(FRIDAY 1ST JULY - 08.28 - JAMES GERRISH)...Stocks were bid up aggressively again overnight after the Greek Parliament passed the individual reform measures that will pave the way for the first $12 billion in aid that was needed in the next 2 weeks. So for now, its pretty safe to say Greece has avoided default which the market took as a positive.
The DOW JONES added +152pts while the S&P 500 rose +1.01%. This followed a great day on our market yesterday where we saw stocks open higher, then accelerate throughout the session closing on their highs (up 78.5 pts). We haven't seen this in a while as sellers were dominated by optimism + some short covering.
Some of the guys in the office had a bet yesterday morning about the closing level of the index for the afternoon. It shows a lot of mixed opinion but ultimately, the most bullish call won on the day. ( Jas, 4501, Pekkers 4542, Walshy 4590, Hoges 4517, Gabes 4540, Jimmy 4568, GG 4559, Boothy 4563, Jon 4598) - obviously Jon took the cash with a close on the index of 4608. I was in there at 4568.
SPI FUTURES this morning are pricing a rise of 19pts
A lot of the charts we looked at yesterday where timely and highlighted the move back towards risk assets. That theme continued overnight and it was amplified by a better than expected economic data in the form of Chicago PMI (manufacturing still expanding in May + better than expected) while jobless claims were pretty much unchanged.
We've spoken a lot about data missing expectations lately and this has caused concern about a slow down in the US economy. I've been pushing the proverbial up the hill by suggesting that its likely to be a short term scenario rather than something more sinister + expectations will come back and ultimately we'll get a scenario where data starts to meet those expectations... then tops them. This is shown by the Citigroup Economic Surprise Index which measures data against expectations - its clearly bottoming which is a real positive for the market.
With Greece becoming less of an issue, the market will focus back on the US Debt ceiling so expect a lot of commentary about the perils of a US default. Ultimately, they'll raise the ceiling, which they've done 60+ times in history and that too will drift away from the headlines.
So from a markets perspective, I think we've seen the bottom for the next few months at least. We'll probably continue to be choppy so we're advocating buying weakness and selling into strength. This would be combined with adding selective yield stocks so income levels remain high as the market remains volatile.
The EOFY has made things a little hectic so the model portfolio's have not been updated. This will occur today. (although all existing clients have been updated on any relevant changes as they have occurred)
THE YEAR IN REVIEW.....
Its been an interesting year to say the least with the rise of the Aussie Dollar being a major factor in the performance of our equity market.
Some stats that you might find interesting....
12 Month Performance of Major Markets
- S&P/ASX 200 up 7.1% for the year
- S&P 500 (US) up 26% for the year
- DOW Jones (US) up 25% for the year
- FTSE 100 (UK) up 19% for the year
As we said, the AUD was a major headwind for our market rallying +27% against the USD for the 12 months. Political sabotage was also a key reason sighted for our underperformance and this is supported by current opinion polls with the Gillard Govt making K Rudds popularity just before he was ousted look good.
Incidentally, the Aussie Dollar has risen 18% against the pound making it a lot cheaper to go and visit the Queen!
COMMODITIES
- Copper has risen +43%
- Gold has risen +21%
- Oil has risen + 25%
- Iron Ore has risen +23%
Continued demand from China underpinning this.
SECTORS
This has filtered through to the Material index which is up +17.5% on the year and is the best performing sector on the Aussie Bourse.
- Industrials +11.2%
- Utilities +8.1%
- Energy +7%
- Consumer Staples +6.8%
- Health Care +5.4%
- Financials +3.5%
- Consumer Discretionary -4.8%
- Telcos -9.5%
- IT -11.6%
The S&P/ASX 200 hit a high of 4971 in April and this corresponded with BHP trading just 19c shy of $50. Its hit $50 once before but only briefly. April through June has been the worst three month stretch and historically, June is the second worst month for equities. July on the other hand is one of the best!
BROKER TARGETS FOR THE S&P/ASX 200 - DEC 2011
RBS - 5500
Morgan Stanley - 5350
UBS - 5200
Goldman Sachs - 5125
Deutsche Bank - 5100
Credit Suisse - 5000
JP Morgan - 5000
Citigroup - 4900
Merrill Lynch - 4700
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.24 to US$18.08, equivalent to A$16.88, A$0.24 above its last close on the ASX.
ResMed rose by US$0.31 to US$30.95, equivalent to A$2.89, A$0.02 above its last close on the ASX.
In London, Rio Tinto rose 78.5 pence to £44.91, A$1.18 higher in Australian currency terms.
BHP-Billiton rose 46.3 pence to £24.51, A$0.69 higher in Australian currency terms.
Henderson Group Plc rose 1.6 pence to £1.53, A$0.02 higher in Australian currency terms.
US ECONOMIC ACTION
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: 54.0, Prior: 56.6)
Jul-01 - Michigan Sentiment - Final (For: Jun , F/Cast: 71.8, Prior: 71.8)
Jul-01 - ISM Index (For: Jun , F/Cast: 51.1, Prior: 53.5)
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 )
