16-3-10 ASX200 Stock Report

1. Domestic equities market was again relatively flat today, the ASX200 finishing up 13.1 points. Largest contributions where from the teleco’s lead by TLS which ended up 2.3% closing at $3.11 and looks to be in a good position to be trading off; remembering the share price will be sensitive to government intervention on the NBN split up of infrastructure assets.

• ASX200 4797 (+0.27%)

• SPI 4804 (+0.27%)

2. Minutes to the RBA meeting from Tuesday 2nd March, justification for their 0.25bp rate rise:

• International economic conditions remain uncertain. The US reported mixed results; EU remains the weakest of all. Japanese reported relative strong GDP growth, India slightly negative reflecting declining production and China reporting little but evidence of strong property price growth and greater bank lending.

• Global public debt levels remain an issue especially considering the widening of fiscal deficits.

• Domestic economic conditions where faintly better than previously. GDP for Dec09 quarter was expected to be 0.75 – 1%, contributed to by primarily the public sector and household spending.

• Improved business sentiment, improvements in labour market figures where on the upside

• Business credit growth and retail trade improved over January.

• The RBA noted Melbourne as the stronger city from the buoyant domestic housing market.

• Building approvals notably higher from the year previous however loan approvals retracted as expected post MP tightening

• CPI figures where not released, private sector wage growth remained low leading the RBA to suggest underlying inflation will fall further in the short term to 2.5%.

• Sovereign debt issues are not feared by their magnitude but from the possibility of a flow on effect. Greek and German gov. bond spreads had increased, while other major developed nations bond spreads including our own stayed relatively unchanged.

• The RBA admits that if the sovereign debt problems where not resolved this could have implications for our domestic economy.

• Company profits for the 1H FY10 on the aggregate where vastly stronger than the year previous.

3. SEV $8.00 (+0.38%) in trading halt post Federal Court ruling post release of the IER for merger with industrial equipment business owned by Kerry Stokes. NWS $18.16 (+0.83%) is still our strongest content distributor.

4. MOL $0.895 (+1.7%) after Chinese Government approval for $US200mil investment in the company by Hanlong Mining, final approval rec’d today.

5. LNG $0.525 (+2.94%); AOE $5.23 (-0.38%) have signed a limited obligation extension to the terms of the agreement to buy LNG’s Gladstone project. The provisions for the agreement have been extended until June 30th. AOE still developing on an outcome from takeover offer from Shell/PetroChina bid.

6. RIO $75.50 (+0.16%) and Chinalco are entering into a joint-venture to manage political uncertainty and tap into west African country Guinea’s Iron Ore. The Simandou field is set to rival the globe in terms of size and quality of iron ore, comparable to WA Pilbarra mine or Carajas in Brazil . Chinalco has kept the door open for further co-operation between the companies both domestically and abroad.

7. RIO annual report for 2009, experienced difficult period in comparison to the year previous but the company is optimistic on prices going forward. Major highlights:

• Underlying earnings down 38% to US$6.3bil

• Net debt reduced by US$20bil to $US18.9bil

• Cash flow from operations down 33% to US$13.8bil

• Capex US$5.4bil

8. Property market; ALZ $0.515 (-0.96%); SDG $0.80 (+1.91%); DVN $0.28 (+7.69%); CDI $0.53 (-1.85%)

9. Engineering; BLY $0.315 (-1.56%) nature of business may mean that reporting season for them is not in line with their most productive periods for earnings over the year. They are forced to report in February despite a lot of their operations being offshore, especially in the Americas, making their reporting appear conservative and for their quieter months of Jan and Feb. BLY has begun readying rigs and hired more than 1000 employees. The stock will be included in the S&P/ASX 100 from March 19th.

10. UGL $15.02 (+4.23%) we see as overpriced but still an option in the sector with upgrades to industrial services forecasts, FGE $2.51 (+10.09%); DOW $7.48 (+0.13%) & AAX $3.99 (+1.27%) are good plays in the engineering and industrials space.

11. IIN $2.45 (+3.38%) investor presentation 1H FY10 results, focus on low price high bandwidth ISP, differentiating products.

• Revenue $228mil (+11%)

• Underlying NPAT $14.8mil (+30%)

• Underlying EBITDA $37.4mil (+20%)

• Underlying ROE 14% (+3%)

12. Australian Central credit union recorded $6.3mil profit – 55% increase in HY FY10 profit. 120% increase in retail deposits and 107% rise in assets under management.

Overseas Headlines:

1. The beginning of the global financial market descent was marked by the fall of IB Lehman Brothers. Could they also have something to do with the resurrection of global financial markets? The company has announced today that it has come out of receivership.

2. Fears of tightening policy in China entered the commodities market overnight with the majority of traders factoring into prices the effect this will have on domestic demand.

