Weekly Market Wrap
The market started the week lower as investors ruled off the worst August performance in almost a decade, trading volumes were also anemic which was a concern as well. However a huge turnaround in investor sentiment was triggered by better-than-expected economic data in the US, China and Australia, and markets in the US, Europe and Asia are all ending the week higher.
The ABS confirmed that Australia’s economic growth for the June quarter rose a surprising 1.2 percent which is the biggest quarterly gain in economic growth for 3 years. This translates to a 3.3 percent annual GDP growth which significantly exceeded analysts’ forecasts. Asian economic data triggered a surge in share prices worldwide after a surprisingly upbeat trading and economic growth report.
US Markets
US markets ended sharply higher this week on the back of surprisingly good economic data. Investors were spooked early in the week after the Federal Reserve said that the outlook for the US economy would have to deteriorate “appreciably” to warrant any fresh support from the central bank. This eliminated hope of another stimulus package for the US. Then a report that US manufacturing activity expanded in August for a 13th straight month triggered investor optimism that the dreaded “double dip” may be averted.
The CBOE Volatility Index, known as the market fear gauge, has been falling to 23.19 this week, confirming the reversal of investor sentiment. Overnight, the Dow closed up 0.5% at 10,320, while in the broader market the S&P 500 index up 0.9% at 1,090 and the tech-heavy Nasdaq ended up 1.1% at 2,200.
European Markets
European stocks started the week flat but then surged as the new month unfolded. EU economic data has continued to point to a slowing recovery, with the UK manufacturing suffering a sharp slowdown last month amid uncertainty about the extent of public spending cuts. Growth in Europe’s manufacturing industry slowed in August and export demand fell to the lowest levels in seven months. Investors chose to take their leads from the US and Asian economies and followed these markets higher. Overnight in London, the FTSE 100 index closed up marginally 0.1% at 5,371. The German DAX was flat at 6,084, while in France the CAC was down marginally 0.1% at 3,631.
Asian Markets
Asian markets traded higher this week. Chinese markets held on to recent gains, after reports that manufacturing in China grew at a faster pace in August following the weakest performance since early 2009, indicating that the Chinese government-engineered economic slowdown will be limited. Even Japan managed to end the week higher after rebounding off 16-month lows earlier in the week, after the Bank of Japan (BoJ) announced emergency moves to address the strength of the yen. Overnight in China the SSE Composite closed up 1.3% at 2,656, while in Hong Kong the Hang Seng Index was up 1.2% at 20,869 and in Japan the Nikkei 225 Index was up 1.5% at 9,063.
Commodities
Wheat prices are again trading around 2-year highs. Oil prices bounced this week jumping above $US74 again. Overnight the benchmark crude NYMEX for September delivery was up 1.4% (or $US1.05) to settle at $US74.96.
Copper prices also rose. Copper for September delivery was up 0.4% (or 1.4 cents) at $US3.4820. Gold prices rose to 2-month highs, above the key $US1,250 psychological level, and look to be heading for new record highs with December gold up 0.4% at $1,251.00.
ASX News
The ASX market has been boosted by “outstanding” economic reports from the Australian Bureau of Statistics (ABS). On Tuesday, the ABS confirmed that Australia’s economic growth for the June quarter rose a surprising 1.2 percent, the biggest quarterly gain in economic growth for 3 years. This translates to a 3.3 percent annual GDP growth which significantly exceeded analysts’ forecasts. The ABS also confirmed that Australia recorded its smallest current account deficit since the first quarter of 2002.
The seasonally adjusted deficit improved by almost $11 billion to $5.64 billion in the June quarter, as commodity exports boosted earnings. The improvement was primarily driven by a sharp rise in the value of commodity exports which was largely due to a shift to shorter-term contracts. The value of iron ore and mineral exports surged 43 percent with a 39 percent jump in prices, while coal exports jumped 52 percent with a steep rise in both prices and volumes. This sale of rural goods also rose 6 percent on the quarter. Investor sentiment turned around on this news and pushed the markets significantly higher.
Our View
Markets have surged higher this week after a dismal August, and the ASX is testing the top of the trading range that has been in place for the past four months. We would expect to see some consolidation next week, where the 4600 level will be key.
The US releases its Non-Farm Payrolls report tonight which will set the tone for next week.
The S&P ASX200 is currently trading at 4540, at the upper quarter of the current trading range. The key resistance level on the ASX is around 4600 and the key levels for our index next week are 4650 and 4400, with pivot at 4500. The momentum is to the upside and the 4600 level is key resistance near term.
By Michael Hevern
Head of Research
