Posts Tagged ‘stock market’

Stock Market Analysis: Hint Of QE3 Sparks Modest US Market Rebound

Thursday, August 4th, 2011

* US stocks markets reversed steep early losses to finish higher, breaking an 8-day losing streak, as investors tentatively went shopping for bargains.
* European stock markets plunged to a 10-month low overnight, as the sovereign debt crisis resurfaced in Italy and disappointing U.S. economic data added to global growth concerns.
* Asian shares were sold-down yesterday, as investors focused on recent reporting confirming the global economic recovery is faltering.
* Commodities prices traded generally lower, but Gold prices remained around record levels again closing above $US1,662.

The SPI Futures is trading above the key pivot support level of 4200, ending up 0.3% (or 12 points) at 4,298. The key levels for our index today are 4350 and 4250.  Australian shares are set to open higher today after the SPI bounced off the key level of 4200 overnight. We’ve had mixed leads from key markets in the U.S. and Europe, as investors tentatively looked for bargains in the U.S. but the European markets continued to sell-off due to debt contagion concerns.

In Australia the ABS reported statistics that disappointed investors yesterday, as retail sales fell again in June cofirming the sluggish domestic economy.  Elsewhere the export sector continued its stregth as we posted a $2.05 billion surplus in June, driven primarily by the mining boom, while imports of consumption goods fell 1 percent.

See below for ASX listed companies in the news today.

U.S. Markets

U.S. stock markets reversed steep early losses to finish higher, breaking an 8-day losing streak, as investors tentatively went shopping for bargains.  All three of the major indices finished in the green, led by the tech-heavy Nasdaq, up close to 1% for the session.  In the broader market all sectors finished in the green except for the energy sector which weighed as crude-oil prices plunged to $US92 a barrel. 

The initial sell-off was triggered by economic data showing the U.S. services sector softened and factory orders fell for the second time in three months during June, which is in line with the recent softening manufacturing activity data. 

Investors will be watching out for the monthly Non-Farm payrolls employment report due out Friday, which President Obama highlighted will need to show improvement before a recovery can get underway.  ADP data showed private businesses in the U.S. added the 114,000 jobs in July, more than the expected 105,000, according to a report from Automatic Data Processing (ADP), but that was not enough to spark a rally in the US dollar. 

The market reversal came mid-session after the Wall Street Journal quoted three former top Federal Reserve officials signalling support for further monetary easing if inflation slows.  Commodities traded general lower with crude-oil down near $US92, but gold continues to surge, finishing above $US1,662.

Most company groups that make up the S&P index traded higher: Industrials were up 0.9%, Materials were up 0.5%, the Energy sector was down -0.6%, Financials were up 0.5%, the Technology sector was up 1.0%, while Consumer Staples were up 0.7%.

The Dow Jones closed up 0.3% (or 30 points) at 11,896, the S&P 500 index closed up 0.6% (or 6 points) at 1,260, the Nasdaq ended up 0.9% (or 24 points) at 2,693, and the smaller cap Russell 2000 was up 0.8%.

European Markets

European stock markets ended sharply lower overnight, as investors fretted over continuing sovereign debt contagion concerns. The Stoxx Europe 600 index dropped -2%, to close at its lowest close since August. 

Across the region banking stocks came under selling pressure, while the energy stocks and miners also sold-down on the back of lower commodities prices.  Societe Generale slumped -9% as the French bank reported a 31% drop in 2Q net profit, driven by write-downs on its Greek bond holdings, and warned that its 2012 profit target of EUR6 billion will be difficult to attain.  This warning about the Greek bonds sparked a sell-off across the sector. 

Major indexes in Germany and London plunged another 2.3% in the sessions and finished at possible key support levels.  The PIIGS markets also declined sharply, with the Greek ASE Composite slumping 3.8%, the Italian market falling -1.5%, and the Spanish market falling -0.8%.

In London the FTSE 100 index was down -2.3% (or -134 points) at 5,584, the German DAX was down -2.3% (or -256 points) at 6,640, while in France the CAC was down -1.9% (or -67 points) at 3,455.

Asian Markets

Asian shares were sold-down yesterday, as investors focused on recent reporting confirming the global economic recovery is faltering.  Across the region shares of companies sensitive to global trade suffered heavy losses, including mining, energy and shipping stocks. 

In Japan the Nikkei Stock Index ended sharply lower as investors kept an eye on the central bank which is reportedly considering intervention in the currency market to address their strong yen, which is hurting their exporters.  In Hong Kong the Hang Seng Index fell around -2%, while in China the Shanghai Composite index held its key level ending flat.

In China the SSE Composite was down -0.1% (or -1 point) at 2,678, while in Hong Kong the Hang Seng Index was down -1.9% (or -429 points) at 21,993 and in Japan the Nikkei 225 Index was down -2.1% (or -207 points) at 9,637. The South Korean KOSPI was down -2.6% for the session, while the Indian market was  down -0.9%.

Commodities

The Dollar Index was lower at 74.03 on a higher Euro, while the Australian Dollar last traded lower at 107.58.  Commodities prices were generally lower.

For the session the benchmark crude NYMEX for August delivery was down -1.9% (or -$US1.82) to settle at $91.97.  Copper prices are still below 2-year highs as Copper for August delivery was down -1.5% (or -6.9 cents) at $US4.3310.  August gold was up 1.3% (or $US21.50) at $US1,662.70. 

ASX News Today

AQG – The WA Mines Department will investigate allegations that safety is being compromised at the Frog’s Leg gold mine near Kalgoorlie.

AVJ – AVJennings the residential developer has posted a 34 percent lift in annual profit, but has flagged softening market conditions ahead.

FML – Focus Minerals is set to assume majority control of Crescent Gold to create a mid-tier gold miner after major shareholder Deutsche Bank backed the deal.

DLX – DuluxGroup has invested $24 million in upgrading its Lower Hutt manufacturing and warehouse facility.

DOW – Downer EDI is reviewing its general consultancy practices in Asia, Australia and NZ which may lead to divesting the businesses.

FMG – Fortescue Metals Group insists it has all the approvals needed to proceed with its Solomon iron ore project, but Aboriginal landowners are questioning the validity of its mining leases.

NWS – Detectives investigating phone hacking and police bribery at defunct British tabloid the News of the World have arrested the newspaper’s former managing editor.

RMS – Ramelius Resources the WA gold miner has forecast a more than four-fold rise in full year gross profit on the back of soaring production and gold prices.

SBM – St. Barbara is the second-biggest domestic gold producer listed on the ASX, but St. Barbara produced more than 2.5 times as much gold as low cost producer Medusa Mining (MML) but its cash costs were four times higher, hence its A$40 million net loss against Medusa’s US$65.8 million net profit. 

