ASX at the close

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

China rallies ahead of the Lunar break

With US markets closed yesterday, it was up to Europe to give Asia some direction. The latest developments from Europe have resulted in some mixed trading for Asia with the ASX 200 struggling while China is rallying ahead of the Lunar new year. While the medium-term outlook remains positive with central banks underpinning strength in equities, the near-term picture looks murky.

Greece seems to be moving further away from a compromise with Europe’s finance ministers and the fact it walked away from negotiations is not good for risk at all. Apart from Greece, the rest of the eurozone finance ministers are sounding very unified at the moment and have shown a consistent tone on Greece.

In terms of the next step now, another meeting could be held as early as Friday if Greece submits a request to extend the current programme. It seems all other options are now off the table for Greece and this will certainly put traders on high alert of an escalation of the situation. A consolation is the fact Greece’s Prime Minister has emphasised that a solution could be found in the next couple of days.

Regardless of the differences, optimists will continue to feel a solution will be reached somehow to prevent undoing all the hard work we’ve been seeing from European leaders to resuscitate the economy. The single currency has been choppy and will be on high alert this week as we head into the Friday deadline. Given EUR/USD has held up so well in Asia, there could be opportunities to sell the pair down the track with traders taking advantage of the strength.

Banks weigh on ASX 200

As is normally the case, Chinese equities are rallying ahead of the week-long break. Investors even ignored another round of worrying property price data and focused on the seasonality of the New Year period.

There has been a bit of activity in Australia, with equities pulling back from six-year highs on a variety of factors. Earnings today have been somewhat underwhelming while an ex-dividend day for CBA also contributed to weakness for the financials. While Macquarie impressed, this was not enough to neutralise the losses from the banking heavyweights like ANZ.

Just taking a closer look at earnings season thus far: 42% of ASX 200 companies have reported and out of those 59% have beaten on EPS while 40% have beaten on revenue. However, we’ve actually seen a 10.6% aggregate decline in EPS and 6.6% aggregate decline in revenue.

In terms of sectors, the materials space has seen a 36% drop in aggregate EPS and this also seems to have impacted the industrials, which are down 21%. It’s the materials that are doing well today, though, helped by China’s tailwind as iron ore prices recover heading into the New Year break. The RBA minutes also received some attention as they saw the probability of a March cut pared back to around 55% (from close to 70%).

There was some deliberation of the timing of the rate cut, which we saw in February, but given we’ve since had Glenn Stevens’ testimony and a very poor jobs release, then perhaps the minutes didn’t carry too much weight. The AUD managed to pop a bit higher on the minutes but positioning remains fairly neutral as a number of analysts and traders still expect a March cut.

Greece to weigh on Europe

Ahead of European trade, we are calling the major bourses weaker as the latest headlines on Greece take a toll on sentiment. As a result, it’ll be a headline-risk-driven environment in coming sessions. If they don’t knock anything up by Friday, the risk-off trade could be very much alive. Key markets such as the DAX remain in very good stead and I suspect any deep pullbacks will be used as buying opportunities. The fundamentals in Europe have actually been improving and data has shown signs of bottoming.

On the calendar today we have the ZEW economic sentiment reading to look out for. In the UK we have CPI data and it’ll be interesting to see how this plays out, given the upbeat assessment provided by the BoE last week in its inflation hearings. The US will also return to trade today and, given data is limited, markets there are also likely to follow Europe’s lead.


    • I read that as the markets taunting the RBA – ‘go on, cut again (and again) and wear a speculator spike, or we are going to fry you with an uber AUD funded out of Japan, the EU and US’

      • Long AUD against usd?

        But long usd against other crosses? Why not long AUD against those other crosses then?

        I mean im on side lines, have been since 82 cent where I bailed.

        I can see long aud vs eur/aud being a good trade for this year. But rather wait to short the long term downward trend.

      • Because no one in Europe has ever heard of AUD

        It’s a POS currency to deal with a POS mining operation. Europe still has Africa for that… US not so much

      • If you are bullish AUD against USD and are bullish USD against say the EURO then really the best trade is being bullish AUD vs Euro.

        Just saying euro as I don’t know exactly your usd longs…

      • Bwaaahaaahaahaa! Good luck with that trade. Maybe you can arb at the open but.. Meh. AUD is a USD play that’s all


      • Lol mig, as I said euro in particular was a example.

        And yeah aud only plays with usd that I agree with in general.

      • It used to be a Sterling play, but that was loooooooong before my time. I’m guessing your too.

