Morning Note - Market trades on Japanese news flow

by James Gerrish 15 March 2011

** 15/03/11  - 9.04am  -  by James Gerrish** 

  • The US market fell overnight with the DOW JONES down -51 points or -0.42% to 11993 - this was off the session lows with the DOW down -130 points at one point. 
  • The market continues to hold support in the US and as shown by the chart above, however it does look vulnerable. 
  • To me it seems like that there is Fed support in the market at the moment and this could be propping up equities in the US + could be a reason to explain the disparity between the US and the Aussie Market. 
 
  • There is no doubt the market hates uncertainty and although the Japanese situation is terrible, the impact of a natural disaster is somewhat known. I'll premise this with the added complexity associated with the Nuclear threat however there will be a rebuild, there will be added stimulus to the Japanese economy and this will filter through to increased economic activity. 
  • So what we'll probably see is some short term weakness in Japan over the next few weeks, but in 6-12 months time the Japanese market will most likely be higher - this is also true with our market! 
  • Remember that the Japanese economy was destroyed at the close of WW2 - they rebuilt to become to become the world’s second largest economy. 
 
  • The Australian Market was surprisingly positive yesterday with the Index down more than 80 points in early trade. 
  • I think we were pricing in the worst possible scenario ahead of the Japanese Market open and when this didn't happen there was a relief rally - the S&P/ASX 200 finished down just 18 points yesterday.
 
  • Uranium stocks were worst hit on concern that this event may prompt a review of nuclear power generation with both India and China planning massive investments here.
  • India has announced a review of their programs while I believe China has said that it will continue as previously outlined. 
 
  • The Middle East is a situation that is evolving and could change on a heart beat - It is providing a significant level of uncertainty at the moment which keeps investors on edge so we're likely to see this volatility in the market continue until some type of resolution is determined there.
  • There has been some further concern about the actual Oil reserves that OPEC has. The market is a little sceptical about the excess capacity figure of 5.2 million barrels per day that I wrote about last week. 
 
  • According to Goldman Sachs, they reckon that OPEC spare capacity is more like 2mb/d and could fall to near 1 mb/d if Libya comes off line completely. 
  • To put this into context, when Oil spiked to $148, OPEC spare capacity was sitting at 1.4mb/d. 
 
  • The earthquake in Japan which knocked out a number of refineries (and reduced demand for Crude) may give us a better level to top up on Oil + Oil based stocks. 
  • Woodside should benefit from both factors outlined above - Any backlash against Nuclear power will benefit other options such and LNG - which WPL has masses of + the issues in Libya as well as Global Growth is likely to support the Oil price - Woodside (WPL) BUY
 
  • On the market this morning, SPI FUTURES are pricing in a drop of -5 points. 
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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