Market Matters Afternoon Report Friday 2nd September 2016
Good Afternoon everyone
Market Data
What Mattered Today
The market broke through 5400 level today which is the main area of support we’ve been targeting for the past week or so. A break of that level is clearly a negative and puts us on a more heightened watch for a deeper pullback from here. That said, we’re only 28pts (or 0.51%) points below and we’ve had a week where the ASX 200 has dropped 3% versus the US market which is down only -0.7% - so some significant underperformance. We’re reluctant to reduce exposure after a week of such poor relative performance in Australia and will review our current positioning on Monday.
ASX 200 Daily Chart
We have US non-farm payrolls tonight which may be a big swing factor for the market. Consensus sits at +175k jobs to have been created in August with wages to increase by +0.2% for the period. The range is fairly wide from analysts (+125k to +215k) and the risk is clearly around a number that prints a long way out of this band.
A weak number and expectations for a US rate hike in 2016 will fall, putting pressure on the $US which is supportive of Gold and other commodities. The opposite would be a negative for Gold and other raw materials given their exposure to the US currency.
Interesting to look at trade overnight in the US, and today in Oz with the GOLDS the standout sector (on the upside) with the likes of Newcrest (NCM) and Regis Resources (RRL) in the green. We also saw some reasonably strong buying in the energy coys, Origin (ORG) and co despite a weaker Oil price overnight.
We continue to look for a reasonable entry point in Newcrest (NCM) following recent weakness and are well covered for energy exposure.
Newcrest (NCM) Daily Chart
Banks were a drag today dropping somewhere between -0.81% and -1.21% however, we also saw Telstra (TLS) drop another 2.1% to close at $5.12. $4.75 is our downside target on Telstra (TLS) after having negative view on the stock since it tried to push towards $6 and failed. Their recent result was weaker than the market was expecting, they’ve got a reasonably complex path ahead to reinvest NBN proceeds into future growth and with that comes risk. At $4.75 and considering a full year dividend of 31cps that puts it on 6.5% plus franking or 9.28% gross.
Telstra (TLS) Daily Chart
Staying with that yield theme, we’ve been fairly vocal about the risks around the expensive ‘bond like’ stocks on the ASX. The Transurban’s (TCL) and Sydney Airports (SYD) of the world. Great cash generating businesses - strong growth pipelines but they’ve simply become too expensive forced up on the back of low-interest rates. These stocks (and others of similar ilk) continue to present a risk in our view…weakness has started to play out.
Transurban’s Group (TCL) Daily Chart
Overall today, we had a range of +/- 46 points, a high of 5418, a low of 5361 and a close of 5372, down -42 points or -0.79%. A poor week for Aussie stocks in absolute terms but even more so when we look in a relative sense v other global markets.
ASX 200 Intra-Day Chart
Sectors
Source; Bloomberg
ASX 200 Movers
Top 20 Shorts
We met with Laura McBain (MD & CEO) of Bellamy’s (BAL) in a presentation today and its fairly clear that BAL is a high quality business with some great prospects – and above all, a very strong leadership team behind it. It’s set for growth and unfortunately at the moment, priced accordingly. We continue to keep a close handle on BAL for trading opportunities.
The other interesting aspect is they’ve got a large short position in the stock – just shy of 9% or 8.5m shares. It traded 783k shares today which is down on average but goes some way to show the potential upward pressure if shorts are forced to cover. The Q is though, why such a high proportion of shorts in such a high quality business?? Exposure to and scepticism of China is the obvious answer given they’re exposed to and will be impacted by Chinese regulation – which is a big swing factor. Understandably, the company is perplexed, as they should be.
Select Economic Data – This week Stuff that really Matters in Green
US Non-farms the main game for markets this evening.
What Matters Overseas
FUTURES Higher…
Good turnaround in US stocks overnight and the S&P 500 remains bullish. We continue to target a new high for US stocks and that has formed the basis for our positive view on Aussie stocks – which have clearly struggled this week .
All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 2/09/2016. 5:00PM.
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