        Triangular arbitrages are at large.

        If you can find the OTC to arb into definitely

    • Maybe Abbot and his mob were not talking up MP after all due exactly to the above. GS might have told them another rate has to happen so control property prices via MP… who knows

    • Where is it leading? Exactly where UE and HnH said it would:

      Housing bubble ——–>CAPEX cliff = game over for oz for a very long time..

    • [email protected]

      ayup punters . where’s all this headed then?

      • well from memory there was talk about the mortgage insurers being a means blowing lots of money if one invested in them……

      • The Traveling Wilbur

        @Gunna… I remember the conversation to which you refer… there was supposed to be a paper forthcoming (at the time). No idea if that eventuated or not. However that prompted me to briefly checkout the current scene. There’s QBE and Genworth (as before) but ANZ and Westpac are getting more of a mention for their LMI provider operations these days. Which, given your question, is ironic. One would have to hope they’ve had the foresight to structually separate the LMI operation from the debt selling operation. Whatever the answer to that, so much for ‘outsourcing risk’.

        So, yes… a good way of doing that. Just might take a bit longer. It’s a bit like the scenario where the banks are making margin calls on their own shares (that was mentioned earlier in another thread).

      • The LMI trade is hard to structure.

        These things (see Genworth) are making gravy in these times – no claims, not a lot of competition, volumes growing strong. Cash machines…

        GMA is up 30% in February – hard to hang into a short position of any size if you have external investors.

        I haven’t bothered to ask a desk for an OTC put – but I can’t imagine the vol would be sub 30%.

        The hilarity of WBC ‘self insuring’ is another feather in APRA’s cap.

        I’d imagine waiting for bodies to start floating to the surface and missing the first 50% of the trade is the way to play it.

        If the LMIs are toast the banks are going to get hammered anyway and the cheaper “its never going to happen” vol on OTM puts will be better deals on a payoff basis in my guess.

    • The Traveling Wilbur

      Secret of great comedy… timing. ABC24 reporting that Genworth down 16% this morning. Serendipitous portents…?

  1. Putin Lets Consumers Feel Pain as Russian Slump Deepens: Economy – Bloomberg Business

    (Bloomberg) — Russian households are bearing the brunt of the blowback from the crisis in Ukraine and a tailspin in oil prices, setting the stage for the biggest drop in consumption in more than two decades that will deepen the country’s recession.

    Crushed by a 44 percent slump in the ruble in the past year as prices soar, retail sales are set for what Otkritie Capital predicts will be their biggest decline since the breakup of the Soviet Union in 1991, when savings were wiped out and households endured food shortages and hyperinflation. That’s unnerved consumers like Svetlana Korotkova, who’s stockpiling cereals and canned goods to build up what she calls her “safety cushion,” a lesson she learned from perestroika-era deprivation in the 1980s. … read more via hyperlink above …

  2. Baltic Dry Index … update …

    … 522BDIY Quote – Baltic Dry Index – Bloomberg … 522 … down 8.00 … down 1.51%

    Baltic Dry Index Data – Lloyd’s List Intelligence

    China’s COSCO Dis-Assembles 8 Ships Amid Glut As Baltic Dry Hits Another Record Low | Zero Hedge

  3. Reproduced by popular demand : UptownFunk’s prophetic market top call, yesterday. (Refer ‘ASX at the close’)

    February 16, 2015 at 3:30 pm


    We have been at the tops today in Australia and the Asian region, and on Friday for the Continent and USA.

    Go short now, in a big big way. We wont see these high prices again for a long long time – Carnage ahead

    This is not investment advice.”

    Damnit, that boy’s real good

    • The Traveling Wilbur

      And what happened with China or Hong Kong for that matter? Not sure if it’s a case of UptownFunk or DowntownStunk, but it’s surely a major case of NoTownCan’tCount. Or Korea or Taiwan now that I’ve looked again.

      Bravado is fine. Just make sure it’s accurate and you’ll be loved by all. Just like Mig and Skippy. ; )

      • The Traveling Wilbur


        LOL. And sorry… but I couldn’t help it. It was like I was possessed. Probably being moved by evil spirits. Glenmorangie currently.

      • @TTW

        TTW you can’t read ?

        Refer my ‘at the tops’ … you refer to accuracy .

        Come-on now … be cool. Remember your ‘bravado’ is fine, conditional upon it being accurate.

      • @TTW

        TTW you can’t read ?

