Tag Archives: Iron Ore

The Monday Report

By Greg Peel

More of the Same

Behind the scenes of Friday’s modest gain for the ASX200 we saw the same alpha impact of winners and losers among stocks posting earnings results which to a great extent cancelled each other out. The bulk of the ultimate gain was provided by materials (+1.2%), telcos (+1.1%) and utilities (+1.8%), the latter featuring a solid report from DUET Group ((DUE)).

For materials, a significant influence is BHP Billiton ((BHP)) which continues to see buying post-result on the belief the worst is now behind the company, Samarco notwithstanding. Buying in the yield stocks also likely reflects an assumption the Fed will not be raising in September.

Among other reporters, sector heavyweight Woodside Petroleum ((WPL)) rose over 1% following its result while Santos ((STO)) went the other way in falling 2% and Origin Energy ((ORG)) saw ongoing selling, leading energy to a net -0.6% to post the only sector fall of the session.

Standout winners elsewhere included Cleanaway Waste Management ((CWY)) and Tassal Group ((TGR)) while among the losers were Medibank Private ((MPL)) and Mantra Group ((MTR)).

It was another relatively quiet session on Wall Street on Friday night and with the index futures showing down 6 points this morning, we’re no doubt in for another day of sole focus on company reports.

We are now three weeks into the August reporting season with one and a half weeks to go. Yet to date only a third of the companies covered by brokers on the FNArena database have reported and the vast bulk of the remaining two-thirds will report between now and Friday. Suffice to say, it will be a busy week.

One third in, beats are running at 36% and misses at 25% and ratings downgrades from brokers are outpacing upgrades by 2 to 1. We have to go back to the February 2015 season to find a similar breakdown – back then beats totalled 36% and misses 26% and downgrades outnumbered 3 to 1. In both cases the overriding theme was not one of poor performance but one of share price over-valuation.

In April 2015, the ASX200 peaked at 6000. In February this year it reached 4800. You have been warned.

Mind you, over the course of February 2015 the index rallied 6%. Over August 2016, the index has gone nowhere.

More of the Same

At least the local market has earnings season to focus on. With the US earnings season now all but over, Wall Street has nothing to focus on.

Friday night did see another Fedhead talk up a possible Fed rate hike and that’s likely why the Dow was down a hundred points early in the session. Overall, Wall Street is affording little credence to Fedspeak and as such Wall Street closed mildly lower on the session, likely reflecting no more than a typical Friday square-up.

The Dow closed down 45 points or 0.2% while the S&P lost 0.1% to 2183 and the Nasdaq was flat.

There is nonetheless a reasonable amount of economic data due this week for Wall Street to contemplate and at week’s end, the infamous Jackson Hole symposium will feature a speech from Janet Yellen. This gathering of central bankers in recent years provided the unofficial announcements of Ben Bernanke’s various QE programs.

Commodities

West Texas crude ticked up another US19c to US$48.52 on Friday night and talk now is of 50 being regained. The recent bounce has been all about speculation Saudi Arabia may be able to put together an agreement on a production freeze and the relevant OPEC meeting is still a month off, so there is time.

No one really believes a freeze will happen.

The US dollar index was up 0.3% to 94.50 and nickel was the only base metal not to post a fall in London, albeit no move exceeded -1%.

Iron ore rose US20c to US$61.00/t.

Having spent the week grafting incrementally higher, gold fell US$11.00 to US$1341,10/oz.

The Aussie saw a welcome drop of 0.7% to US$0.7634 by Saturday morning but there is growing talk of 80c being retested.

The SPI Overnight closed down 6 points on Saturday morning.

The Week Ahead

US data releases this week include the Chicago Fed national index tonight, the Richmond Fed index and new home sales tomorrow and existing home sales and FHFA house prices on Wednesday. Thursday it’s durable goods and on Friday it’s consumer sentiment alongside the first revision of June quarter GDP and Yellen’s speech at the Hole.

We’ll also see flash estimates of manufacturing PMIs for Japan, the eurozone and US across the week and Germany’s IFO business sentiment index will be closely watched on Thursday.

The only Australian data release of note this week is June quarter construction work done, due on Wednesday, which reminds us our own June quarter GDP result is due in a couple of weeks.

Otherwise, it’s all about earnings.

Today’s highlights include BlueScope Steel ((BSL)), Fortescue Metals ((FMG)) and Seek ((SEK)). There are simply too many companies reporting this week to highlight a full week’s results.

Please refer to the FNArena calendar (link below).

Rudi will appear on Sky Business on Tuesday, via Skype-link to discuss broker calls at 11.15am, then again on Thursday between 7-8pm for the Switzer Report and a third time, again via Skype-link, on Friday around 11.05am.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

For further global economic release dates and local company events please refer to the FNArena Calendar.

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The Overnight Report: Oiled Up

By Greg Peel

The Dow closed up 23 points or 0.1% while the S&P gained 0.2% to 2187 and the Nasdaq rose 0.2%.

Amped Down

To date the local earnings season has featured plenty of ups and downs among individual reporting stocks that have largely netted out to leave the ASX200 in sideways mode. Yesterday we saw more downs than ups, or more specifically, more influential downs than ups, to provide a 0.5% index drop.

AMP ((AMP)) posted a miss that largely came down to weakness in its wealth protection business – a business also conducted by the banks. We thus saw AMP shares down 5% and a flow-through to general financials sector softness in falling 0.9% and proving a major drag on the index.

Heathcare heavyweight CSL ((CSL)) saw ongoing selling following its miss on Wednesday, falling another 3%, While Primary Health Care ((PRY)), having jumped up following its release on Wednesday, jumped straight back down again by 5% yesterday to help take that sector down 1.9%.

This harks back to what I was saying yesterday – first responses to result announcements are not always definitive indicators. And on that point I note Domino’s Pizza ((DMP)) was back amongst the losers yesterday in falling 4%. Down, up, down -- the market really cannot come to a conclusion on that company.

Consumer discretionary fell 0.5% yesterday but it was a very mixed bag for a very diverse sector. Treasury Wine Estates ((TWE)) won the day with an 11% gain for example, and auto parts dealer BapCor ((BAP)), formerly Burson, jumped 6%.

It was left to the resource sectors and consumer staples to provide some offset yesterday, given the telcos and utilities saw a return to weakness.

