Summary: => The ’Abbott put’ continues with the Australian sharemarket now up to a five year high and set to rise further today as apparently Asian investors reconsider their ‘Downunder’ exposure. Elsewhere there was a general dampening of risk appetite in global financial markets with markets scratching out marginal gains despite geopolitical stresses in Syria continuing to ease. => The MSCI World Index was higher (+0.3%) with modest gains in all regions led by Europe (+0.4%), the US (+0.3%) and Asia (+0.2%). In other financial markets, 10-year government bond yields were mixed (US treasuries down to 2.92%, UK at 2.83% and Japan rising fractionally to 0.73%), high beta currencies were universally higher (AUD +0.3% to 93.28 and the Euro +0.3% to 133.10), but commodities were also mixed after a recent strong run: mixed - Dr copper +0.4% at USC327.60 per pound. - oil +0.3% to USD107.72 per barrel. - Iron ore +0.3% to USD135.25 per metric tonne on US futures markets. - gold -0.02% to USD1,363.70 per troy ounce. - base metals were universally lower (between -0.5% and -0.9%). => The SPI suggests that the Australian market will open +12 points higher (+0.2%) at 10am AEST. Market news => Asia – Asian markets took their rally into a ninth consecutive day, but advances were more mixed and generally more modest relative to the past two weeks. The overall MSCI Asia Index (+0.2%) posted a marginal gain, which did little else other than consolidate the previous eight days of rises, but the uptrend is showing some signs of fatigue with regional gains isolated to Korea (+0.5%) and China (+0.2%), whereas Taiwan (steady) and India (steady) were unchanged and Japan (-0.1%), Hong Kong (-0.2%) and Singapore (-0.5%) were at the bottom of the class. In the local sharemarket, the S&P/ASX 300 Index closed +32 points higher (+0.6% to 5,191) which completed a trifecta of gains since the Coalition’s election win on Saturday with seven sectors closing in positive territory led by materials (+1.4%), industrials (+1.0%) and banks (+0.8%), whereas telcos (-0.2%), utilities (-0.3%) and energy (-0.4%) all defied the broader market trend and closed lower. => Europe – In Europe stocks were also mixed with markets exhibiting large swings during the session with the EuroStoxx Index (+0.4%) closing higher for the fifth consecutive day. In the major markets rises were led by Germany (+0.6%), whereas France (+0.1%) and the UK (+0.03%) marked time after a recent strong rally. Meanwhile, in the periphery performance was more mixed with Italy (+1.2%) Spain (+0.9%) and Portugal (+0.2%) closing higher, whereas Ireland (-0.2%) and Greece (-0.4%) were struck by weakening sentiment and closed in the red. => US – on Wall Street, US markets mostly continued their rally with the Dow Jones Industrial Average posting its seventh consecutive gain after rising +135 points (+0.9% to 15,327) with the S&P 500 (+0.3% to 1,689) and the NASDAQ (-0.1% to 3,725) posting different results driven by their respective exposure to Apple which had a tough day after its latest iPhone5 was launched to mixed broker reviews. Overall, eight market sectors posted gains led by energy (+0.8%), consumer staples (+0.8%) and healthcare (+0.7%), whereas only IT (-0.5%) and utilities (-0.9%) declined. Economic news => Australia/Asia – Australian consumer confidence rose strongly in September with sentiment up +13% from the lows in May and follows the positive business confidence result yesterday from the NAB. During the survey time, the election campaign was in full swing and polls had the Coalition well ahead, which clearly helped the result as did RBA rate cuts. The two key considerations from here are whether the improvement in consumer and business confidence is transitory or sustained and more importantly, does it lead to increased spending. The results are encouraging no doubt, but history demonstrated conclusively that investors should be wary of over-emphasising the impact of any political-induced rise in sentiment as fairly soon the economic fundamentals reassert themselves in coming months. Indeed in the face of weak retail conditions, weak income growth, a fading mining investment boom and rising unemployment, it is hard to see how the RBA is going to fill its AUD40 billion growth hole in the next few years and accordingly, that more rate cuts need to be on the agenda to give the economy a chance of offsetting of unwinding of the