It was another tale of two halves overnight, with solid gains in Europe countered by weakness in the US.

Overall, European stocks were little changed near a five-year high after Federal Reserve Chairman Ben S. Bernanke signalled the central bank will maintain stimulus measures to support the U.S. economic recovery.

In London, the FTSE 100 added 36 points (+0.5%) to close at 6840 while the German DAX gained 59 points (+0.7%) to finish at 8531. U.S. stocks fell, with benchmark indices retreating from record highs, as concern grew that the Federal Reserve will scale back its stimulus efforts if the labor market continues to improve.

The S&P 500 dropped 14 points (-0.8%) to close at 1655 in New York, after rallying as much as 1.1% earlier. The blue chip Dow Jones lost 80 points (-0.5%) close at 15307.

Gold futures closed lower following wide prices swings as Federal Reserve Chairman Ben S. Bernanke signaled that U.S. monetary stimulus may be scaled back. Bullion for June delivery dropped 0.7% to close at US$1367 an ounce on the Comex in New York.

Crude Oil fell the most in three weeks as a government report showed U.S. gasoline supplies unexpectedly advanced 3 million barrels and crude stockpiles declined less than expected.

The US dollar rose against most major peers after Federal Reserve Chairman Ben S. Bernanke said the central bank may taper monthly bond purchases at its next few meetings if it’s confident of sustained gains in the economy.

The pound fell to a one-month low against the euro after a government report showed U.K. retail sales unexpectedly declined last month. The Melbourne Institute Inflation Expectations report will be released today at 11:00 am.

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Global markets were mixed overnight, with gains in Europe countered by losses in the US.

European stocks advanced on the back of strength in carmakers and Ryanair Holdings, which jumped the most in more than 1 1/2 years as Europe’s largest low-cost carrier said full-year profit rose 13%.

In London, the FTSE 100 gained 33 points (+0.5%) to settle at 6756 while the German DAX gained 58 points (+0.7%) to finish at 8456.

U.S. stocks declined as investors weighed the pace of central bank stimulus efforts amid corporate dealmaking.

The S&P 500 retreated by one point (-0.1 %) to settle at 1,666 after rising as much as 0.3% earlier. The blue chip Dow Jones declined by 19 points (-0.1%) to settle at 15335.

Gold futures rebounded after Moody’s said U.S. policy makers must address debt woes to avoid a credit-rating downgrade this year.

Crude Oil futures declined as much as 0.8% in New York as U.S. equity indexes were little changed. Oil for June delivery fell 51 cents to $95.51 a barrel on the New York Mercantile Exchange.

The yen gained the most in three weeks against the greenback as Japanese Economy Minister Akira Amari said further losses in the currency would have negative effects after it fell to the lowest since 2008 last week.

Today’s session will bring us the latest RBA Monetary Policy Meeting Minutes, at 11:30am this morning. The minutes will likely provide some clues as to the future direction of interest rates in Australia.

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Global markets finished a little stronger on Friday night, with gains seen in both Europe and the US. In London, the FTSE 100 gained 35 points (+0.5%) to finish at 6723 while the German DAX added 28 (+0.3%) points to close at 8398.

US markets closed out the week with a strong gain on Friday night, with the Dow and S&P500 posting fresh record highs amid positive economic data.

US consumer confidence rose in May rose to its highest level in almost six years, as Americans felt better about their financial prospects despite concerns over budget cuts and the impact of a slowing manufacturing sector.

The data fuelled weekly gains of between one and a half and two percent for the major US indices, as investors bet economic growth will remain resilient in the face of ongoing global uncertainty.

It was a mixed performance among the key commodities. Oil strengthened on speculation the jump in US consumer confidence will translate into greater energy demand.

Oil for June delivery rose 86 cents to $96.02 a barrel on the New York Mercantile Exchange, the highest settlement since May 10.

However, gold suffered another sell-off on rumours US hedge funds are liquidating bullion holdings ahead of a planned end to the Fed’s monetary easing measures.

The potential end to quantitative easing saw the US dollar record widespread gains against other currencies, including the Aussie, which slumped to below 97 US cents – its lowest against the greenback in almost a year.

The yen climbed versus all 16 major peers after Japanese Economy Minister Akira Amari said further losses in the currency would threaten to negatively affect people and the government’s job is to minimize that.

