Morning Note - Aggressive selling takes hold

by James Gerrish 11 March 2011

** 11/03/11  - 8.15am  -  by James Gerrish** 

  • A host of negative news came out yesterday which prompted some aggressive selling in the Australian Market
  • This was backed up overnight by another significant loss in the States with the DOW JONES down -228 or 1.87% to close at 11984. 
  • Yesterday, the S&P/ASX 200 lost -68 points or -1.43% to close below support at 4699. 
 
  • CHINA: The main news yesterday was China posting its largest trade deficit in seven years courtesy of lower export activity which gives some ammunition to the bears to suggest that China is slowing.
  •  The number was skewed due to the Lunar New Year however there was aspects (such as lower Iron Ore Imports) that was a bit of a concern – One reason we saw the Iron Ore plays dumped (MGX-5.5%, FMG -5.48%, AGO, -5.92%) 
  • You can't possibly  assume that China is slowing based on one data print and speaking to a couple of colleagues who were there last week, it seems there are no physical signs of any slowdown. 
 
  • JAPAN: GDP shrank at a higher pace than expected (-1.3% annualized) which is higher than the -1.1% reported last month and above forecasts for a -1.2% contraction.
 
  • NTH KOREA - THAILAND - VIETNAM - all increased interest rates this week to reign in inflationary pressures. The moves were widely expected so the impact on the market would have been minor however it does ad to the negative sentiment towards Asian economies at the moment.
  
  • AUSTRALIA -10,000 jobs were lost last month against expectations for a +20,000 gain. The loss came after 57,000 part time jobs were cut while 47,000 full time positions were created - the unemployment rate held at 5%. 
  • This may give another reason for the RBA to sit on its hands for a longer period of time particularly when we're getting some negative commentary/stats out about the housing market, particularly in QLD. 
 
  • LIBYA: - Tensions have escalated in Libya with Gaddafi's son saying that Government forces are mounting a full scale attack and Western Countries will lose if they support the uprising. 
  • For up to date news in Libya click here  Anjahttp://english.aljazeera.net/watch_now/
 
  • US:Data overnight showed that the US consumer comfort dropped (impacted by the Oil price) and the budget deficit increased to what is now predicted to be $1.5 trillion for the year.
 
 
  • So there we have it - all the negative news combined and investors pulled the trigger and sold down stocks across the board.
  • We've been discussing the improving global economy for some time now and this has underpinned our positive outlook on stocks.
  • This view hasn't changed with the data that has been released recently so we mustn't get too caught up in the short term panic in markets.
 
  • The main question that gets asked from clients (and it’s a very relevant one) is whether this is a short term correction or something more sinister? 
  • My view is that it is a correction and it will prove to be another example of the market getting too pessimistic on the down side, just as we get overly optimistic on the long side. That’s the theme of greed and fear which ultimately drive the markets.
 
  • Looking at what other commentators are saying, Charlie Aiken from Southern Cross is still incredibly bullish but suggests that Australia is caught in the global capital flow cross currents - basically that money is flowing out of emerging markets growth back to developed economies and we’re getting caught up in it.
  • Marcus Padley suggest it’s not a time to be selling the market while basically calling Charlie Aiken's interpretation a load of xxxx. 
  • Over at Goldman Sachs, they remain upbeat about the market which is also the case at UBS - the large investment banks continue to sight PE's trading at discounts to historical averages on the back of significantly earnings improvements.
 
  • All in all, I think this has more signs of panic selling rather than the start of sustained sell off - time will tell on this so it’s prudent to reduce some risk from portfolio's however I would not be suggesting liquidation across the board. 
  • Looking at the charts, the local market has obviously broken below key support the last two days and looks weak - further to this, the selling yesterday continued throughout the session and we closed on the lows - certainly a negative. 
  • In the US overnight however, although the market was sold aggressively the majority of damage was done before 11am then the market flat lined for the rest of the day - a slight positive on an otherwise disappointing day. 
 
  • On the market this morning, SPI FUTURES are pricing in a drop of -34 points. 
  • Stocks trading overseas
    •  
    • In New York, News Corp fell by US$0.37 to US$17.74, equivalent to A$17.75, A$0.10 above its last close on the ASX.
    • ResMed fell by US$0.48 to US$30.96, equivalent to A$3.10, the same as its last close on the ASX.
    • In London, Rio Tinto fell 156.5 pence to £39.32, A$2.51 lower in Australian currency terms.
    • BHP-Billiton fell 83.0 pence to £23.00, A$1.33 lower in Australian currency terms.
    • Henderson Group Plc fell 2.3 pence to £1.62, A$0.04 lower in Australian currency terms
James Gerrish 
(02) 9375 0117

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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