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Stock Market Analysis

World Markets Lower on Poor Economic Data

U.S. stocks were generally weaker on Friday, led by energy and mining stocks. European shares ended the week lower. Key European markets have broken key short term support levels. Asian stocks ended mixed for the week, with China offsetting weakness in Japan.  ASX is set to trade lower as investors digest the ramifications of a hung parliament.

The SPI Futures is below the key level of 4400 the ASX is set to open lower as the SPI Futures closed down -0.2% (or -9 pts) at 4,387 (up 0.2% for week). The key levels for our index this week are 4450 and 4250, the 4200 level is key support. M&A activity continues to drive specific stocks. Expect to see our market trade lower as investors digest the ramifications of a hung parliament. Our company reporting season will continue to be in focus this week. Investors need to concentrate on those companies that continue to grow their earnings with strong balance sheets.

US Markets

The Dow and S&P 500 posted two straight weekly losses for the first time since 2 July, as investors focused on the stream of poor economic data which showed inventories building, sales falling and global trade is slowing, with trading volumes at their lowest levels for the year.  Energy stocks fell as oil prices tumbled nearly $US1 a barrel, including Exxon Mobil, Chevron and drillers dragged the sector down 1.2% for the session, as a weak economic outlook and a surging US dollar sent investors out of riskier assests. Over the week Energy, Financial and Healthcare sectors all dragged on the market.  The Dow closed down -0.6% (or -58 points) at 10,214  (down -0.9% for week), while in the broader market the S&P 500 index down -0.4% (or -4 points) at 1,072 (down -0.7% for week) and the tech-heavy Nasdaq ended up marginally 0.0% (or 1 points) at 2,180  (up 0.3% for week).

European Markets

European shares ended the week lower.  Key European markets have broken key short term support levels. The markets weakened following a European Central Bank (ECB) official’s suggestion that monetary policy should remain loose until next year, confirming investor fears that the economy remains weak.  In London the FTSE 100 index closed down -0.3% (or -16 points) at 5,195  (down -1.5% for week), the German DAX down -1.2% (or -70 points) at 6,005 (down -1.7% for week), while in France the CAC was down -1.2% (or -46 points) at 3,526 (down -2.3% for week).

Asian Markets

Asian stocks ended mixed for the week.  Last week the Japanese markets fell to 8-month lows, after sufferring from poor quarterly GDP data and the Yen at 15-year highs.  There is speculation of the possibility of the intervention from the central bank (BoJ) that they may introduce further monetary easing measures.  Chinese shares finished the week higher, and have risen 12 percent from the July lows, as investors speculate that the government will ease property curbs and allow more lending to counter slowing growth.  Miners weighed on the Chinese markets on the back of poor U.S. data. In China the SSE Composite closed down -1.7% (or -46 points) at 2,642  (up 1.4% for week), while in Hong Kong the Hang Seng Index was down -0.4% (or -91 points) at 20,982 (down -0.4% for week) and in Japan the Nikkei 225 Index was down -2.0% (or -18330 points) at 9,179 (down -0.8% for week).

Commodities

The Dollar Index up marginally at 83.04 rising to a six-week high against the  Euro, while the Australian Dollar last traded flat at 89.40. Commodities were generally lower.

Oil prices fell to around support. The benchmark crude NYMEX for September delivery was down -1.3% (or $US-0.95) to settle at $US73.92 (down -2.5% for week). Copper prices still are trading below 3-month highs, Copper for September delivery delivery was down -0.8% (or -2.7 cents) at $US3.2920 (up 0.6% for week). Gold prices rose above key $US1,200 level, with December gold was down -0.5% at $US1,227.70  (up 1.0% for week).

Key News International Drivers Today

US – GM has filed for a $US10 billion IPO. Companies continue to report earnings this week. U.S. initial unemployment claims jumped to Nov’09 levels
EU – ECB rumored to be considering further monetary easing. Commodity-sector stocks were the worst performers
CHINA – China  overtakes Japan as the world’s second largest economy.
JAPAN – Japan’s poor quarterly GDP data and the Yen at 15-year highs hurts. Companies continue to report earnings this week.

Markets Overview

World Markets Lower on Poor Economic Data

SPI: Below key Level 4400 – SPI down 0.2% at 4,387….

ASX News Today

The SPI Futures is below the key level of 4400 the ASX is set to open lower as the SPI Futures closed down -0.2% (or -9 pts) at 4,387.  The key levels for our index this week are 4450 and 4250, the 4200 level is key support. M&A activity continues to drive specific stocks. Expect to see our market trade lower as investors digest the ramifications of a hung parliament. Our company reporting season will continue to be in focus this week. Investors need to concentrate on those companies that continue to grow their earnings with strong balance sheets.

