Market goes quiet as James jumps on his postie bike (CBA, BBOZ)
A brief Morning Report today as James and Harry are about to embark on their tough ride through the Flinders Ranges, here’s a quick YouTube clip of a past event for subscribers who haven’t yet had time to watch it : Click Here
The ASX200 bounced well yesterday gaining 41-points, but as the chart below illustrates, it didn’t make much of a dent in the falls of the last few sessions. Unfortunately we still believe the market has evolved since the dizzy heights of July and we still prefer “selling strength" until further notice. Around lunchtime, the market was flirting with negative territory until we were rescued by New Zealand!
1 – The Reserve Bank of New Zealand cut its key interest rate by 0.50% to 1.00%, more than expected in an attempt to revive inflation. The move reverberated through both our own and NZ markets, across the ditch, equities soared finally closing up +1.88%, about 3 times more than our own.
2 – Australian bond yields plunged to record lows with our 3-years falling under 0.655%, a great indication that the markets now expecting two further RBA rate cuts to 0.50%.
3 – Trans Tasman currencies were smacked with the $A breaching US67c for the first time in 10-years.
MM remains comfortable adopting a more conservative stance than we did for the first half of 2019, but we do anticipate being active this month.
Overnight US stocks closed the session basically unchanged and the SPI is indicating a quiet start to the day, James will be happy!
We continue to believe markets will swing between optimism around interest rates and pessimism around the looming recession - it will be interesting to see how long yesterday’s positive tone can last. Plus of course, let’s not forget the US-China trade war, unfortunately that’s 2 negatives vs. one positive. Below is a link to the upcoming company reports, yesterday threw out no hand grenades and fingers crossed we have a new theme:
https://www.marketmatters.com.au/reporting-season-2019/
** AMP have this morning reported an underlying profit of $309m, along with a whopping non-cash impairment of $2.35bn(post-tax) and a $650m capital raising at a floor price of $1.50/share as the recently appointed CEO restructures the business.**
ASX200 Chart
Yesterday the $A dipped below US67c, but it bounced almost 1c overnight, a good sign its “looking for a low”. The Kiwi didn’t fare as well closing around the US64.5c area.
MM believes the time to average our long $A in our ETF Portfolio is close at hand.
The Australian Dollar ($A) Chart
History tells us that when Australian 3-year bond yields trade in a meaningful way below the RBA Cash Rate the Reserve Bank are highly likely to cut interest rates – just as they are today, which is illustrated by the chart below.
MM, like the market, believes the RBA Cash Rate will fall to 0.5% in the next 6-12 months.
Important Australian Interest rates Chart
Following an ok result by CBA, in a very tough low interest rate environment for banks, CBA slipped by -1.38% - in hindsight we went long a day early.
This is a relative yield play, CBA is yielding 5.5% full franked and for those who go long today and hold for 13-months its closer to 8%, very attractive compared to fixed interest, especially if the bank can deliver on its cost cutting goals in this zero growth environment.
MM likes CBA at current levels.
Commonwealth Bank (CBA) Chart
MM remains bearish US stocks, initially targeting the 2750 area for the S&P500 - almost 5% lower, hence we are in “sell the rallies as opposed to buy the dips” mode.
MM remains bearish US stocks.
US S&P500 Chart
MM’s plan for the days / weeks ahead
1 – We are looking to increase our cash position in the MM Growth Portfolio, 16% feels too light at present.
2 – We are looking to buy the Bearish ASX200 ETF (BBOZ) into strength moving forward to hedge a decent part of our portfolio.
BetaShares Leveraged Bearish ASX200 ETF (BBOZ) Chart
Overnight Market Matters Wrap
· US equities pared back its early losses overnight, with investors positioning themselves on the current outlook for global growth as they anticipate the central bank to ease its monetary policy, following New Zealand cutting its key interest rate by 0.5% yesterday.
· Crude Oil extended its losses, currently off 4.74% - hitting fresh 7-month lows and in bear market territory.
· BHP is expected to outperform the broader market after ending its US session up and equivalent of 0.39% to $39.60 from Australia’s previous close.
· The September SPI Futures is indicating the ASX 200 to open marginally lower, testing the 6510 level this morning.
Have a great day!
Alex & the Market Matters Team
Disclosure
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.
Disclaimer
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