Australian Investment Blog

Good Afternoon everyone

Market Data

What Mattered Today

A BIG/AMAZING/VOLATILE Tuesday thus far and the Budget is still to come with the Treasurer Scott Morrison addressing the nation at 7.30pm tonight.

The RBA cut by 0.25% at 2.30pm this afternoon taking official interest rates to 1.75%....A sort of surprise/line ball decision however the weak inflation print last week prompted Glenn Stevens and co to act.

The second line in the Statement sighted inflationary pressures that were lower than expected. BANG! Aussie Dollar off more than 1c to US75.88c and the ASX 200 up +110pts to close at 5353 (after being down -25pts early on). +70pts was put on in the minutes after the rates decision and we saw a massive risk on rally, particularly targeted towards those yield names after the release. So, a turnaround of around +135pts is BIG on a historic session where we saw the RBA cut on budget day. Unprecedented!!

We’ve now got most banks/brokers revising their expectations around future cuts given its extremely rare for the RBA to only make one amendment to the benchmark. So – expect rates to be at 1.50% in the not too distant future which – if you’re in Term Deposits will get your bottom lip quivering.

Lower rates support asset prices – particularly ‘yielding assets’ like banks, infrastructure etc, will continue to support house prices, and will have us all out spending rather than saving…..or at least that’s the theory!!

We were thinking they’d HOLD today….wait for more data points to confirm the low CPI print given the major drag on the inflation rate came from falling housing costs, lower food prices and cheaper fuel which are all things that can turn pretty quickly. HOWEVER, if we dumb it all down, the RBA has a mandate of full employment and inflation within a targeted band. Inflation is below that band – significantly so on our last print so they acted. Rates are now at the LOWEST POINT IN HISTORY!!

So, the AUD collapsed on the news and the market was bid up strongly….and continued to rally into the close

Earlier, we saw ANZ report numbers that missed market expectations – a long way on the headline number but by only around 2% on an underlying basis.

Yes, cash profit was a big miss but there was a $717m restructuring charge. The base now seems to have been re-set and the market liked it. Early weakness with the stock off around -4% only to be bid up and finished +5.56% - a MASSIVE turnaround. ANZ now trading at $25.05. We suggested to top up existing positons around $23 this morning as per MM alerts to subscribers

In more detail, the underlying result had many similarities to Westpac – with non-interest income weak, which is really around their institutional bank. The re-setting of market expectations was good, return on equity was very weak, however if they write down asset prices ROE will obviously tick up in time, while the all-important DIVIDEND was cut, but is now much more sustainable.

ANZ numbers…

Woolies (WOW) was also out with a trading update today, and the weak trends continued. The main number to watch there is like for like sale growth in their Supermarkets division which accounts for 89% of their earnings.

For a fourth straight quarter, they printed a negative number. They are aggressively re-vamping the business, and they will likely turn things around, however it’s a big ship and the captain has only just recognised they’re on the wrong course…A 3-5 year story and paying a market multiple of 15 times for a business that should have EPS growth of -3% next year is too much of a stretch for us.

Stocks & Sectors Today
Source; Bloomberg

ASX 200 Movers

***What Matters Tonight***

European leads are weak with the FUTURES on the FTSE -21, DAX -114 & CAC -30
In the US DOW FUTURES are off -48pts and the S&P 500 FUTURES are off -5

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

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