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A bull in a China shop! ASX200 closes up 106.4 points on ‘No Worries’. China sheds another 2.8%.US and Euro Futures positive.


ASX200 ignores the Chinese crash

  • The market raced out of the blocks this morning on buyers stepping up and sellers backing off after falls in Europe and Wall Street were more muted than was feared. It seemed that the shorts were scrambling for cover and confirmation that the RBA kept rates on hold emboldened the bulls as the afternoon wore on. US futures markets were positive up around 50 points as were European markets. So far July is keeping to its history as a good performing month with gains of around 120 points. Admittedly most of that today!
  •  The financials led the way with banks taking news from National Bank positively, Westpac (WBC) + 3.91% was the star performer with regional banks also performing really well led by Bendigo Bank (BEN) + 2.17 % and Bank of Queensland (BOQ) + 2.16 %.
  • Volume though was light as a combination of school holidays, uncertainty and fence sitting continued to be the default position for the big funds leaving the road clear for traders.
  • It was all about rates today as the market waited with baited breath for a no change decision from the RBA. Copy and Paste seemed to be the order of the day as the board resumed their lunch hardly troubled by the media gathered outside in the cold and rain. They will be cheering though with the currency below 75c which seems to be the level that they were targeting. Greece and China barely got a mention.
  • Surprisingly the resource stocks held up remarkably well given the carnage on commodity prices last night. Even Fortescue Mining (FMG) + 4.08 % managed to rally. It seems that the miners are holding up as the hunt for yield switches to BHP +0.92  % and RIO + 1.13%. The sector is trading on around 16.5 times forecast earnings down from 19 but the falls in commodities will put more pressure on earnings and any rebound seems a long way off.Energy stocks bucked the oil price falls pushing ahead Oilsearch (OSH) + 3.09 % and Caltex (CTX) + 4.52 % being the standout
  • REITs were also very strong with General Property Trust (GPT) + 1.16 %, Scentre Group (SCG) + 1.86 % and Stockland (SGP) + % the stars. Other industrials also piled on the points with Telstra (TLS) + 2.45 % and Woolworths + 0.96 % and Wesfarmers (WES) + 2.39 %.Utilities also starred with Sydney Airports (SYD) + 2.81 %,Aurizon (AZJ) + 2.81 %,Transurban (TCL) + 1.54 % and Brambles (BXB) + 2.25 %.
  • Good news this morning for long suffering National Bank (NAB) + 2.21 % shareholders as the new CEO is moving quickly to rid itself of its UK business through and IPO and/or demerger by years end. This has long been a distraction at best and a financial lead weight at worst. Given the liquidity in the markets at present CFO ex broker Craig Drummond and head teller Andrew Thorburn seem to be making all the right moves.
  • One winner of the collapsing oil price has been Qantas (QAN) + 7.86 %.Other winners will be the miners and transport companies however the fall in the AUD will knock some of the gloss off the falls.
  • Much maligned in recent days, the CEO at IOOF (IFL) – 3.27% has fronted the Senate enquiry today into financial advice industry. He strongly denied any serious wrongdoing by any staff and reiterated that any instance of dodgy dealing has been fully investigated. All issues raised by the media have been investigated by PWC, however it certainly has hurt the reputation of the company and will take a while to build back the trust.
  • Prima Biomed (PRR) + 44.07% was a standout today  after receiving positive scientific advice from European Medicines Agency on its lead product IMP321.
  • Outdoor clothing retailer Kathmandu (KMD + 1.39 % is under pressure to issue a trading update so investors can assess whether a $324 million takeover offer from New Zealand retailer Briscoe Group is likely to reach first base. Briscoe Group’s scrip and cash offer, which values Kathmandu at around $1.60 or $NZ1.76 a share, is conditional on Kathmandu earning net profits of at least $NZ20 million for the 12 months ending July.
  • In economic news, The ANZ-Roy Morgan consumer confidence index fell 4.6 per cent to 111.0 in the week to July 5 – reversing most of the gains made since May’s federal budget. The slump was driven by an 8.2 per cent slide in views about the economic outlook for next year, and a 2.9 per cent drop in the five year outlook.
  • In overseas news, yet another emergency European Summit meeting today as lenders try to keep the Greek banks afloat. The banks have yet to reopen and with mattresses all over Greece stuffed full of bank notes, people will be sleeping very uncomfortably in the next few days. The bank run is likely to gather pace if and when they reopen later this week. Support from the ECB is crucial for the economy to remain afloat. Interestingly the Greek government is now collecting in taxes as much as it spends. Not much consolation as the country runs out of money. At some stage that money has to be spent in the economy but until capital controls and bank solvency are addressed hoarding of notes will continue.

But this is now more of a problem for Greece and its people than other EU countries. Contagion fears seem to be evaporating for now.

This is how far we have come from the real crisis days of 2009.

But turning to other government debt we see that Japan is more of a problem!

  • Turning to the real debacle that is unfolding in China, as we once again see the unedifying sight of the Chinese government trying every trick in the (little Red) book to stem the losses on the exchanges. The latest attempt, after chucking the kitchen sink at it, was today to suspend 25% of small cap shares. At least it stopped them from falling. The main Shanghai market opened weaker tried to rally then gave in faster than Nick Kyrgios to be around 2.88 % lower as this report goes to print. Some of the moves have a very desperate look to them as margin lenders are now allowed to except all sorts of new collateral on the margin loans. You can now pledge your home and works of art. Previously they could also pledge copper and iron ore as collateral.May explain some of the falls in the iron ore price.This is a recipe for absolute disaster. If the stock market falls it will create pressure on house prices and that bubble will also burst. That could get very nasty indeed.
  • A quick look at the correlation between oil prices and the Chinese economy. Not sure whether the crude price leads or follows but with a deal creeping forward on Iran, it seems that the oil price will continue to slide.

Short interest from overseas investors in China is building rapidly with the largest US traded ETF, which tracks mainland shares, now having 23% shorted. This is not helping matters and it is hardly surprising that the authorities are wary of overseas investors.

Courtesy of  www.zerohedge.com who always see the worst in these things!

The other worrying sign for the local market is the fall in commodity markets as the USD strengthens on safe haven buying and the prevailing view that the US will raise rates in September .The conventional wisdom is that as the dollar rises, commodity prices fall, assuming there is no change in demand or fundamentals. This ensures that in local terms the price does not change. This is certainly what is happening at the moment and looks set to continue. The transition from mining to a non –mining based economy is not really happening as can be seen from the chart below. Exports have gone backwards over the last 15 years in every non resource industry and now services are too small to offset the mining falls.

And finally 10 years ago I was in London when the terrorists hit. Not a day to forget, seems like yesterday really.

The Aussie is trading at US74.85c.




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