Market Matters Afternoon Report 20th July 2016

Afternoon Report 20/07/2016

Market Matters Afternoon Report 20th July 2016

Good Afternoon everyone

Market Data

What Mattered Today

The ASX resumed its uptrend today booking the 9th day of gains from the last 10 sessions as Banks offset some weakness in the large cap resources following production numbers from BHP this morning. More on that below.

On the market today, we had a range of +/-49pts. 5439 low, 5488 high and a close at 5488; up +37pts or +0.69%. Stocks closed on their highs ahead of index option expiry tomorrow – so we get a longer open + more volatility in the morning.

Looking at the daily chart of ASX 200 highlights the recent strength with the market now up +437pts or +8.65% from the back end of July. Resources have led the rally however it was encouraging today that despite the weakness in that area, the banks took up the slack.

As mentioned, BHP released its production numbers today, and they were mixed at best. They missed full year Iron Ore estimates however beat on most other metrics. They were aiming for 260mt and came in at 257mt – so close, and they guided to 265-275mt for the next 12 months jumping to 290mt by 2018-19 – again a tad light for the next 12 months, but that probably bodes well for the Iron Ore price.

The main takeout across many of the divisions is less expansion – same as RIO yesterday. They’ve curtailed somewhat the massive run up of new production, particularly in Iron Ore and Petroleum, and with regard to the later, especially in their on-shore US operations, with production down 23.

BHP remains cheap relative to its assets trading at 0.50 of book value, and that gap will close as assets produce greater earnings however it seems to us there is little in these production numbers to prompt a new wave of buying in the stock from current levels. We’ll get keen following a deeper correction.

ANZ was the strongest of the banks today adding +0.96% to close at $25.23. As we’ve discussed in recent morning notes, ANZ remains our key call in the sector as money searches perceived value in beaten down stocks. ANZ has clearly been the weakest link.

CSL was on a tear today, adding +2.08% on a Morgan’s upgrade with the broker increasing their price target 3% to $121.73…The stock has bounced hard from its BREXIT induced weakness. We continue to hold.

Sectors

Source; Bloomberg

ASX 200 Movers

Top 20 Shorts

A couple of interesting points here. No short covering obvious in Woolies (WOW) as yet despite the bounce in share price. We would be sellers of strength here looking to buy sub $20

Covermore (CVO) is going up the leader board as shorts build while Bendigo (BEN) remains the top short sold bank on the market.

Metcash (MTS) started to bounce today and could rally quickly if shorts start to buy back….

Select Economic Data; Stuff that really Matters in Green

What Matters Overseas

FUTURES pointing to a higher open….

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 20/07/2016. 5:00AM.

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