Morning Report / Morning Report Tuesday 26 August 2014

By Market Matters 26 August 14

Morning Report Tuesday 26 August 2014

Morning Report Tuesday 26 August 2014

With interest rates remaining low, will people finally start spending?

The Chinese economy needs domestic consumption for the next stage of its development and growth; conversely the Western economies need it to lift them from stagnation. Stimulus is again on everybody’s lips and the yield play has run hard accordingly. Last night, equities again surged on poor economic data, led by Europe, as investors rub their hands together in glee at the thought of more “free money” for longer. For an old player like me, even after 5 years of seeing this phenomenon, watching markets rally on poor economic and macro data creates an uneasy feeling. As I have stated a few times recently, when rates turn, it is likely to significantly unnerve markets. But I feel this reversion has been pushed further into the future by the respective Central Banks. However, while the market has embraced low interest rates and hence “bought yield” it has not yet charged into the Discretionary Retail space, this is an area investors should be watching carefully as its showing a little life.

  • Harvey Norman (HVN) – forecasted yield of 3.2% fully franked – Technically, Harvey Norman is showing life and is clearly aided by the increased valuation of its property assets. I can buy here at $3.27 with stops under $3.
  • JB Hi-fi (JBH) – forecasted yield of 5.1% fully franked – A speculative buy around $15.75, with stops under $14.90.
  • Myer Holdings (MYR) – forecasted yield of 6.1% fully franked –A stock that I have been negative for years is looking very interesting. I can buy now around $2.36, with stops under $2.05. The stock pays over 6% fully franked yield and may attract corporate interest after the David Jones takeover.
  • OrotonGroup (ORL) – forecasted yield of 4.6% fully franked – Still looks neutral / negative, I have no interest here.

Chart 1 - Harvey Norman (HVN) Monthly

Chart 2 - JB Hifi (JBH) Monthly

Chart 3- Myer Holdings (MYR) Weekly

Chart 4 - OrotonGroup (ORL) Monthly

Overnight Market Matters Wrap:

  • The US Markets closed higher overnight, with the S&P up 10 points at 1,998 after touching record highs of 2,002 points.
  • The rally overnight was again due to optimism that central banks worldwide are now expected to keep interest rates low for longer. Particularly, with hints of more stimulus from the European Central Bank (ECB).
  • Iron Ore continues its anticipated bearish tone, now trading below the major support of US$90/t.
  • The SPI Futures are indicating the ASX200 will open around 5,640, up 5 points from the previous session, ignoring offshore gains.

Corporate Earnings Today

  • Auckland Airport (AIA) 
  • AWE Ltd (AWE)
  • Mesoblast (MSB) 
  • Pacific Brands (PBG)
  • Senex (SXY)
  • Boart Longyear (BLY) 
  • Scentre Group (SCP)

Companies Trading ex-dividend Today

  • Coca-Cola Amatil Ltd (CCL) 20c
  • Origin Energy Ltd (ORG) 25c

Major Announcements Today

  • China Conference Board July Leading Economic Index
  • US Consumer Confidence Index (Aug)

The Numbers that Matter

September Share Price Index +4 to 5,604, targeting the ASX200 to open up 5 points.
ASX200 (previous day) 5,635

AUD/USD 0.9299

Dow Jones +76 to 17,077
S&P 500 +10 to 1,998
NASDAQ 100 +15 to 4,067

London FTSE -2 to 6,775
Germany DAX +171 to 9,510

Gold Futures -$1.3 to US$1,278.9/oz
Nymex Crude -$0.3 to US$93.38/bbl
Iron Ore -$0.9 to US$89.2/t

BHP closing price in the US +$0.09 to $37.34

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 26/08/14. 8.30AM.
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