Summary: Some late wickets meant Australia took the points on Day 1 of the Second Test against the Proteas in Port Elizabeth with three batsmen getting half centuries but failing to go on and get three figures (albeit that one is still not out with the score of 5/214). Graeme Smith won the toss and batted, which was a decision he regretted after a handful of run and day two will be enthralling and probably will determine who is going to win and Australia’s brittle top order will undoubtedly be subjected to the full force of the South African attack. Like in SA, global sharemarket had a very mixed session overnight with a weak manufacturing survey in China underpinning some large losses in Asia, but the result shrugged off by Wall Street who had its own set of data disappointments. With 60 minutes to go in the US session, the MSCI World Index is higher (+0.1%) with losses in Asia (-1.3%) and Europe (-0.1%) outweighed by a solid rise in and the US (+0.7%). In other financial markets, 10-year government bond yields were mostly higher as investors sold out of recent Treasury purchases and increased their weighting to risk assets (US Treasuries up to 2.77%, UK gilts higher at 2.80% and Japanese bonds closing at 0.58%), high beta currencies are marginally lower (AUD -0.2% to 89.86 and the Euro -0.2% to 137.08), and commodities were little changed: gold +0.1% to USD1,321.40 per troy ounce. Dr copper -0.1% at USC328.50 per pound. oil -0.1% to USD103.20 per barrel. Iron ore -0.2% to USD122.17 per metric tonne in US futures markets. The SPI suggests that the Australian market will open +44 points higher (+0.8%) at 10am AEST. Market news Asia – Asian markets trade lower on Thursday following a weak lead from Wall Street. Regional economic data added nothing to the glum mood as it sparked concerns about growth in the world’s second and third largest economies. Indeed, Chinas flash manufacturing PMI revealed manufacturing activity contracted more than expected in February, whereas Japan welcomed a record trade deficit for January and another bout of risk aversion which prompted an appreciation of the Yen. By the close in India, the MSCI Asia Index closed lower (-1.3%) with regional losses led by Japan (-2.0%), Hong Kong (-1.2%), India (-0.9%), Korea (-0.6%), Taiwan (-0.6%), China (-0.2%) and Singapore (-0.1%). Meanwhile, the domestic sharemarket the was the only regional index to close higher with the S&P/ASX 300 Index up +3 points (+0.1% to 5,364) with six sectors closing in positive territory with gains led by consumer discretionary (+1.0%), healthcare (+0.6%) and telcos (+0.3%), whereas energy (-0.2%) and materials (-0.3%) were the only sectors to record noteworthy declines. Europe – In Europe stocks were mixed after a weak opening as US Fed minutes and a weak China manufacturing PMI impacted sentiment. Economic data and earnings news failed to inspire investors, but a solid US opening lifted stocks off their daily lows and most lost ground was made up. By the closing bell, the EuroStoxx Index was only fractionally lower (-0.1%) with the number of decliners leading advancers 11-8 with losses in financials (-0.8%) and resources (-1.1%) weighing. Among major markets, gains were recorded in France (+0.3%) and the UK (+0.2%), whereas Germany who has the higher trade exposure to China and Asia declined (-0.4%). In the periphery markets performance was similarly mixed with losses in Greece (-0.5%) and Portugal (-0.3%), but bourses in Italy (+0.1%), Spain (+0.1%) and Ireland (+0.2%) closed in positive territory. US – on Wall Street, US stocks resumed their upward momentum in spite of the negative leads from Europe and Asia as well as a mixed set of local economic data. The Philly Fed report indicated a sharp decline in US manufacturing activity with the usual array of weather excuses mentioned by economists. With 60 minutes to go, the Dow Jones Industrial Average is +112 points higher (+0.7% to 16,152) with the S&P 500 (+0.7% to 1,841) and the NASDAQ (+0.5% to 4,258) slightly underperforming as all ten sectors rose with advancers led by telcos (+2.1%), healthcare (+0.9%) and energy (+0.9%). Economic news Australia/Asia – no major domestic releases, but the February HSBC Chinese PMI came in quite weak at 48.3 (relative to street estimates of 49.5 with January at 49.5) with declines in all the sub components, with new orders and new export orders particularly soft. Although investors need to be wary of reacting to single data points, especially considering the unknown impact of Chinese New Year, today’s