Author: james Carter
With Australian 10-year bonds trading at all-time low rates, around 2.6%, quality stocks with sustainable yield are being chased hard – see chart 1. Australia currently has $1210 billion in savings accounts, how much of this will consider alternatives if rates fall further? Interestingly, only a third of Australians have a home loan with the total around $925 billion hence rate cuts arguably hurt more people than they help!
• The ASX 200 closed has been battered today, with the ASX 200 down 51 points at 5353 – down 112 points for the week so far!• The Resources sector continues to be the main headline, with Copper, an indicator of economic health plunged as low as 8.3% at US$242.35/lbs. OZ Minerals (OZL) fell 11.7% at $3.25 while the diversified miners such as BHP Billiton (BHP) lost 2.8% at $27.20, also making new recent fresh lows at $27.095.• In the Iron Ore Sector, Fortescue Metals (FMG) was hit the most, down 8.2% at $5.41.• The World Bank also helped today’s weakness after releasing its Global Economic Prospects report noted the recovery has been weaker than expected in 2014. The main points for the domestic economy are:
Identifying trades and investment opportunities is only half the game, we must also manage the position constantly and evaluate the evolving risk and reward. We bought the gold sector in late November and when I see financial journalists now discussing the merits of gold companies for 2015, after the recent significant strength, the cynic in me considers taking some profit!
• The ASX 200 closed 18 points weaker at 5404, as the Energy sector continues to be the main influence of this bearish tone. • The defensives and yielding stock continue to outperform the broader market recently, with Telstra (TLS) up 1.1% at $6.11 and our ever shining, precious metal company, Newcrest Mining (NCM) up 3.8% at $12.95.• The Resources sector was expectedly battered today, with BHP Billiton down 1.9% at $27.97, Fortescue Metals (FMG) -5.2% at $2.55 and Oil Search (OSH) down 2.2% at $7.14.• Alumina (AWC) however, closed 4.2% higher at $1.965 after its parent company, Alcoa (AA.US) reported a better than expected earnings this morning.
My simple answer is a boring no, but there is a lot of thought behind this conclusion, not just a coin toss. Firstly, I will consider the sector / market as a whole through the eyes of Commonwealth Bank (CBA), the sector outperformer, up 10.9% over the last 12 months. Some of the below factors caught my eye this morning and others have been in my sights for many weeks:
• The ASX 200 started the week in a negative tone, ending the day down 43 points, or -0.8% at 5423.• The sea of red was contributed both by the banking and resource sector, with National Australia Bank (NAB) down -0.9% at $33.92 and Fortescue Metals (FMG) down 3.2% at $2.69.• There were some diamonds in the rough, with Newcrest Mining (NCM) continuing its strength, up 2.5% at $12.48 and JB Hi-Fi (JBH) up 2.1% at $16.25.• The Energy sector continues to lose its steam, with Santos (STO) down 5.2% at $7.29, BHP Billiton (BHP) down 2.2% at $28.51 and Woodside Petroleum (WPL) down 1.9% at $36.35.• Cardno Ltd (CDD) was one of the underperformers today, down 15.5% at $2.90 after it announced CEO, Michael Renshaw has stepped down.
The Dow rallies 500 points in 2 days, are we wrong?
• The ASX 200 closed 84 points higher, or +1.6% at 5466, following the lead by the US last night.• The recent underperformed sectors rallied today, particularly with the Energy sector, with Santos (STO) +5.3% at $7.69 and Woodside Petroleum (WPL) up 3.0% at $37.05. However, they are still trading well near their lows.• Telstra (TLS) had a stellar day again, closing at its 14-year high, +0.5% at $6.07.• The Gold sector continues to shine, with Newcrest Mining (NCM) up 4.6% at $12.18 and Regis Resources (RRL) up 2.9% at $2.14.• The Banking Sector closed well, with the recent underperformers, ANZ and National Australia Bank (NAB), both up 1.5% at $32.39 and $34.23 respectively.• Disappointing Retail sales were ignored, reporting at 0.1% vs. consensus of 0.2%, with Myer (MYR) up 3.6% at $1.425.• Please watch out for the Hickman Report tomorrow.
What does history tell us results from low oil prices?
• It was a choppy session with the ASX 200 today, closing 28 points higher at 5381 with a range of 57 points; however it was still not able to recoup the losses from the past 2 days.• The close into positive territory was supported by the “big 4” banks with National Australia Bank (NAB) up 30c, or +0.9% at $33.72 and ANZ up 19c, or +0.6% at $31.91.• The Insurance sector had a good day, with QBE up 2.1% at $11.15 and IAG up 1.5% at $6.30.• The Iron Ore sector closed mixed, as it seems investors were switching out of Fortescue Metals (FMG) down 7c, or -2.6% at $2.67 while RIO Tinto (RIO) closed up 136c, or +2.4% at $58.65.• The energy sector continued its drag, with Santos (STO) down 2.0% at $7.30 and Oil Search (OSH) down 1.5% at $7.09.
Really bullish, there's more to go in the reflation rally
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