Market Matters Afternoon Report Tuesday 6th September 2016
Good Afternoon everyone
Market Data
What Mattered Today
The RBA decision on rates dominated discussion today even though we were unlikely to see a cut on Glenn Stevens last hurrah after 10 years at the helm. A tough period to be head of any central bank and Glenn Stevens has certainly done a sterling job in trying circumstances.
The Statement released with the decision was fairly bland – some discussion on house prices that ‘have risen modestly’ but all in all, not a lot to hint about future direction on rates, with incoming Governor Philip Lowe now charged with the task of (a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Australia’ (source RBA)
We’d think the RBA will await the US Feds September Meeting and if we did see a surprise cut there (currently prices as a 36% probability) then the RBA might be done at 1.50% - at which time it might be a good idea to look at fixed rate home loans!!
The index was choppy today, with most movement coming around the 2.30pm decision. The Aussie Dollar sold off – but the market fell more before a tepid recovery late in the session. The US was closed overnight for Labour Day so we had very little to key off domestically.
Overall, we had a tight range of +/- 26 points, a high of 5430, a low of 5404 and a close of 5413, down -16 points or -0.29%
The aged care stocks had a bounce – up between 3.5% for Regis (REG) and 6.03% from Japara (JHC). We had a conference call with Paul Gregersen (CEO) & Joe Genova (CFO) of Estia Health (EHE) today – and they worked hard to dispel some of the markets concerns. As we covered yesterday, the issues stem from whether or not a new ‘Capital Refurbishment Fee’ can be legally charged which was put in place to offset some of the impact from the Govt changes to the Aged Care Funding Instrument (ACFI).
All three providers sought legal advice before implementing the new fee, yet it’s validity has been questioned by analysts. It seems that any fee needs to correlate with a direct benefit to the resident and that needs to be proven. It’s clearly a grey area – which is what the company said, and there will be some uncertainty until the fee schedule is tested in court, however as with any commercial operation, it will come back to supply and demand. If demand for beds is there, the fee will be charged in some way, even if the current structure / name is not palatable.
Buying EHE looks like a reasonable trade HOWEVER it’s very high risk and the unpredictable nature of Governments will be a large swing factor.
Estia Health (EHE) Daily Chart
The Banks have been interesting in recent times and we’re overweight the sector. Interesting because we’ve seen a divergence in individual performance from the recent low point which was on the 6th July. Clearly, the market is buying into Shayne Elliott’s strategy at ANZ and their significantly better capital position than the market was forecasting while recent downgrades of CBA continue to weigh on the stock. It’s the worst performing bank over this period. We remain positive the banks in the short-term, however, will be sellers into meaningful strength.
The worst HIT banks pre-July 6 have been the best performers from the sectors lows. This is a characteristic of the final stage of a mature bull market – a theme we’ve discussed at length in our morning reports.
Sectors
Source; Bloomberg
ASX 200 Movers
Select Economic Data – This week Stuff that really Matters in Green
What Matters Overseas
FUTURES Higher…
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 6/09/2016. 5:00PM.
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