Posts Tagged ‘RBA’

Weekly Market Wrap: Global Markets Melt-Up As Greek Bailout Nears Completion

Friday, February 10th, 2012

The Aussie market looks to be setting up for another assault on the 4300 level as the earnings season gets underway, and the RBA surprises by leaving interest rates on hold.

The earnings season heated up this week with stocks like RIO, BHP, NAB, Newscorp and Telstra posting results. Of the 25 S&P/ASX 200 stocks that have already reported a quarter have beaten forecasts and around a half have reported in-line. This seems to be an underlying trend as analysts would have backed their expectations prior to the reporting season. Most companies are forecasting a tough 2012, particularly in the first half of the year.

The bulls are winning the battle for control of the market as we progress into February, and trading volumes continue to steadily improve. February is a busy time for Aussie income investors with the reporting season, and many stocks will be going ex-dividend in the next month.

The US markets took the cue of the upbeat monthly unemployment reading, now down to 8.3%, and continued their melt up. Additionally the reporting season surprises remain to the upside, particularly in technology and industrials sectors. The tech-heavy Nasdaq has held onto its gains which leaves the index at the highest level since 2001, while the Dow Jones and the S&P 500 indices are at their highest levels since mid-2008.

European markets are also continuing to melt-up, with the European Stoxx 600 index holding at 6-month highs. The London FTSE is outperforming as it approaches 2-year highs, while the German market is at 6-month highs. The focus in the eurozone has been on the Greek bailout negotiations, where overnight there was progress with Greek political leaders reaching an agreement on key austerity measures. Also, the European Central Bank announced that collateral rules will be relaxed for institutions trying to access cheap money from the ECB. Elsewhere a number of central banks have met with the ECB keeping key rates unchanged (as expected), while the Bank of England said it would increase its asset-purchase program by an additional GBP50 billion, designed to combat a weak near-term growth outlook.

Asian markets have held on to recent gains. China has again been in focus, as Chinese CPI figures surprised to the upside up at 4.5% (above the expected 4%), which could mean the government will postpone any monetary easing near-term. This report comes close on the heels of last week’s report that showed Chinese manufacturing activity figures were better-than-expected with the PMI at 50.5 in January. The Chinese market is at 2-month highs.

The Aussie market is building for a sharp move as it has been bouncing between its 50 and 200 day moving averages (MAs) for the past month. On the S&P/ASX 200 the 4180 level is the key pivot/support level and as long as this holds the market looks to be setting up for an assault on the 4320 level near-term. The reporting season so far has not produced many surprises, with results pretty much in-line, and forecasts of a tough 2012. The surprise news from the RBA to leave interest rates on hold is a vote of confidence for the Aussie economy near-term.

This week we again found support around the 4200 level and we are now trading above the 13 day moving average, which sits around 4230. Many of the S&P/ASX sectors are testing their 150 day moving averages near term. The Energy sector has broken through as crude-oil prices hold around the $US100 level. We are seeing a rotation out of the defensive sectors such as Utilities, Consumer Staples and Health Care, while Consumer Discretionary continues to underperform. The Materials and Financials sectors are consolidating near-term.

The dividend season is underway, so you can look to boost your yields through options strategies. The MDS Financial Advisory Services team can help with these trades. Call me on 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, given the falling volatility of late.

Keep an eye on the Aussie reporting season, and remain attuned to the news from overseas, particularly from the eurozone, Greece and China in relation to easing policies, and the US with their earnings season. 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 4277 and is holding above the key medium-term pivot/support level around 4180. Key levels for the index next week will be 4180 and 4320, with 4250 the key pivot level.

By Michael Hevern
MDS Trading Desk

For daily Buy and Sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

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Stock Market Analysis: Australia’s GDP Growth Rate Slows

Thursday, December 2nd, 2010

There are two key reports out yesterday that indicate the strength of the Aussie economy (GDP) and its trading partner China (PMI).

Australian GDP

The Australian Bureau of Statistics (ABS) show that GDP growth over the third quarter (3Q10) came in at 0.2 percent and the June quarter was revised to 1.1 percent.

We expected the 3Q10 GDP growth to fall, with “net exports providing a bigger drag than expected”.

Economic growth in Australia has fallen sharply with the economy expanding by 2.7 percent in the 12 months to September (versus economist forecasts of 3.4 percent , before yesterday). A slump in net exports was the main drag on the economy, costing 0.4 percentage points from the quarterly figure.

Chinese PMI

Also in the news was the PMI data showing that Chinese factories ramped up production in November (for a 21st consecutive month), through increasing output and growth in export orders, but they still face pressure from rising input costs. The Official Chinese data showed the purchasing managers’ index (PMI) jumped to a 7-month high of 55.2 in November (up from 54.7 the previous month).  Inflation continues to be a problem for the Chinese economy and that data will do little to ease concerns of investors over another rate hike in China before the end of the year. The government has already increased bank reserve requirements five times this year, as well as restricting bank lending, in an attempt to dampen inflation.

The Australian Economy

The Australian economy remains heavily reliant on the commodities sectors, with the demand for Australian resources from China and India remaining strong, which is underpinning growth in the Australian economy through the mining sector. Elsewhere the agricultural sector was the biggest contributor to GDP growth in the quarter, growing by 21.5 percent and adding 0.4 percentage points to the GDP figure. Household spending held up.

The Reserve Bank (RBA) should be happy with the recent strong employment figures and how this data confirms the job growth and the commodities boom remains robust and that consumers are continuing to save, probably because they want to be prepared for any further rate hikes in the coming months. With the RBA raising rates last month to 4.75%, before the Christmas spending spree, they have given themselves more room to leave  rates on hold for the first quarter next year.

