26 April 19
Flight Centre lands in a heap (FLT)
26 April 19
Flight Centre lands in a heap (FLT)
26 April 19
Reviewing 5 market themes catching our eye - (BEN, BOQ, FLT, FMG, MMM, NHF, RMD)
24 April 19
Noflation should lead to imminent rate cut (BAL, HLS, EHL, CGC)
24 April 19
Platinum Portfolio Alert – Reduce Telstra (TLS)
24 April 19
Income Report: Will NAB cut its dividend? (NAB)
24 April 19
Reviewing 5 of the World’s largest 10 companies
23 April 19
ASX 200 breaks 6300 – Energy stocks lead the way (TLS, NAB, XRO)
23 April 19
5 stocks MM is watching post Easter (SIQ, SGR, NCM, FMG, LLC)
18 April 19
Unemployment data drags market
18 April 19
Are we seeing the next big sector rotation with healthcare & resources set to be the losers?
The ASX has opened sharply lower this morning following a very weak session overseas – financial stocks are feeling the brunt today, largely a result of softer expectations around US interest rates, a topic we’ll discuss below along with the BHP share buy-back. At time of writing (10.49am), the market is trading down -83 points at 5630, however that is more than 20 points up from the session lows. Despite the weakness this morning, we remain bullish into the end of 2019.
ASX 200 Chart
For the week, the MM Income portfolio added +0.45% against a backdrop of the ASX which fell by -0.26%. For the financial year to date, the portfolio is down -0.88% versus its benchmark of RBA cash rate +4% which sits at +2.35% while the ASX 200 accumulation (including dividends) is down by -5.95%. No major movers in the portfolio this week.
Yield Curve – you’ll start to hear a lot about this!
As we suggested this morning, the US yield curve produced its first inversion on Monday night with the 2 – 5-year bond yield gap turning negative for the first time in over a decade. Here’s what it can mean:
The direction of interest rates is generally indicative of the health or otherwise of an economy. Higher rates generally mean that the economy is doing well with growth and inflation moving higher. Lower interest rates imply weaker economic growth and softer inflation, an economy is not doing as well. Bonds are issued with varying durations from Governments (and corporates) around the world, with the US being the most important. The US Government issues 2yr, 3yr, 5yr, 10yr & 30yr bonds and that allows traders / investors to play their view on future economic prospects and therefore interest rates. Looking at the relationship between bond yields with different maturities provides insight into the markets future expectations about an economy’s prospects – this relationship between yields and time frames is often referred to as the yield curve.
The yield curve typically slopes upward because investors want to be compensated with higher yields for assuming the added risk of investing in longer-term bonds. Keep in mind that rising bond yields reflect falling prices and vice versa. A flat yield curve indicates that little, if any, difference exists between short-term and long-term rates while there are rare occasions where the yield curve can become inverted, meaning that short term interest rates are higher than long term interest rates. Inverted yield curves have occurred on only eight occasions since 1958 when considering the 2 – 10 year spread.
Today there is a lot of talk circulating about “inverted yield curves” and “recessions”. Its correct that the 2 – 5-year bond yield gap turned negative for the first time in over a decade however the gap between the 2 & 10-years is traditionally watched more carefully. While this major signal has not been triggered it’s rapidly getting closer – and is providing another concern in a market that is clearly glass half full.
US 2 and 10-year Bond Yields Chart
In the last 24 hours, the moves in the US Bond markets have been fairly significant. We have written previously about the markets view on interest rate being too bullish, or in other words, the market was overplaying the likelihood of an interest rate hike in December 18, and importantly the pace of rate hikes during 2019. We are now seeing those expectations come back and the market is now only implying 0.29% of hikes in 2019. The positive implication is that lower rates should support asset prices if earnings don’t deteriorate.
US 10-year bond yield
The yield curve has been flattening in recent times implying a more negative outlook for US growth (and therefore future rate hikes). The short-end of the yield curve (shorter dated bonds) which is the end more exposed to the near-term actions of the Fed, has held up well however the middle-to-end of the curve which is more heavily influenced by markets / traders’ expectations about future growth and inflation has taken a hit.
