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A snapshot of today:

 

What happened today?

The ASX 200 drops 105.5 points to close at 4998 on commodity prices and a weak Chinese PMI number. Shanghai down 1.9% with US Futures down 100.

Another bad day as commodity price falls hit miners and energy stocks and buyers once again stepped away. BHP -4.19% was a big casualty as it looks to raise hybrid debt to fund growth whilst paying high dividends to investors. RIO -2.42% and FMG -5.74% also fell heavily on continuing concerns on China. The path of least resistance seems to be down as we test the 5000 level. There seems to be little appetite for bargain hunting at present and with further falls to come in Europe tonight and the US, it is hard to see a catalyst for support at 5000. Commodity prices tonight will be a key indicator and if they fall further we could start to break out of the recent range. Once again volume was low, due to lack of conviction and school holidays.

  • Not many bright spots in mining only coal stocks winners today with Whitehaven (WHC) +3.12% and New Hope (NHC) unchanged. South32 (S32) -5.67% continues to fall as discussions now centre on their dividend policy. Base metal stocks also fell heavily Independence Group (IGO) -7.37%, Oz Minerals (OZL) -6.52% and Syrah Resources (SYR) -5.26%. Gold stocks were down too with nowhere to hide. Newcrest (NCM) -1.81%, Evolution Mining (EVN) -5.04% and Regis Resources (RRL) -2.7%.
  • Energy stocks were also easier with Woodside (WPL) -2.87%, Oil Search (OSH) -1.03% and Santos (STO) -2.81%. In some good news for STO, the first tanker will ship LNG from the Gladstone next week as the project is on track to start output by the end of September.
  • Banks and financials were once again sold off, Westpac (WBC) -3.66% were hit the hardest but the rest of the sector was off around 2.5-3.0%. It seems that analyst after analyst is jumping on the bank bashing bank wagon.
  • Industrials were relatively steady as buyers continue to flock to Sydney Airports (SYD) +0.17%, Auckland Airport (AIA) +0.45% and Qube (QUB) unchanged. IPH Group (IPH) +2.07% after the acquisition of IP company Pizzeys yesterday. Some big falls in discretionary consumer stocks, Harvey Norman (HVN) -4.27%, Crown Resorts (CWN) -4.28%, Flight Centre (FLT) -3.56% and Wesfarmers (WES) -2.18%
  • Brickworks (BKW) +0.26% results tomorrow as they approach a six year high.
  • 90 of the top 200 names are ahead for the year. The industrials are up 6.6% for the year whilst Utilities are up 8.7%.Miners and Banks are the big losers.

Relative performance of the Industrials against the materials compared to the ASX200 base. Huge difference. Industrials in blue and materials in gold.

ASX 200 Industrials this year. Not too shabby.

IN CORPORATE NEWS:

  • Nufarm (NUF) +9.34% after profit numbers today as profit rose 14% to $43.2m. EPS rose 2.1 cps to 11.7 cps and a final dividend of 6cents. Importantly the company was positive on their outlook and capital management initiatives. Expect some analyst upgrades in the next few days.
  •  TPG (TPM) +4.8% will plough on with construction of its rival to the federal government’s $56 billion national broadband network and may even start offering access through its booming retail brands. Executive chairman David Teoh has vowed to keep building his company’s own fibre-to-the-basement network to deliver broadband services that can match or exceed those offered by NBN.
  • BHP -4.19% announced that it is considering a hybrid debt instrument to bridge the gap between free cash flow and dividend payments.BHP is now yielding over 10% grossed up and is the highest in 25 years. They now pay a higher yield than the banks. The question is how long they can maintain the ‘progressive dividend’ policy. They are also moving to shift money and franking credits from Australia to the UK to enable the PLC entity to pay dividends.The capital spending is being cut again as they look to squeeze more out of their existing assets.

ECONOMIC NEWS

  • In Asian markets, Japan was once again closed for holidays but China gave up some ground today despite President Xi Jinping in the US talking up the economyThe Chinese government has also signed a deal for 300 new ircraft from Boeing.
  • Japanese futures are predicting serious catch up with the rest of Asia as they reopen Thursday, facing losses of around 700 points.
  • It was also announced that authorities were investigating Citic Securities for insider trading during the government support package measures.

Caixin/Markit Manufacturing PMI and Industrial Output

  • The Chinese PMI at 47 against a consensus of 47.5.The lowest level since March 2009.
  • Shadow banking is on the increase in China. Shadow-finance assets, estimated at 41 trillion yuan ($6.4 trillion) by Moody’s at the end of 2014, have become more attractive as five interest-rate cuts by the central bank since November curbed profits from lending.

  • Big growth in receivables is affecting the balance sheets of Chinese banks. From 1st October China will scrap the 75 year old rule on the cap on loan to deposit ratios. Lenders will then be more likely to record credit on their loan books. Investors are expecting a non-performing loan ratio of 10 to 12 percent next year, which would mark a “sizeable credit crisis. The current reported ratio is 1.5%.

Early European market calls:

  • FTSE down 51 to 5885
  • DAX down 86 to 9485
  • CAC down 34 to 4395

And finally the world’s most unpopular man at the moment, the head of US Drug company Turing Pharmaceuticals has backtracked on his anti AIDS/HIV drug Daraprim and reversed the huge price increase that caused the NASDAQ Biotech sector to crack. Hillary Clinton tweeted ‘Good’.

Clarence

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