Posts Tagged ‘Weekly Market Wrap’

    • Weekly Market Wrap: Christmas Rally Hinges on EU Summit Resolve

    Friday, December 9th, 2011

    Markets have been wary of the upcoming EU summit meeting this week, and overnight traders headed for the exits when the ECB president rejected suggestions that the ECB extend its bond buying program.

    All week markets have been driven by news in and around Europe, after having surged last week following the announcement of a coordinated effort from global central bankers to increase the liquidity in financial system, and the news that China lowered bank reserve requirements for the first time in three years. Asian investors cheered the news that the People’s Bank of China will cut the reserve requirement ratio for the large banks by 0.5 percentage point.

    However the news this week has been far less promising. The Standard & Poor’s Ratings Agency cast a negative cloud over the eurozone when it announced it may downgrade the ratings of Germany, France, the Netherlands, Austria, Finland and Luxembourg. Investor sentiment was also kept in check by French President Nicolas Sarkozy remaining pessimistic over the European sovereign debt crisis, particularly since Germany remains opposed to a common eurozone bond, seen by many economists as a possible solution to the crisis.

    There have been mixed signals from the German Chancellor and French President who earlier this week confirmed their support for a new European Union treaty that would include tougher fiscal rules for the eurozone, with automatic sanctions against countries which are breaking budget rules, but later turned around and said that investors need to be realistic in their expectations of the EU summit meeting tonight.

    Overnight eurozone markets remained under pressure after the ECB made it clear that the EU treaty prohibits the ECB from “monetary financing”, and that the bank is constrained by its institutional guidelines, most particularly in the amount of assistance it can deliver to the troubled PIIGS economies. These guidelines limit the ECB’s ability to move on speculation that it could pursue a more aggressive bond-buying program to stem the eurozone debt crisis. Central banks acted as expected overnight. The ECB lowered its main refinancing rate 25 basis points to 1%, in an attempt to ramp up the liquidity within the eurozone. The Bank of England (BoE) kept interest rates and its bond-buying program unchanged, and there was a muted reaction in the UK equities market.

    The eurozone debt crisis will remain the focus for investors for the foreseeable future, and the next milestone is tonight at the Eurozone summit where all 27 European Union leaders will get together in Brussels. They have a number of heavy issues to consider, especially after the European Banking Authority said that European banks need to raise a total of EUR114.7 billion in new capital by June 2012, in order to shore up the financial system.The ECB is under increasing pressure to boost its bond-buying program to support the eurozone financial system, but it has so far rejected such a move. Also under consideration the EU is close to a deal to lend EUR200 billion to the IMF, which the IMF could use to shore up the eurozone debt issues.

    Stay tuned for further developments, however given all the negative news out this week the markets have performed quick.

    The US dollar index is creeping higher again and this has seen commodities prices ease. The major metals have pulled back from their recent highs with gold hovering around the $US1,700 level. Crude-oil has retraced to $US98 per barrel and copper has eased to $US3.49 per pound.

    Our View For Australia

    Our market has once again found resistance around the 4350 level and is now trading around its 50 day moving average, which is around 4200. We have been talking about the line in the sand of late being around the 4150 level, and this remains significant as we trade into the end of the year. The 4180 pivot level is crucial in the short term.

    Aussie shares have been held hostage to the events in Europe this week, and today the growth sensitive stocks have been hit after disappointing CPI and PPI figures out of China. The news out of the EU summit will dictate the sentiment on our market for next week. The Aussie market has bounced off its key resistance level, and is now trading towards the mid-point of its medium-term trading range.

    The bulls have relinquished control of this market in today’s trading session as traders step to the sidelines ahead of the EU summit. In order for this market to sustain a year-end rally it needs to hold above 4180, which is near the 50 day moving average. The 200 day moving average, which sits around 4,400, still offers significant resistance for any positive momentum into the end of the year.

    The S&P/ASX 200 is down -2.5% this week. The index is currently trading at 4195 and is testing the key pivot level around the 4180 level near-term. Key levels for the index next week will be 4080 and 4280, with 4180 the key pivot level. Monitor volatility as traders get to access the ramifications of the EU resolve tonight. Note volatility had been easing into this meeting.

    Investors should be looking to utilise options strategies to protect their positions. Options can be used to protect your profits and manage your risk in this type of market.

    Remain attuned to the news from overseas, particularly from the EU, China, and the US regarding their economic growth and debt issues. Monitor the performance of the US dollar for a guide to the future direction of commodities and equities prices.

    By Michael Hevern
    MDS Trading Desk

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    Weekly Market Wrap: Eurozone Credit Squeeze Triggers Coordinated Central Bank Action

    Friday, December 2nd, 2011

    Just when we thought Santa Claus had abandoned us, the global central banks come to the rescue. November was, for the most part, a pretty dismal month for equities, second only to September for the Asian markets, but the European and US markets were saved by surging equities prices in the final session for the month.

    For the month of November global markets dropped. Asian markets were the worst performers because they ruled off their books before the coordinated central bank action. In Japan the market was down -6.4%, in Hong Kong the market plunged -9.5% and in China the market was down -5.6%. In Europe November saw the London FTSE 100 index down -1.0%, the German DAX-30 down -0.5% and in France the CAC-40 lost -3% for the month. These figures look acceptable owing to the huge surge on the last day of the trading month, however they had been down -6%, -12% and -14% respectively at the lows of the month, just a few short days before the books were ruled off.

    In the US the Dow and the S&P 500 finished in the green by about 0.5% for the month, while the tech-heavy Nasdaq was down -2.4%, but again these figures hide the fact that these indices were down over -7% at the lows for the month.

