Summary: Good night for Australian sport with James Magnussen avenging his Olympic disappointment by winning the World Championship 100 metres freestyle and Australia having a good day at Manchester. Three things were confirmed overnight; when Michael Clark (125 not out) concentrates Australia looks solid, Shane Watson should bat at number 6 and the referral system is an absolute farce with Usman Kwalaja given out upon review despite missing the ball by one inch, there being no sound and no hotspot. Another ‘howler’ against the gallant Aussies. Global sharemarkets rallied hard overnight as the bulls gained control following a positive set of global PMIs eased fears about the global economy and reassuring comments from central banks confirmed that the money glut would continue, which culminated in strong gains in all risk assets. The MSCI World Index was higher (+1.4%) with gains in all regions led by Europe (+1.5%), Asia (+1.3%) and the US (+1.3%). In other financial markets, 10-year government bond yields were mixed, rising in Asia and the US, but lower in Europe (US treasuries at 2.71%, UK at 2.39% and Japan at 0.79%), but high beta currencies were universally lower (AUD -0.6% to 89.23 and the Euro -0.7% to 132.07) and commodities were mostly higher: oil +2.6% to USD107.71 per barrel. Dr copper +1.4% at USC316.1 per pound. Iron ore +1.3% to USD123.38 per metric tonne. base metals all higher (+0.2% to +1.8%). gold -0.1% to USD1,310.80 per troy ounce. The SPI suggests that the Australian market will open +41 points higher (+0.8%) at 10am AEST. Market news Asia – Official data showing an unexpected uptick in Chinese manufacturing and reassuring comments from the US Federal Reserve boosted Asian markets yesterday. Overall the MSCI Asia Index bounced strongly (+1.3%) with regional gains widespread led by Japan (+2.8%), China (+1.8%), Hong Kong (+0.9%), Singapore (+0.7%) and Korea (+0.4%), whereas India (-0.2%) and Taiwan (-0.6%) both declined. In the local sharemarket, the S&P/ASX 300 Index closed +9 points higher (+0.2% to 5,019) with nine sectors closing in positive territory with gains led by consumer discretionary (+1.3%), utilities (+1.3%) and materials (+1.2%), whereas financials were the only sector to close in the red (-0.8%). Europe – In Europe the EuroStoxx Index (+1.5%) followed the strong Asian lead and was in positive territory all day with rises in the major markets led by Germany (+1.6%), France (+1.3%) and the UK (+1.0%). Similarly, periphery markets were strong with gains posted in Italy (+2.1%), Greece (+1.8%), Ireland (+1.4%), Spain (+1.3%) and Portugal (+0.5%). US – on Wall Street, the Dow Jones Industrial Average closed up +128 points (+0.8% to 15,628) with the S&P 500 (+1.3% to 1,707) and the NASDAQ (+1.4% to 3,676) outperforming as all ten market sectors posted gains led by industrials (+1.7%), financials (+1.7%) and consumer discretionary (+1.6%). Economic news Australia/Asia – No major domestic releases, but China’s official purchasing managers’ index for July rose to 50.3 from June’s 50.1, which indicated a modest improvement in manufacturing activity against expectations of a decline (to 49.8). However, a separate report from HSBC showed that adjusting for seasonal factors that the Chinese manufacturing sector contracted to an 11-month low. The difference could reflect some policy measures geared towards larger enterprises, but it doesn’t change my view that the Chinese economy is slowing down. Europe – European manufacturing activity returned to growth on the back of improving production and new orders, both of which increased at their fastest pace in several years. The European PMI rose to 50.3 with expansion readings for Ireland, Germany, Italy and Holland and continued contraction in France, Austria, and Greece. Meanwhile, interest rates were left unchanged by the ECB and BOE. US – US manufacturing activity surged to its strongest pace in two years in July (55.4 against expectations of 53.1) offering the US Fed some comfort about the US outlook, which they downgraded only days ago. The rise was led by a pickup in orders and production (to a nine year high) which point to improving US factory activity in the second half of 2013 and comes on the heels of a better than expected reading on US GDP. Company news Europe The UK market rose to a two month high with financials leading the charge as Lloyds Banking Group (+8.0%) rose strongly as it stated that it was aiming to resume dividend payments soon, with positive sentiment also culminating in strong gains in Royal Bank of Scotland (+5.0%) and HSBC (+0.9%). Barclays rallied (+1.1%) for the first time in the past week after its weak earnings report and Monday’s capital raising announcement. Meanwhile, miners found strong support from the positive China manufacturing data with Anglo America (+5.3%), Glencore (+4.3%) and Antofagasta (+3.6%) all posting strong gains, but titanium miner Kenmare Resources (+11.4%) was the star of the day after agreeing to defer debt payments by a year, which eased concerns that it would have to raise new equity to complete its mine expansion. Conversely, Royal Dutch Shell (-4.7%) declined after its second quarter result missed expectations following a weak production result and power generator supplier Aggreko (-7.7%) plunged after stating that customers in the emerging markets were hesitant about signing contracts. US US stocks rallied hard with the rise in financials led by MasterCard (+5.0%) which delivered earnings ahead of expectations, despite increased regulatory hurdles, but its rival Visa (+1.2%) has not received such support having declined -8.5% in the past two days. Among Dow stocks consumer group Proctor & Gamble (+1.7%) rose solidly after posting net sales which marginally beat expectations. Rival JC Penney (+1.6%) recovered some of yesterday’s losses amid rumours that lenders have stopped deliveries between small manufacturers and the retailer. Elsewhere, coffee shop chain Starbucks rose (+3.3%) on news that it will be switching its wireless internet provider in its stores from AT&T to Google (+1.6%). Among the decliners, ExxonMobil dropped (-1.6%) after posting disappointing earnings results which were weighed down by lower oil prices. Data releases Australia/Asia Economics – no major domestic releases, but there is the July China services sector PMI on Saturday (Jun: 53.9) Equities – no major equities news. Europe/US Europe – July UK construction PMI (Jun: 51.0, exp: 51.5) and July nationwide house prices (Jun: +0.3%, exp: +0.4%). US – July US non-farm payrolls (payrolls: Jun: +195k, exp: +185k, unemployment: Jun: 7.6%, exp: 7.5%) and June personal income (May: +0.5%, exp: +0.4%), June personal spending (May: +0.3%, exp: +0.5%) and June factory orders (May: +2.1%, exp: +2.3%). What is the key investment message overnight? There have been several solid PMI results yesterday, but this really signals the end of the global de-stocking cycle more than a boost in demand. While some may say that the surge in the US manufacturing activity puts more pressure on the US Fed to start withdrawing its stimulus earlier, it all depends on tonight’s the US labour market with which we get the latest US non-farm payrolls tonight. Tapering is still some way off as we need about 10 months of payrolls above +200k to get unemployment into the 6%s – and that remains a big ask for a below-trend economy.
Posted on: Thu, 01 Aug 2013 22:58:11 +0000
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