Posts Tagged ‘Nikkei’

Stock Market Analysis: Weekly Market Wrap

Friday, July 8th, 2011

Key Global Markets Approach 2011 Highs

Australian shares have traded higher this week after positive leads from key markets in the U.S. and Europe, news of surprisingly good jobs data both locally and in the U.S, and also U.S. manufacturing data surprising to the upside.

Locally the RBA left rates on hold as expected, and the unemployment rate remained steady at 4.9% but with improving jobs growth. The details of the carbon tax will be revealed on Sunday, while in the U.S. the non-farm payrolls report is due out Friday night and the earnings season starts next week.

Key European and U.S. markets are set to test their 2011 highs near term, while commodity prices have continued with their recent gains, with copper prices at 10-week highs.

U.S. Markets

U.S. stock markets have continued higher and look set to test their 2011 highs. Investor sentiment was buoyed by better-than-expected Institute of Supply Management (ISM) data showing that the U.S. manufacturing sector expanded solidly in June, with the ISM Purchasing Managers Index (PMI) up at 55.3 in June (from 53.5 in May). This supported the conclusions from the Chicago PMI which came in well above expectations at 61.1 – there is generally an 80% correlation between the two readings. U.S. investors have had a good week after their 4th of July celebrations.

Key milestones for the U.S. near-term are the non-farm payrolls employment report which is due out tonight and then the start of the earnings season next week. Investors will also be mindful of the current debate being held in Washington over the $US14.3 trillion debt ceiling and the growing fiscal deficit, scheduled to be voted on in early August. There would be huge ramifications if the deal is not passed on the 2nd of August, as this could trigger an unprecedented default on U.S. debt.

Overnight the Dow Jones closed up 0.7% at 12,720, the S&P 500 index closed up 1.1% at 1,353, the Nasdaq ended up 1.4% at 2,873, and the smaller cap Russell 2000 was up 1.5%.

European Markets

European stock markets have held up surprisingly well, and now that the ECB has acted to support Portugal after it was downgraded earlier in the week, markets should find support at these levels. The European Central Bank is supporting Portugal by suspending the minimum credit-rating threshold on the Portuguese government debt used for collateral with the central bank, and this led to the Portuguese market jumping 1.8% overnight. The central banks have made announcements on their interest rates this week which had already been priced into the markets. As expected the ECB decided to lift interest rates by a 0.25 points, to 1.5%, while the Bank of England left its rate on hold.

Overnight in London the FTSE 100 index was up 0.3% at 6,054, the German DAX was up 0.5% at 7,471, while in France the CAC was up 0.5% at 3,979.

Asian Markets

Asian stock markets continued higher this week with Chinese bank shares rising in Hong Kong on hopes the interest rate increase by the Chinese central bank on Wednesday will be its last for the year. Also there were sharp declines in Japanese utilities due to growing uncertainty after the government said it is considering special stress tests for all nuclear plants. However for the week the Japanese Nikkei Stock Index ended at its highest level since the March earthquake and is at 4-month closing highs. Chinese banking shares mostly rose after the People’s Bank of China (PBOC) lifted benchmark deposit and lending rates by 0.25 of a percentage point after market on Wednesday, in order to keep inflation in check.

Overnight in China the SSE Composite was down -0.6% at 2,794, while in Hong Kong the Hang Seng Index was up 0.1% at 22,530 and in Japan the Nikkei 225 Index was down -0.1% at 10,071. The South Korean KOSPI was up 0.4% for the session, while the Indian market was up 1.9%.

Our View

The Australian share market has built on the strong gains from last week as the resolution of the Greek situation has enabled fund managers and traders to push the market higher again, despite the Portuguese debt downgrade (thanks to the ECB’s actions).

The S&P/ASX 200 index has bounced off its March lows and is now breaking above its 50-day moving average. Look for the market to continue with its gains near term, but also monitor the progress on the proposed carbon and mining resource taxes.

We noted recently that the copper price would lead the markets, and now we see it trading at 10-week highs while crude oil again pushes up against the $US100 level. The U.S. earnings season begins next week and this could be the catalyst for a move higher, with many of the analyst earnings forecasts ratcheted down because of the soft June economic data showing slowing economic growth.

If we see a follow-through in momentum in the key overseas markets, and providing there are no nasty surprises in the government’s carbon tax, the ASX is set up to run higher. Banks are attractive on a yield basis, and many blue chip stocks are cheap on a valuation basis.

The S&P/ASX 200 is currently trading at 4650 and has broken above short-term resistance. Key levels for the index next week will be 4730 and 4550.

By Michael Hevern
Head of Research

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Stock Market Analysis – Weekly Market Wrap

Friday, May 27th, 2011

Month-End Rally Market Setup Is In Play

Investors are tentatively breathing a sigh of relief with markets now set up for a month-end rally following a month of sustained selling. Many markets have been testing key levels this week with investors beginning the week with further selling. We could see some consolidation with an upward bias in the next week, but there are plenty of headwinds for investors to mull over as the month of June unfolds.

Globally, markets have been plagued with concerns over the sovereign debt issues in Europe. Asian markets have been hindered by reports showing Japan is in a recession, and Chinese growth is slowing near-term.

The week started with further selling as investors were again cautious over the results of the key IMF and EU finance minister meetings which deliberated over the plight of the PIIGS economies, in particular Portugal, Greece and Spain. The spectre of a debt restructure is still hanging over Greece, but Portugal received a bailout package.

The US markets have seen some respite after a number of positives including the very successful LinkedIn IPO and a bullish note from Goldman Sachs on the prospect of commodities in the near-to-medium term.

