Market Matters Report / Market Matters Weekend Report 3rd April 2016

By Market Matters 03 April 16

Market Matters Weekend Report 3rd April 2016

Market Matters Weekend Report 3rd April 2016


Market Matters Weekend report Sunday 3rd April 2016


A lot has transpired in global equity markets since our last weekend report before the Easter break on the 19th March. As a result, we’ll walk through those developments, detail how our current views have evolved over that period, and set out a structure that we’ll be working towards over the next few weeks.

Last week saw the end of March and end of Q1 for CY 2016…A rocky – volatile period that saw equity markets drop sharply in January – base out in February – then rally in March. Here’s a table of those moves for the quarter and interestingly (or frustratingly) – it covers the underperformance of the Australian market versus some of the other global benchmarks.

The US market was a standout – despite being down -11.4% at the lows to close in the green for the period and outperform the Australian market by +4.81%. The UK was better than us by +2.93% to end the period just -1.09% in the red. Trading ranges were big and volatility was high during Jan and early Feb before dropping sharply in March.

US Equities

We’ve held the view for some time now that US equities would make one final high before a deeper more protracted selloff into Q2 of the year. This view is largely playing out as expected with the S&P 500 only -2.90% below its all time high of 2134 (set on the 20th May 2015). Technically, stocks/indices etc will often attempt one final push higher up into blue sky territory before rolling over – so we’re now looking for a marginal new high for US stocks which could offer some semblance of support to the Australian market over the next week or so. It’s been a spectacular rally for US stocks from their recent lows – with the index rallying +14.6% in just 50 days….   

We’re not more bullish on US stocks for a few reasons – but most importantly, US earnings are not keeping pace with the rally in stock prices. For instance (according to FactSet), during the first quarter, analysts lowered earnings estimates for companies in the S&P 500 by -9.6% from expected earnings per share of $29.13 to $26.32.

If we put some context around that cut, during the past year (four quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.0%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.3%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was larger than the one-year, five-year, and 10-year averages (FactSet).

So, US stocks are going higher however earnings are being revised lower. We think that’s a bi-product of a very accommodative central bank that seems reluctant to raise rates – which in truth – could go on for a while – however there’s a point that if earnings aren’t legit, and markets are too high relative to those earnings – then we see a decent correction play out – which is what we’re expecting – and have been calling for some time.

Technically, the S&P500 remains bullish targeting fresh all-time highs with support now in the 2020 region – however, all time highs are now less than 3% away so upside to US stocks seems marginal

Australian Equities

The ASX 200 on the other hand has had a pretty woeful week – and the underperformance versus the US market is frustratingly big – HOWEVER – when you think about it, Australia is very much exposed to Asia, and Asian markets, particularly China – has had a very tough period. China for instance dropped nearly -15% for the quarter and was down -25% at the lows.

Banks have obviously been a big drag on most portfolio’s – ours included – and unfortunately, although they are now cheap, earnings growth (and thus share price growth) seems like it will be elusive.  

We’ve held the view that Australian stocks in 2016 would outperform US stocks, based on early signs of emerging market resurgence. That view hasn’t changed despite it clearly being wrong in the short term. Emerging markets have felt a lot of pain, yet the US has been supported heavily by an aggressive central bank. Unless we see the benefits of central bank support in corporate earnings – then it’s a simply only a matter of time before the US market has a pretty steep correction.

Technically, we were originally looking for the 5300 region to start reducing positons further, and moving from 27% cash to higher levels. We now think that may well prove to be a stretch unless we see a strong turnaround in sentiment towards to banks – so, we’ll now most likely look to trim holdings ahead of that previously stated target area

Key Calls

A few of the better known and important data points were out last week in the US and China. On Friday during our trade, China released manufacturing numbers that were a lot stronger than the market had been predicting - and we saw resources rally hard from their lows. Manufacturing activity has been contracting in China for some time now and Fridays Manufacturing PMI index showed expansion for the first time in 13 months. That’s good as it fits our view of being active around the edges in resource stocks – like we have been in RIO, BHP, & FMG.  

