AdviserVoicefinancial markets Archives - AdviserVoice

Investor Signposts: Week Beginning May 8 2011

Thu, 05 May 2011 04:44:48 +0000

The big picture

During the year, the spotlight is rarely thrown on the Federal Government’s Budget position. Certainly there is the handing down of the annual budget statement in May and then there is the half-year check-up around November/December. But apart from that, there is little focus. That is a shame, because monthly budget statements are produced, enabling a regular assessment about whether the numbers are stacking up.
The latest monthly budget numbers for March were released on April 29. Some criticised the timing of the data – occurring on the day of the Royal Wedding. But both Coalition and Labor Governments have made it a habit of releasing the monthly figures on a Friday afternoon. Clearly the spotlight makes the bean counters uncomfortable.
In the twelve months to March, the budget deficit stood at just under $60 billion. Given that the Federal Government is aiming for a deficit of $41.5 billion by June, it clearly has a lot of work to do over the next three months. In each of the next three months the budget result will need to be $6 billion better than a year ago.
Even when you focus on the so-called “profile” deficit – the estimate of where the deficit should be – there is a gap of $4.6 billion. That is, the deficit is almost $5 billion higher than it should be.
Part of the blame has been attributed to the floods and cyclone, resulting in increased government spending. But the annual total of government revenue is also well short of government/Treasury estimates. In the year to March, government revenue was $298.6 billion, whereas the full 2010/11 estimate stands at $319.7 billion. Even the “profile” position of revenues is almost $5 billion short of where the government/Treasury estimated it to be by now.
So while the floods and cyclone may have complicated the budget task for the Government, the Reserve Bank has also made life difficult as well with the rush to lift interest rates, especially the last move in November. The economy is only muddling through at present with higher interest rates and higher living costs restraining consumer spending. This is further evidenced by GST receipts – over the past six months annual GST receipts have been moving sideways.
The medium-term outlook for the Budget is still favourable. Companies are in good shape, profits are rising and employment should continue to grow. The Government just needs to maintain discipline on spending (expenses) over the next few years and the budget position will trend back to balance. While it is laudable that the Government is committed to returning the budget to surplus, there is no need to rush.

The week ahead

The Federal Budget dominates the domestic economic calendar over the coming week but it certainly doesn’t hog the limelight completely with trade, tourism and employment indicators also due for release. Overseas, monthly Chinese economic data will be released while trade, consumer spending and inflation indicators dominate in the US.
On Monday, the Advantage and ANZ gauges on job advertisements will be released. Job ads are growing at a steady pace, suggesting that the job market will continue to tighten. Hopefully that situation will be addressed with a lift in the skilled migrant intake when the Federal Budget is handed down on Tuesday.
The Federal Budget is handed down on Tuesday night. At this stage the budget deficit for the currently financial year looks likely to be around $50-55 billion, rather than $41.5 billion as forecast late last year. The slippage this financial year has potential to extend into 2011/12, placing at risk projections of a surplus by 2012/13. The Government may forecast a deficit in the region of $20-25 billion for 2011/12, up from the current estimate of $12.3 billion. If it were to stick with the current projections, it would require fresh initiatives to either trim spending or boost the tax revenue take.
Data on tourism arrivals/departures and migration will also be issued on Tuesday together with trade figures for March. The downturn in short and longer-term arrivals will be confirmed but the trade position may have returned to surplus by around $1.0 billion.
The other indicator to be closely watched in the coming week is the monthly job figures, issued on Thursday. Each month employment needs to rise by around 20,000 to keep the jobless rate stable and we are tipping a 25,000 increase in new jobs for April. As a result the jobless rate will remain at 4.9 per cent or edge a touch lower to 4.8 per cent – depending on what the participation rate does.
Turning attention overseas, China is scheduled to issue monthly trade data on Tuesday and should follow this up on Wednesday with the usual monthly “download” of data, covering spending, production, investment and inflation.
In the US, data on trade prices is released on Tuesday together with figures on wholesale inventories. On Wednesday, trade figures for March are issued together with the monthly budget estimates.
While the data in the first half of the week is unlikely to set the world on fire, the second half of the week is a different story. On Thursday retail sales, producer prices and business inventories are scheduled with consumer prices and consumer sentiment slated for release on Friday.
Economists tip a 0.5 per cent lift in retail sales in April (up 0.7 per cent if auto sales are excluded) – a healthy result when you consider the soft job market, but inflated somewhat by higher gasoline prices. The core measures of both producer and consumer prices (excludes food and energy prices) should have lifted by 0.2 per cent in April, confirming that inflation is creeping back as a focus for investors. But little change is tipped for consumer sentiment.

Sharemarket

According to financial markets data provider, FactSet, the “World” sharemarket is currently up 7.1 per cent in US dollar terms since the start of the year. European sharemarkets have outperformed, especially eastern Europe, but even the Spanish sharemarket has lifted 24 per cent with Germany up almost 18 per cent. While Asian sharemarkets have been mixed, North American markets have lifted just over 8 per cent with the US up 8.6 per cent. Australia, by comparison, has tracked the world market, lifting 7.7 per cent.
But you get a far different picture if you look at global markets in Australian dollar terms. On this basis, the “World” sharemarket has barely moved in 2011 as has the Australian sharemarket. Domestic investors may be disappointed by the performance of our shares, but less so foreign investors, focussed on US dollar returns.
We haven’t adjusted our sharemarket forecasts since mid March and see little need to do so now. CommSec expects the ASX 200 to reach 4,900 by mid 2011 and 5,200 by end 2011. The strong Aussie dollar will provide headwinds in the short-term together with our flat economy. A softer Aussie dollar and firmer domestic and global growth should boost Aussie shares later in 2011.