3. European Union officials have confirmed that a mechanism will be put in place to help the Greek government avoid default on debt. They did not confirm how much money would need to be pooled nor who would be contributing and to what extent they would do so, however after meeting yesterday they where protective of their vested interest in the sovereign debt within the region. Greece has committed to cutting their deficit by 4% to bring it below 4% by the end of 2012.

Data Tomorrow:

1. Canada:

• Wholesale Sales month on Jan survey 0.5% vs. prior 0.7%

2. Japan:

• BOJ Target Rate (MP) 0.10%

3. UK:

• Jobless Claims change February survey 6K vs. prior 23.5K

• Average weekly earnings 3months to January (YoY) survey 1.7% vs. prior 0.8%

• U/E rate 3months to January survey 7.9% vs. prior 7.8%

4. US:

• Producer Price Index February survey -0.2% vs. prior 1.4%

• PPO exports Food and Energy survey 0.1% vs. prior 0.3%

16-3-10 ASX200 Stock Report

1. Domestic equities market was again relatively flat today, the ASX200 finishing up 13.1 points. Largest contributions where from the teleco’s lead by TLS which ended up 2.3% closing at $3.11 and looks to be in a good position to be trading off; remembering the share price will be sensitive to government intervention on the NBN split up of infrastructure assets.

• ASX200 4797 (+0.27%)
• SPI 4804 (+0.27%)

2. Minutes to the RBA meeting from Tuesday 2nd March, justification for their 0.25bp rate rise:

• International economic conditions remain uncertain. The US reported mixed results; EU remains the weakest of all. Japanese reported relative strong GDP growth, India slightly negative reflecting declining production and China reporting little but evidence of strong property price growth and greater bank lending.

• Global public debt levels remain an issue especially considering the widening of fiscal deficits.
• Domestic economic conditions where faintly better than previously. GDP for Dec09 quarter was expected to be 0.75 – 1%, contributed to by primarily the public sector and household spending.
• Improved business sentiment, improvements in labour market figures where on the upside
• Business credit growth and retail trade improved over January.
• The RBA noted Melbourne as the stronger city from the buoyant domestic housing market.
• Building approvals notably higher from the year previous however loan approvals retracted as expected post MP tightening
• CPI figures where not released, private sector wage growth remained low leading the RBA to suggest underlying inflation will fall further in the short term to 2.5%.
• Sovereign debt issues are not feared by their magnitude but from the possibility of a flow on effect. Greek and German gov. bond spreads had increased, while other major developed nations bond spreads including our own stayed relatively unchanged.
• The RBA admits that if the sovereign debt problems where not resolved this could have implications for our domestic economy.
• Company profits for the 1H FY10 on the aggregate where vastly stronger than the year previous.

3. SEV $8.00 (+0.38%) in trading halt post Federal Court ruling post release of the IER for merger with industrial equipment business owned by Kerry Stokes. NWS $18.16 (+0.83%) is still our strongest content distributor.

4. MOL $0.895 (+1.7%) after Chinese Government approval for $US200mil investment in the company by Hanlong Mining, final approval rec’d today.

5. LNG $0.525 (+2.94%); AOE $5.23 (-0.38%) have signed a limited obligation extension to the terms of the agreement to buy LNG’s Gladstone project. The provisions for the agreement have been extended until June 30th. AOE still developing on an outcome from takeover offer from Shell/PetroChina bid.

6. RIO $75.50 (+0.16%) and Chinalco are entering into a joint-venture to manage political uncertainty and tap into west African country Guinea’s Iron Ore. The Simandou field is set to rival the globe in terms of size and quality of iron ore, comparable to WA Pilbarra mine or Carajas in Brazil . Chinalco has kept the door open for further co-operation between the companies both domestically and abroad.

7. RIO annual report for 2009, experienced difficult period in comparison to the year previous but the company is optimistic on prices going forward. Major highlights:

• Underlying earnings down 38% to US$6.3bil
• Net debt reduced by US$20bil to $US18.9bil
• Cash flow from operations down 33% to US$13.8bil
• Capex US$5.4bil

8. Property market; ALZ $0.515 (-0.96%); SDG $0.80 (+1.91%); DVN $0.28 (+7.69%); CDI $0.53 (-1.85%)

9. Engineering; BLY $0.315 (-1.56%) nature of business may mean that reporting season for them is not in line with their most productive periods for earnings over the year. They are forced to report in February despite a lot of their operations being offshore, especially in the Americas, making their reporting appear conservative and for their quieter months of Jan and Feb. BLY has begun readying rigs and hired more than 1000 employees. The stock will be included in the S&P/ASX 100 from March 19th.