In Australia the market has benefited from the recovery in resource prices but has been weighed down by the banks being downgraded by Moody’s. Commodities prices have recovered this week due to the US dollar running into key resistance, however the jury is still out on the sustainability of the global economic recovery.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 experienced sustained selling early this week. The Aussie markets are again testing key support levels where a potential month-end rally can be launched. Banks have been the worst hit in our ASX top 20 stocks this week because of a delayed reaction to the Moody’s downgrade of last week, and Goldman Sachs’ downgrading of ANZ and CBA coming to a hold. However, the banks are now starting to look attractive on a dividend yield basis.

Miners have benefited from the recovery in commodities prices this week, but they still have a number of unresolved issues on the taxation front with the mining tax in focus after the WA government sharply increased the state iron ore royalties to be charged to the miners by $2 billion, and the spectre of the carbon tax is also in the background.

The strong Aussie dollar is still weighing on company profits and forecasts and we had a number of companies foreshadowing profits downgrades this week.

US Markets

US stock markets are setting up for a month-end rally. The leaders this week have been the mining and energy sectors which have outperformed, after Goldman Sachs and Morgan Stanley reported a boost to their commodities forecasts for 2011 and 2012. The focus was on crude oil price forecasts for the rest of the year. Manufacturing data continues to point to a softening recovery in the US, which is particularly worrying given the FED turns off the QE2 tap shortly.

The US dollar is at key resistance levels currently and this could be a leading indicator for the equities/commodities markets near-term.

European Markets

European stock markets have been under pressure this week with continued concerns over debt issues in Greece and the other PIIGS economies weighing on sentiment. Investor sentiment was buoyed mid-week with Greece announcing it had accepted an international bailout, and that it had reached a preliminary agreement with the International Monetary Fund (IMF) and European Union (EU) for a new economic adjustment plan. There is still uncertainty over the proposed bailout package and a restructure of Greek debt is looking more and more likely to be the eventual outcome.

Late in the week the sentiment for banks improved as the Fitch Ratings agency said it does not foresee any rating action on German banks as a direct result of exposure to Greek sovereign debt. Rising commodities prices prompted traders to seek stocks aligned to global growth, however the IPO of Glencore International (the commodities trader) was subdued.

Sovereign debt is of great concern since interest payments can often place great demands on governments and individuals. Using a debt-to-GDP ratio is one of the most accepted measures of assessing a nation’s debt. In theory, one of the criteria for admission to the European Union’s Euro currency is that a country’s debt should not exceed 60% of that country’s GDP.

Here is some food for thought. Standard and Poor’s has released its estimates of debt-to-GDP ratios for the European majors and they are as follows:

Greece 143%, Ireland 96.2%, Portugal 93.0%, Germany 83.2%, and Spain 60%.

This is why the IMF and the EU finance ministers have serious difficulties in trying to reduce the sovereign debt of these nations without collapsing the global economy, and why the sovereign debt issues will be with us for some time to come.

Overnight in London the FTSE 100 index closed up 0.2% at 5,880, the German DAX was down -0.8% at 7,114, while in France the CAC was down -0.3% at 3,917.

Asian Markets

Asian markets have rebounded as the week progressed, with investors going “bargain hunting” for stocks that had been beaten down in the recent sustained sell-off. The Japanese market has been under pressure after GDP data confirmed that it is in a “technical” recession after the problems resulting from the March earthquake.

Chinese markets have also been soft with data continuing to point to slow growth and showing that a preliminary HSBC Purchasing Managers Index had slipped to a 10-month low, pointing to a slow-down in manufacturing. Resource stocks are starting to see a recovery across the region on the back of the recent rising commodities prices with gold above $US1,500 and crude oil holding above $US100 after Goldman Sachs and Morgan Stanley raised their 2011 and 2012 forecasts earlier in the week.

Overnight in China the SSE Composite was down -0.2% at 2,736, while in Hong Kong the Hang Seng Index closed up 0.7% at 232,900 and in Japan the Nikkei 225 Index was up 1.5% at 9,562. The South Korean KOSPI was up 2.7%, while the Indian market was up 1.1%.

Our View

The Australian share market has again had a strong rebound this week after early weakness. As the week progressed investors added risk to their portfolio positions and took advantage of the sustained sell-off in equities prices in the past few weeks.

The S&P/ASX 200 index is again testing resistance at its 200-day moving average and the recent recovery in commodities prices has added to support. The Aussie markets have set up for a potential month-end rally, but need to close above this month’s high before a sustained rally can be contemplated. Banks are now starting to look attractive on a dividend yield basis and the miners will have benefited from the recovery in commodities prices this week. The headwinds remain with a strong Aussie dollar and the proposed carbon and mining resource taxes simmering in the background.

The S&P/ASX 200 is currently trading at 4655 having found support around the 4,580 level this week. Key levels for the index next week will be 4750 to 4580.

Remember the old adage that “it is best to buy insurance when you can, not when you have too”. You can use options to protect your positions.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, May 13th, 2011

Commodity Volatility Creeps Into Equities

The markets have continued to be dragged down this week by the increasingly volatile commodities markets. Yesterday the Australian share market closed at a 7-week low after a slump in commodities prices, particularly oil and copper, weighed on the resources sector.

European investors have been plagued by the resurfacing concerns over the Greek debt crisis, which have added to the selling pressure.

The US stock markets are still trading around their multi-year highs, but the US dollar has been the big story of the past week, finding support at current levels and adding to the havoc in the commodities market.

Investors need to exercise caution near-term as discussed in last week’s Analyst’s Eye, Leading Indicators – Divergence.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 continued to sell-off this week as commodities pulled back sharply, led by silver. Mining and energy stocks have driven the indices lower with the strong Aussie dollar weighing on company profits and forecasts. Banks have also contributed to the weakness.

US Markets

Volatility is picking up as US stock markets have managed to hold around their multi-year highs. The market was buoyed by a larger-than-expected increase in monthly non-farm payrolls, with the employment report showing that the private sector has posted the strongest employment gain in 5years. We also had the anniversary of the “flash crash” and losses in commodities-related stocks have been offset by a rebound in defensive stocks. These are now finding some support, as they are seen to be independent of broader economic activity.