There is no major data due our during today’s session.

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Global markets finished slightly weaker overnight, with the international bulls taking a breather after a recent string of gains. European stocks were little changed, after the benchmark Stoxx Europe 600 Index yesterday extended its highest level since June 2008.

In London the UK’s FTSE 100 gave up six points (-0.1%) to settle at 6688, whilst the German DAX put on seven points (+0.1%) to 8370.

U.S. stocks fell, ending four sessions of records for the S&P 500 Index, amid disappointing economic data and after a Federal Reserve official said the central bank may slow the pace of stimulus as early as this summer.

Reports today suggested a slowdown in U.S. economic growth. Jobless claims jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed.

Housing starts slumped 16.5 percent in April, the most since February 2011, the Commerce Department reported.

Manufacturing in the Philadelphia region unexpectedly contracted in May for the first time in three months as new orders retreated and factories cut back on employment and hours.

Another report showed the cost of living in the U.S. fell in April for a second month, the first back-to-back declines in inflation since late 2008. There is no major local economic data due out for today’s session.

Gold futures fell, capping the longest slump in 16 months, as U.S. filings showed that George Soros and BlackRock cut stakes in exchange-traded products backed by the metal, signaling waning investment demand.

Gold futures for June delivery dropped 0.7% to close at $1,386.90 on the Comex in New York. Crude rose on speculation that central banks will bolster stimulus after more Americans than projected filed for unemployment benefits and U.S. consumer prices decreased.

Oil for June delivery advanced 86 cents to settle at $95.16 a barrel on the New York Mercantile Exchange. There is no major local economic data due out during today’s session.

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Can you think of a time when you’ve been in the same mood all day? If you can, this was probably an abnormal day. Over the course of most days, our moods go up and down.

We may wake up feeling refreshed or tired; we may go into lunch feeling hungry or distracted; we may feel revived in the afternoon, or ready for a siesta; and we may come home refreshed or exhausted after a long day – depending how it went.

Over the course of a day, we may decide to enter a few trades – each time in a certain mood.

The mood elevator

The mood elevator is a term that’s thrown around a lot, usually in annoying jokes such as, “Looks like you’ve got a case of the Mondays! You need to raise your mood elevator!”

International firm Senn Delaney, which is focused on transforming work cultures, has a more serious and helpful definition of the term ‘mood elevator’.

At the top of the mood elevator is the higher mood level – including feelings such as resourcefulness, inspiration, energy and curiosity. Lower levels include emotions such as worry, irritation, a feeling of victimisation and overall lowness.

Being at the higher level in the mood elevator is good in that your thinking tends to be clearer. When you’re in a better mood, studies show that your IQ and EQ (emotional intelligence) also tend to be higher than average.

On the other hand, lowered mood leads to clouded thinking, excessive judgmental tendencies and unhealthy impatience. This means you’re probably making smarter trading decisions when you’re at the top of the mood elevator, and bad decisions when you’ve hit ground floor.

What to do

Senn Delaney outlined five steps to follow in order to keep mood clouding your judgment.

1. Note your state of mind and use your feelings as a guide to the quality of your thinking. Make an obvious effort to constantly check where you are on the mood elevator – make sure unhealthy thoughts aren’t recurring.

2. Take care of yourself. Our physical state has an impact on our thinking. If you’re tired and warn out, your mood will lower and your thinking will be cloudy. Better physical health leads to strength of mind.

3. Remember low mood equals unreliable thinking. If you’re feeling down, this is the important time to check yourself. Try not to make any major decisions; don’t make a bunch of trades just to make yourself feel better. If you can’t stop yourself from trading, use caution and don’t overreact.

4. Sense of humour is key. Sit back at some point during the day, think of what you have to be grateful for, and go over the last few things that have made you laugh. “Laughter is the best medicine” is a cliché we hear a lot, but it’s true… think about what a lot of your favourite TV shows are – chances are there are a few comedies in there. Humour and a light mood can help you handle challenges more efficiently.

5. Mood is contagious. Senn Delaney outlines this point in terms of management leadership, but the point behind this last tip is valid: if you are trading amongst other traders, or even while you’re at work amongst non-traders, the mood of others can greatly impact you.

Organisational studies show that a company’s culture and climate can be something you carry home with you. If it’s been a bad day for you at work, try not to let this shadow follow you home.

