Market Matters Afternoon Report Wednesday 1st June 2016

Afternoon Report 01/06/2016

Market Matters Afternoon Report Wednesday 1st June 2016

Good Afternoon everyone

Market Data

What Mattered Today

A weak open to start the new month today and more volatility followed…with the index trading in a range of +/-60pts. 5306 low, 5366 high and a close at 5323; down -55pts or -1.03%

Official Chinese manufacturing data dropped at 11am this morning – printing 50.1 v 50 expected – so a slight beat and still above the level of expansion - then the Caixin, which tracks more regional factories dropped at 11.45am – printing 49.2 v 49.3 expected, so a slight miss.

Aussie GDP was out at 11.30am and was v’strong printing +1.1% qoq for Q1 and +3.1% yoy. Markets were pricing +0.6% qoq before we saw strong export data yesterday, so revised consensus ahead of the number was +0.8%. +1.1% qoq is a very strong number which prompted decent buying of the Aussie dollar – and rightly so given it reduces the chance of further interest rate cuts…

RBA will be questioning why they cut rates to 1.75% if the next inflation print bounces back, which is a real possibility.

Mining services companies copped a bid today on the back of some positive news from ALS Limited (ALQ) – which is the old Campbell Brothers. The stock went into trading halt amid rumours of a takeover from Bain Capital and another partner. It used to be a real favourite of investors during the mining boom when demand for its mineral testing services were high. Since then, they’ve made a decent push into the life sciences area (food testing etc) which has been good, however the Minerals division has become a major drag.

They reported earnings yesterday with FY16 underlying NPAT of $99.5m; down -27% on last period and -7% below market consensus of $107.4m. The numbers were weak, and the outlook muted for the mineral division partially offset by some decent earnings for life sciences. The balance sheet is strong after a $325m capital raising last year and current gearing sits at 27% (down from 38% pcp).

Although we think it’s too early to get too optimistic this sector given the lack of a near term catalyst and vagaries of company outlook statements, for those with a longer time frame and adequate patience we think there is clear value in this area of the market for stocks will low debt, robust balance sheets and dominate positions in the sectors they operate. Stocks we’ve spoken about before include Mineral Resources (MIN) and Worley Parsons (WOR)… both stocks were up strongly today with MIN breaking out again.

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Tonight

As we suggested yesterday, US employment data the main game in town this week (due out Friday) which is likely to dictate whether or not the Fed hikes rates in June. As we touched on yesterday, expectations for a June hike have firmed with the market now pricing a 24% chance…and a 53% chance in July ….

Source; Bloomberg

Crude Oil is now interesting, pushing up against $50 resistance. We’ve been calling it higher since the lows however we now see $50 as a clear level of resistance. A break of this level and we’d most likely see a short sharp move higher. The OPEC meeting this Thursday could prove to be the catalyst.

Global FUTURES Market as @ 4.32pm

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 1/06/2016. 4:00PM.

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