Overnight the Dow Jones closed up 0.5% at 12,696, the S&P 500 index closed up 0.5% at 1,349, the Nasdaq ended up 0.6% at 2,863, and the smaller cap Russell 2000 was up 0.8%.

European Markets

European markets are finishing lower for a second week following a broad sell-off in energy, commodities and financials, while concerns over the Greek debt crisis and ratings downgrade added to the selling pressure. Crude oil prices slumped further overnight after the International Energy Agency cut its global demand outlook. Investor sentiment was hit further after China announced it would raise its bank reserve requirement ratio, stoking concerns about slower economic growth in the world’s second largest economy.

The Euro has fallen sharply following last week’s report indicating Greece was considering bailing out of the euro zone. It has now plunged from above $1.49 last Thursday, its highest level since December 2009, to finish below $1.42.

Overnight in London the FTSE 100 index closed down -0.5% at 5,944, the German DAX was down -0.7% at 7,444, while in France the CAC was down -0.8% at 4,023.

Asian Markets

Asian markets are generally lower this week, led by China. Japanese stocks have suffered as the government demanded more nuclear power reactors shut down until safety concerns were addressed. The market fell sharply for its biggest 1-day fall in a month with economic data showing that the Japanese current account surplus in March shrank 34.3 percent year on year because of the impact of the devastating March 11 quake and tsunami.

China has been the focus and investors initially were buoyed when Chinese trade data showed the export sector was powering ahead, despite government efforts to cool overall growth. This sentiment did however turn around when the Chinese decided to lift the ratio of funds domestic banks must set aside as reserves for the fifth time this year, as the country continues to battle against inflation.

Yesterday in China the SSE Composite was down -1.4% at 2,844, while in Hong Kong the Hang Seng Index closed down -0.7% at 23,073 and in Japan the Nikkei 225 Index was down -1.5% at 9,716. The South Korean KOSPI gained 2.1%, while the Indian market was down -1.3%.

Our View

The S&P/ASX 200 index has again been sold off heavily in the past week, and is down 6% from its April peak. The market has been weighed down by the strong Aussie dollar, weakening economic data from the eurozone and the US and the sharp sell-off in commodities.

The S&P/ASX 200 is currently trading at 4690 having again found resistance at the 4,800. The focus near-term will continue to be on corporate earnings reports, the Aussie dollar and commodities prices, particularly copper, gold and crude-oil. Key levels for the index next week will be 4800 to 4600.

Investors who have taken the opportunity to buy protection through options to hedge their long positions near-term should be comfortable with the current pullback.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, April 8th, 2011

Markets Drift Higher

Markets drifted higher this week as investors held their nerve, and a number of global markets are now at key levels.

The international market drivers this week have been:

* Interest rates
* Geopolitical unrest in the Middle East and North Africa
* The simmering European sovereign debt concerns
* Continued work towards resolving the Japanese nuclear crisis

Commodity prices were again in focus this week with copper near 2-year highs, and the price of crude oil rising above the crucial $US110 a barrel for the first time in two and a half years, amid concerns about war in Libya and as the dollar weakens against the euro. Silver is at a 31-year peak and gold rose to an all-time high. The US dollar fell to a 14-month low against the euro ahead of the expected interest rate rise from the European Central Bank (ECB).

Investors will need to monitor their positions next week as markets trade at key levels. Be prepared to protect positions through options.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 are now trading near 12-month highs and are searching for some catalyst to push through these levels. Next week we expect to see a test of these critical levels as the markets attempt to push to new YTD highs.

This week the Australian RBA left rates on hold, as expected, while unemployment figures fell to 4.9% from 5% for the month. M&A activity has been in focus, with the ASX and Singapore exchanges’ “merger” being knocked back by the Foreign Investment Review Board, and with Equinox Minerals receiving an unsolicited $6.3 billion all-cash takeover offer from Minmetals Resources Ltd. Meanwhile Rio Tinto’s takeover bid for Riversdale has gone unconditional as their stake is nearing 50%.

Commodities prices will again be a focus next week as they are at record levels, and as the bid for Equinox shows there is still plenty of interest in Aussie resource stocks.

US Markets

US stock markets remain at key levels as the Dow Jones is holding above 12,400 after a positive start to the week. The Non-Farm Payrolls report came in better than expected showing US unemployment is now at its lowest level since March 2009 (the unemployment rate fell to 8.8% from 8.9%), while Institute for Supply Management (ISM) data showed manufacturing is in expansion mode.

Technology stocks have been volatile this week and need to be monitored next week. The Nasdaq has led on the way up, and if it starts to show weakness this may be a leading indicator.

Financials were strong this week as European financial stocks announced plans to raise fresh capital. These raisings are seen as positive for the sector as they will improve their capital position and are designed to lead to improvements similar to those seen in US banks, after they underwent massive capital boosts of their own in recent years.

News overnight of a 7.1 magnitude Japanese earthquake and tsunami warning prompted a 100 sell-off on the Dow Jones but the markets recovered to close down modestly. The Dow Jones finished over 12,400 and the S&P 500 finished above 1,330 for the session.

Crude oil reached $US110 per barrel as the Libyan crisis appears to be reaching a stalemate. If energy prices remain at these elevated levels then the global economic recovery will be in jeopardy. The reporting season starts next week and will give an insight into the impact of higher input prices resulting from higher commodities prices.

Overnight the Dow closed down -0.2% at 12,409, while in the broader market the S&P 500 index was down -0.2% at 1,333 and the tech-heavy Nasdaq ended down -0.1% at 2,796. Three stocks fell for every two that rose on the New York Stock Exchange.

European Markets

European markets have been trading flat this week. There have been a number of key drivers for the week including interest rates, bank stress tests and the Portuguese bailout.

