James Gerrish - Morning Note - Friday 27th August

by James Gerrish 27 August 2010

**27/08/10  -  8.20am  -  by James Gerrish** 

It was an interesting session in overseas markets with 9 our of 10 industry sectors falling in the US. The only sector to buck the trend was Commodities which benefited from strong buying in Copper and other base metals. The week has generally been lower and its frustrating to see the market continually track economic releases coming out of the states when the source of our economic prosperity is more aligned to the fate of China and other commodity hungry markets. 

On the market last night, the DOW JONES lost -74 points or 0.75% to close at 9985. It was disappointing to see the market finish below 10,000 particularly given the last two sessions have seen the index push above this level in late trade. In the UK, the FTSE 100 added +46 points or +0.91% to 5155. Locally, the SPI Futures contract is pricing a fall of 36 points on the open this morning. We're likely to see buying in resources and some selling in the banks. 

The local reporting season is winding down and although we haven't seen a trend of earnings surprises, results have been solid and Dividends have surprised moderately to the upside. 

Here's how I saw it: 
  • Bank results were marginally disappointing with some softness in revenue. This was offset by smaller than expected bad loans so the nett result were broadly inline. This does however show a weakness in core earnings which is a concern. ANZ delivered the standout result and remains our pick in this sector. 
  • Telstra delivered a disappointing result which shows the significant competition now within this sector. Tough times ahead for the telco
  • Building stocks were broadly solid. Those with US exposure suffered (James Hardie) while Domestically focussed operators were showing sign of improvement namely Stockland and Australand
  • There were improving retail trends with DJ's and Myer delivering strong number. Harvey Norman is due out this morning and we're expecting some of the same. We also saw stronger than expected consumer trends which was evident in Flight Centre and Qantas 
  • Material stocks delivered as we expected with earnings up on higher metal prices and continued demand from emerging markets. BHP increased its dividend to try to appease shareholders while it targets Potash Corp. Gold stocks were also a high light with Newcrest and Lihir Gold
  • Industrial companies were the standout with with AGL Energy, Toll Holdings and Asciano all impressive
  • Media stocks have mixed with West Australian News disappointing, Newscorp Solid and Fairfax just out this morning a real standout. Fairfax is the most short sold stock on the market so i would expect some significant short covering this morning and a strong bounce in price. 
  • Outlook statements have been conservative and this reflects the uncertain global environment
  • Have faith in emerging markets growth - this is the story that we're investing towards. 

Disclaimer

James Gerrish is an Authorised Representative (Rep No. 352904) of Shaw Stockbroking Limited ("Shaw Stockbroking"). Shaw Stockbroking is a holder of Australian Financial Services Licence No 236048. Shaw Stockbroking, its directors, officers, associates and employees each declare that they, from time to time, may hold interests in financial products and/or earn brokerage, commission, fees or other benefits from financial products mentioned in this e-mail or attached documents. Unless specifically stated within this page or an attached document, any information communicated by this e-mail constitutes unsolicited general financial product advice which has been compiled without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you need to consider the appropriateness of this information having regard to your individual objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance or relate to a future matter.
 

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