Author: james Carter
When I witness an 8.5% plunge in Chinese equities (Chart 1) for no major reason, it actually makes us feel lucky to be primarily investing in the serial underperforming Australian Index. The local benchmark for us is Commonwealth Bank (CBA). Our largest stock currently pays a ~4.6% fully franked dividend and if you purchase today, you will receive ~7% fully franked over the next 13 months, very attractive compared a term deposits around 2% unfranked. With a little acute market timing, these rates of return can be improved further. We purchased CBA under $81 a few weeks ago and its now trading pleasantly over $86. Hence, we are looking for returns better than CBA is offering for us to consider purchasing outside this simple and relatively safe space.
• A soft start was experienced in the ASX 200 today, trading on its lows early in the morning at 5538, only to recover and close 24 points (+0.4%) higher at 5590.
Home Loan Rates are Rising as Official RBA Rates are Falling
• A choppy session was experienced in the ASX 200 today, ending 24 points lower (-0.4%) at 5565, down 104 points (-1.8%) for the week.
Please click here to see our Head of Distribution Nick Forsyth in the AFR yesterday
• It was a dull session as expected in the ASX 200 today, ending only 24 points lower (-0.4%) at 5,590.
This morning at 7am, New Zealand’s RBNZ cut interest rates to 3% from 3.25% and importantly stated that further easing seems likely, citing further weakness in the NZD as necessary. This rhetoric is incredibly close to that of our own RBA and one of the reasons why at MarketMatters, we believe Australian interest rates will again be cut from 2% to at least 1.75%. Countries who are strongly influenced by commdities are hurting badly, Canada who recently also cut interest rates is now technically in recession as it suffers specifically from a plunging oil price. While Canada is more dependant on oil and North America, compared to Australia with Iron Ore/Coal and China, the strong implication is the cash rate is likely to stay low or go lower in Australia.
• A busy morning was seen in the ASX 200 opening on its session’s highs at 5696, only to drift lower and close on its lows at 5614, down 92 points (-1.6%).
• There were no positive catalysts on investors’ sights, the broader market sold off and both the Bank and Iron Ore sectors were the dead weights today. Commonwealth Bank (CBA) ended 1.7% lower at $86.63, while RIO Tinto (RIO) lost 2.3% at $52.18.
• As mentioned to our subscribers, we have switched out of one of our trading stocks into our current convictive sector.
This morning we have arrived at work to see the Dow down 181 points and after-market, Apple Inc. has reported a disappointing number, resulting in the stock falling almost 9% in extended trading, this would likely equate to an overall ~300 point decline for the Dow. Ideally the US market will still make fresh 2015 highs, but their market, unlike Australia, is optimistic going into reporting season. Hence when companies disappoint, they get hammered e.g. last night APPLE, YAHOO, IBM and United Technologies. This is not the main action catching our eye, a few other pieces of the puzzle are coming together nicely that must be watched carefully as we look for a significant top in equities. Not all of the below are significant market new,s but its these signals, that we have been watching for a while, that ultimately lead to us to trigger action.
• The ASX 200 had a quiet, but reasonable day today, ending 20 points higher (+0.4%) at 5,707.
• Three of the Big Four Banks helped push the market steadily higher during the day, with Commonwealth Bank (CBA) the weakest link, finishing down 26c to $88.10. Meanwhile Australia New Zealand Bank (ANZ) rose 20c to $33.05, Westpac Bank (WBC) up 30c to $34.90 whilst National Australia Bank (NAB) was the slight winner on the day, up 33c (1.0%) to $34.77.
• Whilst Iron Ore was trading 1% higher in Asia, the major players ended lower – BHP finished 0.6% lower at $26.82 and RIO down 0.9% at $53.38.
• OZ Minerals (OZL) lost 1.6% at $3.75 after announcing a strong quarterly report as investors remain frustrated with OZL’s patience for its “hunt” for acquisition.
• Investors welcomed the quarterly production and full year production guidance in Oil Search (OSH), ending the day 3.9% higher at $7.22.
• The gold stocks that we’ve been following had a mixed day, even though the price of gold rose during its Asian session. Newcrest Mining (NCM) finished down 1.5% (18c) to $11.69, Oceanagold (OGC) was also weaker -18c (5.7%) to $2.64, whilst Northern Star (NST) was up 6c to $2.13.
Really bullish, there's more to go in the reflation rally
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