5800.

So near and yet so far. We tried yesterday to grind up towards the top of the range but today we will wilt under pressure from the banks. They have had a good run so only natural to see some Friday profit taking. Miners may get a small bounce but will not be convincing.

Volumes have remained subdued and range trading continues.

Small and mid-caps are where the action is. Top 20 going nowhere. Sector rotation from the big funds trying to get some alpha.

AGM hit next week in a big way so expect the narrative to collide with the numbers. Or at least the potential for some volatility. Should be fun.

Big ones include LLC, OZL, RIO, TLS, CSL, STO, HSO and SYD. Bring it on.

INTEREST ONLY

Mortgage Choice (MOC). It is a great yield but showing not much else. There have been pressures, or at least assumed pressures, on mortgage brokers with commission cuts possible which has hampered the share price. Today CEO John Flavell has rejected claims that brokers are to blame for the ‘interest only’ craze. He has denied this and said that now only 14.64% of loans it writes are ‘interest only’ loans. This is down from 36% in May. The fall has been huge in WA and NSW especially. Yesterday the housing finance numbers (positive for brokers) were pretty solid but listening to an ABC report last night on Brisbane housing was sobering. Huge glut of apartments coming on stream. There are 41,000 new units coming on line in Brisbane in the next two years.? Unit values are lower there than 10 years ago. Interestingly the Bank of Queensland (BOQ) chief was also speaking last night and said that it was pretty happy with its exposure to interest only loans and Brisbane apartments. Someone must be lending on these apartments? If BOQ is not lending who is? The BOQ exposure is small and the bank is not concerned about its exposure, it even paid a special dividend. Sure sign of confidence although the BOQ CEO said that competition was intense for mortgages again. It looks like the moves from APRA to mandate levels in ‘interest only’ lending in the major banks has pushed business to the small regional banks. Good for BOQ. Good for BEN perhaps. Good for SUN. MOC is a HOLD. 

PLATFORM FOR GROWTH

Suncorp (SUN) yesterday shuffled the decks in the management. The move to appoint Pip Marlow to head of Customer Marketplace is a sign from the company that it wants to accelerate the roll out of its perceived high-risk strategy. The market has been a little lukewarm on the proposed platform of products that SUN wants to introduce.

The company looks to have addressed some of these concerns with the highly experienced Marlow now responsible for delivery. Time will tell but the same tailwinds that are helping BOQ should be helping SUN as the Queensland economy recovers. We have SUN as a trade. 1400c is possible technically before resistance.

LUKEWARM MILK

It has all gone quiet on the Murray Goulburn (MGC) takeover front in the last week or so. Rumours were rife with Fonterra emerging as a front runner. The update is that bidders have submitted second round offers on Tuesday and it looks like Saputo has made a cash bid. Also, Bega Cheese (BGA) is suspected of offering a scrip alternative. Chinese parties are still in the race, including Yili, advised by Bank of America Merrill Lynch, China Resources, and Inner Mongolia Fuyuan Farming, advised by Lazard.  Chinese buyers though would face significant hurdles in getting the farmers to agree to any takeover. Fonterra too would cause some issues given their track record at lowering farmgate prices in May last year. It would also face competition hurdles much like A2M and Lion which look to have fallen by the wayside. Having topped out near 95 c recently the stock has drifted back to the mid 80s. Under slip below 80c would be a buying opportunity for corporate action. 100c cash has a certain ring to it. Not for conservative investors but given the soaring value-added milk and formula sector, there must be strategic attractions to owning MGC.

 

Have a great day..be careful out there it is Friday 13th…On Sky Biz at 12 if you want to catch Clarence talking stocks and stuff

Laters

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