Another very narrow trading range in the US, copper lifts, focus on Woolworths, ASX futures up 16 points

While major US markets have been flat over the past few sessions, Europe is a different story. Recent equity lows at the end of September created a turning point for Australian and US indices, but these have both been significantly outpaced by Germany, despite its public relations disaster over the Volkswagen scandal. In today's third chart you can see that Germany's DAX (GER30.I for Rivkin members) has bounced more than 17% from this point, while the US S&P 500 is up almost 10% and Australia--slowed down by sluggish commodity prices and BHP's apathetic approach to communicating its future dividend policy--is lagging, but still up a respectable 4%, which supports those who favour the Santa Rally theory.

Today's first chart shows the price of copper (US cents per pound) and this has put in a low just above US$2.00 for the moment, after losing about one third of its value since May highs. Commodity markets are still trading poorly and iron ore slipped ever so slightly last night, but traders should be on the look-out for bounces in important China proxies like copper. While the long-term down-trend may continue, peaks in negative coverage will likely create major low points than can be bought on a swing back up.

Woolworths (WOW) enjoyed a small rally last week on speculation of private equity interest in Big W; however, WOW held its AGM yesterday and there was nothing particularly reassuring that came out of the mouth of Chairman Gordon Cairns. Its inability to find a new CEO is disconcerting and bringing back Roger Corbett as an advisor highlights that the company's board has really run out of ideas about how to run this group of businesses. They're keeping on CEO Grant O'Brien, who resigned in June, because they can't find anyone else to run it. Nothing definitive was announced with regard to its path to dumping/divesting/driving the Masters hardware disaster so I'm not sure WOW shareholders have anything to look forward to in the short term, apart from finding a private equity consortium to break the company up and have its brands run by a board of directors who can control its destiny. To keep a CEO on with no incentive structures and proudly tell shareholders that they've cleverly negotiated to have him simply work out his holiday pay, as though its a demonstration of fiscal prudence, is ludicrous. Who care's what the CEO is earning when Masters is losing $200 million a year!

Anyway I know that WOW is a holding in some of our systematic Blue Chip portfolios, and its not like their earnings forecasts have changed, but it is frustrating to watch such significant Australian brand being decimated by a board of directors who clearly don't know how to pay up and attract the right executive leader.

Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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