(WEDNESDAY 29TH JUNE - 07.58 - JAMES GERRISH)...The US market closed higher overnight with the DOW JONES up +145pts & the S&P 500 adding +1.2%. It was the second consecutive night of strong buying with risk assets firmly in focus. Commodities joined in the banter last night with Crude up +2.5%, Copper up +1% - pushing the Commodity Index back up above the 200 day moving average (key longer term trend indicator).
The move last night came on optimism that Greece would pass the austerity measures being voted on tonight. It was interesting to see buying ahead of the vote and I guess comments like the ones made by the Greek Central Bank Governor that "for parliament to vote against this package would be a crime - the country would be voting for its suicide." tends to get the bulls fired up. The Deputy PM also joined in the rhetoric suggesting that if Greece doesn't get the next tranche of the first aid package, then Greece would have to revert back to the drachma. This would then spark a massive capital outflow - as Greek citizens seek to lock in their euro-denominated savings - and bank runs. The Greek financial system would collapse, alongside the Greek economy.
So although its obvious that there is massive downside risks if Greek defaults I don't think that's a likely scenario. Even if the vote doesn't get the nod, there is likely to be bridging loans provided by the EU/IMF to give Greece the $12 billion they need to make short term payments. This obviously wouldn't be ideal but such a safety net should give the market some confidence that we won;t see a GFC style 400 pts downside move in the DOW. Stranger things have happened but I think the market now has this view.
The Euro was higher last night amid speculation that the ECB is looking to raise rates to curb inflation. It was also interesting to see US Treasuries sold off driving the yield on the 10 year up 12bps to 3.03% - thats a pretty big move in that market and shows an obvious shift from safe haven plays back into risk - selling of bonds to buy equities.
OUR MARKET TODAY....
We had a similar scenario on our market yesterday where the US was up strongly and we ended just +12pts higher - however the move last night was more heavily focused in the commodity space while the Aussie Dollar was also bid strongly - something that did't happen the night before - We're likely to see strong buying early with the FUTURES market up +52 pts however I'll stick my neck out and say I think this will be sustained during the session - the shackles will be flung off today and will move firmly higher!
We spoke yesterday about the banks which I think are offering some pretty compelling reasons to buy them. Valuations + yield and I think the only reason they'll get crunched further is if we see the property market tumble - which I think is unlikely based on demand clearly still outstripping supply - CBA the main one we've been picking up recently mainly because they pay a FF divi in August. QBE is another one thats been added to portfolios + we've been conscious to ad some smaller cap growth mainly outside the resource sector.
From Charlie Aiken this morning....(Who did pick the recent weakness)....The ASX 200 is trading at a forward multiple of 11.9x which represents a 2 P/E discount to the 10 year average, and up to 4 P/E points below what that market would trade on at the peak of a bull market. The small ords is trading on just 9.3x FY12 after a massive wave of tax loss selling.....
He's now turned bullish the market....
And from Goldmans Coppo report..... "I have no doubt that in 12mths we'll look back at this time as one of the very few great investment opportunities of the last decade. But right now, we just have to meander through the next 2 months first, where the ASX 200 could quite easily drop another 200 points back to 4300 on adverse global events. At 4300 I'd be a straight out buyer - that would be just too cheap to ignore...
So Coppo is bullish longer term but a little cautious short term...
The main take out here is the importance of determining your time frame for investment and averaging into the market. Pick up some positions (or portions thereof now) but retain some cash if we do get an external shock that sends the index down to 4300 or even 4200 - its always a possibility.
DIVIDENDS TODAY
RBV, SPN, TRY
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.17 to US$17.61, equivalent to A$16.71, A$0.10 above its last close on the ASX. ResMed rose by US$0.21 to US$30.16, equivalent to A$2.86, A$0.02 above its last close on the ASX. In London, Rio Tinto rose 69.5 pence to £43.38, A$1.05 higher in Australian currency terms. BHP-Billiton rose 37.91 pence to £23.51, A$0.58 higher in Australian currency terms. Henderson Group Plc rose 0.6 pence to £1.46, A$0.01 higher in Australian currency terms.
US ECONOMIC ACTION
Jun-29 - MBA Mortgage Index (For: Jun-25, F/Cast: NA , Prior: -5.9%)
Jun-29 - Pending Home Sales (For: May , F/Cast: -0.6%, Prior: -11.6%)
Jun-29 - Crude Inventories (For: Jun-25, F/Cast: NA , Prior: -1.711M )
Jun-30 - Initial Claims (For: Jun-25, F/Cast: 420K , Prior: 429K )
Jun-30 - Continuing Claims (For: Jun-25, F/Cast: 3700K , Prior: 3697K )
Jun-30 - Chicago PMI (For: Jun , F/Cast: 5400.0%, Prior: 5660.0%)
Jul-01 - Michigan Sentiment - Final (For: Jun , F/Cast: 7180.0%, Prior: 7180.0%)
Jul-01 - ISM Index (For: Jun , F/Cast: 5110.0%, Prior: 5350.0%)
Jul-01 - Construction Spending (For: May , F/Cast: 0.0%, Prior: 0.4%)
Jul-01 - Auto Sales (For: Jun , F/Cast: NA , Prior: 3.95M )
Jul-01 - Truck Sales (For: Jun , F/Cast: NA , Prior: 5.14M )
