Market Matters Afternoon Report Tuesday 5th April 2016

Afternoon Report 05/04/2016

Market Matters Afternoon Report Tuesday 5th April 2016

Good Afternoon everyone

Market Data

What Mattered Today

Another very soft day on the Aussie market + we broke through the much talked about 5000 level with conviction and this prompted us to increase cash levels, from 27% to 39% in the Market Matters portfolio. We sold two holdings which were advised to Subscribers via SMS and email this morning

This morning we published this chart….

…And this afternoon it looks like this – a clear, obvious break through support that we’ve attempted to HOLD for five trading sessions….and has now failed….

Our concern lies in the resilience of the U.S market which is still just around 3% off its all-time high. There are obvious reasons for this relative strength however a market that defies gravity for such a long period time – as other global markets struggle, will eventually run into a catalyst that prompts selling.

That catalyst for the US market to pullback will likely be U.S earnings season. Firstly, because stocks prices are going against earnings revisions (stocks up – earnings down) and secondly, because U.S corporates are buying back a lot of stock (on-market buy backs) and that has to stop ahead before reporting....We wrote about this theme in our Morning Report on the 22nd March – https://www.marketmatters.com.au/blog/post/market-matters-morning-report-tuesday-22nd-march-2016/ - suggesting that….

The majority of listed US companies will release their quarterly earnings in early-mid April, not that long after Easter. It is normal practice for companies undergoing buybacks to stop purchases in the few weeks ahead of their report to avoid conflict i.e. buying with knowledge the market was not privy to. This may cause a decent pullback in the S&P500 which has rallied over 13% during the last 6 weeks.

As you can see from the below chart (sourced from Bloomberg), US corporate buybacks are at record highs while the market in general is a seller i.e. the main market buyer is about to vanish.

In the case of our market, significant underperformance whilst the U.S has been strong raises a red flag. Yesterday we said there was a smell about this market and today that smell has started to intensify – and during periods like this, having cash in portfolios seems prudent – so we do.

We’ve also gone through a period where a lot of dividends have been paid to investors – about $19bn in total over the past week or so which should have provided some support for the market – and it hasn’t

RBA Rates Decision & Commentary

No change to official interest rates today which was expected (rates stay at 2%) and the commentary was pretty well flagged although they did put in one additional line around the currency

The Australian dollar has appreciated somewhat recently. In part, this reflects some increase in commodity prices, but monetary developments elsewhere in the world have also played a role. Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy.

As we discussed in Monday Mornings note, they had recently withdrawn commentary about the currency being ‘overvalued’. here’s the full statement for those that have the inclination http://www.rba.gov.au/media-releases/2016/mr-16-08.html

From a markets perspective, it doesn’t change a lot. The AUD will continue to be at the whim of what happens internationally with US fed policy and associated rhetoric – and that in turn will in part impact the direction of commodity markets, which impacts our currency. We get the feeling that Glenn Stevens would need to see the AUD at 80c before outright jawboning…(ie – talking the currency down by calling it overvalued)

Stocks & Sectors Today

Source; Bloomberg

Broad based selling today as you’d expect when a market breaks through a key technical/psychological level such as 5000 – which has more significance this time around because it tried to HOLD for five days prior…

We continue to see some structurally challenged sectors on the Aussie market disappoint – and really, it shouldn’t come as a surprise to see the likes of Channel Nine under some pressure…seems the cricket was a bit of a lemon this year and earnings have been hit as a result. Very little to like about free to air TV….so why would you be there?

ASX 200 Movers

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 5/4/2016 4:17pm
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