The S&P 500 was up by 9.86points or0.50%on Tuesday and closed at 1981.60. U.S. stocks ended higher for the second straight session on Tuesday, as robust housing data and strong earnings from Dow component Home Depot overshadowed lingering concerns about the conflict in Ukraine. Apple Inc was among the most heavily traded names of the day after the stock hit $100 for the first time since its seven-for-one split in June. The stock climbed 1.4 percent to a new split-adjusted closing high of $100.53. 

The CBOE Vix volatility index widely known as wall street’s fear gauge was 1.3% lower in late trade. The U.S dollar maintained its recent broad uptrend rising 0.4% to a fresh 11 month high against a weighted basket of currencies. The Dow Jones Internet Composite Index is at the highest since March. Much of the impetus for the dollar’s move on Monday came from some unexpectedly positive US housing market data. Housing starts jumped 15.7% last month to the highest level since November. Permits rose 8.1% in July boding well for the starts in the months ahead.



Apple Daily Chart (Source – Thomson Reuters)

S&P ASX 200was up by 36.7points or 0.66 %on Tuesday and closed at 5623.8 points. Dick Smith released its earnings as a listed company, with a $42.1 million profit for the last financial year – above its prospectus forecast. McPherson’s reported a loss of $66.6 million. McPherson shares jumped 11.4 per cent to $1.32.Insurance Australia Group saw its profits jump 59 per cent. Amcor delivered a 24.6 per cent jump in underlying profit, Amcor shares rose 4.6 per cent to $10.75.

Oil Searchprofit surged 34 per cent to $US152.5 million ($142.4 million). Sonic Healthcare saw profit jump 14.9 per cent to $385 million. QBE reported an 18 per cent slump in profit to $US392 million ($419.7 million). BHP reported a full-year profit of $13.4 billion, up 14 per cent on the previous year. Arrium was the top performer on the market jumping nearly 12% on the back of 83% jump in underlying Net Profit after Tax to $296 million.

ARRIUM Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 






Stock of the Day – Commonwealth Bank of Australia  (CBA)

CBA’s FY14 result was strong. It is delivering solid revenue growth which is the envy of its peers. To put this into perspective over the last two years CBA has grown its pre provision profits by $1,948 (+18%). Based on current forecasts this will be the second largest growth in pre provision profit globally, behind Lloyds Banking Group (in dollar terms). CBA has generated 45% share of the incremental pre provision profit pool available to Australian banks since FY12.



CBA Operating Income (Source – Company Reports)
 
CBA’s performance slowed in 2H14 with revenue growth of just 1%. CBA was still able to meet expectations by keeping costs flat and utilizing tax offsets. We believe this illustrates CBA’s financial flexibility while maintaining underlying momentum into future periods. CBA is a high quality franchise. It is very profitable (18.7% ROE) and continues to operationally outperform. However it is also very expensive trading on PE 14.9X.


CBA Net Trading Income (Source – Company Reports)

The outlook for the banks remains robust near term. Credit growth continues to pick up slightly given stronger business lending and investor property. Funding costs are improving providing some benefit to margins. This may be partly offset by very low volatility reducing markets/ trading income. Asset quality trends continue to improve. Bank valuations look stretched but with a benign outlook for interest rates they may remain expensive for some time.


CBA Daily Chart (Source – Thomson Reuters)
CBA reported a strong FY14 result with cash NPAT of $8,680m up 11.9%. Cost performance was better during 2H14 with expenses flat during the half. Staff costs were flat with a reduction in headcount offsetting performance incentives. IT service costs fell 3% following the write off of capitalized software in 1H14. Productivity gains continue to offset much of the underlying cost pressures being seen by the group. We reiterate our HOLD rating on CBA.
  

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