I have found this last week in France frustrating – not because of the really warm days, the beautiful Mediterranean water temperature or the French food. It has been frustrating because watching our stock market from afar is like watching paint dry.
In my daily blogs I’ve called this market crazy. I’ve railed against the market drivers, who decide whether it should be a down day or an up day. I’ve scoffed at the earnest journalists, who’ve searched for a reason for a daily sell-off or market surge, as if they’re really going to find something meaningful in this crazy, or more correctly, this unique market.
Of course, apart from being distracted by largely ‘unimportant’ things, such as the form of the Swans, the success of the Wallabies, the arrival of Nick Kyrgios as a real tennis player at Wimbledon and that overdue State of Origin win for NSW (sorry to show my bias here), I have been on the usual lookout for market-determining matters that should decide how we play our SMSFs.
Before that, I have to admit I write this with trepidation. Being in France over the past three weeks has been like going back through an economic time warp and it doesn’t surprise me that unemployment under this Socialist Hollande government is 10.1%.
Don’t get me wrong. The French haven’t been rude and with my laughably bad schoolboy French, they really could have been justifiably snotty. The people here in the south of France are fine, though they do laugh at my accent and choice of words in the wrong place.
However, France still closes between 1pm and 4pm each day. On Sunday nearly everything closes and if not then, it’s Monday. Worst of all, even with 10% plus unemployment, they still do weeklong strikes!
French kiss economic reality au revoir
First it was the train workers. Then the air traffic controllers went out in sympathy. So my next few days worry me as I’m training it to Paris from Nice and then fly out on Monday!
Now this is not just a personal whinge. It’s also a public concern/hip pocket whinge because a stronger France would cement the Eurozone’s comeback and this is an important piece in the economic puzzle that is going to help us grow our stock portfolios.
The Economist magazine agrees with me that the “European recovery remains intact” but the first quarter was not flash, with GDP up only 0.3% across the EU. The Eurozone of 18 countries was weaker, up only 0.2%. Now much of this was expected, with 2015 tipped to be the year when our European buddies come good.
According to the European Commission, EU growth this year is specked at 1.6% and then 2% next year. Helping this story is the UK economy, which has copped a dose of austerity and is coming back strongly but France and Italy are the laggards.
The Economist says both will be under the EU average of 1.7% and so France, as the second biggest economy in the Eurozone, has to step forward not go back to the madcap days when we all lived in economic la la land. (I guess “la” is a French word!)
All of this (and France’s excessive regulations) makes me regularly recall the words of George W. Bush, who apparently said: “The French don’t even have a word for entrepreneur!” Of course, it could have been Will Ferrell’s George W. who actually said this!)
So why the French bashing?
Well, this whole stock market ‘going nowhere annoyance’ of mine rests on a belief that the best-case scenario will help stocks go higher, especially in 2015. Why? Let me paint the ideal world and let’s hope like crazy that it happens! Here goes:
By year’s end, the US will prove it was cold weather that held them back and growth will get stronger. Then the greenback will rise and the Oz dollar will fall, and we will grow along with our stock market. China will keep defying doomsday merchants and will grow OK. Shinzo Abe’s reforms will work and Japan will improve and Europe will start growing well in 2015, which completes a great global economic picture.
If all this comes true, then this should boost stocks. And it’s the second-last year before a US election, which is often good for stocks. So, we need France to get real but this could be asking too much, judging from the strikes over the past two weeks.
What I liked this week
- CBA pointed out that consumer sentiment, which has been hit by the Budget, actually has been a poor guide to changes in retail trade numbers, which helps my more optimistic view on our economy, despite Joe and Tony’s poor selling of their fiscal plan.
- Total household wealth or our net worth stood at a record $7,670 billion at the end of March, up $137.9 billion over the quarter. This is the biggest quarterly rise in four years. A good omen!
- Fed boss from St. Louis, James Bullard, who tipped the US could raise interest rates earlier than expected. That would help our dollar fall and our stocks rise, though it could rattle Wall St in the short term.
What I didn’t like
- James Bullard is a non-voting Fed member when it comes to US interest rates.
- This from St. George: “We have revised up our Australian dollar forecasts to US$0.9300 by the end of this year and to US$0.9100 by the end of next year.” (Lower would be better for us.)
- The OECD naming the ACT as the best place to live in the world! I like Canberra a lot but only the OECD, which is so far removed from reality, would come up with this crazy suggestion. At least it confirms why I’m always suspicious of their forecasts! Wait a minute. We all know the OECD simply asks Treasury for their forecasts and repeats them in their work, so it looks like they’ve identified Australia as the best country and have then phoned their Treasury contact, who would be an economist who has chosen to live in Canberra! What else would he or she say?