China will be a focus in traders minds going into the end of the year, particularly if there is another rate hike in China, as that will impact the Chinese demand for our commodities near-term.

The Trade

The Australian dollar has fallen since the release of the GDP data and is now trading around US95.7 cents (from around US96.1 cents). This has a dampening effect on the mood of investors near term, particularly with overseas market struggling as they are.

Investors need to be cautious at this time, either by taking profits, honouring stop loses, and/or protecting their portfolios through the use of options as discussed in our recent article on Hedging Your Portfolio.

By Michael Hevern
Head of Research

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Analyst’s Eye – Commodities Rising

Friday, November 5th, 2010

Commodities continue to underpin the performance of the Australian equities market, and they surged overnight due to weakness in the US dollar owing to the Fed’s commitment to QE2.  In the Trader Dealer daily blog we review the CRB index in our market report, to keep investors appraised of current market movements.  The CRB Index (.CRB) is a measure that provides the investor with a snapshot of the performance of a basket of commodities and at the moment it is breaking to levels not seen since mid-2008.  Investors need to understand the composition of this index and how it influences equitiy prices in the broader market.

The Thomson Reuters/Jefferies CRB Index (TR/J CRB)

The CRB Index is the Thomson Reuters/Jefferies CRB Index (TR/J CRB), and it’s a commodity price index. The index was first calculated by the Commodity Research Bureau, Inc. in 1957, and was composed of an index comprised of 28 commodities, but Thomson Reuters/Jefferies has managed the index and its components since 1961.

The TR/J CRB was originally designed to provide dynamic representation of broad trends in overall commodity prices. The components and formula of the index composition have been periodically adjusted to reflect changes in market structure and activity, so that the dynamic representation remains relevant. Since 1957 there have been 10 revisions to index components.

Investors need to be aware of the breakdown of the commodities within the index, in order to understand its potential influence on the equities market.

CRB Index – Sector Weightings

The CRB Index is designed to provide a broad representation of overall commodity prices. The breakdown by sector weightings is outlined below. The petroleum products market makes up 33 percent of the overall weighting because of their importance to global trade.

CRB Index - Breakdown by sector weightings

CRB Index – Four-Tiered Approach

The Reuters/Jefferies CRB Index uses a four-tiered approach to allocating the basket of commodities within the index. It is currently made up of 19 commodities as quoted on the NYMEX, CBOT, LME, CME and COMEX exchanges.

CRB Index - Four tiered approach

The 19 commodities are sorted into 4 groups, each with different weightings, including:

- Group I – includes only petroleum products but always makes up 33% of the total weightings;
- Group II – Liquid assets – includes seven commodities which are highly liquid;
- Group III – Highly liquid assets – comprised of four liquid commodities;
- Group IV – Diverse commodities – includes commodities that may provide valuable diversification.

Group I includes only petroleum based products, based on their importance to global trade, and makes up 33% of the total weightings. In the other groups, all commodities are equally weighted within Groups II (6% each), III (5% each) and IV (1% each).

Further drilling into the Groups:

Group I – WTI Crude Oil (23%), Heating Oil (5%) and Unleaded Gas (5%);
Group II – Natural Gas, Corn, Soybeans, Live Cattle, Gold, Aluminum and Copper (6% each);
Group III – Sugar, Cotton, Cocoa, and Coffee (5% each);
Group IV – Nickel, Wheat, Lean Hogs, Orange Juice, and Silver (5% each).

Current Commodities Market

In the past couple of weeks, base metals and soft commodities have been trading higher, on expectations of tightening fundamentals and the lower US dollar.

In the base metals Copper prices have rallied to a fresh 27-month peak around $US3.90/lb, due to dwindling Chinese stockpiles. Gold recently hit another record, trading above $US1,380 an ounce, and is still trading close to all-time highs. Crude Oil prices have been underperforming other commodities in the past year, but Crude Oil is now also trading close to year-to-date highs, as China is importing at record levels.

Soft commodities are also trading at multi-year highs, with Corn trading around 24-month highs, Wheat trading around 25-month highs and Soybean Oil trading around 27-month highs.

With all these commodities trading near record levels we can turn to the CRB Index to confirm the momentum of the underlying move in commodities, as seen in the chart below.

CRB Index - Momentum of underlying movement in commodities

This picture on commodities is very promising for the Australian economy, because it is driven by commodities prices. The CRB Index is breaking to levels not seen since mid-2008, and this will no doubt underpin a continued rise in the Australian equities market. The RBA, in deciding on this week’s interest rate hike to a cash rate of 4.75%, may also be considering this move in commodities prices, as a precursor to inflation into 2011.

Current Catalysts

Near-term the key drivers for commodities prices are the strength/weakness of the US dollar, the scope of the next round of quantitative easing in the US (QE2), unemployment levels, and Chinese demand, which remains robust in the near-term.

The Trade

Continue to trade commodities and the miners to the long side until the US dollar finally finds support. Copper has broken to new highs and is looking to continue higher. Gold is looking to consolidate near-term. Crude Oil typically trades higher into the end of the year. Monitor the catalysts, the US dollar, QE2 and China, for leading indications of any change in sentiment.

By Michael Hevern
Head of Research

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Stock Market Analysis: RBA Interest Rate Reprieve

Wednesday, October 27th, 2010

Mortgage holders are breathing a sigh of relief after the Australian Bureau of Statistics (ABS) reported benign inflation figures, reducing the urgency for another Reserve Bank rate hike.

The inflation data released by the ABS today has made the RBA’s decision on interest rates even more difficult. Prior to the release of today’s inflation data, interest rate futures traders were rating the possibility of a rate hike at the next RBA meeting, due to be held on Melbourne Cup Day, at around 60 percent.

