Weekly Reports | Jun 24 2011
By Greg Peel
Well the ASX 200 is tenuously higher by a couple of points this morning, and you can't blame the market for being unsure. The events of last night were rather tumultuous and indeed the whole week has been somewhat of a white knuckle ride. Between Europe, the US and China, and throw in the International Energy Agency (although like the IMF, World Bank etc the IEA is just an extension of the US), we appear poised at either the top of a precipice or the bottom of one.
Critically, the S&P 500 bounced off its 200-day moving average last night before the Greek announcement sparked a sudden rebound rally. A fall from last night's closing price in excess of 1.4% would take the S&P through that average sparking an accelerated technical sell-off. While markets cannot exist without a divergence of opinions, opinions at present seem polarised between those who see a full-blown correction as inevitable and those who see tremendous value at this level. Once again we must await the US earnings season, which begins in a couple of weeks, to provide clarification. That's assuming no further extraordinary announcements out of Europe, or perhaps China, or anywhere else in the meantime.
Tonight sees the final revision of the US march quarter GDP result. Although it's less than a week to go to the end of the June quarter, Wall Street will still be on edge. At last count, expectation was for an upward revision to 1.9% growth from 1.8%. Given a stream of weak data in the last three months it's all old news, but a jittery Wall Street would no doubt react poorly to a downward revision. We'll also see US durable goods tonight, and Germany's IFO survey which is a popular economic indicator.
Moving into next week, the US Treasury will be auctioning US$99bn of two, five and seven-year notes starting Monday. Last night the two-year yield bounced off an all-time low of 0.25%. It was not that low after Lehman. The ridiculous irony is that the US government can't even agree on whether it should extend its legal borrowings to a billion gazillion from a million gazillion, or something like that, while the US central bank has admitted it has no idea why the US economy is faltering. Yet everyone in the world is desperate to lend a fading empire more money. But what's the choice, Europe?
Next week in the US also sees personal income and expenditure, the Richmond Fed manufacturing index, pending home sales, the Case-Shiller house price index, the Chicago PMI, construction spending, vehicle sales and two consumer confidence measures.
And on Friday next it's the first of the month, and the quarter, and (for many) the new financial year. The first of the month means the global round of manufacturing PMIs. The UK will make a final revision of its March quarter GDP next week, the eurozone will release a monthly CPI, and Japan will reveal May industrial production.
It's a quiet week for Australia, dominated by private sector credit and the manufacturing PMI at week's end.
Window dressing is another consideration next week, given the end of month/quarter/year. It's a dangerously volatile market to be window dressing in at present, but at some point fund managers will be looking to spruce up their FY11 returns while possibly meeting late tax selling coming the other way.
Should be fun. Oops – the ASX 200 has turned down now.
For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.