Speaking of weakness, the monthly Australian jobs lottery surprised as usual yesterday, not because the ABS website managed to stay up for the release but because 26,200 jobs were added in July when 10,000 were forecast. The unemployment rate ticked down to 5.7%.

Oh no, there goes the rate cut, said forex traders, and the Aussie duly shot up over 77c. However, the breakdown revealed 45,400 full time jobs were actually lost during the month, offset by the addition of 71,600 part time jobs. “Underemployment” is the new buzz word. There are plenty of people who would dearly like to work more hours, and the preponderance of part time-only work is why Australia’s wage growth is currently so anaemic.

So as you were, no reason to see the RBA changing its mind on the strength of this particular jobs report. The Aussie subsequently dropped back below 77 before running into US dollar weakness overnight, and is currently up 0.4% over 24 hours at US$0.7685.

It was likely the misleading jobs report that sparked selling in the yield sectors yesterday.

Another Shrimp?

The nightmare of any overnight reporter is that nothing actually happens, leaving nothing to report. Wall Street is offering up just that scenario at present. The US indices bungled a long last night in thin trade once again, reminding us that August in the US is January in Australia and everyone’s having a barbie after a dip rather than trading stocks.

We did see WalMart (Dow), the world’s largest retailer, post a surprisingly good result and oil prices continued to run higher. Brent rose 2% to surge through the US$50/bbl mark while WTI closed some of the gap with a 3% gain to over 48.

And Fedspeak raised its increasingly ugly head again. Following on from no less than three Fedheads suggesting this week a rate hike is either likely or at least needed, St Louis Fed president James Bullard, he of “new regime” fame, last night reiterated his prediction that there won’t be a rate hike until 2018.

What is an investor to think?

Commodities

The US dollar index fell 0.6% to 94.18 last night, probably because the market believes the Bullard camp holds more sway over the FOMC than anyone pushing for a hike. This provided some support for commodity prices.

West Texas crude rose US$1.40 to US$48.34/bbl and Brent rose US$1.07 to US$50.92/bbl.

Aluminium bucked the trend on the LME by falling slightly while the other metals jumped 1-1.5%.

Iron ore fell US30c to US$60.80/t.

Gold continues to graft higher, rising US$3.70 to US$1352.10/oz.

Today

Following yesterday’s local market weakness, the SPI Overnight closed up 15 points or 0.3%.

The index futures are a difficult game to play at the moment nonetheless, given index movements this month have been almost entirely driven by individual company earnings and not by any macro influence. So each day is a bit of a lottery on who might beat and who might miss.

Woodside Petroleum ((WPL)) and Santos ((STO)) are in the frame today, as are Insurance Australia Group ((IAG)), Lend Lease ((LLC)), Medibank Private ((MPL)), and a couple of popular smaller names in the form of Automotive Holdings Group ((AHG)) and Bellamy’s Australia ((BAL)). The latter is quite heavily shorted.

Rudi will appear twice on Sky Business today. First via Skype-link to discuss broker calls, at around 11.05am, and later on Mark Todd's Fixed Interest version of Your Money, Your Call with co-guest Roger Montgomery, 7-8pm.

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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The Overnight Report: Minutes Of Dispute

By Greg Peel

The Dow closed up 21 points or 0.1% while the S&P gained 0.2% to 2182 and the Nasdaq was flat.

Knee Jerk

Another day, another flat close for the ASX200 belying all that was going on underneath amongst individual stocks. The index did open around 20 points lower but a lot of that was Commonwealth Bank ((CBA)) going ex.

The financials sector was quite the mixed bag yesterday as it contains insurers as well as banks. Take out CBA’s dividend and the banks did well yesterday, but QBE Insurance ((QBE)) disappointed with its result and fell 8%. The sector was down 0.3% on the day.

The hardest hit sector was healthcare, thanks to a miss from market darling and sector heavyweight CSL ((CSL)). It fell 5%. But in contrast, the regulated health care names Sonic ((SHL)) and Primary ((PRY)) both reported well and rose 6% and 2% respectively. The sector fell 1.9%.

The resource sectors were strong again yesterday on higher commodity prices while the consumer sectors also had a solid session and utilities finally found some buyers.

The fact that the index as a whole has barely moved this week, given a lack of macro influence, allows us to witness the machinations of a reporting season in this era of high speed trading. Quant analysts will tell you the response to the result on the day is not as important, ultimately, as where a stock ends up a month later.

Once investors have had a proper chance to dig through the details of a report, and stock analysts have offered their assessments, the concept of headline profit as the immediate gauge can prove misleading. Fully valued Domino’s Pizza ((DMP)) dropped 4% when it reported on Tuesday but rallied 8% yesterday. The market initially saw a miss but analysts liked the numbers.

By contrast, stocks such as Newcrest Mining ((NCM)), G8 Education ((GEM)) and InvoCare ((IVC)) posted weak results which saw falls on the day and further falls since, while Ansell ((ANN)) shot up 18% on the day and has managed to hold onto that gain.

High frequency computers don’t have time to do the analysis when a result release hits the wires. They just respond to headline numbers and trigger words. Those who actually do the analysis, or at least take on board stockbroker analysis, have the chance to decide whether the initial response was justified or not.

Earnings results aside, there actually were some macro data to consider yesterday. It didn’t much impact the stock market but the fact the Aussie is 0.6% lower this morning at US$0.7652 is the result of June quarter wage index showing a mere 0.5% gain. This is in line with expectation but at 2.1% annual, wage growth remains at its slowest pace since numbers began being recorded in 1998.

Forex traders saw the release and immediately said “RBA rate cut”.

You Say Tomato

The Dow was down over 80 points from the open last night but ahead of the release of the July Fed meeting, had rallied back to square. On that release the market initially dropped sharply (computers) before bouncing straight back to a mildly positive close.

The FOMC is split. Some members just want to get on and lift rates while others remain cautious and would rather keep watching for more clues in the data. One gets the feeling they could do this forever. The Big Kahunas in the committee, such as Yellen, are on the dovish side so on the release of the minutes, the Fed funds futures priced in even less of a chance of a September hike and trimmed December’s chance as well.

