Summary: => Global sharemarkets were range trading last night as concerns persisted about when the US Fed may reduce its asset purchase program and nervousness rose about a shut down of the US government in the wake of the debt ceiling debate. The MSCI World Index was lower (-0.2%) with losses in Asia (-0.3%) and the US (-0.3%) partially offset by another rise in Europe (+0.1%). => In other financial markets, 10-year government bond yields continued to decline as investors increased their weighting to defensive assets as political tensions rose in Washington DC (US treasuries down to 2.61%, UK gilts lower at 2.57% and Japanese bonds rose to 0.67%), high beta currencies were mixed (AUD -0.2% to 93.69 and the Euro +0.4% to 135.28), but commodities were mostly higher: - gold +1.4% to USD1,334.50 per troy ounce. - base metals all rose (with gains between +0.6% and +1.2%). - Dr copper +0.5% at USC327.20 per pound. - Iron ore -0.02% to USD134.45 per metric tonne in US futures markets. - oil -0.8% to USD102.33 per barrel. The SPI suggests that the Australian market will open -11 points lower (-0.2%) at 10am AEST. Market news => Asia – Asian markets were a sea of red yesterday with large-scale merger announcements and shale exploration announcements failing to spark any improvement in market sentiment. Only two market rose in Asia with the MSCI Asia Index (-0.3%) down for a fourth consecutive day with regional losses led by Korea (-0.5%), China (-0.4%), India (-0.3%), Japan (-0.3%), Taiwan (-0.2%) and Singapore (-0.1%), whereas Hong Kong rose marginally (+0.1%). Australian shares defied the downtrend in other Asian markets and rose strongly on the back of strength in energy and consumer staples although there appeared to be no obvious driver for the gains. The S&P/ASX 300 Index closed +41 points higher (+0.8% to 5,231) with nine sectors rising led by consumer staples (+1.4%), energy (+1.2%) and industrials (+1.1%), whereas only telcos declined, albeit marginally (-0.1%). => Europe – In Europe markets opened lower but rose as the day progressed and by the closing bell the EuroStoxx Index (+0.1%) posted its second consecutive daily gain. In the major markets losses were limited to the UK (-0.3%), whereas France (-0.01%) and Germany (+0.01) were mostly steady. In the periphery markets performance was all positive with gains in Ireland (+0.01%), Italy (+0.1%), Greece (+0.4%), Spain (+0.8%) and Portugal (+1.1%). => US – on Wall Street, US equities declined amid mixed economic data and continued fiscal uncertainties, although there was no over-arching directional driver. Defensive stocks led the market south with losses led by healthcare (-0.8%) and consumer staples (-0.7%), whereas materials (+0.2%) and financials (+0.5%) topped the list of gainers. At the closing bell the market posted its fifth consecutive loss with the Dow Jones Industrial Average closed down -61 points (-0.4% to 15,273) with the S&P 500 (-0.3% to 1,693) and the NASDAQ (-0.2% to 3,761) slightly outperforming. Nonetheless, today did represent the first five-day losing streak for the S&P 500 since December 2012. Economic news => Australia/Asia – no major releases. => Europe – France business confidence declined slightly to 97 in September (from August: 98 and expectations of 99). Meanwhile, Italian consumer confidence rose solidly in September to 101.1 (relative to 98.3 in August and street estimates of 98.5) which is the highest level since before the European debt crisis in June 2011. => US – US durable goods orders barely grew in August (+0.1%) with only a sharp rise in vehicle orders keeping the index in positive territory, after a sharp decline in July in a possible sign that companies are holding back on investments due to the Budget crisis in Washington DC and uncertainty around US Fed policy. Meanwhile, new home sales came in as expected at +421k. Company news => Europe - The broader UK market struggled for direction for a third straight day in the presence of increased policy uncertainty in the US and the absence of any major local earnings or economics news. The fallout for Carnival (-6.7%) from yesterday’s -25% decline in profit expectations intensified as investors fretted about rising costs and falling ticket prices. Meanwhile, Tesco (-3.5%) declined for a second consecutive session after a downgrade to ‘underweight’ from JPMorgan softening sentiment, with the company’s plans to fend off discounters failing with an EPS-hurting re-basing of its prices expected as it loses market share. Meanwhile, competition worries also negatively impacted Sage (-3.3%) after cloud-based accounting software company Xero hosted a meeting in London to set out its plan to take market share from incumbents. In contrast, Vodafone (+1.9%) rose after UBS raised its target price and stated that its global peers were considerably more expensive. Meanwhile, Cairn Energy (+2.2%) increased after Vedanta denied a report that it was in talks to buy the company’s 10% stake in Cairn India. => US - US shares declined again although there was certainly no over-supply of corporate news. Discount retailer JC Penney (-15.0%) continuing its nightmare run this week and this year (-60%) after brokers hit the stock with more underperform ratings with short selling amplifying the downward pressure on the stock. Financial stocks performed well led by JPMorgan (+2.7%) as investors today thought settling disputes with the Department of Justice for about USD 4 billion was a good idea. Carnival (-4.5%) followed the lead from its UK stock and dropped sharply on earnings grounds. Meanwhile, car parts retailer Autozone gained ground (+2.4%) even though its fourth quarter earnings came in below market expectation, with strong car sales in the US durable goods data boosting sentiment. Data releases Australia/Asia Economics – September quarter Australian job vacancies (Jun qtr : -7.3%). Equities – no major equities news. Europe/US Europe – September France consumer confidence (Aug: 84, exp: 85), Final June quarter UK GDP (Jun qtr (prelim): +0.7%, exp: +0.7%) and June quarter UK current account balance (Mar qtr: -£14.5 billion, exp: -£11.0 billion). US – Final June Quarter US GDP (Jun qtr (prelim): +2.5%, exp: +2.6%) and final US June quarter persona consumption (Jun qtr (prelim): +1.8%, exp: +1.8%). What is the key investment message overnight? At the moment US earnings momentum is struggling as the US economy remains subdued with a lack of household income growth weighing on earnings and economic growth. However, with all the policy balls in the air at present, the market in not really panicked yet and remained only a few positive sessions below all-time highs. Clearly, the stresses in Washington DC have been seen before and shutdowns are likely, the key questions is will the two main parties be able to get together and nut out a deal. Markets are used to 11th hour arrangements, but recent deals have been closer to 12 O’clock midnight and one better assume that their clocks are showing the correct time, as any last minute disagreement could spark elevated market volatility. Quality earnings and balance sheets are the best protection against market volatility. _____________________________________________________ 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, 26 Sep 2013 06:23:36 +0000
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