Summary: Global sharemarkets declined in all regions as government bond yields spiked as fears about US growth and tapering amplified, sending market sentiment lower. It was a strange night as better US jobless claims brought forward tapering fears with the bulls selling the market down, then US industrial production disappointed and saw the bears hit the sell button and send the market even lower. The MSCI World Index was lower (-1.0%) with losses in all regions led by the US (-1.5%), Asia (-0.7%) and Europe (-0.6%). In other financial markets, 10-year government bond yields were mostly higher (US treasuries at 2.77%, UK at 2.68% but Japan dropped to 0.74%), yet QE tapering fears saw high beta currencies somehow rally (AUD +0.2% to 91.41 and the Euro +0.8% to 133.58), but commodities were mixed: gold +1.0% to USD1,334 per troy ounce. oil steady at USD106.84 per barrel. Dr copper -0.1% at USC334.02 per pound. base metals were all lower. Iron ore -3.0% to USD132.0 per metric tonne. The SPI suggests that the Australian market will open -36 points lower (-0.7%) at 10am AEST. Market news Asia – Although there was no grand rational for the decline, Wall Street’s negative lead Wednesday morning flowed through to Asian sharemarket and sentiment was further quashed by a denial from the Japanese Government was considering cutting the corporate tax rate – something that sparked a two day rally in Tokyo. Consequently, there was no upward momentum from the MSCI Asia Index (-0.7%) with regional losses in all bourses led by Japan (-1.7%), Taiwan (-0.9%), Singapore (-0.8%), China (-0.4%) and Hong Kong (-0.01%) with India and Korea both closed. The local sharemarket, marked time for the third consecutive session with the S&P/ASX 300 Index closing -4 points lower (-0.1% at 5,110) with seven sectors closing in negative territory led by defensive sectors including healthcare (-2.1%), utilities (-1.5%) and consumer staples (-1.2%), whereas only financials (+0.3%), materials (+0.5%) and IT (+1.8%) posted gains. Europe – Europe followed the negative Asian lead and continued to decline all session with the EuroStoxx Index (-0.6%) down at the closing bell. In the major markets losses were led by the UK (-1.7%), with France (-0.5%) and Germany (-0.7%) recording more sedate losses. In the periphery markets performance had a wide range with losses in Portugal (-0.1%), Spain (-0.6%) and Ireland (-1.5%) and Italy and Greece were closed for holidays. US – on Wall Street, the Dow Jones Industrial Average declined to an eight week low after losing -225 points (-1.5% to 15,112) with the S&P 500 (-1.4% to 1,661) and the NASDAQ (-1.7% to 3,606) posting similar performances with all sectors down and eight posting century losses led by IT(-1.8%), consumer discretionary (-1.8%), healthcare (-1.6%) and financials (-1.5%). Economic news Australia/Asia – no major releases. Europe – UK retail sales grew by +1.1% in July as the hottest July in seven years set the tills ringing. This took the annual rate up to +3% which is the highest figure since 2011, suggesting that the September quarter has started well for the UK economy, with the quarterly rise to July the highest in 10 years. US – The number of Americans filing for unemployment benefits (+320k) declined to a near-six year low, suggesting conditions in the US labour market continue to improve. The result was well below expectations (of +335k) as auto job losses declined. In contrast, the US Fed stated that US manufacturing activity was unchanged in July with a 2.1% gain in mining offset by a -2.1% decline in utility production and -0.1% for manufacturing, with the annual rate at a subdued +1.4%, still 11 percentage points below the peak of 2007, before the US economy plunged into recession. Company news Europe Swiss insurer Zurich Insurance (-3.6%) led the European market lower after highlighting caution on its guidance following a worse than expected decline in its second quarter earnings. Natural disaster payouts hit its general insurance division and low bond yields hurt its investment arm and send earnings down. Conversely, cement mixer Holcim (+2.1%) defied the declining market even though the company reined in its full-year guidance with organic growth expected only in its core divisions – what held the stock together was a better than expected second quarter report. Its Milan-listed rival Saipem gained (+1.1%) after Deutsche Bank raised its target price on the stock on the basis of improving earnings dynamics and undemanding valuations. Meanwhile, steelmaker ArcelorMittal (-2.4%) declined upon an underweight rating from Barclays. US All members of the Dow Jones Industrial Average were lower and only six of the S&P 500 closed in the black, with cyclical stocks doing much of the damage as Ford (-2.7%) and General Motors (-2.4%) both declined. Meanwhile, the rise in bond yields hit the banks as it sparked concerns about the housing recovery with JPMorgan Chase (-1.9%), Citigroup (-1.8%), Goldman Sachs (-1.5%) and Bank of America (-1.4%) all lower despite the absence of stock specific news. Walmart also dropped (-2.4%) after reporting an unexpected decline in US sales and lowered its guidance for the year. This follows on from Macy’s (-0.1%) disappointing earnings report yesterday. In IT-land, losses were larger with IT equipment manufacturer Cisco (-7.1%) plunging in response to a slowdown in the emerging markets which forced the company to scale back its sales expectations for the next quarter. Its tech peers were also lower with Google (-1.1%), Microsoft (-1.8%), Oracle (-2.5%) and Hewlett Packard all lower (-2.7%). Data releases Australia/Asia Economics – no major releases. Equities – Automotive Holdings Group, Platinum Asset Management and AVJennings are expected to post full year results, and Santos and APN News & Media are due to post their first half results, while the ANZ is slated to provide a trading update. Europe/US Europe – July Eurozone CPI (Jun: +0.1%, exp: -0.5%) and June Eurozone trade balance (Jul: €14.6 billion). US – June quarter US Unit Labour Costs (Mar qtr: -4.3%, exp: +1.3%), July housing starts (Jun: 836k, exp: 905k) and July building permits (Jun: 918k, exp: 948k). What is the key investment message overnight? Although US economic data has been mixed recently, on balance, there have been more positive surprises than negative disappointments. Nevertheless, the markets optimism about US tapering in September does not match the US Fed current rhetoric about growth dynamics. That doesn’t mean tapering can’t happen as one feels the US Fed is making it up as they go. Given QE distorted every asset price, there are fewer safe havens than normal. In this environment there m little protection across asset markets, but there could be greater protection and upside potential within each asset market. Stock selection here is key with ‘quality’ companies likely to outperform more speculative business models.
Posted on: Fri, 16 Aug 2013 01:47:29 +0000
Trending Topics
Recently Viewed Topics
© 2015