SDL – Sundance Resources says it is not opposed in principle against a takeover by China’s Hanlong Mining, but the price has to be right and conditions need to be dropped.

Local Corporate Reporting

Rio Tinto Ltd (RIO)         Interim 2011 Results
Transurban Group Ltd (TCL)  Full year 2011 Results
Energy Resources of Australia (ERA) Interim 2011 Results
Seven West Media (SWM)     Full year 2011 Preliminary results
Ex-dividend Date

Ozgrowth   Ltd (OZG)
Westoz Inv Ltd   (WIC)

Market Summary

ASX – to open modestly higher
US & UK/Europe – EU sharply lower, while U.S. is volatile

US ADRs – Broadly Mixed
BHP down -1.0% & RIO up 0.1%; AWC down -2.2%
ANZ down -1.3% & NAB down -2.2%
NEM  up 1.8%, JHX down -4.1%, NWS up 1.6%

Commodities Stock Index down -0.2%
Gold Stocks Index up 0.8%
Oil Stocks Index down -0.9% 

By Michael Hevern
Head of Research

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

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Stock Market Analysis: Weekly Market Wrap

Friday, July 15th, 2011

Debt Fears Grip Global Markets

Australian shares have traded lower this week after negative leads from key markets in the U.S. and Europe, despite surprisingly good GDP data out of China.

Our markets were hit from a number of sides with the details of the carbon tax revealed last Sunday, Moody’s Ratings Agency downgrading Ireland and putting the U.S. on a negative watch, and disappointing monthly jobs data out of the U.S.

Commodity prices have continued to rise as the U.S. dollar struggles, with copper prices still around 10-week highs and the gold price at all-time highs. This has helped support our miners this week.

Australian Market

Australian shares started the week poorly in reaction to negative leads from key markets in the U.S. after a disappointing jobs report, and from Europe, where fears of euro-zone debt contagion have weighed on markets. Investors also had to digest details of the proposed carbon tax, which would see 500 companies taxed from 1 July 2012 starting at $23/tonne of carbon produced and released into the atmosphere. This price will increase by 2.5% per annum and after three years the pricing will be set by an Emissions Trading Scheme.

The mining sector has held up quite well this week in response to solid commodity price gains, while the banks are back at their previous support levels and retailers have been hit hard after David Jones announced an earnings downgrade.

After this week’s heavy sell-off we are again testing key support levels and if these are broken we will likely resume trading in the falling channel which has been in place since mid-April. To put it in perspective this week’s losses have eaten up all of the gains of the previous three weeks.

U.S. Markets

U.S. stock markets have backed off their 2011 highs. Investor sentiment was dented from the start of the week after the disappointing U.S. non-farm jobs data (the U.S. unemployment rate remains stubbornly high at 9.2%) and the ongoing brinkmanship in the debate being held in Washington regarding the $US14.3 trillion debt ceiling and the growing fiscal deficit, scheduled for a vote on August 2.

Overnight, the U.S. government agreed on $US1.5 trillion in spending cuts and will resume negotiations over raising the debt ceiling. The Federal Reserve Chairman Ben Bernanke has moved markets again this week, but has now clarified his comments about a possible third round of quantitative easing (QE3), saying that the Fed is unlikely to act on any easing in the near-term.

The warning of a possible debt-downgrade for the United States had fuelled fears of higher borrowing costs and cast a shadow over the markets. Investors have chosen caution after Moody’s Rating Agency announced a review of the U.S. AAA credit ratings for a possible downgrade, which has seen financial stocks and some exporters sell-down.

There is some M&A activity in the U.S. with ArcelorMittal and Peabody Energy launching a $US5.0 billion takeover bid for Australian’s coal miner Macarthur Coal, at $15.50/share which is only slightly higher than the previous bid of $15.00/share. Also, BHP Billiton has entered into a definitive agreement to acquire Petrohawk Energy Corporation for a total equity value of approximately $US12.1 billion and a total enterprise value of approximately $US15.1 billion, including the assumption of net debt. The earnings season has begun on a positive note with JP Morgan and Google.

Overnight, the Dow Jones closed down -0.4% at 12,437, the S&P 500 index closed down -0.7% at 1,309, the Nasdaq ended down -1.2% at 2,763, and the smaller cap Russell 2000 was up 0.9%.

European Markets

European equity markets have fallen this week, backing of their 2011 highs due to continuing worries over sovereign debt contagion. A downgrade of the Irish sovereign debt rating to junk status by ratings firm Moody’s Investors Service has cast a cloud across Europe with Ireland now joining Greece and Portugal as debt crisis basket cases. European bank stocks continued to weigh throughout the week, especially those with exposure to the sovereign debt of Italy and peripheral European PIIGS nations. The Italian economy is in a debt mire and overnight the government’s borrowing costs surged in a bond auction, rekindling worries about the spread of the euro-zone debt crisis. The Italian government successfully sold nearly EUR5 billion of long-term bonds, but its borrowing costs rose sharply, while the Senate approved a EUR40 billion austerity package, which will now go to the lower house of parliament for a vote.

The next key data out of Europe will come from the European Banking Authority which will release the results of the stress tests for 91 banks as part of an effort to reassure investors that the region’s banks have sufficient capital. The publication will be released this weekend and will include information on capital levels, estimates for profitability in 2011 and 2012 as well as the size and maturity of their holdings of sovereign debt, the EBA said this month. Analysts are concerned however that there was an unwillingness to test for a Greek default in the scenarios.

Overnight in London the FTSE 100 index was down -0.9% at 5,852, the German DAX was down -0.7% at 7,215, while in France the CAC was down -1.1% at 3,741.

Asian Markets

Asian stock markets continued to fall this week as investors focused on the debt issues in Europe and the U.S. The Chinese market bucked the trend after the announcement of robust GDP data boosted investor sentiment. Data showed the second-quarter gross domestic product rose 9.5% year on year, and industrial production in June was up 15.1%, beating forecasts and easing fears that the Chinese economy may be heading for a hard landing. This is another reason Aussie miners have supported our market.

The Japanese market is again trading below the 10,000 level and the Hong Kong market has been sold off heavily this week and is again testing recent key support.

Overnight in China the SSE Composite was up 0.5% at 2,810, while in Hong Kong the Hang Seng Index was up 0.1% at 21,940 and in Japan the Nikkei 225 Index was down -0.3% at 9,936. The South Korean KOSPI was flat for the session, while the Indian market was up 0.1%.

Our View

The Australian share market has suffered from the negative sentiment from overseas. The S&P/ASX 200 index rejected the key resistance level around 4650 and has remained below its 50 day moving average, which are negative signs going forward.

Look for the market to continue seeking support around the 4450 level which it has held for the past month. If this level is broken, then we will likely resume trading in the falling channel which has been in place since mid-April and 4250 will be the next target.

