Australian Investment Blog

Good afternoon everyone

Market Data

What Mattered Today

1. The Intra-day chart of the Aussie market says it all with optimism early quickly sniffed out be a weaker than expected set of data prints out around 11.15….

2. Feb retail sales were flat – v expectations for +0.4% - taking the year on year growth rate to +3.3% - which is fairly weak

3. Building approvals were better than expected; +3.1% v exp of +2.9%. The headline level was good but undertones were soft with residential approvals down again – 4th straight month in that direction

4. So – the Aussie Dollar got whacked after the data came out – and was soft for the rest of the session – currently trading at 0.7628 – off 50pips from this morning

5. RBA rate decision tomorrow – no cut expected but language important as covered in today’s morning missive

6. The currency threw a spanner in the works on a few fronts today with;

a) The big move post the data prompting liquidation of AUD exposure (and exposure to Aussie stocks from overseas investors)

b) Macquarie downgraded earnings forecasts for BHP and RIO claiming that currency tailwinds are easing for Australia's miners as the Aussie runs hotter than expected against the greenback – again something we spoke about this morning HOWEVER, they downgraded based on currency strength but worth noting that generally spot commodity prices are above their forecasts so that should offset – BUT – it didn’t today with commodity stocks trading a long way off their highs….

7. So – once again today we had a good lead from the US yet we failed to move higher…The Aussie market clearly smells and if it wasn’t for the reasonable strength we’re seeing play out in the US, we’d be trading in the 4700/800 region

8. We’ve written extensively about our view for US stocks to make one more high then roll over BUT – US stocks are now less than 3% away from making an all-time high. Upside now seems limited….

9. Subscribers of Market Matters get a Weekend Report which is extensive – and covers some of the bigger picture issues and our views on markets far and wide

10. We covered US earnings and it’s interesting to see another well-read report cover the same topic this afternoon…

11. Anyway, here is what we wrote….

12. We’re not more bullish on US stocks for a few reasons – but most importantly, US earnings are not keeping pace with the rally in stock prices. For instance (according to FactSet), during the first quarter, analysts lowered earnings estimates for companies in the S&P 500 by -9.6% from expected earnings per share of $29.13 to $26.32.

13. If we put some context around that cut, during the past year (four quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.0%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.3%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was larger than the one-year, five-year, and 10-year averages (FactSet).


14. So, US stocks are going higher however earnings are being revised lower. We think that’s a bi-product of a very accommodative central bank that seems reluctant to raise rates – which in truth – could go on for a while – however there’s a point that if earnings aren’t legit, and markets are too high relative to those earnings – then we see a decent correction play out – which is what we’re expecting – and have been calling for some time

ASX 200 Movers


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



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