10. UGL $15.02 (+4.23%) we see as overpriced but still an option in the sector with upgrades to industrial services forecasts, FGE $2.51 (+10.09%); DOW $7.48 (+0.13%) & AAX $3.99 (+1.27%) are good plays in the engineering and industrials space.

11. IIN $2.45 (+3.38%) investor presentation 1H FY10 results, focus on low price high bandwidth ISP, differentiating products.

• Revenue $228mil (+11%)
• Underlying NPAT $14.8mil (+30%)
• Underlying EBITDA $37.4mil (+20%)
• Underlying ROE 14% (+3%)

12. Australian Central credit union recorded $6.3mil profit – 55% increase in HY FY10 profit. 120% increase in retail deposits and 107% rise in assets under management.

Overseas Headlines:

1. The beginning of the global financial market descent was marked by the fall of IB Lehman Brothers. Could they also have something to do with the resurrection of global financial markets? The company has announced today that it has come out of receivership.

2. Fears of tightening policy in China entered the commodities market overnight with the majority of traders factoring into prices the effect this will have on domestic demand.

3. European Union officials have confirmed that a mechanism will be put in place to help the Greek government avoid default on debt. They did not confirm how much money would need to be pooled nor who would be contributing and to what extent they would do so, however after meeting yesterday they where protective of their vested interest in the sovereign debt within the region. Greece has committed to cutting their deficit by 4% to bring it below 4% by the end of 2012.

Data Tomorrow:

1. Canada:

• Wholesale Sales month on Jan survey 0.5% vs. prior 0.7%

2. Japan:

• BOJ Target Rate (MP) 0.10%

3. UK:

• Jobless Claims change February survey 6K vs. prior 23.5K

• Average weekly earnings 3months to January (YoY) survey 1.7% vs. prior 0.8%

• U/E rate 3months to January survey 7.9% vs. prior 7.8%

4. US:

• Producer Price Index February survey -0.2% vs. prior 1.4%

• PPO exports Food and Energy survey 0.1% vs. prior 0.3%

Profit Using Contracts For Difference

Trading coaches everywhere are often asked the question ‘What CFD day trading strategies are the best to be consistently profitable in the markets’.

Today we’ll uncover the top 5 reasons why day traders love to trade Contracts for Difference over futures or options trading.

1. No overnight interest charges

Whilst the financing for CFD positions is relatively small, it is still a debit to your trading account and ranges between plus or minus 2%-3% over your countries cash rate. With interest rates so low at present this is a negligible debit but you can avoid it by closing your position before the trading day is over.

2. You get access to a huge amount of leverage

Leverage is obviously a double edged sword and CFD traders know this first hand. A huge advantage of trading CFDs is the leverage you get access to and many providers allow up to 20 times your account size.

If you had a $5,000 position and make a 5% return, you would make $250. With leverage you can leverage your position 10 times and for the same trade you’d make $2,500.

Don’t forget that if the trade goes against you then you will lose 10 times the amount.

3. The ASX 100 stocks have plenty of liquidity

The beauty of CFDs is that they mirror the liquidity of the underlying market and if you stick to the ASX top 100 stocks then you will have no worries with liquidity there.

Direct Market Access CFDs are the best option for active short term trades as there are no requotes compared to a Market Maker.

4. Your Trading Commissions rates are low

When CFDs first hit Australia they were commission free which seemed quite incredible at the time. Since then they have increased brokerage to around 0.1% of the trade size or $10 minimum which is fantastic. Certainly for short term day traders, access to lower brokerage is exactly what they are looking for.

In fact most CFD brokers allow you the opportunity to trade index and commodities commission free.

5. Opportunities trading CFDs with current volatility is huge

Day traders need the markets to move as there is nothing worse than a sideways market when you need to get in and out intraday.

Profiting from short term moves requires a volatile market and when you combine volatile markets with CFD trading you have an incredible opportunity for profit.

ASX Stock and CFD Report 25-6-09

View Full Report

The SFE Futures suggested a 22 point rise in the market this morning. BHP and RIO both up in ADR form overnight, up 0.35% and 2.45%. BHP closed at the equivalent of 3401c, up 27c on last night’s close. Metals well up – Copper up 5.27%, Nickel up 6.13%, Zinc up 6.25%, Aluminium up 3.50%. Oil price down 1% or 67c to $68.14. Gold up $10 to $934. Up 1.1%. Bonds down – 10 year yield at 3.685% down from 3.640%. A$ up to 79.64c. VIX Volatility Index down 5.0% to 29.05.

