James Gerrish - Morning Note

A strong night in overseas markets with traders piling into risk orientated (growth) assets after data showed an unexpected rise in US manufacturing and construction on top of another night of strong US company reports. We've been harping on about the clear move into risk assets for the past few weeks and the theme seems to be continuing. 

When you think about it, the market went into the US reporting season quietly optimistic and results have been well ahead of expectations. There has been some negative commentary about revenue growth however if we look at the trading action, investors are targeting growth sectors. You need only take a look at the Copper Chart or the Oil Chart to see the appetite for risk has intensified. This tells me, that although there is still a level of skepticism about the US recovery (largely due to unemployment concerns) and conviction in the market is a little patchy, there is strong support for the risk trade based on an improving economic outlook. 

China has been in question lately on concerns that their economy is slowing. Yes it is, but its exactly what they were trying to achieve and it now appears that Chinese Domestic Investors are showing confidence by buying back into the Equity Market. 

On the market last night, THE DOW JONES added +208 points or +1.99% to 10674. The FTSE 100 rose +139 points or +2.65% to 5397. Locally, SPI FUTURES are matching +64 points higher. 

The Institute of Supply Management (ISM) manufacturing gauge dropped from 56.2 to 55.5 for July but came in above market expectations. Construction spending actually rose 0.1% in June against a forcasted drop on 0.5%. Health Care provider Humana Inc, HSBC & BNP Paribas all beat market expectations.