    This week began with Eurozone banks under selling pressure again, after Moody’s said it may downgrade the subordinated debt of 87 European banks, and news reports that the French triple-A credit rating could be under scrutiny for a potential downgrade by Standard & Poor’s. UBS also dampened sentiment when it downgraded its gross-domestic-product (GDP) forecasts for the eurozone in 2012 to a 0.7% contraction, from a previous estimate of 0.2% growth, and bringing forward its prediction that the region’s recession will likely now start in the fourth quarter of this year. Then mid-week Standard & Poor’s downgraded 15 large banks, including Goldmans, Lloyds of London, J.P. Morgan and Bank of America.

    All this negativity was forgotten when the global central banks surprised traders, moving to shore up liquidity in the global financial system. This move involved a coordinated action plan by a number of central banks to provide US dollar funding more cheaply for European banks. This news came after China indicated that it too would loosen monetary policy by lowering the reserve requirement ratio for large banks. The central banks of the US, Canada, the BoE and BoJ have taken action and the move cuts the rate by 50 basis points, in an effort to give European leaders more time to resolve the ever worsening sovereign debt crisis.

    This joint coordinated action to provide liquidity to the eurozone financial system highlights the severity of the crisis, however the move does not address all the fundamental problems associated with European government debt.

    There is an old adage “don’t fit the Fed”. Well, this is particularly true when a number of central banks make a coordinated effort to provide support to the global financial system. This action will bolster growth-sensitive stocks and commodities as we head into the end of the year.

    The US dollar eased this week and this has seen commodities prices recover. The major metals have risen, with gold breaking above the $US1,700 level and now trading down at $US1,735, crude oil recovering to above $US100 per barrel and copper bouncing to $US3.34 per pound.

    Our View For Australia

    Our market has once again bounced off the 4000 level and is now trading above its 50 day moving average, which is a positive sign. The line in the sand which we talked about last week, around the 4150 level, remains significant as we trade into the end of the year. The 4180 pivot level is crucial in the short term. In the Analyst’s Eye this week we talk about identifying stocks that have the potential to come back in the near-term.

    Aussie shares have staged a great recovery in the past five trading sessions, as the world’s central banks have been forced to address the painful credit squeeze resulting from the eurozone debt crisis. The Aussie market has bounced off its key support level, and is now trading at the mid-point of its trading range.

    Last week we highlighted that “the 61.8% retracement level … is often a level where we could see a relief rally…” – and this proved timely. The bulls have well and truly taken the upper hand this week and should be able to lead into the end of the year as long as we can hold above the 50 day moving average. The 200 day moving average, which sits around 4,410 still offers significant resistance for any positive momentum into the end of the year.

    Investors should be looking to utilise options strategies to manage the gains of the past week. Those of you who held calls from into this week should be able to convert your positions into a risk free trade. Options can be used to protect your profits and manage your risk in this type of market.

    Remain attuned to the news from overseas, particularly from China, Germany and the US regarding their economic growth and debt issues. Monitor the performance of the US dollar for a guide to the future direction of commodities and equities prices.

    The S&P/ASX 200 was down -4.3% for the month of November, but has recovered 3.5% in the past two trading sessions. The index is currently trading at 4255 and looks to be setting up to test resistance around the 4350 level near-term. Key levels for the index next week will be 4180 and 4350, with 4220 the key pivot level. Expect to see volatility ease as traders assess the ramifications of the coordinated central bank move.

    By Michael Hevern
    MDS Trading Desk

    MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

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

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    Weekly Market Wrap: US Rally Continues As Eurozone Leaders Take Action

    Friday, October 7th, 2011

    Globally markets again started the week on a sour note, but gradually gathered steam after news that European leaders and the Federal Reserve will take action to prevent another GFC-type situation unfolding in Europe, due the contagion of the debt crisis in the region.

    Volatility continues to be exceptional and there still does not appear to be any respite in sight. Many markets have been testing key support levels again, and the jury is still out as to whether we are seeing a sustained market rally or if it’s just a short covering rally in a secular bear market.

    Commodities remain a key focus, particularly for our markets. Gold is still hovering around the $US1,650 level, while crude-oil tested the $US75 level this week but is now trading above the $US80 level. Copper, which is the true barometer of global economic activity, is attempting to rebound, but has been sold off heavily and has even tested the $3.00 per pound level.

    For the quarter that just ended the Aussie market has underperformed the Chinese market which was down -13% and the U.S. markets, which were down over -14% for the quarter. The S&P/ASX 200 plunged -17% in the quarter, but so far this week the ASX has recovered over 8% from its lows. We discuss this further in the Analyst’s Eye this week.

    In the latter part of the week we have seen money pour back into the markets. European leaders have stepped in to support a number of European banks which are facing financial ruin, however the IMF has forecast that the eurozone is potentially facing a double-dip recession in 2012.

    Globally financials continue to be volatile due to concerns over capital adequacy, but now the European Commission is considering a bank rescue package which should help the situation. There are still short selling bans in a number of European countries.

    In Europe the markets have actually been led by positive momentum in the US, where the markets are trying to get some traction and are hovering above key support levels. European regulators must act on implementation of the EFSF sooner rather than later, otherwise the global financial system could seize up once again, as it did during the GFC.

    Asian markets have been reacting to what is happening in Europe and the US as well, with the Japanese market bouncing off its lowest level since April 2009. The Chinese Shanghai Composite has been closed for the week but still sits at 2-year lows.

    Our View for the Australian Market

    We did get the end of the quarter recovery we were looking for, and the buying has continued this week. The S&P/ASX 200 index is again testing resistance around its 50-day moving average. Stock prices will to continue to experience volatility near term, as long as the index holds below the 4250 level, which is at the top level of its falling channel. We said last week that the US dollar is the key; now the US dollar index is running into resistance and this is why we are seeing some support in the commodity markets.

    The Australia market started the week under selling pressure again. However Australian investors and fund managers held their nerve as the week progressed, and as US investors led a charge higher into the end of the week. Local traders have also cheered the proposed ECB resolution to eurozone debt crisis. There is a note of caution however, as not all 17 nations have yet ratified the EFSF bailout fund and there are questions around whether there are enough resources in the fund to prevent contagion if the Greek problems spread to the bond markets of Spain and Italy.

