Author: james Carter
Oil has led equities down, can they bounce with it?
• The ASX 200 finally broke its recent weak spell, ending 10 points higher, or +0.2% at 5162.• The energy sector outperformed the broader market as recently predicted, with Santos (STO) ending up 4.3% at $7.58 and Woodside (WPL) up 3.0% at $35.50. As sent live to Subscribers, we took profit on Hickman’s Long WPL Option calls. • Flight Centre (FLT) fell $1.59, or -4.3% at $35.04 as the $A collapsed through US82c to US81.5c. Investors expect less outbound travel from Australia with a lower $A.• The Telecommunications Sector had plenty of Mergers & Acquisitions (M&A) activity, with Vocus (VOC) in a deal with Amcom (AMM) to buy the remaining 90% it does not own. Telstra (TLS) have also been in talks to potentially acquire Cable operator, Pacnet. VOC ended 0.5% lower at $5.71; AMM +0.4% at $2.36 & TLS up 0.7% at $5.76.
• It was a choppy session for the ASX 200, ending the day with a sea of red, down 33 points at 5152, after trading as high as 5190.• The Banking sector closed slightly mixed, with Westpac (WBC) down 0.8% at $31.57, while NAB closed 0.1% higher at $31.50. Macquarie Group (MQG) disappointed, down $1.17, or -2.1% at $56.41.• As anticipated, the commodities sector dragged the ASX200 the most, with BHP Billiton (BHP) down 3.2% at $27.42 and Fortescue Metals (FMG) down 3.6% at $2.39, we remain long-term bearish BHP.• The Gold sector eased from its recent strength, with Newcrest (NCM) down 2.7% at $10.38 and Regis Resources (RRL) down 3.4% at $1.565.• Myer (MYR) continues to be battered, down 3.3% at $1.305. -19.4% for the month and -46.1% for the current quarter!
Firstly, our thoughts and prayers go to the innocent victims, their families and friends of the recent horrific attack at Martin Place.
Markets generally move from one dominant theme to another and it’s always important to be on top of what’s moving markets at a particular time. I have been amazed that we have recently been bombarded with headlines similar to “oil plunge to hurt world growth”. What they should be saying is “markets are concerned that oil plunge illustrates world economies are slowing” (see chart 4), basically, equity markets are in a negative mood, so for example interest rates lower for longer is getting no headlines. Overall, there this is nothing new, markets move in cycles of positive / negative news interpretation. My economic interpretations of lower oil prices learned from over my +25 years in the markets are:
Are we going to get a Christmas rally and why do they occur?
• The ASX 200 had a roller coaster of a day, ending 5 points lower at 5225, after touching its lows of 5204 in the morning, to hitting intraday highs of 5241 shortly after.• The weakness was mainly contributed by the iron ore sector, with Rio Tinto (RIO) down 2.5% at $53.67 and Fortescue Metals (FMG) down 2.0% at $2.42.• The oil sector had a solid day, with Woodside Petroleum (WPL) up 1.2% at $34.60 and Santos (STO) up 2.3% at $7.16.• The Banking sector was not able to hold above water, with ANZ down 0.7% at $31.00 and Westpac (WBC) down 0.6% at $32.05.• Please watch out for the Hickman Report tomorrow.
Yesterday, I touched on the current significant increase in volatility, especially in equity markets exposed to commodities. A characteristic of major turns, I believe this will be a top in the U.S. – even after last night’s drubbing the Dow is only 2.4% off all-time highs! The previous night, equities plunged in Europe on concerns around Greek elections and potential flow on effects, the Greek stock market fell 12.8%. Last night, all eyes returned to oil after OPEC reduced its estimates for 2015 demand, oil again plunged over 4% to 5 year lows, I am actually surprised this news created such a move, why else has oil fallen 43% in the last 7 months? We are in the “eye of the storm” of panic in this sector as OPEC, led by the Saudi’s, plays games with the market. People are now talking $US40-50 a barrel if OPEC does not remain united. One fact is catching my eye:
The ASX 200 recovered over 50 points from its lows to close only down 28 points (0.5%), not a bad effort with the Dow falling 268 points (1.5%).
I am buzzing this morning with so many ideas flying around in my head after only two espressos, that I thought the best report would be a snapshot of all my thoughts today. Please excuse the information overload, but all very relevant at present.
Really bullish, there's more to go in the reflation rally
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