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Morning Market Update - 30 October 2019


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

    • Tuesday – US – Pending Home Sales rose 0.9% in September, suggesting a rebound in actual home sales.
    • Tuesday – US – S&P/Cash Shiller Home Prices Indices rose 3.2% over the year to August.
    • Wednesday – AUS – Consumer Price Index
    • Wednesday – US – Gross Domestic Product
S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket rose 0.1% yesterday, for the seventh straight session of gains. The Information Technology sector was the only sector to gain 1%. Software companies Iress and Xero led gains, up 4.6% and 2.7% respectively.

Coles gained 3.1%, after announcing its first quarter sales update. Sales growth was relatively flat, above analysts' predictions for a decline. Woolworths fell 0.2% ahead of its sales report to be released today.

Bega Cheese fell 12.8% after announcing a drop of up to 17% of full-year earnings expectations for FY20. The company noted that drought and lower milk production is forcing them to pay farmers more for milk.

The Financials sector weakened, with the big four banks all closing lower. Westpac led the declines, down 0.9%, while Commonwealth Bank closed relatively flat. 

The Australian futures market points to a 0.34% fall today, being driven by weaker overseas markets.

Overseas Markets

European sharemarkets were lower on Tuesday, for the first time in six days. BP lost 3.8% after weak quarterly profits. By the close of trade, the broad based STOXX Europe 600 fell 0.2%, the UK FTSE 100 lost 0.3% and the German DAX closed flat.

US sharemarkets were mixed, with investors cautious ahead of the Federal Reserve rate decision. The Information Technology sector underperformed; Alphabet fell 2.2%, after profit fell short of forecasts, and Microsoft lost 0.9%.

CNIS Perspective

An event that has been cited as a potential catalyst for a major market shock, is the systemic downgrade of BBB bonds.

BBB bonds are classed as investment grade, albeit the lowest form of investment grade bonds. Many fund managers have a requirement in their mandate that they cannot own bonds rated lower than BBB (‘junk bonds’) so if investment grade bonds they own are downgraded, they will be forced to sell.

The BBB bond sector now accounts for 60% of all investment grade bonds and is more than double the size of the entire junk bond market in the US.

What has some sectors of the market concerned is that the rating agencies, Standard & Poor’s, Moody’s etc, failed to classify risky debt assets correctly in the lead up to the 2008 GFC, and only when it was too late did they start to downgrade.

From a credibility perspective, they won’t want to make the same mistake again, making any downgrade of BBB rated bonds a very critical issue.

U.S. Corporate bond Debt Rated 'BBB' Exceeds $3 Trillion, Dwarfing Speculative Grade

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

 

Topics: CNIS, Australian Market, ASX, international markets

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