In the US, non-farm payrolls were out on Friday night, and they were good but not too good, and importantly, wage growth isn’t ticking up much. That probably means the Fed will continue to be supportive and reluctant to raise rates just yet BUT – wage growth will ultimately happen and US interest rates will ultimately go up. It’s simply a matter of time.

So, we remain in "sell mode" given our current views on the US Market. Fortunately, before last week’s bank driven sell off we had gone to 27% cash – however we are looking to move that number towards 40% into any reasonable strength.

We have banks in the portfolio – CBA, ANZ & Bendigo (BEN) and they’re a drag (even though we are underweight). Fortunately we sold Bank of QLD (BOQ) into the last rally at higher levels and the rest of the portfolio is reasonably defensive.  We’ll look to drop one bank – most likely Bendigo (BEN) and most likely next week. Keep an eye out for alerts via email & SMS 


1.    Market matters remains short term bullish the US Market targeting fresh all-time highs – however the Australian market looks less convincing
2.    We remain on the sell side into strength and look to increase cash levels from 27% to around 40%
3.    Ideally, banks will bounce at the start of next week allowing us to trim one holding. We will look to sell one additional stock to increase cash levels 


What Matters 

The ASX200 looks likely to open up around 20 points on Monday after a reasonable night on Wall Street on Friday

Potential Investing opportunities for the coming week

  • We are on the sell side of equities looking to increase cash however we highlighted Credit Corp (CCP) as a potential BUY last week, and the stock still looks appealing
  • Crown (CWN) looks reasonable while Oncosil (OSL) in the speculative area is starting to gain some attention again last week

Portfolio/Trade Holdings

A mixed bag for the portfolio this week with Telstra (TLS), Mirvac (MGR, Regis (RRL) & Healthscope (HSO) outperforming however the banks were a drag .

· Cash position now up to ~27%.


Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Daily Chart

Chart 3 - SPI (Share Price Index) Futures 60 mins Chart

Chart 4 ASX200 Financials Index (excl. REIT's) Weekly Chart

Chart 5 Volatility Index VIX Weekly Chart

Chart 6 – The US 10-year Interest Rate Monthly Chart

Chart 7 – The German 2-year Interest Rate Monthly Chart

American Equities

The American indices still look bullish  targeting fresh all time highs in 2016, a break under this month's lows is required to turn this view negative.

Chart 8 – Dow Jones Index Monthly Chart

Chart 9 – Russell 3000 Weekly Chart

Chart 10 – US S&P500 Index Weekly Chart

Chart 11 – NYSE Composite Index Monthly Chart

Chart 12 – Russell 2000 Index Monthly Chart

Chart 13 – US NASDAQ Index Monthly Chart

Chart 14 – The Canadian Composite Index Monthly Chart

European Indices

European Indices had a tough Q1 overall – however Draghi comments were supportive of key markets from their lows. 

Chart 15 – Euro Stoxx 50 Index Weekly Chart

Chart 16 – UK FTSE Index Weekly Chart

Chart 17 – Spanish IBEX Index Monthly Chart

Chart 18 – German DAX Index Monthly Chart

Asian & Emerging Markets Indices

Asian indices have actually started to look OK after a big January pullback. China has stabilised and needs a good move above 3000 to become bullish 

Chart 19 – Hang Seng Weekly Chart

Chart 20 – China Shanghai Composite Index Monthly Chart

Chart 21a – Emerging Markets MSCI ETF Weekly Chart

Chart 22 – Japanese Nikkei 225 Index Monthly Chart

Australian Stocks

Resources are starting to outperform the broader market – largely because of significant weakness in the banks and better data from China. We think that theme will continue. 

