Stock Market Analysis
Overseas Markets Continue Lower; RSPT Deal Will Help Miners Today
Overseas markets continue to trade lower, with the U.S. giving a negative lead. Commodities traded lower around 3% across the board. The big news on the ASX is that a deal has been done on the RSPT miners tax. The ASX will get some lift from the RSPT deal but we will likely follow overseas markets more broadly.
The SPI Futures is above the key level of 4300, the ASX is set to open marginally higher as the SPI closed up 26 points (or 0.6%) at 4,240. Key levels today are 4300 and 4150. Expect our market to trade flat to lower again today given the negative leads from overseas. A deal on the proposed RSPT tax has been done, but commodities were sharply lower overnight sending miners and energy lower on markets.
US Markets
The U.S. markets were lower for a fourth day due to poor home sales and manufacturing data, and the apprehension over tomorrow’s unemployment report, also the U.S. have a shortened week next week. The available data is pointing towards slowing growth in the near term and there are renewed concerns of a double dip recession. There has been a move out of riskier assets as reports showed manufacturing growth slowed in China, Europe and the U.S. In the last half of the year the key sectors that were down over 10 per cent included: Materials, Energy, IT, Telecom and Healthcare. Overnight the Financial sector fell 0.9 per cent, while the Energy sector fell 0.4%, miners also weighed on the markets.
The Dow was down 41 points, or 0.4 per cent, to 9,732 (down 4.5% for Qtr), while in the broader market the S&P 500 index down 3 points, or 0.3 per cent, to 1,027 (down 5.9% for Qtr) and the tech-heavy Nasdaq ended lower 8 points or 0.4 per cent at 2,101 (down 6.3% for Qtr). The significant pullback in the past quarter has led some analyts to look for value. The stocks in the U.S. are the cheapest relative to bonds in the past three decades, also forecast earnings yield are said to be running at 8.8% for the index. Fidelity say that the S&P500 is “cheap” based on a earnings growth (PEG) basis (with the PEG ratio at 0.78, as PEG of 1 suggests fair value).
European Markets
In Europe investor concerns were heightened as Spain’s credit rating is downgraded by Moody’s. In the London FTSE 100 index down 111 points, or 2.3 per cent, to 4,805 points (down 13.5% for Qtr), . The German DAX pulls back 109 points, or 1.8 per cent, to 5,857 points (down 3.7% for Qtr).
Asian Markets
The key news in Asia continues to point to a slowing economic recovery. The Chinese markets have fallen to a 14-month low on concerns their fiscal tightening will stunt their economic growth
and the worst than expected PMI manufacturing data. In Japan the Nikkei index of the Tokyo Stock Exchange down 2.1% to end at 9,191 (down 3.6% for Qtr). The benchmark Hang Seng Index was down 0.6% at 20,129 (down 5.6% for Qtr) and China was down 1.0% at 2,374 (down 22% for Qtr).
Commodities Overview
Oil prices dropped .7 per cent in the past quarter, the first losing quarter since 2008. The benchmark for crude NYMEX for July delivery was down US$2.68 to settle at US$72.95 a barrel. Copper prices finished lower for the first quarter, below the key $US3.00 a pound, Copper for July delivery down 2.5 cents to settle at $US 2.877 a pound. Gold slumped the most since February, with August gold down $US39.20 to settle at $US1,206.30 an ounce.
Key News International Drivers Today
US – Unemployment report due out Friday – expect more job loses.
ECB – banks had some relief as the ECB says it is only rolling over one-third of the expected $US540 billion of debt which falls due 1 July.
EU – Markets fall on continuing debt concerns
CHINA – Chinese markets have fallen to 14-month lows, as the PMI manufacturing data came in worst than expected.
Markets Overview
Overseas Markets Continue Lower; RSPT Deal Will Help Miners Today
SP500: down 0.3% at 1,037 – Below 200 day Moving Average
DOW down 0.4% at 9,732 – Below Key Support Level
NASDAQ: down 0.4% at 2,101
Dollar Index: Lower at 84.51 on higher Euro
A$ higher at 84.35
FTSE: down 2.3% at 4,805 – Financials & Miners Weigh
DAX down 1.8% at 5,587 – Breaks 6,000 level
CHINA: down 1.0% at 2,374 – Slowing Growth Concerns
HSI Closed
Oil: down 4.0% ($72.05)
Economic Growth Concerns
Gold: down 3.2% at ($1,204.50)
Commodities Lower
SPI: Above key Level 4300 ASX
SPI up 0.6% at 4,240
ASX News Today
The SPI Futures is above the key level of 4300 the ASX is set to open marginally higher as the SPI closed up 26 points (or 0.6%) at 4,240. Key levels today are 4300 and 4150. Expect our market to trade flat to lower again today, given the negative leads from overseas. A deal on the proposed RSPT tax has been done, but commodities were sharply lower overnight sending miners and energy lower on markets overnight.
Resource Super-Profits Tax (RSPT) Deal
The government has given ground to the miners to the tune of $1.9 billion, but miners will pay more tax. The deal is:
* the headline tax rate will be reduced to 30% (from the original 40% rate)
* the trigger point at which the tax cuts in will be the bond rate plus 7 per cent
* existing projects will get concessions
* the tax will be applied to the point of extraction
* the tax gets a new name to “Minerals Resource Rent Tax”
* will only apply to iron ore and coal projects.
* oil and gas projects will fall under the existing Petroleum Resource Rent Tax.
This should give miners some support today.
In other news:
AUD – higher at 84.35
LEI – signs $597million four year deal with India to build road network.
MOS – Mosaic gets $123 million takeover offer from AGL. Shares soared 67%.
MTS – Metcash will buy the Franklins chain of 85 supermarkets in NSW from South African retailer Pick n Pay for $215 million
RSPT – government backs down on RSPT headline tax rate is to be 30% (compared with original 40%)
Economic Reports out today: Deal on RSPT tax
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. We expect to have flat to lower leads from the U.S. ahead of their employment report and the shortened week next week.
Market Summary
ASX – to open flat
US & UK/Europe – Broadly Lower…
US ADRs – Broadly Lower!!!…
BHP up 0.7% & RIO up 1.5%; AWC up 0.8%
ANZ down 1.7% & NAB down 0.6%
NEM down 4.5%, JHX up 2.4%, NWS down 1.4%
Commodities Stock Index down 0.9%
Gold Stocks Index down 4.5%
Oil Stocks Index down 0.2%
By Michael Hevern
Head of Research
