Australian shares in risk off mood with eyes firmly on next week’s Inflation data

Tristan K'Nell

The Australian share market taking a well over due breathier with the local market in a risk off mood on a combination of a weak Wall Street lead and continued volatility amongst commodities weighting down local stocks. Coming into the session it did feel the market had run very hard, with 10 out of the previous 11 sessions ending higher on the back of stimulus hopes out of Japan and England and expectations of an RBA rate cut bringing the yield chasers out. Overnight a Flat session on Wall Street doing little to inspire markets, while the ECB held off any immediate further easing but left the door open for action if necessary. I think it is a little early for the Euro zone to feel the full effects of Brexit and given the anticipation of stimulus out of the Bank of England, the deteriorating health of Euro zone banks particularly in Italy, its current 80 billion Euro bond stimulus running through to March 2017 the chances of further stimulus is ever increasing. Market Turnover was $1.7 billion...

...at 1:30pm, so another day of inactivity by investors. This is something I have pointed to over the last couple of weeks and the reason why I haven’t been convinced on the substance of the rally. With the market holding relatively well today it will be interested to track volumes on a larger selling day.

A quiet day on the economic front with the market I think looking forward to next week’s CPI (inflation) data before making any big moves.

Around the market, crude oil continued volatility hurting the energy sector with Oil Search (-1.48%), Santos (-1.12%) and Woodside (-1.12%) all seeing red. We had Santos announcing record first half production, with sales revenue dropping 6% and restating full year guidance expected at US $750 million.

Resource stocks continuing their bounce from yesterday after some weakness on Tuesday and Wednesday. BHP (+1.04%) and Rio Tinto (+0.60%) trading higher with spot Iron Ore rallying overnight while ADR’s traded much higher on overseas exchanges. The big miners an area we continue to like in the short to medium term on the back of Chinese Stimulus and production cuts by the majors. An area we are taking alert of is the apparent rift developing in the upper echelons of the Communist Party in China driven by a sharp differences of opinion between the President and Premier about handling economic issues.

The main lag on the market being the financials, with profits taken in the big banks after a solid two week run. ANZ (-1.10%), CBA (-0.26%), NAB (-1.07%), Macquarie (-0.99%) & Westpac (-0.69%) all giving up gains after seeing some interest in the recent rally. Investors who are hunting for yield plays in this environment do be careful there are still numerous uncertainties the banks & investors face in the short term. Short term potentials include capital raisings, earnings & dividend cuts, Triple AAA Credit Rating cuts and other regulatory control issues.

Enjoy the Weekend


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