Carl Capolingua
Follow Carl on Twitter @CarlCapolingua
Head of Education
Australian Stock Report

 

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Global markets continued their run higher overnight.

European stocks rose, extending their highest level since June 2008, after the Bank of England raised its growth forecast for Europe’s third-biggest economy. In London the UK’s FTSE 100 added seven points (+0.1%) to settle at 6694, whilst the German DAX put on 23 points (+0.3%) to close at 8362.

Stateside, stocks rose and pushed benchmark indexes to fresh records, as data showing weakness in manufacturing fuelled bets the Federal Reserve will be in no hurry to scale back stimulus.

U.S. industrial production declined in April by the most in eight months, reflecting broad-based cutbacks in factory output and indicating American manufacturers will provide little support for an economy beset by weaker global markets and federal budget cuts.

Manufacturing in the New York region unexpectedly shrank in May as factories received fewer orders and sales stagnated, a separate report showed.

Data from the Labor Department showed wholesale prices dropped in April by the most in three years, reflecting a decrease in fuel costs that is helping underpin profits.

Gold futures tumbled below $1,400 an ounce, extending the longest slump in almost three months, as the dollar’s rally eroded demand for the metal as an alternative investment. Silver fell to a three-week low.

Gold futures for June delivery fell 2% to settle at $1,396.20 on the Comex in New York, after touching $1,389, the lowest for a most-active contract since April 19.

Crude was little changed as equities gained on speculation of central-bank stimulus measures after economic reports from the U.S. and Europe missed forecasts. Oil for June delivery settled at $94.30 a barrel on the New York Mercantile Exchange, the first advance in five days.

There is no major local economic data due out during today’s session.

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Global markets were little changed overnight, with minimal moves recorded on either side of the Atlantic.

European stocks declined from the highest level in almost five years as bank and airline shares retreated, overshadowing better-than-forecast retail sales data in the U.S.

Most U.S. stocks fell, after benchmark indexes climbed to record levels last week, even as government data showed retail sales unexpectedly rose in April.

The S&P rose less than one point to 1,634, whilst the Dow slid 27 points (+0.2%), to 15,092. The 0.1% increase in U.S. retail sales followed a 0.5% decline in March, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3% drop.

A separate report showed companies in the U.S. unexpectedly held inventories in check in March as sales fell by the most in nine months, an indication orders will rise as demand picks up.

Gold futures fell, capping the longest slump in five weeks, as holdings in exchange-traded products backed by the metal extended a decline to the lowest since July 2011.

Gold futures for June delivery dropped 0.2% to settle at $1,434.30 an ounce on the Comex in New York. The price declined for the third straight session, the longest slump since April 4. The metal has tumbled 14% this year.

Oil fell for a third session as China’s crude processing reached the lowest level in eight months in April and OPEC boosted output. Oil for June delivery fell 87 cents to settle at $95.17 a barrel on the New York Mercantile Exchange.

There is no major local economic data slated for release today.

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Global markets extended gains overnight, with further gains seen on both sides of the Atlantic.

European stocks climbed, with the Stoxx Europe 600 Index extending its highest level since June 2008, as companies from ING to Deutsche Telekom posted quarterly earnings that beat estimates.

In London the UK’s FTSE 100 added 26 points (+0.4%) to settle at 6583, whilst the German DAX put on 68 points (+0.8%) to finish at 8250. US stocks rose, sending the S&P 500 Index to a record for a fifth session, amid better-than-projected earnings forecasts.

The S&P rose 0.4% to 1,633, whilst the Dow added 49 points (+0.3%) to 15,105.

Crude rose to a one-month high after supplies fell at Cushing, Oklahoma, the delivery point for the contract. Oil for June delivery increased $1 to $96.62 a barrel on the New York Mercantile Exchange, the highest settlement since April 2.

Gold futures posted the biggest gain in almost two weeks as demand for bars and jewellery increased in India and China, the world’s largest consumers of the metal.

Bullion for June delivery advanced 1.7% to settle at $1,473.70 an ounce on the Comex in New York, the biggest gain for a most-active contract since April 25.

The euro rallied the most in three weeks against the dollar as German industrial production unexpectedly rose for a second month in March, a sign that Europe’s largest economy may be returning to growth.

