Goldman Sachs' top six "under the radar" stocks

Charts and Caffeine

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

  • S&P 500 - 3,908 (-0.41%)
  • NASDAQ - 11,545 (-0.74%)
  • CBOE VIX - 26.91
  • US 10YR - 3.347%
  • USD INDEX - 110.27
  • FTSE 100 - 7,300 (+0.18%)
  • STOXX 600 - 414.24 (+0.21%)
  • UK 10YR - 3.101%
  • GOLD - US$1,712/oz
  • WTI CRUDE - US$86.77/bbl
  • DALIAN IRON ORE FUTURES - US$95.55/T
  • SPI FUTURES - 6,774 (-43)

RBA WRAP AND GDP PREVIEW

The RBA hiked rates by 50 basis points yesterday afternoon, taking the cash rate to 2.35%. The benchmark rate is also now at a seven-year high. In the statement, they took out a months-long reference to increasing wages (mostly because that's never actually shown up) and a prediction for a 4% unemployment rate. 

What's still in? This quote, for starters.

The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market.

In other words, keep your eyes peeled.

Meanwhile, today at 11:30am, it's all about Q2 GDP. While it's the most backward-looking of all the data, it is the only set of data we have (currently) that defines whether we have a definite recession or not. The forecasts range from UBS' 0.6% q/q print to the much rosier Westpac which is at 1.1% q/q. 

Either way, Australia looks to be moving in the right direction when many other economies aren't. And that, as Paul McDermott used to say, "is the good news"!

THE QUOTE

The RBA cannot be all things to all people. So let’s give it the room it needs to be unpopular when it needs to be.

Today's quote of the day belongs to Cherelle Murphy, Chief Economist at EY (formerly ANZ, Austrade). A lot of people like to think that the RBA's primary job is to be everything to everyone. Is the RBA's job to make first home buying easier? Is it Governor Lowe's job to prop up asset prices with free money? Is the RBA's job to engineer a perfect economy every single time? The answers to these questions are: definitely not, probably not, and it's not possible even if they tried their darned hardest.

But Murphy is correct in noting that the RBA's mission implies that it can be all those things to everyone. Unfortunately, when the going gets tough (as it is right now), someone's got to step in to do the hard work. Many economists think they started too late, consumers were caught off guard because the Governor lifted rates too early on them. 

When all is said and done, all Governor Lowe is trying to do is not to crash land the plane. Whether he's been perfect every step of that process is for history to write about.

THE CHARTS

Source: Westpac

As you all count your money with those great dividends pouring into your bank account, consider the above from Westpac. These are the ASX 200 dividend payouts but in US Dollar form, as put together by Robert Rennie. BHP is an Australian company but it pays dividends all around the world. So it reports in US Dollars. That's vital because the rate for which they've pegged the dividend is 68.5 US cents.

And while it may not seem like a big deal to you, imagine if that figure was 70 cents... or even 65 cents. Then, your payout would be affected by that hedged rate. Don't ever say currencies are boring!

Source: Alex Joiner/IFM Investors

But you could say that mining profits are starting to get boring (and at the same time, brilliant). This chart from Alex Joiner, chief economist at IFM Investors, noted that mining profits continue to outpace every other sector's profits by a fair whack. In fact, the margin increased in August between mining and non-mining companies. Conclusion? Governments may want to consider a super resource tax while investors will scream against it. 

STOCKS TO WATCH

Goldman Sachs is out with its wrap of reporting season, and I think it's safe to say they were left wanting more. Why? Their wrap was collated with the theme of share price reactions in mind. The following stocks were companies where Goldman analysts wanted to see a better reaction but didn't get one. As a result, you can also probably guess that these ones are all buy-rated too.

Stocks where we were more positive than the market’s response: REA Group ASX: REA, Johns Lyng Group ASX: JLG, Cochlear ASX: COH, Genworth Mortgages ASX: GMA, Reliance Worldwide ASX: RWC, and ReadyTech ASX: RDY.

Today's report was written by Hans Lee.


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Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

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