Jun 10, 2014

Morning Market Report

A quiet day on the markets, as the consequences of the budget release begin to surface in share prices and profit forecasts.

The market is up 28 points. The Dow Jones was up 19 points at 16,943 on Monday to a record closing high -- the market opened strongly but then lost momentum, falling to be down as much as 11 points before a late recovery. There was no major economic news and the market was dominated by corporate activity. Cyclical sectors outperformed -- Consumer Discretionary, Energy, Financials, while defensive sectors lagged. Volume was light and the market traded in a 57 point range. On Friday, the Dow Jones rose 88 points at 16,924opening strongly after good economic data and positive sentiment about the ECB rate cuts. Volume was well below average in a 88 point range. Corporate activity -- Hillshire Brands was acquired by Tyson Foods, Hittite Microwave was acquired by Analog Devices and Idenix was acquired by Merck. US economic data was good on Friday -- 217,000 jobs were created in May, just slightly below expectations and the unemployment rate remained unchanged at 6.3%. The report wasn't weak enough to cause concerns about the economy and not strong enough to raise fears of faster policy tightening. Positive aspects to the data were a slight increase in hourly earnings and the largest gains were in "good quality jobs" in business services and health care. European shares were stronger -- The UK FTSE was up 0.44%, the German DAX was up 0.21% and the French CAC was 0.17% higher after the ECB rate cuts on Thursday. European markets were also stronger on Friday when the French CAC rose 0.71%, the German DAX rose 0.40% and the UK FTSE rose 0.19%. Peripheral European bond yields have hit new record lows after the ECB action on Thursday. The Aussie dollar was stronger and is currently trading at US93.52c. Chinese Trade Data -- exports rose 7% on year ago levels, above expectations of a 6.6% increase. But imports were down 1.6%, below expectations of a 6.1% increase Gold rose US$1.40 or 0.11% to US$1253.50 an ounce. On Friday gold fell US$0.90. Oil rose US$1.75 or 1.70% to US$104.41 a barrel. Oil had risen US$0.18 or 0.18% on Friday. Base metals were mostly stronger -- aluminium was up 1.58%, zinc rose 1.11% and nickel was 0.11% higher but copper fell 0.11%. On Friday aluminium (+1.78%) and zinc (+0.68%) were stronger but nickel (-0.86) and copper (-1.5%) fell. Iron ore fell US$0.20 to US$94.30 a tonne, reversing Friday’s US$0.20 gain. US earnings -- Casey’s General Stores -- down 3.4% in after-hours trade. STORIES
  • Key Events this week -- Domestically, consumer sentiment is tomorrow, where recent weekly surveys have shown a big drop in sentiment since details about the budget first started to be released. Employment data is out on Thursday. In the US, the key focus will be retail sales on Thursday and PPI and Uni of Michigan Sentiment on Friday. In Europe, industrial production is out on Thursday and unemployment is on Friday. UK industrial production is on tonight and unemployment is Wednesday. And there is a lot of Chinese data -- CPI and PPI today and industrial production and retail sales on Friday.
  • The Reject Shop (TRS 915c) -- Has issued a profit downgrade saying it will fall short of their profit forecast due to lower than expected sales effected by warm weather and the federal budget. It now expects profit in the year to June 30 to be between $14.5-15.5 million down from $17-18 million. The revised profit also includes the impact of costs associated with the opening of a further thirteen stores in the second half and asset write downs in respect of three stores which are being closed, and a further three stores which are underperforming. Consumer confidence has fallen since the government's planned spending cuts and tax increases were announced.
  • Pacific Brands (PBG 56c) -- Has issued a profit downgrade, also blaming weather and a fall in consumer confidence following the federal budget. It now expects profit to be $90-93 million, down from $105 million.

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