Summary: Global sharemarkets started the week on a positive note with investors surprisingly up-beat ahead of the US Federal Reserve’s policy meeting on Thursday morning, Australian time. All eyes and ears will be on Chairman Bernanke’s post-meeting press conference for any hints about the timing of QE tapering, but he is unlikely to detail his exact plan and will instead mostly likely talk about the improving US recovery and the need to end the program before asset bubbles develop. The MSCI World Index was higher (+0.8%) with gains in Europe (+1.0%), Asia (+0.9%) and the US (+0.8%). In other markets activity was more mixed with 10-year government bond yields higher in all markets other than Italy, but high beta currencies were little changed (AUD -0.1% to 95.53 and the Euro +0.1% to 133.67) whereas commodities were mostly lower: - gold -0.3% to USD1,385 per troy ounce. - Dr copper -0.2% to USC319.65 per pound. - base metals were mostly lower. - oil +0.1% to USD97.91 per barrel. The SPI suggests that the Australian market will open 10 points higher (+0.2%) at 10am AEST. Market news Asia – Asian markets started the new week in the same mood as when they left it on Friday with the MSCI Asia Index (+0.9%) posting another solid result with gains led by Japan (+2.7%), Hong Kong (+1.2%), India (+0.8%), Taiwan (+0.7%) and Singapore (+0.7%) with only China (-0.3%) and Korea (-0.3%) closing in negative territory. In the local sharemarket, the S&P/ASX 300 Index closed +34 points higher (+0.7% to 4,784) with seven of the market sectors recording gains led by financials (+1.6%), consumer staples (+0.8%) and healthcare (+0.7%), which offset further losses in materials (-0.7%) and IT (-1.7%) in another good day for investors. Europe – European shares remained in positive territory all day and by the closing bell the EuroStoxx Index posted a century gain (+1.0%) with rises in the major market led by France (+1.5%), Germany (+1.1%) and the UK (+0.4%). Periphery markets underperformed the majors, but most posted gains led by Portugal (+1.1%), Spain (+0.8%), Ireland (+0.3%) and Italy (+0.1%), whereas Greece (-1.3%) defied the regional rises and closed in the red. US – on Wall Street, US markets followed the positive leads from Europe and Asia with the Dow Jones Industrial Average closing up 110 points (+0.7% to 15,180), with the S&P 500 (+0.8% to 1,639) and the NASDAQ (+0.8% to 3,452) both outperforming with nine market sectors closing in positive territory as gains in energy (+1.3%), IT (+1.1%) and financials (+1.0%) offset a decline in telcos (-0.6%). Economic news Australia/Asia – no major releases. Europe – The Eurozone posted a strong set of trade data in April, boosting hopes that the economy is finally turning around after years in the doldrums. The 17-member currency union posted a combined trade balance of €14.9 billion down from a record €22.5 billion in March, but still strong enough to suggest the region could emerge from recession in the June quarter, even though exports declined -0.8% and imports rose +0.5%. US – The National Association of Home Builders/Wells Fargo housing market index rose more than expected (45.0) in June to hit its highest level (52.0) since April 2006 and continues to show that US housing market activity is improving from a low base. Company news Europe - Concerns about slowing sales pushed AB Foods (-2.8%) to a five-month low in a rising UK sharemarket overnight and convinced several brokers to recommend selling the stock ahead of its trading update next month. Expense containment is also a concern as rising cotton costs and the US dollar’s strength would place rising cost pressures on its Primark division and on the bottom line. Likewise, chip-maker Arm Holdings declined sharply (-3.7%) as news circulated that Intel has made a breakthrough in finally having competitive chips for smartphones and tablets which could culminate in a period of industry leadership with several brokers concerned about Arm’s royalties from slowing handset and tablet sales. Sector peer, Imagination Technologies was also lower (-3.4%) in the wake of broker downgrades. Conversely, Vodafone climbed higher (+1.5%) as sector consolidation rumours resurfaced with this time A&T reported to have had an informal bid to buy Telefonica blocked by the Spanish government, although both later denied this rumour. AT&T has long been keen on international wireless acquisitions and was reported earlier this year to have considered splitting Vodafone with Verizon, but the latter denied it was working on such a plan. Meanwhile, short covering was said to lift generator provider Aggreko (+3.8%) a day ahead of its trading update. Finally pharmaceutical company Reckitt Benckiser rose (+2.2%) after Citigroup estimated the company was trading below the book value of some of its assets. US - Reports that Dreamworks (+5.2%) will supply more than 300 hours of content to DVD rental and streaming company Netflix (+6.2%) sent shares in both companies up strongly. In other TMT news, Micron Technology rose strongly (+4.7%) after Citigroup raised the company’s price target and this culminated in collateral benefit with gains also seen in Advanced Micro Devices (+3.4%) and SanDisk (+4.4%). Homebuilders responded positively to latest housing market data with gains posted by Lennar Corporation (+1.2%), DR Horton (+1.9%) and PulteGroup (+2.9%). Meanwhile, in corporate activity IntercontinentalExchange (+2.7%) benefited from reports that it will gain EU approval for the acquisition of NYSE Euronext (+2.2%). Elsewhere, Smithfield Foods rose (+0.9%) after a large shareholder suggested the company could be broken up into three parts rather than acquired by Shuanghui International for USD4.7 billion. Finally, Nutritional supplement company Herbalife advanced (+3.2%) despite increased scrutiny from the Federal Trade Commission. Data releases Australia/Asia Economics – RBA June meeting minutes. Equities – no major equities news. Europe/US Europe – June ZEW survey (May: 8.9, exp: 9.5), May UK CPI (Apr: +0.2%, exp: +0.1%). US – May US CPI (Apr: -0.4%, exp: +0.2%), May US housing starts (Apr: 853k, exp: 950k), May US building permits (Apr: 1005k, exp: 976k). What is the key investment message overnight? It is important that investors are mindful about what tapering actually means. On Thursday morning Chairman Bernanke is likely to suggest that tapering is not a tightening of monetary policy, but is a scaling down of monetary easing, and it doesn’t mean that a rise in the US Fed funds rate is imminent. It is a case of taking your foot slightly off the accelerator, rather than applying it to the brake and an unwinding of QE will strengthen the view that the US recovery is constructive and shares and credit should continue to be outperforming themes. _______________________________________________________ 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, 18 Jun 2013 01:22:11 +0000
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