Australian Share Market Report Week Ending 12th August 2011

Australian Share Market

S&P/ASX 200: 4,172.6 +67.2 (+1.64%)*

*From close on Friday 5th August to close on Friday 12th August

US & European Share Markets

S&P 500: 1,172.64 -27.43 (-2.29%)*

FTSE 100: 5,162.8 -230.3 (-4.27%)*

*From close on Thursday 4th August to close Thursday 11th August

My god, what a week! Warning: more exclamation marks to come.

The Australian market was held hostage this week to global markets and further global economic uncertainty. A US debt downgrade, rumours of QE3 and a French sovereign debt downgrade, A European ban on short selling, 4 days of 400 point moves on the DJIA, oh and in case you missed it some earnings were released in Oz.

Market Movements

If you can believe it after all the volatility we’ve had in the past week the S&P/ASX 200 actually finished positive 1.6% for the week! This is a major performance improvement over the US and European share markets (and so it should be!) The US S&P 500 finished the week ending Thursday down 2.29% and the FTSE 100 had a shocking week ending Thursday down 4.27%! The DJIA actually had 4 sessions in a row of 400 point moves – that has never happened before… ever.

Global Uncertainty

Let’s recap what actually happened this week in the world (using US time of course – I mean why would what happens in Australia actually matter for Aussie markets?)

Last Friday 5th August

US Treasuries were downgraded from AAA to AA+ by S&P.

Monday 8th August

President Obama came out and made a speech to try and calm markets in light of what had occurred. Markets tanked on no clear direction or policy action signals following the speech.

Tuesday August 9th

Benny Bernanke and the FOMC met in their monthly board meeting. Markets held their fingers crossed for a QE3 on the back of what had been more than a shocking week in global markets. With little tools left at his disposal Benny boy told the world he would do absolutely nothing and leave the cash rate on hold at 0.25% until at least at least mid-2013. Markets rallied.

Wednesday August 10th

Everybody actually realised that Bernanke’s decision wasn’t a reaction to market turmoil but one that reflected the Feds renewed concerns of a stalling economy. Markets crashed.

In Europe rumours about possible French sovereign debt downgrades gathered pace, so much so that S&P actually had to come out and state that ‘no, there will be no downgrade for France’. [1] Reflecting similar concerns European banks were hammered! Societe Generale (SCGLY) (France’s 2nd biggest bank) fell an astounding 22% from Tuesday’s close during intraday trading!

Thursday August 11th

Many European countries announced a ban on short selling on European financials! Is this déjà vu to anyone? The ban was set to come into effect on Friday. Countries included France, Italy, Spain and Belgium

Australian Reporting Season

With all the astounding developments occurring in global markets one might actually forget that here in the little land of Oz it is corporate reporting season. Perhaps company earnings might actually reflect a little more on what share prices should be doing for Australian companies?

Highlights

Telstra had a profit fall but announced at the same time a hugely optimistic forecast, shares in TLS rallied.

CBA announced another great profit of $6.8 bn.

JB Hi-Fi had increased sales showing remarkable strength in the face of ‘cautious consumers’

David Jones was battered again on a downgraded profit forecast. Maybe if Mr. Zahra focused more on innovation in his business instead of complaining about consumer behaviour sales might pick up.

Grumbling Gerry Harvey in a similar vein announced closures of many remaining Clive Peters stores and stated in regards to the rest of the retail sector “It’s only the beginning of what’s going to happen. The problem is it’s going to accelerate.” He blamed the government, consumers, and just about anything else he could think of.[2] We could write at lengths about why Gerry Harvey has lost the plot. Simply put, he can’t accept change and hasn’t adapted his business model.

Statistics Released In Australia

What’s to come?

As the smoke starts to clear from the S&P downgrade and the rumour mill in the euro area runs out of steam, one could expect that more strong Australian earnings reports might actually start to bolster the market. Next week Westpac, ANZ, AMP, Wesfarmers and QBE insurance release their financial results. However, given this week’s abysmal performance in light of excellent earnings from CBA, NAB and JB Hi-Fi who knows what to expect.

Is 5,200 by year end still on the cards?

[1] France Battles Rumours of credit-rating downgrade, The Independent, 10/08/2020

[2] Gerry Harvey tells: Why I closed Clive Peeters and why retail’s in trouble, smart company, 11/08/2020