Wall Street just scratched its head. Is this new era of Fed transparency, such that the world is witness to the internal squabbles, beneficial for markets? Or would we all be better off if the only time we ever heard from the Fed is via the official statement released after each meeting? Oh no, that might spark volatility. But all the Fed is managing to spark at the moment is confusion, frustration and criticism.

Speaking of confusion, the key driver of the US economy is domestic consumption which is why so much attention is paid to retail sales figures and retailer earnings results. Over the past week we’ve seen surprisingly good results from US department stores such as JC Penney, then a weak retail sales numbers after three months of very good numbers, and last night weak results from discount chain Target and hardware chain Lowe’s.

Wall Street is finding it difficult to get a handle on the US consumer.

It’s not hard to get a handle on oil, however. WTI is up another percent and Brent is very close to regaining the US$50/bbl mark. What will happen when Saudi Arabia walks away from next month’s OPEC meeting declaring no agreement?

Commodities

West Texas crude is up US53c at US$46.94/bbl. Brent is up US80c at US$49.85/bbl and the gap again begins to widen.

The US dollar index is flat at 94.73 and base metals played their own games last night. Copper and zinc rose 0.5%, aluminium and lead rose 1.5%, and nickel fell 3%.

Iron ore fell US70c to US$61.10/t.

Gold is relatively steady at US$1348.40/oz.

Today

The SPI Overnight closed up 3 points. Looks like we’re in for yet another day in which full attention will be paid to earnings.

We do, however, have the July jobs numbers out today but as each month passes, the market pays less heed given the volatility and often sheer incredibility of the results. Well, the numbers are delivered by the ABS.

It’s the biggest day yet for the earnings season in terms of volume of reports. Highlights today include AMP ((AMP)), ASX ((ASX)), Brambles ((BXB)), Origin Energy ((ORG)), Whitehaven Coal ((WHC)) and Western Areas ((WSA)).

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The Overnight Report: Fedspeak Returns

By Greg Peel

The Dow closed down 84 points or 0.5% while the S&P lost 0.6% to 2178 and the Nasdaq fell 0.7%.

The Big Loser

The mass media, it seemed, was prepared to call a state of emergency last night after BHP Billiton ((BHP)) posted its biggest loss in history and slashed its dividend. Of course the market has had plenty of time to anticipate such a result, and as such BHP shares closed up 0.5% yesterday.

Much was also made of the massive write-down of US shale oil assets bought, it can now be said with hindsight, at the top of the market. It may be the Not-So-Big Australian’s biggest ever loss but it’s certainly not the first time the company has spent big on expansion and subsequently crashed and burned.

Yesterday saw another session in which the macro played very little part, leaving individual stock moves on earnings results to dominate proceedings. Domino’s Pizza ((DMP)) underscored the reality that when you’re priced for perfection, you’ll be punished for falling short. The market sliced 4% off Domino’s but saved the big selling for another popular growth stock, G8 Education ((GEM)). It lost 12%.

InvoCare ((IVC)) is as about as defensive as a stock can be and hence is subject to overpricing in today’s low interest rate world, so no one sent flowers as its shares fell 4%.

On the winners’ side of the ledger, Challenger ((CGF)) showed retirees are prepared to lock in low interest rates for their lifetime and as such its shares rose 1.5%, while apartment builder Mirvac ((MGR)) gained 3% on its earnings beat.

The ASX200 hovered around the flatline for most of yesterday’s session but there was a bit of a stumble when the minutes of the August RBA meeting were released.

“In coming to their policy decision, members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time. They also observed that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”

This excerpt from the minutes is the nutshell explanation of why the board cut the cash rate to 1.50%. There was nevertheless nothing in the minutes to suggest the RBA will be cutting again in a hurry, nor any suggestion otherwise. Investors in yield stocks were likely hoping for a hint of the next rate cut, and subsequently we saw telcos down 1.1% and utilities down 0.8% in the session.

These were the biggest sector falls on the day, other than consumer discretionary which fell 1.1%. Misses from both Domino’s and G8 had investors reassessing other high-flying names in the sector trading at elevated PEs.

Providing the balance to the upside were the resource sectors, thanks to ongoing oil price strength and a rebound in base metal prices. Energy rose 1.1% and materials 0.8%.

Hawks Fly

A new triple-high for arguably the most unloved bull market in the history of Wall Street will always represent a point at which downside risk becomes elevated, and likely to manifest in the slightest little thing. Of particular note is the fact the consistent leaders in the US market over the course of 2016 have been the yield plays, particularly telcos and utilities.

At historically rich PEs, yield plays are very much open to interest rate scares so when New York Fed president and FOMC member William Dudley said last night said he thinks a September Fed rate hike is a possibility, nervous investors bailed.

Wall Street is relatively inured to Fedheads babbling on and making suggestions that never come to pass, or at the very least are ultimately overridden by queen of the doves, Janet Yellen. But just as oil prices have been rising on the potential no one gives any credit to, of Saudi production cuts, yield stocks fell last night on the potential of a September rate hike no one believes will happen.

Certainly there was nothing in last night’s July CPI release to suggest a rate hike is imminent. The headline CPI rose by only 0.1% to be up a mere 0.8% for the year, still impacted by low oil prices and food deflation. Take these out, and the annual core rate fell to 2.2% from 2.3% in June.

The Fed prefers the PCE measure of inflation to the CPI, but the CPI suggests little inflation-based support for a rate hike nonetheless.

That said, US industrial production rose 0.7% in July to mark its biggest gain in 20 months and housing starts rose by 2.1% to the second highest rate since the GFC.

The drop in yield stocks overwhelmed yet another strong night for the energy sector as the rally in the oil price continued. Another 1.5% gain suggests perhaps the shorts are not yet out of the market. But then there was the small matter of the US dollar to impact on commodity prices last night.

On Fedspeak, stocks fell and bonds rose a couple of basis points but the US dollar index did completely the opposite of what a rate hike suggests in falling 0.9% to 94.79. The reason for the counter-intuitive drop was a sharp rally in the pound.

US inflation may be benign but a surprise jump up in the UK CPI brought into question the scope the BoE may have of further combatting Brexit fallout with monetary easing.

Commodities

West Texas crude is up US70c at US$46.41/bbl.

The US dollar drop provided no support for base metals. Copper stood still again but lead, nickel and zinc all fell close to 1%.