The U.S. earnings season continues next week but the debt crises in the U.S. and Europe are dominating sentiment near-term. If the fears over debt subside, then earnings could be the catalyst for a move higher, as many of the analyst earnings forecasts have been ratcheted down because of the soft June economic data showing slowing economic growth.

Our miners continue to support our market due to the robust commodities prices which have occured because of the weakening US dollar. The carbon tax and mining tax remain as headwinds. Banks are attractive on a yield basis but they have broken monthly key support levels and many blue chip stocks are cheap on a valuation basis, plus fund managers and investors alike are underweight equities.

The S&P/ASX 200 is currently trading at 4480 and has broken above short-term resistance. Key levels for the index next week will be 4550 and 4400.

By Michael Hevern
Head of Research

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Trading Book Review: Trend Qualification & Trading

Friday, June 10th, 2011

Trend Qualification & Trading

Author: L.A. Little
RRP $72.95 Trader Dealer 20% discount $58.35

To receive this discount please use the coupon code E41FRVWW37GZE when purchasing.

Trading book review by Janene Murdoch from the Educator Investor Bookshop

Significant money can be made in the stock market by following big trends. In Trend Qualification and Trading, market technician L.A. Little explains how to identify and qualify these trends to determine the likelihood that they will continue and produce better trading results.

By combining price, volume, different time-frames, and the relationship between the general market, sectors, and individual stocks, Little shows how to measure the strength of stock trends. Most importantly, he demonstrates how to determine if a trend has what it takes to develop into a major move with greater profit potential or if it is basically a false signal.

* Takes a proven technical approach to identifying and profiting from financial market trends
* Shows how to best time entries, when to take profits, and when to exit trades
* Introduces Little’s proprietary concept, The Trading Cube, which visually combines time and trend for a given trading instrument

Filled with in-depth insights and practical advice, this guide will help you make more of your time in today’s markets by providing an in-depth explanation of how to identify and qualify trends.

This book is available from the Educated Investor Book shop. If you would like to order this book please visit The Educated Investor Bookshop website.

By Janene Murdoch
Educated Investor Bookshop

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Stock Market Analysis: When is the market most likely to go up?

Friday, June 3rd, 2011

This is obviously a question that all traders are attempting to answer, using many different forms of analysis, but today we will consider this by taking a look at the overall market on a day to day basis. To start we will consider days of the week.

Which day of the week is the market most likely to go up?

From the chart below we can see that Monday has been the standout performer for the last 10 years, with Thursday following along close behind. The blue line in the chart shows how often a day is higher or lower, with Thursday being up almost 75% of the time. As we established last week, Thursday has the highest win percentage of the weekdays.

The two bars show the average return and median return, which answers the question, how much does the market go up? There is a difference between the average return and the median return on Thursday while the two measures are more consistent on a Monday. Let me explain how this difference arises.


The average of a set of numbers is the total of all the numbers divided by the number of items in the set. The median of a set of numbers is simply the middle number when the set is arranged from smallest to largest.

If a set of numbers is normally distributed (which means they follow a bell curve around a centre point) then the average and the median will be similar. However, consider the following set of numbers 10, 10, 10, 10, 10, 10, 100,000: the average here is $100,060 divided by 7 = 14,294, while the median is 10. Obviously there is an enormous difference between these two numbers.

Stock market returns do not follow a normal distribution as more extremes occur than would be expected. A very high number biases the average up, while a very low number biases the average down. By considering the median and the average we can see whether the data is skewed by an extreme data point. In the data above Thursday’s performance is being pulled down by some bad Thursdays. These occurred in 2000 during the tech crash and if you can remember back then you’ll know it wasn’t just Thursdays that were affected.

Moving on to look at the week of the month we can build the following chart from the performance of the S&P/ASX 200. From this chart we can see the standout performer is week four, followed by week one. And remember to watch out for week two, it is definitely the “weekest”.

Expanding the time-frame one more time we can consider the strongest month, which is a close call between March, April, August or December. August does however come out ahead being higher over 80% of the time during the last 10 years. May, June and July are all weak which is right now, so do not expect a stellar performance from the stock market at this time of the year. This does not mean there is no movement, but on average the movement at this time of year cancels out, making picking the direction far more difficult.

These historical tendencies are a guide to what may happen in the market, but not a guarantee. The market is typically strong around the end and the beginning of the month. This did not happen last month and provides clues that there may be a larger fundamental movement underway. If the market is weak when it is normally strong then, it is likely to be very weak when it is normally weak.

Bu Jeff Cartridge
Education Manager

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Stock Market Analysis: Weekly Market Wrap

Friday, May 13th, 2011

Commodity Volatility Creeps Into Equities

The markets have continued to be dragged down this week by the increasingly volatile commodities markets. Yesterday the Australian share market closed at a 7-week low after a slump in commodities prices, particularly oil and copper, weighed on the resources sector.

European investors have been plagued by the resurfacing concerns over the Greek debt crisis, which have added to the selling pressure.

The US stock markets are still trading around their multi-year highs, but the US dollar has been the big story of the past week, finding support at current levels and adding to the havoc in the commodities market.

Investors need to exercise caution near-term as discussed in last week’s Analyst’s Eye, Leading Indicators – Divergence.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 continued to sell-off this week as commodities pulled back sharply, led by silver. Mining and energy stocks have driven the indices lower with the strong Aussie dollar weighing on company profits and forecasts. Banks have also contributed to the weakness.

US Markets

Volatility is picking up as US stock markets have managed to hold around their multi-year highs. The market was buoyed by a larger-than-expected increase in monthly non-farm payrolls, with the employment report showing that the private sector has posted the strongest employment gain in 5years. We also had the anniversary of the “flash crash” and losses in commodities-related stocks have been offset by a rebound in defensive stocks. These are now finding some support, as they are seen to be independent of broader economic activity.

Overnight the Dow Jones closed up 0.5% at 12,696, the S&P 500 index closed up 0.5% at 1,349, the Nasdaq ended up 0.6% at 2,863, and the smaller cap Russell 2000 was up 0.8%.

European Markets

European markets are finishing lower for a second week following a broad sell-off in energy, commodities and financials, while concerns over the Greek debt crisis and ratings downgrade added to the selling pressure. Crude oil prices slumped further overnight after the International Energy Agency cut its global demand outlook. Investor sentiment was hit further after China announced it would raise its bank reserve requirement ratio, stoking concerns about slower economic growth in the world’s second largest economy.

The Euro has fallen sharply following last week’s report indicating Greece was considering bailing out of the euro zone. It has now plunged from above $1.49 last Thursday, its highest level since December 2009, to finish below $1.42.

Overnight in London the FTSE 100 index closed down -0.5% at 5,944, the German DAX was down -0.7% at 7,444, while in France the CAC was down -0.8% at 4,023.

