Archives: Reports
Cracks may be forming in the US housing market with total housing starts and permits pulling back in June below expectations – they declined 125K to 1434K. Also, mortgage applications for a home purchase fell 1.3% in the week ending July 14, while continuing to run at extremely low levels, reflecting the lack of activity in the existing home sales market. However, the NAHB’s housing market index ticked up further in the July survey, moving up 1 point to 56.
A day of could’ve and should’ve with the ASX200 giving up all of the early gains to finish flat on the session. The index climbed as high as 7383, up +60pts before the first hour was up, hitting the highest level since April but the good times ended there and the index was marginally lower by ~1 pm. Part of the reason for the failed rally was employment which came in stronger than expected pushing the chance of an August rate hike up.
When we consider the unpopular Coal Sector we cannot ignore the cash it’s generating compared to current valuations e.g. WHC only has a market cap of $5.85bn yet it has $2.7bn net cash and still produced $435m free cash flow in the June quarter with lower coal prices, enabling it to maintain its buyback strategy and pickup other assets that come onto the market at good prices. In our opinion, the sector is simply too cheap given the long lead time associated with the energy transition.
A good day across the market with the banks keying off better than feared updates from Bank of America & Morgan Staley overnight to rally for a 2nd straight session, the “Big 4” accounting for over 50% of the day’s gains as the index pushed higher into the close, thanks in part to better inflation data from the UK that was released at 4pm our time.
The ASX200 slipped -0.2% yesterday on broad-based selling that saw over 65% of the main board close lower, a strong day by the Banking Sector staved off any major damage at the index level with the “Big Four” ending up an average of +1.3% – they called the overnight move in the US perfectly. After last week’s 300-point drive higher this week has started off quietly with stock moves being dominated by company news and broker up/downgrades with even the RBA minutes failing to catch investors’ attention.
A steady flow of corporate news across the ticker today to keep things interesting while the RBA minutes released at 11.30 am prompted a sharp sell-off before a grinding recovery ensued – the index closing only marginally lower.
There have been a number of major issues locally with the likes of SGR and unlisted Crown but our penchant for an inquiry in Australia is arguably the main headwind – just ask the banks and aged care operators. We find it hard to imagine that Australian casinos are the only premises used by organised crime to launder funds and we question if the optimum course of action is for large fines to vanish into the government’s coffers while directors who received large bonuses along the way simply walk away untarnished into their next role.
A tentative start to the trading week from an index perspective, although there were a few landmines at the stock level, signs of what could be ahead as we approach FY23 results season perhaps.
MM is taking profits on REA Group (REA) and selling Walt Disney (DIS US) for a loss.
Last week saw the US yield curve remain around levels not seen for 40 years with the 2-Years closing 0.93% above the 10s, traders are still pricing further hikes by the Fed (just fewer) and a likely recession thereafter. However, we believe the economic pessimism has become stretched and the yield curve will move back towards parity over the next 6-12 months which suggests if we do see a recession it will be shallow in nature.
