Westpac calls RBA cash rate to 0.5% by February

The market traded to a new 10 year high today buoyed by the prospect of lower interest rates as forecast by Westpac’s well regarded Chief Economist Bill Evans. He brought forward his forecast for the next cut to October from November -- saying by then the labor market will have deteriorated sufficiently from Reserve Bank estimates to prompt a move. He added another cut in February that would bring the cash rate to 0.5%.

That was very supportive of the yield trade again today – the Telco’s led the charge however it was the financials led by Westpac & NAB that really caught my eye. NAB + 1.69% to close at $28.33 while WBC rallied 1.68% to close at $28.39. On the flipside, Iron Ore took a hit in China, Futures were trading down around 4% at our close however they were down more mid-afternoon. UBS was also out with a downbeat assessment saying Iron Ore will be $80 by year end…RIO closed down 2.19% at $100.50 & FMG lost 0.57% to $8.73.

Overall, the ASX 200 added +52pts today or +0.77% to 6776. Dow Futures are trading flat.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Iluka (ILU) -10%; the mineral sands miner slumped today on the company’s 2nd quarter production report which had investors worried about a soft half year report. Production across the bulk of the commodities came in well below last year’s level at the half year, with total mineral sands falling more than 20% yoy. Sales were even lower with the company struggling to move Zircon in particular, blaming “trade and geopolitical tensions.” Sales fell almost 25% for the half. Revenue managed a little better, with rising prices offsetting much of the fall in sales with revenue per tonne jumping more than 20% across the zircon & rutile products. Revenue still lagged 10% on the 1st half of 2018.

Iluka was on a bit of a run – and Market Matters was a beneficiary of part of the rally from January lows, taking a 20+% profit only a few weeks ago – carried higher by an improving market. Today’s report shows that better prices can only do so much. They were probably lucky to only be down 10% today, however we can also see why investors are somewhat supporting the stock given the tailwinds from the demand side. It hasn’t quite fallen back into buy territory for us, and given our general cautious market view we aren’t close to pulling the trigger here. MM likes ILU closer to $9.50

Iluka (ILU) Chart

Zip Co (Z1P) +9.12%: Reporting a strong quarterly update this morning and the stock rallied hard….The company now seems well on track to do $130m in revenues in FY20 which is up from $84m this year. A large step change and big growth for what is now a materially large alternative finance player in Australia, with a long growth runway.

Z1P Co (Z1P) Chart

Broker moves; Analysts were far from impressed with Regis Resources (RRL) 4^th quarter update that hit yesterday morning. Four analysts dropped their rating, and more cut their target price on the gold miner despite what was at first look a decent report. The outlook statements worried the market, and the stock tracked lower in yesterday’s session after opening strongly higher. Regis is looking for a similar gold output but expects operational costs to rise at least 10%, squeezing margins. Not a great outcome, but Regis could head higher if gold continues the rally

• Austal Downgraded to Neutral at Citi; PT Set to A$4.04
• Regis Resources Downgraded to Sell at UBS; PT A$4.85
• Regis Resources Cut to Underperform at Macquarie; PT A$5.10
• Regis Resources Cut to Hold at Argonaut Securities; PT A$5.94
• Regis Resources Downgraded to Sell at Canaccord; PT A$4.70
• Transurban Reinstated at JPMorgan With Overweight; PT A$16.75
• Gold Road Cut to Sector Perform at RBC; Price Target A$1.20
• Senex Cut to Neutral at Credit Suisse; Price Target A$0.37

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