(TUESDAY 5TH JULY - 08.22 - JAMES GERRISH)...We've had a pretty positive start to the new financial year with the US markets up strongly on Friday prompting some buying on our market yesterday. Yesterday, the S&P/ASX 200 put on +20 pts after being up as much as +47pts in early trade. Volume with light with $3.9 billion changing hands. There were a couple of key events that kept buyers a little weary (after a strong open).
1. Retail sales data was soft and well below expectations.
2. Building Approvals for May showed a drop of -7.9% mom, down -14.9% yoy - this was well below consensus.
Although the RBA were going to sit on their hands anyway when they met today, it gives them a bit more data to justify no rate hike. It was interesting to see ANZ come out yesterday with the call that we won't see a rate hike before December. As we said last week, the bond market is actually pricing in a cut as the next move at this stage. Mining boom in the West and East Coast Recession as some are calling it, makes it a difficult landscape for the RBA to operate in - We continue with the view that they'll hold for longer than most anticipate - at least for the rest of the year.
Yesterdays Intra Day Action....
Late in afternoon trade yesterday we saw our market take a hit after a report from Standard and Poors (rating agency) which cast new doubt on a potential Greek Default. The term 'Selective Default' was thrown around and it got people a little jittery. I think more for the fact that no one really knew what a selective default meant. (For your info it means that plans for a rollover of some privately held Greek debt would be treated as a default - basically an orderly default would occur even with the bailout package that has been approved)
Anyway, it seemed Australian investors were the only ones to really care about the news with European markets brushing it off last night - the FTSE 100 up +0.5%. US MARKETS WERE CLOSED OVERNIGHT for Independence Day. The local FUTURES market put on +18Pts indicating another positive open this morning. DOW FUTURES were up +15pts after adding +168pts on Friday.
ECONOMIC DATA....GETTING BETTER
We've highlighted the Citigroup Economic Surprise Index many times before showing the trend of data that has missed expectations. Here it is again in case you missed it. (measures data v expectations) In a slightly different format than I showed last week.
Our view had been in recent times that this trend would change and we'll start getting upside surprises (because expectations have been reduced). This occurred on Friday night in the US with PMI (manufacturing data) blowing expectations out of the water - and showing continued expansion. I know the bears will point to the low USD as the driving force behind growth in US manufacturing but thats not really the point. The point is that the sector (one of the largest in the US) is expanding despite the supply chain impacts caused by the Japanese Earthquake + all the other recent headwinds globally. Any reading above 50 means expansion and the number printed above 55 on Friday.
This data was one of the main reasons that traders got bullish on Friday in the States - Incidentally, stocks in the US had their best week in more than 2 years. Shows the perils of trying to Short this Market.....! Wait till they really get squeezed out of positions.
While we're on PMI data, the Chinese numbers were out Friday and they came in slightly below expectations (50.9 v 51.5 expectations). The bears will be sighting this as evidence of a hard landing in China that will filter through to a sharp correction on the commodity markets. While its always a possibility, I don't think its the likely scenario. The difference with China and the US, is that China is orchestrating a measured slow down. They are taking steps to reduce expansion by raising bank capital requirements and ticking up interest rates. Its been planned, its being managed and from what we can see, is being effective in reducing inflationary pressures. Don't forget that China has a pretty impressive track record of managing growth and the complexities that come with it.
WILL THE MARKET CONTINUE FROM HERE....
It looks likely however I would be very selective in what I purchased here after the recent rally. My view is that although a major concern (Greece) is being managed, there will be other shocks along the road. We prefer to buy into any weakness and enjoy the upside when it comes. Be patient in this market and we'll be able to lock in some good entry points with the view that a Double Dip scenario has only a very small chance of playing out.
Goldmans put out an interesting report over the weekend sighting a couple of key factors that are supportive of the market.
1. Energy prices (and other commodities) have eased.
2. Financial conditions remain supportive
3. The decline in US house price may be bottoming
4. Vehicle production may be normalising (and although the Japanese Earthquake may have wiped 0.5% off global Q2 GDP, this should bounce back strongly in Q3.
5. Labour market indicators are holding up.
DIVIDENDS TODAY
CAM
MY MODEL PORTFOLIO's
We've made some changes to the Model Portfolio's at the end of the Financial Year which should ad value to those that use them.
Below is a list of the portfolio's we run and a little bit about them. If you do not have logins and would like some, visit the website ( www.mymarketview.com.au) or drop me an email.
The Buy Write Portfolio targets a select number of stocks in the ASX top 100 and writes (sells) Call Options against the holding to generate regular income. This is a targeted Buy Write strategy that does not aim to be a diversified portfolio.
The Emerging Growth Portfolio targets stocks that have exposure to current growth themes. These may range from ASX top 100 stocks to higher risk micro cap companies. Yield is not a priority in this portfolio.
The Pension Performers Portfolio targets Stocks and Interest Rate Securities that offer a relatively high, sustainable income stream with sound company fundamentals. The portfolio is specifically designed for investors with a Self Managed Super Fund currently in pension faze. The portfolio is actively managed with a high concentration for FF income.
Short Term Trade Ideas provide directional trade opportunities to take advantage of recent market trends. Based largely on Technical Analysis, stocks are flagged that have a high probability for a short term move in either direction
AUSTRALIAN STOCK PRICES OVERNIGHT
In London, Rio Tinto rose 4.5 pence to £45.37, A$0.07 higher in Australian currency terms.
BHP-Billiton rose 18.34 pence to £24.78, A$0.27 higher in Australian currency terms.
Henderson Group Plc fell 1.1 pence to £1.54, A$0.02 lower in Australian currency terms.
US ECONOMIC ACTION
Jul-05 - Factory Orders (For: May , F/Cast: 1.0%, Prior: -1.2%)
Jul-06 - MBA Mortgage Index (For: Feb-11, F/Cast: NA , Prior: -2.7%)
Jul-06 - Challenger Job Cuts (For: Jun , F/Cast: NA , Prior: -4.3%)
Jul-06 - ISM Services (For: Jun , F/Cast: 54.0, Prior: 54.6)
Jul-07 - ADP Employment Change (For: Jun , F/Cast: 60K , Prior: 38K )
Jul-07 - Initial Claims (For: Feb-11, F/Cast: 425K , Prior: 428K)
Jul-07 - Continuing Claims (For: Jun-25, F/Cast: 3700K , Prior: 3702K )
Jul-07 - Crude Inventories (For: 7-Feb, F/Cast: NA , Prior: -4.375M )
Jul-08 - Nonfarm Payrolls (For: Jun , F/Cast: 80K , Prior: 54K )
Jul-08 - Nonfarm Private Payrolls (For: Jun , F/Cast: 110K , Prior: 83K )
Jul-08 - Unemployment Rate (For: Jun , F/Cast: 9.1%, Prior: 9.1%)
Jul-08 - Average Workweek (For: Jun , F/Cast: 34.4, Prior: 34.4)
Jul-08 - Hourly Earnings (For: Jun , F/Cast: 0.2%, Prior: 0.3%)
Jul-08 - Wholesale Inventories (For: May , F/Cast: 0.9%, Prior: 0.8%)
Jul-08 - Consumer Credit (For: May , F/Cast: $3.5B , Prior: $6.5B )
