(TUESDAY 12TH JULY - 08.51 - JAMES GERRISH)....Stocks fell again overnight with the DOW JONES down -58pts while the S&P 500 was off -0.44%. The market was actually higher for much of the session after the FOMC minutes hinted at the possibility of QE3 in the States.
Still, the gains weren't sustained into the close and we saw the market lower. It was a terrible day on our market yesterday with aggressive selling across the board (S&P/ASX 200 down 89pts) - however its worth noting that DOW FUTURES were down 80 pts when our market closed yesterday, so a lot of the overnight falls would have been priced into our market already. SPI FUTURES are up +1pt.
Commodities were actually a bright spot overnight with crude 2.6% higher, Copper up 0.4%, gold rose about $17 to $1567, breaking out to new highs. The Commodity Index was higher while the US Dollar Index did briefly bounce out of the range we've been tracking but couldn't manage to close above it - which is needed to confirm a break out.
FEAR... "a distressing emotion aroused by impending danger, evil, pain, etc., whether the threat is real or imagined"
This is the largest issue in Europe at the moment and is the main reason that contagion is a possibility (probability). We saw Moody's out overnight downgrading Ireland's debt to Junk status which in turn creates forced selling, pushing yields higher. There comes a point when debt becomes unserviceable and countries are forced to knock on the door of the EU/IMF with cup in hand - we've seen this with Greece, Ireland and Portugal. Italy is now in the spot light mainly because it runs debt to GDP of 119% so there's not a lot of wriggle room when funding costs rise. At the moment, Italian 10 year bonds are sitting around 5.5% and seems from the trend that occurred in Greece/Ireland etc, that rates in excess of 6% become unsustainable while rates nearer 7% become a ticking time bomb. Certainly worth keeping an eye on these.
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There is no doubting that we're seeing a crisis of confidence in many parts of the market at the moment. This is certainly the main issue in Europe which has the unfortunate affect of turning a credit crisis into a liquidity driven crisis which intensifies the negative spiral.
In saying this, confidence can turn on a dime as we saw when the Greek bailout occurred and we got some better US economic data last week (barring the jobs number). That's why its very difficult to get too bearish on this market at the moment.
US NEWS....
The minutes of the FOMC were released overnight and we saw the first sign that QE3 has been canvassed. We know Benanke is partial to printing money and he's got the support of a few others on the board. The minutes went on to say... "depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate... on the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant... the withdrawal of monetary accommodation... sooner than currently anticipated by financial markets."
Any talk of stimulus is a positive for markets - particularly commodities and we saw this play out overnight.
SOME STOCK NEWS
Macquarie Group (MQG) - the stock was sold down heavily yesterday (-6%) on whispers that we'll get a profit downgrade when the company updates the market in August. This is based on the commentary they used in their last update which stated that earnings would improve (and meet guidance) subject to improving market conditions.
Clearly the market has not improved so this counters MQG's previous assumptions. Still, the question remains whether a downgrade has already been priced in. My View is that a 30% drop this calendar year has certainly priced in a lot of negative news flow but we'll have to wait til August to find out more. MQG sits in our Buy Write Portfolio and its certainly dragged performance here. www.mymarketview.com.au
Newscorp (NWS) - Obviously the phone tapping scandal has had a dramatic impact on NWS shares with the company losing $7 billion in the last few days. The is significantly more than the value that could be attributed to the News of the World that has been closed down - so I'd suggest the slide has gone too far - after being amplified by panic rather than numbers. 70% of NWS revenue comes from Pay TV and related entities while the likely scrapping of the BSKYB could be a short term positive given they won't need to raise capital. They have also announced an increase of their share buy back ($5 billion)
which should also offer some support. It remains a hold for mine.
S&P/ASX 200
It looks like the market wants to re-test the recent low around 4450, I think we're a good chance of holding here. Its often darkest before the dawn and from a technical standpoint, when a longer term low is forming, we often get a re-test of support on a number of occasions before a sustained move higher. Obviously the news flow will be key here, however its worth flagging that if support is found at recent lows again, this is a more bullish scenario than the previous bounce.
NEWS FLOW TODAY...
Today, look out for Aussie consumer confidence for July at 10.30am and then at about midday we get Chinese GDP (expectations 9.5%), industrial production and retail sales.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.02 to US$16.08, equivalent to A$15.20, A$0.01 above its last close on the ASX.
ResMed rose by US$0.16 to US$30.35, equivalent to A$2.87, A$0.04 above its last close on the ASX.
In London, Rio Tinto fell 61.5 pence to £43.89, A$0.92 lower in Australian currency terms.
BHP-Billiton fell 35.0 pence to £24.02, A$0.53 lower in Australian currency terms.
Henderson Group Plc fell 3.9 pence to £1.55, A$0.06 lower in Australian currency terms.
