GDP Growth Anaemic

James Gerrish

Market Matters

The local market traded lower from the get go today with the US market’s soft lead flowing through to the ASX. It was the manufacturing data last night that saw the market lower, US Manufacturing ISM PMI came in at 49.1, the lowest level in three years economic data starts to show the pain of the trade war. Locally we saw GDP data out mid-morning which was bang in line with expectations, although expectations were particularly weak. The yoy growth of 1.4% is the slowest since 2009 but many economists in the market were fearing a weaker number heading into the print.

The local data didn’t really move the dial in terms of a market move however we did see decent buying around the China PMI print that was out just before midday. The Caixin Services PMI was up to 52.1 against the backdrop of expectations for a fall to 51.6.

There were some oddities from a sector level. The usual safe havens of communications and healthcare were sold off while the cyclical materials and consumer groups did better. Iron ore names rallied against the grain and energy stocks were mixed given some external forces noted below.

Overall, the ASX 200 lost -20pts today or -0.31% to 6553, Dow Futures are now trading up 168pts /0.64%.

ASX 200 Chart

ASX 200 Chart


Pilbara Minerals (PLS); the lithium miner remained in a trading halt today, for the 5th session running however news coming through today suggests shares will soon be trading again. PLS was running tight on money and looked to raise money last week before delaying its return to the market on Monday, appearing to struggle to get institutional money on board. Today it announced the raise was completed with the help of Chinese battery manufacturer CATL which will fill about 2 thirds of the $91.5m raise at 30c a share, a 14% discount to the last traded price of 35c and a level PLS hasn’t seen since early 2016. Pilbara clearly needed some money after entering a joint venture to build out a processing facility in South Korea as well as failing to find partners to help develop its Pilgangoora project. The cash balance for PLS fell to as low as $35m on the back of lower lithium prices and a high cost base which the company has been working on. The raise gives the company breathing room for now, however lithium looks likely to remain in surplus for years to come. Hopefully having a large potential customer on board will support any production. We sold our holding in Orocobre (ORE) yesterday, with the lithium names seeing some selling today as funds free up cash for the raise.

Pilbara (PLS) Chart

Oil Search (OSH) +3.29%; shares traded higher in the face of energy names which are usually sold off in the face of slow global growth. Oil Search got a kicker from the PNG Government to help shares higher, with news out last night that they are set to honour the previous royalties deal struck with French group Total which is working with oil Search on the LNG project. There remains a long runway before the project will see any cash flow, however the comments made last month by the PNG Government around issues with the development terms had created some nerves that it would not go ahead.

Oil Search (OSH) Chart

Broker moves; CSR, which we hold in the Income Portfolio, fell -6.55% today on the back of JP Morgans downgrade. We are yet to see what the analyst had to say, however the price target was cut by 8% and bumped the stock down to underweight. More to come when we know more.

· Wesfarmers Upgraded to Neutral at Goldman; PT A$34.10

· Metcash Upgraded to Buy at Goldman; Price Target A$3.07

· Vista Group Downgraded to Neutral at Macquarie; PT NZ$4.12

· Myer Upgraded to Overweight at JPMorgan; PT A$0.70

· CSR Downgraded to Underweight at JPMorgan; PT A$3.50

· Santos Upgraded to Positive at Evans & Partners; PT A$8

· Rio Tinto Raised to Outperform at BMO; Price Target 47.50 Pounds

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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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