largest mining investment boom since the early 1850s. => Europe – German inflation remained unchanged in August, which was in line with expectations, whereas the UK unemployment unexpectedly declined to 7.7% in the three months to July, which is in line with recent data and shows that the UK economy is continuing to improve with the unemployment closing in on levels where the Bank of England will reassess its policy stance. The 7% level was introduced by new BOE governor Mark Carney last month. => US – no major releases. Company news => Europe - UK stocks had a volatile day and were in negative territory nearly all the session, but Glencore (+3.1%) defied the broader trend and recorded an eighth consecutive day of gains. An investor meeting was the catalyst for the latest daily rise with production discipline the key theme with management stressing that traders, not geologists, were now in charge with several operations possibly closing to save USD1 billion in costs. Meanwhile, chipmaker Arm Holdings climbed strongly (+4.8%) with the Apple launch yesterday seeing its top of the range model using a 64-bit processor, which will bring forward demand expected in 2014 and give the company potential to double its royalty charge. Fellow chip designer Imagination Technologies (+1.3%) also gained as sector sentiment strengthened. Conversely, Lloyds Banking Group declined (-2.6%) as rumours circulated that the UK government was getting set to dispose of some of its holdings acquired during the GFC when the firm was collapsing, but with things improving structurally the Cameron Government is probably looking to offload the shares. => US - The launch and investor reaction to the latest version of their iPhone was the major news last night with Apple down sharply (-5.4%) as the price of its cheaper emerging economies version concerned investors as they thought it demonstrated that the company is not fighting hard enough to maintain its market share against the now dominating Android system. Three brokers downgraded the stock as they thought the emerging economies price was too high. Meanwhile, hotel chain Marriot International rose solidly (+2.9%) after UBS upgraded the stock to buy citing a solid revenue profile for the US tourist and corporate tourist markets. Similarly, videoconferencing company Polycom (+8.4%) was higher after announcing a USD400 million share buy-back as the company took advantage of cheap interest rates. Conversely, Texas Instruments was lower (-0.1%) as the US’s third largest chip maker lowered its third-quarter earnings guidance. Likewise struggling smartphone company Blackberry (-2.7%) declined after it cut more of its sales team, which lowers costs but hampers revenue growth during the transition. Finally, US Airways (-1.9%) and AMR Corp (-0.9%) were both lower after saying they would ask their respective Boards to extend the termination date of their proposed USD11 billion merger, due to government lawsuit uncertainties. Data releases Australia/Asia - Economics – August Australian labour market report (payrolls: Jul: -10.2k, exp: +10.0k; unemployment rate: Jul: 5.7%, exp: 5.8%). - Equities – no major equities news. Europe/US - Europe – July European industrial production (Jun: +0.7%, exp: -0.3%), August France CPI (Jul: -0.3%, exp: +0.5%) and July Italian industrial production (Jun: +0.3%, exp: +0.3%). - US – no major releases. What is the key investment message overnight? The global economy is improving with downside risks continuing to dissipate outside Asia (which still has to cope with the impact of any US Federal Reserve tapering). In this environment, risk aversion is likely to continue receding, but the large rally we have seen needs earnings growth to come through as valuations have risen as much as they are likely to unless corporations can exceed expectations on either the revenue or cost side. The strength of each company’s operating model here is key and whether they are able to extract rising revenue from its market share, and defy what is still sub-trend global economic environment. _____________________________________________________ Tony Harte | State Manager | Retail Advised Perpetual | Level 15, Central Plaza 1, 345 Queen Street Brisbane QLD 4000 | Australia Phone +61 7 3834 5648 | Fax +61 7 3834 5663 | Mobile +61 407 708 109 perpetual.au
Posted on: Thu, 12 Sep 2013 05:26:18 +0000
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