Stocks hit as Trump targets Sth America – RBA holds rates (NCM, CTX)

The market sold off today down ~150pts points which on the face of it, is a fairly savage move, however the internals weren’t that bad, it was more of an orderly sell off throughout the session – a top left to bottom right sort of move but selling wasn’t panic like. The sectors that have been strongest in recent times were hardest hit, Consumer Staples down more than 3% felt the brunt while Healthcare and Communications were also weak, nearly 3% a piece simply implying profit taking. The sectors that are usually ‘risk off’, the materials and energy stocks were best on ground in a weak market overall.

The RBA rates decision at 2.30pm this afternoon confirmed no cut as expected however the commentary was interesting and ultimately led to a spike higher in the Aussie Dollar as shown here:

Australian Dollar/ US Dollar Chart

While rates were kept unchanged at 0.75% as expected, they made a few more optimistic / positive comments than in November, implying that rates may not go lower. They left inflation forecasts unchanged but they do see inflation kicking up above 2% in 2020/21 which is a negative for those looking for more cuts. They also said that record low interest rates have put downward pressure on the Australian dollar, supporting activity across a range of industries, and they also said that risks to the global economy “have lessened recently.” They went on to say that past easing is having an impact, while noting “long and variable lags” in the transmission of monetary policy. Governor low noted “further signs of a turnaround” in the key Sydney and Melbourne property markets, as well as improvements in house prices in other parts of the country.

All up, a more positive assessment than the interest rate bears would have liked hence the move higher in the currency.

When the AUD rallies we tend to see money flow out of Australian stocks and that certainly happened today. During our time zone US Futures actually rallied +0.20% while Asian markets were down, but not to the magnitude we were.

Overall, the ASX 200 lost -150pts /-2.19% today to close at 6712. Dow Futures are trading marginally higher by 50pts/0.20%

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Stocks resilient in a weak market: Always good to look at stocks that are supported in a weak market and there were a few notable ones today – a number of them we hold. Gold stocks obviously the first place to look at and they were generally well bid with a flight to some level of safety. Evolution (EVN) was strong adding +1.5% however Newcrest moved lower underperforming the sector. There seems to be some concern around the place that NCM will be forced to stop work at the Cadia mine in the Hunter Valley as water dries up. All mines need water to operate and as the drought starts to bite, some mines will have to be put on hold – that said, we’re hearing mixed reports on this hence why NCM was volatile today.

As suggested above, the material stocks outperformed today, not something you’d expect in such a weak market however this fits the theme we’ve been writing about of late – they enjoy higher interest rates and today the RBA reduced the chance for further cuts. Mining services stocks also did well, Emeco (EHL) finished +2.51% higher today back up above $2, NRW Holdings (NWH) was up strongly early on, although still finished in the green while Select Harvest (SHV) continued its recent run adding +1.47% after delivering strong FY19 numbers late last week.

Newcrest Mining (NCM) Chart

Caltex (CTX) -0.78%; was out today to reject the Alimentation Couche-Tard (ATD) bid at $34.50, but also extended an olive branch the Canadian group to hopefully keep them interested. Caltex believes it is worth more than the $8.6b bid saying it comes near the low point in the earnings cycle and incorrectly values the tax credits available to the bulk of shareholders, while there are a number of opportunities to add value to the current business, including the proposed IPO of a portion of the property portfolio. Caltex did leave the door ajar, offering Couche-Tard a deeper dive into the books and “non-public information” in an effort to increase the offer. While it remains uncertain, the market took the optimistic view a better offer would come along, and shares held up ok. It’s the second offer CTX has rejected, and the board look set to play hard ball.

Caltex (CTX) Chart

Broker moves;

• IMF Bentham Raised to Buy at Baillieu Ltd; PT A$4.35
• Insurance Australia Raised to Buy at Citi; PT A$8.75
• Treasury Wine Rated New Hold at Jefferies; PT A$17.50
• Silver Lake Reinstated Buy at Canaccord; PT A$1.45
• Western Areas Rated New Add at Morgans Financial Limited
• Redbubble Raised to Add at Morgans Financial Limited; PT A$2.28
• Technology One Cut to Hold at Bell Potter; PT A$9.50
• Rio Tinto Raised to Sector Perform at RBC; PT 3,900 pence
• Janus Henderson GDRs Raised to Buy at Baillieu Ltd; PT A$43

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