Market Matters Afternoon Report Thursday 16th June 2016

Afternoon Report 16/06/2016

Market Matters Afternoon Report Thursday 16th June 2016

Good Afternoon everyone

Market Data

What Mattered Today

The day started early with Fed Chair J Yellen speaking about U.S monetary policy after (as expected) they left rates unchanged at their June meeting + expectations for future hikes have been hosed down somewhat.

The Fed are clearly ‘uncertain’ with 1. Recent economic trends in the U.S – largely around employment & 2. Global events headlined by the UK referendum. We know this as JY mentioned the word uncertain 11 times during the press conference so I guess she is. Uncertainty typically results in inactivity from Central Banks, and that’s what the market is now pricing. Lower rates for longer should support asset prices – thus, stocks should be well supported and this is a market dip to BUY.

We’re very much looking for opportunities to spend some of our 36% current cash weightings however in most instances, it won’t be in the stocks that have done really well in the last year or two. Those stocks that have done well over the last few years, like infrastructure, will most likely be supported near term, however, the risk/reward on these stocks no longer stacks up.

Stocks like Transurban (TCL), Sydney Airports (SYD) and the like that have long-life infrastructure assets, that are more highly valued in a low-interest rate environment – have high levels of debt – will come under pressure when interest rates rise. I know we’re talking about this at a time when the Fed is suggesting lower rates for longer, however, markets usually start pricing future events 6-12 months ahead of them actually eventuating, so in our view, even though the outlook for global interest rates is ‘lower for longer’ these stocks should be sold given the risk to valuations as interest rates eventually move higher – which they will.

Anyway, the market didn’t move much in aggregate today, however, opened higher, challenged the 5200 level then failed. A range of +/-57pts. 5141 low, 5199 high and a close at 5146; off -1pts or -0.02%. If for whatever reason, we open down tomorrow, we’ll most likely be on the buy side…

On the economic front, local employment data was OK however it won’t change the RBA’s current stance. 17,900 Aussie jobs created - but they were all part-time. The Bank of Japan was also a factor today – leaving policy unchanged. They too are in wait and see mode. Focus now turns to the BREXIT.

A few BIG stock moves today that are worth a mention. Crown (CWN) put on +13.23% to close at $12.75 on news overnight they’ll look to (subject to approvals) restructure. If approved, CWN will retain Australian casinos, Aspinalls, Wagering & Online, while a newly listed “InternationalCo” is expected to carry the international assets (including CWN’s MCE holding). CWN also announced a potential IPO of a 49% interest in a property trust holding CWN's Australian hotels (ex Crown Towers Melb.), together with a new dividend policy of 100% of normalised NPAT (MRE 60%).

It’s pretty clear the move will unlock value, and the market liked it with the stock up so strongly, however, these transactions tend to drag out. For the shorter term trader, we’d be looking to sell into the recent strength.

The other implication is with the Crown Subordinated Notes – CWNHA and CWNHB – they’d been sold off fairly hard in recent months on the back of rumours that Packer may take CWN private. If that played out, the notes might have become perpetual – so they got priced as such. Now, with the plans of a demerger, privatisation is off the table and Sub Notes bounced hard – as they should.

Reports the ACCC have instituted proceedings in Federal court against Medibank (MPL), claiming Medibank/AHM changed policies and didn’t disclose to policyholders got sellers into the stocks today. MPL closed down -5.52% to $2.91

The biggest risk seems to be reputational rather than financial, with the fines unlikely to be material to an $8bn company. The main issue will be around brand damage – MPL is struggling to get policy holder growth and this will not help. Expensive on 21 times without the growth to justify it. Not one for us.

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Overseas

The reaction to the FED statement will be interesting tonight. Currently, DOW FUTURES are down 86pts keying from weakness ahead of European trade. The FTSE 100 Futures are down -84pts…

Global FUTURES Markets as @ 4.57pm

Source; CNBC

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 16/06/2016. 5:00PM.

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