The Market Today

What a difference a RBA rate cut makes. Surprise for many commentators, including me. I thought they would stay their hand but the siren calls have been loud from retailers and industry, get our dollar down. Let’s face it that is probably more important than the mortgage rate which is at the whim of the banks. Anyway pre the announcement the market had slipped over 30 points but as soon as the cut was announced we rallied hard. More so in the stocks that were already rallying but positive reaction none the less. It was certainly a day when resources and risk was in the shopping cart rather than the much hyped banks. BHP Billiton (A$33.67, +2.4%), RIO Tinto (A$57.39, +2.1%) and even Newcrest Mining (A$17.12, +6.8%) led the way whilst the financials like Westpac Banking (A$32.58, -1.8%), National Australia Bank (A$32.95, -1.6%) and especially Commonwealth Bank of Australia (A$70.30, -1.9%) were well off. The only financials that improved were Macquarie Group (A$44.61, +1.2%) and QBE Insurance Group (A$13.73, +1.7%) Of course as the afternoon wore on the rally faded as the buyers stepped back a little and the selling resumed in the banks but with rates now at five decade lows it will be interesting to see how this feeds through to the market. May be a good time to look at US dollar earning stocks.

It was a day when the resources beat the blob of bank shares and other defensives. Telstra (A$5.01, -1.0%) failed to launch after securing more spectrum off the Government for its 4G network, whilst the W’s Woodside Petroleum (A$37.08, -0.3%), Wesfarmers (A$41.90, -1.4%) and Woolworths (A$34.78, -2.1%) all came under pressure. It does look like the big funds are switching from the ‘bubble’ banks to the ‘bombed out’ resources that do offer some value at these levels. It remains to be seen if the trend continues especially with the Banks dividends in play. Although once they go ex in mid to late May the imperative to own them will wane somewhat.

Retailers were mixed on the rate cut with JB Hi-Fi (A$17.20, +3.6%) leading the way higher followed by Harvey Norman (A$2.87, +0.7%) but Myer (A$2.93, -1.3%) and David Jones (A$2.85, -1.0%) failed to find the buyers.

Mining services were also in demand, not for fundamental reasons I suspect, only that they have been so badly mauled it is inevitable that bargain hunters and value players would be passing the slide rule over the sector. Boart Longyear (A$1.01, +7.4%), Bradken (A$5.17, +4.4%) both pushed substantially higher.

In energy stocks Karoon Gas Australia (A$5.11, +4.5%) continued to draw positive vibes after yesterday’s oil find with Santos (A$12.53, +2.1%), Oil Search (A$7.85, +0.1%) and Origin Energy (A$12.45, +3.0%) doing well.

Some of the big fallers today were previous darlings with Sirius Resources (A$2.76, -4.17%) Xero (A$0.48, -4.25%), G8 Education (A$2.39, -2.0%) whilst the big gainers were Newcrest Mining (A$17.12, +6.8%), somebody pinch me, Paladin Energy Ltd (A$0.85, +7.6%),Alumina (A$1.00, +4.2%),Macquarie Atlas Roads Group (A$1.915, +3.2%) and Sims Metal Management (A$10.32, +3.6%).

Volume was slightly better than yesterday but considering the momentous rate cut decision it was still mouse quiet! And unconvincing!

Stocks in the News

Things did not go better today with Coca-Cola Amatil (A$12.93, -10.5%) as it announced ‘trouble at Mill’ with its local operations. The big two supermarkets are flexing their muscles on price and competition together with Goodness me its SPC not doing too well. There is a lot of dumping of cheap foreign peaches and pears which they are struggling to compete with. The positives to come out of the AGM statement from Terry Davis though was the growth potential of Indonesia and the expectation of a unchanged full year. Stock still got whacked though! And Terry Davis had this to say about the relative prices of Coke in Asia against Australia. CCA in Australia pays ‘‘15 to 20 times per hour more for labour, and we pay significantly more for rent, and we pay significantly more to have a social security backdrop which doesn’t happen in many of these other countries’’. Discuss.

Billabong International (A$0.455, unch) went into a trading halt in anticipation of an announcement re the takeover from private equity. Let’s hope it’s a positive.

Bad news today for Linc Energy Ltd (A$1.505, -17.8%) as its Unimat well did not deliver the results the market was hoping for. Technical difficulties meant testing was delayed until next season but not what you want.

National Australia Bank (A$32.95, -1.6%) is the first bank to pass on the rate cut in full. Variable Mortgage rate is now 6.13%.Self-funded retirees have just been scythed. Better buy those yield stocks.

In M&A news Perpetual (A$41.01, -0.6%) has bid for The Trust Company (A$6.21, +6.2%) trumping Equity Trustees (A$16.40, -8.1%) in its bid. Looks like we may have a battle on our hands.

Full steam ahead for the Captain of RMS Rio Tinto, with it is set to press on with plans to boost production at its Australian mines by a quarter by 2015, shrugging off pressure to slow spending and conserve cash as the commodity boom cools.

BHP Billiton (A$33.67, +2.4%) have confirmed a fatality at their eagle Ford operation in the US and have stopped all production pending an inquiry.

In other economic news the trade surplus was back in the black after better than expected exports of Coal and Iron Ore. First time in 16 months and importantly our exports to China hit record highs, almost a quarter of our trade is now with China!

Tomorrows News Today

Copper gains the most in three weeks on hopes that the demand from China is increasing.

The US Senate has backed online sales tax. Suspect the budget will announce a change in the threshold here too. Got to be easy money for the Government and please a lot of business people who want a level playing field.

Looks like Microsoft is preparing to throw in the towel with its Windows 8 project!

Talked about this the other day and it seems that Soros is listening but Paul Gambles(appropriate really) managing partner at advisory firm MBMG International believes that shorting the Aussie Dollar is the trade of the century and thinks we will see 60 cents within 18 months. Just before the men in white coats arrived!

I guess the big question is, if the economy is going so well and unemployment, GDP etc are doing well why have we got official rates at a 53 year low. Should we be worried or just stay calm and carry on!

 

Clarence

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