    The materials stocks in the Aussie market have been under considerable selling pressure in the past month, but they have rebounded sharply this week as commodities prices bounced off support. Financials have also rebounded in a short covering rally and as they enter into the dividend-paying period. The Australian government held a Tax Forum talkfest this week and there have not been any great controversies to come out of these meetings.

    We are still in a trader’s market, but the bears have relinquished some their control this week, as we saw short positions being unwound. The Aussie market has managed to trade above the key psychological level around the 4000 level this week, and 4080 looks to be a key pivot, but watch for resistance around 4250.

    Investors should be looking to utilise options strategies to protect themselves in this type of market, as there continue to be issues over eurozone bank solvency and the agreement over EFSF bailout fund, so be nimble when trading and manage your risk.

    Remain attuned to the news from overseas particularly from China, Germany and the US regarding their economic growth and debt issues. The Chinese market has been closed this week and America releases its monthly Non-Farms Payroll employment report tonight.

    The S&P/ASX 200 is currently trading at 4145 having again found support at the 3855 level this week. Key levels for the index next week will be 4250 and 3950.
    Expect to see further volatility going forward as the market participants look for some guidance for the direction of the market.

    Use options strategies to reduce your risk in these volatile times. The MDS Financial Advisory Services team can help with this and we have also discussed some of the strategies in our Analyst’s Eye articles recently.

    We regularly update you on trade recommendations so for Buy and Sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

    MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

    By Michael Hevern
    Head of Research

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    Weekly Market Wrap: Investors Rejoice! Ruling Off a Terrible August

    Friday, September 2nd, 2011

    Globally markets drifted higher this week as investors ruled off a terrible August for equities. However the Chinese market has underperformed and is finishing lower for the week, as investors assess whether they are still on track to engineer a soft landing.

    US Markets

    The news out of the US Jackson Hole economic summit was generally well received, though the US Federal Reserve Chairman stopped short of disclosing a fresh round of monetary stimulus (QE3). Later in the week, the FOMC released the August meeting minutes, which actually suggested that QE3 is a possibility, and that the September FOMC meeting will be extended to two days. The minutes suggested an addition to quantitative easing, possibly by extending the average duration of the central bank’s existing bond portfolio by selling bonds with short maturities and buying those with longer maturities.

    Data out of the US this week was mixed, with the Institute for Supply Management (ISM) purchasing managers’ index coming in at 50.6 for August, below expectations. New orders, production and employment were all weak and consumer confidence data disappointed. The US government has also downgraded its outlook for the economy, forecasting unemployment could average 9% in 2012 and predicting slower-than-expected growth for the next several years. However American consumers increased their spending in July by the most in five months and the ADP weekly employment data was promising.

    August was a tough month for investors as volatility spiked. In the US for the month of August the Dow lost -4.4%, the index’s fourth straight monthly loss. In the broader markets the S&P 500 fell -5.8% and the tech-heavy Nasdaq slumped -6.7%. After a busy week for data releases, and ahead of their Labor Day weekend, investors will now look to the Non-Farm payrolls employment report, due out tonight.

    European Markets

    In Europe investor sentiment has been on the edge, with continuing worries about the debt crisis and the fact that the short-selling bans have had to be extended, but the markets have managed to drift higher for the week. The Stoxx Europe 600 index, which is a broad index that sums up euro zone sentiment, plunged -11% for the month of August, on concerns that the euro zone could tip into a double-dip recession.

    The banks continued to suffer from selling pressure this week and data is showing euro zone manufacturing contracted in August and is at a two-year low. The European Commission said its euro zone economic sentiment indicator fell to 98.3 in August from 103.0 in July, below estimates, and its biggest monthly fall since December 2008. The euro zone manufacturing purchasing managers’ index (PMI) also fell to 49.0 points in August (down from 50.4 in July), as manufacturing growth in France, Italy and Spain all slumped into negative territory. Investors need to monitor news out of Germany, which is the largest economy in the region, for any further signs of weakness, and of course the sovereign debt contagion issues are still simmering in the background.

    Asian Markets

    In Asia this week investors were buoyed by positive leads from Europe and the US. However Chinese investors are still troubled by concerns of further fiscal tightening as a result of their high inflation and the Chinese manufacturing PMI data out this week confirming the Chinese economy is slowing. This is raising fears that China is losing grip in its attempt to engineer a soft landing from it runaway inflation.

    Our View For the Australian Market

    The Aussie market has had a positive week and is now retracing from its key short term resistance levels. The reporting season has come to a close, with a number of companies announcing job losses and continuing challenging business conditions. The S&P/ASX 200 index has managed to continue to swing higher but is now testing the key resistance level around 4360 near term. If the market retraces 4070 will be the next level of support and if that fails the next support level would be 3750, which was a pivotal level back in the 2008 GFC recovery phase and held last week.

    Expect stock prices to continue to experience volatility near term. In commodities the standout performer has been gold, which has recovered above $US1,825 level this week after having traded as low as $US1,700 last week, as the bullish trade became overcrowded.

    Resource stocks will remain in focus near-term, after Goldman Sachs said this week that they expect demand for metals to remain healthy, driven by emerging markets. Rio Tinto said that global iron ore production growth will need to be at a rate of at least 100 million tonnes per annum over the next eight years to meet rising demand, from increased industrialisation and urbanisation in India, China, Indonesia, Vietnam and Africa.

    Investors need to remain attuned to the news from overseas particularly from China, Germany and the US regarding their economic growth. There are still concerns that the sovereign debt situation in Europe is out of control. The German economy is slowing and extension of the short-selling ban France, Italy and Spain has had limited success in alleviating the selling pressure on the banks.

    In the local market our reporting season has come to an end, and there have been mixed results (as reported in our daily market report). The RBA still looks set to leave rates on hold near-term but the bias remains to the upside. The dividend season is winding down, and the Aussie dollar has strengthened again this week which is providing additional headwinds for corporations with US earnings. Banks are attractive on a yield basis, but they are still trading below their 50 day moving averages and may see weakness near-term. Recent key support levels have held. Many blue chip stocks look set to retrace from key short term resistance levels, and fund managers and investors are still underweight equities.

