ASX 200 finishes up 39 to 5158 for a very solid end to the week. Industrials the stand outs as banks and resources took a break. Asian markets slipped on Chinese data with Japan down 0.37% and China down 0.05%. AUD at 77.23 and US Futures up 6.
Well so much for a day of consolidation. A strong finish to an already very strong week as we push up into the top of our trading range. After a solid opening we drifted until 12am and the Chinese GDP, which came in bang in line at 6.7%, a good strong knee jerk reaction was followed by another strong afternoon rally into the close. It appears that the stimulus measures from authorities in China are having the required effect and will allow the Fed a little more wriggle room with rate rises later this year if the trend continues.
It was all about industrials today as they played catch up. For most of the week they have been ignored as their cousins the banks and resource stocks stole the limelight. Having stagnated most of the week it was their time to shine.
The move this week seems to be a combination of short covering and underweight funds deploying some of the big cash build ups they have accumulated especially given the large dividend cheques that have dropped on the mats of institutions in the last month.
One-way traffic on the ASX this week.
Here is the chart of the ASX Industrials this week. Good to see they are having their day.
- If we could only coordinate all three genres we could really push ahead and break the range.
- For the week we have rallied from 4937 to the present 5155 for a gain of 4.3%.
- The AUD has pushed through 77c and is currently up around 77.23c.
Stocks and Sectors
- Resources suffered some losses today as commodities pared their recent gains and some profit taking slid in. Fortescue Metals (FMG) -4.7% but BHP +2.17% and RIO –0.82%.
- Gold stocks were also hit as bullion prices slipped especially in AUD terms, back under $1600 leaving OceanaGold Corp (OGC) -1.22%, Beadell Resources (BDR) -3.17%. But Evolution Mining (EVN) +2.64% and Tribune Resources (TBR) +7.5% whilst Newcrest (NCM) -1.06% slipped.
- Energy stocks were a little nervous prior to the Doha freeze this weekend. Woodside (WPL) +1.99% played a little catch up with Oil Search (OSH) -2.26% and services giant Worley Parsons (WOR) -4.54%.
- Banking and financials turned positive today with the big four little changed but Insurers doing very well. IAG +1.64%, Suncorp (SUN) +1.81%, AMP +1.76% and QBE Insurance (QBE) +0.88%
- Industrials were the stars today with solid moves from Telstra (TLS) +1.55%, consumer stocks Wesfarmers (WES) +2.16% Woolworths (WOW) +1.46% together with utilities AGL Energy (AGL) +1.16%, APA Group (APA) +1.28%. Healthcare was another positive sector led by CSL +1.65% and Ansell (ANN) +3.96%.
- Formula and vitamins were back on the prescribed list with Bellamy’s (BAL) +5.48%, Blackmores (BKL) +2.31% and A2Milk (A2M) -0.89%. We also saw good gains in tech and net stocks Carsales (CRZ) +2.63%, Link Administration (LNK) +0.39% and Urbanise (UBN) +15.62%.
- Speculative stock of the day: General Mining (GMM) +13.73% as the lure of lithium exposure proves irresistible to traders. In the last year GMM has risen from 4 cents to 57 cents.
- RIO -0.82% has revealed the result of 18 months of negotiation with its Channar JV partner, Sinosteel and it will now share 280 m tonnes of Iron ore over its 29-year life. It has also agreed to sell a further 40m tonnes of ore to Sinosteel over the next five years. The final deal was signed as part of the trade delegation on Thursday night on Beijing.
- RIO also took the chance in London to introduce the new CEO Jean-Sébastien Jacques to shareholders at their London AGM. Outgoing chief Sam Walsh also told shareholders that the rally in iron ore was NOT sustainable. He predicted iron ore prices ‘may soften’ in the second half of the year.
- A couple of years ago, high flying Peter Bond ran a listed company here called Linc Energy and in a pique of anger, on lack of institutional support here, he decided to take his bat and ball and list the company in Singapore and remove himself from the ASX. Today Linc Energy were placed into voluntary administration. The company once had a market cap of over $2bn. Peter Bond still holds 19% of the company and will join Nathan Tinkler in the bar lamenting their own demise.
- McGrath Real Estate (MEA) has entered a trading halt pending an update on current trading conditions. This stock seemed to signal the very top of the property market and has suffered ever since.
- Netcomm (NTC) -3.67% following a slightly disappointing trading update. Revenue up 14.4% to $85m but EBITDA down slightly on a $4.3m investment in staff and infrastructure and a $0.7m non-cash accounting expense associated with the share appreciation rights.
- The RBA today released its semi-annual health check on the banking system. The RBA warned the banks ‘not to chase higher profits at the expense of risk controls and culture while ensuring they had a handle on bad debts’ resulting from the resource sector.
- The risk to the financial sector were mixed in their opinion with steps to control lending rates and riskier home/investor lending appears to be having a positive effect.
From the report today
‘The Australian financial system remains in good condition overall. Banks’ profitability is at a high level and the performance of banks’ assets has continued to steadily improve, driven by their business loan portfolio. The performance of housing lending remains strong and some of the concerns associated with banks’ mortgage portfolios have lessened since the previous Review (as discussed in the previous chapter). Nonetheless, risks have become more pronounced, though still manageable, in a number of other areas’.
- One area the RBA did see concerns was in apartments construction mismatches between supply and demand although they are not seeing too much settlement risk at present.
In their own words again
- The RBA said new supply of apartments in Sydney, Melbourne and Brisbane, could weigh on prices and rents, and if that occurs “investors will need to service their mortgages while earning lower rental income and any households facing difficulties making repayments may not be able to resolve their situation easily by selling the property”.
Chinese data dump today:
- China’s Q1 GDP came at 6.7% in line with forecasts expected and 6.8% last time.
- March Industrial Production stood at 6.8% vs 5.9% expected and 5.9% last.
- March Fixed Assets YTD came at 10.7% vs 10.4% expected and 10.2% last.
- March Retail Sales it came at 10.5% vs 10.4% forecasts.
- China New Loans (Mar) was CNY 1370bn vs CNY 1100bn expected and CNY 726.6 bn.
- Japan’s finance minister has expressed ‘deep concerns’ over the strength of the yen. Speaking in New York on Wednesday, Kuroda said the BOJ still had “many ways” to ease policy, including deepening negative rates or topping up asset purchases, suggesting that the central bank could expand stimulus at a policy review later this month.
- Singapore developers sold the highest number of homes in eight months, helped by the successful marketing of two new projects. Developers sold 843 units in March, more than double the revised 303 units in February, and 38% higher from a year ago.
- Yet another example of CEOs behaving badly with news that BP CEO Bob Dudley has been recommended a $25m remuneration up 20% on last year. If he worked 250 days a year he would be drawing $100,000 a day. This in a year when the company reported a record loss and announced thousands of job cuts. It looks like UK institutions will revolt against the proposals deeming them insensitive and unreasonable.
- Doha kicks off on Sunday with OPEC and Non-OPEC members meeting to discuss the stability of the oil price and production freezes.
- In the UK the Brexit vote is now starting to hit home. The campaign officially kicked off today with the Bank of England’s Monetary Policy Committee or MPC saying “There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity”. The committee voted unanimously to leave interest rates unchanged, at their historic lows of 0.5%, for an 85th consecutive month.
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