An inverted yield curve has led a US recession 100% of the time, or in other words, ahead of every US recession short term bond yields trade at a higher yield relative to longer term bond yields, however a recession has not followed an inversion in the yield curve 100% of the time (i.e. every chicken produces an egg but not every egg produces a chicken). That all makes fundamental sense - if the market believes that the economy will get worse then the Fed may need to cut interest rates to support growth hence we see lower long term rates relative to shorter term rates.
While it’s true that a recession is often led by an inverted yield curve, there is a lag between when that happens and when a recession starts as shown in the Bloomberg graphic below.
And looking at the S&P 500 relative to the yield curve is also less alarming than can often be portrayed. Generally stocks continue to rise after yield curve inversion.
It’s clearly easy to link yield curve inversion with recession and then just as easy to link recession with the GFC, however a recession does not typically occur for another 12-18 months after an inversion in the yield curve, and we’re talking 2 - 10 years, which are yet to invert (although are close). The drop in interest rate expectations in recent days should actually be a positive for asset prices if the economy does not falter. Apart from changing expectations around rates, we’re not seeing any meaningful stress economically at this point.
BHP off market Buy Back – a good deal for some
BHP Billiton (ASX: BHP) has followed RIO Tinto (ASX: RIO) in announcing an off market buy-back of their shares as part of a wider capital management program following the sale of around $US10.5bn worth of assets in the U.S. As was the case with RIO, the structure will be attractive for those shareholders that pay no tax, or enjoy a low tax rate – something south of ~22%.
Here’s why. The deal is structured as a small capital amount ($0.38) and a large fully franked dividend ($26.81). The franking benefit for those in a zero or low tax environment creates the opportunity. While the pricing of the deal is currently playing pout (with the pricing window closing on the 14th December), the deal looks a worthwhile one for holders of the stock that have a low tax environment.
In short, BHP has made an offer to buy back stock at a discount to the market price – somewhere between an 8% and 14% discount. Given recent history the 14% discount will likely play out. So, for explanation sake, based on yesterdays close of $31.62 BHP will offer to buy back shares at $27.19 – a poor deal on face value. However, the deal is structured with a small capital component ($0.38) and the balance being a fully franked dividend.
Subtracting the capital component of $0.38 from the assumed offer price of $27.19 ($31.62 minus 14%), we get a dividend amount of $26.81 fully franked. The gross value (after franking) of that dividend is therefore $38.30 ($26.81/0.7) plus the $0.38 capital component giving a total value of $38.68 after tax for those currently enjoying a zero tax environment.
Breakdown up of BHPs off market buy back.
For those in a super fund paying 15% tax there is still a benefit of around 13% based on the assumed prices. The cut off seems to be around the 28% mark in terms of tax rate.
BHP tender price
The figures outlined above are based on an assumed purchase price of $33.11 for BHP shares on the 1st November 2018, the last day shares traded cum buy-back . A different purchase price will impact the after tax outcome. Subscribers should consult their tax agent to determine the actual benefit of tendering shares into the buy-back.
Clearly this is a good deal for some. Because of that, the discount will probably be 14% and the deal will likely be substantially oversubscribed – or at least that’s been our experience with these sort of things in the past where we tender shares, take market risk on our stock only to see the allocations be so low that we simply lose 10-20% of the shares tendered and keep the rest. However, in this case, the BHP buy-back is a big one, bigger than RIO recently and bigger some
BHP (ASX: BHP) Chart
· Shares can be acquired up until the 1st November 2018
· Shares must be owned on the 5th November 2018
· Buy back tender period opens on the 19th November
· Buy back tender period closes 14th December (tenders must be received by 5pm AEDT)
· Announcement of buy-back price and any scale back 17th December
· Shareholders receive proceeds 24th December
· There is also a planned special dividend in January with BHP trading ex-dividend on 10th January 2019 (meaning shares can be bought up to and including the 9th)
An inverted yield curve is a negative sign, although we’re not there yet when looking at the 2 – 10 year spread
The BHP Buy-back makes sense for some, depending on tax position
Have a great day!
James & the Market Matters Team
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.
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 05/12/2018
Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The MarketMatters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distributions without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor. Market Matters or its author(s) accepts no responsibility for any losses or damages resulting from decisions made from or because of information within this publication. Investing and trading in financial products are always risky, so you should do your own research before buying or selling a financial product.