Asian Markets

Asian markets are generally lower this week, led by China. Japanese stocks have suffered as the government demanded more nuclear power reactors shut down until safety concerns were addressed. The market fell sharply for its biggest 1-day fall in a month with economic data showing that the Japanese current account surplus in March shrank 34.3 percent year on year because of the impact of the devastating March 11 quake and tsunami.

China has been the focus and investors initially were buoyed when Chinese trade data showed the export sector was powering ahead, despite government efforts to cool overall growth. This sentiment did however turn around when the Chinese decided to lift the ratio of funds domestic banks must set aside as reserves for the fifth time this year, as the country continues to battle against inflation.

Yesterday in China the SSE Composite was down -1.4% at 2,844, while in Hong Kong the Hang Seng Index closed down -0.7% at 23,073 and in Japan the Nikkei 225 Index was down -1.5% at 9,716. The South Korean KOSPI gained 2.1%, while the Indian market was down -1.3%.

Our View

The S&P/ASX 200 index has again been sold off heavily in the past week, and is down 6% from its April peak. The market has been weighed down by the strong Aussie dollar, weakening economic data from the eurozone and the US and the sharp sell-off in commodities.

The S&P/ASX 200 is currently trading at 4690 having again found resistance at the 4,800. The focus near-term will continue to be on corporate earnings reports, the Aussie dollar and commodities prices, particularly copper, gold and crude-oil. Key levels for the index next week will be 4800 to 4600.

Investors who have taken the opportunity to buy protection through options to hedge their long positions near-term should be comfortable with the current pullback.

By Michael Hevern
Head of Research

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Stock Market Analysis: Recovery In Commodities Supports Markets

Tuesday, May 10th, 2011

* U.S. stock markets rose overnight, led by the energy sector.
* European stock markets traded lower, led by a fall in financial shares.
* Asian share markets ended mostly higher as commodity prices rebounded.
* Commodities prices recovered as crude oil and gold futures bounced.  

The SPI Futures is trading below the key level of 4800, closing down -0.1% (or 3 pts) at 4,761. The key levels for our index today are 4800 and 4720.

The Aussie market is set to trade sideways, but share prices will be dampened by the strong Aussie dollar.  Recovery in commodities prices and mixed leads from overseas should help investor sentiment, but investors will be cautious ahead of the Federal Budget due for release tonight.

See below for ASX listed companies in the news today.

Economics News Today

* International Trade in Goods & Services Balance on Goods and Services for March
* Australian Treasury – Australia Budget statement

U.S. Markets

U.S. stock markets rose overnight, led by the energy sector as crude oil prices rose 6% settling above $US102 a barrel, while gold prices rose 1.5%.  Investor sentiment improved, as a recovery in commodity prices and a rush of M&A activity helped overshadow concerns the Greek downgrade. 

The crude oil price jumped as JP Morgan and Goldman Sachs said that the price of will rise into the end of the year.  Mining and Energy companies traded mostly higher, while commodity funds, especially for silver and gold, were some of the most heavily traded shares. 

US investors shrugged off the problems with the eurozone after S&P’s downgrade of Greece’s sovereign debt.  The Dow Jones rose as McDonald’s was up 0.8% after its same-store sales rose 6% in April, the biggest monthly increase since October, while aluminium giant Alcoa jumped 2.2% as metal prices climbed.

The Dow Jones closed up 0.4% (or 55 points) at 12,683, the S&P 500 index closed up 0.4% (or 5 points) at 1,340, the Nasdaq ended up 0.4% (or 13 points) at 2,828, and the smaller cap Russell 2000 was up 0.5%.

All ten company groups that make up the S&P index generally traded higher: the Energy sector was up 1.8%, Materials were up 1.5%, Healthcare was up 0.6%, Industrials were up 0.4%, Consumer Staples were up 0.1%  while Financials closed down -0.3%. 

European Markets

European stock markets traded lower overnight, led by a fall in financial shares as concerns mounted over Greece’s debt burden and as Standard & Poor’s cut the country’s credit rating. The Stoxx Europe 600 index closed down 0.3% due to the resurfacing of eurozone debt concerns. 

The Standard & Poor’s agency downgraded the Greek credit rating by two notches, citing concerns that eurozone officials are looking to extend the debt payment maturities of the European Commission’s portion of the nation’s EUR110 billion bailout.  Moody’s also placed Greek debt on review for potentially a multi-notch downgrade. 

The banking and insurance sectors across the region sold off due to the increasing probability of the requirement of debt restructuring needed by Greece to address its debt problems.  This will weigh on balance sheets as European banks are big holders of Greek bonds. Bank shares were big losers. 

In London the FTSE 100 index was down -0.6% (or -34 points) at 5,9742, the German DAX was down -1.1% (or -82 points) at 7,410, while in France the CAC was down -1.3% (or -51 points) at 4,007. 

Asian Markets

Asian share markets ended mostly higher yesterday, as commodity prices rebounded from their sharp sell-off of last week.  Commodities prices have been under pressure since the U.S. Federal Reserve last month cut its economic growth forecast for 2011 and as China’s manufacturing activity continued to slow in April. 

Crude oil typically has seasonal strength from May through to the end of the year and the recent sell-off is seen as a good platform for oil to trade to test recent highs by year’s end. Both JP Morgan and Goldman Sachs have forecast that crude oil will trade higher as the year unfolds. 

In Japan the Nikkei Index fell 0.7% due to concerns about potential power shortages, as saftey issues need to be addressed at other nuclear plants within the country. 

In Hong Kong stocks climbed for the first time breaking an 8-session losing streak as investors went bargain hunting in property and resource shares.  The Chinese market bounced off its 200-day moving average. Resource stocks bounced as Nymex crude oil prices edged back over $US100 a barrel and as silver led precious metals higher.

In China the SSE Composite was up 0.3% (or 9 points) at  2,872, while in Hong Kong the Hang Seng Index was up 0.8% (or 177 points) at 23,336  and in Japan the Nikkei 225 Index was down -0.6% at 9,794.  The South Korean KOSPI was down -0.3% due to worries that the Bank of Korea might raise interest rates again, while the Indian market was flat.

Commodities

The Dollar Index was higher at 74.67 on a lower Euro, while the Australian Dollar last traded around record levels at 107.83. Commodities were higher.

For the session the Benchmark crude NYMEX for April delivery was up 5.4% (or $US5.37) to settle at $US102.62. Copper prices are higher but still below 2-year highs, with copper for April delivery up 1.0% (or 4.1 cents) at $US4.0410. April gold was up 0.8% (or $US11.70) at $US1,512.80.

ASX Market News

AAC – Australian Agricultural Company expects earnings of between $60 and $65 million in the FY11 and has launched an equity raising and share purchase plan to raise $86 million.