Materials sector (Resources) +0.8%. Monsanto down 4% on results. Not good for NUF or IPL here. Energy sector weak. Oracle results better than expected with upped guidance. Tech stocks up including Apple, Cisco and Intel.Durable goods orders stronger than expected: Actual 1.8%, consensus -0.9%, prior 1.8% (revised from 1.9%). Durable goods orders ex transport: Actual 1.1% consensus -0.5%, prior 0.8%. New home sales weaker than expected: Actual 342K down 0.6%, consensus 360K up 2.3%, prior 344k (revised from 352K). Housebuilders down on the fears for higher mortgage rates and the weaker home sales numbers.Big 5 year Bond Auction went well – The $37bn 5-yr auction went well with the high yield hitting at a lower 2.700%, with a solid 2.58 bid-to-cover and a huge, near high, 62.8% indirect bidder participation rate. The previous 5-yr auction, a smaller $35bn in late May, versus this $37bn, went off when rates were significantly lower, near 2.310%, with a bid-to-cover of 2.32 and an indirect bidder participation rate of 44.2% against the 5-yr auctions in 2009 average of 2.15 and 37.7%.

The market is up 17. The SFE Futures predicted a 22 point rise in the market this morning. FOMC left rates unchanged at 0.00%-0.25%. Unanimous decision. Some disappointment that they didn’t do anything extra to pump the economy or the bond markets.

Morning Stock Report – Stocks to Watch 25-6-09

International Markets

• Fed leaves rates unchanged (0.25%) and states they will continue purchasing US govt & Mortgage related debt
• Earlier gains given up late in the day after Fed commented eco likely to remain weak for a time, but contraction pace was slowing.
• OECD says economy will grow 0.7% in 2010, raising est for first time in 2 years.
• Oil, Falls as Govt reports shows gasoline inventories rose 3.87m/bbl v cons 1m/bbl.
• Iron Ore, story hit last night revealing a 3bn metric tone Iron Ore deposit found in China. Keep in mind this deposit was found from 1.2km to 2.015km below ground.
• Gold, better on speculation Fed will spur inflation by continuing to buy Treasury securities.
• BHP, Reports Pan Pacific Copper (Japan’s largest smelter) has failed to agree on processing fees and could be forced to accept a reduction. Highlights view that supply remains tight. Decisions not expected until late July.
• Eco: Durable goods orders +1.8% v cons -0.9%, New home sales MoM -0.6% v cons +2.3%

Value Change –  % change
ASX 200 -  3,807 – 10.1 - 0.27%
All Ords -  3,802 – 9.2 – 0.24%
SPI Futures -  3,790 – 22.0 - 0.58%
Dow Jones -  8,300 – 23.1 – 0.28%
NASDAQ -  1,792 27.4 1.55%
S&P 500 -  901  -5.8  – 0.65%
FTSE 100 -  4,280  – 50.0  -1.18%
Nikkei -  9,590 - 40.7 - 0.43%
Heng Seng  - 17,892  – 353.8 - 2.02%
Shanghai Comp. -  2,922 – 29.6  – 1.02%
AUD/USD -  0.7968 - 0.0029 - 0.37%
AUD/GBP -  0.4856 - 0.0032 - 0.65%
AUD/NZD -  1.2453 - 0.0043 - 0.35%
USD/JPY -  95.6600 - 0.4400 - 0.46%
EUR/USD -  1.3930 – 0.0147 – 1.04%
EUR/JPY -  133.2300 – 0.8100 – 0.60%

View Full Report

ASX200 Stock and CFD Report 23-6-09

View Full Report

The SFE Futures suggest an 89 point fall in the market this morning. BHP and RIO both down in ADR form overnight, down 5.26% and 8.93%. BHP closed at the equivalent of 3377c, down 148c on last night’s close. Metals hit hard – Copper down 5.4%, Nickel down 4.7%, Zinc down 4.91%, Aluminium down 6.6%. Oil price down 3.6% or $2.51c to $67.09. Gold down $15 to $921. Down 1.6%. Bonds up – 10 year yield at 3.693% down from 3.789%. The rise in bonds helps the US$104bn of bond issuance scheduled for this week. A$ at 78.67c.VIX Volatility Index 11.36% to 31.17.

Bank of America down 10% – two board members resigned. Apple Inc fell on ‘key man risk’ related selling, as talk intensified that its CEO, Steve Jobs, had undergone a liver transplant about two months ago. Gold price at 5 week lows. Russia’s Micex Index is now down 20% since its 2009 peak, making it the first benchmark equity index to enter a bear market since global stocks began rallying in March. Better than expected German business confidence index numbers didn’t stop the DAX falling 3%. European Central Bank Governing Council member Ewald Nowotny commented that the bank was likely to keep interest rates steady for at least the rest of 2009. Financials worst hit - down 6.2%. Diversified Financial services down 7.5%. Sector still up 50% from March lows. Energy sector down 4.6% on the fall in the oil price. Materials (Resources) sector down 5.3% on sharp falls in metal prices. CRB Commodities index fell 2.7% – biggest fall in 2 weeks.Anglo America rejected the Xstrata bid approach as being completely inadequate.

