Weekly Market Wrap
Investor focus this week has entirely centred around the US debt negotiations. Traders are still speculating that the economic effects of the US government shutdown will be limited and that the US Federal Reserve will be more likely to continue its stimulus program until some time in 2014.
Markets around the globe have jumped on news that the US House Republican and Senate Democratic leaders were open to a short-term increase in the $US16.7 trillion debt limit. Overnight traders bought up stocks across the board after the House Republicans proposed a short-term increase in the debt ceiling until 22 November (out from 17 October), reducing the likelihood of a US default. Also President Obama has nominated Janet Yellen for the new Chair for the US Federal Reserve. She has been a strong supporter of the outgoing Chairman Ben Bernanke and is not expected to rush into “tapering” the current stimulus program. However the partial US government shutdown, which is costing around $US300 million a day in lost economic output, continues for a tenth day and is likely to be a stumbling block in the negotiations.
US stock markets have been on the slide for the past couple of weeks, reaching four week lows, but we saw a sharp relief rally overnight, as US markets jumped the most since the start of January, as negotiations over the debt-ceiling deal progressed. All but 12 of the S&P500 stocks ended in the green. The Dow Jones rebounded from its lowest level since June and is now only -3% off all-time highs. The VIX volatility index slumped 16% to 16.5 (its biggest fall since August). The discussions have now paused with President Obama saying that the government shutdown needs to be resolved in conjunction with the debt ceiling resolution, so it is likely to be a tense weekend of negotiations.
European stock markets have risen the most in over 5 weeks, as the compromise deal over the US debt ceiling is being discussed. Investor sentiment has recovered from falls earlier in the week, due to the IMF cutting its global growth forecasts for the year to 2.9% and 3.6% for 2014, which compare to 3.1% and 3.8% predicted back in July, as they cited capital outflows which are impacting emerging markets. The Europe Stoxx 600 jumped 1.7% in the overnight session, to its highest level since early September, while the VStoxx volatility index plunged 15%, the most in over a year. Traders cheered the news that US House Republican and Senate Democratic leaders are open to a short-term increase in the $US16.7 trillion debt limit, buying stocks across the board. In economic news the BoE left rates on hold, while French industrial output rose 0.2% in August (the first rise in four months) and Italian output fell -0.3%. In London the stock market rose for the first time in three sessions, rebounding from its 3-week lows, with homebuilders jumping as leading indicators are pointing towards a rebound in the housing sector after being at depressed levels for five years. The German market has surged from its lowest level in a month, as German factory orders unexpectedly fell -0.3% in August (following a -1.9% fall in July).
Asian markets have risen this week, recording their longest winning streak in a month, as Japan rebounded and China returned from a week of holidays. The MSCI Pacific Index has rebounded from 3-week lows. Investor sentiment was buoyed by rumours the US debt negotiations were progressing. Chinese traders returned in a buoyant mood, on the back of data from the National Bureau that reported the Chinese non-manufacturing PMI rose to 55.4 (up from 53.9). However the financial sector has weighed due to concerns over growth. The Hong Kong market has been trading sideways. The Japanese market has bounced off its lowest levels in five weeks, led by exporters as the yen weakened, which improves the value of overseas earnings of these companies.
In today’s Analyst’s Eye article we discuss Investing In Dividends in Your Self Managed Super Fund (SMSF) and provide a guideline of what you should consider when either reinvesting your dividends or considering how to boost the dividend yields in your super fund.
The Australian equities markets sold down to the lowest levels in five weeks earlier in the week, but have rebounded on the back of the news out of the US. We have had mixed readings on confidence this week, with business confidence jumping to the highest level in three and a half years, while elsewhere data showed that consumer confidence slipped 2.1%, down for the first time in 33 months (this compares to a rise of 4.7% in September). The prospect of another RBA interest rate cut this year diminished, after the Australian Bureau of Statistics reported the unemployment rate fell to 5.6% in September, beating economists’ expectations of 5.8%. However the participation rate, measuring the proportion of the population that has a job or is looking for work, fell to 64.9%, down from 65.0% in August.
The pullback in the financials sectors has given income investors a chance to accumulate banking stocks for their upcoming dividends, as discussed in today’s Analysts’ Eye. Traders are looking forward to a resolution in the US over the budget and the looming debt ceiling and this will continue to impact the markets near-term.
Key levels for the ASX200 index next week will be 5150 and 5300, with 5200 the key near term pivot level. Note volatility has eased, despite the showdown over the US budget. Investors should be looking to take this opportunity to use options to position their portfolio(s) near-term, warrants can also be used. The ASX 200 and All Ords are bouncing off their 50-day moving average “support” levels.
Remain attuned to the news from overseas, particularly from the eurozone (ECB), China (economy) and the US (budget and debt ceiling). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact me at D2MX Advisory on 1300 610 024 and we 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.