Markets higher on positive G20 outcome

The ‘Trump bump’ happened early with the ASX keying off strength in US Futures which opened +1% higher before our open, the ASX 200 trading up to a 6664 high (+43 points) early in the session before tracking lower into the close. Clearly most were positioned for a positive outcome from US/China talks at the G20 over the weekend and while no firm resolution was penned a conciliatory stance was obvious from both sides – the market now focussing on ‘what next’ after end of financial year. Trump & Xi are friends again and interest rates are low – but that’s priced in. Earnings the next major catalyst with earnings season in the US just around the corner while our own full-year results will be upon us in the next few weeks.

To date the market has been focussed on low rates being supportive of stocks, which is right unless we see the reason for low rates come out this reporting season i.e. weak earnings. That said, it seems to me there is a degree of expectation around this outcome – earnings are weak hence rates are low but what if earnings actually come in okay? That’s the non-consensus view right now and with a backdrop of low interest rates and reasonable earnings stocks would clearly trade meaningfully higher. So, while we’re conscious that markets have run hot and are due a pause, even the selling today was on low volume and without conviction, implying the market could easily continue to move simply thanks to a lack of sellers more than anything.

On the economic front today, house price declines have bottomed by the look of it and activity is picking up, while Chinese manufacturing data was better than expected which supported the material stocks locally.

US Futures traded up and stayed up for most of our session, Dow Futures +277 points & S&P Futures +1.10% on our close, implying a positive open overseas tonight, while Asian markets were strong across the board today, mostly up ~2.5%.

Overall, the ASX 200 added +29 points or +0.44% to 6648. Dow Futures are trading up +277 points / +1.05%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Buy now pay later: After a stellar FY19 performance, shares in the buy now pay later (BNPL) space have started the new financial year off on the back foot. Both Z1P and APT traded lower today on the back of news Visa will look at pushing into the space. Zip & AfterPay were up 283% and 168% respectively for FY19, some of the best across the ASX. The card provider released a press statement late in the session on Friday that threw prices in the two local providers into disarray.

Although Visa is not a product provider, it plans to introduce options to pay in instalments through the issuers that offer their cards. Clearly, Visa has the upper hand in terms of customer access, with millions in Australia, and billions of customers already using their products globally. The announcement though is very light on detail, and only targets 2020 as the launch of trial options. But any suggestion that a company of this size and reach would be eyeing off the plunge into BNPL should have investors nervous. In saying this, Visa aren’t the first big name to threaten entry and will add noise to the already volatile stocks – aggressive traders could look to buy the big dips in each name. For now we expect weakness to persist in both.

Afterpay Touch (APT) Chart

Data on loan growth & housing: Some interest stats from recent RBA & APRA data on housing thanks to Brett Le Mesurier.

The RBA data showed the following:

· Total credit growth has slowed to 3.6% for the year ending 31/5/19 which comprised 3.7% growth for housing and 4.5% for business;

· Housing credit growth continues to be solely supported by owner/occupiers which provided growth of 5.3% for the year ending 31/5/19; and

· The annualised credit growth for the month of May, 2019 was 2% p.a. with home loan growth being 3%.

The APRA data showed:

· Major bank monthly home loan growth has been increasing from the low point in January this year;

· Major banks reported 2% loan growth for the year ended 31/5/19. Housing loan growth was 2.1% and business loans were 2.4%;

· All home loan growth comes from owner/occupiers;

· Major bank household deposit growth was 3% for the year ending 31/5/19 which means that 82% of home loan growth in the past year was funded by household deposits.

Individually:

· ANZ is faring the worst because it has the lowest loan growth and they had the greatest reduction in the Australian loan to deposit spread last year;

· Both CBA and WBC have accelerated owner/occupier and investor home loan growth;

· CBA continues to reduce corporate loan exposures in an attempt to reduce low ROE assets.

Source: Shaw Research

Broker moves; Clearly private school holidays in NSW have started with the amount of broker moves today.

• Nine Entertainment Reinstated at Goldman With Buy; PT A$2.35
• Seven West Reinstated at Goldman With Neutral; PT A$0.50

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