Iron ore rose US$1.80 to US$61.80/t.

The dollar certainly impacted on gold, given it rose US$7.00 to US$1345.60/oz when a rate rise would have it going the other way.

Today

The SPI Overnight closed down 6 points.

Australia’s June quarter wage price index is out today and will be watched closely in the context of possible further RBA rate cuts.

The minutes of the July Fed meeting are out tonight.

Locally, today is the biggest day in the earnings season so far in terms of volume of stocks, and tomorrow will be that much bigger. Highlights today include CSL ((CSL)), QBE Insurance ((QBE)), Stockland ((SGP)) And Health Cares Primary ((PRY)) and Sonic ((SHL)).

Note that Commonwealth Bank ((CBA)) goes ex today.

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Material Matters: Coal, Iron Ore, Nickel And Aluminium

Price outlook for coal; iron ore consumption; China's steelmaking restructure; impact of Philippines nickel supply cuts; aluminium demand; Canaccord Genuity upgrades Galaxy Resources.

-Coking coal price to be well supported in next couple of months
-Heightened thermal coal price not expected to last
-Short-term iron ore prices unlikely to fall back
-Re-stocking the next driver of the nickel price?
-Aluminium supply likely to be forced offline again

By Eva Brocklehurst

Metallurgical (Coking) Coal

Spot prices for hard coking coal are approaching US$110/t, Macquarie observes, and a point where the entire seaborne market is cash positive. The broker notes this is unusual in a market where demand growth is negative and there has been no meaningful cost inflation, highlighting the importance of China in price setting.

The broker expects prices to remain well supported over the next couple of months, given Chinese inventories are low and mills are looking to increase purchases. The fourth quarter is expected to be more of a challenge. Macquarie suspects the Chinese government will find it difficult to control output levels as margins improve.

The broker also suspects, on a relative basis, that coking coal is less vulnerable compared with thermal coal, as it is more dependent on Shanxi province where production restrictions have been best enforced, and because there is less flexible supply in the seaborne market.

Thermal Coal

Credit Suisse notes China has implemented a 276 work day reform ahead of the demand for power for air conditioning. Domestic coal became so tight that traders turned to Australia for cargoes and the Newcastle price rose steeply in July, with global benchmarks following suit.

The broker does not expect the US$67/t price to last. Already China’s independent power producers are cancelling coal tenders as demand is expected to drop by 8-12% after the summer and output is gradually increasing.

The broker’s analysts believe the new normalised cost for thermal coal in China will be RMB400/t. This is the estimated sweet spot where both coal mines and the independent power producers make margin. Credit Suisse increases thermal coal price forecasts to US$55/t for 6,000 calorie coal from the December quarter to 2019, the equivalent in price parity terms to RMB400/t.

Iron Ore

Since July 2015 the correlation between iron ore and Chinese steel prices has increased to over 63% from 11%, ANZ analysts observe. China has announced it will reduce its steel production capacity by 100-140m tonnes but to date there has not been much evidence the closures are accelerating. Steel production has remained at elevated levels for most of the year.

Still, this may start to ramp up with Baosteel and Wuhan Iron & Steel, the two largest steel producers, recently announcing plans to restructure. The analysts maintain the eventual large scale closure of steelmaking capacity in China is ultimately bearish for iron ore. Yet selective stimulus measures, including support for the housing market, have gone a way toward supporting steel demand.

The analysts are now forecasting steel consumption in China will only fall 0.5% in 2016 against forecasts for a fall of 4.9% at the start of the year. The potential for upside to this forecast is increasing, should infrastructure spending be boosted. Hence, the likelihood of iron ore prices falling back to US$50/t in the short term is rapidly diminishing, the analysts maintain.

Nickel

To date eight out of 27 nickel mines have been told to suspend operations in the Philippines since the nationwide audit began in July. UBS observes these are generally smaller mines and accounted for 10% of the Philippines contained nickel production in 2015 and 2% of global supply.

The Philippines supply contracts are from July to January each year so the broker suspects the real impact may not be felt until early 2017 when exports fail to ramp up as normal. The broker envisages the nickel price, which averaged US$4.78/lb in the past month, is not yet on a sustainable footing, with 20-30% of mines still losing cash, albeit less than a month ago.

Meanwhile, stainless steel production looks to be lifting again after two years of flat output. The broker believes re-stocking could be the next driver of upside to the nickel price.

Credit Suisse contends there is the real threat that nickel ore could be cut off in the Philippines. The new environment minister has stated that open pit mining wreaks havoc on the islands and the mining law must be revised. A ban on open pits would end nickel laterite mining in the Philippines, the broker maintains.

Other producers of nickel laterite ore are Indonesia and New Caledonia. Indonesia banned raw material exports in 2014 and New Caledonia has always favoured domestic ferronickel producers over exports. Credit Suisse finds it difficult to imagine, if Philippines supply ceases, that another nickel ore supplier will step into the breach for China’s nickel pig iron producers.

Aluminium

2016 may reveal the first primary aluminium deficit in a decade, Macquarie asserts. The broker suggests this may disguise the fact that a stronger China is pushing less aluminium into the global market while outside of China demand is weaker than expected and struggling to absorb inventories.

Macquarie suspects there will be a resurgence in Chinese output, given the expansion of capacity being witnessed in Shandong, Xinjiang and Inner Mongolia. Output ex China is also running at record levels and the broker calculates almost all smelters are making money.

As a result, Macquarie expects the price will return to a level at the end of 2016 and into 2017 where supply is once more forced to come offline. Production growth in China still drives the market and the broker acknowledges surprises can dramatically change the market balance.

Any expectations of raw material constraint have dissipated, the broker adds. Despite a temporary ban in Malaysia, bauxite is readily available from Guinea and the Chinese domestic market.

Galaxy Resources

Galaxy Resources ((GXY)) has completed the acquisition of General Mining, with the focus now turning to the ramp-up of production at Mt Cattlin. Canaccord Genuity expects other catalysts to be forthcoming soon, including the Sal de Vida definitive feasibility study.

Galaxy remains one of the broker’s preferred lithium exposures. The broker's valuation is revised on the back of increased share numbers resulting from the General Mining acquisition, consolidated ownership of Mt Cattlin and James Bay and the revised production ramp up at Mt Cattlin.

