Summary: => Global markets were somewhat quiet overnight in the absence of top tier economic data and little earnings news, which left an information vacuum that investors tried to fill by focusing on the weekend deal in the Middle East which should reduce global oil prices over the long-run. However, there was a real lack of conviction in market moves, even though the MSCI World Index was marginally higher (+0.2%) with gains in Asia (+0.6%) and Europe (+0.5%) weighed down by the US (-0.1% with 50 minutes left to trade) which opened higher but progressively gave these gains back as the session progressed. => In other financial markets, 10-year government bond yields declined as bond price rose slightly (US Treasuries down to 2.74%, UK gilts lower at 2.60% and Japanese bonds closed at 0.64%), high beta currencies were lower (AUD -0.1% to 91.57 and the Euro -0.3% to 135.13), but commodities were universally higher: - base metals mostly posted gains of around +1.0% (other than tin (-0.4%) and aluminium (-0.1%)). - Dr copper +0.7% at USC321.40 per pound. - oil +0.6% to USD94.84 per barrel. - Iron ore +0.2% to USD134.69 per metric tonne in US futures markets. - gold +0.04% to USD1,244.10 per troy ounce. The SPI suggests that the Australian market will open -2 points lower (-0.04%) at 10am AEST. Market news =>Asia – Asian markets began the week on a positive note with the apparent easing in geopolitical tensions in the Middle East following a deal to curb Iran’s development of its nuclear capability noted as the catalyst, which is clearly positive for energy importers including Japan and India, given the positive impact on their terms of trade. Overall, the MSCI Asia Index (+0.6%) closed higher with regional gains led by India (+2.0%), Japan (+0.9%), Taiwan (+0.9%), Korea (+0.5%) and Singapore (+0.3%), whereas Hong Kong (-0.1%) and China (-0.5%) were the only countries to decline. In the local market, the S&P/ASX 300 Index closed +16 points higher (+0.3% to 5,303) with gains led by healthcare (+1.2%), industrials (+0.7%) and IT (+0.5%), whereas energy (-0.1%) and utilities (-0.2%) were the only sectors to decline. => Europe – European markets followed the positive lead from Wall Street and Asian markets and were mostly higher yesterday. Data flow and earnings news was scant and investors instead focused on the developments in the Middle East, however, gains were a little underwhelming, perhaps an indication that elevated market valuations are preventing sharper gains. Overall, the EuroStoxx Index (+0.5%) rose with gains in the major markets led by Germany (+0.9%) and France (+0.6%), whereas the UK (+0.4%) drifted again in quiet trading. In the periphery markets performance was less egregious with gains in Greece (+2.5%), Ireland (+0.5%), Portugal (+0.3%) and Spain (+0.1%), whereas Italy (-0.2%) defied the regional trend for a second consecutive day and declined as political tension surrounding the Coalition government lingered. => US – With 50 minutes left to trade, US stocks on Wall Street are drifting higher as the positive impact of the deal with Iran slightly outweigh the impact of a fairly disappointing and lacklustre US housing report (see below). In the last hour of trade the Dow Jones Industrial Average is up +32 points (+0.2% to 16,096) with the S&P 500 (-0.1% to 1,803) and the NASDAQ (+0.3% to 4,002) posting mixed results. Among the sectors, only three are higher with gains led by healthcare (+0.4%) and financials (+0.1%), whereas utilities (-0.4%), materials (-0.8%) and energy (-0.9%) were the only large detractors. Economic news => Australia/Asia – no major releases. => Europe – no major releases. => US – US pending homes sales declined in October to a fresh 10 month low in a clear sign that higher interest rates are cooling the US housing recovery. The index of the purchases of established US houses was down -0.6% in October to 102.1 which was well below street estimates (+0.9%) and followed a sharp decline in September (-5.6%). This latest decline was the fifth consecutive month of negative results and the lowest overall result since December 2012. Major company news => Europe - The lower oil prices, boosted stocks in the airline sector with British Airways owner, IAG (+2.8%) rallying on the news and helping the stock recover all of its losses from last week. The company was also aided by upgraded price target from several brokers as the company continued to progress with cost savings in its Spanish operations. Travel distribution company EasyJet (+2.0%) was also up on the news and the same research by brokers, with last week’s special dividend a clear sign of capital discipline which is EPS and share price supportive in the long run. Similarly, mobile company Talk Talk edged higher (+1.2%) amid speculation that the company may be subject of a takeover from Vodafone which provided its usual ‘dial-tone’ answer stating that it does not comment on merger speculation. => US - Although the NASDAQ moved slightly about 4,000 for the first time on 13 years, large US social media companies were mostly lower overnight. In particular, Facebook (-2.6%) continued its recent retreat as analyst and investor concerns grew that the company is not faring well with younger demographics, with Twitter also down (-4.2%) after a Wall Street Journal article stated that social media company can be manipulated by false accounts. LinkedIn (-2.5%) was also lower as market sentiment towards to sector lessened. However, support from other tech heavyweights such as Apple (+1.1%) and Google (+1.6%) helped offset other losses and pushed the Index higher. Elsewhere, an upgrade to Caterpillar (+2.0%) to ‘buy’ from Bank of America helped the stock lead the advancers among Dow stocks. Conversely, Boeing was off somewhat (-1.9%) after it issued a warning about icing on its new engines form its 787 Dreamliner fleets, which has been plagued with problems. Major data releases => Australia/Asia - Economics – no major releases. - Equities – In equities news, Aristocrat Leisure is expected to post full year results while Woolworths, Harvey Norman, Brickworks, IOOF, Ridley Corporation, Challenger and Kingsgate Consolidated have annual general meetings scheduled. => Europe/US - Europe – no major releases. - US – October US building permits (exp: 930k), October US housing starts and October US house price Index (Sep: +0.3%, exp: +0.4%) and November US Consumer confidence (Oct: 71.2, exp: 72.4). What is the key investment message overnight? The deal the over the weekend to curb Iran’s nuclear program in exchange for reduced sanctions is a very positive one for all involved and the global sharemarket more generally. Although there is likely to be a positive sentiment hit immediately which drives prices towards USD85 per barrel by the end of this year, most of the production increase and price decrease is likely to occur over the long-run. Clearly this is a win for energy intensive sectors such as airlines and industrial manufacturers and also to energy importers in Asia (Taiwan, Korea, Japan and India). Nevertheless, investors need to be wary of factoring in too much upside in other sectors and markets - energy costs are around 5% of costs for the average listed company, and as such a most reduction in a small part of a cost structure, does not add up to much. However, if energy costs can be sustained lower, that will give a boost to long term investment, which continues to remain lacklustre and only marginally above 60 year lows in most advanced economies. _____________________________________________________ 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: Tue, 26 Nov 2013 00:41:51 +0000
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