(THURSDAY 3RD NOVEMBER - JAMES GERRISH - 7.52am)...The DOW JONES added +178pts overnight while the S&P 500 put on +1.61%. European mkts were higher (FTSE up +1.15%, German DAX up +2.25%, French CAC up +1.38%) while locally, the SPI FUTURES mkt is pricing a higher open up +43pts when trading kicks off here this morning.
Yesterday, the S&P/ASX 200 lost -48pts or -1.14% to close at 4184.
DOW JONES - Held that key support region overnight as the chart below shows on the back a reminder by Fed Chairmen Ben Benanke that they are prepared to do what is necessary to support growth. The speech came after the ADP private sector jobs reports showed that 110,000 workers were added in October and we also saw an upward revision on the prior month. These figures are interesting but the main focus remains on the Non-Farm payrolls data out on Friday (expectations of +90,000 jobs v prior month of 103,000 and unemployment steady at 9.1%)
Also worthy of mention in Benanke's speech was comments that there are significant downside risks to the outlook which has promoted them to cut 2012 growth forecasts + raise their expectations for unemployment to 8.5%-8.7% in Q4 next year from a previously estimated 7.8%-8.2%.
As regular readers would know, I tend to think that Benanke has a tendency to talk down the economy as a means of justifying further stimulus however on this occasion, the fact that he is talking down the economy, cutting growth expectations etc but is essentially doing nothing at this stage to support growth, in itself probably suggests the US economy is tracking along OK - that's what the recent economic data is telling us anyway and it seems Benanke concurs.
S&P/ASX 200 - Not a bad recovery on our mkt yesterday given we were down -92pts around 11.30am and ended down -48pts. The move came after building approvals were soft which puts more pressure on the RBA to act in December. I this will probably occur given they don't meet in January, and there was no reference/insinuation in the minutes that the move 2 days ago was a one off. So another cut in December then an assessment period for a few months seems likely.
ASX 200 Intra Day
ASX 200 Daily
REFERENDUM
Another reason that may have prompted some buying in our mkt yesterday afternoon was a bit more clarity around the Greece Situation. Reports the previous night confirmed that Greek Prime Minister Papandreou was going to put the Greek Bailout package to a referendum which was obviously seen as a major risk and heightened the chance a hard type of default in Greece. Yesterday, we saw a couple of developments on this front with the main one being the type of question posed in the referendum.
If the Question is more focussed on whether or not Greece wants to remain part of the EU, and as a consequence, needs the bailout funding there is a high chance it will pass (given 70% of Greeks want to remain part of the EU) and default will be averted + Papandreou has put the decision back to the people (which I kind of think is a good thing if the result is the right one - not so good if it gets vetoed!).
So, the time line is this:
1. Papandreou faces a no-confidence vote expected on Friday and at last count, the ruling party holds 151 votes out of 300 - too close for comfort!
2. There is an aid package due in Mid November
3. If Papandreou succeeds, we would expect the aid package to go through and the country to hold the referendum early next year.
However if Papandreou is ousted on Friday, there would be snap elections which would take about a month to organise.
Theoretically, they would then still receive the bailout package mid November before going to the polls in the first week of December. However presumably, if the Government falls, it would be on the back an uprising against the austerity plans that are a requirement to receive the bailout funds and we might see the IMF, ECB pull the pin..which would lead to a hard default.
What I would like to see happen, is Papandreou win the confidence vote on Friday, the aid package is then administered in November ahead of a referendum in January that has a very specific question around Greece remaining as part of the EU.
Whatever the case, Friday is shaping up to be a massive day with Non-Farms in the States and probably a vote in Greece.
WESTPAC'S RESULT...KEY POINTS
- Company cash earnings up 7% yoy to $6,301m vs consensus estimates of $6,320m.
- Cash EPS: Basic cash EPS up 6% yoy to 209.3¢ vs expectations around 210
- DPS: Final dividend of 80¢ vs consensus forecasts of 78¢.
- Revenue: up 1% yoy to $17.1bn
- Net interest margin: FY11 NIM 2.22% (vs FY10 2.22%)
- Loan growth: FY11 loan growth of 3.8%
- Costs: up 2% yoy to $7.1bn.
- ROE: 16.0%
As Gail Kelly put it yesterday, its a fairly solid result that shows the bank is doing fine and the important element here is that the dividend looks safe and sustainable.
ANZ
Reports today with expectations for profit of $5.66 Billion & Dividend of 73c
MODEL PORTFOLIO UPDATES
Pension Performers - We added to Fleetwood (FWD) yesterday morning and the chart is worth a look as a typifies the way we want to trade.
1. We like FWD from a fundamental standpoint - we've done our valuations, looked at earnings momentum, yield and made a determination on the businesses prospects.
2. We bought some a few months ago because we liked it fundamentally even though the technical s hadn't yet confirmed a buy.
3. It looked set to break a key technical level and when it closed above it on Tuesday, we went and bought the remainder of our position on Wednesday given the market had started to come around to our view.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp rose by US$0.30 to US$17.36, equivalent to A$16.79, A$0.28 above its last close on the ASX.
ResMed rose by US$0.39 to US$28.24, equivalent to A$2.73, A$0.04 above its last close on the ASX.
In London, Rio Tinto rose 87.74 pence to £33.40, A$1.35 higher in Australian currency terms.
BHP-Billiton rose 37.0 pence to £19.52, A$0.57 higher in Australian currency terms.
Henderson Group Plc fell 1.2 pence to £1.13, A$0.02 lower in Australian currency terms.
