ASX 200 shrugs off pessimism in resources and energy as banks post solid gains finishing on the highs in a late afternoon surge. Index closes up 49.2 points to 5157.2 with ‘risk off’ back in fashion as Asian markets falter. Japan down 1.0 % and China down 2.6%.US futures up 34 points AUD 74.29.

Called that wrong this morning –Banks strength and defensives back in demand. Rotation out of resources back to industrials and banks again. Seems our international friends still have an appetite for our stocks as the dollar strength shows.

Looks like we are leading rather than following global markets.

After the negative leads from US and elsewhere it was a surprising day for the ASX 200 finishing up 49.2 points to 5157. At 8.30 this morning we had a feeling that we would see some negativity especially given the huge falls of resource stocks overnight. It was not to be and I called it wrong this morning. The strength came from financials which shows just what a swing factor the banks are in the current environment. The collapse of the resource sector has meant that the banks are far more crucial to performance than say BHP and RIO. After a tentative start the banks powered on through dragging REITs up with them and defensive putting in solid gains as the ‘risk off’ money focussed back on defensive sectors and stories.

Despite the iron ore price at $63 it seems that no one believes it. If they did, the falls in the miners would be turning into rises. Not sure what a $63 ore price does to the revenue and profit outlook are for the big three but would suspect they would be pretty happy.

Banks though were the focus. They are cheap by any standard and the economy is going well so why not. They have had some bad press recently and that will continue but the three dog sectors in the last six months have been energy, miners and banks. Well, two out of three have rallied and so it is the third now stirring. Hopefully this will continue as even the falls in Asian markets could not upset the warm and fuzzy feeling.

Stocks and Sectors

  • Resources were well and truly out of favour as BHP-1.92%, RIO-2.12% and Fortescue Metals (FMG)-2.87% although well off their lows and significantly better than their London closes. Gold stocks fell away with Newcrest (NCM)-2.91% leading the falls followed by OceanaGold Corp (OGC)-5.12% and Evolution Mining (EVN)-6.15%. Base metals also suffered as risk off and rotation was the name of the game. Oz Minerals (OZL)-4.81%, Sandfire Resources (SFR)-5.25% and Independence Group (IGO)-6.29%.
  • Energy stocks fell heavily Santos (STO)-2.57%, Woodside (WPL)-2.68% and Oil Search (OSH)-2.56%. Worley Parsons (WOR)-8.94% were a casualty after the strong rise in the last two months. The stock has doubled since Valentine’s day along with some of the other miners.
  • Banks and financials the superstars, the big four were up around 2-2.5% in places except for Commonwealth Bank (CBA)+1.14%. REITS in demand with Investa Office Fund (IOF)+3.01% and GPT +1.85%. Wealth managers Magellan Financial (MFG)+3.42%, Macquarie Group (MQG)+0.17%, Henderson Group (HGG)+2.36%.
  • Industrials better with consumer stocks up strongly Wesfarmers (WES)+1.71%,Woolworths (WOW)+1.52% and Bellamy’s (BAL)+4.63% showing a clean pair of heels. Gaming stocks were better too as investors went bargain hunting. Aristocrat (ALL)+3.72%, Tatts Group (TTS)+3.11% and Crown Resorts (CWN)+2.65%. Good gains too in plain vanilla industrials like Brambles (BXB)+2.8%, Seek (SEK)+2.01% and Cimic Group (CIM)+2.7%. Healthcare too in demand led by CSL+2.22%
  • Speculative stock of the Day: Go Energy (GOE)+68.75% following a bullish investor presentation.

Corporate News

  • Arrium (ARI)-12.9% was given a shot on the arm today with Malcolm out chasing SA votes and announcing a 600km upgrade of ageing rail infrastructure run by the Australian Rail Track Corporation.  The company has been lobbying for the upgrade since the last election and now has the contract for the steel railway lines for the upgrade.
  • ASX has crushed the hopes of Bitcoin Group to list on the exchange over concerns about the capital required to survive its first year. The troubled IPO has been on again, off again for months and is now returning all the money it raised to investors. ASX 1 Bitcon Nil.
  • Fortescue Metals (FMG)-2.87% have been keen today to explain why the share price moved such a huge amount pre the Vale announcement.

Economic News

  • Consumer confidence dipped in March, according to the latest Westpac-Melbourne Institute survey. Political factors and budget uncertainty contributed as well as Global market turmoil,
  • The main index of consumer sentiment slipped 2.2%from February, to 99.1. Any reading below 100 means pessimists outnumber optimists.

  • Home loans to investors fell in January at their fastest annual rate in seven years as banks and other lenders tightened lending rules, official figures showed.
  • Total lending to investors fell 14.8 % to $11.36 billion in the first month of the year, well down on the $13.3 billion of January last year and the fastest rate of decline since February 2009, when investor lending suffered a 21.9 % slump, Australian Bureau of Statistics figures showed.

 

 

  • Treasury deputy secretary Nigel Ray has said that heightened volatility on international markets would lead to ‘lower growth, lower inflation’ “Global risks are tilted to the downside and have intensified in recent months” he continued. No one was listening today.

In Asia

  • Cathay Pacific, Asia’s largest international airline by passengers, reported a profit that beat analyst estimates as growing travel demand outweighed the drag from fuel hedging losses. Net income jumped 90.5 % to HK$6 billion ($773 million) last year. That compared with the average estimate of HK$5.32 billion by 13 analysts, according to data compiled by Bloomberg. Hedging losses in 2015 widened to HK$8.47 billion from a HK$911 million loss a year ago.
  • China’s biggest state owned steel mills has said that the iron ore is unsustainable and sees it back at $40. Li Xinchuang, deputy secretary of the China Iron and Steel Association said he was somewhat ‘surprised’ about the recent strength in the market given the fundamentals of supply demand have not changed at all.

  • Judging by the late surges on the Shanghai index it seems that the authorities are trying hard to keep the market up and optimistic despite worsening economic numbers.
  • News out from the IMF that First Deputy MD David Lipton said that ‘the IMF’s latest reading of the global economy shows once again a weakening baseline,”. “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.” Again no one listening.

Europe and the US

  • The Brexit debate is heating up with Bank of England governor Mark Carney warning that an exit would be the biggest risk to financial stability.
  • Trump wins in Mississippi and Michigan.
  • Sanders also has beaten Hillary in Michigan.

 

Clarence

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NT Markets

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