Summary: Let’s not mention the AFL other than to say, I have a very long winter in front of me given the magpies’ dismal Friday form – the only thing I can say is that GWS’s defeat of the Swans kept my greatly beloved team from being the major footy talking point of the week. Meanwhile, the global sharemarket continued to struggle for momentum on Friday night as Chinese growth concerns and uncertainty about the referendum in Crimea on Sunday continued to linger and global investors pushed indices further down from recent highs. By the closing bell on Saturday morning, the MSCI World Index was lower (-0.6%) with losses in Asia (-1.1%), Europe (-0.7%) and the US (-0.3%). In other financial markets, 10-year government bond yields exhibited less volatility and were down only a few basis points (US Treasuries down to 2.65%, UK gilts lower at 2.66% and Japanese bonds closed at 0.62%), high beta currencies were lower as investors increased their holdings of US dollar assets (AUD -0.2% to 90.14 and the Euro -0.1% to 138.97), but commodities partially recovered from their recent plunge and were mostly higher: Dr copper +0.9% at USC295.40 per pound. oil +0.7% to USD98.89 per barrel. gold +0.5% to USD1,379 per troy ounce, to a fresh six month high. Iron ore was steady at USD111.43 per metric tonne in US futures markets. base metals were mixed (with modest declines in tin, nickel and zinc). The SPI suggests that the Australian market will open -18 points lower (-0.3%) at 10am AEST. Market news Asia – Asian markets declined sharply at the end of last week with Japan now down by more than -10% for 2014. The triggers were the now ‘usual suspects’ (weak Chinese growth and concerns over the stability of the Ukraine), but both issues seemed to flare up on Thursday evening after many markets had closed, so markets faced the wrath of investors on Friday. Economic data was unsupportive with a downward revision to Japanese industrial production (from +4.0% y/y to +3.8% y/y) adding to questions about regional growth prospects. By the close of trade on Friday in India, the MSCI Asia Index was sharply lower (-1.1%) with losses dominated by Japan (-3.1%) as the Yen appreciated on the back of safe-haven flows, which hurt the price of its exporters. Meanwhile, Hong Kong (-1.0%), Korea (-0.8%), Taiwan (-0.7%), China (-0.5%), Singapore (-0.4%) and India (-0.3%) were also lower on a fairly bleak day for investors. In the local sharemarket, the S&P/ASX 300 Index closed -82 points lower (-1.5% to 5,283) with all ten sectors closing in negative territory with eight closing with century losses led by materials (-2.2%), IT (-2.0%) and consumer discretionary (-1.7%). Europe – European markets followed the negative US and Asian leads and ended lower on Friday night. Little significant economic or corporate data meant that investors instead focused on Asian data and local political risks and markets struggled all session long in red territory. By the closing bell, 18 of the region’s 19 markets were lower, with losses led by the banks (-1.8%), telcos (-1.3%) and construction & materials (-1.3%). Overall, the EuroStoxx Index closed lower (-0.7%) with losses in major markets led by France (-0.8%), whereas the UK (-0.4%) was down for a sixth consecutive session, but by less than in previous sessions, and Germany was the only regional bourse to rally on safe haven flows. In the periphery markets performance was downbeat with losses on all bourses including Portugal (-0.5%), Italy (-1.2%), Spain (-1.4%), Ireland (-1.8%) and Greece (-2.0%) US – on Wall Street, US indices were mostly lower on Saturday morning in fairly directionless trading where indices drifted in negative territory with investors seemingly unwilling to add to risk positions ahead of the Crimean referendum. Economic and corporate news flow was light in volume which meant only attractive valuation could have potentially triggered a market rally, but stocks on this basis are few in number, and as such, by the closing bell all indices closed in the red. At the bell, the Dow Jones Industrial Average was down -43 points (-0.3% to 16,066) with the S&P 500 (-0.3% to 1,841) and the NASDAQ (-0.4% to 4,245) posting similar sized losses as five sectors closed in the red led by IT (-0.7%), financials (-0.6%) and healthcare (-0.5%), whereas telcos (+0.3%) and utilities (+0.6%) were the only noteworthy gains. Economic news Australia/Asia – no major releases. Europe – December quarter Eurozone Employment Change (-0.5% q/q) came in slightly better than the prior result (-0.8%), although the number of payrolls continued to decline which will curtail the strength of any economic recovery. Elsewhere, Germany’s inflation report (+1.2% y/y) came in in line with market expectation and the flash estimate and the UK’s trade balance for February (£9.79 billion) came in a bit below expectation (£8.7 billion). US – no major releases. Major company news Europe Stocks on the LSE closed lower for the sixth consecutive session and emerging market-focused companies led the decline with Aberdeen Asset Management (-3.1%) and Bank of Georgia (-7.3%) leading the charge. In contrast, J Sainsbury (+2.9%) showed the sharpest rebound among the supermarkets in the wake of Wm Morrison’s earnings warning on Thursday night with the former set to detail its operating activity to analysts tomorrow night, with declining margins likely to curtail earnings growth for the next two years. Meanwhile, hydraulics engineerer IMI rose (+2.8%) in response to a broker upgrade citing some potential for top line revenue growth and margin expansion despite a potentially unfriendly macro environment. US Despite another solid loss on Friday night corporate newsflow was very light in volume. Nevertheless, struggling US teen retailer Aeropostale (-20.1%) lost one fifth of its market capitalisation amid mounting losses which sparked the company to accelerate its store closure program. The company reported a loss of USD70 million which was three times largest than street estimates, with net sales down -16%, with the company’s lower income target market still struggling in a highly uneven economic recovery. The company’s results followed lacklustre reports from Abercrombie and Finch (-0.7%), American Eagle Outfitters (-0.9%) and Urban Outfitters (+1.9%), all of which reported same-store sales declines in recent weeks. Meanwhile, food producer General Mills weakened (-2.4%) after the company delivered earnings shy of Wall Street estimates despite a large market spend around its yogurt business. Major data releases Australia/Asia Economics – no major releases. Equities – no major equities news. Europe/US Europe – February Eurozone CPI (Jan: -1.1%). US – February US industrial production (Jan: -0.3%) and March US housing market index (Feb: 46). What is the key investment message overnight? Even though a Chinese growth target of +7.5% would seem to be broadly supportive of industrial materials demand, the bearish sentiment around global commodity prices could persist given an apparent slowing in global demand, softening growth in China and very little evidence of a pick-up in global industrial activity. With the Crimean situation unresolved and Chinese growth slowing, the prognosis for Dr copper is not clear and in this world, the key question is where the cracks in China’s financial system broaden and trigger a widespread liquidation of copper inventories, which sparks further sales, as formerly perceived bank collateral declines in value. While fears here at present seem overblown, in this environment investors need to be focused on companies that are at the bottom of the global cost curve and those that have high quality long mine lives with high grades, as these stocks can adjust quickly to changing global prices and still generate profits.
Posted on: Mon, 17 Mar 2014 02:06:01 +0000
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