Markets: Week 05 - 11 Feb

Morgan Stanley has a bearish view of the Australian market for this year.

The broker says at 6000 points, the Australian market demanded better earnings growth to justify the multiples it was trading on. So their target is 5800 points for the ASX 200. The broker is a buyer of weakness in energy and global growers, value over bond proxy defensives and cautious on domestic cyclicals.

The Living Cost Index of wage-earning households rose by 0.7% in the December quarter which was above inflation of 0.6%.

Higher living costs were driven by a rise in petrol and transport which are rising at their fastest pace and well above growth in wages. And it’s not just the cost of living that has gone up. Australian capital cities including Sydney, Melbourne, Adelaide and Hobart are all a lot more expensive over the past year compared to the rest of the world. According to website, Sydney is now the 32nd most expensive city in this year’s Cost of Living Index. It is up from 41 last year. Melbourne rose to 64 up from 77. Only Perth (56), Darwin (68) and Brisbane (93) are affordable.

Bubs Australia (BUB)

Has landed an agreement with Woolworths to stock all three stages of its Bubs Advanced Plus+ Goat Milk Infant Formula. The product is already available in Coles supermarkets. Goat dairy and infant formula is experiencing rapid growth domestically and overseas. Bubs goat milk infant formula is expected to be on the shelves of Woolworths supermarkets in April.

Retail sales fell -0.5% m/m in December

which was below expectations (consensus -0.2% m/m). This poor result offset what was a bumper sales result for November +1.2%. The annual pace of sales slowed to 2.5% from 2.9%. The December fall was the largest in percentage terms since August. Household goods retailing fell (-2.6%) and other retailing (-1.8%). Department stores fell 0.6%. The only gain came from food retailing which rose 0.7%. It’s a bit of a negative for Aussie retailers that were banking on a positive retail sales result heading into reporting season.

Prices for inner city apartments are being hit hard.

Sellers are lowering prices on high rise inner-city apartments by up to 10% and advisers are being offered $10,000 commissions to recommend apartment sales. Builders are also including free luxury fixtures and lenders are adding in incentives to lure investors. NAB is offering 50,000 bonus Qantas Points as part of their Choice Home Loan Package to drive sales volumes. Despite the incentives and push to increase sales, apartment sales are on the nose with Brisbane and Melbourne recording falling demand and over-supply. It’s a positive for buyers that have been looking to enter the property market but have been locked out due to sky high prices.

Feb 6 2018 -Stocks plunge as investors ponder the end of Goldilocks

- The good news from the steep sell-off in financial markets in recent days is that in terms of fundamentals nothing has changed.

- Up until last week, investors were happy with a stronger world economy because it has happened largely without any strong evidence of consumer price pressures.

- This "Goldilocks" environment of low inflation, low rates and strong growth made for the perfect conditions to make money on the market.

- The bad news is that if this a period of recalibration, then it's unclear how far it can go before it gets better. Maybe it will all be over by the end of the week. But volatility has the potential to spark further volatility as selling in one asset triggers selling in others.

Feb 6 2018 - ASX set to extend losses on more selling on Wall Street

"To be clear, we are not claiming to be smart about this," Mr Dalio wrote in a LinkedIn post. "In fact, the opposite is true, as this is happening sooner than we expected. Still, these big declines are just minor corrections in the scope of things, there is a lot of cash on the side to buy on the break, and what comes next will be most important. As shown, the recent price declines are not even noticeable within context of the bigger and longer term picture."

"While we suspect market weakness could persist in the coming days (or even weeks), we continue to believe stocks are well supported by strong fundamentals, expect gains over the rest of 2018.."

Feb 5 2018 - ASX slumps to worst day since June 2017

- Shares tumbled on Monday in the worst day for the ASX for more than six months, as Australian investors joined in with a stock market rout that started on Wall Street with the release of US jobs data.

- "People are worried about inflation and whether the Federal Reserve is set to hike four times this year," said Matthew Sherwood of Perpetual Investments.

- "The market's getting clobbered. The risk is not in earnings growth, it's in the (stock) prices," he said, noting that stock markets have run up very sharply in markets such as the US and Europe.

Stocks continue to feel heat from rising bond yields

- Stocks are continuing to fall across the globe, as investors keep wary watch on rising bond yields and Wall Street on Friday posted its biggest daily slide since 2016.

- Rising bond yields can undercut equities by making it more expensive for companies to borrow and making the returns stocks look relatively less attractive than the increased yields on offer from developed world government bonds, assets that are less risky than stocks.

Global Stocks Selloff Extends to Asia

- The declines followed Friday’s heavy selling in Europe and the U.S. after some downbeat corporate earnings reports and an uptick in wages in the latest U.S. monthly employment report.

- Also, bond yields have been rising and any acceleration in inflation could prompt central banks to tighten monetary policy faster than expected.

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