Canaccord Genuity upgrades to Buy from Speculative Buy and raise the target to 65c from 60c.

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The Overnight Report: Another Record

By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.3% to 2190 and the Nasdaq added 0.6%.

Earnings Driven

In the August earnings season of 2015, the ASX200 fell 8.6% across the month. In the February season before that, the index rose 6.1%. In February this year, the index netted a 2.5% fall but that included a big commodity price-based drop and bounce mid-month. In each case, macro factors impacted on the market’s beta – its movement as a whole.

In this August season, the market as a whole is going nowhere much, as international markets also largely stall. What this means, unlike recent prior seasons, is that earnings results can be clearly reflected in stock price movements on alpha, or individual, stock risk without the overriding macro, or beta movement. Yesterday was a clear example.

The index did little, recovering from a slight dip in the morning to post a slight gain on the close. But under the surface sector moves were more notable, thanks to individual stock moves in those sectors. In short: the beats and misses.

Ansell ((ANN)) was the big winner on the day, rising 18% after posting a “less bad” result and announcing it might toss off its condom business. Short positions had been building in Ansell ahead of the season, and for reasons which continue to confound, JB Hi-FI ((JBH)) has always been popular with the shorters. Yet virtually every season the electronics retailer beats, and yesterday was another win which saw JB shares up 10%.

Packaging company Orora ((ORA)) has been a popular defensive plodder for investor portfolios this year but it still managed a 10% gain on the day. On the other side of the ledger, coal hauler Aurizon missed and suffered a 6% fall, and while Newcrest’s ((NCM)) numbers were not so bad, gold stocks have been bought up in a frenzy this year to stretched valuations. Its shares fell 4%.

Adding to the mix was National Bank ((NAB)), which provided a reasonable quarterly update that had its shares up 1%.

So we don’t need to look far to understand why the big sector movers yesterday were healthcare, up 0.5%, consumer discretionary, up 0.8% and the banks up 0.6%, with materials down 1.5%, and industrials little changed on the balance. We also saw some support returning for two sectors lately sold off to provide rotation funding – telcos and utilities.

On the assumption there are no left of field impacts on global markets for the next two weeks, and that’s always a big assumption to make, the season will continue in the same vein. The difference from here on in is the number of companies reporting each day will grow larger and larger, making it more of a task to unscramble the movements.

Hi, Hi, Hi

A second triple-high for all of the Dow, S&P and Nasdaq within two sessions of the first in sixteen years is a bit like winning the silver, but still more exciting than following Australia’s Olympic campaign. The way things are going these records will become routine, as there seems no reason for Wall Street to go down in any meaningful way at present.

And that’s a fact traders, investors and commentators reluctantly admit. You’d think they’d be thrilled, but they know it’s all just smoke and mirrors. Stock markets have turned into bond markets, offering more investment yield than long term government debt, because central banks across the globe have orchestrated such an investment environment.

It is not how it’s meant to be.

In the meantime, there’s no point in “fighting the tape”. The VIX volatility index suggests a high level of complacency, and that has traders worried. But with central bank safety nets in place, what’s there to worry about? Perhaps the time to worry will be when global economic growth starts to fade away completely, and central banks realise there is no more they can do.

Tech stocks continue to be a significant leader on Wall Street, and here we’re talking both old and new. Developments in areas like the cloud and Big Data, electric cars and the Internet of Things are 21^st century growth stories changing the landscape. Meanwhile, 20^th century pioneers like Microsoft, Apple and IBM are also in the game as they reinvent themselves.

Oil is a very old story on Wall Street but no less fresh today. The oil price rose another 2% last night, providing extra impetus to hit those new highs. Apparently the Russians are now in the game, reporting to Saudi newspaper they are prepared to talk production cuts. Still no one believes it, but still no one wants to be caught the day there really is a wolf.

Last night’s US data highlight was the housing market sentiment index, which rose to a comfortable 60 (50 neutral) to beat expectations. Housing is as significant and underlying economic driver in the US as it is in Australia at present.

All up it was another summer-quiet session on Wall Street, and another grinding gain. In two weeks we enter September, historically the worst month for stock market performance, followed by October, historically the scariest.

Commodities

West Texas crude is up US$1.02 to US$45.71/bbl.

After some big falls on Friday night, base metals staged a comeback of sorts last night. Nickel rebounded 2.5% and zinc 1%, while aluminium rose 1% and lead 1.5%. Copper stood still.

Iron ore fell US20c to US$60.00/t.

Gold rose US$2.90 to US$1338.60/oz.

Currency was not in play last night, with the US dollar index largely flat at 95.61. Yet the Aussie is up 0.3% at US$0.7674.

Today

The SPI Overnight closed up 8 points.

The minutes of the August RBA meeting will be released today.

In the eurozone, the ZEW survey will provide an indication of investor sentiment a month after the Brexit result.

The Fed will be talked about again on Wall Street tonight as US numbers for CPI, industrial production and housing starts are released.

On the local stock front, the number of earnings reports will grow today. The highlight is BHP Billiton ((BHP)) but that report is not actually due until 6pm to tie in with London investors.

During the session downunder, Challenger ((CGF)), Domino’s Pizza ((DMP)), G8 Education ((GEM)) Mirvac ((MGR)), and Scentre Group ((SCG)) are among the crowd today.

Rudi will Skype-link up with Sky Business today to chat about broker calls, at around 11.15am.

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The Monday Report

By Greg Peel

Shanghai-ed

The triple treat high on Wall Street on Thursday night and stronger oil price ensured the ASX200 was off to a solid start on Friday morning. The opening rotation had the index up over 40 points to almost reach 5550.

There was always a risk Friday would bring some selling ahead of the weekend break given a largely steady week of trading but as it was, the index suffered a sudden drop late morning.

I have been noting so far this month that the local market has not seemed to pay any attention to Chinese data releases, which have all been to the weak side. Whether this be due to comfort in the knowledge Beijing will simply step up the stimulus pace or whether there have just been other overriding factors to consider, such as local earnings, is unclear. But it would seem that on Friday, all that changed.

Chinese industrial production rose 6.0% year on year in July when 6.1% was expected, down from June’s 6.2%. Retail sales grew 10.2% when 10.5% was expected, down from 10.6%. And fixed asset investment grew 8.1% in the year to July, down from 9.0% to June and missing 8.8% expectation.

