Summary: Global sharemarkets and bond markets remained under pressure at the end of last week as investors continued to digest the news that US Federal Reserve will start to wane its QE program in the next eight months, with the downtrend extended by some disappointing Chinese data. The MSCI World Index was lower (-0.2%) as losses in Europe (-1.4%) and Asia (-0.4%) outweighed a modest rise in the US (+0.3%). In other markets, sentiment was soft with capital losses in nearly every 10-year government bond, high beta currencies were mixed (the AUD up +0.1% to 92.00 against the Greenback, whereas the Euro was down -1.0% to 130.96), but commodities were mostly higher despite data showing Chinese manufacturing activity had declined to a nine month low (although most commodities recorded weekly declines of -4% or more): Dr copper +0.6% to USC308.1 per pound. base metals all up solidly (other than aluminium, which dropped -0.3%). gold +0.5% to USD1,292.0 per troy ounce. oil -1.5% to USD93.69 per barrel. The SPI suggests that the Australian market will open -33 points lower (-0.7%) at 10am AEST. Market news Asia – Asian markets responded negatively to Thursday night’s rout on Wall Street with most indices ending in the red. Overall, the MSCI Asia Index (-0.4%) posted another loss with regional declines led by Korea (-1.5%), Taiwan (-1.3%), Hong Kong (-0.6%), China (-0.5%) and Singapore (-0.3%), whereas Japan (+0.7%) and India (+0.3%) closed in positive territory. On the local sharemarket, the S&P/ASX 300 Index closed -20 points lower ( to 4,698) with seven of the market sectors recording losses led by IT (-1.3%), financials (-0.8%) and utilities (-0.8%), whereas gains were posted in industrials (+0.5%) and energy (+0.9%) in another tough day for local investors. Europe – Despite a background of large losses on Wall Street and Asia, European shares opened positively, but as the session progressed the rally ran out of steam and by the closing bell the EuroStoxx Index closed lower (-1.4%). Losses in the major market were led by Germany (-1.8%) and France (-1.1%), whereas losses in periphery markets were typically larger as political concerns ramped up in Greece (-6.1%) as the Coalition government began to fracture over policy differences. Sharp losses also recorded in Portugal (-3.2%), Italy (-1.9%) and Spain (-1.6%), whereas Ireland (-0.2%) performed relatively better even though it still closed in the red. US – After its largest daily decline in 2013 on Thursday, Wall Street bounced fractionally higher, but the recovery was mixed and lacked conviction and volume. Indeed, the Dow Jones Industrial Average closed up 41 points (+0.3% to 14,799), with the S&P 500 (+0.3% to 1,592) recording a similar sized rise, whereas the NASDAQ (-0.2% to 3,357) underperformed due to the performance of Oracle. Eight market sectors closed above the break-even line with gains led by consumer staples (+1.4%), utilities (+1.3%) and healthcare (+0.9%), whereas losses were led by materials (-0.3%) and IT (-0.7%). Economic news Australia/Asia – The initial HSBC reading on Chinese manufacturing activity in June slumped to 48.3 (from 49.2 in May) which is a nine month low and signals that the Chinese economy remained sluggish in the June quarter after disappointing March quarter activity. All sub-indices weakened including new orders, with activity weighed down by deteriorating external demand, moderating domestic demand and rising de-stocking pressures with recent financial system pressures adding to concerns about growth. Europe – no major releases. US – no major releases. Company news Europe Although the overall London market was down, BT Group (+1.0%) rose as optimism increased that the group’s move into sports broadcasting can draw customers from its rivals with a broker report suggesting that 13% of households were interested in switching broadband supplier. Around one million of BSkyB (+0.5%) and 1.5 million of other operator subscribers were interested in BT Sport with a broker upgrade also supporting sentiment. Among other gainers was Man Group (+0.2%), with the company’s share price seemingly stabilising after having lost -15% in the past two weeks of trade, with UBS saying the company’s underperformance had potentially opened up some valuation opportunities. In contrast, broadband provider TalkTalk was down sharply (-6.0%) as the company is more vulnerable to the competition and may struggle to sell its product as one quarter of its customers already have Sky TV. Meanwhile, brewer SABMiller declined to a five month low (-0.4%) as its concerns in emerging markets (which contributes 12% of the company’s operating earnings) intensified on the back of the US dollar’s recent appreciation and increased market penetration by rival AB-Inbev. SABMiller now seem prepared to drop cheaper brands which are struggling to gain traction. Elsewhere, the banks continued to decline with Royal Bank of Scotland dropping sharply (-7.2%) amid uncertainty about whether the government would break up the bank. Finally, shares in Marks and Spencer dropped (-2.7%) after Credit Suisse stated that the company’s recovery had been delayed by several years with costs savings continuing to be reinvested in staff and longer store hours. US There was not a lot of company news on Friday as the market was swamped by macro-developments. US shares may have turned higher but shares in large banks were hit hard as US treasuries continued to decline which prompted a further drop in Citigroup (-2.2%) and Morgan Stanley (-1.0%). However, the major news on Friday night was another sharp sell-off in IT company Oracle (-9.3%) after the company missed expectations for software sales and subscriptions for a second straight quarter and investor confidence in management waned. Similarly, shares in Apollo declined (-2.5%) as S&P Dow Jones said that the company will be removed from the S&P 500 and be replaced by the new News Corp with the old News Corp (now called 21st Century Fox) also remaining in the index. Meanwhile, Facebook shares rose (+2.6%) after UBS raised the company rating to ‘buy’. Data releases Australia/Asia Economics – No major releases. Equities – No major equities news. Europe/US Europe – June IFO survey (May: 105.7), June Italian consumer confidence (Apr: 85.9). US – No major releases. What is the key investment message overnight? Markets are very fragile at present and reaction to the Fed announcement of potential tapering in 2013 highlights what little tolerance there is to a shift in policy. While the very talk about tapering does not actually mean imminent action, the market movements suggest that portfolio managers have already begun adjusting positions as the days of indefinite excessive liquidity leading to artificially priced asset markets is clearly over. One concern is what impact rising bond yields may have on the US housing recovery, especially as the rebound has been driven by foreigners and private equity firms, with the house price rise not been supported by rising US household income. The one thing for sure in this cycle is that nothing can be taken for granted, other than the power of income – investors are likely to remain attracted the stocks with higher earnings certainty.
Posted on: Mon, 24 Jun 2013 00:03:56 +0000
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