(THURSDAY 1ST MARCH - 07:32 - JAMES GERRISH)...The US MKT was LOWER overnight with the DOW JONES off -53pts while the S&P 500 lost -0.47%. European mkts were LOWER (FTSE off -0.95%, German DAX off -0.46%, French CAC off -0.04%) while locally, the SPI FUTURES mkt is pricing a LOWER open off -22pts when trading kicks off here this morning.
DOW JONES
Yesterday, the ASX 200 closed UP +35pts or +0.84% to 4298. The MKT was actually up 45pts leading into the match but sellers dominated the last 10 mins and sold the index back below 4300 - but more importantly, the 200 day moving average which seems to be an unmovable barrier at the moment - as the chart below shows. What you tend to find in situations like this is that once it breaks convincingly, the mkt rallies pretty quickly to the next level of resistance which sits around 4450-4500.
ASX 200
There is a lot of talk this morning about a possible correction in the mkt from here - that the mkt has run too hard, too fast. The issue with having this view is that you're trying to find a top in a rising mkt - which is difficult to do. I've never been good at it and I think over time, it ends up costing you money by trying. So for mine, I'm staying long here and will get more convinced if our mkt breaks above the 200 day moving average.
OVERSEAS MKTS; A lot to digest overnight with the ECB's long Term Refinancing Operations (LTRO) lending EUR529.53 to 800 European banks while Fed Treasurer Ben Benanke hosed down any chance of further quantitative easing out of the States given the upward revision in growth expectations.
LTRO; So the amount of loans written by the ECB overnight was pretty much inline with mkt expectations at a touch over EUR500 billion. The first auction in December saw EUR489 billion being lent. Interestingly, this time around saw 800 institutions tap into the facility v 523 in December so its a positive that money is finding its way into a broader cross section of institutions.
My personal view on the figure is that its enough to ad liquidity which will continue to support the risk trade but it wasn't enough to suggest European banks are grabbing for a cash at any opportunity. If it had of gone towards EUR1 trillion, I think we would have seen some initial optimism (spike in the mkt) then on contemplation, there would have been some concerns emerge about the actual health of the institutions tapping into the cash and that may have led to a mkt sell off.
The fact that it come in where it did, on the lower end of expectations, I think will have the opposite effect. Some initial softness in mkts (which we saw in Europe) but on reflexion, we'll draw a positive from the operation.
FED SPEECH; Benanke spoke in the States overnight and it probably had a bigger impact on mkts than the LTRO did. He effectively doused expectations for further stimulus in the US (in the near term at least) and I think this came as a surprise to the mkt.
Looking across asset classes, it seems the mkt had been positioning somewhat for QE3. This was certainly the case with the USD and Gold in particular giving a pretty clear sign of how the mkt was positioned.
Gold is an inflation play and stimulus is thought to increase inflation. If stimulus is off the table, then the threat of inflation is diminished, so traders reduce their hedge against it. This prompted a massive move in GOLD overnight which fell -$92 or -5%.
We've been pushing the view for a while now that the basis for Gold as an inflation hedge was losing validity. Not because it won't hedge against inflation but because we're not seeing any uptick in inflationary pressures - in fact if we look at China, inflation is ticking lower, there is no issue with price inflation in the US while in Europe, deflation is a bigger risk at this stage.
So the basis for Gold moving higher short term is void. I do think we'll see inflation come into play down the track, and at that point, Gold will be a key holding, but for now, I'd prefer to be elsewhere.
GOLD
The mkt obviously took Benanke's comments overnight as a negative given we won't see a liquidity injection any time soon, but it is an endorsement of the US recovery - which is now gaining some traction and is filtering through to upward revisions in growth expectations.
AUSSIE MKT; We'll be lower on the open today however the key level remains the 200 day moving average. Its actually also come into play on the Chinese mkt as shown in the chart below.
CHINA
We see 4th Qtr Capex numbers out at 11.30 today and the mkt is expecting a rise of +3.8%. These will give us a better insight into whether spending in mining has remained strong so we might see some reaction in the mining services stocks around that time.
COMMODITIES; For a full list of overnight prices, CLICK HERE
AUSTRALIAN DUAL LISTED STOCKS
In New York, News Corp rose by US$0.02 to US$20.29, equivalent to A$18.91, A$0.05 above its last close on the ASX.
ResMed fell by US$0.14 to US$29.30, equivalent to A$2.73, A$0.03 below its last close on the ASX.
In London, Rio Tinto fell 145.78 pence to £35.85, A$2.16 lower in Australian currency terms.
BHP-Billiton fell 82.0 pence to £20.38, A$1.22 lower in Australian currency terms.
Henderson Group Plc fell 9.1 pence to £1.19, A$0.13 lower in Australian currency terms.
