James Gerrish

Aussie stocks rallied hard again today copping a big sugar hit from weaker than expected GDP numbers + the RBA Governor Lowe essentially ruled out any possibility of a hike this year. Interestingly enough, the market started rallying at 11am and put on a quick +20points prior to the weak GDP print being released – that always baffles me in this day and age. A weaker outcome for domestic growth saw the currency come off fairly hard – a daily high around 70.90c versus a daily low of 70.30c with the selling in the currency corresponding with strong buying of the index.

While banks are exposed to the broader Australian economy, and over time lower growth would be a negative for earnings, they all benefitted today from the strong prospect of lower rates – strong banks = strong market and today we saw ANZ +0.93%, CBA + 0.93%, NAB +0.75% & WBC +0.89% - we also saw strong buying amongst the retailers as a combination of lower rates + Bill Shorten’s election pitch for higher wages underpinned the sector – JBH +2.51%, HNV +3.83% however it was Myer that rallied most following their first half profit result – the stock up +11% on the session, although it was up much more at one stage.

Some big futures led buying on the close helped the index finish at its highest point since the 5th of September – a day over 6 months ago.

Local Economic Data out today

The Aussie Dollar was sold off again today, down by more than 0.5% from this time yesterday.

Australian Dollar Chart

Overall today, the ASX 200 rose by 46 points or +0.75% to 6245. Dow Futures are currently trading down -57pts / -0.23%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Myer (MYR) +10.98%; a true dog of the market over recent years, Myer shareholders have had little to cheer about over the last few years but today they did get some relief after the department store’s first half result today. Sales may have slipped, but at just a -2.8% for the half, it was much less than expected. Drilling down, online sales were the saviour here with the recent ramp up in website activity flowing through to sales. CEO John King is now looking to reduce floor space but not cut store numbers and seems to be making some headway with landlords in making this happen. Lease liabilities have long been an issue of Myer and investors will welcome the efforts to reduce this stress. The company also managed to post a decent profit of $38.4m for the half, a big turnaround from the $476m loss in the prior period.

Myer (MYR) Chart

Broker Moves; A recent sale of ours in Cochlear caught the eye of Citi Bank who increased their price target and upgraded to a buy. They noted the stock had dropped significantly from their result on the back of market share fears, however the analyst was not concerned with the trend saying the company operates in a division with high barriers to entry and early signs show strong uptake of the new Nucleus 7 product. We sold COH heading into the result on concerns the market would punish any signs of a slow down – and they did with the stock falling over 8% the next day. We tend to side with Citi here though – it’s a good business with great organic growth and no balance sheet concerns. A pullback to the recent lows below $170 would interest us.

Cochlear (COH) Chart

· Redflex Upgraded to Buy at CCZ Statton; PT A$0.74

· Auckland Airport Upgraded to Neutral at Forsyth Barr; PT NZ$7.30

· ANZ Bank Downgraded to Neutral at Citi; PT A$30

· Village Roadshow Upgraded to Outperform at Macquarie; PT A$3.80

· Rio Tinto Downgraded to Neutral at UBS

· Charter Hall Group Upgraded to Overweight at JPMorgan; PT A$9.75

· Domino’s Pizza Enterprises Raised to Buy at Goldman; PT A$50.50

· NIB Downgraded to Sell at Goldman; PT A$5.48

· Vicinity Centres Upgraded to Overweight at JPMorgan; PT A$2.80

· Cochlear Upgraded to Buy at Citi; PT $198

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