(FRIDAY 21ST OCTOBER - JAMES GERRISH - 8.22am)...The DOW JONES added +37pts overnight while the S&P 500 put on +0.46%. European mkts were all lower (FTSE down, DAX down, CAC down) while locally, the SPI FUTURES mkt is pricing a higher open up +13pts when trading kicks off here this morning.
Yesterday, the S&P/ASX 200 had a disappointing day losing -1.6% to 4144.
DOW JONES
S&P/ASX 200
NEWS FLOW
Another night where political headlines dictated the flow of the mkts with a fairly negative session in Europe initially flowing through to the US.
That was before Reuters published details from a German finance ministry guideline document on how a revamped EFSF might operate - boosting hopes a solution could be in the pipeline. We then had reports that the German government did not rule out postponing the weekend's EU summit which prompted another round of selling. We then had another Reuters report that a senior EU source denied a postponement was planned, but later added that German coalition sources said the meeting would not reach a deal on leveraging of the EFSF. The Euro eventually rebounded and US stocks rose. Anyone dizzy??
News flow is certainly important but at the moment, it changes in an instant as last nights mkt action shows. I think at the moment its more useful to keep up to date with the technical structures we're seeing in key mkts which will ultimately show overall investment reaction to the news flow anyway.
Firstly, if you look the DOW JONES from a broader perspective (as above), its clear that the index is hitting its head on resistance around current levels. But drilling down and looking at the last weeks price action tells a different story. There are clear signs of consolidation at the top of the range which is positive + on the one session that we tried to break lower (Tuesday I think), there was pretty strong price rejection at lower levels and the index popped back up into the short term congestion zone.
Its been trading in a very tight range and if you imagine a spring that has been compressed, when it pops, it does so with some force. If the mkt does break out above 11.600/700ish on the DOW, expect a sharp rally. I think this will be the outcome however there is a chance we'll get a pullback before breaking through resistance.
Another key mkt to keep an eye on is the US Treasuries - known as the ultimate safe haven asset. We've seen yields bottom out recently and are now pushing higher. From a technical standpoint, we've got a double bottom and although it seems to be hitting resistance now, it is a bullish structure. This means that the demand for safe haven assets have decreased (pushing yields higher) which is a bullish sign for risk assets such as equities.
10 Year Treasuries
Copper - slightly concerning at the moment with another drop of 5+% overnight. It seems hedge funds are short Chinese + global growth after the Chinese GDP print earlier in the week came in lower than expectations. This is despite continued data from the States that is painting a more upbeat picture on growth with the Philadelphia Fed index rising to +8.7 in October from -17.5 in the month prior. The median forecast was for a rise to -9.4.
For our mkt, this means commodity producers are likely to remain under pressure for a while and its clear that the big money is positioning for a lower growth environment. Whether this proves correct or not is obviously unknown but its certainly worth monitoring.
GOLD
MODEL PORTFOLIO UPDATES
No updates
On open positions from Morningstar...
BHP Billiton Limited (BHP)
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Reasonable 1Q12, Copper's Walloping Aside 20-Oct-11 17:02
A marginally weaker than anticipated 1Q12 with strong performances from petroleum and energy coal offset by a very weak copper result and soft aluminium and nickel output. Lower Escondida grades, maintenance and industrial action weighed heavily on the red metal. Record WA iron ore shipments and improved coking coal volumes were favourably close to expectations.
Wesfarmers Ltd (WES)
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Down Down and rolling along 20-Oct-11 16:10
Impressively the Wesfarmers retail stable achieved 6.5% sales growth in 1Q12 to almost $12 billion. This is a large number and growing sales by $728m over 1Q11 in the challenging consumer environment is pleasing. Petrol sales, boosted by a record 5.2% lift in comparable volumes and higher prices pushed Convenience sales 17.7% or $273m higher.
Newcrest Mining (NCM) (we don't have NCM in the Model Portfolio however some clients are holding this.
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Newcrest Mining Provides September 2011 Quarterly Activities Report 20-Oct-11 09:16
Newcrest Mining provided its September 2011 quarterly activities report, reporting that September quarter gold production of 587,296oz was 16% lower than the previous quarter primarily as a result of maintenance shutdowns at Lihir, Telfer and Gosowong and high rainfall at Lihir. Copper production of 19,228t was slightly lower than the previous quarter. Gross cash margin increased by 19% to $1,029/oz associated with a higher realised gold price of $1,623/oz during the quarter. Cash costs of $594/oz were 10% higher than the previous quarter reflecting lower gold production and higher maintenance costs associated with processing plant shutdowns. The company also reported that its two major expansion projects, Cadia East and Lihir MOPU continued to plan during the quarter with equipment tie-ins undertaken at Lihir. Both projects remain on track.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.15 to US$17.05, equivalent to A$16.67, A$0.05 above its last close on the ASX.
ResMed rose by US$0.26 to US$30.23, equivalent to A$2.96, A$0.06 above its last close on the ASX.
In London, Rio Tinto fell 123.0 pence to £30.15, A$1.90 lower in Australian currency terms.
BHP-Billiton fell 57.0 pence to £18.33, A$0.88 lower in Australian currency terms.
Henderson Group Plc fell 3.1 pence to £1.17, A$0.05 lower in Australian currency terms.