Early in the week results of the bank stress tests did not throw up any major surprises, but as expected European banks will be doing another round of capital raising to boost their balance sheets. Markets reacted well to the much anticipated financial bailout request from Portugal. Bank stocks in Portugal managed to retain their gains after the debt-laden country said it will join Greece and Ireland in requesting international financial assistance. European banks with the most exposure to the PIIGS countries also gained.

Markets also accepted the news of the well-signaled rate hike from the ECB, which lifted its key interest rate to 1.25% from 1%. In the medium term rate hikes are generally seen as a positive indicator because of the economic strength they signal.

In London the market traded flat as the Bank of England said it would leave its key interest rate unchanged at 0.5% for another month.

Overnight the FTSE 100 index closed down -0.6% at 6,007, the German DAX was down -0.5% at 179, while in France the CAC was down -0.5% at 4,028.

Asian Markets

Asian markets generally ended higher this week, though trading volumes were down due to a number of markets being closed for public holidays. Aside from Japan, the big news in the region was China again using a public holiday to surprise markets when it announced it will raise interest rates for the fourth time in seven months.

In Hong Kong and China markets have traded higher, with the Shanghai Composite holding above 3,000. The Chinese central bank has raised its one-year lending rate by a quarter point to 6.31%. Many investment houses are now rating China as a “Buy”, with HSBC, Macquarie Group, Goldman Sachs Group and Deutsche Bank all issuing bullish forecasts. They see that the Chinese government is succeeding in controlling inflation without derailing growth in an economy forecast by the World Bank to expand 9% in 2011. Bloomberg data shows the Hang Seng China Enterprises Index price-earnings ratio is 19% below its five-year average after profits surged 32% last year.

News of the earthquake in northeastern Japan yesterday came after Asian markets had closed, so Asian investors will no doubt react as nerves are tested.

In China the SSE Composite closed up 0.2% at 3,008, while in Hong Kong the Hang Seng Index was flat at 24,282 and in Japan the Nikkei 225 Index was flat at 9,590.

Our View

The S&P/ASX 200 looks set to test key resistance levels next week. The index is currently trading at 4926, testing its key level. The focus near-term will be on US earnings reports, the Aussie dollar and commodities prices, particularly crude-oil. Key levels for the index next week will be 4850 to 5025.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, April 1st, 2011

Positive End to a Volatile Quarter

As we’ve noted in this week’s Analyst’s Eye, world markets have faced some substantial hurdles this quarter, but investors have continued to put the chaos to the side and focus instead on growth.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 are now trading above their 50-day moving averages and are moving into a key resistance level having found support off their 200-day moving averages last week. The indices have now recovered to pre-Japanese disaster levels. Next week we expect to see some consolidation, which would be healthy if the market is to push to new YTD highs.

US Markets

US stock markets rose again this week, as investors looked past the deepening European sovereign debt crisis and the geopolitical worries. Traders focused on the progress of the US economic recovery and corporate earnings front, rather than the worsening debt crisis in Portugal. The US markets are now back at the levels they were at before the Japanese earthquake and tsunami. Telecom stocks have been a focus, due to continued optimism about consolidation in the industry after AT&T bid for Deutsche Telekom T-Mobile USA, to create the country’s largest phone carrier. Energy stocks were also strong as oil again edged up towards $US106 a barrel.

US markets have closed off their best March quarter since 1999 and finished just below their peaks from the bull run in play since the turnaround from the GFC early in 2009. Gains were led by the energy, materials and industrial sectors, while the consumer-discretionary and financial sectors fell. Investors remain cautious ahead of the monthly payrolls report tonight, where we are expecting to see a March increase of 195,000 jobs, but the market has already factored in a good report.

US markets have outperformed for the quarter due to growing optimism that the US economic recovery is strengthening, despite overseas disasters and geopolitical turmoil in the Middle East and North Africa. For the first quarter of the year the Dow Jones is up 6.4%, while the S&P 500 ended up 5.4% and the tech-heavy Nasdaq is up 4.8%. Market performance has been volatile for the quarter having slipped into the negative early this month due to concerns over the earthquake and tsunami destruction in Japan, and the conflicts in the Middle East and North Africa briefly sent the markets down over 6%.

Overnight the Dow closed down -0.3% at 12,319, while in the broader market the S&P 500 index finished down -0.2% at 1,325 and the tech-heavy Nasdaq ended up 0.2% at 2,781.

European Markets

European markets continued to recover this week. Financials have weighed on the markets, initially as Portugal looked set to need a bailout, and then as Irish banks underwent stress tests, which resulted in four banks needing to raise EUR24 billion in order to meet new capital requirements. Germany continues to outperform in the region.

The German and UK markets have had a volatile quarter with the DAX and FTSE selling off -13% and -8.5% respectively, from their year-to-date peaks after the Japanese disaster. Both markets have since recovered strongly with the DAX up 5.8% and the FTSE 100 flat for the quarter.

Overnight in London the FTSE 100 closed down -0.2% at 5,908, the German DAX was down -0.2% at 7,041, while in France the CAC was down -0.9% at 3,989.

Asian Markets

Asian markets generally ended higher this week, though trading volumes were down due to caution ahead of the release of the key US Non-farm payroll report. Japanese stocks have recovered from early losses as the weaker yen and optimism about post-tsunami reconstruction boosted investor sentiment. The Chinese press reported that the Chinese March CPI will likely exceed 5%, and the central bank could raise interest rates around April or towards the middle of the year to help bring prices down. Material companies have been under pressure and banks were also weaker.

Asian markets avoided the volatility of other global markets, except for Japan, which was down 25% directly after their disaster. The Chinese market outperformed for the quarter, up 4%, while the Hong Kong market rose 2.1%, the South Korean market ended up 2.7%, and the Japanese market rebounded strongly from the lows of the quarter to end down -4.1%.

