ASX 200 kicks the bears into touch with a 98.9 rally to 5021.2, building on yesterday’s 41 points, to break through the 5000 level. GDP numbers shocked analysts and sent bears scrambling into the banking sector. Resources also in the shopping basket. Japan surged 4.19% and China up 2.8% despite credit downgrades. AUD responds to better GDP with a rise to 72.18 cents. US futures up 48.5.
‘Super Tuesday’ in America on many fronts translated into ‘Big Wednesday’ in Australia. Risk on across the board. International funds scramble to cover. A positive lead set the scene with an initial jump of 60-70 points almost fizzing out again, as the GDP print saved the day. The stunning 3% growth in the economy silenced the critics of the banks and their exposure to a recessionary economy and left the shorts scrambling for cover and canceling their subscription to the recent hedge fund research suggesting the end of the world was nigh. Although the backward looking GDP for the December quarter is a bit rear view ‘mirroresque’, the continuing boom times in tourism and services especially in Sydney and Melbourne will ensure Scott Morrison has a huge smile on his face and Glenn Stevens will kick back and stay his hand on rate cuts for some time to come.
ASX 200 Index Today Aussie Dollar Today US72.31c
Banks were back in vogue as bears scrambled to unwind their short positions. Even news of a downgrade on China was not enough to spoil the party, nor the Trump success in the primaries. After wearing a hair shirt like an ‘Opus Dei’ recruit, the true believers have been vindicated in the last few days with some spectacular gains, especially in financials. In a world of record low rates, 3% GDP growth, low unemployment and a culture of home ownership it seems unlikely that we will see the unwinding of the property boom as widespread as some high profile researchers have predicted.
After the GDP number, the market kicked with most sectors showing solid gains and a stampede ensued leading to a high of 5047, which is heading towards the very top of the range. Some profit taking crept in towards the close at 5021. If we see more overseas strength then we could push above 5100. Reporting season and now GDP will embolden the bulls. Banks and the big miners hold the key. After a disastrous few months for top twenty stocks, the ‘risk on’ is very much in the large caps.
STOCKS AND SECTORS
- Resources were firm as buyers streamed back in to risk assets. BHP +4.37%, RIO +4.72% and Fortescue Metals (FMG) +3.69%. Base metal stocks also did well, Sandfire Resources (SFR) +6.14% and Independence Group (IGO) +4.6% together with South32 (S32) +1.92%. Energy stocks also did well especially the big caps Woodside (WPL) +5.08%, Santos (STO) +4.96% and Beach Energy (BPT) +11.3%.
- Banks were the standouts today following the GDP number. After weeks of negativity and concerns, the shackles were off and the bears on the ropes. Australia and New Zealand Bank (ANZ) +4.46% and Westpac (WBC) +4.11% the best of the bunch. Insurers also performed with Suncorp (SUN) +3.56%, QBE +2.79% and health insurers benefiting from a 5.5% rise in health fund costs. Medibank Private (MPL) +7.75% and NIB Holdings (NHF) +3.33% both doing well. Wealth managers Macquarie Group (MQG) +2.23%,Magellan Financial (MFG) +3.15%, Perpetual (PPT) +2.55% and Henderson Group (HGG) +3.95%.
- Gold was the only sector in the red today as profit taking and a weaker AUD bullion price took their toll. Newcrest (NCM) -5.23%, Evolution Mining (EVN) -7.38% Northern Star (NST) -7.18%, OceanaGold Corp (OGC) -9.11%.
- Industrials were green across the screen although top twenty stocks were outperformers. Wesfarmers (WES) +2.54%, Crown Resorts (CWN) +4.54%, Telstra (TLS) +1.81%, UGL +9.27%, and of course CSL +1.63%. Infrastructure stocks failed to fire as the expensive defensives were avoided or sold as risk was embraced. APA -1.73%, Spark Infrastructure (SPK) -2.39% and AusNet (AST)-0.69%
- Speculative Stock of the Day: Plymouth Minerals (PLH) +46.27% after announcing the grant of the Banio tenement which is a major potash project in the Congo Basin. Well someone has to do it.
- Southern Cross Media (SXL) -0.44% has opened early exploratory talks aimed at selling its TV assets to Ten Network (TEN) under the first potential deal after changes to the media landscape. The assets could be worth as much as $100-120m. Not sure where TEN would come up with that sort of money but a capital raising has not been ruled out.
- Tatts Group (TTS)-4.35% What the courts giveth the courts taketh away it seems. They had a serious court loss today with news that they would have to repay the $540m they received from the Victorian government. The Victorian government will also get costs and was very relieved and happy to get a boost to its infrastructure spending ability. Tatts was obviously disappointed and now has had to shelve plans to return capital to shareholders via a special dividend. The company will be able to repay the funds without financing but its debt ratio will double to around 2 times.
- Telstra (TLS) +1.81% managed to avoid the big gains today with a modest rise despite another outage affecting customers. Seems this time they have issues with their pre-paid services.
- The GDP number was out today and showed surprising strength, rising 0.6% in the December quarter and up 3% for the year, significantly higher than economists were forecasting as they scratched around looking for excuses for why they were so pessimistic. Anyone who has walked around Sydney or Melbourne recently will know how strong the economy is. QLD, WA and SA not so great though.
- Household spending rose 0.8% in 4Q, adding 0.4 point to growth; Dwelling investment climbed 2.2% in 4Q, adding 0.1 point to the expansion; Non-dwelling construction, which includes mines, slumped 7%, subtracting 0.5 point from growth
- New home sales have kicked off 2016 in strong form with residential construction expected to have another healthy year ahead. Housing Industry Association new home sales jumped 3.1% in January. Detached house sales surged 5.8%, while those of multi-units dropped by the same amount.
- Where they bloody hell are you?
- Seems they are here after all, as the lower AUD has sucked in record numbers of tourists. The 18% growth rate is the highest since the 2000 Olympics with 6.9m visitors and spending $36bn. Chinese visitor spending rose 45% to a record $8.3bn with Indians and Americans also performing strongly.
- Moody’s has lowered its credit rating outlook on China to negative from stable, highlighting the surging debt burden and the government’s ability to implement reforms. Moody’s cited the drop in China’s foreign-currency reserves and increasing government debt.
- The market however took the outlook downgrade in its stride as the authorities are close to bunkering down for their annual get together.
- Once again the PBoC cut its daily reference rate as it devalued the currency to its lowest level in four weeks.
- House prices are back in vogue in China as investors switch back to property following a less than satisfactory performance from shares.
Quality cities back in demand
AHEAD IN EUROPE AND THE US
All the talk will be about Trump today as he looks to have almost sealed his nomination for the GOP candidate. Unfortunately having endorsed him as a candidate it may be a little late to complain about the consequences of a democratic process. That orange wig has well and truly bolted.
Looks like the ICE is about to spoil the merger talks between the London and German Stock exchanges as the US exchange considers a bid.
Ahead in Europe
- FTSE +28 points.
- DAX +49 points.
- CAC +29 points.
And finally something to toast today.
The price of single malt whisky