THE DISTILLERY: Market angst

Let's hope all those fund managers and other investors – nervous nellies the lot of 'em – had a Bex and a good lie down over the weekend. The June 30 profit season kicks into top gear this week and there are likely to be some testing results. Last week was madness, especially in the US and Europe, but after a relaxed, but solid finish on Friday, especially on Wall Street, here's hoping for a similar start today.

The Australian's Tracy Lee wrote this morning: "Corporate outlooks will come under close scrutiny as earnings season hits high gear over the next fortnight, with investors quizzing chief executives on trading conditions while bracing for another week of volatile domestic and global markets. The Australian sharemarket is tipped to open higher today after US markets rose on Friday and Italy's cabinet approved a €45.5 billion ($A62.6bn) austerity budget on the weekend that is expected to provide some stability on European markets."

Fairfax veteran resources writer, Barry Fitzgerald made a good point this morning about Newcrest Mining, which is due to report its 2011 profit today: "Broker forecasts for the group's full-year result range from a low of $892 million to $1210 million, with a median forecast of $1050 million. It is the sort of stuff you would expect for a group drawing the benefits of bumper gold prices on annual production of 2.7 million ounces of the yellow stuff. But all that hasn't amounted to much in terms of Newcrest's share-price performance. The group's share price is pretty much where it started (calendar) 2011, notwithstanding the 26 per cent rise in gold prices in the same period."

Fairfax's Michael West wrote: "The outcast has returned from the deserts of market disaffection. Telstra is back, and the market has a new darling: David Thodey. The pundits were effusive. Finally, next year, Telstra's earnings would rise instead of fall. Thodey's plan to chase market share in mobile phones had been vindicated by Thursday's profit result. Both Telstra and its arch rival Optus had robbed Vodafone, and all its black spots, of its market share." And the Australian Financial Review wrote this morning: "Telstra will consider acquisitions in fast-growing Asian economies as it tries to leverage the extensive undersea cable assets it acquired as part of its Reach buy-out."

The AFR's Chanticleer columnist wrote on Saturday: "After a week of the most volatile trading on sharemarkets in Australia and overseas, it is worth stepping back from the signs of panic and reviewing the global situation with a cool head." And News Ltd's Terry McCrann wrote yesterday on the company's Sunday tabloids: "The US losing its Triple-A credit rating sparked the most bizarre week we've ever seen on Wall Street. Our sharemarket followed in its own strange way. In the short run, the downgrade might be a case of big earthquake; nothing much happens, initially. But there will be volatility and it speaks to the huge problems that caused the 2008 meltdown and are still with us, and indeed have grown bigger.”

And the AFR said elsewhere: "Investors should fasten their seatbelts, fund managers warn, because the high volatility seen in global equity markets over the past month is set to last for a while longer."

John Durie looked at Bluescope Steel's restructuring in his column in The Weekend Australian: "BlueScope's imminent decision to shut at least a third of its Port Kembla steel capacity is the result of a decade of external changes that don't demand government intervention. Every manufacturing job lost inevitably raises the political tension, but the reality is there is not much government can do to change the world. After a week in which volatile global sharemarkets have highlighted the risks of political inaction delaying tough restructuring decisions in the US and Europe and prolonged slow growth in the world economy, BlueScope has provided a concrete example of the local impacts. Ironically, while the Port Kembla problems have everything to do with the Australian dollar, China and a slowing economy, and nothing to do with the carbon price, plant closures mean fewer carbon emissions."

The Sydney Morning Herald's economics editor, Ross Gittins gave economists a crunch this morning over their productivity push: "In the Treasury secretary's recent speech on our poor productivity performance, Dr Martin Parkinson nominated health and education as the next candidates for major micro reform. He's right, there's plenty of scope for improvement. But these are service-delivery sectors where it's the performance of professionals that's crucial. And economists' notions about what motivates people and how you encourage excellence are so blinkered – they assume money is the only incentive and key performance indicators work a treat – that you'd have little confidence their 'reforms' would make things better."

