RBA leaves rates unchanged – resource stocks look interesting again
A decent open but an early sell off had traders on the back foot early today before another choppy session played out, with the market closing marginally lower. We had a range of +/- 25 points, a high of 5874, a low of 5849 and a close of 5856, off -16pts or -0.27%
ASX 200 Daily Chart
The RBA kept rates unchanged at 1.5% today at their April meeting which was as per expectations. They suggested that conditions in the global economy had improved over recent months with both global trade and industrial production moving higher. They touched on improving labour markets globally and importantly they expect above-trend growth in a number of advanced economies, but as always, the caveat of ‘uncertainties remain’ was also there.
In terms of the Australian housing market it’s clearly hot in some parts with Sydney house prices up 18.9% in the 12 months to 31st March, while Melbourne has put on 15.9%. other parts of the country are less stoic with the average capital city dwelling up by 12.9% - still a pretty good effort.
Most of the attention though in the statement was around the crackdown on lending standards which has been playing out over the past few months. They say that growth in household borrowing, largely to purchase housing, continues to outpace growth in household income, and it’s up to the banks to reinforce strong lending standards. Investor loans + interest only borrowers are in the cross hairs and they’ve already felt the brunt of out of cycle rate hikes. Clearly more arduous lending standards will impact loan growth however the banks are re-pricing existing mortgages therefore we see upside to banks earnings in the near term overall. This fits with our seasonal view of banks higher in April before we see lower loan growth figures which should see bank investors start to get a bout of nerves!
Resource stocks are looking interesting here after a pullback from 2017 highs of varying magnitude as shown here.
The market loved resources at the back end of 2016 leading into February reporting where the results were great, but the sector was too well owned. Since then we’ve seen mixed Chinese growth data, a short term bounce in the $US, some weakness in the Iron Ore price and subsequent selling of resource stocks. The question now is whether or not we see another leg down or the short term low is in place. We favour the latter scenario and we’ll look to detail our view in the morning note tomorrow…Golds were particularly strong today with the likes of Regis (RRL) up by +4.53% and Evolution (EVN) up by +3.76%.
Evolution Mining (EVN) Daily Chart
We bought some Oz Minerals (OZL) this morning and the stock had a good move throughout the day to finish up by +2.70% at $7.99. The Australian based Copper and Gold company has some very good growth prospects in the coming years and the recent sell down from ~$10 to now trade sub $8 following a weaker Copper price and higher $US presnts an opportunity. We’ve taken a short term trade in OZL.
Oz Minerals (OZL) Daily Chart
And finally, the spectrum auction was conducted today with Vodafone, Optus and TPG the likely bidders. Optus and Vodafone to beef out their existing mobile networks while TPG needs it to build its own. The outcome may be out tomorrow and it will give good insight into the longer term plans of TPG. Building your own mobile network is expensive and would likely require a cap raise at some stage….TPG closed down -2.61% at $6.71
TPG Telecom (TPM) Daily Chart
Have a great night,
The Market Matters Team
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