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Huge week

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by Peter Switzer

This will be a huge week for investors both at home and abroad with the Reserve Bank poised to cut interest rates on Tuesday. Some economists and business leaders are sweating on a 0.5 per cent cut, which I think is too big a call for Glenn Stevens and his board.

Overseas, there are some big events in Europe that could affect financial markets, and the Yanks continue their better than expected company reporting period, which should be trumped by the swag of economic data with the jobs report at week’s end the real biggie.

Of course all of this happens as May kicks off, which has had a habit of ushering in a period of stocks sell-off coinciding with summer and the holiday period for the northern hemisphere. Adding to the drama is the very big start to the year for Wall Street, which has many expert analysts arguing that a correction is overdue, though get this clear, few expect a rerun of the market disasters of last year.

Wall Street overnight

Personally, I thought the positive US market response on Friday to weaker than expected GDP figures underlines the potential for stocks to do OK this year. Some of it can be explained that with a weaker US economy, it could bring QE3 (quantitative easing) or more money supply expansion and lower interest rates for longer, but some of it was a better than tipped consumer sentiment number. A very confident US consumer is important for a sustained US recovery.

The Dow was up 23.69 points or 0.18 percent to finish at 13,228.31 and is now up 8.27 per cent for the calendar year. The S&P 500 put on 3.38 points or 0.24 per cent to end at 1403.36 and has put on 11.59 per cent for 2012. Meanwhile the Apple-driven Nasdaq is up a whopping 17.81 per cent and this is why a correction looks on the cards.

That said, the fear index or VIX is at a low 16 reading, which says share market anxiety is low at the moment.

For the economic record, US economic growth in the March quarter came in at 2.2 per cent against a three per cent reading at the end of last year. That could have rocked the market but it didn’t and hopes for QE3 would be part of the story.

However consumer sentiment bobbed up from 76.2 to 76.4.

The GDP data showed business investment and government spending was down but consumption was up and some experts worry about future public sector cuts scheduled to happen later this year.

On the company front, 287 firms have reported their profit figures and 73 per cent have beaten the Street’s estimates, which is a hugely positive sign and explains why stocks are up.

Three big issues

The three big market-turning issues are companies’ profits plus the US economy and Europe.

Companies have ticked the box for a good outlook for stocks but the US economy lately has been mixed and that’s why this week will be huge with the Chicago PMI, ISM indexes for manufacturers and services, construction spending, chain store sales and employment data all due to be released.

Meanwhile France and Greece go to the polls this week against a backdrop of the UK slipping back into a despised double-dip recession. This comes as Europe is showing signs that it’s fed up with austerity measures, which could see left-wing governments take control of the Continent.

Europe remains the wild card for investors but at least European companies have been reporting better than expected.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, April 30, 2012

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