Morning Note - US equities continue higher - stay with the trend!

by James Gerrish 17 February 2011

** 17/02/11  - 9.01am  -  by James Gerrish** 

  • The local market continued to consolidate yesterday with the index down -1 point which followed a drop of -5 points the previous session. This is pretty normal with the market taking a breather before heading towards 5000 in my book. 
  • We've seen the last few days the market has been down more intra session but rallies towards the death - this is positive. 
  • We're really seeing a mix of results during the reporting season with no clear trend other than the real obvious - Banks impressive and growing margins while resources benefiting from high commodity prices and strong output. 
  • There was actually a report out yesterday from Moody's claiming the Australian banks had been put on credit watch. Supposedly due to their reliance on overseas funding. Not sure what to make of this as if the credit agencies downgrade, then overseas funding costs will become an issue so its a self for filling event. I'll try and dig some more info out about this. 
  • BHP released results yesterday and came pretty much in line with expectations however it does really prompt the questions - why buy BHP now? Whats going to push it to $55? 
  • In the short term, it think its going to be pretty subdued. Those holding BHP will be happy to hold for the $55-$60 target which nearly all brokers have on the stock - but I don’t think there was enough in the result to prompt new interest at this stage.
  • A report by Goldman Sachs overnight is calling for the Aussie market to hit 5200 in the near term - this will be driven by offshore moves with the DOW continuing higher. They then predict a sideways pattern (between 5200 and 4900) for the next 4-5 months followed by a late and very aggressive rally in the last 4 month of the year (and well into 2011). 
  • They see the main catalyst is continued growth out of the US with forecasts for 4% real GDP growth for most of 2011. - This is well and truly above trend and a major uptick on what we've seen in the last few years. 
  • This is being driven by stimulus but that’s likely to stay in place for the foreseeable future given the low inflation levels in the States. 
  • The bears are saying that Governments can't do what the US has done and get away with it. That might be the case down the track but the market (and the economy)  is doing a pretty good job of pushing that aside at the moment. 
  • Whilst the US economic data is improving, investors will stay long US equities, move out of US Treasuries and allocate more funds to growth assets such as commodities. We should do the same!
  • Last week US equity mutual funds recorded their biggest one week inflow since April 2003 - which is very bullish indeed. 
  • Last night, the DOW JONES continued higher adding +61 points or +0.5% to close at 12288. 
 
  • In New York, News Corp rose by US$0.21 to US$18.32, equivalent to A$18.27, A$0.19 above its last close on the ASX
  • ResMed rose by US$0.40 to US$32.75, equivalent to A$3.27, the same as its last close on the ASX.
  • In London, Rio Tinto fell 24.0 pence to £45.26, A$0.38 lower in Australian currency terms.
  • BHP-Billiton fell 36.0 pence to £24.64, A$0.58 lower in Australian currency terms.
  • Henderson Group Plc rose 0.7 pence to £1.65, A$0.01 higher in Australian currency terms
  • Locally, SPI FUTURES are pricing a rise of +11 points when trading kicks off this morning. 

Disclaimer

James Gerrish is an Authorised Representative (Rep No. 352904) of Shaw Stockbroking Limited ("Shaw Stockbroking"). Shaw Stockbroking is a holder of Australian Financial Services Licence No 236048. Shaw Stockbroking, its directors, officers, associates and employees each declare that they, from time to time, may hold interests in financial products and/or earn brokerage, commission, fees or other benefits from financial products mentioned in this e-mail or attached documents. Unless specifically stated within this page or an attached document, any information communicated by this e-mail constitutes unsolicited general financial product advice which has been compiled without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you need to consider the appropriateness of this information having regard to your individual objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance or relate to a future matter.
 

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