Afternoon Report / Rates on hold as RBA sights an improvement in house prices (WSA, MPL, ORE)

By Market Matters 03 September 19

Rates on hold as RBA sights an improvement in house prices (WSA, MPL, ORE)

Market Matters Afternoon Report 3rd September 2019

WHAT MATTERED TODAY

Stocks had a choppy day overall despite closing flat on the session, some large lines in the futures markets seemed the catalyst with the SPI Futures trading in a +/-40pt range before settling unchanged. The RBA rates decision headlined the economic docket today and as expected, they kept rates on hold at 1%, however the commentary key as always. 

Economic Data Today

Source: Bloomberg

They talked about wanting to see how a combination of interest-rate cuts and tax relief impact the economy sighting the recent strength in Sydney property prices as a positive undertone, they used the phrase “gentle turn” as Governor Lowe predicted last month as showing signs of playing out.

On the other side of the ledger, they sighted the outlook for consumption as the main negative although a “pick-up in growth in  household disposable income and a stabilization of the housing market are expected to support spending.”
“It is reasonable to expect that an extended period of low interest rates will be required in Australia,” Lowe said. “The board will continue to monitor developments, including in the labor market, and ease monetary policy further if needed.”

All in all it seems they’re ready to cut if needed however some more positive shoots directly related to housing have started to emerge.  The news caused the AUD to trade marginally higher while the market sold off directly after the release.

Overall, the ASX 200 lost -6pts today or -0.09% to 6573, Dow Futures are now trading down -250pts /-0.90%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Nickel Again: Ripped for a second straight sessionwith the first bulge bracket broker flinching on higher prices. The Morgan Stanley commodity analyst upgraded the WSA target price more than 40% on the back of a higher underlying commodity deck, and moved the stock a buy equivalent. The upgrade was less significant to Independence Group (IGO) given the gold exposure...MS now joins Shaw and Partners as the most bullish on the stock, both with  $3.30 price targets.

Western Areas (WSA) Chart

Medibank Private (MPL) -2.21%; shares were lower for the health insurer on the back of ACCC proceedings kicking off. The company self-reported issues from the ahm Health Insurance brand which saw members have legitimate claims rejected or policies upgraded where there was no additional benefit. The issues relate to less than 1,000 customers out of more than 130,000 ahm members and Medibank has already compensated the more significantly impacted clients. The ACCC proceedings will likely lead to fines or compliance programs but are unlikely to be a significant impost to business for MPL.

The main issue here is that both MPL and NiB Holdings (NHF) have been exceptionally strong post the election and now become susceptible to any setback. We sold NHF into strength above $8, the stock now  at $7.06, we’d have interest back around ~$6.60

Medibank (MPL) Chart

Broker moves;

·         Atrum Coal Rated New Speculative Hold at Bell Potter; PT A$0.35

·         Pushpay Upgraded to Hold at Ord Minnett

·         Incitec Upgraded to Buy at Citi; PT Set to A$3.45

·         Steadfast Resumed at Macquarie With Outperform; PT A$4.10

·         Reliance Worldwide Downgraded to Hold at Morningstar

·         Collection House Cut to Reduce at Morgans Financial; PT A$1.09

·         Western Areas Upgraded to Overweight at Morgan Stanley

·         Huon Aquaculture Cut to Hold at Shaw and Partners; PT A$4.72

·         Westpac Upgraded to Outperform at Credit Suisse; PT A$30.55

OUR CALLS

Today we took action to cull a number of underperformers in the MM Platinum Portfolio. Adelaide Brighton (ABC) & Orocobre (ORE) were held with 3% weightings and they were sold for a loss, knocking around 1% off portfolio performance for each position. We’ve been looking to cut these positions plus also reduce our weighting to Costa (CGC) over the past week. ABC failed to rally from $3, and today broke through, suggesting lower levels are more likely in the short term.

Orocobre (ORE) has rallied from a $2.18 low to close today at $2.45, however selling into strength started to build throughout the session today, so we cut the holding. Costa (CGC) & Pact Group (PGH) for that matter, have garnered some support into recent weakness, PGH has now rallied from a $2.08 low to close today at $2.50, up +20% while CGC has added +17% from its low. That sort of buying implies that we should be more patient in terms of these stocks.

We also sold Bank of QLD (BOQ) for a small profit. We had originally bought BOQ on the potential for some consolidation amongst the regional banks, however this has now gone quiet. We see earnings risks here as interest rates decline putting pressure on margins at a time when regulatory spend as a proportion of earnings creates a bigger impost for the regionals. While the dividend is attractive, organic growth is sluggish at best.

Orocobre (ORE) Chart

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

Disclosure

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