In China the SSE Composite closed down -0.9% at 2,928, while in Hong Kong the Hang Seng Index was up 0.3% at 23,527 and in Japan the Nikkei 225 Index was up 0.5% at 9,755.

Our View

The S&P/ASX 200 index looks set to consolidate recent gains near-term as we have now ruled off the quarter. We will see some reallocation of funds early in the week. Investors need to continue to monitor inflation news, the Japanese nuclear crisis and the geopolitical issues in the Middle East.

The S&P/ASX 200 is currently trading at 4865, having broken through its key level around 4800. The focus near-term will be on the US unemployment report, the Aussie dollar and commodities prices, particularly crude oil. Key levels for the index next week will be 4720 to 4930.

Investors can apply protection through options to hedge their long positions near-term.

By Michael Hevern
Head of Research

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Stock Market Analysis: Global Growth Trumps Global Chaos

Friday, March 25th, 2011

Globally stock markets have rebounded strongly this week as bargain hunters stepped into the stocks that had been sold-off heavily following the Japanese earthquake and tsunami. Many world markets are now back at pre-earthquake levels.

Chaos? What chaos? Investors have chosen to ignore the geopolitical unrest in the Middle East and North Africa, the Portuguese sovereign debt issues and the Japanese nuclear crisis, and have instead concentrated on the positive reports about global economic growth remaining intact. The troubles at the Fukushima Daiichi nuclear plant are yet to be resolved however, with fears of radiation contamination still front of mind for Japanese civilians. Across the region energy stocks jumped higher as crude oil futures climbed after the UN Security Council approved a no-fly zone over Libya and authorised “all necessary measures” to protect civilians in the nation.

Commodities continued their recovery and metal prices are back at record levels, as traders viewed the rebuilding in Japan as yet another factor that will push demand in the foreseeable future. April NYMEX crude oil futures remain above $US105 a barrel, due to the potential for disruptions to supplies, while the gold price is back at record levels and is trading around $US1,440.

Also providing positive momentum near-term is the impending end-of-quarter, which is encouraging fund managers to deploy capital in order to match/beat benchmark performances.

Australian Market

The ASX All Ordinaries and the S&P/ASX 200 are trading below their 50-day moving averages, having found support around their 200-day moving averages last week. The indices have recovered 50 percent of their falls from the February peak. The recent sell-off in the miners has provided trading opportunities in our resource stocks, while the financials have been trying to find support at current levels. Next week we have the end-of-quarter which should be positive for stocks.

US Markets

US markets bounced this week, led by energy, mining and technology stocks. Traders focused on the progress of the US economic recovery and corporate earnings, rather than the worsening debt crisis in Portugal or geopolitical unrest.

Overnight the Dow closed up 1.3% at 11,678, while in the broader market the S&P 500 index was up 1.3% at 1,274 and the tech-heavy Nasdaq ended up 0.7% at 2,642. The S&P 500 has broken above the 1,300 level.

European Markets

European markets have recovered, bouncing off their 200-day moving averages where they found support near-term. The key markets have now recovered 50 percent of their falls from the February peak. The main European news for the week has been the EU/IMF bailout that Portugal is likely to need near-term, having now voted down austerity plans. European Union leaders are convening overnight for a summit on tackling the debt crisis.

M&A activity in the Telcoms sector has also boosted sentiment in the region during the week, and mining and energy stocks have been the beneficiaries of rising commodities prices.

Overnight in London the FTSE 100 index closed up 1.5% at 5,796, the German DAX was up 1.9% at 6,933, while in France the CAC was up 1.4% at 3,968.

Asian Markets

Asian markets have recovered this week on news that the Japanese currency interventions were to be backed by the G-7, which helped to relieve investor worries over the Japanese economy. Investor optimism over progress in resolving the Japanese nuclear crisis also helped sentiment, with investors looking past the disaster and seeking companies that will participate in the country’s massive rebuild. Traders chose to ignore the heightened geopolitical concerns in the Middle East and North Africa, which have driven energy stocks higher as crude oil prices continue to rise. The South Korean market jumped higher, while Hong Kong and Chinese markets have traded relatively flat for the week.

Yesterday in China the SSE Composite closed down -0.1% at 3,087, while in Hong Kong the Hang Seng Index was up 0.4% at 22,915 and in Japan the Nikkei 225 Index was down -0.2% at 9,435.

Our View

The S&P/ASX 200 index looks set to hold on to gains as we trade into the end-of-quarter next week. Investors need to continue to monitor the Japanese nuclear crisis and the geopolitical issues in the Middle East.

The S&P/ASX 200 is currently trading at 4750, having broken through its key pivot level around 4700. The focus is now on the end-of-quarter and commodities prices. Key levels for the index next week will be 4650 to 4830.

Investors can to use protection through options to hedge their long positions near-term. The fear that global assets will need to be sold-off to repatriate funds to pay for the rebuilding in Japan has still yet to be realised.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, March 18th, 2011

Global Market Sell-off Presents Bargains For the Brave

Stock markets around the world have sold-off heavily again this week, following the Japanese market’s plummet to its biggest losses since October 2008, triggered by last Friday’s earthquake and subsequent tsunami. The selling was sparked by fears of a catastrophic meltdown at the Fukushima Daiichi nuclear plant, which was hit by explosions in a number of reactors causing damage to nuclear rod cooling systems.

Elsewhere, European sovereign debt remained a concern, while geopolitical unrest spread in the Middle East and North Africa with violence increasing in Libya. Market volatility has again spiked this week as investors became nervous over all the negative news. Key markets around the world have now broken below their 50-day moving average support, with some now looking for support at their 200-day moving average levels.

