MARKETS SPECTATOR: Dead cat bounce?

The stock market may have been taking some heavy hits lately, but the problem for bargain hunters is that the fundamentals are not in their favour.

Time for a bounce in stocks it seems. But it may well be one of those maligned market gains of the feline variety, what brokers refer to as a dead cat bounce.

The S&P/ASX200 Index may be overdue for a gain. It has risen just two trading days out of nine this month. The index has fallen 10 per cent, or 525.227 points, since its 52-week high of 5220.987 on May 14. Yesterday the index slipped 28.693, or 0.6 per cent, to 4695.76.

But the problem for bargain hunters is that the fundamentals are not in their favour.

Almost no one is forecasting earnings upgrades. If anything, analysts expect the reporting season for the 12 months to June 30 to be littered with disappointing results or even shocks on the back of an economy that seems to be sliding. Morgan Stanley has cut its forecast for Australian economic growth to 2.6 per cent this year and next after earlier forecasting economic growth in 2013 of 3 per cent and 3.1 per cent in 2014.

Yet the Australian dollar, albeit briefly, has stopped its headlong rush downward. At 0841 AEST the currency was at 96.34 US cents after yesterday rising 1.6 per cent from Wednesday to 96.39 US cents. That may indicate that foreign fund manager selling pressure may be abating. They may even be casting an eye over mining stocks following better news on the US economy. May retail sales rose by a more-than-expected by 0.6 per cent, which may convince some the world’s biggest economy is on a firmer footing.

The spot price for iron ore imported through the northeast Chinese port of Tianjin gained $US1.10, or 1 per cent, to $US112 yesterday, according to Bloomberg data.

Since June 7 the Tianjin iron ore spot price had not fallen below $US110.90 despite Chinese data suggesting the world’s second-largest economy is not only not at growing at a rate north of 8 per cent, but could be facing financial problems as companies are finding it increasingly difficult to get hold of credit.

“The key to market trends would be economic data not coming in super-hot or super-cold,” says Matt Sherwood, strategist at fund managers Perpetual. But like Goldilocks, the market may be disappointed.