We had mixed leads from overseas markets in our shortened trading week, with most markets trading at, or just above, their 50 day moving average. Gold continues to trade strongly.
U.S. Markets
The U.S. continues to get mixed data signals about the strength of its recovery. The latest data was the U.S. Index of leading indicators, a key gauge of the outlook for growth over the next three to six months. This rose 0.4 per cent in May, while other data showed the cost of living dropped and the claims for jobless benefits unexpectedly increased to the highest level in a month. The data is confirming that even though the U.S. economy will keep expanding in the second half of 2010, it will begin with inflation and little job growth. The U.S. markets are trading into their 50 day moving average, with the Dow Jones at 10,434 and the S&P 500 Index at 1,116.
BP was again a focus overnight with the CEO Tony Hayward being grilled by the Congress in the U.S. BP agreed to suspend their dividend and to put $US20 billion into a fund for the victims of the Gulf Oil Spill. There are incredible amounts of money involved here with the total cost of the spill estimated to be as much as $US100 billion over the next 10 years, and what’s even more incredible is that BP are likely to survive this scenario, highlighting what a profitable business they have.
European Markets
In Europe the primary focus has been Spain’s sovereign debt, but concerns appear to be abating as Spain had two successful bond auctions to help pay their debt in the past couple of days. Other positives from Europe include Spain agreeing to allow its banks to undergo “stress testing”, the results of which will be reported in the next couple of weeks; and Greece has been assessed as being on track with the reforms required as part of its rescue package setup to save it from bankruptcy, this is according to a delegation of the International Monetary Fund (IMF), the ECB and EU. This saw the euro trade above $US1.2380.
In the U.K. the FTSE is at 5,253, Germany and the French CAC are trading above their 50 day moving averages.
Asian Markets
During the week the IMF confirmed that Asia’s regional economy is growing so fast that it will rival long-standing economic powers of the U.S. and Europe in the next five years. They went on to say that Asia is set to expand 50 per cent in the next half decade. China was closed most of the week and Japan’s Nikkei index has bounced above 10,000.
Gold is strong
Gold continues to outperform in the commodities market and closed at record highs overnight at $US1,245.60, and crude oil has also been trading higher around $US77.
Resource super profits tax
In Australia the resources super profits tax (RSPT) continues to be debated, with BHP, Fortescue and Xstrata all still adament that they have not been consulted by the government about the tax.
Our View
Markets are again at key decision levels, as the bulls and the bears are fighting for control. The bulls got the slight upper hand this week by pushing most markets from the 200 to the 50 day moving average levels, but until indices close significantly above these levels, markets will lack positive momentum.
Traders can use the three day highs and lows as triggers to confirm short term market movements, remember that we’re now trading into the end of the financial year. The ASX 200 is above the key pivot level of 4500 at 4,540, at the confluence of the 50 and 200 day moving averages. Investors will be watching carefully as to how the market reacts here, with the key levels for our index next week being 4650 and 4450.
By Michael Hevern
Head of Research
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