The broad losses came as nuclear suppliers and producer companies were dumped because of major global governments announcing reviews of their nuclear energy policies and construction projects, in light of the Japanese disaster. April NYMEX crude oil futures remain above $US101 a barrel due to the potential for disruptions to supplies. The gold price backed off record levels but is still trading above $US1,400.

Many markets are testing their 200-day moving averages and next week will again prove pivotal for near-term momentum. Commodities are recovering from their sell-off earlier in the week.

Australian Market

Trading in the Australian market again has been dominated by investor sentiment from overseas. Mining and energy stocks have been particularly volatile due to the Japanese nuclear crisis, and financials have also been trading lower. The ASX All Ordinaries and the S&P/ASX 200 are trading below their 200-day moving averages.

US Markets

US markets closed higher overnight for the first time this week, helped by positive economic news on jobs and manufacturing and by activity from bargain hunters.

Overnight the Dow closed up 1.3% at 11,678, while in the broader market the S&P 500 index was up 1.3% at 1,274 and the tech-heavy Nasdaq ended up 0.7% at 2,642. The S&P 500 held below key support at 1275. 1225 is the next target.

European Markets

European markets again traded lower for the week and many are testing their 200-day moving averages for support near-term. Overnight European markets rallied, breaking a 6-session losing streak. The miners and energy stocks led the gains as commodities prices recovered.

The German market, which has been leading the recovery since 2009, continued to hold well below the rising channel that has been in place since July 2010. This is an ominous sign near-term.

Investor focus will remain on the devastation in Japan, the unrest in the Middle East and the European sovereign debt issues, and investors will be in search of over-sold stocks which represent bargains.

Overnight in London the FTSE 100 index closed up 1.7% (or 98 points) at 5,696, the German DAX was up 2.2% (or 143 points) at 6,656, while in France the CAC was up 2.4% (or 89 points) at 3,786.

Asian Markets

Asian markets have traded lower this week due to the Japanese disasters, but bargain hunters continue to step into these markets as opportunities arise. The Japanese market has slumped over 11 percent, on fears of a nuclear reactor meltdown. The Nikkei index is trading at its lowest level in 4 months, having its sharpest percentage loss since December 2008 at the height of the GFC.

Yesterday in China the SSE Composite closed down -1.1% at 3,034, while in Hong Kong the Hang Seng Index was down -1.8% at 22,678 and in Japan the Nikkei 225 Index was down -1.4% at 8,963.

Our View

Unless the issues in Japan and the Middle East can be resolved the S&P/ASX 200 index looks set to remain weak, selling pressure is likely to continue, and crude oil prices could remain at these elevated levels with investors continuing to trim their exposure to risk assets near-term.

The S&P/ASX 200 is currently trading at 4590, having broken through its key support level around 4700, which will likely act as resistance near-term. The focus for next week will again be on the Japanese disaster, the unrest in the Middle East and North Africa, European debt concerns and locally the ongoing carbon tax debate. Key levels for the index next week will be 4500 to 4700.

Investors need to use protection through options to hedge their long positions near-term. Also the global sell-off has been sparked by the view that global assets will need to be sold in order to repatriate funds to pay for the rebuilding in Japan, however to date this is yet to be confirmed. This has caused huge volatility in the currency markets which will ultimately drive equities prices, so watch out for any news in relation to this.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, February 25th, 2011

Spike in Oil Price Drives Global Markets Lower

Globally stock markets have sold-off this week as geopolitical unrest spreads in the Middle East with violence increasing in Libya, a major oil-producing state. The broad losses came after April Nymex crude oil futures rose past $US100 a barrel for the first time in over 2 years, due to the potential of disruptions to supplies. Brent Crude rose to over $US120 a barrel. Overnight the crude oil futures price spiked above $US103 as the Libyan rebels that are controlling large areas within the country promised an offensive against the capital, Tripoli.

Investors are concerned that the rising crude prices will hurt consumer spending and ultimately slow down the global economic recovery, and that the turmoil could spread to other oil exporters in the region.

Australian Market

Trading in the Australian market has been dominated by investor sentiment from overseas. The earthquake in Christchurch has again put the spotlight back on the insurers. Stocks sensitive to higher oil prices weighed on the market, and even the local energy sector sold off. Small and mid cap resource stocks have seen profit-taking recently as oil is a major input cost for these mining operations. The federal government is revisiting the imposition of a carbon tax and this has added to the negative investor sentiment. Traders have used this week’s corporate earnings reports as an excuse to take profits, resulting in a number of “bull traps” being triggered, as discussed in the Analyst’s Eye this week.

The ASX All Ordinaries has backed off the 5000 level, while the S&P ASX 200 failed to reach the key psychological level of 5000.

US Markets

The US markets traded lower in a week shortened by the Presidents’ Day holiday. These markets have seen their biggest falls since last August. The three major markets are testing their 50 day moving averages where we would normally expect to see some short-term support. However, if oil prices remain at these elevated levels then this support is likely to give way near-term.

Overnight the Dow closed down -0.3% at 12,068, while in the broader market the S&P 500 index was down -0.1% at 1,306 and the tech-heavy Nasdaq ended up 0.6% at 2,738. The S&P 500 held below key support at 1324. The next target is 1275.

European Markets

European stock markets are backing off two and a half year highs, having sold-off sharply this week, due to the Middle East unrest, the oil price spike and concerns over the global economic recovery. The Stoxx Europe 600 index has fallen for a fifth straight session.

Libya is the first major oil exporter to be engulfed by the crisis and there are fears that the unrest will continue to spread in the Middle East, seriously impacting oil production in the medium term. Libya exports around 1.2 million barrels of oil a day – Saudi Arabia, on the other hand, exports 6.5 million barrels a day.

The 3 major European markets (U.K., France, and Germany) are testing their 50 day moving averages, where we would expect to see some short-term support, but again if oil prices remain at these elevated levels then this support is likely to give way near-term.

