[table “102” not found /]
What just happened? There I was celebrating the bad news (which really was good news) of a rising unemployment rate in Australia and it was warming the cockles of my soul to offset the cold winds from Trent Bridge, where our cricket team opted for ‘pomicide’ and then ANZ doubled down the misery factor!
I hope the NZ bit of ANZ does not triple the trauma by demolishing us in the Bledisloe Cup on the rugby field tonight. How much can a so-called financial guru bear?
In case you missed it, ANZ fessed up on Thursday that it was opting for a $2.5 billion capital raising from institutional shareholders in an underwritten placement. On top of that, retail shareholders could be asked for up to $500 million more.
The minimum price for the institutional placement was set at $30.95, and that is what ANZ ended up selling the shares at, resulting in almost 81 million new shares being issued.
There was a negative response on Thursday to this news, with Westpac and the CBA off 3% and NAB lost 2.2%, while the culprit was in a trading halt. However, few of us anticipated a $2.44 (or 7.49%) smashing of ANZ to $30.14 on Friday! CEO Mike Smith has some explaining to do, given he said three months ago that a capital raising wasn’t needed. He now blames the regulator and while this is true, shareholders will still remember what he said.
The market now expects that CBA will opt for a capital raising, which we should hear about next week. That’s why it fell $3.25 (or 3.84%) to $81.30. Thank you APRA and the chorus of naysayers, who have been bagging the banks for over-lending to one of the safest risks in the world – Aussie homebuyers!
Undoubtedly, the market has overreacted and there’s bound to be some dip buying of our beloved banks next week. The question (which we discussed in Friday’s webinar for our Switzer Super Report subscribers) is: do you buy before or after the CBA profit announcement next week? An additional question could be: will the bank follow ANZ and opt for a capital raising? Imagine the share price spike if they opted not to! That said, I suspect it will.
Back to jobs news and our rise in unemployment from 6.1% to 6.3% was seen as more positive than negative because the number of jobs created was 38,500 in July. It was the spike in the participation rate that created the bad jobless outcome. Meanwhile, the Yanks delivered 215,000 new jobs in July, only 8,000 short of experts’ expectations and so US economists seem to be singing that nothing can stop a September interest rate rise!
Despite the falls in commodities, such as oil (which hasn’t helped stocks this week), the fact the Dow is down seven days in a row could be a precursor fall to what will happen when rates rise for the first time since 2008. The dates for your diary for the all-important interest rates meeting for the FOMC are September 16 and 17 and we’re bound to see some action.
Recall that Morgan’s chief economist, Michael Knox, has declared that the first rate rise will bring a month of falling stock prices, followed by a year of rising stock prices. Now this is his best guess but there could be a lot of sideline money being saved up for a big bash after Wall Street has that overdue correction.
On that point, the Dow is now down nearly 5% since its June top so it’s only another 5% down before the correction hype will be thrown in our faces.
What I liked
- Just about everything, until ANZ’s capital placement revelation!
- Tourist arrivals were up 7.7% over the year and the annual number has gone to a record high of 7.1 million.
- 162,000 jobs have been created this year, which is the best start to a calendar year for seven years.
- The rise in the participation rate (which drove up the unemployment rate from 6.1% to 6.3%) was driven by women looking for work, where the participation rate was up from 58.8 to 59.2. Also, a rising participation rate is seen as a precursor to an improving economy.
- The opportunity to buy the banks at lower prices is the only positive out of this share price slide.
- The Performance of Services Index (in Australia) went up 2.9% to 54.1 – this was the fastest expansion of this big employer sector since February 2014, when the economy was on a confidence high from the election of the new Abbott Government.
- The number of new vehicle sales in July was 92,308 – the best July result on record.
- This from the RBA on Tuesday, after not touching interest rates: “In Australia, the available information suggests that the economy has continued to grow. While the rate of growth has been somewhat below longer-term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year.”
- Those worried about the US economy look at this: the ISM non-Manufacturing Index rose from 56.0 to 60.3 in July – its highest reading since August 2005!
- While the ISM Factory Activity Index fell from 53.5 to 52.7 in July, the new orders sub-index lifted to a seven-month high.
- The Performance of Manufacturing Index (here) got into expansion mode, with a 6.2 point jump to 50.4, which might be an example of what a lower dollar can do (that is, make a once ‘shot to pieces’ sector look a lot stronger!).
What I didn’t like
- What APRA has done in speeding up its demands on banks to increase their capital holdings, which led to ANZ’s announcement and Friday’s stock market slide. (Next time I go out to dinner with David Murray, who’s behind this less than capital idea – he’s paying!!!)
- The idiot at Bloomberg who wrote this headline: “Commodities Are Crashing Like It’s 2008 All Over Again.” If demand was collapsing, I’d be worried. I thought the price fall was an oversupply problem! Sure, China is providing less demand but hell, Japan and Europe are tossing money at their economies to drive up demand. To me, it’s a timing issue and by the way, commodities often fall around this time of year.