Top Stocks – how they fared
Numbers that moved the market
The “flash” purchasing managers index (PMI) for China was 50.8 in June, up from 49.4 in May, and is the first reading above 50 in six months.
There was similar good news in the US, with their Markit flash PMI coming in at 57.5 in June, up from 56.4 in May.
The final reading of US Gross Domestic Product (GDP) for the “winter” affected March quarter came in lower than expected, decreasing at an annual rate of 2.9%. The US markets shrugged this off.
And the Aussie job market has improved in the three months to May, with a 2.6% rise in job vacancies (in seasonally adjusted terms).
The week ahead
Australia
Monday June 30 – Private sector credit (May)
Monday June 30 – Monthly inflation gauge (June)
Monday June 30 – New home sales (May)
Tuesday July 1- Reserve Bank Board meeting
Tuesday July 1- RP Data-Rismark home prices (June)
Wednesday July 2 – International trade (May)
Wednesday July 2 – Speech by Reserve Bank official
Thursday July 3 – Building approvals (May)
Thursday July 3 – Retail trade (May)
Thursday July 3 – Speech by Reserve Bank official
Overseas
Monday June 30 – US Pending home sales (May)
Monday June 30 – US ISM manufacturing (June)
Tuesday July 1 – US Auto sales (June)
Tuesday July 1 – China purchasing managers index (June)
Wednesday July 2 – US ADP employment (June)
Thursday July 3 – US employment (June)
Thursday July 3 – China services PMI (June)
Thursday July 3 – US services PMI (June)
Following a quiet week in Australia, there’s going to be a smorgasbord of top shelf economic data coming out next week. On Monday, the Reserve Bank releases private sector credit data for May, and data on new home sales and the monthly inflation gauge will also be released.
To kick off the new financial year, the Reserve Bank Board will meet on Tuesday. No change is expected to the RBA cash rate of 2.5%. On Wednesday, international trade data for May will give us an idea on how our exports and imports are faring, and there will also be a speech by Reserve Bank Official Guy Debelle. On Thursday, building approvals and retail trade data for May will be published.
A busy week also overseas. First up, the US ISM manufacturing gauge for June and data on pending home sales for May. China’s official purchasing manager’s index will be released on Tuesday. On Wednesday, the US ADP National Employment index will come out, and on Thursday night (a day earlier than usual due to the 4 July public holiday), June employment figures (non-farm payrolls) are released.
Calls of the week:
Department store chain Myer sacked Andrew Flanagan after they found out he snagged a job as the general manager strategy and business development – with a fake CV!
According to an article on NewStatesman.com, you are more likely to be bitten by Uruguay star Luis Suarez than a shark. After he allegedly bit Italian defender Giorgio Chiellini in a recent World Cup game, his bite rate became three in every 441 matches – which means he roughly feasts on an opponent’s flesh every 147th game!
Ben Griffiths is increasing his investments in resource stocks, and according to his “resources clock,’’ he believes we are edging closer to a mining boom.
And if you missed it, ‘odd couple’ Clive Palmer and Al Gore teamed up this week to promote an emissions trading scheme.
Food for thought
Anytime you see a turtle up on top of a fence post, you know he had some help – Alex Haley.
Last week’s TV roundup
Property markets have boomed this financial year, with double digit growth across the country. To give her expert opinion on whether this trend will continue, and the best time to invest in the market, property guru Margaret Lomas joins Super TV.
If there’s a possibility for the ASX to get to 6000 before the years end, many experts believe that mining stocks need to start pulling their weight – but can this happen? Expert stock picker, Rudi Filapek Vandyk, joins Marty Switzer to discuss his views on the miners, and also tells us why he prefers dividend paying industrial stocks.
With our share market up over 17% this financial year, it is important to understand almost 5% of that return is comprised of dividends. With term deposits at record lows, investors are on the hunt for yield paying stocks. Find out how you can build a yield portfolio with Switzer regular, Ron Bewley.
Stocks shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short – which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.
This week the biggest mover was again Acrux (ACR), who had its short position increase by 0.82%.
My favourite charts
There has been a material improvement in household wealth during the March quarter. At the end of March, total wealth reached $327,263 per capita – up $4,248 across the quarter.
And take a look at Ben Griffith’s exploration clock for the resources sector. He thinks the big hand is sitting at about 4 o’clock (around the “mergers” area) – and illustrates why he thinks a new mining boom isn’t that far away.
Top five clicked on stories
- Tony Featherstone – Five yield payers under $5
- Charlie Aitken – Wait for the buying opportunities – part 2
- Peter Switzer – All-time highs don’t mean a crash is coming
- Charlie Aitken – Wait for the buying opportunities – part 1
- Penny Pryor – Shortlisted – buy the bellwethers
