(THURSDAY 23RD JUNE - 08.06 - JAMES GERRISH)...US stocks fell overnight giving back 3/4 of the gains made the previous session after Fed Treasurer Ben Benanke kept interest rates on hold in the US, reaffirmed the wind back of QE2 by the end of this month and lowered the growth outlook for good measure... Suggesting that the 'US recovery is continuing at a moderate pace, though somewhat slower than the committee had expected'.
Nothing that was really unexpected given the impact of temporary events such as the Japanese Earthquake (major impact on US manufacturing), spike in energy costs due to the Middle East tensions (expected to take 0.5% off global growth)+ bad weather globally. I think the aspect that got markets a little jittery was comments after the press conference where he suggested that he was unsure the actual impact of temporary events compared to structural weakness.
I guess you've just got to look at the data as its available and take a view from that. At the end of 2010 US GDP was sitting at 3.5%. Q1 this year, GDP dropped to 2.7% and unemployment was staying stubbornly high at 9%. Because Benanke was unsure about the impact of temporary v structural weakness, they lowered growth expectations from 3.1 to 3.3% to 2.7-2.9% for 2011 with 2012 growth expected to be between 3.3 to 3.7% (previous 3.5-4.2%) . This was coupled with an upward revision on unemployment with 2011 expectations of 8.6 - 8.9%.
Although the numbers seem negative, a couple of aspects give me some confidence about the sustainability of the US recovery. From what I can gather, the impact of the Japanese Earthquake had been a bigger impact than most thought particularly on the US auto industry. We saw the Japanese PMI snap back in June after taking a hit in May. Shane Oliver from AMP reckons that US auto production is scheduled to rise 19% next quarter to make up for lost production. This could ad 1% to the annualised pace of US GDP.
Retail sales have been another strong point in the US having grown 8-10% in the first half of this year despite falling home prices and the higher costs of Petrol + increased savings rates.
We've got US corporates maintaining profits and although growth is expected to soften here, it seems that policy will remain loose and liquidity high for some time yet making business conditions accommodative.
Anyway, the upshot here is that conditions in the US may not be as bad as the headline numbers and some commentators would have you believe. As I mentioned to a client yesterday, my main role is positioning portfolio's for medium to longer term growth (+income) and for this to be successful, its wise to look through the shorter term noise and information overload in the market to make decisions not for tomorrow, but for next year and beyond.
Because of this we've started to pick up some select stocks to ad to portfolio's such as QBE and Vocus Communications. Bradken (BKN) remains a preferred pick for growth while there are certainly some compelling income plays emerging.
In the next week or so, we'll be launching a new model portfolio named Pension Performers. This model portfolio will allocate $500,00 to securities we believe will give a great return for investors managing a Self Managed Super Fund currently in Pension Faze. Stay tuned!.
On the market last night, Equities were sold down with the DOW JONES off 80pts and the S&P 500 down -0.65%. however commodities were actually in for some modest buying. The CRB index finished marginally higher on the session
AUSTRALIAN DUAL LISTED STOCKS
In New York, News Corp rose by US$0.04 to US$17.32, equivalent to A$16.38, A$0.07 above its last close on the ASX.
ResMed fell by US$1.18 to US$30.70, equivalent to A$2.90, A$0.07 below its last close on the ASX.
In London, Rio Tinto rose 44.0 pence to £42.62, A$0.67 higher in Australian currency terms.
BHP-Billiton rose 2.5 pence to £23.18, A$0.04 higher in Australian currency terms.
Henderson Group Plc rose 2.7 pence to £1.45, A$0.04 higher in Australian currency terms.