AGO – Atlas Iron Ltd has signed an agreement to expand capacity at its Wodgina iron ore mine in the Pilbara WA by 75 percent to 7 million tonnes per annum (Mtpa).

AAO – Australasia Consolidated has changed its direction from gold exploration to financial services, with the announcement of the first of several planned acquisitions in the sector.

AWC – Alumina CEO has told shareholders to expect the aluminium market to grow by 12 per cent this year

CTX- Caltex Australia the oil refiner, has flagged a lift in first half production.

FGL – Foster’s Group will recover $256.7 million from the tax department after the ATO decided not to appeal a court decision that went in favour of the brewer.

GCL – Gloucester Coal Ltd is in a trading halt as the coal miner prepares an announcement in relation to two potential takeovers and a new share sale.

IPL – Incitec Pivot Ltd the explosives and fertiliser supplier, has booked a 25 percent lift in 1H11 profit and will build a $40 million ammonium nitrate emulsion plant at Port Hedland in the Pilbara region WA.

ORG – Origin Energy has bought a 40 per cent stake in a Chilean geothermal exploration company.

QAN – Qantas engineers will stop work for an hour on Friday following a breakdown in wage negotiations with the airline.

RDF – Redflex Holdings the red light camera maker, is in a trading halt to holds meetings for shareholders to consider a $303.5 million takeover offer by Macquarie Group Ltd and The Carlyle Group.

RFG – Retail Food Group has made an off-market takeover offer for all the shares in Oaks Hotels and Resorts, trumping a rival offer.

SGM – Sims Metal Management, the world’s largest listed recycling company, says the strong metals prices which helped it report a 74 per cent jump in net profit and it has acquired UK metals recycling business Dunn Brothers Ltd.

SPT – Spotless Group the maintenance and cleaning services firm has received a $657 million takeover offer from a private equity firm.  

TAH – Tabcorp Holdings has been awarded the Victorian Keno Licence for the next 10 years, which is expected to add $20 million per annum to the gambling and gaming company’s earnings. 

 

Local Corporate Reporting

Grange Resources Limited (GRR)      Full year 2011 AGM 

Ex-dividend Date

AIR – Astivita Renewables (4 cents)
TWD – Tamawood Limited (8 cents)

Market Summary

ASX – to open flat

US & UK/Europe – mixed

US ADRs – Broadly Higher

BHP up 2.1% & RIO up 2.4%; AWC up 2.0%
ANZ up 1.5% & NAB up 1.2%
NEM  up 1.8%, JHX up 0.8% , NWSdown -0.4%

Commodities Stock Index up 1.7%
Gold Stocks Index up 1.6%
Oil Stocks Index up 1.7% 

By Michael Hevern
Head of Research

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

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Stock Market Analysis: Weekly Market Wrap

Friday, May 6th, 2011

Markets Lower Led by Sharp Falls in Commodities Prices

Investors finished April with yet another monthly gain, as US stock markets continued to rise and reach multi-year highs.

However, in the broader markets this week the S&P 500 and the Nasdaq are down, with a fourth consecutive day of losses. This marks the first time such a sell-off has occurred at the start of the month since October 2008.

The big news of the week was the death of Osama bin Laden. The energy sector initially rallied but gains soon evaporated and the markets could not hold on to their short lived rally. Central banks in Australia, England and Europe (ECB) left rates on hold this week.

Commodities were sold off heavily this week, backing off record levels as investors felt the pain of disappointing economic data from the Eurozone and the US. Silver plummeted 28% in seven sessions, while crude oil plunged below $US100 for the first time since mid-March.

Investors need to exercise caution near-term as discussed in the Analyst’s Eye this week.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 continued to sell off this week as commodities pulled back sharply. Mining and energy stocks have driven the index lower with the strong Aussie dollar weighing on company profits and forecasts.

Investors await with interest the 2011-12 Budget which will be released on Tuesday 10th May 2011 at 7.30pm.

US Markets

US stock markets have been weak with investors focusing on disappointing corporate earnings, the weakening economic data and the sharp sell-off in commodities. The energy sector has sold-off despite a short rally following the death of Osama bin Laden, and the S&P 500 and Nasdaq have experienced four consecutive days of losses.

Overnight, the Dow Jones closed down -1.1% at 12,584, while in the broader market the S&P 500 index closed down -0.9% at 1,335 and the tech-heavy Nasdaq ended lower, down -0.5% at 2,815. The smaller cap Russell 2000 index was down -0.4%.

European Markets

European markets are finishing lower this week after a broad sell-off in energy, commodities and financials. The central banks in England and Europe (ECB) have left rates on hold, however comments from the ECB President were interpreted as signalling that interest rates will not rise again next month despite noting that there are upward inflationary pressures due to commodity prices. These comments raised concerns that there may be headwinds down the track for the Eurozone.

European sovereign debt concerns have also resurfaced after the ECB’s Vice President said that restructuring Greece’s debt is not an option, renewing doubts over the Eurozone’s ability to manage its PIIGS economies.

In London the FTSE 100 index was down -1.1% at 5,920, the German DAX was flat at 7,377, and in France the CAC was down -0.8% at 4,042.

Asian Markets

Asian markets are trading sharply lower this week, and a number of markets have had public holidays which has reduced liquidity. The key driver has been Chinese manufacturing data which showed the economy is slowing, but inflation is still high and this has tempered investment sentiment due to fears that there may be a need for further tightening measures by the Chinese government. Commodities have sold-off heavily due to this concern.

Yesterday in China the SSE Composite was up 0.2% at 2,872, while in Hong Kong the Hang Seng Index was down -1.4% at 23,315 and in Japan the Nikkei 225 Index was closed at 10,004. The South Korean KOSPI was down -0.9%, and the Indian market was down -1.4%.

Our View

The S&P/ASX 200 index has been sold-off heavily in the past week as the index, down 5% since returning from the Easter break. The markets have backed off from solid gains in April and have been weighed down by the strong Aussie dollar, weakening economic data from the Eurozone and the US, and the sharp sell-off in commodities. Refer to the Analyst’s Eye for more in-depth discussion of what is in store for the markets near term.

The S&P/ASX 200 is currently trading at 4745 having fallen through the 4,800 level this week. The focus near-term will continue to be on:

* The monthly US employment report due out tonight;
* The US earnings reports;
* The Aussie dollar and commodities prices, particularly copper, gold and crude oil.

Key levels for the index next week will be 4850 to 4650.

Investors who have taken the opportunity to buy protection through options to hedge their long positions near-term should be comfortable with the current pullback.

