Resource stocks lead the charge today…
A good day for some sectors of the Aussie market today with resources clearly the place that saw most love as foreshadowed in this morning’s AM report. BHP added +3.47% to close at $24.7, RIO put on +3.04% to close at $61.72, Oz Minerals (OZL) had another stormer adding an impressive +4.63% to $8.36 after we bought yesterday morning at $7.78 while the banks were used as funding vehicles today…CBA up by +6c at $85.99 underperforming the market – which was indicative of the broader banking space.
We talk often about being in the right sectors at the right times and todays trade illustrates that fairly well. Different sectors see money at different times and getting that right is key, however the rise of passive funds that track money flow, which is pretty much what a lot of ETFs do, extenuates that theme. Think about a resource ETF for instance that tracks a basket of global resource stocks – funds will flow in and out of that which lead to buying or selling of underlying shares, largely in the bigger cap stocks like BHP, RIO, Oz etc.
Anyway, we thought this morning that resources were primed for a move higher and it’s pleasing to see it actually happen. BHP sub $24 and RIO sub $60 was clearly attractive and we’re long those stocks accordingly.
BHP Billiton (BHP) Daily Chart
Oz Minerals (OSL) Daily Chart
On the broader market today, it was actually weaker than we thought, largely given the underperformance in the banking space and the mkt clearly finds it hard to rally when banks lag. A 2pm low played out and a decent move higher into the close….another example of ‘buy weakness’ which has typical here as well as in the US of late. We had a range today of +/- 35 points, a high of 5881, a low of 5846 and close of 5876, up +19pts or +0.33%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
The insurance stocks have had a tough time in the last week which in understandable given ‘Debbie’ however as is often the case, the market frets about what ‘could be’ and when some clarity prevails we see stocks bounce. As we suggested yesterday , IAG was most at risk from a financial standpoint and today they said that cost is currently expected to be $140m with 4300 claims made to date. That will likely prompt a cut to earnings for FY17 by around 14% however no change to outer years, and again as suggested yesterday, it might be a small positive for the sector as rates will likely increase on the back of it!
SUN – has allowance of $622m plus $300m extra reinsurance to 30 June 2017, so impact likely to be zero.
QBE – has total cap on large hazards of $960m, so we assume limited to that, and no impact likely either.
Technically, QBE has been hitting its head on $13.30 in a tight range for the past few weeks – a break of that level would be bullish targeting at least $14
QBE Insurance (QBE) Daily Chart
Have a great night,
The Market Matters Team
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