Australia | Aug 19 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market had a cracker day in line with solid positive global sentiment. Market has now almost rebounded back to the post GFC high at the end of July. We remain positive long term while our short term positive call is waning with market rebound getting close to our short term target. It is interesting to see more economists and RBA revealing their negative views on the local economy and accepting the effect of budget woes, high unemployment and low growth will remain for a while as we have been saying.
We do not share the view that we will see recession as Australia benefits from relatively high level of interest rates and high currency that can work as a buffer if macro conditions get substantially worse. We do not expect a rate cut while we expected that RBA has always shared our cautious negative view. Asian influence in house prices are likely to create a London/UK bubble effect where the property prices near the city will remain relatively high while outer suburbs will get hit with affordability/unemployment issues. The government has not helped the local business or consumer confidence with the budget outlook and continues regulatory changes in multiple sectors. Sadly the soap opera is currently being played out on a daily basis on media circles with gaffa-thons and blow-ups. You know we are struggling when the Americans are laughing at us. I wonder who will be the star tonight and on what channel…only time will tell….but we all know the candidates.
Trading idea of the day: Cardno (CDD)…we have been positive on this stock since the selloff in early Aug to below $6…now $6.42…jumped 4% on result today. CDD is a recovery story with global exposure that has potential M&A appeal. We see this stock trading back above $7 on the strength of the pipeline, global diversification and industry consolidation through M&A.
Market Move: Aussie market was up 0.66% with turnover was just above $6.3b. S&P/ASX200 closed at 5623.8, up 36.70 points.
Macro Events: Tonight – EU June current account, UK July CPI, UK July retail price index, US July building permits, US July housing starts, US July CPI. Tomorrow – Wesfarmers, Woodside Petroleum, Ausenco, APN News & Media, AGL Energy, Challenger Financial, Seek, Fletcher Building, Coca-Cola Amatil, Brambles report earnings; RBA governor Glenn Stevens testifies before House of Representatives standing committee on economics in Brisbane, Australian Q2 wage cost index, Westpac August consumer confidence index, Reserve Bank of New Zealand inflation expectations, EU June industrial production, UK July jobless claims, US July advance retail sales, US FOMC meeting minutes
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