MARKETS SPECTATOR: Window dressing

The end of the third quarter will see underperforming fund managers buy up on strong stocks, while the better performers will take profits.

In overnight action, stocks rebounded strongly following a five-day slump as Spain unveiled its economic reform plans – which focussed on spending cuts rather than tax hikes – and amid plenty of optimism that the Chinese government will do everything it needs to avoid a hard landing.

There was also a swag of US economic data, with most of it quite poor apart from the stronger than expected jobless claim numbers. The final US GDP print, which is backwards looking, was weaker than anticipated while core durable goods orders were softer as well. Normally, the overall read on data would have halted the rally but not last night; maybe it had something to do with the market already being down five sessions in a row or the fact that participants ignored strong economic reads during the previous session.

The technology-laden NASDAQ was the top performer, adding 1.4 per cent, while the S&P 500 and Dow Jones Industrial Average rallied 0.95 per cent and 0.51 per cent respectively.

Locally, it looks like its going to be a pretty flat start to Friday’s session following the bullish set of overnight leads, although we must remember that the Australian bourse rallied very strongly from yesterday’s intraday lows, so our performance today will be muted when compared to overnight numbers. Saying that, the S&P/ASX 200 SPI futures are pointing towards an open around the 4384 mark.

Following the gains seen among materials names overnight, we’re expecting the materials sector to be well supported today. Rio Tinto and BHP Billiton rallied 1.5 per cent and 1.3 per cent in London trade while BHP's ADR jumped 2.2 per cent in the US session.

Base metals rebounded from their recent weakness, rising between 0.2 per cent and 2.2 per cent while gold also jumped, up 1.5 per cent to $US1780.50/oz.

In economic releases due today, private sector credit figures will be released at 1130 AEST; the market is expecting a gain of 0.3 per cent compared to 0.2 per cent last month. There is nothing else due in Australia but it's worth noting that there is a swag of data due for release in Japan between 0915 AEST and 1000 AEST. These releases include manufacturing PMI, household spending, core CPI, retail sales and the unemployment rate. Any big misses here could sway sentiment during the Asian session.

On top of this today is the end of Q3, and it’s been a strong one for equity markets. This means end-of-quarter window dressing where fund managers that have underperformed buy the quarter’s best performing stocks so client reports look like they have held the right stocks. On the flipside, those managers that have outperformed will look to crystallise the gains by taking profits.

So in summary, it should be a fairly action packed day as traders weigh up local and Asian economic data, as well as the window dressing moves by domestic portfolio managers.

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