The ABS reported September quarter inflation figures came in at 0.7 percent for the quarter and 2.8 percent for the year, below economists’ expectations and below the 3.1 percent rise for the June quarter.

The Reserve Bank’s preferred trimmed mean and weighted median measures of inflation came in at 0.6 and 0.5 percent for the three months to September, virtually unchanged from the 0.5 percent result for both last quarter.

Interestingly the inflation drivers for the quarter came from increases in the price of utilities and charges, with water and sewerage up 12.8%, electricity up 6% and property rates and charges up 6.2%. These increases were offset by significant falls in vegetable prices down 5.4%, the cost of pharmaceuticals down 3.9%, the cost of fuel down 3.7% and falls in the prices for audio, visual and computing equipment down 2.7%.

At its last meeting the RBA surprised economists and investors by leaving the cash rate on hold at 4.5 percent. The meeting minutes revealed the decision was ”finely balanced” and that the RBA needed more information about price pressures in the economy.

The figure that the RBA uses for its interest rate decision is the underlying inflation, which is now running between 2.3 and 2.5 per cent for the year to September, in the middle of RBA’s target band. The underlying inflation reading is now the lowest in over five years and removes the urgency of another RBA rate hike.

The rising Aussie dollar has helped moderate inflation and it has gained around 13 percent in the September quarter against the US dollar. This has resulted in lower prices for consumers and cheaper capital equipment for businesses.

However at next week’s meeting the RBA still needs to consider:

• Whether a rate hike in November would be more effective than waiting til December, as much of the Christmas and business planned spending is allocated in the weeks before the RBA December meeting.
• The likelihood of the strong Australian dollar holding near parity, for an extended period.
• If there are signs of excessive wage rises as the job market tightens.

The Trade

Interest rate futures traders are now rating the possibility of a rate hike at the next RBA meeting at around 30 percent. The next meeting is due to be held on Tuesday (Melbourne Cup Day).

Retailers and mortgage holders will benefit if the RBA interest rate hike is delayed, which will in turn help the Consumer Discretionary sector. The Banking sector will be hurt as banks have said that the margins for their cost of money are already tight.

There are a number of external influences on the Aussie economy. In the US GDP data is due out later this week and the US Federal FOMC meeting is scheduled for next week, and investors have already factored in a new round of stimulus spending (QE2).

The big surprise in the CPI figures was the very subdued underlying inflation figures which came in at the middle of RBA’s target band. The underlying inflation reading is now the lowest in over five years and removes the urgency of another RBA rate hike. However, we expect that if the RBA is going to increase rates before Christmas then it will be more effective if done at the November meeting.

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Stock Market Analysis: Weekly Market Wrap

Friday, October 8th, 2010

Quantitative Easing and Jobs

Markets have held on to their gains of September with central banks committing to further quantitative easing deemed necessary. US investors have been cautious this week ahead of their monthly jobs report due out tonight. The US dollar continues to plummet below 8-month lows which is pushing commodity prices to record highs. Crude oil and copper prices have been pushed to 5-month highs, and gold has reached record prices above the $US1,360 level.

European markets drifted higher as investors chose to ignore sovereign debt issues. Asian stock markets are trading mixed with the Bank of Japan (BoJ) surprising investors by pushing interest rates to “virtually zero”, while Chinese markets have been closed most of the week for Golden Week holidays. The Aussie market has been trading higher this week, spurred on by higher commodities prices and a surprising jobs report. Also the RBA surprised by holding rates at 4.5 percent.

US Markets

US stocks rallied to 5-month highs early in the week, but caution reigns ahead of the monthly jobs report. There was early investor optimism ahead of some key earnings and jobs data later on in the week, with the Dow component, Alcoa kicking off the reporting season today after market and the non-farm payrolls monthly jobs report due Friday.

Data also showed the US services sector expanded at a better-than-expected pace in September according to the Institute for Supply Management (ISM). The jobs report is considered to be key near-term, particularly for the private sector as this will determine how aggressive the Fed will need to be in its quantitative easing (QE II). Interestingly the trading volumes in the last quarter were down 25 percent.

Overnight the Dow closed down marginally -0.2% at 10,949, while in the broader market the S&P 500 index was down -0.2% at 1,158 and the tech-heavy Nasdaq ended up 0.1% at 2,384.

European Markets

European stocks drifted higher this week as investors chose to ignore sovereign debt concerns, despite Irish debt being downgraded. Investors are speculating that the central banks will work to take action to boost the faltering economic recovery as necessary, given the surprise move from the BoJ. Markets traded to new weekly highs, with the UK outperforming again, but the German market played catch up on the back of a report that showed German August factory orders had increased at almost four times the pace that economists had forecast, led by demand for investment goods such as machinery. The euro has soared to fresh 8-month highs above $US1.40 which has prompted the European Commission to warn that the rising euro could jeopardise recovery in the EU bloc. In the UK the Bank of England said it will maintain its emergency stimulus plan and left its interest rates unchanged at record levels.

Overnight in London the FTSE 100 index closed down -0.3% at 5,662, the German DAX was marginally up 0.1% at 6,276, while in France the CAC was up 0.2% at 3,770.

Asian Markets

Asian stock markets have been mixed this week. The Bank of Japan boosted sentiment as it unexpectedly announced it will buy more bonds and cut its key overnight call interest rate to “virtually zero”, saying its rates are to remain this low until prices begin to stabilise from deflationary pressures. However, Japanese exporters are still under pressure as the yen stubbornly remains around 15-years highs against the US dollar.