    The markets appear to be stabilising near-term. Sentiment from overseas also appears to be improving and there continue to be trading opportunities. On an earnings basis there is reason to start accumulating when others are most fearful, and the recent reporting season has given investors a clearer insight into specific companies. The S&P/ASX 200 is currently trading at 4275 having found resistance around the 4360 level. Key levels for the index next week will be 4360 and 4070. Be prepared to use options to protect recent gains.

    Expect to see further volatility going forward as the market participants look for some guidance for the direction of the market.

    Be prepared to start accumulating when others are too cautious, and don’t forget you can use options to limit your risks in these volatile times. The MDS Financial Advisory Services team can help with this and we have also discussed some of the strategies in our Analyst’s Eye Articles recently.

    By Michael Hevern
    Head of Research

    For buy and sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.

    MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

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    Weekly Market Wrap: The Ace In The Hole

    Friday, August 26th, 2011

    The Ace In The Hole

    We have experienced another volatile week, but investors have remained positive ahead of the Jackson Hole summit.

    Data out of the US continues to point to a slowing economy, but the primary focus this week has been on the economic summit which will be held in Jackson Hole, Wyoming. US investors have been pushing stocks prices higher in anticipation of some news on further quantitative easing.

    In Europe investor sentiment has been on the edge, with continuing worries about the debt crisis and the fact that the short-selling ban has had to be extended. There was some good news as Barclays Capital released a bullish note, reiterating their positive stance on European equities and upgrading the European telecommunications sector to “overweight”. Also the euro zone composite PMI for August held steady at 51.1 in August, but above expectations of 50, and in Germany the manufacturing PMI was 52 for August, above forecasts of 50.8. The rumours about Germany overnight tested investors’ nerves, however European markets are finishing higher having held last week’s support levels.

    In Asia this week investors were buoyed by data which showed an improvement in Chinese manufacturing activity. Preliminary data released by HSBC showed the Chinese Manufacturing Purchasing Managers Index (PMI) for August came in at 49.8 from a final reading of 49.3 in July. This report suggests implied factory activity in China contracted, but turned out to be much better than expected. The Chinese market is finishing higher for the week. However investor sentiment has been tested by a downgrade of Japan’s credit rating to AA3 from AA2 by Moody’s Investors Service, which cited sovereign debt issues and the global economic outlook. The Japanese Nikkei Stock Index is testing lows not seen since April 2009, as the exporters continue to be battered by the strong yen. The selling was broad-based due to the weak economic outlook.

    The Aussie market has had a positive week, having held last week’s support levels. There have not been too many disappointments in the reporting season and commodities prices have generally traded higher for the week.

    Our View For Australia

    The Australian share market continues to be driven by overseas sentiment, particularly in Europe and the US, so expect the volatility to continue near-term. The S&P/ASX 200 index has managed to swing higher with the key support level around 4070 near term and if that fails the next support level would be 3750, which was a pivotal level back in the 2008 GFC recovery phase and held last week.

    Expect stock prices to continue experiencing volatility near term. In commodities the standout performer has been gold, but even it saw heavy selling when it reached $US1,900 this week, and traded as low as $US1,700 overnight as the bullish trade became overcrowded.

    There are still concerns that the sovereign debt situation in Europe is out of control. The rumours overnight that Germany could be the next to face a credit rating downgrade and that they were going to introduce a short-selling ban sent that market down over 4% at one point. The rumours came after France, Italy and Spain all extended their short-selling bans. Note that the rumours about Germany proved to be unsubstantiated, but when faced with uncertainty investors will sell first and ask questions later.

    The S&P ASX 200 has held above the 4000 level this week, which is positive. The line in the sand was drawn recently around 3750 and the 4050 level remains a pivot key in the short term.

    Investors need to remain attuned to the news that will come out tonight from the US Federal Reserve Chairman at the economic summit at Jackson Hole Wyoming. Analysts generally agree that there will not be any substantial monetary easing initiatives announced tonight and the Fed will be commenting on the weakening state of the US economy. The market reaction to this news will set the tone for the markets next week, in an environment where there are concerns over faltering global growth and European debt contagion fears, which is sparking the spectre of a double-dip recession.

    Our reporting season is coming to an end, and there have been mixed results (as reported in our daily morning report). The RBA still looks set to leave rates on hold near-term, the dividend season is well underway, and the Aussie dollar has strengthened this week which is providing additional headwinds for corporations with US earnings.

    Banks are attractive on a yield basis, but are still trading below their 50-day moving averages, and recent key support levels need to hold. Many blue chip stocks look even cheaper on a valuation basis but investors are still fearful. Fund managers and investors alike are still underweight equities.

    The markets need to stabilise near-term and sentiment from overseas needs to improve before investors can feel comfortable with jumping back into stocks, but there continue to be trading opportunities. On an earnings basis there is reason to start accumulating when all others are most fearful, and the recent reporting season has given investors a clearer insight into specific companies. The S&P/ASX 200 is currently trading at 4200 having found support around key support at 4070. Key levels for the index next week will be 4300 and 4000.

    Keep that shopping list close at hand and be prepared to start accumulating when others are most fearful, you can use options to limit you risks. Expect to see further volatility going forward as the market participants look for some guidance for the direction of the market.

    Use options strategies to reduce your risk in these volatile times. The MDS Financial Advisory Services team can help with this and we have also discussed some of the strategies in our Analyst’s Eye Articles recently.

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

    MDS Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.