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports. Market Matters may publish content sourced from external content providers.
If you rely on a Report, you do so at your own risk. Past performance is not an indication of future performance. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.
Financial Services Guide
Date prepared: Wednesday, 22 November 2017
Last update: Friday, 23rd April 2019
About this Financial Services Guide (FSG)
This FSG provides you with key information about a range of subscription services offered by:
Marketmatters Pty Ltd (Market Matters) Australian Financial Services Licence No. 488798 ABN (20 137 462 536)
Level 29, Chifley Tower, 2 Chifley Square Sydney 2000
T: 1300 301 868
E: [email protected]
In this FSG, “we”, us” and “our” refer to Market Matters.
Market Matters holds Australian Financial Services Licence No. 488798 (AFSL) and is responsible for any financial services that we provide to you.
This AFSL was issued on 8th September 2016.
The purpose of this FSG is to provide you with information about:
Market Matters operates a website, www.marketmatters.com.au (Website), where customers may, for the payment of a subscription fee, access certain financial information and general advice. In particular, the Website provides:
This FSG relates only to the Website Services.
What financial services we can offer in connection with the Website Services
As holder of AFSL number 488798, in connection with the Website Services we are authorised to provide general financial product advice to both retail and wholesale clients in relation to the following financial products:
The Website Services are comprised of general advice only. That is, none of the advice given on the Website or by provision of the Website Services takes into account any of your objectives, financial situation or needs (Your Personal Circumstances). Before acting on any of the information, advice or Website Services, you must consider the appropriateness of this information in light of Your Personal Circumstances and, if necessary, consult a financial adviser before making any investment decision.
If you are seeking to acquire a specific financial product or security, you should obtain a copy of and consider the Product Disclosure Statement or Prospectus for that product before making any investment decision.
The Website does not provide a trading platform or access to a trading platform. There is no ability to purchase or sell financial products through the Website.
How do I access these services?
You can access these services by going to www.marketmatters.com.au and following the prompts and steps required to sign up for membership. Please read all terms and conditions carefully.
Fees and benefits payable to us and our associates
The Website is a subscription-based service. A yearly fixed subscription fee is payable to Market Matters when you subscribe to the Website which will vary depending on the type of subscription for which you subscribe. At the date of this FSG, the yearly subscription fees are as follows:
Platinum: $1,238 for 12 months
Platinum: $1,993 for 24 months
Subscription fees vary from time to time and are provided on the Website.
The Website does not currently feature third party advertising. Market Matters reserve the right to advertise at a future time for which they may receive remuneration. Any such advertising will be independent of any other content on the Website.
All representatives of Market Matters (Market Matters Staff) receive a salary paid by Market Matters. Market Matters Staff may also receive performance-based bonuses which are based on profitability, the number of subscribers and subscription renewal rates.
How do we manage potential conflicts of interest?
Market Matters have implemented policies and procedures to mitigate the risk of conflicts of interest. These include:
Market Matters Staff and Contributors are encouraged to express independent views and opinions on the topics they write about. This is established through ongoing training, external audits and our conflict of interest and staff trading policies. Market Matters Staff are required to serve the best interests of the subscribers, without consideration of any commercial or personal interests.
How is my personal information dealt with?
If you have a complaint about our services, you should take the following steps:
Contact us and discuss the complaint directly. If you do not feel comfortable discussing the complaint with us or your complaint is not satisfactorily resolved within 2 business days, please telephone Market Matters, on 1300 301 868 and ask to speak with the Complaints Officer. We suggest you put your complaint in writing at this time so that the issues are fully documented and understood by the parties. Your complaint should be addressed to:
The Complaints Officer
Level 29, Chifley Tower,
2 Chifley Square Sydney NSW 2000
Market Matters will review your complaint within 45 days and attempt resolution. If you are still not satisfied with the outcome, you may take your complaint to an external dispute resolution scheme. Market Matters is a member of the scheme operated by the Financial Ombudsman Service. You should write to:Australian Financial Complaints Authority Limited (AFCA)
You may also wish to consult ASIC in relation to your complaint. ASIC’s website contains information on complaining about companies and people and describes the types of complaints handled by ASIC. You can contact ASIC on its free call infoline:
Tel: 1300 300 630 or email [email protected]
We maintain professional indemnity insurance to cover our employees and Authorised Representatives (including us) for the financial services they provide, having regard to the following:
If you require further information about these compensation arrangements please contact us.
