Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
It has been an interesting start to the week for global markets, with equities somewhat bouncing back after an interesting Friday in which geopolitical risk was a dominant theme. On Friday, traders focused on developments in Ukraine where a small Russian military convoy that entered from Russia was attacked. This saw equities swiftly drop, while treasuries and bunds rallied with yet another drop in yields. While risk has since improved a touch, the moves in bonds just show there is still a fairly high level of uncertainty out there.
One of the key focuses in Asia has been China’s July property prices. Recent weakness in credit and money supply data had already left traders very pessimistic about the property report, and today’s readings just confirmed this. The data showed prices decreased in 64 out of 70 cities for new residential apartments. For existing residential apartments, prices decreased in 65 of the 70 cities. Given weakness remains rampant in certain parts of China’s economy, there have been growing calls for further stimulus measures recently. There are growing signs that China’s economy is going through a renewed soft patch and this has prompted some analysts to call for an RRR cut or further targeted stimulus.
While this weak property prices data amplifies China’s current issues, it’s probably prudent to assess another month of data before starting to call for a ‘weaker trend’ developing. While China will remain a talking point with FDI data and the HSBC flash manufacturing PMI reading still to be released, focus will switch to the US as the week progresses. The Jackson Hole Symposium will be the key event for the USD and currency markets this week along with the July FOMC meeting minutes.
NAB Q3 update falls short
Having said that, the region is mostly firmer today and it seems the market isn’t quite in panic mode over China just yet. The ASX 200 has got off to a fairly positive start to the week, despite a couple of earnings falling short of market expectations. NAB has lost ground despite reporting a 7% rise in headline profit and cash earnings for the third quarter. However, revenue was down 1% on lower market’s income, but good momentum in home loan growth is likely to offset that.
Like its peers, a steady fall in bad debt charges underpinned earnings. Generally analysts feel an improvement in asset quality and steady net interest margins were the key positives. NAB has been pretty aggressive on rates in a bid to gain market share and this is likely to start paying off in the future as its home loans are already up 8.5%.
Big dividend coming out of the market
NCM saw a headline loss of $2.2 billion, which was quite alarming and driven by asset impairments at Lihir, Telfer, Bonikro and Hidden Valley. However, the underlying profit of $432 million was broadly in-line with estimates. It seems like it’s the same old story with NCM and investors are likely to remain concerned about further write-downs. From an investment case perspective, NCM isn’t offering income and scope for growth seems limited; as a result unless gold/copper rockets it’ll always be hard to justify holding on to the miner. There were a few positives on output figures for copper and gold, but once again costs will be key going forward. There is a fairly chunky dividend coming out of the market tomorrow to the tune of 15.4 points, with CBA, RMD, BEN and CPU trading ex-div. We took these points out of our Australia 200 Cash contract at 4:00pm AEST today.
Europe to open higher
Looking ahead to European trade, the major bourses are facing some fairly solid gains as markets track the US recovery from the lows on Friday and further gains in futures through Asian trade. The economic calendar is fairly light with the German Buba monthly report perhaps being the most noteworthy release.
In the UK, investors will focus on the pop higher in the sterling at the start of today’s trade. GBP/USD has been declining since July 16, but finally managed to pop this morning on the back of comments made by BoE Governor Mark Carney. He suggested the key to raising rates will be confidence that prospective real wages are going to be growing sustainably. Additionally, the BoE won’t wait for confirmation of that to raise rates and that momentum is now more assured. The market certainly took these comments as hawkish and this has pushed cable higher. It’ll be interesting to see how equities in the UK will respond these comments.