The market has been assuming that at some point, Chinese data would begin to reflect the monetary and fiscal stimulus policies the PBoC and government have in place. Clearly there’s no sign yet. Breaking down that fixed asset number we see private sector investment grew 2.1% to July, down from 2.8% to June, and government investment grew 21.8%, down from 23.5%.

Private sector investment growth is negligible, and even government spending has waned. What will Beijing do?

The two sectors most directly linked to the Chinese economy – energy and materials – still managed to post the biggest sector gains on Friday, as the index bottomed out at the flatline and kicked again late afternoon to close 22 points higher. Energy rose 1.7% on the oil price pop and materials rose 1.3% despite little support from metals prices.

Elsewhere, consumer discretionary was again a winner, along with healthcare, while the telcos came under further pressure and selling in utilities – the proceeds of which still appear to be rotating into the more cyclical sectors -- continued.

Other than the release of minutes from policy meetings, there’s not a lot of central bank action to move markets this week ahead of next week’s infamous Jackson Hole gathering hosted by the Fed. There’s a fair bit of US data to get through, but for the local market it will be all about earnings results. The season steps up to full pace as the week progresses.

Not 1999

It looked more like a typical Friday session in summer for Wall Street on Friday night. Having hit the triple-high in all three major indices for the first time since December 1999, it was always a chance a breather would ensue.

The Dow closed down 37 points or 0.2% while the S&P lost 0.1% to 2184 and the Nasdaq gained 0.1% to another new all-time high.

There was, inevitably, much comparison being made on Wall Street on Friday with what transpired the last time the triple-high was achieved. Triple-highs had been achieved over a hundred times ahead of 1999, but because what followed was the Tech Wreck, and the complete routing of the Nasdaq, it’s taken this long to happen again.

Should we be worried that the biggest drop in stock markets prior to the GFC might repeat based on this triple high phenomenon? Well, consider that back then the concept of “online” was still a mystery to most people and tech stocks were trading on a Tomorrowland basis – don’t ask, just get on, as this thing is BIG.

The IPOs came fresh and fast from start-up dotcoms that had no more to offer than an idea, and given actual earnings were but a pipe dream at that stage, average PE ratios were off the scale and largely meaningless. Today’s Wall Street PEs are reasonable in historical terms. Back then the Fed funds rate was 5% and today it’s 0.5%. Back then there were more dotcom offerings than you could poke a stick at. Most disappeared the following year. Those that survived have gone on to be household names – such as the likes of Amazon and eBay for example.

So there is no basis to be worried about any sort of repeat performance, unless of course something altogether different transpires that no one ever saw coming.

Back in the real world, Wall Street was shocked by the July retail sales number released on Friday night. After three months of solid growth, including a 0.8% jump in June, economists had been predicting a bit of an easing in the pace of growth, to 0.4%. So the flat result was a surprise.

Month on month numbers are typically volatile, and at an underlying annual growth rate of 2.3%, retail sales are helping to support the US economy without knocking it out of the park. Hence we see a GDP growth rate around a mere 1%. But of course, just as commentators had been pointing to improving US data, including retail sales, as reason the Fed may yet hike this year, now that’s all out the window once more.

The US ten-year yield fell 6 basis points to 1.51% on Friday and the US dollar index fell 0.2% to 95.68.

The US stock indices held their ground. It may have been a weak result for July retail sales, but last week featured a lot of surprisingly good (or less-bad) results from longstanding US retail names and on Friday JC Penney joined that group, enjoying a 6% share price jump on its quarterly earnings result.

The oil price also jumped another 3%, despite data showing the US oil rig count climbed for the seventh week in a row. The shorts continue to jump out of oil as the Saudis talk their now hackneyed talk once more of possible production freezes. No one believes a freeze will transpire but no one’s prepared to take the risk were it to be true.

Commodities

West Texas crude rose US$1.24 or 2.9% to US$44.69/bbl.

Over in London, it appears metals traders were very much focused on the weak Chinese data. Throw in the weak US retail sales number, and nickel fell 4%, copper 2% and zinc 1.5%.

Iron ore rose US60c to US$60.20/t.

Gold is slightly lower at US1335.70/oz.

The Chinese numbers also had a notable impact on the Aussie, which is 0.7% lower at US$0.7650.

The SPI Overnight closed down 11 points or 0.2% on Saturday morning.

The Week Ahead

Earnings, earnings and more earnings to hit the local market this week – too many to offer weekly highlights. Among today’s reporters are Ansell ((ANN)), JB Hi-Fi ((JBH)) and Newcrest Mining ((NCM)), while National Bank ((NAB)) will provide a quarterly update.

Local data this week include tomorrow’s minutes of the August RBA meeting, which gave us a cut, and the June quarter wage price index on Wednesday.

US data this week include the housing sentiment index and Empire State activity index tonight, CPI, housing starts and industrial production tomorrow, the minutes of the Fed meeting on Wednesday and the Philly Fed activity index on Thursday.

Tomorrow night also sees the monthly ZEW investor sentiment index for the eurozone, which presumably will provide some indication of what Europe thinks about a Brexit.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls at 11.15am and repeat it all again on Friday, at around 11.05am.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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The Overnight Report: Oil Reversal

By Greg Peel

The Dow closed up 117 points or 0.6% while the S&P rose 0.5% to 2185 and the Nasdaq gained 0.5%.

Phone Home

We don’t have to look far to see why the ASX200 closed down 35 points yesterday. The big movers to the downside were telcos and banks.

Telstra ((TLS)) posted a disappointing result and an undercooked dividend increase, sending its shares down 1.6% and the telco sector down 1.3%. Westpac provided a soft quarterly update which renewed the pressure on all bank stocks, sending that index down 1.2%.

Energy was weaker on the fall in the oil price but that will likely reverse with interest today. Materials were also weaker but that includes Rio Tinto going ex.

Elsewhere we saw another 1.1% fall for utilities matched out by a 1.2% gain in consumer discretionary – the rotation trade out of expensive yield and into growth. We must remember that the discretionary sector covers a wide range of companies, not just traditional shop-front retailers. There’s pizza, there’s car parts, there’s classifieds, hotels and vitamin tablets, to name a few.

