SUMMARY: - It was another great day of cricket at Lords, with Australia having the Poms at 3-27 at one stage, before the inevitable English fight back, but Steve Smith claimed 3 late wickets to have the home-side 7 for 289, on a pretty good batting track. All Australia needs now is for someone other than the number 11 to post a big score. - Meanwhile, global sharemarkets continued their march upwards as the Bernanke bounce faded and investor attention moved to the earnings outlook, with US and UK corporations continuing to deliver against downbeat expectations. - The MSCI World Index was higher (+0.4%) with gains in Europe (+1.3%) and the US (+0.5%), whereas Asia was again fractionally lower (-0.2%). In other financial markets, 10-year government bond yields were fairly quiet with markets up or down a few basis points with no overall direction, but high beta currencies were all lower (AUD -0.7% to 91.69 and the Euro -0.1% to 131.15) and commodities were all higher: - oil +1.5% to USD108.06 per barrel (which represents a 17 month high). - gold +0.4% to USD1,282.5 per troy ounce. - Dr copper +0.1% at USC313.05 per pound. - base metals all higher (between +0.1% to +0.3%). The SPI suggests that the Australian market will open +20 points higher (+0.4%) at 10am AEST. MARKET NEWS Asia – After a positive lead from Wall Street yesterday morning, there was little follow through in Asian markets, where every market played their own game and the overall MSCI Asia Index was fractionally down for the second consecutive day (-0.2%). Among the region’s gainers were India (+0.9%), Japan (+0.7%) and Singapore (+0.3%) but the impact of this was outweighed by losses in Hong Kong (-0.1%), Korea (-0.6%), Taiwan (-0.8%) and China (-1.1%). In the local sharemarket, the S&P/ASX 300 Index closed up +12 points (+0.2% to 4,951) with gains led by telcos (+0.9%) and energy (+0.6%) which outweighed losses in materials (-0.2%), consumer discretionary (-0.5%) and healthcare (-0.8%). Europe – Europe ignored the weak Asian lead and instead focused on positive earnings results coming out and by the closing bell the EuroStoxx Index had one of its best sessions in a week (+1.3%). In the major markets gains were capped by France (+1.4%), the UK (+1.0%) and Germany (+1.0%), whereas in the periphery performance was much stronger as markets caught up with the Bernanke call option and bought cheap stocks from the opening with every market outperforming the major led by Italy (+2.1%), Ireland (+2.1%), Portugal (+2.0%), Spain (+1.9%) and Greece (+1.7%). US – on Wall Street, the Dow Jones Industrial Average closed up +78 points (+0.5% to 15,549) with the S&P 500 (+0.5% to 1,689) and the NASDAQ (+0.04% to 3,611 – a 13 year high) posting mixed relative performance as eight sectors posted gains led by financials (+1.3%), utilities (+1.0%) and energy (+0.9%), whereas losses were recorded in materials (-0.04%), IT (-0.3%) and telcos (-0.8%). ECONOMIC NEWS Australia/Asia – The NAB quarterly business survey reaffirmed the more timely monthly results and confirmed that business conditions (-4) and business confidence (-1) remain below their long-run average and the monthly figures confirms a sequential weakening in both areas. Importantly, the number of firms reporting the availability of labour as a constraint fell sharply to just 32% (was once above 70% in March 2008) and shows that labour market conditions continue to weaken and unemployment is set to increase. Europe – UK retail sales came in at +0.2% in June which was slightly below street estimates, but capped off the first set of consecutive monthly gains since July 2012. This latest report adds to the list which suggests that the UK economy is recovering with surveys in services, manufacturing and construction all reporting improved activity. US – no major releases, but the number of US workers seeking new unemployment benefits dropped -24k last week to +334k, which adds to the growing list of improving US data and confirms that the US economy continues to create jobs at a steady pace. COMPANY NEWS Europe - UK stocks rose to a seven week high with the London Stock Exchange (+7.4%) itself leading the gains after its quarterly trading update detailed strong organic revenue growth (of +8%), which was at the top end of market expectations. Similarly, Sports Direct (+6.3%) rose to a record high amid well received annual guidance on trading conditions, which pushed the company within the capitalisation range of the FTSE 100 Index and investors increased their weighting in the stock. Interestingly, Vodafone (+0.5%) was still able to move higher after its US partner Verizon posted second quarter earnings which were below expectations, although guidance was for improved customer numbers in the second half. Meanwhile, Man Group declined (-1.6%) after a broker downgraded its forecast full-year dividend with the RBC claiming that continued outflows would weigh on earnings and dividends. US - US stocks rose to a record intraday high led by a surge in financials as Morgan Stanley (+4.5%) reported strong earnings growth (doubling to USD980 million for the second quarter), which came in ahead of street estimates. The bank joined JPMorgan Chase (+1.2%), Goldman Sachs (+1.7%) and Bank of America (+3.0%) in all reporting strong results primarily on the back of rising financial markets or a surge in lending, both of which could be at risk if US Fed tapering is poorly implemented. In other earnings news, UnitedHealth (+5.3%) rose solidly after reporting solid earnings which beat street estimates and IBM (+2.3%) also rallied after a strong result, but the news in other IT stocks was less upbeat. Indeed, Intel (-3.5%) was sold down as the company lowered its guidance given the continued slump in PC sales. Meanwhile, Ebay (-6.6%) was dumped after the on-line retailer delivered earnings which disappointed expectations and also lowered its guidance, which triggered a series of downgrades and price target reductions from market analysts. DATA RELEASES Australia/Asia Economics – No major releases in Australia, but in China there is the July MNI China business sentiment. Equities – Santos is slated to post its second quarter activities report, while Sydney Airport is due to release June traffic numbers. Europe/US Europe – no major releases. US – no major releases. WHAT IS THE KEY INVESTMENT MESSAGE OVERNIGHT? There is no doubt that US companies aren’t having too much trouble beating down-beat earnings forecasts. When we look at H2 2103 the US macro story is likely to marginally improve, the US Fed could taper-light and there does not appear to be too many exogenous (bMM: refers to an action or object coming from outside a system) factors to worry investors. However, there is one endogenous (bMM: caused by factors inside the organism or system) worry and that is forecast earnings, analysts are expecting double-digit earnings gains at a time when productivity gains are exhausted and the nominal US economy is set to grow at around 5% annualised. The science of fund management is forecasting earnings, the art is knowing what’s in the price and where opportunities are, and firms with strong market positions and high margins are best place to deliver on more up-beat forecasts. _______________________________________________________ Matt Sherwood | Head of Investment Market Research | Asset Management - AEQ Perpetual | Angel Place | Level 16, 123 Pitt Street Sydney NSW 2000 | Australia Phone +61 2 9229 9879 | Fax +61 2 8256 1476 | Mobile +61 434 363 394 perpetual.au
Posted on: Fri, 19 Jul 2013 00:09:02 +0000
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