        Refer my ‘at the tops’ … you refer to accuracy .

        Come-on now … be cool. Remember your ‘bravado’ is fine, conditional upon it being accurate.


    • We cool, ain’t nuthin but a thang.

      Your post yesterday prompted me to short STOXX early so…. 😀

    • The Traveling Wilbur

      We have been at the tops today in Australia and the Asian region

      Last time I checked, Korea, Taiwan, China and Hong Kong were all in Asia. And were all up even more today than yesterday at the time I last posted. If you wanted to be selective about which ‘topped’ markets to short then you should have said so in your original post.

      And the irony of (incorrectly) complaining about accuracy in a double-post is just too exquisite for words. PS when you short something, that means you expect the price of the product/commodity/instrument to fall over time. Thought I should clarify that for you in case that was where the confusion lay. Anway, keep up the good work.

  4. As the tide goes out in China …

    China;s property disputes skeletons … Reuters

    … extract …

    The dispute has wider resonance. China’s property sector is unusually complex when it comes to raking over who owes what to whom. Projects are often set up through minority investments in separate vehicles. Kaisa has hundreds. The debt doesn’t show up on the balance sheet unless it is guaranteed by the parent company.

    Investors should start looking for other dark crannies. Sunac had 36 billion yuan of consolidated debt at the end of June – but its subsidiaries had at least 85 billion yuan, according to its last bond filing. Shimao, which just issued an $800 million bond, reports 55 billion yuan of debt, but more than 115 billion yuan including subsidiaries. When debts sit not just across the border but also below ground, there’s plenty of room for confusion – and disappointment. … read more via hyperlink above …

  5. Any thoughts out there on the big grocery houses? Yield alone makes them interesting (along with diversification into the recession vices), but I reckon they will be leveraging some big gains out of a falling oil price??

    • Margins still way too high and they are competing now and not being good monopolists anymore. Should the market stay much different to the rest of the world forever?

      Tesco anyone?

      The liquor expansion must be running out of steam.

      Mainly talking WOW here at risk – I don’t know how crazy Bunnings can get

      In New Farm Brisbane the various food store count has gone from one Coles gold mine and a handful of niches to 20+ different offerings – across the value spectrum – top dollar, mulitlple WOWs, Metcash to Aldi and farmers markets

      Rich people are moving away for quality goods with a narrative.

      Poor people heading to Aldi and bulk operations like the Super Butcher

      A market has completely fragmented.

      I am watching this from afar now though – so would love more insight.

      I think WOW heads to $25. But punters at the moment only have the attention span of the last dividend…

  6. Wouldnt be for everyone but I have just had some interesting Coursera courses lob into my inbox which may be worth a look…….

    Introduction to Computational Finance and Financial Econometrics

    The Power of Microeconomics: Economic Principles in the Real World

    Financial Engineering and Risk Management Part I

    The Power of Macroeconomics: Economic Principles in the Real World

    • n the early 1980s. The deep, enduring recession led to many of the reforms that made Australia a free-trading, low-tariff, globalised economy.

      Which worked out super well (*cough* for the 0.1%)

      • You would be happy paying 30%+ import tariffs?

        I remember when duty free shopping actually meant something for electronics and textiles

        I paid $220 for a double cassette player recorder in (i’m guessing) 1989? That was a year of pocket money and associated footy car/marbles trading… (full retail , no bust on the duty)

        A pair of Nike Air Stabs where bought for me by my rich Aunty who went to New York in 1988 for $110 – they were A$280 from (distant) memory locally

        I vividly recall buying our first CD player on a Fairstar Cruise in 1993 for $700 – it was a Sharp and the 40% discount to Australian retail was the only reason we got it.

        My parents never worked out how to set it up once I left home and to this day it sits in their entertainment unit unplugged.

        Removal of tariff barriers vastly improved Australian standards of living.

      • A pair of Nike Air Stabs where bought for me by my rich Aunty who went to New York in 1988 for $110 – they were A$280 from (distant) memory locally

        Price differentials like this still exist today, and clearly aren’t related to tariffs.

      • Found a bargain camera in a Duty Free shop recently Dr?

        Of course not. Duty free – with the exception of tobacco – has basically been a waste of time since the GST came in (as one would expect).

      • I guess my point is Dr (using the duty free example) is that things cost way more in Australia than they did overseas when we had the impost of 30% plus tariffs.

        Judging that Australia never developed a competitive car/electronics/textiles industry – the whole thing was a dead weight overhead on everyday people.