The Australian's economics editor Michael Stutchbury wrote on Saturday: "Australia needs to sit tight in the face of the global market eruptions. The Reserve Bank should keep rates on hold at least until the dust clears. Labor should stay committed to its budget surplus target rather than weaken its fiscal discipline at the first whiff of gunshot. This is different to the global financial crisis that hit three years ago next month. There is little scope for a budget stimulus because sovereign debt fears are now driving the crisis and financial markets are punishing governments that display political weakness and allow fiscal slippage. This will confront Julia Gillard's minority Labor government with some fundamental choices during the coming year."

The Australian's David Uren wrote this morning: "The world is not going to achieve the above-trend 4.3 per cent growth this year and 4.5 per cent next that was forecast by the International Monetary Fund in June. The growth slowdown threatens to make the debt crisis even more intractable, as tax revenue falls faster than spending can be cut. Australia is sharing in the global growth slowdown, and Treasury's forecasts in May are looking increasingly ambitious. Although its budget position is still the envy of the advanced world, the deficit could become a problem if the stagnation continues."

Fairfax's Ross Gittins wrote on Saturday: "The developing countries are likely to continue growing faster than the North Atlantic economies: they're responsible for only 17 per cent of the world's government debt. No prize for having guessed the punchline: the rich countries likely to do best over the rest of this troubled decade are those most closely plugged into the developing world. Heard of a poor, cautious, sorry-for-itself country called Australia? It sells less than 10 per cent of its exports to Europe and only 5 per cent to the US, but about two-thirds to developing countries."

But fellow Fairfax jotter, Ian Verrender wonders about our attachment to China: "Most observers, including those running our big mining companies, reckon the resources boom still has years to run. They are putting their money where their mouths are, bringing vast amounts of capital into Australia to feed China's growth. Emerging economies such as China and India have made impressive performances during the past decade and they have achieved this on relatively low levels of external debt, unlike their counterparts in the rich world. When it comes to being The Lucky Country, we are it, if only because we are in the least worst situation of any other rich nation. But the frenetic growth of the past 15 years has ended. That's something we need to get used to."

Fairfax's China correspondent, John Garnaut has a different take: "The Chinese economy has some big problems, to be sure, and they are generally getting worse. The exchange-rate peg is pulling macro-economic policy off its axis. The size and structure of the stimulus package of three years ago has sapped the integrity of investment decision making at all levels of the state-dominated economy. And China's political process has been paralysed by uncertainty – or perhaps mediocrity and cynicism – in the lead-up to next year's 18th Communist Party Congress. But those are problems for a later day and right now the economy is going strong. Few countries can sustain the unsustainable for as long as China can, due to the huge range of levers available to the Communist Party state. In short, China still has prodigious resources to be drawn on if everything goes wrong. Those reserves may well be needed."

Fairfax's Adele Ferguson writes this morning with a warning to be careful who you deal with in and around the market: "Shadow broker Sonray Capital Markets co-founder Russell Johnson's new business as an authorised representative of Romad Financial Services was revoked this month, days after its existence was exposed. While the revoking of Johnson's licensee authorisation on August 1 was at Johnson's request, the bombshell that his company RJ Capital was able to get an authorisation readily has opened up serious flaws in the Australian Financial Services Licence system and weaknesses in the legislation. The push to extend all market integrity rules to shadow brokers is being considered by Treasury but the shadow brokers, or, as they like to be called, 'boutique AFSLs', are about to fight back."

The AFR said this morning: "It is hard to argue against the campaign by ASIC to force managed investment schemes and superannuation funds to disclose all their holdings."

And finally, The Australian's Andrew Main had a good column on the rise of high frequency trading: "What is making sharemarket managers uneasy in other countries, such as the US, is the sheer scale of HFT activity and, in a similar vein, the volume of trades in that other recent acronym, ETFs (exchange-traded funds). It's not a problem in Australia, but both are clearly growing. The ASX reported in June that the average trade size had dropped more than $2000 to $8554 over the previous year. In July it reported that trade numbers for the 2010-11 year were up 9 per cent, but the actual value (on which charges are based) was down by 1 per cent."