Interest rates, currencies & commodities

In Commodity Boom Mk1, demand for bulk cargo vessels rose sharply, causing freight rates to soar. In August 2002 the Baltic Dry freight index was hovering near 1,000, but in the space of a year it had doubled, and by February 2004 it stood at 5,700. But clearly it takes time to build new ships and freight costs didn’t stop there, hitting 11,793 in May 2008.
In Commodity boom MkII, freight rates have been better behaved, reflecting a better balance between demand and supply. Currently the Baltic Dry index stands at 1,269 – a level that is much more in line with the prevailing trend from the mid 1980s through to the start of the first commodity boom. Supply eventually catches up with demand, a point that is worth keeping in mind when thinking about commodities more generally.

Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report. The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them. Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

The post Investor Signposts: Week Beginning May 8 2011 appeared first on AdviserVoice.

Mining drives Aussie sharemarket

Fri, 01 Apr 2011 06:55:37 +0000

Financial market trends

The mining sector is now the primary driving force behind the Australian sharemarket. In terms of volumes of shares traded in March, mining volumes were double that of a year ago while the number of
industrials shares traded were down by 4 per cent.
In value terms, trading of industrials shares still dominate, but it has fallen in annual terms for the majority of the past year. Mining shares are up 37.2 per cent on a year ago.
Over the past year the Small Resources index has soared by 25.9 per cent whereas the ASX 100 Resources index has lifted just 9.9 per cent.

What do the figures show and what does it mean?

Forget about the banks, retailers, media stocks and technology, it is mining shares that are in vogue at present, driving both the volume and value of shares traded on the Australian Stock Exchange.
In March, $85.8 billion industrials shares were traded, the highest amount since May last year. But in annual terms share trade was 5.1 per cent lower than a year ago. Trading in mining shares is still lower than industrials at $53.4 billion, but it was the second highest monthly total in three years and up a hefty 37.2 per cent on a year ago.
The value of Industrials shares traded has only grown once in the past nine months while shares of mining shares traded has consistently grown, averaging 24 per cent annual growth.
In volume terms, trade in mining shares took over from industrials in September last year. In March 2011, 49.5 billion mining shares were traded, up 97 per cent on a year ago. Industrials shares traded in March stood at 32.6 billion, down 4.4 per cent on a year ago. Trading in mining shares took off in August 2009, with annual growth averaging a staggering 80 per cent over the period.
Over March the All Ordinaries and ASX 200 both rose by just 0.1 per cent. The ASX 100 Resources index was up by 1.9 per cent to the highest level since February 15 2011.

Interestingly, the biggest Resources companies were most in favour over March; no doubt foreign investors were attracted in response to a weaker Aussie dollar. While the ASX 100 Resources index rose 1.9 per cent in March, the Small Resources index fell by 2.4 per cent. Still, the ASX 100 Resources index rose 9.9 per cent over the past year while the Small Resources index rose by 25.9 per cent. The Small Industrials index rose by just 1.7 per cent.

What are the implications for investors?

There are two factors that investors need to focus on. The first is China – if investors continue to expect China will grow strongly and suck in resources then they will embrace large and small mining and energy shares.
The other influence is the Aussie dollar. Whenever the Aussie loses ground, foreign investors come out of the cupboard, embracing large cap shares.
And herein lies the distinction. Foreign investors must take into account the US dollar price of Aussie shares whereas domestic investors in smaller mining and energy companies don’t need to worry about currency factors – rather they focus on the outlook for individual companies.
The Small Resources index began to outperform the large cap resources stocks (ASX 100 Resources) in September last year when the Aussie dollar recovered from the European debt crisis. The stronger Aussie proved a real barrier to foreign investor interest.
Foreign investors own around 43 per cent of all Aussie shares so clearly the value of the Aussie dollar is important in purchasing decisions.

The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report is approved and distributed in Hong Kong by Commonwealth Bank of Australia, Hong Kong Branch and its accredited Hong Kong representative. This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them.

Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

The post Mining drives Aussie sharemarket appeared first on AdviserVoice.

CMC Markets further expands market leading education and analyst team

Thu, 03 Mar 2011 06:08:31 +0000

Former City Index dealing head joins CMC Markets

CMC Markets has continued to expand its team within education and market analysis with the appointment of Michael McCarthy as Chief Market Strategist.

Mr McCarthy joins CMC Markets from City Index where he held the position of Head of Dealing Asia Pacific, overseeing global market risk while leading research and education strategies. Based in Sydney, Mr McCarthy will be responsible for global and local market analysis, the formulation of trading strategies and playing a key role in education.

Mr McCarthy comes to CMC Markets with over 27 years of experience in financial markets, specialising in equity trading, derivative trading and trader education. Previously a Director of Derivative Trading at ABN Amro Australia and Vice President of Equity Derivatives at Citi Group, Mr McCarthy has also held positions such as option market maker, money market dealer and foreign exchange arbitrager. He holds a Masters Degree in Applied Finance from Macquarie University.

Louis Cooper, co-Head of CMC Markets Australia and New Zealand, said: “Education continues to be a big focus for us. Michael brings a vast wealth of experience which will be invaluable to support the growth of CMC Markets and in particular its stockbroking and CFD education efforts.”

CMC Markets is already rated the number one CFD provider for education in Australia according to the latest Investment Trends report¹ and offers a range of educational tools across both its stockbroking and CFD businesses including tutorials, webcasts, user guides, webinars, seminars, education blog and online articles.

Mr McCarthy said: “This new role gives me scope to further develop some of the areas of trading I am most passionate about – employing a strategic approach to trading, looking at all asset classes and markets, conducting in-depth analysis and using a full arsenal of trading tools to highlight key market opportunities for CMC’s clients.”

The post CMC Markets further expands market leading education and analyst team appeared first on AdviserVoice.