Westpac pencils in further rate cut, stocks rally (VOC, KMD)
WHAT MATTERED TODAY
The strong rally today for stocks and a busy day on the Shaw Insto desk with early indications looking like it will smash through the 200k target set for the day, once again, thanks to all the institutions / fund managers that supported the day. As suggested in the Income Note around lunchtime, Westpac’s influential Chief Economist Bill Evans changed his expectations around interest rates today, now forecasting the RBA to cut rates to 0.10% in October, plus reduce the 3 year bond yield target rate to the same level while also reducing the rate banks pay when they draw funds from the RBA. All of these initiatives reduce the cost of capital and improve its availability. Higher amounts of liquidity at lower rates is supportive of asset prices, hence the markets strong move.
While this is simply one forecast by a bank, it does highlight the available options for central banks moving forward. Bond proxies which are heavily influenced by interest rates such as Transurban (TCL) +4.94%, Sydney Airports (SYD) +4.88%, APA Group (APA) +3.67% had strong sessions pushing the broader industrials up by 4%, a good backdrop for the MM Income Portfolio. Materials on the other hand lagged, up 1.1% as a sector to be the weakest link on a very strong day.
The outperformance in Australia was stark today, Asian stocks were mostly lower while US Futures were fairly muted ticking around par during our time zone.
By the close, the ASX 200 was up +140pts / +2.42% o 5923. Dow Futures are trading up 93pts/+0.34%
ASX 200 Chart
ASX 200 Chart
CATHCING MY EYE
Telcos: Lots of focus in the sector today after the Federal Government announced plans to invest a further $3.5bn in NBN upgrades. They will offer last-mile fibre upgrades to half of NBN Co’s fibre-to-the-node footprint with the aim of supporting up to gigabit speeds. The upgrades will happen based on usage where free upgrades will be conditional on usage where users sign up to bigger plans. More investment in the NBN is a positive for the Telco sector and today they were on fire, frustratingly led by Service Stream (SSM) which put on 14% not long after we cut the position from our growth portfolio. As a ‘sort of’ second prize for us, Vocus (VOC) which we hold rallied by 6.2%, while Telstra (TLS) which we recently bought in the Income Portfolio put on +1.77%.
Vocus Communications (VOC) Chart
Katmandu (KMD) -8.51%: Reported full year earnings today and the numbers were weak. Top line sales of NZ$801m came in well ahead of consensus (NZ$735.87m) expected however weak margins and a string of large one offs meant a decent miss at the profit line which came in at just $NZ10.35m. Kathmandu has a range of outdoor wear while they also bought Rip Curl during the year, before a deeply discounted & dilutive equity raise forced on them by their bankers during COVID. A tough year for KMD however they attempted to talk up the future in terms of demand for outdoor and active gear. They cancelled the dividend today, however that shouldn’t really come as a major surprise. Hard to get excited about KMD here.
Katmandu (KMD) Chart
BROKER MOVES
- Inghams Raised to Buy at Morningstar
- Fortescue Raised to Buy at Citi; PT A$18.50
- Mineral Resources Rated New Neutral at Goldman; PT A$26
- Immutep ADRs Rated New Buy at Alliance Global Partners; PT $5
- Qube Raised to Buy at Jefferies
OUR CALLS
No changes today
Major Movers Today
Have a great night
James / Harry & the Market Matters Team
Disclosure
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