Market Matters Afternoon Report Tuesday 7th June 2016

Afternoon Report 07/06/2016

Market Matters Afternoon Report Tuesday 7th June 2016

Market Data

What Mattered Today

A choppy day of trade within a reasonably tight range headlined by the RBA decision on rates at 2.30pm. As widely expected they held firm at 1.75% however commentary key as always. Most focus stays on the last paragraph and looking at the spike in the AUD post the release and a big move higher in bond yields (as the below charts shows) traders were clearly looking for more rhetoric emphasising a future easing bias…It wasn’t there so the AUD rallied, bond yields moved higher & the equity market sold off – about 25pts in short order after the release only to make a marginal recovery into the close. Iron Ore up +3.3% in Asian trade helped.

The range on the ASX today was +/-32pts. 5360 low, 5392 high and a close at 5371; up +10pts or +0.20%.

Staying with the RBA for a moment, the statement was fairly bland however they did reiterate that ‘further easing of policy seems appropriate given the inflation outlook’ – which was the main reason for the recent cut however partially balancing that out was commentary on housing saying ‘dwelling prices have begun to move again’ which could, if the trend strengthens further, be a reason for the RBA to not cut again. All in all, a statement that shouldn’t see too much of a change to interest rate expectations locally. As we suggested yesterday, if the U.S are less keen to raise rates, it puts more pressure on the RBA to cut them to keep a lid on the currency.

Gold’s gave back some of yesterday’s gains as we thought may play out….simply a result of running too hard too fast supported by one piece of economic data (U.S employment). When that is the case, and markets move quickly in one direction on one isolated economic print, the risk clearly sits with the next piece of data or discussion from policy makers. The below table looks at yesterday’s strong move higher versus todays weakness in a few of our favoured names…

Here’s NCM which is Australia’s biggest gold coy…

Elsewhere, the healthcare space has stayed interesting, particularly the aged care stocks which have come under a lot of pressure in recent weeks. Today we saw Estia (EHE) – a company we spoke about in the Morning Report on the 3rd June Are Cracks Forming in the Healthcare Sector? calling it to fall a further 15% to $4.50;

Today the stocks traded to a low of $4.61 – down 9% before recovering.

Why? The Govt flagged changes to funding in the May Budget and we have different brokers pricing in very different scenarios for the sector. Some very bullish and some very bearish, and this makes forcasting of likely financial outcomes difficult, but more importantly it puts more volatility into the stock.

Arguably, EHE is now cheap trading on 14 times, and has good longer term growth. Today’s big fall initially was a result of a newspaper article claiming the company was being targeted by regulators for an audit. The company claims this is routine and not specific to Estia. The article suggested otherwise and the stock was under pressure early. It’s these events that we actually like, and made mention of in today’s morning missive. The confusion around funding is a concern, however the article this morning around the audit smells like an opportunity…One we’ll now keep close on the radar given the blow off low and now some obvious valuation support.

We sold Healthscope (HSO) out of the Market Matters portfolio a few weeks ago. That stock is now starting to come under pressure, probably a result of similar concerns around Government funding. HSO is a great business, but it’s expensive. Expensive stocks that meet ‘less favourable news’ tend to get sold off.

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Overseas

We made some comments in this morning’s report about our views on the U.S market. Here is a brief version for those that do not receive our morning reports…

Technically the S&P500 is unfolding in a classic "Phase 5" advance to complete the bull market rally since the infamous GFC. We remain bullish targeting fresh all-time highs in coming months prior to a 20-30% correction. However with the S&P500 now only 1.2% below all-time highs the risk / reward for purchasing stocks is diminishing and hence buying should be selective with clearly quantified stops. We’re also looking for ‘events’ that provide a trigger for action in our stock selection.

Estimating how far the rally to fresh highs will extend is almost impossible hence we will be keeping our finger on the pulse over coming months but our best guess would be at least the 2300 area.

The US S&P500 Index Monthly Chart

When looking to identify an important top we turn our attention to the shorter timeframe daily charts. At this stage this is bullish with the potential for an acceleration style rally to fresh all-time highs.

The US S&P500 Index Daily Chart

Global FUTURES Markets as @ 5.04pm

Source; CNBC

Regards,

The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.

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 7/06/2016. 5:00PM.

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