Tag Archives: Precious Metals

article 3 months old

The Overnight Report: Risk Back On

By Greg Peel

The Dow closed up 134 point or 0.7% while the S&P rose 0.5% to 2163 and the Nasdaq gained 0.6%.

Hit for Six

I suggested in yesterday’s report that it may not be the day in which the ASX200 manages to breach the brick wall of resistance at 5400. Ultimately I was proven wrong, but it was no simple feat. On my count, the index rose above that level before pulling back to or below that level six times in choppy trading yesterday before the final assault.

At 2pm, just when it looked like the sellers may just win on the day, we turned and rallied to a close of 5411. With Wall Street up again last night, we may cement that breach today, although it’s interesting to note the S&P500 closed up half a percent in the US but the futures are only suggesting 0.1% for the local index today.

Bridge Street has seen its sixth consecutive up-day. But aside from Monday’s big surge, it’s been a grafting, somewhat cautious climb. On the other side of 5400, there’s a bit of a “Now what?” feel.

We actually saw a positive jobs number yesterday. On face value the net 7,900 jobs added fell short of 10,000 expectations but the big surprise was the mix – 38,400 full-time jobs were added and 30,600 part-time jobs were lost. For the past several months, apparently strong employment results have been misleading, given growth has been almost entirely led by the addition of part-time jobs. A job is a job on the ABS count, be it full or part-time. But part-time jobs mean fewer hours worked, thus lower net wages, thus limited positive economic impact.

So to see this sudden and sharp turnaround is heartening. We also saw the unemployment rate tick up to 5.8% because of increased participation – more people trying to find work – which again is an encouraging sign.

It’s not yet enough to suggest inflation is about to pick up again, so there is no reason yesterday’s jobs numbers would prevent the RBA from cutting in August once the June quarter CPI result is known.

After a very strong run this week, the resources sectors finally saw some profit-taking yesterday. Materials fell 1.3% and energy 0.6% to be the only sectors to finish in the red. The banks have also been a significant driver of the rally to 5400, but they had another positive session yesterday with a 0.8% gain. Elsewhere, gains were roughly even, but the defensive sectors continue to remain just as popular, indeed if not more popular, than cyclicals overall.

The new buzz word on acronym-obsessed Wall Street is STUB – staples, telcos, utilities and bonds. With Wall Street at new all-time highs, the outperformers in 2016 to date have been the people who make toothpaste, the people to whom one pays one’s phone, electricity and gas bills each month, and government-issued fixed interest. Investments that quietly yield while carrying limited risk.

In Australia, the picture is not dissimilar, if we substitute the likes of a pizza chain in for staples and toll roads for utilities, for example. The question is: how high can we continue to go on defensives? To get cyclicals up and running again – meaningfully -- we need some central bank stimulus.

Some days are Dimon’s

The Bank of England did not cut its cash rate last night, defying an 80% chance priced into the futures market. While this sounds like a trigger for major volatility, it wasn’t.

It wasn’t, because between the time BoE guvna Mark Carney suggested he would likely cut the cash rate and now markets have moved from Brexit panic to Brexit complacency, and from a collapse in the pound to…well…a still-collapsed pound. In other words, the BoE does not need to cut the cash rate to stop a market crash, nor to try to force currency devaluation. Markets have recovered and the pound has re-based, which alone should provide the additional economic stimulus the UK needs through this ongoing period of uncertainty.

The response on the UK stock market was a 0.2% fall. The response on Wall Street was…hey did you see JP Morgan’s result!

Right up to the last minute, analysts were marking down their forecasts for JP Morgan’s (Dow) June quarter earnings. We could thus say it was always going to be easier to post a “beat”, but as it was the bank’s result was very impressive not just in its EPS, but in the breakdown of where it made money and where it didn’t lose it. Most notable was a solid performance in consumer-related banking, and most comforting was no attempt to use Brexit as any sort of excuse.

The US banks have been enjoying a rally back from initial Brexit lows, just as Australian banks have been doing, and as such have been leaders in the push to new all-time highs. The banks themselves are nevertheless a very long way from all-time highs. JPM’s result helped float all US banks last night and thus lead this latest move into blue sky. Tonight sees results from Wells Fargo and Citigroup.