By Michael Hevern
Head of Research

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Stock Market Analysis: Markets Close Off Best Month For The Year

Sunday, May 1st, 2011

* U.S. stock markets closed out their best month of the year, as the 1Q earnings reports sent major indexes to fresh multi-year highs.
* European stock markets advanced for a second weekly gain.
* Asian share markets generally ended lower for the week.
* In commodities Crude-oil hit $US114 and Gold futures again hit an all-time high above $US1,563 an ounce, Silver is at 31-year highs.  

The SPI Futures is trading below the key level of 4930, as the SPI Futures up 0.7% (or 32 pts) at 4,840, up 1.8% for the month. The key levels for our index this week are 4920 and 4740. The ASX is set to open higher as we saw markets rise in the U.S. and European markets. 

Share prices will be dampened by the strong Aussie dollar.  The U.S. earnings reporting season continues to provide a positive lead though.  Investors still need to monitor the Aussie dollar which has again reached post-float highs above $US1.097. 

The Aussie market is set to open higher following a strong US lead, but the high Australian dollar will continue to weigh on local trading.  The RBA is expected to leave rates on hold when it meets for its monthly monetary policy meeting on Tuesday, despite inflation figures showing signs of creeping up. 

The Australian Bureau of Statistics (ABS) surprised economists last week by reporting the Consumer Price Index (CPI) had risen by 1.6 per cent in the March quarter for an annual inflation rate of 3.3 per cent, which is higher than expected.  The Aussie dollar will to edge towards $US1.10 early this week, as investors await an interest rate decision from the RBA bank on Tuesday.  The Chinese PMI data reported last week showed manufacturing was growing at a slower pace than expected, and this is weighing on our miners.

See below for ASX listed companies in the news today.

Economics News Today

* Australian PMI for April
* TD Securities Monthly Inflation Gauge for Arpil
* House Price Indexes for Q1: Eight Capital Cities
* Commodity Price Index (CPI) for April.

U.S. Markets

U.S. stock markets closed out their best month of the year, as the 1Q earnings reports sent major indexes to fresh multi-year highs.  The monthly rise for the markets has been fueled by the steady flow of better-than-expected 1Q earnings reports, which have outshone any concerns over the problems with the “jobless” recovery and the spectre of rising oil prices.  The Fed’s “steady as she goes” approach has also helped.   Both the small-capitalization stocks index Russell 2000 and the Dow Jones Transportation Average have set record closes this week, confirming a broad move for the month. 

The Dow Jones rose to its highest close since May 2008. The Dow is now up almost 11% for the year.  The Dow Jones has surged 4% this month and extended its winning streak to 5-straight months. 

The S&P500 rose for a fourth straight day for its longest winning streak since 8 February and has rallied 2.9% for April an has risen 8.4% for the year.  According to Bloomberg, 77 percent of the companies that have reported in the U.S. since 11 April have exceeded estimates, where EPS have exceeded projections by 8.3 percent so for this reporting season with raw materials producers and financial companies posting the best results exceeding forecasts by 13 percent.

In corporate news: Caterpillar was up 2.5% as the of the maker of construction and mining equipment continued its spectacular run, after reporting earnings and revenue well in excess of expectations. Merck the pharmaceutical company was up 0.5%, after its results beat forecasts. Chevron rose 0.6%, as the oil company reported a jump in earnings, boosted by higher oil prices and stronger refining margins. 

The surge in stock prices has come at the expense of the US dollar which has suffered its worst monthly performance since September, as the dollar weakened to fresh two and a half year lows on Friday as investors sold the dollar as the Fed confirmed the end of QE2 in June.  The weakness in the US dollar has sparked a commodities surge with Gold at all-time highs and Silver at 31-year highs and Crude-oil above $US113 as Copper hovers around 2-year highs.  Soft-commodities are also at record levels.

The Dow Jones closed up 1.0% (or 47 points) at 12,810, while in the broader market the S&P 500 index closed up 0.2% (or 3 points) at 1,363 and the tech-heavy Nasdaq ended  up 0.04% (or 1 points) at 2,873, in the smaller cap index Russell 2000 was up 3.7%.

All 10 company groups that make up the S&P index traded mixed, with out-performers including: Energy sector was up 1.5%, Materials were up 0.4%, Industrials sectors was up 0.4%, while Financials up -0.2%, Healthcare and Consumer Staples sector were flat.

European Markets

European stock markets advanced for a second weekly gain.  The Stoxx Europe 600 index closed up 1.2% for its biggest monthly increase of 2.9% for the year.  Ths index is up 8.2 percent from its March lows.  In the Stoxx Europe 600, 113 companies have reported since 11 April, 66 have beaten analyst forecasts, according to Bloomberg. 

In London the FTSE 100 index was closed for a four-day break, for the Royal wedding on Friday and Monday for a holiday. 

In Germany the market rose as Ericsson the biggest maker of mobile phone networks surged 16% after 1Q profits tripled, while VW Europe’s largest carmaker jumped 12% after reportng better-than expected.  The automobile sector rose 5.2% for its biggest weekly gain for the quarter.  Investment banks in Europe are also suffering as Barclay Britians third-largest bank dropped 5.5% after its pre-tax profits of its investment banking unit fell 33% and revenue declined 15%.  Elsewhere even Russia is suffering inflation problems and have unexpectedly raised key interest rates to 8.25%, while Ireland cut its GDP forecasts.

In London the FTSE 100 index closed at 6,069, the German DAX was up 0.5% (or 39 points) at 7,514, while in France the CAC was up 0.1% (or 7 points) at 4,107.

Asian Markets

Asian share markets generally ended lower for the week. 

In China the Shanghai Composite has risen 3.7% for the year on speculation that the government will cool inflation without triggering a slump in its economic growth.  The central bank has raised the reserve-requirement ratio 10 times since the start of 2010 and boosted interest rates 4-times to cool inflation as consumer prices rose at their fastest pace since March 2008. 

Inflation is still a major concern in China and the Chinese and Hong Kong markets have been weighed down by concerns that government could tighten monetary policy in the near term.  The Chinese market dropped 3.3% for the week its biggest weekly drop since November.  Hong Kong stocks fell 1.7% for the week.

In China the SSE Composite up 0.9% (or 25 points) at  2,911, while in Hong Kong the Hang Seng Index was down -0.4% (or -85 points) at 23,721 and in Japan the Nikkei 225 Index was closed at 9,849.  The South Korean Kospi Composite ended down -0.7% and the Indian market fell -1.8%.

Commodities

The Dollar Index was lower at 72.99 on a higher Euro, while the Australian Dollar last traded around record levels at 109.65. Commodities were generally higher.

For the session the Benchmark crude NYMEX for April delivery was up 0.9% (or $US1.07) to settle at $US113.73. Copper prices are sells-off from 2-year highs as Copper for April delivery was down -1.9% (or 7.95 cents) at $US4.1835. April gold was up 1.6% (or $US25.20) at $US1,563.00.

