader optimism over the central bank stimulus reasserted itself.
Protection is extremely cheap at the moment and investors should have protection in place for their capital, and could look to put their money to work while reducing their risk by using options and warrants strategies. Remain attuned to the news from overseas, particularly from the eurozone, China, Japan and the US. Monitor the performance of Italian and Spanish borrowing costs, China-Japan tensions and 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 4480 and is looking to close the week at 15-month highs. Key levels for the index next week will be 4400 and 4520, with 4450 the key short term pivot level. Traders are buying on the back of the global central bank stimulus, in anticipation that it will be enough to boost global growth.
Contact me at D2MX Trading on 1300 610 024 and I 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.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.