Daily Report
James Gerrish


The first day back on the desk following the Easter break and the market roared up through 6300 today on the back of some marginally positive leads overseas however the buying into the close on stock option expiry (a Wednesday due to ANZAC day on Thursday) implies that the market was forced to roll fairly hard into expiry. There was a good note from the guys at Livewire Markets this morning quoting an interview with Phil King from Regal Funds. Phil has a great track record in the hedge fund long/short space and one if his comments caught my eye. He has a similar sort of approach to MM, regularly questioning the ‘consensus trade’ and he outlined a few of the more obvious ones, however what stuck out to me was his belief that one of the biggest consensus trades at the moment is the market is tired and needs a correction – a view that we hold in the short term.

“What happened in February last year and December last year, the market tried to go down, but just the power of buying pushed it higher. I certainly think that it's too early to get too negative on the market. I think with bond yields where they are in Australia, it makes the equity market look very, very cheap” (Phil King)

The tape is certainly agreeing with that sentiment at the moment as a real lack of sellers was evident in the screens today. That is often typical of low volume periods – the mkt simply moved in the direction it’s been tracking however what is also typical, is that tops can be squeezed on options expiry…just like today. There is no doubting that low rates support stocks, and rates are now lower for longer meaning that ultimately, being long stocks makes sense.

Around the Asian region, markets were up but only marginally so while US Futures ebbed and flowed between positive and negative territory, finishing largely unchanged at our close. Energy the standout sector locally on supply news while the healthcare names underperformed, a few more aggressively so on more comments from Trump targeting the cost of health products and services in the US.

Overall today, the ASX 200 added +59 points or +0.95% at 6319. Dow Futures are trading higher, up +18pts / 0.07%

ASX 200 Chart

CATCHING OUR EYE:

Oil – rallied to 6 month high supporting energy stocks today after the U.S. said it’ll no longer give any buyer of Iranian crude a waiver from sanctions aimed at cutting the OPEC producer’s exports to zero. Brent crude has rallied around 38% this year as OPEC and its partners embarked on a mission to cut output and avert a global glut. That said, Trump ultimately wants lower crude prices to take to an election and it’s been hard to go against any sort of Trump self-interest trade in recent times which implies further strength in Crude short be sold, rather than bought. WPL +2.55%, OSH +1.74%, STO +3.05% and BPT +4.21% all had good moves today.

Telstra (TLS) -0.59% however traded up to a 52 week high early in the session hitting $3.46 on no new news, however that was enough to get the sellers out and about and the stock closed lower. We held a $3.50 target on the telco and now it’s more of less hit that region. While we think this is a longer term turn-around story as they move from simply distributing earnings back to shareholders as dividends to actually leveraging their large footprint into growth – reducing a large weighting could make sense.

Telstra (TLS) Chart

NAB (NAB), +0.36%, finished higher for the 6th session in a row today despite increasing remediation expectations last week ahead of their first half results. The additional $525m post-tax charge will be factored into this result caused by refunds for poor or no advice, credit insurance sales, incorrect charges and the cost of investigating these issues. This increase brings NAB’s total remediation costs to over $1b today. Interim CEO Philip Chronican has made it clear he wants to expedite the remediation process as he works towards a clean slate for his permanent replacement. The charge equates to around 8% of the bank’s full year profit and we’re now seeing most analysts factor in a dividend cut. More on this in tomorrow’s income note.

National Australia Bank (NAB) Chart

Xero (XRO) +3.86% - another good move from the accountancy technology business as they transition from capital intensive development into profitability and trade up to new all-time highs today. This is a business with clear momentum and it’s hard to argue with the tape. We bought XRO well into the December weakness, took profits too early and are now looking for a better risk / reward re-entry back into the stock. Classic breakout above $50 and now it’s gone on with it.

Xero (XRO) Chart

Broker Moves: Chocolate hangover prevailed today…no moves

OUR CALLS

Nothing across the portfolio today


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