Afternoon Report / RBA still banging the lower for longer call on rates

By Market Matters 17 September 19

RBA still banging the lower for longer call on rates

Market Matters Afternoon Report 17th September 2019

WHAT MATTERED TODAY

The RBA minutes moved the market today, or more specifically, put pressure on the AUD which made our market more appealing from an international perspective. Decent buying in the SPI Futures after the minutes were released at 11.30am saw the index trek up +45pts from the daily lows to close near the session highs. More on the minutes below.

Energy stocks were higher again today, although less so than yesterday while the more defensive ‘yield trade’ was back in favour, Utilities, Healthcare & Real-Estate the three best sectors on the ASX today. While one day is largely irrelevant, this does fit the theme we wrote about this morning when suggesting that for now we believe the rally in bonds yields is a move to fade rather than a dramatic change of trend.

Across the desk today we saw some meaningful buyers in the names like Transurban (TCL) who benefit from lower bond yields while decent sellers were around in areas like Suncorp (SUN) who have enjoyed the short term bounce in yields…buying TCL, selling SUN is an example of a trade fading the recent move in the bond market. (TCL and other infrastructure stocks like lower yields, SUN and other insurers / financials like higher yields) 

Overall, the ASX 200 was up +21pts today or 0.33% to 6695, Dow Futures are now trading down -33pts/-0.12%.

ASX 200 Chart - ramp up on the close again – market put on +13pts in the match again

ASX 200 Chart

CATCHING OUR EYE;

RBA Minutes:  Some key points from the minutes released at 11.30am today….

1.       The RBA sees an extended period of low rates

2.       Wage growth remains subdued and forward looking indicators appear weak

3.       House prices could move meaningfully higher given a lack of new construction and a ‘meaningfully weak outlook’.

4.       Since the two rate cuts and an easing of lending restrictions, property prices in Sydney and Melbourne have rallied – the below chart from Bloomberg shows that trend nicely

House Prices Chart

5.       This however, has not flowed through to any meaningful strength in retail sales.

6.       Household debt remains at record highs

The Aussie Dollar fell away after the minutes were released and that was enough to spur some reasonable buying in equities. Rates lower for longer the obvious takeaway. 

AUD/ USD Chart

New Hope (NHC) –2.45%; the coal producer saw profits surge in FY19 thanks to a 21% increase in tonnes sold dropping down to an adjusted NPAT level of $211m, up 41% on FY18. Despite the big uplift, the result was below expectations with the bulk or the increase being attributed to New Hope taking an additional 40% stake in the Bengalla mine.

The outlook statements were not overly exciting either, with thermal coal continuing to see pressure and little progress seem in the approval process for their Acland mine. We remain wary of coal names, although we do hole Whitehaven in the income portfolio given its strong yield outlook and general market negativity surrounding the stock.

NewHope Coal (NHC) Chart

BROKER MOVES

  • ADH AU: Adairs Upgraded to Buy at Baillieu Ltd; PT A$2.24
  • DXS AU: Dexus Reinstated at Credit Suisse With Neutral; PT A$12.20
  • MND AU: Monadelphous Raised to Buy at Baillieu Ltd; Price Target A$17.50
  • NPH NZ: Napier Port Rated New Hold at Deutsche Bank; PT NZ$2.90;; Rated New Neutral at Goldman; PT NZ$3.03
  • OGC AU: OceanaGold GDRs Raised to Outperform at Credit Suisse; PT A$4.25
  • STO AU: Santos Downgraded to Hold at Morningstar
  • SGM AU: Sims Metal Upgraded to Hold at Morningstar
  • SDF AU: Steadfast Upgraded to Hold at Morningstar
  • TLS AU: Telstra Downgraded to Hold at HSBC; PT A$3.90

OUR CALLS

No changes today

Major Movers Today

Have a great night

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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