Market Update & Important Indicators
US share prices have plunged more than three per cent as China's economic problems drove a major sell-off on Wall Street for a second day. In its worst single session in nearly four years, the Dow Jones Industrial Average lost more than 500 points, or 3.12 per cent, on Friday while the broader S&P 500 gave up 3.19 per cent and the Nasdaq Composite shed 3.52 per cent. "Sentiment is shifting in a very negative way and you really are seeing no place to hide today," said David Levy of Kenjol Capital Management. Kenjol said the selloff was "overdone," but added that, without some sort of positive news, "there is no reason for buyers to step in and get long at this point."
World stock markets have been hammered with heavy losses, as China's economic woes trigger European and Wall Street equity sell-offs and stir up fears for global growth. "China's currency devaluation is at the heart of the rout in global markets so another drop in Chinese stocks (Friday) translated to losses across other benchmark indices," said Jasper Lawler, market analyst at CMC Markets UK. "The European indices are following the American markets which are in sharp decline after having resisted rather well up to now," said Alexandre Baradez, analyst at IG France.
Asian shares have slumped, plunging deeper into the red after weak manufacturing data from China fuelled panic among investors over the clouding outlook for the world economy. "It seems like we're seeing the makings of the 1997 Asian financial crisis all over, with emerging-market currencies plunging," Nicholas Teo, a strategist at CMC Markets in Singapore, told Bloomberg News. "China's knock-on effect on the rest of the world is huge and China's deepening economic slowdown will have an impact for the next couple of months or so."
The Australian market looks set to open sharply lower following significant falls on International markets amid further fears over China's economy and a Greek exit from the eurozone. At 0803 AEST on Monday, the share price index futures contract was down 110 points at 5,058. Locally, in economic news on Monday, the Reserve Bank of Australia is due to release a research discussion paper called Housing Wealth Effects: Cross-sectional Evidence from New Vehicle Registrations.
In equities news, Fortescue Metals, BlueScope Steel, Hills, NIB, Lend Lease, UGL and Beach Energy are among the companies reporting full year results while Caltex Australia, Patties Foods and APN Outdoor are among the companies due announce half year results. In Australia, the market on Friday closed sharply lower with the main indices more than one per cent weaker as all sectors fell into the red, except for gold, on fears about China's slowing economy. The benchmark S&P/ASX200 index was down 74 points, or 1.4 per cent, at 5,214.6 points. The broader All Ordinaries index was down 70.7 points, or 1.34 per cent, to 5,224.8 points.
US oil has dipped below $US40 for the first time in six years as weak Chinese manufacturing data deepens worries about the slowdown in China's economy, weighing on the market. WTI briefly fell below $US40 a barrel for the first time since February 2009, to $US39.86. The dip occurred after the release of the Baker Hughes US oil rig count, showing producers added two more rigs this week, the same number as last week, bringing the overall tally of active drilling oil rigs to 674. Brent dropped as low as $US45.07 earlier in the session, a level last seen in March 2009. A much weaker-than-expected report on China's manufacturing sector rattled investors. Caixin's Purchasing Managers' Index came in at 47.1 this month, falling from 47.8 in July and its worst reading since March 2009. A reading below 50 signifies contraction in activity.
Gold has risen in choppy dealings, hitting a six-week high and putting it on track for its biggest weekly climb since mid-January as more bad economic data from China rattled financial markets, pushing the US dollar broadly lower. The Chinese data spooked investors already worried about the slow pace of global growth, sending investors scurrying to the safety of bonds and gold, while precious metals that have industrial uses, such as silver and palladium, dropped after two days of gains. Gold had already rebounded this week from July's five-and-a-half-year low, boosted by minutes of the Fed's last policy meeting, which dented expectations for an imminent rise in US rates.
Metals on the LME were down on Friday with Zinc and Tin the hardest hit, down 2.7% to US$1,762/t & 2.1% to US$15,015/t. Gold was up 0.6%, trading at US$1,160/oz and Brent remained flat at US$45.46/bbl. The AUD/USD is trading at 0.73.
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GR Engineering (GNG) | BUY
Bucking the trend elsewhere in the mining services space GNG delivered solid growth in FY15, built up a strong balance sheet position with net cash of $63.5m, and has better visibility going into FY16 than ever before. We have a high degree of confidence in EBITDA and dividend growth in FY16. GNG has built up a sound reputation in EPC delivery across commodities and we expect more work will be won in order to build the order book beyond this financial year. Buy recommendation maintained.
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