Our share market versus the rest of them

^{Source: BT Financial Group, Premium Data}

What made news last week?

Equity Markets fade at the end of the week

At the outset of the week equity markets globally managed to post further gains following on from the strong performance in the week prior. On Friday those gains were unwound and the S&P 500 fell by just over 3%. One of the triggers for the slump was much weaker than expected consumer sentiment data.

University of Michigan consumer sentiment index falls sharply

The UoM sentiment index dropped 9.5 points from its June level of 76 to record a level of 66.5 which is the worst reading since August 2009 and one of the sharpest declines seen in the history of the index. The survey is done by telephone and it is quite up-to-date therefore the sharp falls in equity markets may well have derailed consumer confidence.

Earnings results mixed

US companies were busy reporting their earnings last week and while most companies are beating the rather generous earnings expectations there have been few disappointing results. Bank of America stock fell sharply despite their earnings coming in around consensus. Google managed to disappoint the market as their earnings results missed expectations. Higher than expected expenses were the main drag on their results, and Google stock fell nearly 7%.

Producer Price Index drops more than expected as inflationary pressures remain subdued

US Producer Prices fell by 0.5% in June which was much larger than the 0.1% decline expected. Food prices fell sharply by 2.2% which dragged the index lower. The core producer price index actually inched upwards by 0.1% in June. The lower than expected result stoked fears the economic recovery in the US may not be as strong as previously expected.

BP gets closer to permanently fixing the Deepwater Horizon well

BP has managed to fit a blow out preventer cap to the leaking well in the Gulf of Mexico. While they are curbing their optimism in case anything goes wrong, it does appear that for now the flow of oil has been halted. The next major concern is that oil may start leaking out from around the well, if that happens then they will have to take steps to try and block the flow of oil using relief wells and then pumping in concrete into the well.

Chinese GDP data strong but moderating

Chinese GDP data was released on Thursday and it showed that the Chinese economy grew at an annual, inflation adjusted, rate of 10.3% for the second quarter; this is down from the 11.9% rate seen in the first quarter. There have been recent steps taken by the Chinese government to try to curb the pace of economic growth as speculative excess has become apparent in sectors such as property development and steel production.

Goldman Sachs settles with SEC

While not admitting any legal wrongdoing, Goldman Sachs has agreed to pay a fine of US $550 million to the SEC. This is the largest fine yet imposed by the SEC and it relates to the levels of disclosure Goldman Sachs gave investors in certain synthetic mortgage products.

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Market movements

Market indicator	Friday 25 June, 2010	Friday 2 July, 2010	Weekly change (%)
Share markets
Aust. – All Ordinaries Index	4,396.30	4,422.70	0.60%
World – MSCI World Index	2,634.10	2,629.90	-0.16%
US – S&P 500 Index	1,077.96	1,064.90	-1.21%
Europe – Dow Jones EuroStoxx50 Index	2,681.20	2,645.60	-1.33%
UK – FTSE 100 Index	5,132.94	5,158.85	0.50%
Japan – Nikkei 225 Index	9,585.30	9,408.40	-1.85%
Volatility Index (VIX)	24.98	26.25	5.08%
Commodities and bonds
Oil (West Texas Intermediate)	US$76.09	US$76.01	-0.11%
Gold	US$1,209.80	US$1,188.20	-1.79%
US 10-year bond yield	3.06%	2.94%	- 12 bps
Aust. 10-year bond yield	5.12%	5.12%	No change

Australian dollar

The Australian dollar ended the week almost unchanged. Strength at the beginning of the week gave way to a sell off on Friday which occurred after the close of the Australian market when the US equity markets slumped.

Friday, 9 July 2010	Friday, 16 July 2010
US$0.8772	US$0.8765

What to watch next week

Electioneering will be centre stage for the Australian market. It is likely that the direction for the equity market and the Australian dollar will be taken from the performance of the US market. The main driver for the US market will be earnings results; further weakness will potentially lead to further steep falls as the technical setup points to the market remaining in a vulnerable state.

Key market performance

 Australia
The ASX -200 posted a small gain of 0.60% for the week but with our market closed when the US equity markets slumped on Friday the market is likely to follow to the downside at the outset of this week.

 US
US markets ended the week lower despite being well into positive territory earlier in the week. A slew of weaker than expected economic data coupled with some earnings disappointments caused the major indices to all slump on Friday. The S&P 500 lost 1.2% over the week, while the NASDAQ performed slightly better with a decline of 0.8%. On Friday, the financial services reform bill was passed by the Senate. The bill aims to help protect consumers from unscrupulous lenders as well as curbing risk taking by large financial institutions to try and prevent a repeat of the mistakes seen in the recent past.

 Europe
European markets managed to miss the worst of the decline seen in the US on Friday as they had already closed for the weekend. As with the Australian market, a degree of catch up could be expected at the outset of this week. The FTSE – 100 posted a small gain of 0.50% for the week. BP shares managed to post gains as it made progress on halting the oil leak, BP shares are now 36% up from their lows seen at the height of the crisis.

 Japan
The Nikkei ended the week lower by 1.85%. On Friday the Nikkei shed 3% which was the largest decline since early June. One of the major concerns was a stronger Yen as that will hurt exporter’s earnings. Volume was relatively thin on Friday, with many investors now on summer holidays.

Commodities

Gold
Gold prices remained relatively stable over the week until on Friday prices moved strongly downwards with a fall of over $20 on the August futures contract. Weakness in the equity markets and softer inflation data helped push prices lower.

Crude Oil
Crude oil prices ended the week almost unchanged posting a small decline .Prices had been firmer during the week as equity markets held their higher levels. That strength evaporated on Friday and crude oil tracked equities lower. Given the decline in the key equity markets oil actually held up reasonably well. Firm to robust Chinese GDP numbers may have kept prices better supported than would otherwise be the case. Weak US data had a negative impact.

Outlook for markets

US earnings will remain in the spotlight this week. Goldman Sachs reports on Tuesday and it will be interesting to see whether they surprise on the upside. On Tuesday and Thursday there will be new housing and unemployment data released but it is a relatively quiet week in economic data release terms.

The impending election in Australia is unlikely to have any major effect on the domestic market. Recent polls look positive for the incumbents; hence uncertainty about the outcome has diminished.