The S 500 was extending its losses heading into the close, down 0.45% to 1500 points.
After finishing above 1508 yesterday, the S has now risen 5.4% this month, which is its best start to the year since 1989, and has now more than doubled from the
2009 low. The reasoning for the pause was due to the release of the FOMC minutes – were Ben Bernanke reiterated his
dovish view.
The bank has reiterated its call to purchase $85 billion a month of treasury and mortgage-backed securities in a bid to
end the stubbornly high unemployment rate of 7.5% and continue to bolster the economy. The ‘status quo’ has been
maintained, however we do note some language changes:
‘Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other
transitory factors.’
Compared to the December 12 statement:
‘Economic activity and employment have continued to expand at a moderate pace in recent months, apart from
weather-related disruptions.’
This subtle change from ‘moderate pace’ to ‘paused’ shows that the Fed believes there is still some downside risk in the
economy. The new language was backed by the release of US GDP numbers overnight which were poor, showing a -0.1%
contraction compared to forecasts which expected a 1.1% expansion. The market has been looking for any excuse to pull
back after such an epic month and has taken this news as the main lead for the day. The fall was muted however by
better-than-expected non-farm payroll figures, with 192,000 workers added compared to the Bloomberg consensus of
165,000.
We also note that even with the reiteration of the Fed’s dovish view, US treasuries continued to fall with yields now
above 2% and holding, making it the fifth straight day of gains- its longest streak since August last year. This all
reiterates our view that the underlining trend of 2013 will be north. However, it will be tempered along the way with
subdued economic figures both locally and internationally.
Our house view remains the same - the ASX is on its way to 4986 points in the short to medium term, which is the 50%
retracement of the 2007 high and the GFC low of 2009. That mark is well and truly achievable with the current momentum,
however local events such as the RBA meeting next Tuesday may see the timeline for this figure extend from short to
medium.
We also see AUD/USD coming under further pressure with the election now being called. Ms Gillard has called a Federal
Election for September 14, which is the longest notification period for an election since WWII. Goldman Sachs noted that
from a monetary policy perspective, the RBA is now more likely to push ahead with rate cuts in the first half of the
year knowing that there will be no deviation from fiscal consolidation through change of government. This assumption has
continued to see the Aussie dollar left out in the cold, dropping 0.61% in the US session to $1.0411 and trending lower,
as all eyes turn the RBS meeting on Tuesday.
Moving to the open and we are calling the ASX 200 down slightly to 4890 points. Overnight, financials were the hardest
hit and after several strong runs, a pull-back in the financial sector is not unexpected. We also highlight that today
is the end of the month, and with equities having completely outperformed bonds, fund managers will be considering a
reweight to end the month and a stronger pull-back than expected may be on the cards.
Other leads that could drag the market lower is Woolworths. It is reporting this morning and after a very solid result
from Wesfarmers yesterday which saw a ‘sell the fact’ event (WES lost 1.73% at the close) after gaining 5.6% for the
month, we would expect to see a similar event this morning for WOW. Overnight, 22 out of the 24 traded commodities were
up, led by zinc and silver. However, we are expecting to see BHP giving up most of yesterday’s gains, with its ADR
pointing down 0.52% to $37.42. As we look to close the month on a low, remember this is the best start to the year since
1993.
MarketPrice at 8:00am AESTChange Since Australian Market ClosePercentage Change
AUD/USD 1.0411 -0.0062 -0.59%
ASX (cash) 4888 -8 -0.16%
US DOW (cash) 13901 -57 -0.41%
US S (cash) 1500.1 -7.8 -0.51%
UK FTSE (cash) 6312 -28 -0.44%
German DAX (cash) 7793 -60 -0.76%
Japan 225 (cash) 11085 22 0.20%
Rio Tinto Plc (London) 35.52 -0.23 -0.65%
BHP Billiton Plc (London) 21.48 -0.03 -0.14%
BHP Billiton Ltd. ADR (US) (AUD) 37.42 -0.20 -0.52%
US Light Crude Oil (March) 98.03 0.47 0.49%
Gold (spot) 1676.55 10.0 0.60%
Aluminium (London) 2099 37 1.79%
Copper (London) 8238 101 1.25%
Nickel (London) 18333 505 2.83%
Zinc (London) 2445 36 1.49%
Iron Ore 149.4 1.0 0.67%
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