data indicates that Chinese manufacturing data continues to deteriorate in February. More importantly, with no easing in monetary conditions within sight, the upcoming slowdown in credit growth is likely to continue to weigh on manufacturing activity in coming months. Meanwhile, Japan’s trade deficit came in at a record level of Y2.48 trillion which was nearly double that of the December level. Moderate export growth (+9.5% y/y in January relative to +12.5% y/y in December) was cited as the catalyst for the result, but in many ways it was the import side (+25.0% y/y against +15.3% y/y in December) which caused the real problem as consumer spending increased ahead of the rise in Japan’s consumption tax in April. Europe – the flash February regional manufacturing PMI came in below consensus and the January result (53.0 against 54.0 and 54.0, respectively), whereas the service sector was able to fractionally improve from last month (51.7, 51.9, 51.6) in a sign that activity has slightly moderated in Europe. US – the February US Fed’s Philly Fed survey recorded a sharp decline in January (-6.3 against street estimates of +7.3 and +9.4 for January), which is the weakest reading in 12 months and the first contraction in eight months as cold weather sparked a sharper contraction in manufacturing activity. New orders (-5.2, +5.1 in January) and shipments (-9.9, +12.1) were sharply lower, but half of the manufacturers surveyed expected production to rise over the first quarter. Meanwhile, this week’s initial jobless claims were bang on expectations (+336k, +335k). Major company news Europe The UK market crept higher overnight with gains recorded by William Hill (+3.0%) following several upgrades from brokers, who universally stated that risks of betting machine stake limits were completely reflected in the company’s share price. Meanwhile, Vodafone (+2.8%) recorded a similar sized rise ahead of the proceeds from its sale of Verizon Wireless which is likely to alleviate pent up demand for the stock. Conversely, defence contractor BAE Systems dropped (-8.3%) after the company lowered its 2014 earnings guidance, which rendered market consensus as out of date, with earnings figures for this year blurred by a large deal to supply jet fighters to Saudi Arabia. US US stocks have recovered from yesterday’s last hour sell down with shares in Blackberry (+5.1%) bouncing strongly as Facebook’s (+1.8%) purchase of the WhatsApp for up to USD19 billion (which is the company’s largest and most expensive acquisition to date) focusing attention on the value of BB’s own messaging system. Meanwhile, shares in US grocery chain Safeway (+3.7%) rallied on renewed M&A expectations that the company will be the next target in the consolidation that is occurring across the industry, with its CEO revealing that the group is in talks to sell the business to private equity firm CVC Capital. Meanwhile, car rental agency Avis Budget rallied strongly (+8.0%) as the company recorded a sharp narrowing in its fourth quarter loss with the group’s recent acquisition of car-sharing firm Zipcar boosting sales in North America. Major data releases Australia/Asia Economics – no major releases. Equities – Crown Resorts, IAG and Platinum Asset Management are among the companies expected to post first half results. Meanwhile, Iluka Resources and Santos are due to announce full year results, while NAB is slated to release a first quarter trading update. Europe/US Europe – no major releases. US – January US existing home sales (Dec: 4.87 million). What is the key investment message overnight? In markets and economics things don’t go up in a straight line. There is little doubt that global economic activity has slowed in the March quarter and not all of it can be attributed to US weather. It appears that a sizable slowdown is underway in China in the manufacturing sector and also in the broader economy and with the PBoC looking to tighten financial conditions to curb low quality lending in the shadow banking sector, growth is unlikely to improve for some time yet. Chinese growth and stability and European deflation remain to two key macro risks in 2014, with growth in the former likely to end in the 6%’s by years end, which is probably not factored into market prices. Consequently, investors need to remain focused on earnings, not on price trends and ensure that their stocks are able to grow income payments in a still sub-trend global economy.
Posted on: Fri, 21 Feb 2014 01:32:27 +0000
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