We also recall that investors shifted into banks early in the week on a good result from Bendelaide and a positive update from ANZ, assuming all boats would float. We’ve since seen a so-so result from CBA and a soft update from Westpac, thus the market has shifted back out again.

We can also note from a technical perspective that while the index traded as low as 5483 yesterday, it closed a little above 5500. We like round numbers. If we can see 5600 reached in the near term the technicals remain bullish. This morning the futures are suggesting we should recover yesterday’s losses but next week will be telling as the earnings season significantly steps up the pace.

Triple Header

All of the Dow, S&P and Nasdaq closed at new all-time highs last night. It has taken until 2016 for the Nasdaq to regain its prior all-time high posted in 2000, just ahead of the tech-wreck. Therefore while it has been common in recent years to see the Dow and S&P both hit new highs in a session, last night was the first time since 1999 all three major indices achieved the feat simultaneously.

There were two major drivers for last night’s strength on Wall Street. The first was a big move up in the consumer discretionary sector, which has distinct importance in America’s consumer-driven economy.

Department store Macy’s posted an earnings beat which took the market by surprise, but the main reason the stock jumped 17% in the session was the announcement Macy’s would close 100 stores across the country. Finally, investors concluded, the old world retailers are realising floor space is but a cost-drag in the online world. Rival Kohls also posted an earnings beat, and its shares jumped 18%.

The other major driver was the oil price, which having fallen on Wednesday night on announced record Saudi production, rebounded over 4% as the shorts scrambled to cover. As to whether such cover is necessary is nevertheless debatable.

I noted yesterday, “OPEC will be meeting shortly for the usual charade of talking production cuts, but it is unlikely Saudi Arabia will do anything other than stay the course”. Well whaddya know, last night the Saudis indicated that in the unofficial OPEC production meeting set for September (the next official one would be December), Saudi Arabia would be open to discussions about production freezes.

They must all fall about over in Riyadh every time they pull this stunt and the oil price stages a Pavlovian surge. OPEC will meet, Iran, if it attends, will say “we’re not freezing” and thus the Saudis will say “well we’re not freezing either”. Then everyone will go home.

But on the Nymex, it would seem it’s safer to be square than caught out.

While such a sharp reversal for oil was interesting last night, it was also interesting to see the US dollar index jump back up 0.4% to 95.93, having fallen on Wednesday night, and the US ten-year yield jump back up 6 basis points to 1.57%, having fallen on Wednesday night. Unusually, stocks are leading bonds on Wall Street at present, traders have noted.

Commodities

West Texas crude is up US$1.92 or 4.6% at US$43.45/bbl.

It was a mixed bag in London, with aluminium, copper and lead all rising 0.5% while zinc fell 0.5% and nickel fell 1%.

Iron ore fell US$1.10 to US$59.60/t.

On dollar strength, gold is down US$7.50 at US$1338.30/oz.

The Aussie is a tad lower and sitting smack on US$0.77.

Today

The SPI Overnight closed up 33 points or 0.6%.

Following the strong department store numbers overnight, Wall Street will be looking tonight to see whether this is matched in July retail sales figures.

Ahead of that release we see a data dump from China today, featuring July retail sales, industrial production and fixed asset investment numbers.

James Hardie ((JHX)) is among those reporting earnings today while Suncorp ((SUN)) will go ex.

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The Overnight Report: Oil Pressure

By Greg Peel

The Dow closed down 37 points or 0.2% while the S&P lost 0.3% to 2175 and the Nasdaq fell 0.4%.

More Alpha

Once again no lead from offshore, so once again the opportunity for the local market to focus solely on earnings results yesterday. The biggie was of course Commonwealth Bank ((CBA)).

CBA was always at risk of a sell-off on any result that was not a clear beat given bank stocks had been bought up in prior sessions thanks to positive numbers out of Bendigo & Adelaide and ANZ. As it was, CBA’s result was solid enough but the shares copped a 1.3% drop. The bank sector as a whole nevertheless fell only 0.2%.

The big sector mover on the day was little info tech, which rose 3.7% thanks to a good result from its dominant component Computershare ((CPU)). Its shares jumped 9%. And it was clear the market was ready to buy up healthcare favourite Cochlear ((COH)) on any dip in price. Having initially dropped on its result the day before, Cochlear rose 7.6% and the healthcare sector gained 1.4%.

These two sectors balanced out falls across the board otherwise, although the index did manage to turn around from an ominous 30 point loss late morning to post a fairly benign close.

With Australia’s economic transition currently hinged very much on the housing market, yesterday’s June housing finance numbers were a positive influence. Total lending rose 2.3% in the month, reflecting the impact of the May RBA rate cut. The balance retained the prevailing trend nonetheless – loans to owner occupiers rose and are higher over a year and loans to investors rose but are 13% lower over a year.

Glenn Stevens was likely comfortable with the figures, but was probably polishing his nine iron as the data hit the screen. The outgoing RBA governor took the opportunity of his final public speech yesterday to drop the usual vague central bank rhetoric and tell it like it is.

The more central banks throw stimulus at an economy, the less effective each incremental action becomes, Stevens said (I’m paraphrasing). Don’t think the Australian economy can simply be supported by further rate cuts. It is time (indeed it’s long been time) for the government to play its fiscal part.

The government, or any Australian government, is terrified of increasing the budget deficit, so Glenn is of course talking to a brick wall. Borrowing rates have never been so low in history. But heaven forbid, Australia might lose its AAA rating were it to borrow further to provide economic stimulus. And we can’t afford to do that, because then it would cost more to borrow. The confounded logic of this argument I find exquisite.

Defiant Saudis

Venezuela – an OPEC member currently on its economic knees – has called for oil production cuts. Saudi Arabia, the world’s biggest producer, posted record production in July. OPEC will be meeting shortly for the usual charade of talking production cuts, but it is unlikely Saudi Arabia will do anything other than stay the course.

Weekly US oil inventories also came in higher than expected last night so the WTI crude price is down 2.9%. The US energy sector was a leader on the downside last night. The other downside leader was financials.

Prior to the release of the weak US June quarter GDP number, a regular auction of US Treasuries saw surprisingly little demand. The market, globally, had decided a Fed rate hike was not too far off. Last night’s auction of US ten-years, on the other hand, saw a stampede of demand, mostly from offshore, being central banks, sovereign wealth funds and and big pension funds.