Today’s session will bring us important data in the form of the latest employment numbers and the unemployment rate, at 11:30am, AEST. There is also Chinese CPI and PPI data due out at 11:30am, which could have a big impact on our market.

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In today’s guide to investing we discuss Groupthink, a concept developed by social psychologist Irving Janis in 1972.

The term refers to the phenomenon whereby a group will make faulty decisions, because group pressures lead to declines in mental efficiency, reality testing and moral judgments.

In other words, groupthink occurs when groups tend to make irrational decisions and ignore rational alternatives.

A group is especially vulnerable to groupthink when all of its members are similar in background, and the group is insulated from outside opinions.

Groups are also particularly in danger when there are no clear rules for decision making. Scarily, this sounds a bit like the investment community, don’t you think?

Characteristics of groupthink

Think about your trading behaviour and mentality. Could you be someone who is vulnerable to groupthink?

Common symptoms of groupthink are:

- Maintaining an illusion of invulnerability
- Being tempted to rationalize poor trades (also known as “cognitive dissonance”)
- Believing in the morality of the group, or in the case of the market, investment community sentiment
- Using group stereotypes to guide your decisions
- Feeling the need to maintain an appearance of unanimity
- Ignoring your true gut feelings
- Putting up “mindguards” to blind yourself and the group from negative information.

If you’re engaging in the above behaviours, you might be succumbing to groupthink. It’s a very tempting thing, after all, to succumb to groupthink when you’re in a group or community.

This is especially so when there is a lot of pressure to make a quality decision, which is what the stock market is all about. However, the pressure to make a quality decision can lead to carelessness and irrational thinking.

People suffering from such pressures tend to disregard rational alternatives and feel that, since there is safety in numbers, one might as well act in accordance with the group – even if group thinking may seem faulty to an outsider.

Unfortunately, studies have shown that decisions guided by groupthink have a low probability of achieving successful outcomes.

The market and groupthink

We as investors are in danger of groupthink when we become heavily involved in the investment community emotion of the time – optimism during bullish times, and paranoia and fear during bearish times – and get swept away with this emotion.

Another example can be found in buying and selling behaviour. Groupthink works so that people feel that they have to follow the behaviour of the majority of the group.

It’s not an easy thing to stick to your guns on an opinion that is different from the rest of the group. That’s why at times – especially volatile times – we’ll see a lot of people moving to buy a security at once, or a lot of people hurrying to sell a security.

This is because it’s tempting to have your opinion validated by others in the group. And this temptation is never stronger when the market is suffering volatility.

The temptation to become part of a “herding mentality” becomes very strong. Investors are scared of making a bad decision, and scared of acting alone, so they follow the mentality of the crowd.

However, this doesn’t mean the herd mentality is right. Sometimes the market will react in an irrational way towards the latest economic news, even if the fundamentals of a company or sector are still strong.

It’s important to keep your head in these times; look at the facts, and act as an individual on the facts, and don’t succumb to a panic mob mentality.

No one has made it in the market by being swayed by the latest panic-spreading press releases or rumours!

Carl Capolingua
Head of Education
Australian Stock Report
Follow Carl on Twitter @CarlCapolingua

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About three stocks advanced for every two that fell on U.S. exchanges, as 5.3 billion shares traded hands, or 16% than the three-month average.

Crude climbed to a three-week high as Syria threatened retaliation against Israel for an air strike. The European benchmark grade’s premium to West Texas Intermediate oil widened from a 16-month low. Oil for June delivery increased 55 cents (+0.6%) to $96.16 a barrel on the NYMEX, the highest settlement since 2 April.

Gold futures gained for the second time in three sessions on expectations that China will announce more stimulus measures to boost economic growth, increasing demand for the precious metal as a store of value.

Gold futures for June delivery advanced 0.3% to settle at $1,468 an ounce on Comex in New York.

The euro fell against the US dollar after European Central Bank President Mario Draghi said policy makers are ready to cut interest rates again if needed after reducing them to a record low last week. Today’s session will bring us a host of important economic data.

At 11:30am the market will be in receipt of the latest Trade Balance figures, as well as the latest House Price Index reading. Then, at 2:30pm, the RBA will announce the cash rate and release its statement. Economists aren’t hopeful of a cut, with only 8 out of 29 surveyed by Bloomberg thinking there will be one.

The markets are a little more hopeful though, pricing in a 52% chance of a 25 basis point cut.

 

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