Summary: . Rising government bond yields have left global sharemarkets struggling to recover recent losses, as the prospect of less US Federal Reserve stimulus continues to dominate investor sentiment. . The largest impact has been in the developing markets with the largest 20 (ex-China) emerging market currencies tumbling against the US dollar amid mounting turmoil in the emerging world. The major stress points are Indonesia (where the current account deficit is back to the levels seen during the Asian Financial Crisis in 1997, with US Fed tapering seeing increased capital outflow to advanced economies), India (amid concerns about government debt and a rapidly depreciating Rupee, with the Bank of India unable to stop its continued slide) and Thailand (who is back in technical recession). . The MSCI World Index was lower (-0.7%) with losses in all regions led by Europe (-0.9%), Asia ex-Japan (-0.8%), and the US (-0.6%). In other financial markets, 10-year government bond yields rose to fresh two-year highs in the US (2.88%) and the UK (2.74%) with Japan (+0.76%) also higher. Elsewhere, high beta currencies were mixed (AUD -0.8% to 91.18 and the Euro +0.03% to 133.37) and commodities were lower: . Dr copper -0.9% at USC333.15 per pound. . oil -0.5% to USD106.98 per barrel. . gold -0.4% to USD1,366 per troy ounce. . base metals mostly lower (between -0.1 and -1.7%, with only lead bucking the trend). . Iron ore -0.2% to USD134.50 per metric tonne. The SPI suggests that the Australian market will open -17 points lower (-0.3%) at 10am AEST. Market news . Asia – Expectations of US Fed tapering is making it harder for some emerging economies to fund their current account deficits which prompted some regional markets to add to recent sharp losses. Overall, the MSCI Asia Index (-0.2% and -0.8% ex-Japan) closed in the red with regional losses led by Indonesia (-5.6% and now down to its lowest level since January 2013) and India (-1.6%, following a -4% decline on Friday, as the Bank of India struggles to stabilise the Rupee with the sharemarket down to its lowest level since mid-April), with Singapore (-0.8%), Taiwan (-0.3%), Hong Kong (-0.2%) and Korea (-0.1%) also lower, whereas Japan (+0.6%) and China (+0.8%) both closed in the black. In the local sharemarket, the S&P/ASX 300 Index (-1 point to 5,071) marked time for a fourth consecutive session with six sectors posting gains led by healthcare (+1.5%), consumer staples (+1.4%) and energy (+0.8%), whereas CBA (-2.9%) and Telstra (-3.7%) going ex-dividend resulted in banks (-0.4%) and telcos (-3.2%) leading the pace of declines. . Europe – In European market followed the negative Asian lead with the EuroStoxx Index (-0.9%) closing at its daily low. In the major markets losses were led by France (-1.0%), the UK (-0.4%) and Germany (-0.3%), whereas declines in the periphery markets were sharper led by Greece (-3.0%), Italy (-2.5%), Spain (-1.9%) and Portugal (-0.9%), whereas Ireland (+0.8%) defied the regional trend and posted a solid rise. . US – on Wall Street, the Dow Jones Industrial Average declined -71 points (-0.5% to 15,071) which represents its eighth price drop in the past ten session, with the S&P 500 (-0.6% to 1,646) and the NASDAQ (-0.4% to 3,589) posting similar sized losses with nine market sectors posting losses led by energy (-1.5%), financials (-1.4%) and materials (-0.8%), with only healthcare (+0.4%) closing in positive territory. Economic news . Australia/Asia – no major releases. . Europe – no major releases. . US – no major releases. Company news Europe - Resource stocks weighed heavily on the wider market as declining commodity prices saw miners give back some of their recent gains with losses among blue-chips led by Anglo American (-3.6%) and Glencore (-2.1%, a day ahead of its result). African focused deep-water oil explorer Ophir Energy (-7.6%) slipped to an 18-month low as doubts grew about the company’s acreage which prompted investors to abandon the stock as management scaled back their expectation for the Tanzania and Gabon projects. Elsewhere, miner ENCR (-0.9%) declined amid expectation that it would be excluded from the FTSE 100 Index. In contrast, electricity provider SSE (+0.8%) rose as investors sought the safety of defensive stocks with an upgrade from HSBC to ‘neutral’ boosting sentiment. Similarly, chip designer Arm Holding (+2.2%) rose solidly after an upbeat roadshow for Scandinavian investors. Likewise bike retailer Halfords (+3.5%) rose after management restructured bonus plans which is expected to generate a +15% upgrade to 2016 operating earnings. US - In US stocks, 23 of the 30 Dow Jones stocks closed lower with losses led by JPMorgan (-2.7%) on news of an investigation into hiring practices in China, following on from charges against a former trader in London. The finance sector continues to ease back from recent highs with further losses recorded by the Bank of America (-1.1%) and Morgan Stanley (-1.9%) in the wake of expectations of US Fed tapering. Meanwhile, book retailer Barnes and Noble (-3.4%) declined ahead of its earnings report this morning with analysts expecting the company to report a narrower loss than last quarter, but a loss no less. In IT-land there were lots of gains with Intel (+1.7%) rallying after an upgrade from analysts to ‘neutral’ after the company’s share price had dropped sharply given the struggling PC market. Similar gains from Google (+1.1%), Apple (+1.0% to USD513.34) and Facebook (+1.9%) helped cushion losses on the main US indices. Data releases Australia/Asia Economics – RBA August meeting minutes. Equities – BHP Billiton, Arrium, QBE, Ansell, Tassal Group, Commonwealth Property Office Fund and Sonic Healthcare are among the companies expected to post full year results, while Oil Search, Invocare and Coca-Cola Amatil are slated to release first half results. Meanwhile, the National Australia Bank is scheduled to give its third quarter trading update. Europe/US Europe – June Eurozone construction output (May: -0.3%). US – no major releases. What is the key investment message overnight? It appears that the next global stress point is likely to be the emerging markets, who were so instrumental is holding global growth together in 2010/12 when advanced economies weakened. The major stress points are Indonesia (current account balance), India (government debt, rising interest rates and a plunging currency), Malaysia (current account balance) and Thailand (back into recession). Markets dislike uncertainty and US Fed policy and rising yields is adding to other concerns for markets. Some guidance from the US Fed would be welcomed as its policy has not only distorted asset prices in the US, but all around the world, and a clear plan would help markets remove these distortions in an orderly way. The alternative is for Ben to say nothing and cross his fingers, but the information vacuum will continue to see markets unwind positions in a stampede, which can be highly destabilising. _______________________________________________________ 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: Tue, 20 Aug 2013 03:45:00 +0000
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