Overnight in London, the FTSE 100 index closed down -0.1% at 5,920, the German DAX was down -0.9% at 7,130, while in France the CAC was down -0.1% at 4,009.

Asian Markets

Asian markets have generally sold-off heavily this week, with the exception of China. The Japanese and Hong Kong markets have sold-off due to the geopolitical tensions in the Middle East and the rise in the price of oil, as well as Moody’s downgrade of Japan and China’s hike in interest rates. In Hong Kong the Financial Secretary reported the economy grew 6.8% in 2010, (exceeding forecasts of 6.5%) and expects the economy to grow 4%-5% in 2011.

In China the market has traded flat, despite the Chinese consumer confidence index falling in the fourth quarter to the lowest since 2009, indicating concern over inflation is weighing on sentiment and has been running above the government’s 4 percent target for the past four months, despite a number of recent interest rate rises.

Yesterday in China the SSE Composite closed up 0.6% at 2,878, while in Hong Kong the Hang Seng Index was down -1.3% at 23,906 and in Japan the Nikkei 225 Index was down -1.2% at 10,452.

Our View

Next week we should see the S&P ASX 200 index find support around 4800, its 50 day moving average, but selling pressure will likely resume if the oil price remains at these elevated levels and unrest in the Middle East is not resolved soon.

The focus for next week will again be on the unrest in the Middle East, Asian concerns over inflation, European debt concerns and locally the continuing earning reporting season. Key levels for next week will be 4880 to 4730.

Investors need to monitor the tensions in the Middle East and North Africa, with unrest in Libya and Bahrain and tensions between Iran and Israel over the Suez Canal. Be prepared to hedge your positions, as the current low options volatility provides investors with long term portfolios opportunity to hedge their positions cheaply.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap – February 18 2011

Friday, February 18th, 2011

The Australian Market Tracks Higher on a Robust Earnings Season

Global markets continued to trade higher this week following a positive start after the resignation of Egyptian President, Hosni Mubarak. Investors have chosen to ignore the tensions simmering in the Middle East and North Africa, and the crude oil price has held steady around $US86.

Trading in the Australian market has been dominated by the corporate earnings season, which has generally produced robust results. The ASX All Ordinaries held above the 5000 level, while the S&P ASX200 looks set to test 5000 in the near-term.

US Markets

The US markets continued their melt-up this week, with the Dow Jones and the S&P500 continuing to trade above the key threshold levels of 12000 and 1300. The S&P500 stock index has now doubled from its GFC low, with the market capitalisation of the S&P 500 now about $US12 trillion, compared to the $US6.9 trillion during the sell-off in early 2009. M&A activity has again been a key driver for the US markets.

Overnight, the Dow closed up 0.2% at 12,318, while in the broader market the S&P 500 index rose 0.3% to 1,340 and the tech-heavy Nasdaq ended up 0.2% at 2,832.

European Markets

European stock markets rose this week to a two-and-a-half year high, led by the financials. Investor sentiment was boosted by some solid earnings news as the French and German markets rose to levels unseen since 2008.

The Stoxx Europe 600 index has rallied nearly 6% in 2011 (YTD), rising 0.2% overnight and is up for a fifth straight session to its highest close since at least August 2008. The Bank of England (BoE) has forecast that the British economy will likely avoid a double-dip recession, despite suffering contraction in the final quarter of last year. The FTSE is up 3.2 percent for 2011 (YTD), and up 73 percent since March 2009. The French CAC is testing multi-year highs and in Germany the market has now doubled from its GFC low and is at 2-year highs.

Overnight in London the FTSE 100 index closed flat at 6,087, the German DAX was down -0.1% at 7,406, and in France the CAC was flat at 4,171.

Asian Markets

Asian markets have been trading higher this week. The Chinese and Hong Kong markets have bounced off key support levels following China’s release of January inflation data which rose less than expected. The consumer price index (CPI) rose 4.9% (vs expectations of 5.4%), while wholesale inflation rose at a faster-than-expected annual rate of 6.6%. The Japanese market has hit a 9-month high with some sector rotation from the high-flying tech stocks into exporters that have lagged in performance for the year-to-date.

Yesterday in China the SSE Composite closed down marginally -0.1% at 2,927, while in Hong Kong the Hang Seng Index was up 0.6% at 23,302 and in Japan the Nikkei 225 Index was up 0.3% at 10,837.

Australian Earnings Snapshot

Some general themes that have come from this week’s earnings report are:

* Resource companies are confident of the outlook for commodities as emerging markets continue to drive growth.
* Energy stocks will continue to benefit from the high crude oil prices.
* Airlines are seeing improvement in global aviation markets.
* Real estate trusts look to be turning the corner.

Among the upbeat results:

* BHP Billiton reported a 71.5 percent rise in 1H11 net profit.
* Qantas delivered stronger-than-expected 1H11 results.
* Santos, the oil and gas producer, reported a 15.2 percent increase in FY net profit.
* Westfield Group has returned to profitability with more than $1 billion in profit.
* Wesfarmers increased 1H11 profit by 33 percent.

On a negative note, we saw biotech disappoint and uranium producers struggle:

* Biota Holdings, the influenza vaccine developer, slumped 28% after reporting a 1H11 loss.
* CSL, the global blood products and vaccines maker, reported a 19 percent fall in 1H11 profit, and expects FY11 profit to decline.
* Paladin Energy has increased its 1H11 net loss by 55 percent.

Our View

Next week we should see the S&P ASX200 continue to track towards 5000, though we are due for some consolidation. Currently trading at 4925, it’s above its key weekly resistance level around 4860. The focus for next week will be on the unrest in the Middle East, Asian concerns over inflation, European debt concerns and, locally, the continuing earnings reporting season. Key levels for next week will be 5000 to 4800.