ASX Market News

AFL – The AFL is set to pocket a cool $1.25 billion from a 5-year broadcast deal with Seven Group Holdings (SVW) and pay TV broadcasters Foxtel (NWS & TLS) and Austar (AUN).

AQP – Aquarius Platinum may review the restart date of its Blue Ridge mine in South Africa, after the miner reported that higher production and prices led to a rise in March quarter net profit.

AWE  – Australian Worldwide Exploration the energy company has reported a 5-percent fall in quarterly production, and has downgraded annual production guidance.

BPT – Beach Energy has downgraded its full year oil and gas production guidance due to operational issues, after heavy rain affected its March quarter output, when production in the March quarter fell 9 percent.

BTA – Biota Holdings the Relenza developer, says indicative royalties from sales of the Relenza flu drug were $1.0 million for the three months to 31 March.

CPU – Computershare has made its largest acquisition yet, agreeing to a $US550 million purchase of the shareowner services business of The Bank of New York Mellon Corporation.

FGL  – Foster’s Group shareholders vote at EGM to strongly support the demerger of the company into two separately listed companies focusing each on beer and wine; but Aussie strength represents a business challenge near-term.

GDO – Gold One International will buy Rand Uranium Ltd for $US250 million in cash to get the South African miner’s gold and uranium reserves.

LEI  – Leighton Holdings has completed the sale of a 35 percent stake in its Indian subsidiary to Indian conglomerate Welspun Group for an undisclosed amount.

MCC – Macarthur Coal has lifted its force majeure over its mines in Queensland’s Bowen Basin where wet weather has abated and is reviewing its production guidance.

MQG  – Macquarie Group Australia’s largest investment bank, expects rebounding activity and investor sentiment to contribute to a stronger result this fiscal year, after reporting a 9 percent decline in FY11.

NZO  – NZ Oil & Gas is increasingly focusing on overseas opportunities, after being outbid for a bundle of significant assets in south-east Asia during the March quarter.

OSH – Oil Search reported a fall in operating revenue in the March quarter on lower oil and gas production, and despite a jump in the oil price.

ORG  – Origin Energy Ltd says year-to-date (YTD) production is 32 percent higher than at the same time last year, while revenue has grown by 46 percent.

TSE  – Transfield Services says it has secured a $567 million contract to operate and maintain a portion of Adelaide’s bus network for an initial 8-year term.

U308 – Paladin Energy (PDN) and Extract Resources (EXT) shares fell after reports that the Namibian government called for the state owned miner to have exclusive rights over certain strategic minerals including uranium.

VPG  – Private equity group Blackstone has agreed to buy Valad Property Group for $207 million in cash, as Valad aims to maximise shareholder value.

WHC – Whitehaven Coal earnings have been hit by a series of natural disasters this year with the miner forced to reduce its underlying profit guidance.

Local Corporate Reporting

Orica Limited (ORI)         Interim 2011 Results
Ex-dividend Date

AJJ – Asia Liver Trans Ltd (0.1 cents)
HGG – Henderson Group (7.1144 cents)
WAT – Waterco Limited (4 cents)

Market Summary

ASX – to open higher, but suffer from high AUD

US & UK/Europe – Higher

US ADRs – Broadly Mixed!!…

BHP up 0.2% & RIO up 0.6%; AWC down -1.9%
ANZ down -0.2% & NAB down -0.4%
NEM  down -0.3%, JHX up 0.1% , NWS  down -0.5%

Commodities Stock Index up 0.7%
Gold Stocks Index up 2.1%
Oil Stocks Index up 2.1% 

By Michael Hevern
Head of Research

Written on 2 May, 7:15am

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Stock Market Analysis: Weekly Market Wrap

Thursday, April 21st, 2011

Markets Back at Post-GFC Highs

Investors continued to shrug off bad news this week, and with a focus on corporate earnings pushed markets higher to around post-GFC highs.

Reports that the Standard & Poor’s ratings agency cut its outlook on US government debt prompted investors to head for the exits, but once again fund managers turned the markets around as they went bargain hunting after the short sharp sell-off.

Commodities prices were again in focus as they approached record levels. The US dollar’s decline has pushed the US currency to near its lowest levels since before the financial crisis of 2008 against a trade-weighted basket of its rivals. Gold futures extended their record-breaking rally, settling just below the $US1,500 level as investors chose to lock in profits. Crude oil prices rose for a second straight session after the Department of Energy said US oil supplies unexpectedly fell last week, while gasoline supplies tumbled more than expected as oil futures rose above $US111 a barrel. Copper prices closed sharply higher, supported by strong equities and a weaker US dollar, with further gains expected in coming days with traders predicted to cover short positions ahead of a string of public holidays.

Investors need to exercise caution ahead of the Easter break and at the very least take some profits or take out protection through options. The forthcoming Easter holiday period and Anzac Day means that there are only four trading days left for April.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 are again back at their 12 month highs and are searching for some catalyst to push through these levels. Mining and energy stocks have driven the index this week with commodities back near record levels. The US dollar has continued to sell off and the Aussie dollar remains at record levels of post-float highs around $US1.07. Expect to see some profit-taking today ahead of the Easter weekend.

US Markets

US stock markets have been volatile this week but are finishing higher due to investors focusing again on improving corporate earnings, particularly in the technology sector.

Investors were rattled at the beginning of the week with the markets suffering their biggest falls in a month. Investors headed for the exits after Standard & Poor’s cut its outlook on US government debt from stable to negative, to account for budget deficits and the rising government indebtedness. The ratings agency said it believes there is a “material risk that US policy makers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013″. However, improving corporate earnings continue to support stock prices, and traders saw the sharp sell-off as a chance to buy on the dips once again, as they look to add risk to their portfolios with commodities prices continuing to surge.

Overnight the Dow closed up 1.5% at 12,454, the S&P 500 index closed up 1.4% at 1,330 and the tech-heavy Nasdaq ended up 2.1% at 2,802.

European Markets

European markets are finishing higher this week, after a nervous start. Early in the week, investors reacted nervously to Moody’s Investors Service downgrading Ireland’s foreign- and local-currency government bond ratings by two notches to junk status, and comments from Germany that Greece might have to restructure its debt, stoking fresh fears over the eurozone. This put the PIIGS economies in focus again as the Greek money market rates jumped sharply.

As the week unfolded, European markets took their lead from US corporate earnings as stock prices pushed higher. Economic data showed the German economy is now expected to grow 2.6% this year and 1.8% in 2012, while inflation is set to remain low at 2.4% and fall to 1.9% in 2012, according to government forecasts. The German market dominates Europe and looks set to remain robust, which is essential for the European economies’ recovery to remain on track.

Overnight in London the FTSE 100 index closed up 2.1% at 6,022, the German DAX was up 3.0% at 7,249, while in France the CAC was up 2.4% at 4,023.