Our market is having a shocker – down 120 on the back of Wall Street losing a couple of hundred points overnight. Nothing has been spared – both Resources and Financials suffering along with everything else.

RIO Tinto Limited (Ex Today)

Renounceable issue of ordinary shares at a price of A$28.29 per share. New shares rank pari passu with existing shares.

Underwriters: Credit Suisse (australia) Limited, J.P. Morgan Australia Limited, Macquarie Capital Advisers Limited, RBS Equity Capital Markets (Australia) Limited, Deutsche Bank Ag - Sydney Branch, Morgan Stanley Australia Securities Limited, and Societe Generale.

Note: Rio Tinto Limited has obtained a waiver from the ASX allowing the timetable for the Rio Tinto rights issue to be shorter than that ordinarily required under the ASX listing rules.

The date for second posting of Rio Tinto Limited entitlement and acceptance forms to qualifying Rio Tinto Limited Shareholders (i.e. Rights Despatch Date) is 26 June 2009.

ASX Stock and CFD Report 5-6-09

View Full Report

The SFE Futures suggested a 10 point rise in the market this morning. BHP and RIO both down in ADR form overnight, down 0.78% and 3.66%. BHP closed at the equivalent of 3555c, up 44c on last night’s close. Metals up – solid night – Aluminium up over 5%. Oil price up 4% or $2.66 to $68.80. Gold up $16.70 to $982.30. A 3 Month high. Bonds down – 10 year yield at 3.716% up from 3.551%. A$/US$ hovering just over 80c at 80.24c. VIX Volatility Index still above 30 – down 2.71% to 30.18.

Obama opens the door to better US Islam relations with a speech in Cairo. The Bank of England and the European Central Bank (ECB) left interest rates unchanged at 0.5% and 1.0%. ECB President Trichet argued that the worst of the recession had passed and hinted that the bank had no immediate plans to cut interest rates further.Fitch Ratings reiterated its confidence in the top credit grades for the US and UK.

Energy sector up 2.0% on a strong oil price that touched $85. Goldman Sachs in the US put out research saying the oil price will hit US$85 this year. Metal prices up but resources down. The RIO deal with Chinalco has disintegrated. They have announced a JV in iron ore with BHP, a US$15.2bn rights issue and a dividend cut. RIO was down 10% in the UK at one point. Closed down 6.59%. Most of the resources sector fell over in anticipation of a US$10bn cash call/rights issue from RIO. CRB Commodity price index up 2.6%.

Financials up 4.0% on some positive broker research. Jobless numbers fell slightly in line with expectations. Jobs numbers tonight. Boeing up 5% on hopes of a United Airlines order for 150 planes. May retail sales data below expectations – Retialers fell. Bonds fell. 10 year yield to 6 month highs again.

The market is up 49 this morning. 41 points are thanks to BHP and 8 points thanks to RIO. In other words without those two the market would be flat. Our market is closed on Monday – Queen’s Birthday holiday.

Market tipped to hit 4500 by year end

Expectations the Australian share market can climb above the 4500-point level by the end of 2009 have been boosted by the bourse retracing back through 4000 to a seven-month high yesterday following economic data showing a recession was avoided in the March quarter.

However, market analysts warn that a market correction of up to 10 per cent could be prompted by weaker corporate earnings and poor offshore economic data.

The S&P/ASX200 has risen 7.9 per cent since January 1, and Wednesday’s close at 4017.2  was its strongest finish since November 10, 2008.

The benchmark index retreated 1.7 per cent this morning to around 3950 points, following a weak lead from Wall Street.

Bell Potter Securities senior client adviser Stuart Smith said the market had “most definitely” bottomed on March 6 when the S&P/ASX 200 hit 3145 points.

The S&P/ASX 200 is now up more than 25 per cent from its March low.

Zurich Australia’s director of investments Matthew Drennan forecast the  benchmark index will rise to between 4100 and 4200 points by December 31, while Platypus expects it to reach 4500 points by the end of the year.

Mr Smith says a 4170 point finish to the month of June is on the cards if bullish sentiment surrounding resources stocks translates into earnings upgrades by analysts.

Mr Drennan said negative economic news from the US, higher domestic unemployment and a fall-back in consumption spending could buffet the market over the next six months and prompt a correction.

“It (the downwards correction) may even be up to 10 per cent over the next three to six months on a trend of a few bad economic numbers in a row.”

Corporate earnings results due in the September quarter may pull another dark cloud over the market and as outlook comments were analysed, Platypus Asset Management chief investment officer Donald Williams said.

“If they come out and say things are still weak and it’s too hard to call how things will play out in the next six to 12 months, then maybe that will be the trigger for a correction.”

