Summary: § The Aussies finally showed a bit of ANZAC spirit (mind you after the war is over) after posting 4/307 in the fifth test at the Oval with Shane Watson posting an admirable and career-best score of 176. This was his first hundred in two years and 48 test innings – one thinks the selectors will be less patient for his next test century. § Global financial markets all slipped backwards as investors digested the minutes from the July US FOMC meeting which indicated QE tapering is set to occur in 2013, but officials were undecided on the precise timing or the size. § The MSCI World Index was lower (-0.5%) with losses in all regions led by Asia (-0.8%), the US (-0.6%) and Europe (-0.3%). In other financial markets, 10-year government bond yields were mixed (US treasuries up to 2.86%, UK at 2.71%, whereas Japan declined to 0.73%), but high beta currencies were lower as the US dollar strengthened (AUD -0.7% to 90.03 and the Euro -0.4 % to 133.66) and commodities were mostly down § gold -0.1% to USD1,371.50 per troy ounce. § Dr copper -0.5% at USC332.30 per pound. § oil -1.1% to USD103.99 per barrel. § base metals all lower (between -0.9% to -2.3%). § Iron ore +0.7% to USD134.13 per metric tonne. The SPI suggests that the Australian market will open -41 points lower (-0.8%) at 10am AEST. Market news § Asia – Despite a positive lead from Wall Street yesterday morning, most Asian markets closed in the red as stresses in the financial system remained evident and investors further reduced their exposure to the region. Overall, the MSCI Asia Index (-0.8%) closed lower with regional losses led by India (-1.9%), Korea (-1.1%), Hong Kong (-0.9%), Singapore (-0.5%) and Japan (-0.3%) with China (steady) unchanged and Taiwan (closed) closed for public holidays. The Reserve Bank of India announced increased liquidity measures centred on USD1.2 billion purchases of the government bonds, which partially reversed recent tightening measures. This saw Indian bonds, currency and equities all rose of recent lows, but the recovery was short-lived as the Rupee eventually depreciated to a fresh record low against the US dollar, which pulled other financial markets down with it. In Australian sharemarket, the S&P/ASX 300 Index closed +21 points higher (+0.4% to 5,059) with seven sectors posting gains led by IT (+1.8%), utilities (+1.2%) and industrials (+1.0%), whereas only energy (-0.1%), telcos (-0.4%) and materials (-0.7%) closed below the break-even line. § Europe – European markets followed the negative Asian lead amid pessimism about US Fed tapering with the EuroStoxx Index (-0.3%) down as investors fled out of risk and into the perceived safety of bonds, with government yields marginally lower. In the major regional sharemarkets losses were widespread but not particularly deep led by the UK (-0.8%), with France (-0.3%) and Germany (-0.2%), whereas in the periphery performance was more mixed with losses in Italy (-0.7%) and Spain (-0.5%), Ireland (steady) and Portugal (steady) went sideways and Greece (+0.9%) had a dead cat bounce and closed in the black. § US – Wall Street had a very mixed day with major market indices down -0.7% at one stage then rallied back to positive territory after the US Fed minutes were released, before selling late in the session. The Dow Jones Industrial Average recorded its sixth straight loss and its tenth loss in the past 12 trading session after closing down -105 points (-0.7% to 14,898) with 27 of the 30 constituent stocks closing lower. Meanwhile, the S&P 500 (-0.6% to 1,643) and the NASDAQ (-0.4% to 3599) posted slightly smaller declines as all ten sectors closed in negative territory with losses led by utilities (-1.2%), telcos (-1.2%) and consumer discretionary (-0.8%). Economic news § Australia/Asia – no major releases. § Europe – no major releases. § US – US FOMC meeting minutes indicated that the various governors were united in winding back the USD85 billion QE program, but split on the timing of this move and the size. While the month of QE wind-back was still in the balance, if it is to be sooner, the amount of wind-back is likely to be lower. There was also extended discussion on the changing of the threshold (currently an unemployment rate of 6.5%) for the first rise in official US interest rates. Nevertheless, to further reduce the threshold for official rate increases might calm markets about the tapering move and the US Fed has always said, one would not automatically and imminently follow the other. Meanwhile, sales of existing US home sales rose strongly (+6.5% to 5.39 million units) in July and at a pace that was above market expectations (5.15 million) as buyers rushed to lock in low mortgage rates before they