The Hong Kong market has drifted higher as the Chinese markets have been closed for most of the week for public holidays. Overnight in China the SSE Composite closed at 2,656, while in Hong Kong the Hang Seng Index was flat at 22,884 and in Japan the Nikkei 225 Index was down -0.1% at 9,685.

Commodities

Base metals continued to trade higher on expectations of tightening fundamentals and a lower US dollar, though we did see some profit-taking overnight. Copper climbed to fresh 5-month highs, and gold again traded above all-time highs. Overnight the benchmark for crude NYMEX for September delivery was down -2.1% to settle at $US81.49 and Copper prices were lower with Copper for September delivery down -2.2% at $US3.6630. Gold prices are at record highs around the key $US1,350 level with December gold down -0.8% at $US1,335.20.

ASX News

The ASX market traded to new 5-month highs this week as the RBA surprisingly left interest rates on hold. Yesterday jobs data also surprised with the September employment report showing the economy added 49,500 jobs which is well above the 20,000 increase forecast by economists. The jobless rate remained at 5.1% as expected. The other big story for the week was the Aussie dollar which came within a whisker of parity (above $US0.99 overnight), its highest level since the currency was allowed to float freely in 1983. The IMF also sees the Australian economy outperforming next year. The ASX 200 is still trading around 4700.

Our View

Markets continue to trade higher. The US dollar will be key near term as it’s been pushing commodities prices higher. In our market the resources stocks have been supporting the recent up move and if they start to see some profit taking then we could see some weakness in the index. Investors should take this opportunity to protect their portfolios.

The S&P ASX200 is currently trading at 4685 and is near the top of its current trading range. The key level on the ASX is still around 4,600 and the key levels for our index next week are 4750 and 4450, with pivot around 4600. The US non-farm payrolls report tonight will be key for US markets near term.

By Michael Hevern
Head of Research

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Stock Market Analysis: Markets Flat Ahead of Asian Holidays

Wednesday, September 22nd, 2010

Stock Market Analysis

Markets Flat Ahead of Asian Holidays

U.S. stocks finished flat, with gains led by IT, while miners, financials and consumer discretionary sectors all weighed on the indices. European stock markets traded lower overnight. Asian stock markets ended mostly higher. Markets were quiet ahead of  several regional holidays this week. The ASX is set to trade lower with little leads from overseas markets.

The SPI Futures is just above the key resistance level of 4600 the ASX is set to open lower as the SPI Futures closed down marginally -0.2% (or -8 pts) at 4,640. The key levels for our index today are 4650 and 4550. M&A activity continues to drive specific stocks. The ASX is likely trade lower today, however gold stocks will remain in focus, with the precious metal prices reaching another record high. Yesterday the RBAs meeting minutes signaled the RBA is ready to pull the trigger on a rate hike soon rather than later.  Note that we are nearing the end of the dividend paying period, which has been supporting our market in the past month. Options volatility is subdued at the moment, which gives investors access to “cheap” protection, so investors may consider taking this opportunity to protect their portfolios.

US Markets

U.S. stocks finished flat. However, the Dow Jones managed to post a fifth-straight gain, after the Fed said it will be prepared to take additional measures to stimulate economic growth, as they are becoming uneasy about the outlook for the U.S. economy and are uncomfortable with the recent low levels of inflation. Gains in the blue-chips were led by Caterpillar (up 2.2%), Hewlett-Packard (up 1.4%) and Intel (up 1.1%). The Nasdaq Composite snapped a 9-day winning streak. In the broader market the Financials were the S&P 500′s biggest declining sector (down 1.0%), while miners and consumer discretionary sectors also fell around 0.5% for the session. Gold futures again set a new record high as investors are of the view that the Fed could initiate another round of government asset purchases to stimulate the economy, boosting gold’s value as an alternative asset. The Dow closed up marginally 0.1% (or 7 points) at 10,761, while in the broader market the S&P 500 index down -0.3% (or -3 points) at 1,140 and the tech-heavy Nasdaq ended down -0.3% (or -6 points) at 2,349.

European Markets

European stocks ended mixed. A successful Irish bond auction, with the sale of EUR1.5 billion of sovereign bonds, buoyed sentiment early, but European markets generally ended lower. The successful auction means that investor concerns over what it will cost to support the region’s banking sector will be eased, as there is still enough demand for the government paper, and therefore the IMF need not become involved short-term.  In London the FTSE 100 index closed down -0.5% (or -26 points) at 5,576, the German DAX down -0.3% (or -19 points) at 6,276, while in France the CAC was down marginally -0.1% (or -4 points) at 3,784.

Asian Markets

Asian stock markets ended mostly higher. Markets were quiet ahead of  several regional holidays this week.  Japanese markets fell ahead of their public holiday, after stocks gave up early gains to end in the red, as exporters fell on a stronger yen. Hong Kong’s Hang Seng Index finished above the 22,000-point level for the first time since mid-April. Chinese shares ended marginally higher, supported by energy and financial firms on renewed hopes about the sustainability of the global economic recovery, but trading volumes were light ahead of a 3-day national holiday beginning Wednesday. In China the SSE Composite closed up marginally 0.1% (or 3 points) at 2,592, while in Hong Kong the Hang Seng Index was up marginally 0.1% (or 25 points) at 22,003 and in Japan the Nikkei 225 Index was down -0.3% (or -24 points) at 9,602.

Commodities

The Dollar Index down marginally -0.1% at 81.33 on higher Euro, while the Australian Dollar last traded higher at 94.59. Commodities were generally higher.