Asian Markets

Asian markets are trading higher this week and China and Japan have been the main focus. Japan continues to address the problems at the Fukushima nuclear power plant, while China has reacted to higher-than-expected inflation figures with the central bank raising the reserve requirement by 0.5 of a percentage point to drain more money from the banking system. This is the fourth such increase this year.

All the major markets traded higher with Japan, China and Hong Kong all rising as traders looked to add risk to their portfolios. Miners rose as commodities prices rebounded, while technology stocks rose sharply after Intel and IBM reported better-than-expected earnings and positive 2Q guidance lifted the regional technology sector.

Yesterday in China the SSE Composite closed up 0.3% at 3,007, while in Hong Kong the Hang Seng Index was up 1.6% at 23,890 and in Japan the Nikkei 225 Index was up 1.8% at 9,607. The South Korean Kospi rose 2.2%, and Indian shares also rose 1.8%.

Our View

The S&P/ASX 200 index looks set to hold on to its gains into next week as the post-GFC highs are tested. It’s currently trading at 4888, having backed off the 5,000 level. Key levels for next week will be 4750 to 5000. The focus near-term will continue to be on end-of-month, US earnings reports, the Aussie dollar and commodities prices, particularly gold and crude oil.

Investors should use protection through options to hedge their long positions near-term.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, April 8th, 2011

Markets Drift Higher

Markets drifted higher this week as investors held their nerve, and a number of global markets are now at key levels.

The international market drivers this week have been:

* Interest rates
* Geopolitical unrest in the Middle East and North Africa
* The simmering European sovereign debt concerns
* Continued work towards resolving the Japanese nuclear crisis

Commodity prices were again in focus this week with copper near 2-year highs, and the price of crude oil rising above the crucial $US110 a barrel for the first time in two and a half years, amid concerns about war in Libya and as the dollar weakens against the euro. Silver is at a 31-year peak and gold rose to an all-time high. The US dollar fell to a 14-month low against the euro ahead of the expected interest rate rise from the European Central Bank (ECB).

Investors will need to monitor their positions next week as markets trade at key levels. Be prepared to protect positions through options.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 are now trading near 12-month highs and are searching for some catalyst to push through these levels. Next week we expect to see a test of these critical levels as the markets attempt to push to new YTD highs.

This week the Australian RBA left rates on hold, as expected, while unemployment figures fell to 4.9% from 5% for the month. M&A activity has been in focus, with the ASX and Singapore exchanges’ “merger” being knocked back by the Foreign Investment Review Board, and with Equinox Minerals receiving an unsolicited $6.3 billion all-cash takeover offer from Minmetals Resources Ltd. Meanwhile Rio Tinto’s takeover bid for Riversdale has gone unconditional as their stake is nearing 50%.

Commodities prices will again be a focus next week as they are at record levels, and as the bid for Equinox shows there is still plenty of interest in Aussie resource stocks.

US Markets

US stock markets remain at key levels as the Dow Jones is holding above 12,400 after a positive start to the week. The Non-Farm Payrolls report came in better than expected showing US unemployment is now at its lowest level since March 2009 (the unemployment rate fell to 8.8% from 8.9%), while Institute for Supply Management (ISM) data showed manufacturing is in expansion mode.

Technology stocks have been volatile this week and need to be monitored next week. The Nasdaq has led on the way up, and if it starts to show weakness this may be a leading indicator.

Financials were strong this week as European financial stocks announced plans to raise fresh capital. These raisings are seen as positive for the sector as they will improve their capital position and are designed to lead to improvements similar to those seen in US banks, after they underwent massive capital boosts of their own in recent years.

News overnight of a 7.1 magnitude Japanese earthquake and tsunami warning prompted a 100 sell-off on the Dow Jones but the markets recovered to close down modestly. The Dow Jones finished over 12,400 and the S&P 500 finished above 1,330 for the session.

Crude oil reached $US110 per barrel as the Libyan crisis appears to be reaching a stalemate. If energy prices remain at these elevated levels then the global economic recovery will be in jeopardy. The reporting season starts next week and will give an insight into the impact of higher input prices resulting from higher commodities prices.

Overnight the Dow closed down -0.2% at 12,409, while in the broader market the S&P 500 index was down -0.2% at 1,333 and the tech-heavy Nasdaq ended down -0.1% at 2,796. Three stocks fell for every two that rose on the New York Stock Exchange.

European Markets

European markets have been trading flat this week. There have been a number of key drivers for the week including interest rates, bank stress tests and the Portuguese bailout.

Early in the week results of the bank stress tests did not throw up any major surprises, but as expected European banks will be doing another round of capital raising to boost their balance sheets. Markets reacted well to the much anticipated financial bailout request from Portugal. Bank stocks in Portugal managed to retain their gains after the debt-laden country said it will join Greece and Ireland in requesting international financial assistance. European banks with the most exposure to the PIIGS countries also gained.

Markets also accepted the news of the well-signaled rate hike from the ECB, which lifted its key interest rate to 1.25% from 1%. In the medium term rate hikes are generally seen as a positive indicator because of the economic strength they signal.

In London the market traded flat as the Bank of England said it would leave its key interest rate unchanged at 0.5% for another month.

Overnight the FTSE 100 index closed down -0.6% at 6,007, the German DAX was down -0.5% at 179, while in France the CAC was down -0.5% at 4,028.

Asian Markets

Asian markets generally ended higher this week, though trading volumes were down due to a number of markets being closed for public holidays. Aside from Japan, the big news in the region was China again using a public holiday to surprise markets when it announced it will raise interest rates for the fourth time in seven months.

In Hong Kong and China markets have traded higher, with the Shanghai Composite holding above 3,000. The Chinese central bank has raised its one-year lending rate by a quarter point to 6.31%. Many investment houses are now rating China as a “Buy”, with HSBC, Macquarie Group, Goldman Sachs Group and Deutsche Bank all issuing bullish forecasts. They see that the Chinese government is succeeding in controlling inflation without derailing growth in an economy forecast by the World Bank to expand 9% in 2011. Bloomberg data shows the Hang Seng China Enterprises Index price-earnings ratio is 19% below its five-year average after profits surged 32% last year.

News of the earthquake in northeastern Japan yesterday came after Asian markets had closed, so Asian investors will no doubt react as nerves are tested.

In China the SSE Composite closed up 0.2% at 3,008, while in Hong Kong the Hang Seng Index was flat at 24,282 and in Japan the Nikkei 225 Index was flat at 9,590.

Our View

The S&P/ASX 200 looks set to test key resistance levels next week. The index is currently trading at 4926, testing its key level. The focus near-term will be on US earnings reports, the Aussie dollar and commodities prices, particularly crude-oil. Key levels for the index next week will be 4850 to 5025.

By Michael Hevern
Head of Research

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