increase any further. Sales were the strongest since a government tax credit temporarily boosted demand in late 2009. Company news Europe - A third day of losses saw the UK market decline to a six week low, with sizable losses in financials in the wake of US tapering concerns and a slowing in emerging markets, which saw fund managers down sharply. In particular, Aberdeen Asset Management (-5.9%), F&C Asset Management (-3.0%) and Man Group (-2.7%) all posted notable declines. Meanwhile, losses in commodity markets and a general slowdown in mining activity saw oil services company Wood Group (-2.5%) extend its losses after it cautioned markets about the earnings in its engineering division in recent days. However, the mining behemoths were mixed with BHP Billiton (-2.6%) losing more ground after its decision to invest USD2.6 billion in the Jansen potash project, but Glencore (+2.6%) led the pace of gains on the LSE after several brokers upgraded the stock to ‘buy’ with debt concerns seemingly easing. Meanwhile, construction companies gained after a sector index showed a third month of gains in non-residential building work with CRH (+0.1%) and Wolseley (+2.2%) both posting positive gains on a tough day for investors. US - A day after the US market rallied behind better than expected earnings in the retail sector, earnings concerns resurfaced with weak results from Target (-3.6%), American Eagle Outfitters (-9.9%) and with office supply companies Office Depot (-5.4%), OfficeMax (-5.9%) and Staples (-13.3%) all posting sharp declines. Target warned investors overnight that sales would be weak throughout 2013 and that full-year results would certainly be below current guidance. An earnings guidance wind back was also came from Staples in the wake of weak international and US sales, which could not be made up for by cost cutting. Meanwhile, youth-oriented clothing distributor American Eagle Outfitters dropped after the company posted a disappointed earnings report which missed guidance and expectations by a wide margin due to increased competition and lower foot traffic. Meanwhile, home supply retailer Lowe’s (+6.9%) outperformed its market peers after reporting earnings above market consensus underpinned by solid revenue growth. Meanwhile, positive US housing data saw homebuilder Toll Brothers rally (+1.0%) after it posted a solid earnings report underpinned by a sharp rise in revenue and this helped other builders including DR Horton (+0.6%) and Taylor Morrison Home (+2.0%) to close in positive territory. Data releases Australia/Asia § Economics – no major Australian releases, but there is the August HSBC China Manufacturing PMI (Jul: 47.7, exp: 48.2). § Equities – Insurance Australia Group, Seven West Media, Echo Entertainment, Pacific Brands, Origin Energy, Fortescue Metals Group, Fairfax Media, Specialty Fashion Group, Village Roadshow and Brambles Industries are among the companies expected to post full year results. Meanwhile, Sydney Airport and Alumina are slated to announce first half results. Europe/US § Europe – Preliminary August Eurozone Manufacturing PMI (Jul: 50.3, exp: 50.7) and Preliminary August Eurozone Service sector PMI (Jul: 49.8, exp: 50.2) with individual readings for each country (Germany: manufacturing: (Jul: 50.7, exp: 51.1) and service sector (Jul: 51.3, exp: 51.7); France: manufacturing: (Jul: 49.7, exp: 50.3) and service sector (Jul: 48.6, exp: 49.2)). § US – June US house price index (May: +0.7%, exp: +0.6%). What is the key investment message overnight? The US Fed seems to be uniting in the view that the need for QE has diminished, and yields have backed up as a result which has hurt sharemarket valuations. The impact on emerging market currencies and economies would be more muted if it was associated with an improvement in global economic growth prospects, but it isn’t. Indeed the US data has recently been mixed, whereas the apparent recovery in Europe is only going to be marginal and extended. As such, Asian governments and monetary authorities have been increasingly caught between supporting domestic growth and defending currency values in the wake of growing capital outflows, but the biggest risk here is not slowing growth, it is policy errors as these can see earnings expectations and valuations both go down together and investors need to watch Asian bond yields and currencies. If the former is going up, but the latter is going down, it is a sign that capital outflows are accelerating and authorities are getting behind the problem. _______________________________________________________ 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: Thu, 22 Aug 2013 03:26:59 +0000
Trending Topics
Recently Viewed Topics
© 2015