The world has now decided there won’t be a Fed rate hike anytime soon. US markets knew that already, but it didn’t stop the US ten-year yield falling 4 basis points to 1.51 and the US dollar index dropping 0.5% to 95.60. No rate hikes means no joy for US banks, so they were sold off.

Otherwise Wall Street remained resilient once more. Discretionary retailers were in the frame on the earnings front last night, but results were both good and bad among them.

Prior to the strong US jobs number for July, the S&P500 had been stuck in a range of 2165-75 for an historical length of time. The jobs number sparked a step-jump before Wall Street stalled once more. Last night’s selling took the S&P back to 2175, which now becomes the bottom of the range.

Commodities

West Texas crude is down US$1.22 at US$41.53/bbl, defying the support otherwise offered by the drop in the greenback, suggesting the fall could have been even more significant.

The dollar drop provided some support for base metal prices in London but while all moves were positive, none exceeded 1%.

Iron ore fell US70c to US$60.70/t.

A half percent drop in the dollar is positive for gold, which rose US$5.20 to US$1345.80/oz.

The dollar fall was matched by a 0.5% rise in the Aussie to US$0.7709.

Today

The SPI Overnight closed down 5 points.

The RBNZ this morning again cut its cash rate, by 25bps to 2.00%. No surprises there.

Another benign offering from offshore suggests another day of concentrating on earnings results in the local market today, with the exception of the weaker oil price and the impact that will have on the local energy sector.

Today’s reporters include Telstra ((TLS)) and Goodman Group ((GMG)) among some smaller names. James Hardie ((JHX)) will hold its AGM.

And note Rio Tinto ((RIO)) goes ex-dividend today, which will impact the materials sector’s apparent move.

Rudi will be interviewed on Switzer TV between 7-8pm tonight, on Sky Business.

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The Overnight Report: Going Nowhere

By Greg Peel

Alpha

It seemed like a quiet session in the local market yesterday as the index grafted slowly to a small gain following no real lead from offshore and minimal change in commodity prices. As calm descends on offshore markets, the local market is able to focus more specifically on earnings season.

The result is a lot going on under the surface of the index move, within sectors and individual stocks – the latter known as “alpha” movement which is not related to the market as a whole. Here there were some noteworthy moves yesterday.

Following on from Bendigo & Adelaide Bank’s ((BEN)) well-received profit result on Monday, yesterday ANZ Bank ((ANZ)) provided a quarterly update that was also well-received, mostly as it appears the bank may not be forced to raise new capital. Again all the banks were sought after, to provide a 1% gain for the financials sector and the bulk of index upside.

I have highlighted an apparent theme lately of rotating out of expensive defensives and into cheaper cyclicals, but perhaps this theme is a more simple one of rotating out of anything expensive into anything cheap. As market commentators have observed, results in line with expectation are evoking selling in a stock while even not so good results are encouraging buying as long as that stock was considered cheap beforehand.

The banks are a case in point – neither Bendelaide’s nor ANZ’s reports were anything to be too excited about, but buying has followed. Fund manager IOOF Holdings ((IFL)) copped a 7% trashing for a benign result, while market darlings in utilities and healthcare – Transurban ((TCL)) and Cochlear ((COH)), also saw selling following their results.

Sector moves were therefore a bit of a mish-mash yesterday. The result season is very much in its infancy, so really the games have only just begun. Woe betide any expensive stock that posts a miss.

And returning to the “China? Who Cares?” theme, yesterday we saw the Chinese headline CPI come in at a 1.8% annual rate for July, representing the third straight month of easing inflation. The PPI fell 1.7% to continue its unbroken four-year deflation trajectory, although the pace of deflation appears now to be slowing.

While slowing Chinese inflation should be bad news from an economic perspective, the fact it provides scope for further PBoC action is the countering good news.

Unproductive

Last night saw the release of June quarter productivity numbers in the US. Productivity (GDP per man hours worked) fell 0.5% when a 0.3% gain was expected.

This represents not only a big surprise, but the third straight quarter of productivity reductions. The only times a three-quarter decline has been booked in recent decades were in recessions. There are plenty of economists who have been warning for a while that the US is at risk of falling into recession.

The very weak June quarter GDP result gave weight to such an argument, and now this productivity number has provided a red flag. It is anticipated the relatively strong run of jobs numbers is soon to come to an end.

But does Wall Street care? Clearly not. If jobs numbers start to fade and/or the US falls into recession, there will be no Fed rate hike. And perhaps, if the situation warrants, QE will be reintroduced. The downside, therefore, is limited. And the need for yield is further underscored.

Markets that can’t seem to go up will typically go down instead. However this is not the case on Wall Street at the moment. Rather, the market has gone up and everyone’s happy for now, leaving volumes to drop away during the holiday period. It is not advisable to sell into a market when no one’s around. A market rising on low volatility is considered bullish, despite being boring.

Commodities

There was not much going on in commodity markets last night either.

Base metal price moves were again mixed and minimal.

Iron ore is unchanged at US$61.40/t.

West Texas crude is down US10c to US$42.75/bbl.

The US dollar index is down 0.3% at 96.10 and gold is up US$5.60 at US$1340.60/oz.

The Aussie is up 0.2% at US$0.7668.

Today

The SPI Overnight closed up 10 points or 0.2%.

Westpac will release its monthly consumer confidence survey today while June housing finance numbers are also due. RBA governor Glenn Stevens will be making a speech today.

The biggest stock on the market will release its earnings result today, being Commonwealth Bank ((CBA)). The banks have seen some buying these past couple of days so CBA will not want to disappoint.

AGL Energy ((AGL)), Fairfax Media ((FXJ)) and OZ Minerals ((OZL)) are among others reporting today.

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Tag Archives: Iron Ore

The Monday Report

The Overnight Report: Oiled Up

The Overnight Report: Minutes Of Dispute

The Overnight Report: Fedspeak Returns

Material Matters: Coal, Iron Ore, Nickel And Aluminium

The Overnight Report: Another Record

The Monday Report

The Overnight Report: Oil Reversal

The Overnight Report: Oil Pressure

The Overnight Report: Going Nowhere