(THURSDAY 8TH SEPTEMBER- 07:13 - JAMES GERRISH)...We've written a number of times over the last week or so that volatility is a classic sign that a market low is being put in place and that theme continued last night with the US MKT up strongly after a 4 day slide that took -4.4% off the DOW.
Overnight the DOW JONES added +275pts while the broader S&P 500 put on +2.86%. European mkts were also stronger as were commodities (ex Gold) while locally, the SPI FUTURES mkt is pricing a rise of +47pts in addition to the positive session we had yesterday where the ASX 200 put on +107pts.
Firstly, it appears that Australia is not the basket case that some had been suggesting and according to Wayne Swam, we're all just too darn negative for our own good.
We had a pretty solid print on growth yesterday with quarterly GDP coming in at 1.2% (well above expectations + the fastest pace in 4 years) and there was also an upward revision on the -1.2% to -0.9% we saw the previous quarter (floods had an impact on that number).
This is a pretty big turn around given it takes the annualised figure from an estimated +0.6% growth to +1.4%. Still fairly anaemic but it's a sign that the domestic economy is heading in the right direction at least.
The other encouraging sign was in the composition of the result with mining unable to take the accolades for the turnaround. Consumers were back in the mkt and this even helped the retailers in the period. We'd expect to see the trend of growth continue next quarter underpinned by more activity in the mining sector which was still feeling some impact from the QLD floods (reduced exports).
Looking globally, we're still in a very uncertain environment and there is a high chance we'll continue to see shocks from Europe + concern about jobs + debt + growth in the US.
In Europe
The German High Court made its ruling overnight on claims that Germany's commitment to the European Financial Stability Facility (EFSF) goes against EU law, or against the German constitution. Obviously this could have had a big impact on the entire region adding another level of complexity to an already complicated scenario.
In the end Germany's top court rejected suits aimed at blocking Berlin's participation in bailouts for indebted euro zone countries though a clause in the ruling giving parliament a bigger say in euro zone rescue packages was seen making it more difficult for aid to be delivered quickly. A positive outcome non-the-less.
Not so positive were reports of problems emerging with bailout support for Greece A number of smaller EU countries are requesting collateral for providing bailout funds. Finland, Austria, Slovakia and the Netherlands are requesting collateral to support a Greek bailout. This is a problem because it sets a precedent, and places existing Bond holders and the IMF at a disadvantage because they would in effect become less preferred creditors.
In the US
President Barrack Obama will address Congress tonight to discuss fiscal measures such as taxes and spending. This will be reasonably politically focused speech with the US election due to take place on 6 November 2012. Obama has said that this address will push infrastructure spending as a means of supporting the labour market. In reality, what he does say is likely to be taken with a grain of salt given the plans would first need to pass congress and secondly, he may not even be in the job to deliver on them.
Last night we had the US Fed Beige Book which was another indicator showing the US was growing, all be it, at a moderated pace and with some signs that activity levels were weakening.
CHARTS
I think its worth looking and the major markets from a technical standpoint - it tends to cut through the noise when there is so much conflicting information out there.
DOW JONES
We continue to build a base at current levels with the index putting in another higher low (although only marginally).The 50% retracement level of the recent pullback (around 11,700) is a critical point . If the index can break through this, it would mean another higher high put in place + it would be clear of strong technical resistance which typically occurs around the midpoint of the previous decline.
I'd go as far as saying a break of 11,700 would likely see a move back to the middpoint of the previous congestion zone which sits at the 78.6% Level (12,300) on the DOW. What ever the case, the US MKT looks like its forming a base and can move higher from here.
THE S&P/ASX 200
We managed to hold support on the most recent pullback and the strong bounce yesterday was encouraging. As we said at the start of the week, 4075 was the previous swing low and for the market to remain positive we needed to hold that level. We did touch that level on Tuesday (4072) then bounced hard from it - a positive sign.
For now, the index looks like it will retest strong resistance around 4350 then its fate will be dictated by whether or not it can push through that level. The most bullish scenario would be for the index to break 4350 on a close basis, move slightly higher then come back and re-test the level and hold it.
On the downside, 4075ish is the point we want to monitor and if we get a break of that level, I'd have orders in the market ready to buy stock on a move back to 3900 (although I would expect some buying around 4000). I do however think a move higher from here is the more likely scenario.
COMMODITY INDEX
The commodity index has been tracking a down trending channel for the past few months however it certainly hasn't rolled over. Its actually been pretty resilient given we've seen a string of downgrades to global growth + a lot of commentary about a China slowdown.
Clearly we're at key inflexion point at the moment with the index trading at the top end of its channel. A break through this point (340) would be bullish however there is another key level of resistance at 351 that would come into play pretty quickly.
I think the more relevant way to look at this index is to determine whether the market seems to be bullish or bearish on commodities in a broader sense. At the moment, the short term bias is bullish but this is part of a longer term bearish structure of lower highs (which is what leads to a longer term downtrend). To negate this, 351 would need to be breached and re-tested as an area of support. We'd then assume the downtrend was broken and the longer term bearish structure was negated setting up a likely test of the resent high.
MODEL PORTFOLIO STOCKS
Macquarie Group (MQG) - Profit warning yesterday - says their first half 2012 profit will be lower than for the year earlier period as they contend with 'difficult trading conditions'..! However they still expect the full year 2012 result to be an improvement on 2011 but of course this depends on mkt conditions not deteriorating. MQG finished up +1.6% yesterday.
AUSTRALIAN DUAL LISTED STOCKS
In New York, News Corp rose by US$0.36 to US$16.86, equivalent to A$15.84, A$0.08 above its last close on the ASX.
ResMed rose by US$0.93 to US$30.30, equivalent to A$2.85, A$0.07 above its last close on the ASX.
In London, Rio Tinto rose 148.0 pence to £36.97, A$2.22 higher in Australian currency terms.
BHP-Billiton rose 58.5 pence to £20.36, A$0.88 higher in Australian currency terms.
Henderson Group Plc rose 7.1 pence to £1.26, A$0.11 higher in Australian currency terms.
