Global Markets Overview – 11/26/13

Tepid markets to continue

The holding pattern of the last seven days looks like continuing for the rest of week.

There is no scheduled news that will really break this trend (globally) and with the end of the month only four days away, most of the moves with be positioning as managers look to close the books.

As I predicted it's been a weak month; the indicators were clear at the end of October that November would be a contractionary month; with volumes in October at their second lowest of the year behind January which suggested market fatigue.

The question I am now getting on a regular basis is; where will the market finish the year?

Interesting question and a very tough one to call; some believe we are in for a massive rally in December - these uber-bulls see the banks and insurers pushing the ASX to levels not seen since 2007 as the US revenue returns and the income investor pills into the yields on offer.

I however am more tepid than that, I believe we will get a rally before December 31; the contraction in the banks over the last three to four weeks has been as expected, and with dividends landing back on investors' pockets from the December 12 they will get a boost before the year is out.

The big miners should also finish the year fairly strongly; we are rapidly approaching the full year China GDP numbers for 2013 and both RIO and BHP are likely to front-run the data. I believe that having seen the iron ore price holding well above most analysts' expectations and the fact both have had record years on the supply side you would hope they have managed to see strong earnings growth in the first half of the fiscal year after two year of going backwards. I see the China data as a catalyst for a move higher in the big iron ore plays.

There is also a set-and-forget trade on in December expectations are for the Federal Reserve to continue on its money printing drive for the remaining five weeks of the year. That should continue to drive the equity markets globally as the carry trade continues; high yield market such as the ASX look attractive with the rates on offer in the US, Europe and Japan.

Europe continues to push through five-and-a-half year highs with the DAX at an all-time high. More talk from the ECB about rates and that will see equity markets higher and the EUR lower.

The worry here though is the southern states; we have seen both Portugal and Spain snap out of recessions over the past three months, however I am very aware that France is dragging on the region. As a core member of the EU, its drop in manufacturing output and slowing economy is one area of concern as it would then fall to Germany alone to drive the region.

However, I am confident that the local market will finish the year higher from the current levels. What I am watching is my main concern of the last month or so and that is P/E expansion and whether is justified. Until I see the fundamentals matching up with the current share prices (which I think we will), the tepid market of November will remain for the rest of the year.

Ahead of the Australian open

Ahead of the open the ASX 200 is pointing to a dead flat start; holding at 5352 after a very mild and variable trading session in the US. The only macro news of the day is RBA deputy governor Philip Lowe talking at the International Association for Research on income and wealth; it is unlikely to be a market-leaver, however if he follows the lines taken by Glenn Stevens last week that the AUD is too high and that the RBA may look to intervene it will shake up the AUD/USD pair but only mildly.

All-in-all it will be a very sideways trending market with little to move it in either direction.

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