Afternoon Report / Markets hit again thanks to US Fed (ORE, IVC, AZJ)

By Market Matters 20 December 18

Markets hit again thanks to US Fed (ORE, IVC, AZJ)

Market Matters Afternoon Report 20th December 2018

WHAT MATTERED TODAY

Another tough day for stocks with the market doing well early on only to see the index slip lower into the close. Double expiry in the options market today with index options expiring this morning and stock options this afternoon, hence some big volumes going through the bourse. Much of the talk today is about the interpretation of the Fed move overnight, and the fact that J Powell emphasised the natural run off of bonds from the Fed balance sheet. Effectively it means less liquidity in the system, something around $50bn a month matures and that’s having an impact in the high yield credit market with spreads increasing – all pretty bearish stuff to head into Christmas. In terms of flow across the desk, a few banks were keen to buy decent put option volume on the index today, effectively spraying different strikes which seemed to apply a lot of pressure on the market, while US Futures were also trading down over the course of the day.

Asian markets were weak, Japan off 3% and Hong Kong down -2% - simply a day where risk off built on itself and the market closed on the lows.

Overall today, the ASX 200 closed down -74 points or -1.34% to 5505. Dow Futures are currently trading off by -170pts or -0.74%.

ASX 200 Chart

ASX 200 Chart

 

CATCHING OUR EYE;

Lithium Stocks;The sector was smashed today after Orocobre (ASX:ORE) reported a very weak realised price for their Dec quarter production with the company saying…..The pricing achieved recently has been affected by soft market conditions in China having a direct impact on shorter term contracts resulting in December quarter prices of approximately US$10,800 per tonne. That’s a very negative read through for the sector with ORE down -13.59%, KDR down -12.93%, MIN down -6.89% and PLS down -7.3%

Orocobre (ASX: ORE) Chart

 

Broker Moves; Evans and Partners initiated on Aristocrat this morning, with an equivalent of a BUY recommendation and $28.60 price target. It had very little impact on the stock today which was sold down again, off -3.71% to close at $21.00.   

ELSEWHERE:

·         Austock Rated New Buy at Moelis & Company; PT A$0.80

·         Australian Pharma Raised to Equal-weight at Morgan Stanley

·         Seven West Upgraded to Buy at Morningstar

·         Healthscope Upgraded to Buy at Morningstar

·         Aristocrat Rated New Positive at Evans and Partners; PT A$28.60

·         Saracen Mineral Downgraded to Sector Perform at RBC; PT A$2.50

·         NIB Holdings Upgraded to Neutral at Credit Suisse; PT A$4.90

·         Beach Energy Upgraded to Hold at Shaw and Partners; PT A$1.50

·         Bega Cheese Upgraded to Hold at Morgans Financial; PT A$5.01

Invocare (ASX:IVC) $10.22 / -6.5%;Seems to be less people kicking the bucket these days by the look of the IVC share price which fell to a 4 year low today. It’s smaller rival Propel Funeral Partners (ASX:PFP) said it expects flat year-on-year operating profit growth in 1H19 as below-trend funeral volumes have persisted since October. They say weak industry volume trends continued in Oct t and given that Invocare’s already losing market share to smaller players,  they have a bigger issue with the deteriorating trends…IVC is a stock we discussed recently that looked good technically, we failed to pull the trigger given weak trends across the industry and are happy spectators for now.

Invocare (ASX:INV) Chart

Aurizon (ASX:AZJ) $4.18 / -3.24%; UBS handled a massive AZJ trade today valued at $738.1m at $4.11 today instigated by a major seller – about a 4% discount to mkt at the time, although not clear yet who it was. Big ticket for the UBS guys and some Christmas cheer going on there no doubt this afternoon…

Aurizon (ASX AZJ) Chart

OUR CALLS

No changes today.

Have a great night

James, Harry & 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.

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