On the face of it, the market should start solidly today after the 25 point gain in the futures market on Saturday morning, our time.
But there are a number of traps which could again surprise the unwary investor and ruin the week, just as the dramatic Qantas earnings downgrade late last week shook confidence.
That, plus two dud floats out of three (Dick Smith and Nine Entertainment, Veda was the only success) last week added to the angst among investors large and small.
Qantas remains an ongoing concern – its credit standing was cut by Standard & Poor’s so its costs will rise because it will have to find more collateral for fuel and other hedges.
There are three more floats this week, but none looks like testing investor sentiment as Dick Smith, Veda and Nine did last week.
Then there’s the market reaction to the monthly data dump from China, which started yesterday with the trade data. No real shocks there for Australia.
And there’s also QBE, the country’s biggest insurer – it suspended itself on Friday ahead of an earnings update.
Some market analysts are saying there will be a downgrade for the 2013 financial year which ended on December 31.
The question will be the extent of any downgrade and the reasoning.
Brambles and APN News and Media release earnings updates or investor briefings this week – nothing major is expected from them.
And Westpac’s AGM is in Melbourne on Friday. The bank’s management and board are likely to be circumspect about the outlook.
The AMP’s chief economist Dr Shane Oliver wrote on the weekend that "Australian shares missed out on the benefit of the Wall Street rally on Friday and have been hit relatively hard thanks to a combination of 17 capital raisings draining $4.5 billion from the market, a few negative profit warnings and the high yield nature of the Australian market that leaves it more vulnerable to rising bond yields on the back of Fed taper talk".
The ASX 200 Index lost 2.5% over the week, its biggest weekly fall since early June.
On Friday, the benchmark index dropped 12 points, or 0.2%, to 5186 points, while the All Ordinaries Index lost 10.9 points, or 0.2%, also to 5186.
ASX200 YTD – Local market to have solid opening, but for how long as worries remain
Qantas shares fell another 3.7% to $1.03 after being stripped of its investment-grade credit rating by Standard & Poor’s.
Australia’s largest insurer QBE entered a trading halt at Friday’s open ahead of an expected downgrade to its profit forecast. QBE shares last traded at $15.45, at close on Thursday.
QBE said that it had requested the halt to give it ‘‘time to finalise its analysis of information and review by the board, predominantly in relation to its North American operations, and the impact on QBE’s forecast financial result for the year ending 31 December, 2013”.
QBE reported a 37% drop in net profits in the six months to June, triggered partly by larger-than-expected costs from its US lenders-placed insurance business (a type of home loan insurance).
The North Atlantic hurricane season was pretty benign this year and that is always a cause for concern for QBE given its exposure in the huge US economy.
But other parts of the US business have been troubling the company – as has the impact of the low official interest rates around the world (which means low returns on QBE’s multi-billion dollar insurance floats (or reserves) which back its claims paying abilities.
And, Nine Entertainment shares dropped 3% to $1.975 at the close of Sydney trading, compared with an offer price of $2.05 a share. They listed at $2.03. Seven West media rose 3% last week to end at $2.16. First round to Kerry Stokes’ company?
In New York, the Dow and S&P 500 lost ground last week, despite the solid rise on Friday.
The Standard & Poor’s 500 index rose 20.06 points, or 1.1%, to close at 1,805.09, returning back above the 1,800 point level that it first cleared last month. The index finished down less than 0.1% for the week.
The Dow added 198.69 points, or 1.26%, to close at 16,020.20, the biggest daily gain since October 16 and regained its own milestone level of 16,000.
The Dow ended the week with a 0.4% decline.
The Nasdaq Composite jumped 29.36 points, or 0.7%, to finish at 4,062.52. The index rose less than 0.1% for the week for its fourth-straight weekly gain.
It’s now trading at levels last seen in September 2000.
