(THURSDAY 1ST SEPTEMBER- 07:14 - JAMES GERRISH)...The first day of Spring is shaping up to be a positive one on the local MKT following better than expected manufacturing data from the US (Chicago PMI) and private sector employment figures that came in just below expectations (+91k v 100k from ADP). The DOW JONES put on +53pts while the S&P 500 added +0.49%. Locally, the SPI FUTURES are pricing a rise of +30pts when trading kicks off this morning.
What a month.....!
August proved to be a volatile month in the MKTs to say the least. Concern that the US would slip back into recession, the Euro-zone would implode and Chinese growth was faltering combined to send global markets sharply lower during the month. To put this into context, the S&P/ASX 200 hit a high of 4517 and a low of 3765 - a 752pt or 16.6% range. I've not seen volatility like this before including through the GFC in a 31 day period. In the end sanity prevailed and the local MKT finished the month down approx -120pts or about -2.65% at 4296.
Looking at the numbers coming out of the States with the DOW off -4.8% and the S&P 500 off -6.1% for the month there was a clear out-performance in our mkt. This prompts the obvious question of whether we're finally starting to trade on our own economic credentials and factoring in some of the growth in our region? I'd like to think so but realistically, probably not given that we'd underperformed the US leading into the weakness - it was only natural that we might have some out-performance at some stage.
It was certainly a tough month from my perspective ensuring that clients didn't panic, remained confident in what they were holding and looked to put some cash to work when things got irrational. We certainly didn't get the bottom of the MKT, but we dipped our toe into some new positions that in hindsight, were at good levels. It now becomes a little trickier given there still remains a fair bit of uncertainty + there is a lack of obvious conviction in the buying we've seen over the last couple of days.
Looking at the ASX 200, our preference would be to see the index break above the last swing high around 4320, then have some type of pullback that would then set up another entry point. The main consideration is that we get a series of higher highs and higher lows as the chart below shows. As we've been writing recently, we think that a low was put in place this month that will provide a baseline for investment decisions. So if we can reasonably quantify our view of the downside (3765), we can look at scenarios on the upside and the stocks that are best placed (lowest risk the main priority) to take advantage of this. (Computershare (CPU) is an example of a stock we feel has merit).
AROUND THE GROUNDS
The volatility intra month + move out of risk assets certainly hit the Aussie Dollar pushing it back towards parity, however its been a pretty strong bounce back. I think this supports the outlook that the Aussie has found its longer term trading range north of parity and is likely to remain here unless we see an aggressive round of interest rate cuts (more than 75bp).
Similar to the Aussie Dollar, I think the USD has found its longer term trading range between 72 & 77 on the Dollar Index. Not a lot to like about the USD in the medium term given that rates will be kept low til at least 2013 + the possibility of further stimulus, the USD is likely to remain depressed. In its defense however, for those looking for some type of safe haven against further volatility, the downside on the Greenback does look pretty limited (but really, you'd just be better off putting you;re money in the bank here).
Risk was ripped off the table this month and with concerns about a US recession + slowing Chinese demand its not a surprise that commodities were sold down. Its been a pretty strong rebound though and given the possibility of further stimulus in the US which would support growth + put upward pressure on inflation (both positives for physical assets), as well as the most recent data from China that really did dispel a lot of concerns about a sharp reduction in demand for raw materials and the outlook short term looks OK for commodities (but I certainly would not be over weight the sector).
We touched on Gold last week writing ...Whatever the case, I think the longer term fundamental drivers for GOLD remain (inflation, political instability, devaluation of currencies etc etc) but the risk of a more pronounced correction (couple of $100) is pretty high particularly if we get some better than expected data out of the US in the coming weeks - Further to that, the short term trend structure in Gold looks worrisome. When a MKT goes parabolic and then we start to see large swings or increased volatility, its a classic sign of a short term MKT top (at least).
NO ACTION IN MODEL PORTFOLIO STOCKS TODAY
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.08 to US$17.38, equivalent to A$16.25, A$0.25 above its last close on the ASX.
ResMed rose by US$0.55 to US$30.97, equivalent to A$2.90, A$0.06 above its last close on the ASX.
In London, Rio Tinto rose 128.5 pence to £38.02, A$1.95 higher in Australian currency terms.
BHP-Billiton rose 63.5 pence to £21.06, A$0.96 higher in Australian currency terms.
Henderson Group Plc fell 1.6 pence to £1.30, A$0.02 lower in Australian currency terms.
