China has stolen the limelight with some sharp falls on fresh concerns about the property market and the CNY. Property stocks have slumped to eight-month lows on fears banks have tightened lending to the property sector.
Today’s property prices release showed prices growing at a slower pace and this contributed to negative sentiment. Talk of a bubble in China’s property market is nothing new but perhaps this time it has been compounded by talk of corporates in China issuing huge USD denominated debt in hopes the CNY will continue to gain.
The offshore yuan experienced a sharp slide last week and CNY has fixed 13 basis points higher at 6.1189. This higher fixing by the PBoC sees it up for the fourth day in a row. With the current turmoil, we are seeing some sizeable moves lower in the Hang Seng and Shanghai Composite. While officials in China continue to urge calm, investors will be concerned about some of the recent disappointing economic releases we’ve received from China.
At the end of the week we have China’s official manufacturing PMI which is expected at 50.2. If last week’s HSBC reading is anything to go by, there will be plenty of nerves that this release could also disappoint. Should this reading dip into contractionary territory we could be in for a tough week ahead.
Europe bracing for a weaker start
Looking ahead to European trade, the major bourses are likely to pull back as investors react to some of the China concerns.
EUR/USD got off to a poor start to the week but has since managed to find some stability at 1.373. The pair gapped lower after having put in a strong performance on Friday. EUR/USD is looking increasingly choppy and will be in focus later today with the German Ifo business climate due out at 20:00 AEDT and CPI for the region at 21:00 AEDT. Any signs of a strong performance on the business climate front should underpin the euro and could see the pair retest 1.376. This reading has shown a strong upward trend over the past year and we really need to see that momentum continue.
In the US, Janet Yellen’s postponed second testimony on monetary policy to the Senate banking committee could be the highlight of the week, although nothing major is expected to be announced. While there are no other standout releases, investors would want to see an improvement in the housing market and jobs to help lift confidence.
ASX 200 holds steady despite China woes
It hasn’t been a bad start to the week for the Australian market considering a significant number of companies are trading ex-div. Approximately 16.2 points came out of the market this morning.
Heavyweights like Telstra, WPL and WES are trading ex-div and weighing on the market. If it wasn’t for the turmoil out of China, perhaps we could have seen the Aussie market finally test October highs at 5,457. The uptrend is still well intact and I feel buying the dips is the best near-term strategy. An incredible 84% of ASX 200 stocks are now trading above their short term 21-day moving average, while 68% of stocks are trading above their longer term 200-day moving average.
While some feel this means we might be due for a correction as a number of stocks have overshot, I feel it merely shows how broad-based the rally has been and that the moves higher have been over a diverse range of sectors.
On the earnings front, today we had an overwhelmingly positive reaction for BSL, CTX and BPT.
As we get into the home stretch of reporting, it is always good to finish on a high note. BSL has been an incredible turnaround story and today’s gains saw it rally to its highest level since July 2011. BSL saw a good improvement in 1H earnings (turning to a profit) and expect 2H underlying profit to be similar. This essentially implies a FY figure of $140 million, which is way above what most analysts were expecting ($119 million).
Meanwhile, BPT posted a 160% jump in underlying earnings to $158.1 million with a one cent special dividend. It also reiterated FY production guidance and will explore value adding opportunities. This helped the stock rally to its highest level since March last year.
BLY was on the losing end however; posting a double digit loss with significant structural issues, particularly sector related. The company is looking to bring in Goldman Sachs to conduct a strategic review.