Investors need to monitor the tensions simmering in the Middle East and North Africa, with unrest in Libya and Bahrain, and tensions between Iran and Israel over the Suez Canal. Be prepared to hedge your positions, as the current low options volatility provides investors holding long term portfolios an opportunity to hedge their positions cheaply.

By Michael Hevern
Head of Research

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Stock Market Analysis: Weekly Market Wrap

Friday, December 17th, 2010

US Recovery and Eurozone Debt

Global share prices generally continued to drift higher this week, despite the re-emergence of jitters over the Eurozone debt contagion concerns. The Chinese market has been volatile in response to the release of its CPI data, but it looks set to break higher out of its 4-week trading range which would be positive for the Australian economy. Trading volumes are falling as traders and fund managers look to park their positions for the year. Gold and crude oil backed off record levels, while copper continued to outperform on fears that demand will continue to outpace supply into 2011.

The Aussie market was again driven by overseas news and managed to trade higher, as the year comes to a close. The Aussie dollar again reached parity against the US dollar.

US Markets

US markets have held on to gains this week, with early session enthusiasm being met by selling into the later session. The market reacted positively to confirmation of the extension of the Bush tax cuts this week, which will be a $US185 billion stimulus to the economy, according to Goldman Sachs economists. US economic data released this week continued to support the view that the recovery is still on track. The Federal Reserve met and said it would continue with its stimulus plan, while leaving the US interest rates alone as expected. The Fed also confirmed it would keep up its $US600 billion bond-buying program in an effort to pump-prime the jobless recovery, as unemployment remains persistently high at 9.8 percent. The VIX remains low so investors can get cheap protection for their positions, which has a stabilising effect on the market.

Overnight, the Dow closed up 0.4% (or 41 points) at 11,499, while in the broader market the S&P 500 index was up 0.6% (or 8 points) at 1,243 and the tech-heavy Nasdaq ended up 0.8% (or 20 points) at 2,637.

European Markets

European markets have edged higher this week, despite Eurozone debt concerns. The Stoxx Europe 600 index managed to close at its highest level in more than two years. The German market continues to outperform and is up 18 percent for 2010. The markets of the PIIGS economies have been volatile, with ratings agencies threatening to downgrade their debt/credit ratings because of the outlook for the regional banks and the debt refinancing due next year. Irish lawmakers finally voted to accept EUR67.5 billion in loans from the European Union and International Monetary Fund, as part of the EUR85 billion package to bail out Irish banks and public finances. In the euro-zone, German Chancellor Angela Merkel said European leaders will approve a permanent facility to rescue financially stressed governments, but again opposed a plan for collective government debt issuance.

Overnight in London the FTSE 100 index closed flat (or -1 point) at 5,881. The German DAX was up 0.1% (or 8 points) at 7,024, while in France the CAC was up 0.2% (or 8 points) at 3,909.

Asian Markets

Chinese and Hong Kong markets have been mixed as investors digested the Chinese government’s response to the CPI rising 5.1 per cent year-on-year in November. Last week the government preempted the data by raising bank capital reserve requirements, but comments yesterday that the government is targeting 4 percent inflation for next year – up a percentage point from this year’s target but still well below the actual inflation level – renewed concerns that an interest rate hike may also be required. The Chinese market has been volatile but looks set to break out of its 4-week trading range. Japan continued to trade around 7-month highs this week.

Yesterday in China the SSE Composite closed down -0.5% (or -13 points) at 2,898, while in Hong Kong the Hang Seng Index was down -1.3% (or -307 points) at 22,669 and in Japan the Nikkei 225 Index was flat at 10,311.

Commodities

Copper remained around record levels this week, due to continuing concerns that demand will outpace supply into 2011 driving prices higher. Gold remains below $US1,400 an ounce, while crude oil remained at the upper end of its trading range. Overnight the benchmark crude NYMEX for December delivery was down -0.9% (or $US-0.79) to settle at $US87.79. Copper prices backed off 2-year highs, with copper for December delivery down -0.4% (or -1.6 cents) at $US4.0965. Gold prices are off all-time highs again, with December gold down -1.1% at $US1,370.10.

ASX News

The Australian share market closed at a five-week high yesterday, as the market manages to drift higher into the end of the year. Investors are choosing to ignore the European sovereign debt jitters that have reemerged in the past week, while trading volumes are starting to fall off as traders look to park their positions for the year. Performances have been mixed this year as discussed in our Q4 Quarterly Review Part 1.

There have been a number of significant news items this week, including:
* the MRRT making headlines as miners have problems with the way royalties will be imposed
* the ACCC gave its approval for Singapore Exchange’s $8.4 billion bid for the Australian Stock Exchange, and the deal now faces the Foreign Investment Review Board
* banks have been facing the regulatory banking reform board, with little being resolved
* Origin Energy and TRUEnergy have combined to win the $5.3 billion deal for NSW’s power assets
* Santos is to sign a 20-year contract for the sale of its GLNG to Korea Gas Corp
* the Aussie dollar again traded above US dollar parity again

Our View

Markets have continued higher this week as anticipated, though momentum is expected to wane as traders look to park their positions for the year. Commodities prices are backing off record levels as traders start to take profits. Economic data released in the US this week continues to support the view that the global recovery is still on track, however the European sovereign debt contagion concerns are reemerging, with a number of PIIGS economies threatened with ratings downgrades.

The S&P ASX200 last closed at 4784, above the key weekly pivot level (4700) which has been in place since August. Momentum should start to back off next week, as trading volumes are expected to fall. Look for small and mid cap companies to outperform as we start to see window dressing moving into the year’s close. Use the Aussie dollar as a leading indicator for our market and be wary of the Chinese government’s position on interest rates near-term. Key levels for next week will be 4820 to 4700. Be prepared to hedge your positions, because due to the current low options volatility investors with long term portfolios can hedge their positions cheaply.

By Michael Hevern
Head of Research

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