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ASX 200 falls 116.5 points to below 4876.8 as banks and energy share selling dominate. National Bank went ex-bonus (ironic really) and balance of trade worse than expected. Asian markets weaker, Japan down 3.4%, China down 1.4%. US futures down 55.

A bad day just got worse as it went on. After opening weaker on overseas markets, the negativity increased especially in the banking sector where National Bank(NAB)-% was savaged following the recent divorce from Clydesdale Bank. The new shares start trading tomorrow a day later than anticipated but the worry is shifting from housing to resource exposure for the banking sector.

Resource stocks were understandably a train wreck as the fall in oil continues and the BHP share price tests the 14.00 level.

The selling accelerated as the afternoon wore on and was not representative of falls in US futures markets. We closed near our lows at 4876.8 down 116.5. This suggests some overseas selling or even margin calls especially in the once bullet proof banks. After all, you can borrow money at 4.9% and buy bank shares that yield 7% fully franked and pocket the difference. However, the capital loss may be an issue at the moment.

Much of the selling as generated by heavy futures volumes at over 50,000 contracts which sends sellers into the major sectors of banks and energy/resources.

No significant results today with weaker than expected export numbers showing the government has a bigger problem than just expenditure and no amount of homilies from Scott Morrison and smiles from Malcom will solve this problem. The AUD should be 65 cents on these numbers. It remains above 70 cents which is not helping at all.

Things got worse after the 11.30 Balance of Trade numbers.

Stocks and Sectors

  • Resources as usual were under serious pressure as concerns on debt levels, credit ratings and commodity prices continue. BHP -4.36%, RIO -1.36%, BlueScope Steel (BSL) -4.8% with Fortescue Metals (FMG) +1.89% a shining beacon. Small miner Metals Ex (MLX) -12.5% was one of the worst hit as were other gold miners Newcrest (NCM) -2.25%, St Barbara (SBM) -4.06% and base metal miner South32 (S32) -2.56%. Other base metal stocks fared better Sandfire (SFR) +0.4% and Independence Group (IGO) -2.26%
  • Energy were badly affected by the near 10% fall in the oil price in the last two days. Woodside Petroleum (WPL) -5.00%, Santos (STO) -5.14%, Origin Energy (ORG) -5.24% and AWE -6.82% falling to levels close to the pre asset sale share price.
  • Banks and Financials. The horror. The big four got that bit smaller today with National Bank (NAB) -5.55% following the demerger from their troubled UK business. Clydesdale start trading tomorrow and were issued at the bottom of the range at GBP1.80 or around 370 cents. The shares in a perfect world should have fallen by around 82 cents to account for this, given the 1:4 ratio for NAB shareholders. However, the delay and the growth outlook seems to have dimmed the bullish view. Other banks fared only slightly better with Australia and New Zealand (ANZ) -2.99% after their recent retreat from the grand Asian vision.
  •  Insurers were hit after holding up well yesterday. QBE -2.96%, AMP -1.68% and Suncorp (SUN) -3.0% in the bears sights. Wealth managers saw some more profit taking ahead of an update from the big daddy Macquarie Group (MQG) -3.25% tomorrow. BT Investment (BTT) -4.64%, Perpetual (PTM) -2.17% and Magellan Financial (MFG) -2.42%.
  • Industrials: Few places to hide today in a broad based sell off. Wesfarmers (WES) -0.21%, Woolies (WOW) -2.32% and Metcash (MTS) -4.55% offered no refuge nor the utilities APA – 1.86%, Sydney Airports (SYD) -0.91% and Transurban (TCL) -0.92%. Some bright spots though with Surfstitch (SRF) +1.44% and Ooh! Media (OML) +3.1%. Retail stocks slipped too with Harvey Norman (HVN) -3.65% and AMA Group (AMA) -2.12%.
  • Speculative stock of the day: Core Exploration (CXO) +50.0% following a review of its core tenure which identified lithium potential at NT Pegatties.

Corporate News

  • Reporting season took a break today with the real action next week and the focal point of Commonwealth Bank (CBA) -2.94% on Wednesday 10th.

Economic News

  • The ABS reported today that total exports fell 4.7 % and imports were down only 1.5 %, as the country’s trade deficit widened by nearly a third to $3.5 billion. The figure was far worse than economist consensus forecasts of $2.5 billion.
  • Some good news though in the service sector as Tourism numbers were at record highs with a 15% growth in December from service exports. Weaker dollar helping and the burgeoning Chinese middle class.
  • Economists at NAB cut their growth forecasts for average capital city house prices in 2016 to 1 %, down from 2.3 % previously.
  • In other economic news, Approvals for the construction of new homes rose 9.2 % in seasonally adjusted terms in the month, according to the ABS. The result is a stronger rise than the 4.5 % lift expected by analysts. It comes after building approvals fell by an unexpected 12.7 % in November, seasonally adjusted.

  • National net debt is now projected to hit $397.6 billion, or 20.8 per cent of gross domestic product, putting a recession away from reaching levels normally associated with a downgrade.

In Asia

  • Desperate times call for desperate measures. Bank of Japan Governor Kuroda says the central bank can expand asset purchases further or cut interest rates deeper into negative territory if needed to hit its 2 % inflation target
  • “I am convinced that there is no limit to measures for monetary easing,” Said BOJ governor Kuroda. Tell him he is dreaming. You couldn’t make this up.
  • Lenovo Group posted a surprise 19% increase in quarterly profit as stringent cost controls countered the impact of a faltering Chinese economy. The world’s largest PC maker reported net income of $300 million in the fiscal third quarter ended December, compared with analyst estimates for earnings to fall to $242.5 million. Sales though fell 8 %, the first decline in more than six years.

Europe and US

  • After the shock of the big oil results last night in Europe with BP leading the charge, they seem to have a cunning plan to ride out the low oil price. Borrow more money to play shareholders in dividends. This strategy seems to be the last refuge of a scoundrel CEO trying to keep his performance bonus intact. Credit ratings are being cut, profits are non-existent but they are going to increase debt to pay shareholders. Genius. Of course their cunning plan will depend on whether anyone is dumb enough to lend them more money in this environment.
  • Bear in mind that Shell/Royal Dutch has not cut its dividend since WW2.
  • One of the best paid and high profile executive in the US, Marissa Mayer from Yahoo has launched yet another job cut program and a business strategy review. During her time the share price has risen 80%. Great job it would seem but that is purely a function of their stake in Alibaba which they acquired in 2005 for $1bn for a 40% stake. Long before Marissa took the helm. A true fallen angel Yahoo. Cut 15% of your workforce and call in the consultants. And to think they had the chance to buy Google for $5bn in 2003. Bit like Dick Rowe.

AHEAD IN EUROPE

  • FTSE -45 points.
  • DAX  -177 points.
  • CAC -108 points.

 

Clarence on TV

XXX

 

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NT Markets

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