Gold prices are still around record highs. The benchmark crude NYMEX for September delivery was up 3.6% (or $US1.27) to settle at $US76.19. Copper prices higher, Copper for September delivery was down 0.2% (or 1.8 cents) at $US3.5045. Gold prices are around record highs, are around key $US1,250 level, with December gold was up 0.6 % at $US1,280.80.

Key News International Drivers Today

US – Fed is uncomfortable with slowing U.S. economy, but defers easing measures.

EU – A successful Irish bond auction, with the sale of EUR1.5 billion of sovereign bonds.
CHINA – Markets were quiet ahead of  several regional holidays this week. Government stands firm on access to credit.
JAPAN – Markets were quiet ahead of  several regional holidays this week.

Markets Overview

Market

Movement

The Dow Jones Industrial Average

Up  Marginally 0.1% (or 7 pts)  at 10,761

The S&P 500

Down -0.3% (or -3 pts)  at 1,140

The Nasdaq

Down -0.3% (or -6 pts)  at 2,349

The FTSE 100

Down -0.5% (or -26 pts)  at 5,576

The German DAX

Down -0.3% (or -19 pts)  at 6,276

The Fench CAC

Down  Marginally -0.1% (or -4 pts)  at 3,784

The Dollar Index

Down -1.10% at 80.44

The Australian Dollar

Last traded at 95.32

The Commodities Index

Down -0.46% at 278.4

Crude Oil Futures

Down -0.3% at $74.78

Gold Futures

Down -0.50% at $1,272.40

Copper Futures

Down -0.54% at $3.4745

SPI Futures

Down  Marginally -0.2% (or -8 pts) at 4,640

Market

Movement

SSE Composite (China)

Up  Marginally 0.1%  at 2,592

Hang Seng Index (Hong Kong)

Up  Marginally 0.1%  at 22,003

SPI: Near key Level 4700 – SPI down 0.2% at 4,640

ASX News Today

The SPI Futures is just above the key resistance level of 4600 the ASX is set to open lower as the SPI Futures closed down marginally -0.2% (or -8 pts) at 4,640. The key levels for our index this today are 4650 and 4550. M&A activity continues to drive specific stocks. The ASX is likely trade lower today, however gold stocks will remain in focus, with the precious metal prices reaching another record high.  Yesterday the RBA’s meeting minutes signaled the RBA is ready to pull the trigger on a rate hike soon rather than later.  Note that we are nearing the end of the dividend paying period, which has been supporting our market in the past month. Options volatility is subdued at the moment, which gives investors access to “cheap” protection, so investors may consider taking this opportunity to protect their portfolios.

AVE- Aevum Ltd is sending mixed signals over Stockland’s revised takeover offer saying it is “not fair” but “is reasonable” for short to medium term investors.

AEJ- Alinta Energy Group the electricity generator, has reached a deal with lenders that will relieve the debt-laden company of its $3.5 billion in liabilities in return for ownership of all its assets.

BHP- BHP Billiton has extended the offer period for Canadian fertiliser maker Potash Corp. following a notice from Canadian regulators.

BKN- Swiss-based miner Xstrata is to launch its own rail service in NSW, with locomotives supplied and maintained by UGL and wagons from Bradken, both located in Newcastle.

FMG – Fortescue’s Andrew Forrest favours a carbon tax over on emissions trading scheme (ETS).

KAR- Karoon Gas has launched a share purchase plan (SPP) to raise a maximum $100 million for exploration and appraisal in the Browse Basin, Brazil and Peru. Following the $186 million insto placement.

NHC- New Hope Corp the energy firm posted a 30% fall FY10 profit owing to the strong Aussie dollar, but has achieved record levels of coal production and exports for the year.

PMV- Premier Investments reported a slight decline in full year profit, but will investigate acquisition opportunities amid volatile and abnormal trading conditions.

RIO- Rio Tinto Lts has completed the second tranche of its internal capital management plan.  The 20 million ordinary shares held by Tinto Holdings were bought back at a price per share of $75.13 and will now be cancelled,

SMX- SMS Management & Technology will expand its range of enterprise content management and business process management solutions with the purchase and integration of Renewtek Ltd.

TSE- Transfield Services announced $240 million of work with existing blue chip clients across the Australia and NZ region.

TPM- TPG Telecom has reported a 216 percent rise in FY10 profit after absorbing fellow telco PIPE Networks.

Economic Reports:

Westpac-Melbourne Institute Indexes of Economic Activity Leading Index

Companies:

Alesco Corp Ltd (ALS.AU) Full year 2010 AGM

Ex-Dividends

Qbe Insurance Group Ltd Interim 2010 Dividend payment date
SAI Global Ltd (SAI.AU) Full year 2010 Dividend payment
Wridgways Australia(WWA) Full year 2010 Ex-Dividend date
Aevum Limited (AVE) Full year 2010 Ex-Dividend date
Mastermyne Group Ltd (MYE) Full year 2010 Ex-Dividend date
Tox Free Solutions (TOX) Full year 2010 Ex-Dividend date

Market Summary

ASX – to open Lower
US & UK/Europe – Marginally Lower
US ADRs –  Generally Lower!!

BHP down  0.6% &

RIO down  0.2%;

AWC down 2.0%

ANZ down 1.6% &

NAB down  0.9%

NEM up 1.4%,

JHX up 4.1%,

NWS down  0.9%

Commodities Stock Index down 0.5%
Gold Stocks Index up 0.7%
Oil Stocks Index down 0.1%

By Michael Hevern
Head of Research

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Stock Market Analysis: Interest Rate Hike Looms

Wednesday, September 22nd, 2010

The Australian market typically experiences seasonally weakness from mid-September through to mid-October. Those contrary investors out there looking to trade the ASX on the bearish side, could look to the RBA discussions of an impending interest rate hike as a catalyst for some share price weakness into October.