    By Michael Hevern
    Head of Research

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    Stock Market Analysis: Weekly Market Wrap

    Friday, July 29th, 2011

    U.S. Debt Ceiling Impasse Crushes Markets Globally

    Australian shares have struggled this week as the reporting season gets underway with mixed results. The bad news from overseas regarding debt concerns simply does not let up. This week the sell-off came due to the impasse in Washington over the raising of the federal government’s $US14.3 trillion debt ceiling, leaving the U.S. vulnerable to a possible default or a credit downgrade from their triple-A credit rating. This could have disastrous impacts globally.

    Investors moved to “risk-off” this week as the negotiations between Republicans, Democrats and the White House failed to reach a consensus as the deadline of August 2nd looms large. The markets have not factored in a U.S. default at this point and obviously expect some form of resolution by the deadline next week. The outcome next week will be critical for the performance of our markets near-term so expect a relief rally once the debt-ceiling is approved.

    Commodity prices have continued to rise as the US dollar still struggles, with copper prices still around 10-week highs and the gold price at all-time highs.

    U.S. Markets

    U.S. stock markets have fallen this week and are on track for their worst weekly performance for over a year as the ongoing debt negotiations and threat of a credit downgrade have caused a sell-off.

    The earnings season continues to beat estimates with 80 percent of the companies reporting beating earnings forecasts by an average of 15%, however investor focus remains on the debt ceiling issues.

    The market is setting up for a relief rally once the debt ceiling issues are resolved, but there will be a problem if or when the credit rating is downgraded from AAA due to the ballooning debt. If the U.S. Government loses its AAA credit rating, this will have severe consequences, not the least of which will be increased borrowing costs, and will likely tarnish the view of the US dollar being seen as the world’s reserve currency.

    Overnight the Dow Jones closed down -0.5% at 12,240, the S&P 500 index closed down -0.3% at 1,301, the Nasdaq ended flat at 2,766, and the smaller cap Russell 2000 was down -0.2%.

    European Markets

    European stock markets have held up quite well following an agreement by the European leaders for a fresh financing package for Greece and avoiding contagion concerns in other debt-laden members of the euro zone. Traders cheered the European leaders agreeing to a new rescue for Greece that also includes a plan for private creditors to voluntarily exchange existing Greek bonds for new bonds that will mature far in the future. However the ratings agencies Moody’s Investors Service and Standard and Poors have kept the pressure on financials by cutting Greece’s debt rating further into junk territory, indicating that the planned debt swap would constitute a default. Banks across the region have come under heavy selling pressure in the course of the week as Goldman Sachs lowered its outlook for the sector.

    Overnight in London the FTSE 100 index was up 0.3% at 5,873, the German DAX was down -0.9% at 7,190, while in France the CAC was down -0.6% at 3,712.

    Asian Markets

    Asian stock markets have been generally weaker this week, as Chinese manufacturing data weighed on sentiment. The Chinese market plunged over 3% early in the week.

    Asian markets have been under pressure due to increasing concerns over the U.S. debt ceiling impasse and the prospect of a credit downgrade or even a debt default. Across the region exporters suffered after a drop in U.S. durable-goods orders for June raised questions about future demand, while technology stocks followed their U.S. counterparts lower after some earnings misses.

    Overnight in China, the SSE Composite was down -0.5% at 2,709, while in Hong Kong the Hang Seng Index was up 0.1% at 22,570 and in Japan the Nikkei 225 Index was down -1.5% at 9,901. The South Korean KOSPI was down -1.0% for the session, while the Indian market was down -1.2%.

    Our View For Australia

    The Australian share markets have been buffeted from the negative sentiment from overseas, particularly in the U.S. The S&P/ASX 200 index once again teetered on the key support level around 4450 and this will probably remain the case until the U.S. debt ceiling negotiations are resolved (next week). Our market needs to hold these levels, otherwise a test of the 4250 level could happen quickly.

    Look for the market to test support around 4450, and if this can hold, expect another run at the key 4650 level. As stated last week the market needs to break above 4650 to confirm the double bottom which would be a setup for a move higher medium-term.

    The U.S. impasse over the raising of their debt ceiling has proven to be the road block for global markets. The European leaders agreeing to the second bailout package for Greece was a positive but now we need a resolution to the U.S. debt crisis as the deadline of the 2nd of August looms large.

    Our reporting season is underway, and a key take away will be how the miners are controlling their costs, given their unprecedented expansion of facilities in order to cope with the worldwide demand for resources. Banks are attractive on a yield basis and are again testing key support levels. Remember the dividend season is not far away 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 4470 and is again testing pivotal support at 4450 near-term. Key levels for the index next week will be 4600 and 4350.

    It is time to look for bargains in the market, especially if or when the U.S. debt ceiling issues are resolved.

    By Michael Hevern
    Head of Research

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    Stock Market Analysis: Weekly Market Wrap

    Friday, June 17th, 2011

    Spectre of Greek Default Spooks Global Markets

    Traders headed for the exits this week as the sell-down continued. Investors were cautious as data remained soft in the U.S. and in Asia, and the spectre of a debt restructure/default in Greece is dominating investor sentiment.

    Globally markets have continued to be plagued with concerns over the sovereign debt issues in Europe, particularly in Greece. Asian markets have also been dragged lower by reports showing that Japan is in a recession, that Chinese growth is slowing near-term, and by an increase in capital reserve requirements hitting the Asian banks.

    Commodities prices have also been under pressure this week due to concerns over the faltering global economy.

    Australian Market

    The ASX All Ordinaries and the S&P/ASX 200 have experienced selling again this week. The Aussie market continues to test the key support levels of its March lows and is trading at the lower end of its falling channel formation. It is crucial that support holds at these levels, otherwise we could see the market test 4200 near-term.

    Australian shares are starting to show some value but investors are unlikely to rush to open new positions until the situation in Greece is resolved. Miners have suffered due to concerns about economic growth near-term and energy stocks have been weak as crude oil tests $US95 per barrel, but banks are starting to look good on a yield basis.

    The focus is on Greece at the moment but there are also domestic headwinds continuing to confront investors, including the poor GDP figures, slowing jobs data, the mining tax and the possible carbon tax, all of which are weighing on sentiment.

