So what’s ahead for markets this week after last week’s rattling? Yes, gold, copper, oil and fears about global growth remain dominant issues, but go short term for a day or so and look at some key American quarterly profit reports – especially those of Apple which will be the focus for the week when it reports Wednesday morning, our time.
On top of that there’s the Australian trading week (cut by a day because of Anzac Day on Thursday) which will be dominated by interest rate considerations after the consumer price inflation data for the March quarter is released on Wednesday. Rates won’t change as a result of the CPI report (which will be fairly benign) – the Reserve Bank is watching to see how domestic demand is going.
First up, For the week, the the Dow lost 2.1%, as did the S&P 500 and Nasdaq lost 2.7%, gold lost around 7% copper was off around 5.6% and oil was off by 3%.
In Australia, our market lost 1.6% (for the S&P 200 index), which wasn’t a bad result compared with the losses offshore and in most commodities. In fact that’s a relative out performance by this market, but you wouldn’t have thought that after the spate of fear and loathing stories in the media last week about massive sell offs. The Aussie dollar fell below $US1.03 to end at $US1.0277 early Saturday, down around 1.5c on the week. That was a 2.2% fall for the week.
The so-called weak economic data from China for the March quarter and March was just an excuse for worried investors to sell resource stocks here and around the world. Of equal fear for many investors is the way the US economy seems to be softening, for yet another year. And Europe’s recession remains a big concern and is having more impact on the global economy than any other region.
But all eyes will be on Apple’s quarterly result. More than any other stock, Apple has become the bellwether for the current rebound on US markets – but it has gone off the boil in the past seven months.The shares are down more than 40% since its peak last September when the shares topped the $US700 mark.
Apple shares closed at $US390.53 on Saturday morning, our time, the lowest since late 2011. It has shed more than $US280 billion in value since its peak, which is far whack of losses for a lot of investors, large and small. Apple shares are firmly in a bear market (a fall of 20% or more from its most recent high).
It’s shares have taken a hiding for the past month, and especially last week – the worries were added to by an earnings miss last week for the giant IBM. Now analysts are forecasting a fall of 18% in earnings per share for Apple an 8% rise in revenue (which will be considered ‘weak’ – but all things are relative when market tensions are high). If Apple does better than market forecasts (say earnings per share down by just 10% instead of the forecast 18% and a rise of 10% in revenues, then that will steady market nerves.
Investors are waiting for updates on new products (new iPads and iPhones are due in the next two quarters) and for signs the company is sorting out its problems in China.
An earnings undershoot will spark another round of nervousness on Wall Street, supporting those analysts who say the huge surge in American corporate profits since 2009 is exhausting itself and another round of cost cutting and job losses could be in store.
Other earnings reports to watch this week from the US will be Caterpillar (It has already warned of a fall in earnings and is something of a key indicator stock for construction and the Chinese economy), Exxon and Chevron (which will provide an update on progress with its multi-billion dollar LNG export projects in WA).
Gold futures prices fell 7% last week and in Australia, Newcrest, our biggest gold miner, was down 14% (to $16.73), despite a 4% bounce on Friday. That tells us the market doesn’t trust the company and it will come under further pressure tomorrow with the release of the December quarter production and exploration report. Seeing the company has already trimmed 2012-13 production and profit guidance this year, you’d expect there to be no more surprises from Newcrest, but investors are wary.
Copper prices fell nearly 6% last week and hit an 18 month low during the week of $US6,800 a tonne. Not even news of Rio Tinto cutting copper production by 100,000 tonnes this year because of a massive landslide at its big mine in Utah in the US, could change market sentiment.
And oil lost ground with the key Brent price in London falling under $US100 a barrel for the first time since July last year. It ended the week at $US99.65, down more than 3% for the week. US oil futures also lost ground over the week in New York, despite a rise in Friday trading. US natural gas prices finished above $US4 per million British Thermal Units for another week and remain at levels not seen since July 2011.
So why did our market ‘outperform’ some markets and commodities – look to the banks and consumer staples companies, such as Westpac (down just 0.9% at hit a record high of $31.85 on Thursday before easing on Friday). The CBA was up 1.1%, ANZ was off 1% and NAB was also lower by 0.50%. Woolworths rose by around 2%, Wesfarmers by 2.6%, but Metcash was off 1.46%, so investors are still chasing quality over quantity.
BHP Billiton lost 6% and Rio Tinto 4.6%. Telstra though stood out with a gain of 3.3% and at one stage hit $4.90. Telstra’s performance just about sums up the outlook for the moment – It’s all about yield and perceived safety. Talk of the ‘great rotation’ out of bonds and into shares has vanished once again. Risk is definitely off, but a few quiet trading days might drag a the odd bull from their bearish lairs.
