MONDAY 27TH JUNE - 08.38 - JAMES GERRISH)..US stocks ended the week lower Friday with the DOW JONES down 115pts and the S&P 500 off -1.2%. The ASX 200 closed Friday higher (+7pts) and was up +0.3% on the week. The AUSSIE DOLLAR finished down for the week dipping below 105c to settle at 104.93c. Oil was the big story with the International Energy Agency (IEA) announcing the release of 60 million barrels of oil from the strategic reserves of several member nations - which had an immediate impact on the Oil market. Crude futures on the New York Mercantile Exchange fell by 4.6% to $91.02. The decision caught the market by surprise and was further amplified by the downward revision of economic growth expectations in the US.
To put a bit of context around the move, they actually released 60 million barrels of Oil which is less than 1 days global demand. They sighted instability in production out of Libya which has cost about 1.3 million barrels a day - but if you extrapolate that out over the month of May alone, that's 132 million barrels. So the amount they released was pretty minimal. This is important because it gives us a flavour about the markets view on growth (Oil price linked to markets expectations of economic expansion). You'd have to conclude that traders were quite concerned about the growth expectations that were revised down by Benanke last week and sold into the Oil market as a result. Bare in mind, that a lower Oil price will be a positive for our medium term prospects + the spike in Oil price was actually one of the reasons that prompted the downward revision in growth expectations, but at this stage, it seems Oil wants to go lower.
On the local market the energy sector was rocked last week with Woodside (WPL) announcing a material cost and time blowout from its Pluto LNG project. This filtered through to the other players in the sector with all having some large scale expansion projects underway. There is a real concern that a trend in cost and time blowouts are the new norm so it makes it difficult to value companies that are undergoing large scale projects. From my perspective, I think this has pretty much been priced into a lot of the larger players (STO, OSH, WPL) and we're approaching some key levels in the stocks mentioned above. If we look at the Local Energy Sector v Price of Oil, the relative under performance becomes clear. I'd be a buyer into the weakness rather than a seller in the panic!
This week will be a big one for markets and Greece will certainly remain centre stage. Last week we saw some positive news flow on the Greek debt front with the Government surviving a parliamentary confidence vote, the EU and IMF endorsing Greek austerity plans and EU leaders pledging to head off a Greek default. Its not over yet though with several hurdles to clear before Greece gets a new bailout package.
1. On the 28th June Greek Parliament needs to approve the latest austerity package in order to receive new loans, in a vote scheduled for June 28
2. On July 3rd an emergency Eurogroup meeting is scheduled to finalise a second bailout package.
THE US DOLLAR - BULLISH!
We're getting a bullish move in the USD at the moment and this doesn't bode well for our market. In recent times, the USD has had an inverse correlation with the ASX 200 as the chart below shows.
For the bullish move in the USD to be confirmed, we'd need to see a break up above the recent swing high so we;re not there yet.
COMMODITIES
Metals prices were mixed by the end Friday. Copper prices advanced in the wake of the better than expected May durable goods orders data from the US. Last week also saw copper stockpiles tracked by the Shanghai Futures Exchange fall to a 22-month low, setting them up for a third successive intermonth decline.
This has prompted some resilience in the Copper market and although it's looked toppy for some time now, it continues to be bid.
However, gold prices were lower, putting on its largest two-day drop in seven weeks.
AUSTRALIAN DUAL LISTED STOCKS
In New York, News Corp rose by US$0.10 to US$17.27, equivalent to A$16.46, A$0.09 above its last close on the ASX.
ResMed fell by US$0.29 to US$30.05, equivalent to A$2.86, A$0.04 below its last close on the ASX.
In London, Rio Tinto rose 91.0 pence to £42.48, A$1.38 higher in Australian currency terms.
BHP-Billiton rose 56.5 pence to £23.01, A$0.86 higher in Australian currency terms.
Henderson Group Plc rose 0.5 pence to £1.45, A$0.01 higher in Australian currency terms.