Source: http://business.smh.com.au/business/market-tipped-to-hit-4500-by-year-end-20090604-bw9z.html

Australia avoids technical recession

Australia has so far managed to avoid a technical recession. Real GDP expanded by 0.4% in Q1 2009 following a 0.6% contraction in Q4 2009. This was stronger than the market had been expecting (+0.2%), but in line with our forecast (+0.4%). The yearly rate of growth actually increased to 0.4% from 0.3%, the best outcome by far of all the advanced economies in Q1.

Trends were very mixed across sectors of the economy. On the expenditure side, business investment, dwelling investment and government investment were all down sharply. So while household spending rose solidly (0.6%) and is clearly responding to policy stimulus, with was not enough to keep domestic demand positive in Q1. The domestic economy contracted by 1.0% after being unchanged in Q4.

Instead, a very large contribution from net exports (2.2ppt) helped to keep growth on the positive side of the ledger. This in itself is not particularly encouraging as it was mostly driven by a collapse in imports (-7%), with consumption, capital and intermediate imports all down sharply, suggesting that firms were concerned about the economic outlook and unwilling to purchase capital equipment or replenish stock levels. A large cyclical bounce in rural export volumes also helped.

Production in the economy also experienced a large drop, with the production measure of GDP down -0.9%. This was the second negative quarter for production following a 0.6% contraction in Q4, highlighting the continuing fragility of the economy. Manufacturing output continued to bear the brunt of the downturn, falling another 3.3% this quarter (now down 9% from a year ago). This was spread across a range of manufacturing segments. Our other major exporters, agriculture and mining also saw their real output shrink in the quarter and property and business services and wholesale trade and transport also contracted. Stronger household spending managed to keep retail trade positive, but activity in hospitality and recreational services both fell in quarterly and annual terms.

State final demand fell in all states except SA in Q1 2009, but most managed to remain positive in annual growth terms. This was due in part to household final consumption expenditure, which was a strong 1.5% QoQ in SA, but ranged down to -0.2% QoQ in Qld (trend). Private fixed capital formation was negative in all states. Only Qld and ACT showed negative annual growth. The biggest states, NSW and Vic were flat or close to it in annual growth terms.

Comment

Today’s solid result suggests that fiscal and monetary policy stimulus has overall been effective in softening the Australian economic downturn. Unfortunately however, the composition of growth is not as reassuring. In particular, the fall in domestic demand highlights the fragility of the domestic economy. While the household sector is receiving support from policy measures, the business sector is showing all the hallmarks of contraction, with investment, production and inventories all falling.

We remain concerned that factors propping up growth this quarter cannot be sustained. There remain significant risks to household expenditure later in the year as unemployment rises and as stimulus from cash handouts and lower interest rates wears off.  Moreover, part of the acceleration in household consumption was driven by a fairly sharp fall in the household savings ratio.  This is of concern for household finances and consumer spending should unemployment continue to rise from here. Furthermore, national income will receive a large hit in Q2 from lower bulk commodity prices and the massive contribution from net export volumes will not be continued; another sharp fall in imports is unlikely, rural exports cannot continue to rebound at the same rapid pace, and there are significant downside risks to hard commodity exports, particularly if China ceases stockpiling bulk commodities. The recent appreciation in the Aussie dollar and higher term interest rates also present significant risks to the economic outlook. On the positive side, ambitious infrastructure plans should see government investment add to growth going forward, although this will not be enough to offset sharply lower business investment.

Today’s figures are stronger than policy makers had been expecting, and support the view that the RBA will be on hold in coming months. Focus will now shift towards more timely economic indicators and evidence that this rebound can be sustained. There remain substantial challenges ahead for the domestic economy, and the RBA has clearly signalled that it is poised to cut rates further if necessary. As such, we believe that the risks to policy rates later in the year remain to the downside.

ASX Market Movers – 21 May 2009

Trade Idea – Westfield Group (WDC)

Our preference: as long as 10.3 is a resistance, we are bearish with a target at 9.51.

Alternative scenario: only the upside breakout of 10.3 will invalidate our bearish scenario. In this case, a recovery should shape towards 10.53.

Disclaimer

ASX Market Movers – 20 May 2009

ASX Market Movers – 19 May 2009

The ASX 200 – Bulls holding on….just 15-05-09

Below is the ASX 200 showing the MACD indicator mentioned in yesterday”s newsletter (Moving Average Convergence-Divergence). It is a momentum indicator. It is one of many indicators of course and none of them are going to be reliable in isolation, it’s just not that easy.

MACD displays a simple convergence of two moving averages, in this case the average price line (moving average) for the past 21periods (in this case days) crossing over (either up or down) the average price line (moving average) for the past 8 periods (days). A rising MACD indicates the 8 day moving average is crossing over the 21 day moving average, thus indicating a rising price. It is displayed as a histogram at the bottom of the chart. As the price falls back the shorter price line will fall towards the longer average. When the lines meet it is considered neutral – a decline below neutral usually indicates a short term declining trend.

