Author: james Carter
- The ASX 200 had a solid morning, trading as high as 5,125 (+1.2%), only to fade by the afternoon and close 37 points (+0.7%) higher at 5,103
- The Bank sector closed marginally higher, with Westpac (WBC) the clear leader of the ‘big 4’ for the day. WBC closed 0.8% higher at $31.11.
- The main 3 supermarkets had a great day, Wesfarmers (WES) up 1% to $39.03, Woolworths (WOW) up 1.2% to $24.79 and Metcash (MTS) up 1.5% to $0.995.
- Newcrest (NCM) followed Gold’s trade overnight, losing 3% to $12.15, while Regis Resources (RRL) rallied 5.7% to $1.665 as it approaches ex-dividend date in 4 trading days.
Best Sector – Energy
Three very different things that caught our eye this morningGood morningOverviewMondays are often the hardest days to write reports at Market Matters because we generally have no significant fresh news since writing our comprehensive Saturday report. Hence sometimes, like today, we go searching around for interesting / market-relevant points that are often over looked.Turning to the MarketsThese 3 markets keep catching our eye:China
- The ASX 200 index was hit from the start by sellers and at worst, was down 143 points. By the end of the session, it improved to end 104 points lower (-2%) at 5,066.
- Volatility in Australia’s share market has followed suite of its US counter parts, up 13.6% to 26.49 – an indication of fear in the market.
- The Materials sector was the weakest, with the major Iron Ore players losing its lustre. Fortescue Metals (FMG) closed 4.1% lower at $1.975, while RIO Tinto lost 2.9% to $49.78.
- The banking sector also contributed to the sea of red, as Commonwealth Back (CBA) was the weakest link, having ended 2.9% lower at $73.62.
Best Sector – Health Care
Good morningOverviewThis morning the Fed left interest rates unchanged at a very stimulatory 0.25%. The delay in raising rates was essentially due to the perceived risks in the global economy; especially China. Unless the Fed is specifically considering the price action of share markets, which we doubt, it’s hard to imagine they feel confident of the underlying strength (or not) of the Chinese economy until well into 2016.Hence, markets still have Fed uncertainty going forward and the renewed prospects of a “Grexit” (Greek Exit) ahead of this Sunday’s bailout referendum. Ultimately, the Greek debt fiasco is unlikely to be ended with a simple vote.Turning to the MarketsEnough of the macro highlights; more importantly how does Market Matters believe equities will behave going forward into Christmas?
- A soft start in the ASX 200 was experienced following the US Fed Reserve’s no change in its rate, until investors fully digested the comments and rallied from 10.30 this morning, to finish the day up 23 points (+0.5%) to 5,170.
- As the yield play remains in Australia for now, the bank sector rallied, Westpac (WBC) was the strongest link, ending its day up 1.3% at $31.75.
- In the Mergers & Acquisitions (M&A) area, Veda Group (VED) rallied 31.3% after receiving a non-binding bid by Equifax Inc at $2.70 a share.
- Watch out for the Weekend Report tomorrow.
Best Sector – Industrials
It’s D-Day, let’s sit back and observeGood morningOverviewYesterday saw a positive mood back in the markets after the previous day’s negative one. Once again the market should open with a positive frame of mind after a solid overnight rise on Wall Street. But what do the next few days bring?When we wake up tomorrow we will know if the Fed has raised rates; but ‘so what’ it’s hardly a surprise! Traders are currently only building in a 28% chance of a hike in the morning compared to 63% of a hike in December – Market Matters thinks tomorrow.Raising tomorrow will remove unwanted uncertainty from financial markets; clearly the preferred scenario.The impact of a rate rise is now important to consider. The S&P500 is already trading on 16.7x projected earnings so, remember, it’s not cheap at present with the average P/E around 16x going back to 1960. Over the last 70 years profit growth has fallen by around 50% in the year after a rate rise implying a slow 2016.Turning to the MarketsEver since the savage correction of 5 weeks ago the market has, basically, been fixated on tomorrow’s news and the Chinese economy. As a comparison move we are looking VERY closely at the retracement in 2011 – see chart 1.Back in 2011 the S&P500 fell 296 points (see 1-2 on chart 1), we are following the path incredibly closely hence if we get an aggressive spike down in coming weeks towards the 1830 area (8% lower). At this level, Market Matters would be technically very bullish. Conversely, if the market rallies from here we are comfortable having accumulated enough quality stocks into the recent selling. A nice balance = “Trade / invest to sleep well”.Two other moves that we have been discussing over recent times look to have commenced overnight.1. Gold surged almost $US18/oz last night
- The ASX 200 had a mixed day, interspersed with a technical breakdown in the Sydney Futures Market (SFM) just before 1.00pm, which also affected the equity market until 3.00pm, when the plug was put back in to restart the system. From there, the market sold off, leading into what may become a critical turning point in the market tonight with the US F.O.M.C. due announce their decision on interest rates.
- The ASX 200 index finished up 48 points (+0.9%) to 5,146, after trading as high as 5,194 this morning.
- As yesterday, the strongest sector was energy. Again Woodside Petroleum (WPL) had a good day finishing up 85c (+3%) to $29.95, whilst Santos (STO) was up 10c (+2%) to $5.00.
- In the retail sector, OrotonGroup (ORL) rallied 4.5% higher to $2.34 despite reporting its FY15 full year profit 68% lower than the previous 2014.
Some local gold stocks are glistening as the precious metal dulls?Good morningOverviewWell, the market action in Australia yesterday was suggesting a significant fall in the US markets overnight. But, again, it didn’t happen with quite the opposite taking place. Our market will open up around 1% today. Patience and continuing to watch the messages the markets are telling us are key. As we say in Chart 6, some further sideways action followed by a sharp spike down would not surprise but we would see this as an excellent buying opportunity.Turning to the MarketsAt Market Matters we have been looking for a strong counter trend rally in gold for weeks but the looming interest rate rise in the US is, understandably, putting pressure on the precious metal and we have been getting frustrated. However, some things are catching our eye that we cannot fully explain!!Over the last four weeks Northern Star Resources (NST) has rallied 20.5% but during the same period gold has fallen over $US70/oz (5.5%). Similarly, over the last four weeks Regis Resources (RRL) has rallied 16% but Australia’s largest gold producer Newcrest Mining (NCM) is basically unchanged.So, let’s let look individually at these three local gold stocks:
- For a change, the ASX 200 went up from the opening and after a brief lapse of sideways movement, continued steadily up from there. The index finished up 80 points (+1.6%) to 5,099.
- The energy sector was the strongest today with Woodside Petroleum (WPL) up 3.0% to $29.10. Santos (STO) enjoyed a 5.4% move higher to close at $4.90 whilst Caltex (CTX) was up 3.3% to $31.42.
- The banks were well sought after as well, Australia New Zealand Bank (ANZ) closed up 74c (+2.7%) to $27.88. Commonwealth Bank (CBA) rose $2.63 (+2.6%) to $75.35, National Australia Bank (NAB) closed up 68c (+2.3%) to $30.51 and lastly Westpac (WBC) up 87c (+2.9%) to $31.07.
- All eyes will be on the 2-day US FOMC meeting, where there is currently only a 32% consensus of a rate hike in the US this month.
Best Sector – Energy
Australians are waking up to Malcom Turnbull as their 5th prime minister in just over 5 years! Frankly a ridiculous situation and certainly not a stable nor professional picture for overseas investors.
Really bullish, there's more to go in the reflation rally
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