Yesterday the Reserve Bank governor Glenn Stevens, warned that the benign inflationary environment that we have enjoyed over the past two years is about to change. The minutes of the last RBA meeting which were reported today, clearly signal that the next increase in interest rates will happen sooner rather than later. The RBA pointed to our strong domestic economy, which is driven by the resources boom and the consequent inflationary pressures as the key reasons for the monetary policy tightening bias.

The board flagged global risks that are still providing head winds in overseas economies including: European sovereign debt issues, Chinese governments pressure to tighten their fiscal policies to cool their asset price inflation, and the problems in the U.S. with their jobless recovery. These factors gave the RBA sufficient reason to leave rates on hold at 4.5% at the September meeting.

The RBA will give investors some more insight to their thinking when they release the Reserve Bank’s financial stability review on Thursday. The currency market is pricing in a 25 percent chance of a rate hike in the next October meeting and a 65 percent chance of a subsequent rate hike on Melbourne Cup day in November.

Many investors will have been getting nervous about the cracking run that stock markets have had this September so far. Options volatility is subdued at the moment, which gives investors access to “cheap” protection, so investors may consider taking this opportunity to protect their portfolios.

The ABC website presents some great charts which can be found at the link below for those of you who want to delve into how the Australian economy has performed over the past decade in relation to: interest rates, inflation, GDP, CPI, Current Account, Unemployment and Retail Sales.

http://www.abc.net.au/news/events/financialcrisis/charts/gdpgrowth.htm

By Michael Hevern
Head of Research

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Stock Market Analysis: US Earnings Give ASX a Positive Lead Today

Wednesday, July 21st, 2010

Stock Market Analysis

US Earnings Give ASX a Positive Lead Today

Overseas markets were mixed with the US reporting season helping US markets to continue to rise, while Europeans were cautious ahead the European bank “stress tests” results due Friday.

The SPI Futures is above the key level of 4400 the ASX is set to open higher as the SPI Futures closed up 0.9% (or 41 pts) at 4,423.  The RBA minutes were released yesterday saying that the uncertainty over the European debt issues have helped keep our interest rates on hold, however the future direction of interest rates will be driven by the inflation figures due out on 28 July.  Our market should continue to trade firmer again today after good performances from the U.S. and our mining and industrial sectors yesterday.  M&A activity continues to drive specific stocks.  Key levels to watch today are 4500 and 4350, with pivot around 4400.

US Markets

Investors chose to concentrate on the good news overnight as earnings reports were mixed.  Apple, the key NASDAQ stock, once again exceeded expectations with a 78 percent surge in 3Q profits, and sales were up 61 percent. This result indicates that the consumer is still alive in the U.S., however on the flip side Yahoo disappointed with revenue falling and sales down 8 percent (YoY) as they face competition from Facebook and Google. Also disappointing were IBM, Texas Instruments, Johnson & Johnson and Goldman Sachs. Goldman Sachs reported its 2Q profit plummeted 83% to its lowest level since late 2008, as trading revenues declined 36%, which was much more than forecast. Traders sentiment improved late in the day on speculation that the U.S. may be considering a new stimulus package. The Fed chairman Ben Bernanke will address the Senate tonight. The Materials and Energy sectors continued higher up 3% and 2.3% respectively.

The Dow closed up 0.7% (or 76 points) at 10,230, while in the broader market the S&P 500 index up 1.1% (or 12 points) at 1,083 and the tech-heavy Nasdaq ended up 1.1% (or 24 points) at 2,222.

European Markets

European markets finished the session lower for a fourth session. The weaker-than-expected US housing data continued to weigh on sentiment, also Goldmans disappointing results hurt. The results of the European bank stress tests are due 23 July.  In London the FTSE 100 index closed down marginally -0.2% (or -9 points) at 5,139, the German DAX down -0.7% (or -42 points) at 5,967, while in France the CAC was down -0.50% (or 18 points) at 3468.

Asian Markets

Most Asian markets rose yesterday, with the exception of Japan. The Shanghai Composite appears to be holding support at current levels and jumped another 2.2% as banking, property and consumer stocks rose on hopes that the government may not introduce more restrictive policies after several indicators showed last week the economy was cooling. This helped our mining sector.  In China the SSE Composite closed up 2.2% (or 53 points) at 2,529, while in Hong Kong the Hang Seng Index was up 0.9% (or 174 points) at 20,265 and in Japan the Nikkei 225 Index returned from a holiday and was down -1.2% (or -108 points) at 9,300.

Commodities

The Dollar Index up 0.3% at 82.79 on lower Euro, while the Australian Dollar last traded higher at 88.30 The Commodities were generally higher.

Crude oil prices rose as traders eye potential tropical storms in the Caribbean and falling US stockpiles.  The benchmark crude NYMEX for August delivery was up $US0.90 (or 1.2%) to settle at $US77.44. Copper prices are trading above the key $US3.00 a pound, Copper for September delivery delivery was up marginally 2.1% (or 6.4 cents) at 3.0015  a pound.  Gold was higher, with August gold up $US9.80 to settle at $US1,191.70 an ounce.

Key News International Drivers Today

US – Fed Chairman Ben Bernanke to address the Senator tonight. 129 S&P 500 companies will report earnings this week.

EU – M&A activity. Bank “stress test” results on the 23 July.  .

CHINA – Bargain hunting continues, on speculation the government may ease policies.