The “signal line”  is the red line which a 9 day (9 period) moving average of the MACD. When the signal line crosses zero moving upwards it is considered a BUY signal and when it drops through zero it is a sell signal. This indicator is best used when confirmed by other indicators. Occasionally the indicator is “neutral” when there is very little difference between the two averages or if no trend is discernible.

From the chart of the ASX 200 below the MACD signal line is yet to fall through zero indicating the market is a sell. Yesterday’s fall is obviously testing the patience of bulls (most of us). Ext support is the low of the last few weeks of 3661 and there is then support 100 points down from there. Basic message…jury is out on this timeframe. Bulls holding on but not happy and ready to pull the trigger on selling given a nudge. Should survive without pulling the trigger today after the rise on Wall St.

Same chart of the All Ords index:

Of course the silly thing about MACD – about any technical indicator – is that it’s all about what parameters you set – change the time period to hours and look at the ASX 200 intraday on an hourly chart and the market was a sell at 3925 and not looking like a buy.Everything’s brilliant in hindsight.

ASX Stock and CFD Report 15-5-09

View Full Report

The SFE Futures suggested a 11 point rise in the market. BHP and RIO both up in ADR form overnight – 1.33% and 5.65% respectively. (BHP closed at the equivalent of 3304c, 74c on yesterday’s close.) Metals mostly up overnight – Copper up 0.09%, Zinc up 1.56% and Aluminium up 0.33%. Nickel down 1.37%. Oil price up $0.58 to $58.58. Gold up $2.50 to $928.40. Bonds up with the 10 year yield up to 3.0912%. A$/US$ up to 76.03c.

Financials up 4% – KBW Banking Index up 3.7%. Regional banks showed some of the strongest gains – Fifth Third Bancorp and Huntington Bancshares Inc both up over 7%. Multiline Insurers up 9.3% bouncing off previous losses associated with the fears around rating concerns. Retailers managed a gain – up 0.3% – Wal-Mart down 1.86% – met expectations for 1Q results – guidance was in-line. Energy stocks were down over 1% but finished up 0.3% as the oil price bounced. The IEA actually cut its demand forecast. Utilities down 0.4% – electrical utility stocks down 0.8%.
Technology stocks up – CA Incorporated posted 4Q earnings up on-quarter. Chrysler filed for bankruptcy and is looking to cut 789 dealerships to save the company. Ford up 4% as its CEO said they are slashing costs and boosting development for fuel-efficient vehicles. A rebound today from recent losses – up 54.

The SFE futures suggested a 11 point rise in the market this morning. All sectors making gains. Resources up 2.1% with RIO rebounding over 8% after falling 18% the last 5 days – remains committed to the $19.5bn Chinalco tie-up and receives US foreign investment approval for the deal.

ASX Market Movers – 13 May 2009

ASX Stock and CFD Report 11-5-08

View Full Report

The SFE Futures suggested a 44 point rise in the market. BHP and RIO both up in ADR form Friday – 4.79% and 2.64% respectively. (BHP closed at the equivalent of 3523c, up 1c on Friday’s close.) Metals mostly down Friday – Copper down 0.53%, Zinc down 1.89% and Aluminium down 1.47%. Nickel up 0.27%. Oil price up $1.91 to $58.58. Gold down 60c to $914.90. Bonds up with the 10 year yield down to 3.2856%. A$/US$ up to 76.85c.

Financials up 8.3% – The 10 banks needing to raise more capital in-line with the government’s stress testing are choosing a number of avenues to do so – capital raisings involving common stock and preference shares and asset sales seem to be the popular choices. The Bank of America is utilizing all three methods – will raise $17bn in a common stock offering, with the balance of the $34m needed through preferred stock to equity conversions and asset sales. Wells Fargo will issue common stock to the tune of $7.5bn, will retain earnings
(cut dividend) and make operational expense cuts. Citigroup will convert more than previously announced preferred stock to common equity. GMAC will likely issue common stock and increase capital further by issuing mandatory convertible preferred stock or do something with the conversion of existing equity.Energy strong – up 4.2% on the higher oil price.Defensive stocks underperformed – telecom companies down 0.4% – AT&Tdown on reports about a deal to buy $2.5bn in assets from Verizon.

Not the best of starts to the week – down 22 – considering the SFE Futures suggested a 44 point rise in the morning. Financials started off well but have since gone backwards. Macquarie Group has gone ex dividend 40c. Santos has had a $3bn capital raising and Pacific Brands $256m adding to last week’s $5bn call on the market from Macquarie, Bluescope Steel, Alumina and GPT.