ABC- Adelaide Brighton, the cement and lime supplier expects higher demand for its products in FY11, and reported has increased 1H profit 57 percent. Shares rose 3.6%.

AMP- AMP, the wealth manager, increased 1H10 profit 17 percent but expressed caution about the global economic outlook and ongoing market volatility.  Shares fell 4.3%.

AHE- Automotive Holdings Group says improving trading conditions are behind a record 150 percent rise in FY10 net profit.

ANZ- ANZ Bank 3Q net profit was up 37 percent on the pcp, but expects credit growth to remain soft amid the “unusually uncertain” global economy.

ASB- Austral the ferry builder, has increased its FY10 profit, and is well placed to deliver value into the future

AWB- AWB the takeover target says that Canadian predator Agrium has completed its due diligence and has executed a scheme implementation agreement with AWB.

BBG- Billabong the surfwear brand say FY10 profits slumped 10 percent on the back of the strong Aussie dollar.

BHP- BHP is now on credit watch. BHP Billiton’s CEO Marius Kloppers says BHP brings four decades of expertise to the table in asking Canadian regulators to approve its proposed takeover of Potash Corp.

CMJ- Consolidated Media Holdings has reported an 8.2 percent fall in annual net profit, with revenue up 121 percent.  Buyback of 50 million shares remains active.

DOW- Downer EDI the engineering company, reported a 98 percent drop in net profit in FY10 but expects earnings to rise in the current year. Shares rose 6.8%.

DUE- DUET Group the energy utilities owner, has rebounded to a full year profit, with revenues up 11 percent. and expects continued growth across its businesses.

HSP- Healthscope, the healthcare provider reported a 37 percent increase FY10 and forecast strong demand and growth in the current year.

MAH- MacMahon Holdings the contract miner wins an $86 million contract to build a train line for Gindalbie Metals’ Karara iron ore project in mid-west WA.

MRM- Mermaid Marine, the marine services provider for the offshore oil and gas sector, has reported a jump in FY10 net profit up 43% and EPS up 41%, and says it will continue to increase earnings in the FY11. Shares rose 3.0%.

PPX- PaperlinX the stationer, posted an FY10 net loss, and is taking more steps to reduce overheads as substantial market improvement still is some way off.

QBE- QBE Insurance, Australia’s biggest insurance company 1H profit declined 39 percent as lower investment income from cash and fixed income investments.

RIO- the $130 billion Pilbara iron ore production JV between BHP and Rio Tinto is highly unlikely to go ahead.

SFH- Specialty Fashion Group the women’s clothing retailer, posted a 35 percent rise in FY10 profit, but says trading in the first half of the new year is tough.

SKT- SKY Network Television reports a 16.9 per cent rise in FY10 profit on a 7.2 percent rise in revenue and 3 per cent rise in subscriber numbers.

SPT- Spotless Group the facility services provider and asset manager, has reported a rise in full year profit of 0.7 percent despite tough conditions, and tipped a stronger result in 2010/11.

WES- Wesfarmers posted a 2.8 percent rise in FY10 profit and says outlook for growth in the company’s businesses is encouraging.

Economic Reports :

Negotiations to resolve the hung parliament

Companies:

ANN – Ansell Ltd Full year 2010 Results
BLY – Boart Longyear Ltd Interim 2010  Results
CGF – Challenger Financial Services Full year 2010 Results
QRX - Qrxpharma Limited Full year 2010 Preliminary results
RIV – Riversdale Mining Ltd Full year 2010 Results
SKI – Spark Infrastructure Group Interim 2010 Results

SAI – SAI Global Ltd Full year 2010 Ex-dividend date
TLS – Telstra Corp Full year 2010 Ex-dividend date
WPL – Woodside Petroleum Interim 2010 Ex-dividend date

Expect to see our market trade lower today, as focus turns to ramification of a hung parliament. Our earnings season continues.

Market Summary

ASX – to open lower
US & UK/Europe – Lower

US ADRs –  Broadly Lower!!!…

BHP down 0.2% &

RIO down 0.9%;

AWC down 0.3%
ANZ up 2.4% &

NAB down 0.8%

NEM down 0.7%,

JHX up 0.8%,

NWS down 0.8%

Commodities Stock Index down 0.8%
Gold Stocks Index down 0.7%
Oil Stocks Index down 1.2%

By Michael Hevern
Head of Research