    U.S. Markets

    U.S. stock markets are trading lower for a seventh week. Financials have led the fall, but material and energy stocks also fell as economic worries continued to weigh on sentiment, dragging the indices down again.

    Investors continue to be wary of risk as the Greek debt crisis remains unresolved. A Greek default would be fractious to the European Economic Union, with global ramifications on financial systems, leading to massive losses for creditors and impacting on the global economic recovery. Defensive sectors such as utilities and consumer staples components provided some support.

    Overnight, U.S. stock markets ended mixed after a late session rally. The Dow Jones Index ended higher, after recovering from 3-month lows, while the S&P 500 and the Nasdaq again closed around their lows for the year. The U.S. dollar jumped higher in a “flight to safety” which put pressure on commodities prices.

    The Dow Jones closed up 0.5% at 11,961, the S&P 500 index closed up 0.2% at 1,265, the Nasdaq ended down -0.3% at 2,624, and the smaller cap Russell 2000 was up 0.3%.

    European Markets

    European stocks have continued to weaken this week as worries about Greek finances and the health of the U.S. economy again weighed on sentiment.

    The Greek ASE index slumped as the country was practically shut down on Wednesday by a 24-hour general strike to protest new austerity measures, and demonstrations in Athens turned violent. Greek bonds were trashed, sending yields to their highest levels since the inception of the euro, as euro-zone officials failed to make progress on discussions about aid to Greece.

    Elsewhere the Irish budget minister warned of more budget cuts, and the European Central Bank warned that contagion from the euro-zone’s debt crisis remains the top risk to financial stability in the EU bloc, while reiterating their opposition to a Greek debt restructure.

    The S&P Ratings Agency cut Greece’s sovereign rating to junk territory, cutting it to CCC from B, the lowest in the world, rather focusing on the likelihood that euro-zone officials will reach a deal to help the nation avoid a default.

    Investors continued selling as the week unfolded, even as the European Union and the International Monetary Fund said that the next tranche of Greek aid is likely to be approved at a meeting of euro-zone finance ministers on Sunday. A second bailout package for Greece and a decision on the nature of private-sector involvement is scheduled for early July.

    Banks were under pressure again across the region with the National Bank of Greece and Alpha Bank each down more than 4%, while major French banks were down after being put on review for possible downgrade by Moody’s Investors Service, because of their exposure to Greek debt.

    Overnight in London the FTSE 100 index was down -0.8% at 5,699, the German DAX was down -0.1% at 7,110, while in France the CAC was down -0.4% at 3,792.

    Asian Markets

    Asian share markets have traded lower again this week, with Hong Kong and Australian markets hitting multi-month lows and trading at their lows for the year, after a sharp sell-off in the U.S. mid-week. In Hong Kong the market has been under pressure as an announcement of higher bank-reserve requirements by China hit Hong Kong-listed financials.

    Persistent news of a possible Greek default has also unnerved investors globally. In China the Shanghai Composite has fallen, as banks sold-off after the People’s Bank of China announced a half a percentage point increase to the reserve requirement ratio. This is China’s sixth increase this year, and will take effect 20 June, bringing the ratio for most large lenders to 21.5%. Miners have also weighed due to the prospect of slower global growth.

    Overnight in China the SSE Composite was down -1.2% at 2,664, while in Hong Kong the Hang Seng Index was down -1.5% at 21,910 and in Japan the Nikkei 225 Index was down -1.4% at 9,411. The South Korean KOSPI was down -1.7% for the session, while the Indian market was down -0.5%.

    Our View

    The Australian share market has had a another sell-off this week and markets look set to remain subdued as we head into the end of the financial year. As the week progressed investors continued to choose caution, as fears of Greek debt contagion seeped into investor psyche.

    The S&P/ASX 200 index is testing its March lows and we may see consolidation near-term as the index has pushed towards the lower end trading range of its falling channel. The headwinds remain with a strong Aussie dollar, slow jobs and retail sales numbers and the proposed carbon and mining resource taxes, plus the end-of-financial year clean-out all weighing on sentiment.

    The S&P/ASX 200 is currently trading at 4510 and is trying to find support around these levels. Key levels for the index next week will be 4600 and 4400.

    By Michael Hevern
    Head of Research

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    Stock Market Analysis: Weekly Market Wrap

    Friday, January 14th, 2011

    European Debt Contagion Fears Ease

    The Aussie market surged yesterday after a steady start to 2011, with Japan joining the ECB and China committing to the purchase of European debt. European stock markets are now trading at 28-month highs, rising after the successful bond auctions in Portugal, Spain and Italy, following Japan’s commitment. The success of the first bond auctions for 2011 has supported the view that there is no need for an emergency bailout, at least in the near term.

    In the US, economic data continues to support the view that the jobless economic recovery is still intact. In Asia, the World Bank has said that China should be targeting 2011 growth of 8.7 percent, down from 10 percent in 2010. This means that China, the world’s second largest economy, will have considerable scope to raise its interest rates in 2011, however investor concerns will likely resurface if this happens and it will be reflected in pressures on commodities.

    Commodities are the key driver of our market and have been holding up this week, primarily because the US dollar has been pulling back, particularly against the Euro. Gold is starting to lose its shine as a safe haven investment, with investors looking set to move into equities to gain more risk exposure in their portfolios – a result of increasing confidence in the continuation of the global economic recovery into 2011.

    A global theme is the concern regarding rising inflation in 2011, particularly in soft commodities prices which look set to remain at elevated levels due to worry about food supply.

    Locally the Australian economy looks set for a tough start to the year, with Australia experiencing severe flooding and central Queensland experiencing one of the worst floods on record. This will impact the Aussie economy near-term and we have estimates of a cut in this year’s GDP of up to 1 percent. These floods will be especially detrimental to our terms of trade medium-term, with production ceasing in many areas.

