Shares set to rise after gains on Wall Street

AUSTRALIAN shares are expected to open higher this morning after US investors shrugged off concerns about a sharp decline in Chinese exports.

By InvestSMART · 13 Aug 2012

By InvestSMART ·
13 Aug 2012

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AUSTRALIAN shares are expected to open higher this morning after US investors shrugged off concerns about a sharp decline in Chinese exports.

It comes as the US government slashes its estimates of corn and soybean production, raising fears of a global food crisis, as the country's worst drought in more than 50 years decimates crops.

Asian and European stocks lost ground on Friday, with Japan (down 0.9 per cent) and Germany (down 0.3 per cent) slipping backwards, after new data showed Chinese trade growth slowed severely in July.

The news shook global markets on Friday, raising concerns of a slowdown in global growth.

But US stocks ignored the data, thanks to better than expected earnings for some of the country's biggest companies. The S&P500 Index instead capped a fifth-weekly advance, rising 0.2 per cent to 1405.87.

This was despite a report from the US Department of Agriculture on Friday predicting corn output for 2012-13 would be 10.8 billion bushels - the lowest since 2006 - while yields were likely to be their worst for 17 years.

The local futures market yesterday was forecasting the benchmark S&P/ASX200 to open 17 points higher, or 0.4 per cent, at 4272.

The full-year profit reporting season shifts up a gear this week with Goodman Fielder, Wesfarmers, Commonwealth Bank, Echo Entertainment, AMP and QBE Insurance among the heavy hitters to open their books to investors.

Fund managers said Commonwealth Bank, which reports on Thursday, will be one to watch.

"There's going to be a lot of focus on Commonwealth Bank because of its share price appreciation running into this result," David Liu of ATI Asset Management said.

"There are some concerns that it's going to do a Telstra, in the sense that it's been bought up for its attractive yield but unless it's going to deliver an exceptional result you may find the stock underperforms."

Among those to report their full year earnings today are Newcrest Mining, Downer EDI and JB Hi-Fi.

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Frequently Asked Questions about this Article…

Why are Australian shares expected to open higher today?

Australian shares were expected to open higher after US investors shrugged off worries about a sharp decline in Chinese exports. Stronger-than-expected earnings from some big US companies helped lift sentiment, and local futures were forecasting the S&P/ASX200 to open about 17 points higher (around 0.4%).

How did Chinese trade data and US crop reports affect global markets?

New data showed Chinese trade growth slowed severely in July, which pushed Asian and European stocks lower (Japan down about 0.9% and Germany down about 0.3%). At the same time the US Department of Agriculture cut corn and soybean production estimates, raising fears around global food supply — a combination that shook markets before US stocks were buoyed by corporate earnings.

What is the S&P/ASX200 futures market predicting for the open?

The local futures market was forecasting the benchmark S&P/ASX200 to open roughly 17 points higher, or about 0.4%, around the 4,272 level.

Which major Australian companies are reporting full-year results this week?

The full-year profit reporting season features heavy hitters including Goodman Fielder, Wesfarmers, Commonwealth Bank, Echo Entertainment, AMP and QBE Insurance. The article also notes Newcrest Mining, Downer EDI and JB Hi‑Fi reporting their full‑year earnings today.

Why are investors and fund managers focused on Commonwealth Bank’s upcoming result?

Fund managers said Commonwealth Bank will be closely watched because its share price has risen into the result. There are concerns it may have been bought for its attractive yield — similar to how Telstra has been viewed — so if the bank doesn’t deliver an exceptional result the stock could underperform.

What did the US Department of Agriculture say about corn production?

The US Department of Agriculture predicted 2012–13 corn output of about 10.8 billion bushels, the lowest since 2006, and said yields were likely to be the weakest in 17 years. The report also cut soybean production estimates, contributing to concerns about a global food squeeze.

How did US stock markets perform despite the global concerns?

US stocks largely ignored the weak Chinese trade data and crop worries because several large US companies posted better‑than‑expected earnings. The S&P 500 rose about 0.2% to 1,405.87, marking a fifth consecutive weekly advance.

How could the reporting season affect everyday ASX investors this week?

Earnings from major companies can influence market sentiment and the ASX200’s direction. With a number of big names reporting — including Commonwealth Bank, Wesfarmers and others — investors should watch results and management commentary, as surprises or weaker guidance can move share prices and broader market confidence.