Market Matters Afternoon Report Thursday 4th August 2016

Afternoon Report 04/08/2016

Market Matters Afternoon Report Thursday 4th August 2016

Good Afternoon everyone

Market Data

What Mattered Today

A few interesting trends played out on the market today with the defensive sectors (Healthcare & Telco’s) seeing most selling - CSL one of the biggest drags down -1.80% to close at $114.75. We saw a pretty tight range of +/- 36 points, a high of 5509, a low of 5473 and a close of 5475, up +10 points or +0.18%. Volume was okay around the $4.5bn mark.

Energy stocks were strong across the board after Oil gave a false break through $40 overnight and rebounded strongly – up more than +3%. Santos (STO) the star today putting on 6.74% while Origin Energy (ORG) finished up +2.44% at $5.46. False breaks are something worth understanding as they can be a very powerful trading tool. If price action breaks out of range then fails, probability suggests that it will go and test the other extremity of the range – either on the downside or the upside. South32 (S32) for instance was sold today from our portfolio after it pushed up and made a false break over $2 (outside of the current range) before reversing. We elected to sell and lock in a reasonable profit.

South32 (S32) Daily Chart

The reversal we saw in S32 today was pretty typical across the board. Fortescue (FMG) finished a long way from it’s high, ditto for RIO and some other mining stocks. We track the Emerging Markets ETF when formulating our view on resources and, that too looks like it is losing momentum after a fairly buoyant period. Perhaps we might start to see some money come out of the hotter resource names and filter back into the unloved banking sector!

Staying with the banks, another day of headlines with the Government announcing plans for Parliament's Standing Committee on Economics to be empowered to grill the banks at least once a year, and maybe more, just as the committee already grills the banking regulators.

It’s so they don’t have to launch a full Royal Commission into the sector which is being pushed from Labour. Shayne Elliot from ANZ said…."I accept this is a necessary initiative in the current climate and, I welcome the opportunity to represent ANZ's views and to answer the tough questions that I know will be forthcoming in any parliamentary appearance."

Commonwealth Bank (CBA) was the weakest link today off -0.49% to close at $75.66 – National Australia Bank (NAB) was the best up +0.23% to $25.90.

Suncorp (SUN) reported today and, the result was a tad soft however the commentary was okay. They announced a FY16 Cash Profit of $1089m , EPS 84c, 2H dividend of 38cps. So about a 4% miss. Insurance margins were 9.9% versus consensus of 10.3% (impacted by investment markets), underlying margins 10.6% (H1 underlying 11.1% - which is good). The Divi of 38cps was a shade below the 40cps consensus however their was pretty big range given some analysts had included a 10c special dividend which didn’t happen. A lot of analysts were around the 36c mark. Importantly, they all outlook targets

The stock was off initially, but post the conference call with management buyers stepped up and we saw it close +0.68% to $13.30

Suncorp Group (SUN) Daily Chart

Rio Tinto (RIO) had it’s first day of trade after they reported yesterday with most analysts pretty positive on the result from what we read this morning. We were not as ‘sold’ on the result as some. Yesterday we wrote… RIO reported after market and, the result looks a bit messy. All up, a result that probably won’t get the markets animal spirits firing…RIO was reasonably well supported early before finishing down 1.62%

Rio Tinto (RIO) Daily Chart

Sectors

Source; Bloomberg

TOP 20 Shorts

Bellamy’s Australia (BAL) - a stock we’ve written about often is heavily short sold and has started to move higher – stock was up +7.88% today and good volume of 1.7m shares. Shorts are starting to cover yet we still have about 8.5m shares short sold. This could continue to run!

Bellamy’s Australia (BAL) Daily Chart

Another interesting aspect on the table below is the global high yield ETF which is now 23% short sold. Clearly, investors reckon yield is too expensive and when rate rise, overvalued yield names will feel the pinch.

ASX 200 Movers

Reporting this week

NPAT = net profit after tax (consensus numbers)
EPS = earnings per share (consensus numbers)
DPS = dividend per share (consensus numbers)

Select Economic Data – Today & Tomorrow; Stuff that really Matters in Green

What Matters Overseas

FUTURES pointing to a good start…Non-Farm payrolls will now be the markets main focus!

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 4/08/2016. 5:00PM.

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