Terms and Conditions
This website, www.marketmatters.com.au, is published by Marketmatters Pty Limited (ABN 20 137 462 536) ('Market Matters', 'MM', 'us', 'we', 'our') Australian Financial Services Licence 488798
Financial Services Guide
Market Matters Financial Services Guide (FSG) is located here, and contains important information about the financial services provided by Market Matters. You must read our FSG and consider it in the context of your Personal Circumstances before acting on any advice. By accepting the terms and conditions you are acknowledging that you have read the FSG.
Provision of the Reports
Reports and other documents published on the Market Matter’s website (‘Reports’) are authored by Market Matters. The Reports represent the views of Market Matters based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
The Reports contain general, as opposed to personal advice. That means they are prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor.
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports.
If you rely on a Report, you do so at your own risk. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.
Past performance is not a reliable indicator of future results. Brokerage costs have not been included in the calculation of performance. As financial products rise and fall in value, returns may be negative. Performance figures are not intended to be a forecast. Market Matters does not guarantee the performance of or returns on any investment.
Employees and/or associates of Market Matters may hold one or more of the stocks reviewed on this website.
Subscriptions and Subscription Prices
To access premium content available on the Market Matters website you must subscribe to one or more membership categories available on the website.
To subscribe to the Market Matters website you must go to the Memberships page of the website, provide the information marked as ‘Mandatory’ and select the payment option for the price quoted (at the time of your transaction). You will then receive a verification email from Market Matters indicating that your subscription and payment have been accepted and you will be able to access the premium content.
Prices published on the Market Matters website are quoted in Australian Dollars (AUD) and are inclusive of GST and/or all other duties and taxes. Market Matters has used reasonable endeavours to ensure that prices for subscription to its services are published accurately on the website but these prices are subject to change and Market Matters reserves the right to change these prices and will notify you of any increase by email (with the price increase to apply from the time the next payment is due).
Marketmatters Pty Ltd (ABN 20 137 462 536) will issue a tax invoice to paying subscribers in relation to any supply that is subject to GST in accordance with A New Tax System (Goods and Services Tax) Act 1999.
Any member is entitled to cancel their membership at any time. In the event a member does wish to cancel their subscription, cancellations must be notified in writing to:
Level 29, Chifley Tower, 2 Chifley Square, Sydney NSW 2000
or by email to: [email protected]
All cancellations of month-by-month subscriptions will be cancelled and not billed again the next month.
All cancellations within 14 days we be entitled to a full refund. Any introductory gifts, such as iPads, must be returned in their original condition before a refund will be made.
All cancellations made after 14 days of subscription commencement will not be entitled to a refund unless in the event of extenuating circumstances, at the sole discretion of Market Matters.
Subscriptions will automatically renew on the expiry date of current subscription. In these instances the subscription will be renewed at the current rate published on the Market Matters web site, using the same credit card that paid for the initial subscription, unless otherwise requested by the subscriber. A subscriber who wishes to cancel after being renewed in this way will have a “14 day cooling off period” in which they can request to discontinue and will receive a full refund for the renewal payment, this can be done in writing to:
Level 29, Chifley Tower, 2 Chifely Square Sydney 2000
or by email to: [email protected]
Market Matters has not reviewed any of the websites which link to this website or to which this website links. Market Matters is not responsible for the content of any other website or pages linked to or linking to its website. Following links to any other websites or pages shall be at the user’s own risk.
Copyright © 2013 Marketmatters Pty Ltd (ABN 20 137 462 536). No part of this website, or its content, may be reproduced in any form without the prior consent of Market Matters.
This Agreement is governed by and is to be construed in accordance with the laws of New South Wales, Australia. You agree to the non-exclusive jurisdiction of the courts of New South Wales, Australia in respect of any proceedings concerning this Agreement. This website is not available to US persons and by accepting these terms you confirm that you are not a US person.