    As the year progresses company earnings will recover as the monumental task of rebuilding communities and infrastructure gets underway. This will provide investment opportunities for those who can see through the near-term fall in corporate earnings.

    The investment themes for this year will be:

    * the economic recovery from floods and droughts;
    * commodities supply constraints and pricing;
    * improving corporate dividends;
    * interest rates and Aussie dollar strength;
    * continuing M&A activity.

    You can read more on this in the Analyst’s Eye where we have done an in-depth analysis of the market performance last quarter, with a view to uncovering what it means for 2011.

    By Michael Hevern
    Head of Research

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    Stock Market Analysis: Weekly Market Wrap

    Friday, December 10th, 2010

    Jobs and CPI

    Global share prices generally continued higher this week, but China continues to under-perform. Investors pushed stock prices lower earlier in the week, on the back of the disappointing US employment report. However concerns over tensions in the Korean Peninsular and Eurozone sovereign debt issues have abated this week and again we had encouraging US economic data. Trading volumes picked up with fund managers chasing performance as the year comes to an end. Gold and crude oil backed off record levels, while copper continued higher on fears the demand will continue to outpace supply into 2011.

    The Aussie market was driven by overseas news. The RBA left rates on hold and a surprisingly positive jobs report helped support the market late in the week.

    US Markets

    US markets have traded higher this week with the S&P 500 closing at a yearly high. This was despite weakness earlier in the week on the back of a disappointing monthly employment report which showed unemployment rose to 9.8% (up from 9.6%). The government helped sentiment by moving closer to extending the Bush tax cuts for another 2 years, which could mean a stimulus of $185 billion for the economy, according to Goldman Sachs. Overnight the US weekly new jobless claims data showed a larger fall than was expected, which encouraged traders to move away from bonds and back into equities. The Labor Department showed that first time claims for unemployment benefits dropped to 421,000 last week, the second-lowest level this year, and the 4-week average of claims also slid for the fifth straight week, to the lowest level since August 2008.

    Financials have finally started to participate in positive market activity. Gains were led by the smaller regional banks as they started to price in the probability of greater economic growth, with QE2 and the probable extension of tax cuts. The US government has also been selling down the stakes which it was forced to take up as part of the 2008 GFC bailout measures and the banks are paying back their TARP bailout obligations.

    Overnight the Dow closed flat at 11,370, while in the broader market the S&P 500 index was up 0.4% at 1,233 and the tech-heavy Nasdaq ended up 0.3% at 2,617.

    European Markets

    European markets continued their positive momentum this week. The European Central Bank (ECB) and the Bank of England (BoE) left rates on hold and the ECB delayed its withdrawal of emergency liquidity measures and bought government bonds in Portugal, Ireland and Greece. The ECB pledge to fight the “acute” financial market tensions is paying dividends with European shares advancing to 2-year highs, led by financials as investors are becoming more comfortable that the global economic recovery is still on track. The Stoxx Europe 600 Index rose 0.4 percent to its highest close since September 2008, as the measure has risen 8.7 percent for the year, on the back of improving corporate profitability.

    In the UK the market traded around 3-month highs, while Germany continues to outperform. Sentiment also improved after a promising presentation from Barclays PLC strategists, who expect a rally in 2011 based on low valuations coupled with profits and economic growth. They forecast the Euro Stoxx 50 Index to gain 18 percent from current levels through 2011, with key sectors being basic resources, financials, food retail and industrial companies.

    Overnight in London the FTSE 100 index closed up marginally 0.2% at 5,808, the German DAX was down marginally -0.2% at 6,964, while in France the CAC was up 0.7% at 3,877.

    Asian Markets

    Asian markets were mixed this week. The Chinese and Hong Kong markets fell on anticipation that the CPI reading due out tomorrow may be higher than expected, which will add fuel to concerns that the government may have to raise interest rates sooner rather than later. Resources stocks have been under pressure, on concerns that a hike in interest rates would impact demand for commodities. The Chinese market has been trading in a range for the past 4 weeks, so watch for a breakout near-term. Japan bucked the trend trading at 7-month highs this week, led by banks and insurers. The Japanese economy grew by more than previously forecast in the 3Q due to capital spending by companies and support from the surge in the US financial sector. Japanese exporters benefited from a sliding yen as well.

    Overnight In China the SSE Composite closed down -1.3% at 2,811, while in Hong Kong the Hang Seng Index was up 0.3% at 23,172 and in Japan the Nikkei 225 Index was up 0.5% at 10,286.

    Commodities

    Copper remained around record levels this week, due to continuing concerns that demand will outpace supply into 2011, driving prices higher. The strengthening US dollar is dragging down other commodity prices though. Gold dropped below $US1,400 an ounce, while oil slipped after official inventory figures showed a drop of 3.8 million barrels, more than had been expected. The Dollar Index was flat at 80.01, while the Australian Dollar last traded higher at 98.43. Commodities were generally mixed.

    Overnight the benchmark crude NYMEX for December delivery was up 0.3% to settle at $US88.54. Copper prices backed off 2-year highs: copper for December delivery was down -0.7% at $US4.0665. Gold prices traded off all-time highs again, with December gold up marginally, 0.2% at $US1,385.50.

    ASX News

    The Aussie market continued its positive momentum this week, though commodities have seen some profit taking as the US dollar strengthens. Investors continue to focus on overseas positive manufacturing and jobs data from China and Europe, and the continuing rise in US stock prices. Fund managers are busy chasing performance as the year comes to a close. The RBA left rates on hold as expected, but the surprise tightening in the employment market actually pushed the bourse higher late in the week. The fact that the financials are starting to participate in the positive activity in the US is a good indicator for 2011.

    Our View

    Markets have continued higher this week as expected, but commodities prices are backing off record levels as traders start to take profits. Economic data released this week continues to support the view that the global recovery is still on track, and the upbeat report on the UK economy from Barlays PLC bodes well for 2011.