      • I guess my point is Dr (using the duty free example) is that things cost way more in Australia than they did overseas when we had the impost of 30% plus tariffs.

        And my point is even without these tariffs, things still cost way more in Australia than they do overseas. Mostly because we’re just getting screwed.

        Certain Euro cars are a great example. In the UK, the price difference between a VW Golf R and a BMW M135i is about 500 quid. In Australia, it’s about 20 grand.

        That’s not because there’s some special tariff on BMWs, it’s because BMW is fucking us over.

    • The fact that abbott and hockey are pretty much dead in the water at this point should free them up to release a completely revolutionary budget

      Cut all the tax concessions, reform health and education (not just cut them), crack down on nonproductive private lending

      At this point they have absolutely nothing to lose. Its not like they have to worry about holding on to power – they’ve already lost it.

      May as well roll the dice. Even if it all gets voted down in the senate, and they get booted out anyway, at least they can go on the talk circuit in 5 years time and say they were right all along

      • at least they can go on the talk circuit in 5 years time and say they were right all along

        Interesting. That could actually work for them.

      • Maybe, but I think they’ve exhausted all their political capital. Even if they get it right (that’s a big IF), the punters aren’t listening.

        They could construct a revolutionary budget, but the release would need to be communicated by anyone else but Abbott an Hockey.

      • Never happen. After listening to Morrison on AM this morning provide tacit support to pensioners with $2m in financial assets receiving the part pensions while defending wait time restrictions to unemployment benefits for the young as a necessary budget repair measure that will remain on the table says to me nothing has changed and they have no concept of how to change or be bold. All those weekend puff pieces softening up Morrison were a waste of time, he’s still a nasty bastard that’s part of a nasty Government. What was made it worse was Fran Kelly missing an absolute slam dunk with this!

      • I’ve said before, with benefit of hindsight, they should’ve come out all guns blazing. May as well be crucified for attempting real reform as for tweaking around the edges. Budget was too lame. Give the malcontents something to really go on about. Kick ass and force important issues onto the national agenda.

      • The fact that abbott and hockey are pretty much dead in the water at this point should free them up to release a completely revolutionary budget

        That would require them to have a mindset other than using the budget to further entrench the wealthy and punish people who don’t vote for them.

        They are literally incapable of conceiving a budget, or policies, that place the welfare of the country and its citizens are the forefront.

      • The Traveling Wilbur

        2000? Eeek. Or do you mean 2000 more before you can go and live in the Bahama’s and forget Australian woes?

      • No just 2000 points lower so the bullshit QE effect unwinds and we can buy good companies at sensible valuations.

        Not buying a hot spud using maximum leverage trying to ditch it into some other leveraged idiot’s lap to make a buck.

      • The Traveling Wilbur

        Agreed. But I’m fairly sanguine about the ‘some other idiot’s lap’ part of the equation. When you think about it, there’s a winner and a loser in *every* trade. More than 1/2 the time I feel better about a winning trade if I know that the guy/gal on the other end had to be [waves arm at chest level] at least this stupid to go on this ride. Today being a perfect example of that. And if they’re loosing to me, they’re not loosing their shirts and that might encourage them to go home while they’re still decent (and forget about this silly trading stuff). PS yes. About 10-15 percent for QE factor sounds right… but when the day comes (years from now, or Friday, whichever comes first (see Grexit)) when the markets in the EuroZone break, it’ll go down a lot more than 2K.

        Or to simplfiy this immensley: Zoidberg: “Trade on margin, he says! Why? Why?”.

    • The Traveling Wilbur

      Meh… quick and painless. That’s the best way. Get it all over with in a hurry. So we can do it all again tomorrow. And Thursday too probably.

  7. SLX went up above 50c this week. Can it go materially higher this time around?

    The stock is still insanely cheap – below its NTA – meaning the market is valuing all the IP and other intangible assets as zero.

    • My brain has always been too small to ascertain what SLX actually does.

      From the share price I am assuming nothing much of value to anyone.

      I don’t want to be rude because I am ignorant.

      I just recall being chastised for not owning any of it as it did a 20 bagger and my only response has been I don’t understand how valuable a “laser based isotope seperation technology” is ?

      If you cant make money from IP or intangibles they may actually be worth less than stated on the balance sheet. How many more years before the cashflow arrives?

      I am happy to learn here

      • Nobody knows when the next milestone payment can be reached. So there is risk.

