(TUESDAY 1ST NOVEMBER - JAMES GERRISH - 7.51am)...The DOW JONES lost -276pts overnight while the S&P 500 lost -2.44%. European mkts were lower (FTSE down -2.77%, German DAX down -3.23%, French CAC down -3.16%) while locally, the SPI FUTURES mkt is pricing a lower open down -39pts when trading kicks off here this morning.
Yesterday, the S&P/ASX 200 lost -55pts or -1.27% to close at 4298.
DOW JONES - There were multiple aspects to last nights session that probably muddies the waters a little. The obvious concern around Europe is emerging again but I think there was more to it last night.
Firstly, the Japanese intervened in the currency mkt by selling Yen in an attempt to put pressure on their currency - obviously to make exports more competitive. This prompted selling of the yen and buying of the USD which was up strongly on the session.
Any upside move in the USD is a negative for commodities and the move in the currencies was the catalyst for the initial sell off in raw materials. This was then amplified by the bankruptcy of MF Global, the worlds largest Futures broker about an hour before trade started on the CME.
Only liquidation orders were allowed and MF Global floor traders were not permitted in to trade. A lot of brokers clear through MF Global so it would have been a case of mitigating damage & moving accounts, cashing in open positions and heading back to cash.
That would have amplified the move in commodities significantly and the concern filtered through into other sectors.
S&P/ASX 200 - a lower start to trade this morning following some weakness yesterday.
RBA DECISION TODAY
There seems to be more commentators getting cold feet on the call for a rate cut when the RBA meet today. The decision is due out at 2.30pm this afternoon and it seems it could go either way. I think the evidence is there to justify a cut mainly on the back of a subdued inflation print last week.
Countering that was better than expected credit data out yesterday which actually showed both private and business was increasing borrowing.
If they don't make a move today, it would be first time the RBA have sat on their hands for the last 5 years (on Melbourne Cup day).
I think we'll probably see one but I'm not confident.
ITALIAN DEBT
We spoke yesterday about the importance of monitoring the European Bond yields and overnight, Italian yields continued higher (6.07%). This is probably the country most likely to rattle markets near term and the bonds above +6%, are an issue.
MELBOURNE CUP
Each year, Macquarie puts out a comrpehensive quant analysis on the Melbourne Cup and they've had some recent success....Worth a look
From the Guys at Macquarie
They're in!..Off and racing here at Macquarie Research...
The Emirates Melbourne Cup is being held today at Flemington Race course. The Macquarie Quant team transform racing stats into traditional quant signals to come up with our top picks for the race that stops the nation.
For the second year running our model came up trumps in 2010 with the box trifecta paying dividends. Whilst we were tempted to retire ahead, we thought this would be against the nature of this piece and possibly considered un-Australian. So this year we go for three in a row.
CLICK HERE FOR THE NOTE
MODEL PORTFOLIO UPDATES
Starpharma (SPL)
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Starpharma Reports Negative Cash Flow of $2.03m for the September 2011 Quarter 31-Oct-11 10:37
Starpharma reported negative cash flow of $2.03m for quarter ended 30 September 2011. Operating cash flow for the period was $(2.13m). Investing cash flow was $(4,000). Financing cash flow was $102,000. Cash in hand at the end of the quarter was $16.98m.
Macquarie Group Limited (MQG)
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1H12 result: Market related earnings disappear 31-Oct-11 07:36
1H12 NPAT of $305m was down 24% on 1H11, below our $350m forecast and market expectations of $330m. Revenue fell 11% reflecting weak conditions across the market-facing businesses with a significant decline in trading income. Costs also fell with staff costs down due to reduced profit share and slightly lower staff numbers. The interim dividend was reduced from $0.86 to $0.65 per share unfranked. Given its strong capital position MQG plans to buy back up to 10% of its ordinary shares.
