Sell Global, Buy Local
Selling pressure emerged across asset classes overnight. Many attributed the weakness in shares, the USD and bond markets to lower than expected result from IBM and market disappointment with Apple. However, this is “after the fact” reasoning, and a global trimming of portfolios after an eight day rally is a more likely explanation for the general malaise.
Apple executives must be wondering what it takes to spark a positive reaction to reporting. A 33% quarterly lift in revenues saw Apple shares fall around 8% in after-market trading, as investors focussed on disappointing iPhone sales and reduced forward guidance. A similar fall in IBM shares is more explicable, given the company’s report of its 13th straight quarterly revenue drop. The subsequent pressure on US indices, and further after-market futures selling, sees Asia Pacific markets set to slide 0.5%-1% at this morning’s open.
Two local factors may provide support for Australian shares. Despite the general sell-off, commodity prices rose, mainly due to the weakening USD. Gold regained ground above U$1,100, and West Texas oil recaptured U$50. These moves may slow, or even reverse, the resource sector rout. BHP’s quarterly production report this morning will also draw attention, with copper write downs and lower coal production offset by forecast beating iron ore sales.
The second factor is the release of inflation data for Q2. Analyst are offsetting rising petrol prices against sluggish retail sales, to estimate further falls in core annual rates. Trimmed readings are forecast around 2.3 to 2.4%. However, surprise either way could bring support, with a higher reading suggesting a more buoyant economy and a lower reading sparking further interest rate cut speculation.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
Apple shares fell around 8% in after-market trading because investors were disappointed with iPhone sales and the company's reduced forward guidance, overshadowing the impressive revenue increase.
The selling pressure was attributed to lower-than-expected results from IBM and market disappointment with Apple, but it is more likely due to a global trimming of portfolios after an eight-day rally.
IBM shares experienced a fall due to the company's report of its 13th consecutive quarterly revenue drop, which contributed to the pressure on US indices.
Two local factors that might support Australian shares are rising commodity prices due to a weakening USD and the release of inflation data for Q2, which could influence economic outlook and interest rate speculation.
Commodity prices rose as the USD weakened, with gold regaining ground above U$1,100 and West Texas oil recapturing U$50, potentially slowing or reversing the resource sector rout.
BHP's quarterly production report is significant because it highlights copper write-downs and lower coal production, but also shows forecast-beating iron ore sales, drawing attention to the company's performance.
The Q2 inflation data could affect the Australian economy by influencing interest rate speculation. A higher reading might suggest a more buoyant economy, while a lower reading could spark further interest rate cut speculation.
Analysts are predicting trimmed core annual inflation rates around 2.3% to 2.4%, balancing rising petrol prices against sluggish retail sales. Surprises in either direction could impact economic sentiment.
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