Common Sense Will Prevail....

June 8th, 2010  by Cale McCulloch

Closing Data

	Current	Change	%
Dow Jones	9,816.49	-115.48	-1.2%
NASDAQ	2,173.90	-45.27	-2.0%
S P 500	1,050.47	-14.41	-1.4%
FTSE 100	5,069.06	-56.94	-1.1%
Nikkei 225	9,520.80	-380.39	-3.8%
ASX 200	4,325.90	-123.5	-2.8%
COMEX Gold - Dec 09	1,240.80	23.1	1.9%
COMEX Silver - Sep 09	18.162	0.863	5.0%
COMEX Copper - Sep 09	276.6	-5.35	-1.9%
WTI Spot	71.45	-0.06	-0.1%
AUD-USD	0.8106	-0.0096	-1.2%
Aluminium	1,915.50	-35.5	-1.8%
Copper	6,450.00	-170.5	-2.6%
Lead	1,621.00	-19.5	-1.2%
Nickel	18,300.00	-905	-4.7%
Tin	17,245.00	-340	-1.9%
Zinc	1,665.50	-75.5	-4.3%

US stocks suffered yet another final hour sell down, after trading close to flat for the bulk of the session. The weakness began in the US Friday night on the back of weak payrolls data and some foolish comments from a Hungarian official. It continued throughout  Asian trading yesterday with the ASX 200 slipping 130 points for the session, while the rest of Asia was broadly in line with that. The weakness then continued throughout the European sessions, but markets did manage to claw back some early gains as investors took heart in what looked like being a flat night in the US, the London FTSE 100 ending down 1.1% at the close. By the close of the US session, risk continued to come off the table, seeing the Dow close lower by 115 points while the broader S&P500 closed 1.35% lower at 950.

Data out of Germany showing that factory orders jumped more than expected on the back of the weaker Euro, along with comments out of Hungary that attempted to distance themselves from the comments made on Friday night Australian time failed to shift investor sentiment.

The Australian market looks set to open weaker this morning, but it should be noted that one of the best performers in the region yesterday was the Shanghai composite. The Hong Kong market shook off some of the early losses, after the Australian market closed, ending lower by about 400 points compared with the 600 it was losing earlier in the session. The 400 point decline saw the index at 19,378, down from some 22,400 in late April.  The relative strength of the bigger Asian markets relative to the US market over the past couple of weeks, will provide support for the big miners on the domestic market despite some weakness in base metals and Oil.

Although the “risk” trade appears to be coming off on markets individually, the global mobility of capital is seeing the money reallocated around the globe. The chart below shows the relative outperformance of the Hang Seng against the Dow over the past month (since the market correction began in the US). Over the past couple of sessions it has broken the down trend that has been in place since November last year. The relative strength of Asia will support the Australian market over coming months, miners in particular.

What does this mean… well, it is going to be a volatile couple of months but with the AUD beginning to form a base in the 80-85 range, the unwinding of the carry trade that has seen money flow out of Australian equities should slow dramatically, even more so because the Euro zone tensions look to be making monetary tightening around the globe less likely than before, in the short term at least. So, there will be little reason from a currency point of view for international investors to sell holdings with the AUD in the low 80 range against the USD, and valuations on some of the bigger companies are CHEAP. I am not saying they will bounce back over the next month, but they will find support here….

BHP ADR trading in NY closed at an AUD equivalent of 36.10 compared with 36.53 domestically yesterday, and the SPI has us falling by about 37 points on the open, but I think the market will find support here… in a big way! People are scared, more scared than they have been in over a year… and the fears from the last crash are stopping people buying this time… things are not as bad, and the Euro zone crises will take months to play out, if not years so it should dissipate from investors minds in coming months. The Productivity data in the US showed growth of 2.9% for the first quarter, the slowest rate of growth in over a year. Although this sounds negative (and the market read it as being negative), at the end of the day productivity has to slow before companies are required to employ more people to match demand (common sense)… Jobs growth will be seen over the next quarter in the US and should set the market up for a new leg higher as common sense begins to prevail.

I got an email yesterday, not even asking a question, just to tell me how bad things are…. And they don’t even own shares… that is a Bell if I have ever heard one….!!! 

No need to rush in but you can definitely Buy/Accumulate with confidence at these levels.

 

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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