Qube Holding Ltd (QUB.ASX) is starting to trend higher as expected. The premise of this trade is the market will begin to re-rate QUB following the finalisation of the asset purchases from Asciano. Traders may look to take take profit around the $2.50 level.
Keep this one on your radar as the 2 to 3 year outlook should see this stock present multiple buying opportunities. Our algorithm engines will continue tracking for optimum entry and exit levels.
US Macro
Watching the close of the financial markets early Saturday morning (Sydney time), we were thinking that this FX UPDATE would be discussing a change in leadership in Turkey and how that would impact the rest of the Eurozone economics…….tanks in Istanbul, helicopters strafing government buildings; it all sounded pretty grim for Mr Ergodan’s government.
As it turned out, the coup failed and order has been restored in Turkey, for now.
However, there are several other data points in the Eurozone this week which will drive trade flow in the Euro and other G-7 currency pairs. The three events that FX traders will be following are; the German ZEW data on Tuesday, the German PPI report on Wednesday and the ECB meeting and rate decision on Thursday.
The preliminary forecast for the ZEW is for a sharp fall in business sentiment from 19 to 8. This is one of the first post-Brexit readings and would represent the weakest number of the year. Wednesday’s German PPI data is expected to fall from .4% to .2%. With this series, it’s not so much the actually number but the direction of the trend. German inflation was in negative territory earlier this year and turn back to a negative trajectory is worrisome for the ECB.
Short BEN.ASX (update)
Following the short recommendation on the 1st of June and our $9.10 target, it’s worth highlighting that Bendigo Bank hit our target (traded down to $8.91) two weeks later and a profit of over 10% in less than 10 trading days. Bendigo has now bounced and traded back up towards a sell price that puts the short trade back on our radar again, however, until the broader market indices rollover, we’re not focused on new short positions just yet.
Stay tuned.
Long AMC.ASX (update)
Amcor is now trading $15.75 or +10% from our buy range indicated in June. The nimble or leveraged trader should consider taking profit now, the investor may prefer to sell the $16.00 November call options for 50 -60 cent credit and keep exposure to the upcoming September dividend of approximately 28 cents.
US Macro
In the days following the June 23rd UK referendum, many FX market forecasters suggested the Sterling would fall sharply, perhaps even breaking below the 1.2000 handle against the USD. While these predictions may turn out to be correct, the GBP/USD has pretty much gone vertical since posting a 1.2850 low on Monday.
And even though the consensus for the Bank of England (BoE) to cut rates yesterday was just slightly above 50/50, the GBP/USD traded sharply higher after the after the BoE voted 9 to 0 to leave rates unchanged. However, with most policymakers seeing a rate cut in August, the Sterling remains a sell into this recent reversion.
The Sterling’s reaction to yesterday’s BoE pause at .50% was an illustration of misplaced Central Bank expectations. The financial media was calling for a cut down to .25%, many FX traders believed them and when the BoE kept rates unchanged, the GBP/USD soared from 1.3250 to 1.3475 in less than five minutes……and then faded as the session progressed.
According to the minutes from the meeting, the BoE has been satisfied with how UK financial markets have functioned post-referendum but there are some indications that businesses are delaying investment and hiring so economic aggregates are likely to be depressed in the near term. It’s worth noting that in addition to cutting rates, the BoE minutes discussed a “range of possible stimulus measures.” We interpret this to mean a possible increase to Quantitative Easing in August.
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Earnings CTX.ASX
First half 16 EBIT $340 million is well above the $265 million in first half 15. Underlying forecast growth tracks at around 7% and forecast FY17 dividend of $1.03 (up from $0.94 in FY16) puts CTX on a forward yield of 3.3%.
Continue to maintain long position with $34 target + covered call.
Earnings IPL.ASX
First half 2016 underlying profit of AUD$137 million is down 6% of the same time last year. Full 2016 earnings should be around $360 million down 10% on Fy15.
Start up of new Louisiana plant in 2017 should create support for future earnings and we’re probably looking at the low point in the cycle for IPL.
FY17 forecast for $430 million profit on $0.25 EPS and $0.127 in dividends. No buy rec at this stage, waiting for the next bullish signal.
Earnings RIO.ASX
Starting at the top: Top line revenue flat, EBIT down 19%, dividend flat at $1.07 and trading on a 3.3% yield. Sell call options at $55 into November 16.
Note: 19th July – June quarter production numbers will be announced.
Long TCL.ASX
TCL reported 4Q16 traffic – trend remains positive for NSW, some softening is emerging in Melbourne and Brisbane. FY16 Proportional revenue across Australian roads was $1.7 billion. Look for FY17 dividend to increase from $0.45 in FY16 to $0.50 in FY17. This places TCL on a forward yield of 4.2%.
TCL is close to full value short term (12 month outlook) and should be complemented with a $12.70 covered call into March. We’ve collected an additional $0.50 for this call option and we expect to remain exposed to the $0.22 cent dividend in December. This trade allows for some capital gain if exercised. If TCL trades sideways, a combination of the dividend and the call option income creates approximately 10% cash flow on a stand still basis.
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