ASX 200 recorded 4th consecutive weekly

by Raymond Chan

From RBS Morgans Research

Ongoing concerns about the health of the global economy continued to plague equity markets with ASX 200 (XJO) falling below 4,900 points. Aggressive new stimulus measures from the Japanese central bank failed to inspire confidence (except for its own stock market Nikkei +3.5%) as weak US labour data and European Central Bank President Mario Draghi said the euro-zone economy was at risk of a deeper recession.
 
Heightened tensions surrounding North Korea added to the woes of investors with markets in the Asian region already weaker in light of Chinese growth concerns. These issues continued to affect commodity prices with base metals and oil prices falling sharply whilst the 'safe haven' status of the bullion did little to prevent gold prices from reaching nine-month lows. We saw risk-off mentality return as the local market followed overseas equities lower, with Materials and Energy sectors leading the falls.
 
The Reserve Bank of Australia held the official cash rate unchanged at its April Board meeting which came as no surprise to economists who widely tipped no change to the current cash rate of 3%. In a statement accompanying the decision, Reserve Bank governor Glen Stevens said previous easing of monetary policy was having an expansionary effect on the economy and the bank expected further benefits to be realised
over time. However, the RBA was keeping an eye on the inflated exchange rate given the observed decline in export prices.
 
Despite lower prices, the Australian trade deficit narrowed more than expected in February, as a result of growing export volumes from key resources like coal and iron ore grow. This didn't prevent miner Rio Tinto from announcing more intended asset sales with its thermal coal assets joining Mongolian copper and Canadian iron ore assets on the chopping block. Next week, ABS will release latest Labour Force Survey on Thursday.
 
From our Option Desk 

Position One:                Buy Write ANZ- buy stock at $28.48 and sell April $29.01 European Calls at 20 cents
Current Share Price:        $28.43
Research Target Price:        $25.28
 
ANZ will trade ex-dividend approximately $0.66 fully franked in early May, the idea of this trade is to receive the dividend, the call may require rolling at the April expiry.
 
 
Position Two:                Sell BHP May $33.50 Puts at 33 cents
 
Current Share Price:        $33.96
Research Target Price:        $37.40
 
After several months of underperformance resource stocks may be on the turn.  The effective entry price if assigned is $33.17.
Several other brokers have upgraded resources today, most sighting valuation support.
 
 
Position Three:        Buy Write RIO- buy stock at $58.46 and sell April $59.50 calls at 85 cents
Current Share Price:        $58.46
Research Target Price:        $80.66
 
After several months of underperformance resource stocks may be on the turn.  The effective entry price, after discounting for the call premium is $57.61.
Several other brokers have upgraded resources today, most sighting valuation support. 

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