        Based on their latest report, their cash and cash equivalent (e.g., term deposits) is 37.5c per share, with zero debt.

        Not so long ago, SLX touched the low of 47c. If someone could take over SLX at 47c, and use the cash of 37.5c per share to pay for a large part of the purchase, the net result would be…… $17m, or about a dozen modest Sydney houses, for all the IP plus plant & equipment. Looks insanely cheap to me.

        Of course, the trading volume has been thin, so in reality, it would be impossible for one to buy a large chunk of SLX shares at 47c.

      • Interesting to see Alan Grey (contrarian) and another new substantial investor coming on post AGM along with some small inside buying.

        I don’t follow this thing – but you could just have a wounded beast dumping and the momo muppets following the failure trail. I will have a look – thanks for the heads up.

        That said – just skimmed the latest preso and it ‘refreshed’ my memory.

        I am a uranium bull – i own the physical U participation fund – because it has no leverage and I am no timer.

        But how did this company get into Solar?

        This is why I am always skeptical of cash balances – management often don’t have the patience to wait out a cycle (cut staff/wages/nice offices) and love to find a new thing to invest in.

        This uranium cycle has been of decent length. I havent looked at executive comp etc. But it has the hallmarks of a bored team losing faith and doing stuff to keep the punteres interested – particularly with all that douhg burning a hole in the pocket.

        Could be a good call option on uranium and the tech being important?

        But too hard for me.

        I will play it through the miners once it gets going – they are so stuffed now they will have enormous leverage when the party starts. I don’t need to risk the technology part.

      • “This is why I am always skeptical of cash balances – management often don’t have the patience to wait out a cycle (cut staff/wages/nice offices) and love to find a new thing to invest in.”

        Spot on.

        But then again, if they had been wise enough, I would not have had an opportunity to buy the stock.

      • Silex is no longer in solar. They are in the process of selling off all non-core assets. Pure laser enrichment now.

  8. Australian tycoons suffer commodities hangover – … google search title if blocked …

    The commodities slump has dented economies, capital expenditure and profits. Now it is scything the wealth of some of Australia’s most colourful tycoons.

    Andrew “Twiggy” Forrest, the founder and chairman of Fortescue, has seen the value of his one-third shareholding in the iron ore miner fall to A$2.65bn, down from A$6.2bn a year earlier. … read more via hyperlink above …

    • Palmer said last year he was not concerned about his diminishing fortune due to the resources downturn. “After you have about $5m to $10m, your lifestyle doesn’t really change that much,” he said.

      Ha ha thanks Hugh

      • Jesus I had tons more respect for Twiggy until reading this quote

        “Short-sellers are only slightly above marijuana peddlers and they spread vicious rumours about the company”
        – Andrew Forrest

        I guess sell side pumpers like C .Aitken (horns up) are more akin to coke pushers?

        One promotes introspection

        The other ego

        Say what we want about Clive. He has lived his life as a ‘billionaire’ with a complete disrespect for money and has acted more like a child who found a $100 note out the font of a lolly shop.

        Gina on the other hand… hard to have a lot of respect

    • See link below:

      Bullard et al (2012) argue that the old might prefer lower inflation than the young due to the redistributive effects of inflation. Thus, to the degree their policies reflect voter preference, central banks might engineer lower inflation when populations age.

      Sweet baby carrots I never saw that coming.

  9. Demographic changes and structural deflation
    – is there a link between demographic changes and deflation? And what are the implications for monetary policy?A view has appeared arguing that the low-inflation environment experienced by advanced economies may be structural, rather than cyclical. Although this view remains based on thin empirical evidence and still needs to be fully articulated, it is gaining support among monetary pessimists.

    You think maybe — implications for monetary policy? Let me guess, more pseudo-printing?

    • Will we ever run out of ‘funding currencies’ to pump equities?

      DAX goes honey badger

      Metals kicked in the balls

      I’m going to the bar – Draghi and Co are on the bid… with their monopoly money

  10. Here’s that leak I referenced on the weekend links:

    Moscow-Based Security Firm Reveals What May Be The Biggest NSA “Backdoor Exploit” Ever


    The U.S. National Security Agency has figured out how to hide spying software deep within hard drives made by Western Digital, Seagate, Toshiba and other top manufacturers, giving the agency the means to eavesdrop on the majority of the world’s computers, according to cyber researchers and former operatives

    This was all a conspiracy theory… for years and years this was all a conspiracy theory. See the problem we have? Can’t trust anything the bastards say, scientists not withstanding….