Morning Report / Market Rallies into the Weekend – (AGL, BBOZ, IAG)

By Market Matters 09 August 19

Market Rallies into the Weekend – (AGL, BBOZ, IAG)

Market Matters Morning Report 9th August 2019

Happy Friday everybody in more ways than one, with US stocks surging overnight to impressively erase all of its weekly losses! US stocks are now only 3% below their all-time high, whereas the ASX200 is 4.5% below its equivalent milestone, perhaps we will see some catch up by the local market. Stock markets remain on a very short leash of sentiment with US-China trade, interest rates and a potential recession taking it in turns to push & pull the market accordingly – at this stage sell strength and buy weakness feels the correct strategy.

Following yesterday’s solid bounce by the ASX200, we question whether much of the 371-point by the Dow is already built into our market, although the SPI’s call of +20-points this morning does feel a touch light. Every sector in the US S&P500 rallied by more than 1% overnight, with most up by over 1.5% implying we will see broad based strength today, BHP closed up an equivalent of 23c in the US from Australia’s previous close - a good effort after yesterday’s strong 1.5% day.

MM remains comfortable adopting a more conservative stance than we did for the first half of 2019.

We saw further evidence of the weak internals of the Australian economy yesterday with disappointing reports by AGL Ltd (AGL) and Insurance Australia (IAG), both of whom fell by over -4.5%. That’s before we even mention AMP, our best investment of recent years has been to leave this basket case alone, and our opinion remains unwavered: there is no reason to buy AMP.

Australian Reporting Season: https://www.marketmatters.com.au/reporting-season-2019/

ASX200 Chart

Yesterday, the $A continued its recovery, trading above US68c while I type. We continue to believe it’s “looking to find a low around these levels”.

MM believes the time to average our long $A in our ETF Portfolio is close at hand.

The Australian Dollar ($A) Chart

US 10-year bond yields have started to flirt with their all-time lows, we even read a few articles this week which suggested they may ultimately become negative – amazingly already 25% or $US14Trillion of global bonds are paying a negative yield.

Locally while we think negative yields are a long way off, lower interest rates are not:

MM, like the market, believes the RBA Cash Rate will fall to 0.5% in the next 6-12 months.

US 10-year bond yield Chart

 

A quick look at the 2 stocks that reported poorly yesterday is not particularly exciting and I know James was not a fan of either before he went for the Apex Charity ride:

Technically both IAG and AGL are uninspiring.

AGL Energy (AGL) Chart

 

Insurance Australia Group (IAG) Chart

MM remains bearish US stocks, initially targeting the 2750 area for the S&P500 - over 6% lower, hence we are in “sell rallies as opposed to buy dips” mode but caution is warranted as we are still in a bull market.

MM remains bearish US stocks.

US S&P500 Chart

MM’s plan for the days / weeks ahead.

No change:

1 – We are looking to increase our cash position in the MM Platinum Portfolio, 16% feels a touch light at present.

2 – We are looking to buy the Bearish ASX200 ETF (BBOZ) into strength moving forward to hedge a decent part of our portfolio.

BetaShares Leveraged Bearish ASX200 ETF (BBOZ) Chart

 

Overnight Market Matters Wrap

• The US bounced particularly solid overnight, led by the tech. heavy, Nasdaq 100 as mentioned above. European markets also rallied with the French market in particular 2.3% stronger.

• Commodities rebounded, with crude oil up 2.8% and copper up 1.4%, while the gold price retraced about 0.5% from its 6 year highs. Bonds edged higher, with US ten-years back above 1.7%, having briefly touched 1.79% intra-day.

• The September SPI Futures is indicating the ASX 200 to open 40 points higher, towards the 6605 level this morning.

Have a great day!

Alex & the Market Matters Team

Disclosure

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.

Disclaimer

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