Market Matters Morning Report Thursday 23rd June 2016

Morning Report 23/06/2016

Market Matters Morning Report Thursday 23rd June 2016

Looking beyond Friday’s frantic trading

Trading on Friday is likely to be frantic, as the results of the BREXIT vote start crossing our screens from 7:00am. This week, the markets have optimistically factored in a "Remain" outcome, with the UK FTSE rallying close to 7% over the last 5 trading days and the British Pound at its highest level this year! These market moves lead us to have a heightened short-term concern around the outcome - the only surprise is a "Leave" outcome, hence do we take profit on our Henderson Group (HGG), or Macquarie (MQG) purchases?

Our best guess is still a "Remain" win, but then followed by disappointing short-term reaction from equities, with US stocks looking shaky for the coming 1-2 weeks - we still feel a correction of ~3% is a strong possibility. Simply, investors have been moving funds out of $US assets into the Pound / Euro, leading to outperformance from European markets - a trend that is likely to continue for a while with a "Remain" vote.

Importantly, next week is the last week of the Australian financial year and one that usually offers some great opportunities. It's time to refocus on the potential opportunities domestically that may arise from "End of Financial Year" (EOFY) selling / shenanigans.

US S&P500 Daily Chart

Primary Health (PRY) has endured a tough year, falling over 25%, but has recovered well since February. We remain bullish PRY, targeting over $5 with a $3.20 stop. Hence, we are very likely to be buyers of any weakness next week assuming no news driven circumstances.

Primary Health (PRY) Monthly Chart $3.83

No change to our previous view that we would consider a small / aggressive position if SPO is crunched down towards 80c next week, BUT that is a fall of over 20% and hence, unlikely.

Spotless Group (SPO) Weekly Chart $1.06

HGG has rallied over 10% from last week's lows since BREXIT fears reduced significantly. We are showing a 6-7% profit in a few days which is obviously tempting in this low return market.

Henderson CDI (HGG) Weekly Chart

MQG has recently remained strong on a relative basis compared to other companies with UK / European exposure and has continued with its major bullish trend since 2011. We are showing a 5-6% profit in a few days which is again tempting in this low return market but technically we are bullish targeting the $90 area.

Macquarie Bank (MQG) Monthly Chart

Summary

We will consider purchasing PRY next week, especially with any noticeable EOFY weakness. SPO needs to be literally hammered for us to consider purchasing next week.
We are considering our HGG and MQG positions ahead of the BREXIT vote, with HGG the one we are more likely to take profit on and sit back for the results from the UK.

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Overnight Market Matters Wrap

The Brexit referendum caused more angst last night, with the Dow finishing down 49 points (-0.3%) to 17,781 whilst the S&P500 finished down just 3 points (-0.2%) to 2,085.
A poll by TNS in the UK says the “leave” vote is holding sway over the “remain” vote, so as expected it’s going down to the wire.
Oil was weaker last night with Crude finishing down 72c (-1.4%) to US$49.13/bbl. Oil inventories were down for the fifth consecutive week, the number of 917,000 barrels was less than the 1.7m barrels expected by a Reuters poll of analysts, and only a third of the number expected by the American Petroleum Institute (API).
Iron Ore finished higher with the price closing up US$1.42 (+2.8%) to US$52.29/t.
The September SPI Futures is indicating the ASX 200 to open 12 points lower, testing the 5,258 level.

Regards,

The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 23/06/2016. 9:00AM.

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