What Happened Today?

This story features RIO TINTO LIMITED. For more info SHARE ANALYSIS: RIO

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

Our market was in the red to the tune of 1% for the majority of the day following heavy falls on Wall Street overnight. The XJO closed the day down 40 points or 0.90% to 4349 and hit a seven week low. Obama’s first conference since reclaiming office was marked by rhetoric about raising taxes for the rich and was enough to send markets lower after days of continued weakness. The euro’s added fuel to the fire overnight by announcing a decline in eurozone industrial production to three year lows. Falls were heaviest in the cyclicals which is likely to continue till investors feel confident about a resolution to the fiscal cliff issue. The big miners BHP Billiton ((BHP)) and Rio Tinto ((RIO)) dived 61 cents to $33.12 and $1.03 to $56.82 respectively.

Figures showed the RBA continued its passive currency intervention campaign on the lofty AUD in October by allowing its foreign currency reserves to grow. The RBA increased its foreign currency holdings by A$457m adding to a rise of A$891m in the previous two months. For the uninitiated, the RBA would normally balance the inflow of foreign currency reserves by buying Australian dollars in the currency market which would keep the RBA’s purchases in equilibrium. In this instance it did not buy any AUD, thereby increasing the net effect of its forex reserve increase and thereby putting downward pressure on the AUD. It’s no secret the RBA is worried about the pressure the high AUD is having on our economy particularly the tourism and manufacturing sectors and probably getting more concerned each month as 1.5% of successive interest rate cuts appear to be having no impact on pushing the Aussie lower. Passively influencing the AUD by jigging its own forex flows is one of the last tools the RBA has at its disposal to influence our currency. We all know that our safe haven AAA rated government bonds and huge foreign investment in mining/energy projects are the real reason our currency is so high and unfortunately the RBA is somewhat powerless to influence foreign appetite for our top notch paper. 

Qantas Airways ((QAN)) announced today it planned to repay A$650m in debt sooner than anticipated as well as roll out a A$100m buyback program (around 4% of its issued stock). A day of good news for QAN sent the shares up 5 cents or 4% to $1.28.

China’s party congress in Beijing (yes it’s still going) today concluded with the swearing in of Mr Xi Jinping. Perhaps certainty in the East will be a trigger for more risk appetite and a stabilising in global markets.

The market is getting to the point where it’s starting looking oversold here, do not jump the gun as it’s not so severe that it’s worth fighting the downtrend, but be watchful. 

DOW futures are up 10 points.

This article produced at the request of and is published by FNArena with the permission of 708 Capital. The views expressed in this article are not necessarily those of FNArena (see our disclaimer).

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

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Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

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