Australia | Nov 20 2012
By Max Ludowici, Equities & Derivatives Advisor, 708 Capital
Australian shares had a positive session following solid leads from Wall Street overnight. The XJO had a lacklustre opening before finding its feet from midday and posting a mildly solid gain of 24 points or 0.56% to 4385. A raft of mixed news throughout the session failed to slow the buying which was still comparatively weak on a combined traded value of $3.7bn. The news overnight was hardly a revelation but markets globally managed to push out very strong gains, US volumes were rather mild to boot. Moody’s came out early in our session to announce they had downgraded Frances sovereign bond rating by one tick to Aa1 from AAA citing economic challenges, a loss of competitiveness and a lack of flexibility in its labour and services markets. This wasn’t a huge surprise to the market and barely caused a ripple on the XJO or US futures, we’ll have to wait to see will effect Euro markets overnight.
The AUD and CAD joined the ranks of the USD, JPY, GBP, Euro and CHF as the two newest currencies to be given reserve status by the IMF. Greg Peel goes into greater detail with a note dedicated to the news but the ramifications of this change are significant. The AUD is already the fourth most traded currency globally and this only further affirms its status as a must have currency for reserve banks around the world. The IMF has encouraged member nations to include the AUD and CAD in their reserve holdings from 2013.
There are two circles of thought around the AUD. The first with their more traditional ‘commodity currency’ viewpoint, believe the AUD is overvalued based on China’s flattening demand for our resources and will likely fall in the near-term. The second, more progressive camp have worked out that there are more complex forces at play these days and the foreign appetite for our AAA rated bonds is a bigger driver for support of the AUD. A forex dealer friend of mine who works at one of the big 4 has long commented on the huge and growing holdings of AUD by foreign reserve banks, with the latest tick of approval by the IMF this will only add to their argument that a higher AUD, probably above parity, is here for the long haul.
RBA minutes out today showed the RBA board members “considered further easing may be appropriate in the period ahead”. You got to love the way these guys phrase things. Despite the language seeming pretty vague to most people, the market read this to mean that additional rate cuts in the coming months are highly likely. The minutes went on to say, further effects of the current monetary policy stance are yet to be observed, meaning they may want to see more evidence before deciding to cut rates. The minutes also noted that the US economy continued to expand at a moderate pace and Chinese growth had stabilised. They highlighted the Euro area crisis as a downside risk to global growth. Trade in the AUD was directionless all day, despite the news from the IMF and the RBA minutes.
Strong trade in the cyclicals lead the market with standout moves from Fortescue ((FMG)) up 16 cents or 4.2% to $4.01 on no movement in the Iron Ore price (Spot currently at US$122). Mining services middle-weight Cardno ((CDD)) was down 19.2% to $6.30 after warning shareholders that market conditions were more difficult than anticipated and forecasting NPAT to be in line with 1H 2012 numbers.
DOW futures are down slightly into the afternoon -10 points.
This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.
708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.
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