- That said, the commodities dive is worrying, especially oil at prices such as West Texas crude at $US44.66 a barrel and Brent below $48 a barrel. For those who need some hand holding, take this: “I know a lot of people are bearish, but as weak as the market feels right now, the onus is on the bears to take out $40 a barrel. Really we’re following a seasonal pattern.” (Phil Flynn, energy market analyst at Price Futures Group on CNBC.)
- The huge slide for media stocks in the US, where Viacom lost 15.5% on Thursday and the likes of 21st Century Fox really copped it.
[1]
This didn’t surprise me, as my wife and I have been looking for a good movie to go to for a month and can’t find one. And the only ‘good’ movie I could find on the plane to and from Europe was Will Ferrell’s Get Hard, which was pathetically funny but I guess that’s what Will does!
Top stocks – how they fared
[table “101” not found /]The week in review
(click the blue text to read more)
- This week, I gave you the case for and against stocks going higher [2].
- My colleague Paul Rickard reviewed our income and growth portfolios [3] – the income portfolio is up by 10.42% this calendar year and the growth-oriented portfolio is up by 11.82%!
- Charlie Aitken said it might be worth keeping a little powder dry for market opportunities [4] if there is a US correction when the Fed makes its first rate rise in nine years.
- The brokers upgraded APA group and GUD Holdings [5] and in our second broker report for the week, Harvey Norman and Wesfarmers [6] received upgrades.
- Our Super Stock Selectors liked Sirtex and Bendigo and Adelaide Bank [7].
- Wingate’s Stuart Morgan praised the US company Praxair [8] and values the share at US$136.
- And Tony Negline shared a good super strategy [9] around concessional caps if you can claim a personal tax deduction.
What moved the market
- ANZ surprised the market after announcing a $3 billion capital raising, and fueled expectations that CBA will follow suit next week!
- Wall Street fell on the back of clobbered media stocks, with disappointing earnings reports from Viacom and 21st Century Fox.
- Reduced expectations of a future rate cut by the RBA.
- And retail sales beat expectations – up 0.7% in June.
The week ahead
Australia
Monday August 10 – Lending finance (June)
Tuesday August 11 – Weekly consumer confidence
Tuesday August 11 – NAB business survey (July)
Wednesday August 12 – Consumer confidence (August)
Wednesday August 12 – Wage cost index (June quarter)
Wednesday August 12 – Credit and debit card lending (June)
Wednesday August 12 – Speech by Reserve Bank deputy governor, Philip Lowe
Thursday August 13 – Average weekly earnings (June quarter)
Friday August 14 – Speech by Reserve Bank assistant governor, economic, Christopher Kent
Overseas
Saturday August 8 – China trade balance (July)
Sunday August 9 – China inflation (July)
Wednesday August 12 – China monthly data (July)
Thursday August 13 – US retail sales (July)
Friday August 14 – US producer prices (July)
Friday August 14 – US industrial production (July)
Calls of the week
(click the blue text to read more)
- The RBA kept the cash rate unchanged at a record low of 2%.
- Wall Street’s market darling Netflix Inc. announced unlimited parental leave [10] for its employees!
- Prime Minister Tony Abbott lifted the ban on Federal government ministers going on the ABC’s Q&A program, with assistant Treasurer Josh Frydenberg to be the first to appear since the ban was lifted. The ABC will also shift the program from the Television Division into the News Division.
- And England’s cricket captain Alastair Cook called correctly to send the Aussies in – it’s almost goodbye to the Ashes!
Food for thought
Action is the foundational key to all success.
Pablo Picasso – Artist
Last week’s TV roundup
- How should you be investing right now? Paul Moore of PM Capital answers this question and more [11] on Super TV.
- The cash rate was left at a record low level of 2%, so what signs are the RBA seeing and will there be more cuts down the track? Michael Witts of ING Direct shares his insights [12].
- Head of investment strategy at AMP Capital, Shane Oliver, covers what he thinks is happening to the economy and his outlook for the Aussie stock market [13].
- And in this week’s Super Session we talk about the month of July [14], including sector performance and income-paying stocks.
Stocks shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.
This week the biggest mover was Slater and Gordon with a 0.82 percentage point increase in the proportion of its shares sold short to 12.19%.
[15]My favourite charts
It’s raining jobs!
[16]Despite the negative headlines over the increasing unemployment rate (which is actually driven higher by more people looking for work), the number of jobs rose by 38,500 in July. That follows a revised lift of 7,000 in June. Full-time jobs rose by 12,400 in July, while part-time jobs rose by 26,100.
Housing worth trillions!
[17]Source: CoreLogic RP Data
The Aussie housing market is now valued at a whopping $6 trillion – up $2 trillion since 2009 and roughly half a trillion dollars over the past year!
Top 5 most clicked on stories
- Paul Rickard: A great start to the new financial year – portfolios power ahead in July [3]
- Charlie Aitken: Keep an eye out for a US correction [4]
- Peter Switzer: The case for and against stocks going higher [2]
- Staff Reporter: Super Stock Selectors: Sirtex, Resmed and Bendigo and Adelaide Bank [7]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [5]
Recent Switzer Super Reports
- Thursday, 6 August, 2015: Bull baiting [18]
- Monday, 3 August, 2015: For and against [19]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.