Chart 23 – BHP Billiton (US) Monthly Chart

Chart 24 – BHP Billiton (BHP) Weekly Chart

Chart 25a – Woodside Petroleum (WPL) Monthly Chart

Chart 25b – Santos (STO) Weekly Chart

Chart 25c – Oil Search (OSH) Weekly Chart

Chart 26 – RIO Tinto Ltd (RIO) Weekly Chart

Chart 27 – Fortescue Metals (FMG) Weekly Chart

Chart 28 – Newcrest Mining (NCM) Monthly Chart

Chart 29 – Regis Resources (RRL) Weekly Chart

Chart 30 – Northern Star Resources (NST) Weekly Chart

Chart 31 – Market Vectors Gold ETF Daily Chart

Chart 32a – Commonwealth Bank (CBA) Quarterly Chart

Chart 32b – Commonwealth Bank (CBA) Monthly Chart

Chart 33 – ANZ Bank (ANZ) Monthly Chart

Chart 34 – Westpac Bank (WBC) Weekly Chart

Chart 35 – National Australia Bank (NAB) Weekly Chart

Chart 36 – Macquarie Group (MQG) Monthly Chart

Chart 37a – Bank of Queensland (BOQ) Monthly Chart

Chart 37b – Bendigo & Adelaide Bank (BEN) Monthly Chart

Chart 38a – AMP Ltd (AMP) Weekly Chart

Chart 38b – Henderson Group (HGG) Daily Chart

Chart 39 – Challenger Financial (CGF) Monthly Chart

Chart 40 – Suncorp Group (SUN) Monthly Chart

Chart 41 – Insurance Australia (IAG) Monthly Chart

Chart 42 – QBE Insurance (QBE) Monthly Chart

Chart 43 – Wesfarmers Ltd (WES) Weekly Chart

Chart 44 – Woolworths Ltd (WOW) Quarterly Chart

Chart 45a – Seek Ltd (SEK) Monthly Chart

Chart 45b – REA Group Quarterly Chart

Chart 46 – Telstra Corp. (TLS) Monthly Chart

Chart 47 – Vocus Communications (VOC) Weekly Chart

Chart 48 – TPG Telecom (TPM) Monthly Chart

Chart 49 – Westfield Corp. (WFD) Monthly Chart

Chart 50– CSL Ltd (CSL) Monthly Chart

Chart 51 Ramsay Healthcare (RHC) Monthly Chart

Chart 52– Healthscope (HSO) Weekly Chart

Chart 53 - Ansell (ANN) Monthly Chart

Chart 54 – Amcor Ltd (AMC) Monthly

Chart 55 – Crown Resorts (CWN) Monthly

Chart 56– Myer Holdings (MYR) Weekly

Chart 57– JB Hifi (JBH) Monthly

Chart 58– Harvey Norman (HVN) Monthly

Chart 59a– Australian Dollar (AUD) Monthly Chart

The bounce to +75c that we mentioned over recent weeks has materialised, we are now 50-50 short term however given USD weakness, we would not be surprised to see the AUD test 80c

Chart 59b– The $US Index Monthly Chart


Gold has recently rallied very well from multi year lows but may need a weaker USD to move any higher. If the USD breaks the bottom of its range (as per above) gold would most likely spike. 

Copper remains in a downtrend on a longer term basis 

Crude Oil has held the $US30/barrel area recently and staged a good 30% rally but major resistance ~US40/barrel is playing out. APEC meet in April and will set the near term trend 

We are now neutral Iron Ore after the explosive move to above $60 in recent weeks.

Chart 60 – Gold Monthly Chart

Chart 61 – Copper Monthly Chart

Chart 62 – Crude Oil Monthly Chart

Chart 63 – Iron Ore Monthly Chart

This report contains factual information and does not constitute financial advice. The information is not intended to imply any recommendation or opinion about any financial product.

Have a great week


The Market Matters Team
Level 12 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 2/4/2016 4:14pm
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