Summary: - Global sharemarket sentiment was dampened after comments from US Fed officials Lockhart and Evans which heightened the sense of uncertainty about upcoming changes to US Fed policy. Some highlighted this as the reason global financial markets declined overnight, but the lack on movements of global bond markets and the US dollar were inconsistent with ‘tapering concerns’. - The MSCI World Index was lower (-0.4%) for the third consecutive day with losses led by Asia (-1.9%), the US (-0.4%) and Europe (-0.02%). In other financial markets, 10-year government bond yields were higher in Europe, but down in the US and Asia (US Treasuries at 2.60%, UK at 2.48% and Japan at 0.75%), high beta currencies were also mixed (AUD -0.03% to 89.92 and the Euro +0.2% to 133.37) as were commodities: - oil -1.1% to USD104.13 per barrel. - base metals were mixed (aluminium and nickel up and zinc and lead down). - gold +0.3% to USD1,287 per troy ounce. - Dr copper +0.4% at USC318.35 per pound. - Iron ore +1.0% to USD131.25 per metric tonne. The SPI suggests that the Australian market will open -9 points lower (-0.2%) at 10am AEST. Market news Asia – Major Asian markets continued their decline of recent days after Wall Street close out its weakest session in five weeks yesterday morning, with Asian market indices mostly lower in response soft earnings reports (from stainless steel maker Pacific Metals (-14.0%) and consumer goods manufacturer Pioneer (-8.7%)), lowered forecasts and a strengthening Yen. Overall, the MSCI Asia Index (-1.9%) posted one of its weakest results in 2013 with regional losses led by Japan (-3.2%), Taiwan (-1.5%), Korea (-1.5%), Hong Kong (-1.5%), China (-0.7%) and India (-0.4%), whereas Singapore (+0.1%) defied the regional gloom and recorded a modest rise. In the local sharemarket, the S&P/ASX 300 Index closed -93 points lower (-1.8% to 4,968) with all sectors posting negative century losses led by materials (-2.5%), industrials (-2.1%) and banks (-2.0%). Europe – In Europe the EuroStoxx Index (-0.02%) withstood the strong negative Asian lead with losses in major markets led by the UK (-1.3%) after the Bank of England disappointed investors as it outlined its stance on future monetary policy, with Germany (-0.3%) and France (-0.1%) down marginally. In the periphery, performance was mixed with Ireland (-0.5%) and Spain (-0.3%) both declining, whereas Greece was unchanged (steady) and Portugal (+0.2%) and Italy (+0.8%) both rose. US – on Wall Street, the Dow Jones Industrial Average closed down -48 points (-0.3% to 15,471) with the S&P 500 (-0.4% to 1,691) and the NASDAQ (-0.3% to 3,654) posting similar results with only two market sectors posting gains led by utilities (+0.4%) and healthcare (+0.04%), whereas losses were recorded in consumer staples (-0.5%), banks (-0.8%) and consumer discretionary (-0.8%). Economic news Australia/Asia – Australian housing finance for owner occupied loans rose by +2.7% in June, which was ahead of expectations for a +2.0% gain, which saw the annual number rose to a 4-year high of +13%. However, the housing finance numbers continued to be skewed towards established dwellings (84% in June), whereas the purchase of new dwellings continues to track sideways despite record interest rate support. This suggests it will take much longer for the RBA to engineer a lift in building approvals and even longer for housing construction to pick up. While today’s data doesn’t call for another rate cut in September, it does suggest that the housing investment surge is still a considerable way off and may take more interest rate support to eventuate. Europe –German industrial production surged in June (+2.4%) in a result which beat expectations and fuelled hopes for an upgrade to June quarter growth in Europe’s largest economy, with the May result also upgraded. US – US consumer credit rose in June (USD13.8 billion), but the result was below expectations (of USD15.0 billion) with non-revolving borrowing for auto financing and school loans both at four month highs. Company news Europe - The UK market was down notably overnight with losses led by Tui Travel (-5.2%) which retreated from its record high of recent days as continued weak performance from its specialist and activity business took the shine off its quarterly result. Industry peer Thomas Cook (-4.7%) was also down as was Easyjet (-2.9%) following news that directors had sold some shares after excising nil-cost options. Meanwhile healthcare outsourcer and distributor United Drug dropped sharply (-4.0%) after its quarterly results disappointed up-beat forecasts due to disruptive moves in currencies. Among the blue chip gainers was Old Mutual (+2.9%) which posted solid interim results despite a poor performance from its Nedbank subsidiary. US - Financials and consumer stocks declined for a consecutive day with retailer Ralph Lauren (-6.4%) down sharply after a disappointing earnings report where the bottom line missed guidance primarily due to thinner margins. The financial sector was hardest hit, with banks recording a second day of declines with Bank of America (-2.5%), US Bancorp (-1.2%) and Citigroup (-1.1%) recording consecutive negative centuries as tapering fears lingered. Meanwhile, Walt Disney (-2.5%) was lower despite posting results which were above expectations with deferred cable revenue boosting the result, which concerned some investors. Elsewhere, strong earnings results from Time Warner (+2.1%) boosted sentiment, which flowed through the sector with its former stablemate AOL (+2.6%) adding to recent gains after announcing the purchase of a video company Adap.tv. Similarly, Twenty First Century Fox shares rose (+1.7%) following a strong quarterly earnings result in its first report since splitting from News Corporation. Data releases Australia/Asia Economics – July Australian payrolls report (employment: Jun: +10.3k, exp: +6.0k, unemployment: Jun: 5.7%, exp: 5.8%), July China Trade balance (Jun: USD27.1 billion, exp: USD26.2 billion) with data for export growth (Jun: -3.1 y/y, exp: +2.0% y/y) and import growth (Jun: -0.7 y/y, exp: +1.0% y/y). Equities – Rio Tinto and Telstra are expected to post first half results. Europe/US Europe – June Eurozone trade balance (May: €13.1 billion, exp: €15.0 billion) and June France industrial production (May: -0.4%, exp: +0.3%). US – no major releases. What is the key investment message overnight? Markets have moved into a ‘sell on the rumour, buy on the fact’ mode in the wake of the end of the US report season and rising concerns about US Fed’s tapering. One thing is for clear and that is the US Fed needs to be clearer in its guidance to the market, as any misunderstanding could lead to a large sell off after a 30% rally based on thin air and thinner earnings growth. If the Fed is consistent to what it has previously said, we need to see consistently strong labour market gains, where unemployment moves are driven by payroll increases, not labour market decreases. Conversely, if they change the rules again, then the timing of tapering is anyone’s guess. Regardless, tapering will lead to increased market volatility and earnings deliverers are likely to find favour with investors. _______________________________________________________ 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, 08 Aug 2013 00:09:29 +0000
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