Markets Overview

Overseas Markets Give Negative Lead for the ASX

Market

Movement

The Dow Jones Industrial Average

Up 0.7% (or 76 pts)  at 10,230

The S&P 500

Up 1.1% (or 12 pts)  at 1,083

The Nasdaq

Up 1.1% (or 24 pts)  at 2,222

 

 

The FTSE 100

Down  Marginally -0.2% (or -9 pts)  at 5,139

The German DAX

Down -0.7% (or -42 pts)  at 5,967

SSE Composite (China)

Down -0.5% (or 0 pts)  at 36.0

 

 

The Dollar Index

Up 0.33% at 82.79

The Australian Dollar

Last traded at 88.30

The Commodities Index

Up  Marginally 0.12% at 261.5

 

 

Crude Oil Futures

Up 1.2% at $77.44

Gold Futures

Up  Marginally 0.01% at $1,191.70

Copper Futures

Up  Marginally 0.02% at $3.0015

SPI Futures

Up 0.9% (or 41 pts) at 4,423.0

 

 

 

 

Market

Movement

SSE Composite (China)

Up 2.2% at 2,529

Hang Seng Index (Hong Kong)

Up 0.9% at 20,265

Nikkei 225 Index (Japan)

Down -1.2% at 9,300

 

 

ASX News Today

The SPI Futures is above the key level of 4400 the ASX is set to open higher as the as the SPI Futures closed up 0.9% (or 41 pts) at 4,423.  The RBA minutes released yesterday saying that the uncertainty over the European debt issues have helped keep our interest rates on hold, however the future direction of interest rates will be driven by the inflation figuures due out on 28 July. Key levels today are 4500 and 4350, with pivot around 4400.  Our market should continue to trade frimer again today after good performances from the U.S. and our mining and industrials sectors yesterday.  M&A activity continues to drive specific stocks.
AQP- Aquarius Platinum dispels fears it will be forced to change mining methods at its operations in South Africa after it was sold-off on concerns that any changes could involve higher costs.
 

BHP- will release its June quarter production report today.

BNB – the liquidator’s examination of Babcock & Brown continues in the Federal Court.

CEY- Centennial says Banpu which has made a $2.5 billion takeover offer for Centennial, has received approval from the Bank of Thailand for it to remit foreign currency to pay for deal.

CTY – Country Road the embattled fashion retailier expects a 20% drop in annual profit due to aggressive discounting in the retail sector and the startup costs of its new 40 plus brand.

CWN- Crown the gaming firm has government support to expand the number of pokie machines at Perth’s Burswood casino.

ILU_ Iluka the mineral sands miner reported its June quarter production fell following the closure of its WA operations, but sales volumes were up strongly in 2H10

MTU- Shareholders of the telecommunication services provider M2 Telecomm can expect healthy returns, according to the company’s earnings guidance for 2010/11. Shares rose 20 cents to $1.92.

PDN- Paladin the uranium producer is considering taking over NGM Resources.

POS – Andrew Forrest’s nickel explorer Poseidon Nickel is in a trading halt pending a capital raising.
SDL- Sundance the iron ore explorer reports that a definitive feasibility study for its Mbalam project in Cameroon is on track for completion this year. Shares were up 3 cents to $0.15.

WOW- Woolworths will release its fourth quarter sales result today.

Economic Reports :

Westpac-Melbourne Institute reports the May Indexes of Economic Activity
Expect to see our market trade firmer today. M&A is picking up.

Market Summary

Westpac-Melbourne Institute reports the May Indexes of Economic Activity
Expect to see our market trade firmer today. M&A is picking up.

Market Summary

ASX – to open higher
US & UK/Europe – mixed.

US ADRs –  Broadly higher!!!…

BHP up 4.7%  & RIO up 5.6%; AWC up 6.2%
ANZ up 4.1% & NAB up 4.0%
NEM up 1.7%, JHX up 5.0%, NWS up 1.8%
Commodities Stock Index up 2.8%
Gold Stocks Index up 2.2%
Oil Stocks Index up 1.4%
By Michael Hevern
Head of Research

 

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CFD Trading: Pairs Trading With CFDs

Friday, July 16th, 2010

If you have been struggling with the volatility in your trading accounts lately then perhaps it is time to take a look at pairs trading using CFDs. Pairs trading can dramatically reduce the impact of daily market swings on your account, is market neutral and can deliver profits in both a rising and falling markets.

What is Pairs Trading?

Pairs trading involves buying one share (trading long) and selling a second share (trading short). The long position in one share is matched with a similar sized short position in another share. If you believe BHP will outperform RIO, then you could buy $50,000 BHP and sell $50,000 of RIO. You then profit from the difference in performance between the two shares.

Buy the share/s that you believe are stronger and sell the share/s that you believe are weaker. If the market rises, all shares are likely to rise but the strong share should rise more than the weak share. This reverses when the market falls because the weak share is likely to fall faster than the strong share. This strategy will usually under perform a straight long position when the market is rising but will minimise losses when the market falls.

Trading currency is one form of pairs trading because a currency is always traded in relationship to another currency. Traders can trade the relationship between the Australian dollar and the United States dollar. If your view was that the US dollar was going to outperform the Australian dollar, then you would buy the US dollar and sell the Australian dollar to the same dollar value. Your profit or loss is then dependent on the relative performance of the two currencies and is unrelated to the performance of either currency to another currency, for example, the Euro.

When pairs trading using CFDs you will receive interest on the share that you have sold short and you will have to pay interest on the share that you have bought for the long position. For example if the interest charged is the RBA base rate + 2 per cent on long positions and RBA base rate – 2 per cent on short positions, your net interest charge will be the difference of 4 per cent when using this strategy.