Credit Default Swaps Show A Decrease In The Fear Trade

Credit Default Swaps (or default risk) have really come in over the last week, and as shown below, an index of CDS prices for 125 investment grade North American debt broke its uptrend and key support in recent days.  A break of these key technical levels leaves plenty of room to run on the downside, which is a positive for the overall market.

Below we highlight the CDS prices for four big banks and brokers.  Default risk for these companies has also dropped significantly over the last few weeks.  CDS prices for Morgan Stanley and Goldman Sachs have really moved back to more normal trading levels, while Bank of America and Citigroup are down but still have a lot further to fall before anyone can say the coast is clear.

Source: Bespoken Research

Reserve Bank of Australia Statement on Monetary Policy (May 2009) – RBA’s revised forecasts make a strong case for rate cuts, but not yet

The Reserve Bank formally lowered its 2009 growth forecast in the May 2009 Statement on Monetary Policy from ½% in its February Statement, to -1% in today’s Statement. For 2010, it also lowered the forecast from 2½% to 2%.Our estimates of the implied quarterly growth profile which the Bank is now adopting have: March quarter -0.5%; June quarter -0.35%; September quarter -0.4%; December quarter +0.2%. Growth in the first half of 2010 is estimated at 0.6%.

In the previous forecasts, growth was implied to be estimated at 0.1% per quarter in the March quarter to September quarters; 0.2% in the December quarter; and 0.9% over the first half of 2010.

So, the Bank would now be expecting both the June and September quarters to be negative compared to negligible growth in their February forecasts. For us, the question is, given that there is still some available flexibility on monetary policy, do they expect to weather three consecutive negative quarters without taking some further insurance. Certainly if the strength of the recovery was considered to be excessive in the first half of 2010, then the Bank would be reluctant to cut rates, even if it was experiencing negative growth through the remainder of 2009. However, the strength of the recovery which the Bank is implying in its forecasts is very tepid, and would definitely not preclude rate cuts if there is further slippage in the June and September quarters.

Our assessment of that profile is that the Bank would certainly see a decent case for further cutting rates if this string of negative quarters does occur through 2009. With such a modest pace of ‘recovery’ the risk of overstimulus seems slight. It appears to us that the Bank’s forecasts are entirely consistent with further rate cuts, and any assessment by the Bank that the risks to this profile have moved to the downside would see a fairly quick response.

However, the tone of this Statement indicates that at least for the next couple of months the Bank is likely to remain on hold to assess whether the current fairly gloomy growth profile might in fact turn out to be a bit better. Our view of the growth outlook is similar to the Bank’s assessment, so we expect that when the data confirms this continuing contraction, particularly in the labour markets and business investment, there will be scope for the Bank to continue to cut.

Despite this substantial revision to the growth forecast, the tone of the Statement was reasonably positive. Certainly the risks associated with the global economy continue to be highlighted, but the key observation appears to be “there are reasonable grounds to expect that a recovery will begin by the end of the year, provided global conditions continue to stabilize [Australian economy]. The recovery however is likely to be gradual at first largely reflecting developments abroad, where growth is forecast to be below trend for some time.”

In discussing the risks to this outlook, the Bank highlighted two major risks to the downside. These are firstly, bad news emerging about the European and US financial systems, which would cause a further increase in risk aversion. The Bank noted that scope for policy makers to continue to address further weakness would be constrained by large fiscal deficits and zero interest rates. The second risk was if the recent signs of recovery in China were not durable.

On the upside, there was some possibility that firms would respond more positively to recent signs of stabilization by upscaling investment plans – unlikely in our view.

The tone of the Statement was tentatively positive – “signs that activity in housing will pick up in the second half”; “recent indicators of business confidence suggest some improvement”; “consumer confidence remains substantially higher in Australia than in many other countries” although the Bank does note that “household wealth has seen a major decline” and “households have become more concerned about the prospect of unemployment”.

The substantial weakness which we have seen in the forward indicators of jobs growth is played down somewhat, with “a further decline in employment over the months ahead” – that could easily have been worded much more strongly given the excessive weakness in these indicators. We would note that the labour market charts in the Statement include yesterday’s April upside surprise in employment.

So from our perspective, we were encouraged by the profile of the revised forecasts, however, were somewhat discouraged by the moderately confident tone of the words. The one set of words however that gave us encouragement that, contrary to market pricing, the Bank will be cutting rates further was the final paragraph, which clearly stated “In assessing whether further reductions are appropriate over the period ahead, the Board will continue to monitor the implications of both economic and financial developments for prospects of a sustainable recovery in the Australian economy.” That contrasted with the last Statement which did not specifically refer to “further reductions” and in our view indicates that the issue of cutting rates will dominate the agenda of every Board meeting for some time.

Bill Evans
Chief Economist
Westpac Institutional Bank