    The S&P ASX200 is currently trading around 4737 which is close to the key weekly pivot level (4700) which has been in place since August. Momentum should continue into next week, but be aware that this will be the last serious week of trading for the year. Use the Aussie dollar as a leading indicator for our market and be wary of the Chinese response to its CPI data due out tomorrow. Also watch out for confirmation of the extension of the Bush tax cuts next week. Key levels for next week will be 4810 to 4650.

    By Michael Hevern
    Head of Research

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    Stock Market Analysis: Weekly Market Wrap

    Friday, December 3rd, 2010

    Global Recovery Still On Track

    Global share prices have surged higher this week, with the exception of China. Investors pushed stock prices lower early in the week due to concerns over escalating tensions in the Korean Peninsular and Eurozone sovereign debt issues, but as the week progressed strong economic data out of the US, China and Europe confirmed that the global recovery is still on track. Trading volumes picked up as fund managers reallocated their portfolios in an attempt to chase performance as the year nears an end.

    As noted last week, Asian investors are seeing any pullback as a chance to buy. The European markets continued the week focusing on the sovereign debt concerns in the PIIGS economies, but recovered as the ECB said it will delay the withdrawal of emergency liquidity measures, bought more government bonds and pledged to fight “acute” financial market tensions. US markets have bounced off key support on the back of strong economic data and are now set to test 52-week highs again.

    The Australian market followed overseas markets higher, despite disappointing retail sales and data showing economic growth is slowing. At least the RBA can leave rates on hold until the second quarter of 2011, given these results. As we noted last week trading activity was critical this week, as we had not traded lower for more than three consecutive weeks since the sell-off in April, and after this week’s performance this still holds.

    US Markets

    US markets traded higher this week after testing key support levels. Last week we noted that investors appeared to have been positioning their portfolios on expectations of relatively strong Black Friday sales. This proved to be the case, as major retailers such as Costco and Target reported sales in November that were stronger than analysts expected. Increased spending during the holiday season would be a strong signal as consumers fuel around 65 percent of economic activity. Other strong US economic data also buoyed investor sentiment this week. A report from the Labor Department showed 3Q productivity is rising higher-than-expected, as companies boosted output while managing to keep costs down. US spending on construction projects also unexpectedly rose by 0.7% in October, for a second straight gain. The weekly jobs data showed that the US added 93,000 private sector jobs in November, the 10th consecutive month of gains and the largest monthly gain in three years. Also, a report that pending home sales jumped in October by 10.4 per cent, much better than expected, fueled hopes that the troubled US housing market might finally be stabilising. Investors are expecting positive news from the Non-Farms Payrolls Monthly report due out tonight.

    The sectors that outperformed this week were led by Financials, Materials, Energy and Industrials. Overnight the Dow closed up 1.0% at 11,362, while in the broader market the S&P 500 index was up 1.3% at 1,222 and the tech-heavy Nasdaq ended up 1.1% at 2,578.

    European Markets

    European markets started the week lower due to concerns over EU sovereign debt issues, but ended sharply higher overnight with European stocks rising to their biggest 2-day rally since July. Ireland eventually agreed to an EUR85 billion bailout package and the European Central Bank (ECB) has helped market sentiment by leaving rates on hold and extending an emergency loan program, saying it will delay the withdrawal of emergency liquidity measures. It also bought more government bonds and pledged to fight “acute” financial market tensions. Elsewhere a British manufacturing survey registered its highest reading in 16 years and German retail sales jumped higher than expected in October. In London the FTSE 100 index closed up 2.2% (or 125 points) at 5,768, the German DAX closed up 1.3% (or 91 points) at 6,958, while in France the CAC was up 2.1% (or 78 points) at 3,767.

    Asian Markets

    Asian markets were sold off earlier in the week as investor sentiment was impacted by the tension in the Korean Peninsular, but recovered as economic data showed the global recovery is still on track. But as we saw last week bargain hunters appear to have stepped in. Chinese investors remain cautious about the prospects of further tightening measures by the government, as the Chinese purchasing managers’ index (PMI) data showed 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 Chinese market continues to underperform. Japanese stocks held around the 5-month high, as the yen’s decline against the euro spurred buying interest. The Japanese Nikkei remains above 10,000 and its 200-day moving average resistance that had held since May.

    Overnight, the Chinese SSE Composite closed up 0.7% at 2,844, while in Hong Kong the Hang Seng Index was up 0.9% at 23,449 and in Japan the Nikkei 225 Index was up 1.8% at 10,169.

    Commodities

    Copper has risen to 3-week highs this week, as supply concerns for 2011 drove prices higher and as the dollar fell against the euro. Oil prices have continued to show strength trading around $US88 a barrel. Gold was flat after again failing to break above $US1,400 an ounce. Overnight the benchmark crude NYMEX for December delivery was up 1.4% to settle at $US88.00. Copper prices backed off 2-year highs, with copper for December delivery up 0.7% at $US3.9715. Gold prices were off all-time highs again, with December gold down -0.3% at $US1,383.50.

    ASX News

    The Aussie market was under pressure from domestic economic data, with retail sales figures disappointing and the Australian 3Q GDP data reporting the economy grew at a slower-than-expected annual rate of 2.7%. However investors have chosen to focus on the strong positive manufacturing and jobs data from China and Europe, and the sharp rise in US stocks. Fund managers are busily reallocating their portfolios, chasing performance as the year comes to a close.

    Our View

    Markets have surged this week on the back of strong economic data showing the global recovery is still on track, and setting up well for the markets into 2011. Data out of the US, China and Europe is still pointing to a recovering global economy, the German economy continues to outperform and Chinese growth is still robust, but is underperforming. Investors need to monitor the US dollar’s performance, the Non-Farm Payrolls report, Eurozone Debt issues and Chinese interest rates, as leading indicators for any change in sentiment near term.

    The S&P ASX200 is currently trading around 4705 which is close to the key pivot level which has been in place since August. Momentum should continue into next week. Key levels for next week will be 4800 to 4550.

    By Michael Hevern
    Head of Research

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