Employment remains strong, although analysts not convinced

James Gerrish

Market Matters

I feel like we’ve written about choppy sessions all weak however today was another one where the market traded in a reasonable range but had various periods of decent selling only to see some aggressive buying come into weakness – Futures led again by the look – big volume through on the buy side between 3.30pm & close which dragged the market +31pts up from the intra session lows – a big aggressive move and volume overall was high today – about $8bn through the bourse.

Materials bounced back today after yesterday’s sell off to lead the gains – Fortescue (FMG) led the weakness yesterday but bounced hardest today adding +2.36% to close at $6.56, BHP +1.26% & RIO +1.53% while 3 of the big 4 banks ended higher – NAB the only laggard on the day.  

The US Federal Reserve was again very dovish early this morning our time keeping rates on hold – no change was expected however the commentary now calls for stability in rates for the rest of 2019. More importantly though, the Fed now plans to maintain rather than reduce its balance sheet which will obviously improve liquidity making financial conditions easier. US Futures were marginally higher throughout our time zone while Asian markets were largely in the green.

Overall today, the ASX 200 added  2points or 0.03% to 6167. Dow Futures are up +30pts / +0.12%

ASX 200 Chart 

ASX 200 Chart


Local employment data out today showing the unemployment rate fell 0.1% in February to an eight-year low of 4.9% however the participation rate was lower which drove the move. 
Employment data


Strong employment data is underpinning the RBA’s decision to hold rates firm at 1.5% however the majority of analysis suggests that’s a temporary thing, employment will soften and the RBA will be forced cut however the AUD remained firm on the news trading up at 71.44c…the battler continues to battle on.

Pact Group (PGH) -7.58%  is a stock we own in the Platinum Portfolio and it was hit today trading to a low of $2.39 before closing at $2.56. UBS handled the sell down of a $65m line of stock at a ~9% discount to market – about 7.5% of the company. This stock is controlled by  Raphael Geminder and there’s been continued talk about a privatisation and this is a another sign that it could be on the cards. Presumably, any privatisation would need to be at a higher level, and today’s low looks like a good one. While we’re now in the red on the position, and more info regarding the block trade will no doubt come out, this has now gotten a lot more interesting and we add to our current small ~2% position

Pact Group (PGH) Chart

Broker Moves:  Citi going out on a limb to upgrade ECX to a BUY with a $1.29 PT – although the stock continued to slide today down another 12% to 73c

Upgrade to Buy, But Clearly High Risk — Just seven weeks after Eclipx guided FY19e NPATA to be “broadly in-line with reported FY18 NPATA”, it has retracted that guidance and disclosed that NPATA for the 5 months to February was down - 42% which resulted in the stock closing down -56% at $0.83. Notwithstanding the headwinds facing Eclipx, we feel Eclipx is oversold. We upgrade Eclipx to Buy, acknowledge ambiguity exists and add a High Risk to the rating, lower our FY19e- FY21e NPATA forecasts by -28% to -31% and lower our target price -46% to $1.29 (source Citi)

·         Cochlear Downgraded to Sell at Deutsche Bank; PT Set to A$157

·         Healius Upgraded to Buy at Deutsche Bank; PT Set to A$3.01

·         Nufarm Upgraded to Add at Morgans Financial; PT A$6.30

·         Nufarm Downgraded to Neutral at JPMorgan; PT A$4.50

·         Eclipx Upgraded to Buy at Citi; PT A$1.29

·         Synlait Milk Upgraded to Buy at Goldman; PT NZ$11.60

·         Independence Group Cut to Hold at Argonaut Securities; PT A$4.90

·         OZ Minerals Upgraded to Buy at Argonaut Securities; PT A$10.60

·         Regis Resources Cut to Hold at Argonaut Securities; PT A$5.40

·         Doray Cut to Hold at Argonaut Securities; Price Target A$0.48

·         City Chic Collective Ltd Rated New Buy at Baillieu Holst Ltd

·         Money3 Rated New Buy at Baillieu Holst Ltd; PT A$2.55

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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