The Market Analyser software has two very useful charting features that can assist with your pairs trading. The obvious “Pair chart” displays the red line below the graph showing the relationship of the two shares. The “Overlay chart” draws the chart of the second share as a line on the original share. In the example below the base chart is BHP and the overlay is RIO.

Market Analyser Chart: BHP and RIO

From studying this chart it becomes clear that BHP and RIO follow each other fairly closely, most of the time, but there are times when the two charts diverge. At the very right of the chart BHP has been underperforming RIO, which can be seen by the pairs chart in the lower screen falling away during June. At the same time the overlay chart of RIO is moving higher more rapidly than BHP. This is reversing the out performance of BHP through May, where BHP fell less than RIO did. If you were long BHP and short RIO you would have made money in May, but lost money in June. It is important that the pairs chart in the lower window is rising or falling for you to make money, it is unimportant what the price is actually doing.

Pairs Chart: BHP and RIO

Pairs trading can provide you with the opportunity to profit from differences in the performance of two shares when trading with CFDs. Market Analyser has two tools that can assist you to find opportunities to pairs trade, by plotting the relative performance of the shares you are interested in. CFDs are the ideal instrument to use for pairs trading as CFDs can be easily short sold. In addition to this pairs trading with CFDs reduces the volatility and can smooth out your overall returns.

By Jeff Cartridge
Education Manager

Sign up for a free trial of Market Analyser!

Risk Disclaimer
Be aware that CFDs are leveraged products which carry a high level of risk to your capital, as it is possible to incur losses that exceed your initial investment. Therefore CFDs may not be suitable for your level of acceptable investment risk. Before proceeding with CFD trading, ensure you fully understand the risks involved, otherwise seek independent financial advice

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Stock Market Analysis: Weekly Market Wrap

Friday, July 9th, 2010

Weekly Market Wrap

Overseas markets started the week trading lower but this has given investors a chance to step in and pick up stocks that have been heavily oversold. The economic news in Australia continues to surprise to the upside. The mining sector and Merger & Acquisition activity picked up this week on the resolution of the RSPT. Improving investor sentiment was also supported with the better-than-expected employment report and the International Monetary Fund’s (IMF) upgrade of its economic growth forecasts.

Markets worldwide continued higher overnight as the IMF upgraded its 2010 global growth forecast to 4.6 percent (from 4.2 percent), citing robust expansions in Asia and renewed U.S. private demand. It warned that the EU debt issues pose a significant risk to recovery and expect the Asian regional economy to grow 7.5 percent in 2010 (up from 7 percent).

US Markets

The U.S. markets have traded higher for a third straight day for the first time since April. Investor sentiment was supported after the Department of Labor said new claims for US unemployment benefits had dipped more than expected last week, with initial claims falling to 454,000 in the week ending 3 July (from 475,000 in the previous week).

The recovery this week has been broad-based across all sectors. Overnight the Dow was up 120 points, or 1.2 per cent, to 10,139. In the broader market the S&P 500 index was up 10 points (or 0.9 per cent) to 1,070 and the tech-heavy Nasdaq ended up 16 points or 2.8 per cent at 2,175.

European Markets

Overnight the European Central Bank (ECB) and the Bank of England (BoE) both confirmed that they will leave their interest rates at historic lows. Banks have led the European markets higher this week as investors are becoming more comfortable with the stress test methodology that the banking system will undergo, as it shows the EU regulators are serious. EU regulators have confirmed they will carry out their “stress test” on 91 banks (14 from Germany, 6 from Greece and 4 from the U.K.), accounting for 65 percent of the bank areas. The test will review whether the banks could withstand a shrinking economy and a drop in government bond values (assuming a 17 percent loss in Greek government debt and 3 percent loss on Spanish bonds). The results will be released on 23 July on a bank-by-bank basis. This news helps the European markets. In London the FTSE 100 index was up 90 points (or 1.8 per cent) to 5,014 points, the German DAX was up 43 points, or 0.7 per cent, to 6035 points, while in France the CAC rose 54 points, or 1.6 per cent, to 3,538 points.

Asian Markets

The key news in Asia continues to point to a slowing economic recovery. The markets were mixed overnight with Chinese shares drifting lower after posting early gains, as investors remained cautious ahead of Agricultural Bank of China’s market debut on July 15. This IPO is set to be the world’s largest. In Japan the Nikkei index of the Tokyo Stock Exchange was up 2.7% to end at 9,535. The benchmark Hang Seng Index was up 1.0% at 20,050 and China was down 6 or 0.3% at 2,415.

Commodities

Oil prices were up this week on improving investor sentiment and the IMF upgrades. The benchmark was up for crude NYMEX in July and delivery up US$1.37 to settle at US$75.44 a barrel. Copper prices rose above the key $US3.00 a pound, at $US 3.0155 a pound. Gold has dropped over 4% this month with August gold down $US2.80 overnight to settle at $US1,196.10 an ounce.

ASX News

Earlier in the week the RBA left interest rates on hold as expected. The mining Merger & Acquisition activity started to pick up with the Government’s evolution of the RSPT to the Minerals Resource Rent Tax (MRRT), which is a watered down version of the RSPT. On Monday we had over $5 billion worth of M&A deals including Centennial Coal and CSR. Bargain hunters have stepped into the market, but they would be well advised to stick to liquid stocks at this stage. Investors have been bolstered by the improving employment and upgrades in world economic growth forecasts by the IMF.

Our View

Markets have bounced this week, and we may see come consolidation next week. The key support level is still around 4,200 and the key levels for our index next week are 4550 and 4250. Overseas markets will be keenly anticipating the EU bank “stress tests” due out 23 July. The positive economic news in Australian should support our market next week.

By Michael Hevern
Head of Research

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