Market Matters Afternoon Report Wednesday 6th July 2016

Afternoon Report 06/07/2016

Market Matters Afternoon Report Wednesday 6th July 2016

Good Afternoon everyone

Market Data

What Mattered Today

Another pretty soggy day for Aussie stocks with the index finishing in the red, however, we did manage a +50pt recovery from the intra-session lows. The index based out at 5150 on the cash and near enough to 5100 on the FUTURES at midday before buyers came out of the woodwork.

A range of +/-67pts. 5148 low, 5215 high and a close at 5197; down -30pts or -0.58%.

A couple of thorns still obvious in the side of the market;

1.The BREXIT is still bubbling away in the background with the BOE – Bank of England starting to dip their toe into some stimulus last night. They cut the countercyclical capital buffer from 0.5% to 0% - which in simple terms, reduces the regulatory capital banks need to hold against a loan so, in theory, it should prompt more borrowing to business/individuals thus stimulating the economy. Not a huge move, however, it was enough to send the pound down another 2.5% and in doing do, it dragged down stocks with UK exposure again today. Clydesdale (CYB) was off -4.65%, BT (BTT) was off -2.54% and Henderson Group (HGG) was down 3.85%.

As the above chart highlights, these stocks are now currency plays. If the pound continues to weaken then share prices for these stocks will continue to come under pressure. That said, the GBP/USD cross is down -13% from its pre-BREXIT high, yet these stocks are down substantially more – closer to 30%.

The Q now remains, have these stocks priced in the worst possible outcome given the high level of uncertainty that is playing out, and will they rally – along with the currency – when an eventual deal is struck. We actually doubt the reality of the BREXIT will be anywhere near as harsh as the speculation/political posturing would imply.

…and 2. The election continues to dominate with the Libs edging further ahead with reports of a greater chance that the Libs may just be able to cobble together a majority Government….7s seat still to be finalised

Source; abc.net.au

Sectors Today

Source; Bloomberg

ASX 200 Movers

Golds once again dominate the leader board. Very HOT money now finding its way into this sector with the total number of speculative long contracts exceeding the level we saw back in 2012 when the metal was trading around $1800 an ounce…

What Matters Overseas

The FTSE continues to be fairly well bid mostly on the back of supportive central bank policy from the BOE – which as discussed above is putting decent pressure on the currency.

Key data this week comes Friday with the US jobs report – expectations below. Recently, the FED outlined three key elements that were impacting decisions around monetary policy.

1. The UK referendum and the impact that could have on financial markets
2. Falling Inflation expectations
3. A further weakening trend in the labour market

Point one is now past tense, however, will no doubt remain a concern for the Fed as actual implementation is worked through. Inflation remains weak and below the 2% on most metrics so that in itself is enough to see them sit on their hands. The variable is jobs, but probably more importantly, wage growth. Expectations here are for +0.2 - +0.3% which is unlikely to feed much from an inflation perspective.

The consensus range for the non-farms is large (130k to 235k), which is understandable given last month’s debacle. A weak number we think will be taken poorly by the market. A strong number would be preferable given the mkt would likely site other factors for US rates to remain on hold. i.e improving economy but enough global macro variables the keep them from raising rates = sweet spot for stocks.

…And finally, FUTURES in the red at our close, although by not as much as they were earlier

Regards,
The Market Matters Team
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 6/07/2016. 5:00PM.

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