The other talking point on Wall Street last night was the June producer price index release. It posted the biggest jump in more than a year in rising 0.5% on the headline against 0.3% expectation. It was all about the oil price rebound nonetheless, and the core PPI remains in the doldrums.

Wednesday night on Wall Street saw a bit of a pause, as stock indices steadied and a bit of money flowed back into bonds and gold. It was as if Chris Froome had come off his bike and had to jog for a bit. Last night saw the stock rally kick back in, gold fall back again and the US ten-year yield rise 6 basis points to 1.53%, as Froome got back on a bike.

Commodities

The US dollar index is down 0.3% at 96.09 following a mild bounce in the pound on no rate cut. But gold is down US$7.70 at US$1334.60/oz.

Copper took a breather last night in a session which saw all other base metals mildly higher.

Iron ore fell US70c to US$58.00/t.

West Texas crude rose US39c to US$45.50/bbl.

The Aussie is 0.4% higher at US$0.7633.

Today

The SPI Overnight closed up 6 points. It’s a Friday, we’ve had six up-days in a row and we’re sitting just above what was major resistance. A bit of profit-taking today?

Beijing may have something to say about that. China’s June quarter GDP result is out today, alongside June industrial production, retail sales and fixed asset investment numbers.

Retail sales will also be in focus in the US tonight, amidst the big earnings reports.

On the local stock front, Whitehaven Coal ((WHC)) and Mt Gibson Iron ((MGX)) post quarterly production reports today.
 

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article 3 months old

Material Matters: Iron Ore, Energy, Base Metals And Gold

-Iron ore production growth uncertain
-OSH, STO hard hit by soft LNG prices
-Losses still accruing for nickel producers
-NAB analysts: gold to resume downtrend 
 

By Eva Brocklehurst

Outlook

Heightened financial market volatility is dominating most commodity markets yet National Australia Bank analysts contend it is the fragile balance of supply/demand factors which is most material to the outlook.

The NAB US dollar denominated non-rural commodity price index is expected to fall by around 13% in 2016 and a further 8% in 2017, led by iron ore prices. US dollar appreciation is expected to partly offset the decline in Australian dollar terms. Overall, the analysts suggest Australia's terms of trade will continue its gradual descent.

Iron Ore

The analysts note iron ore and metallurgical coal prices have risen considerably in recent months as a credit-fueled rebound in Chinese construction activity underpins steel production. They argue that this is not sustainable, given excess property supply in many locations. Prices are expected fall on weaker demand, but the duration of the current uptrend is unclear. The analysts expect iron ore prices to average US$42.50/t in the second half of 2016 and US$40/t in 2017.

Port Hedland export data for June shows iron ore exports totalled 41.8mt, a record month both in terms of tonnage shipped and daily run rate. This should not be a surprise, UBS maintains, as Roy Hill is now contributing to exports along with the other big three.

The broker estimates BHP Billiton's ((BHP)) share for the month is 56.0%, up 9% sequentially. Fortescue Metals ((FMG)) share is 35%, up 6% sequentially. Roy Hill shipped around 2.0mt in the month of June, as it ramps up towards nameplate of 55mtpa.

Macquarie suggests BHP will miss its FY16 iron ore shipment target, with a 255mt result considered likely against a target of 260mt, while Fortescue could deliver a slight beat to guidance. The ramp-up at Roy Hill, which has gathered pace, represents some upside risk to iron ore supply estimates in the second half, the broker acknowledges.

Growth beyond 2016 is uncertain, Macquarie contends, with recent commentary, particularly from Rio Tinto ((RIO)), suggesting the commitment to its 350mtpa target could start to diminish.

Energy

Oil markets suggest significant upside risks exist to global supply in the short term, despite falling US production. Therefore, the NAB analysts maintain up-moves in prices will be relatively constrained in the near term and prices will fluctuate between US$45 and US$50 a barrel in the September quarter. LNG prices are also expected to be subdued unless there is a substantial jump in the price of oil.

UBS observes, with LNG prices lagging oil by around three months, these should bottom in the June quarter. Stocks such as Oil Search ((OSH)) and Santos ((STO)) are expected to be hardest hit, with the forecast LNG price to be 20-23% below the first quarter. The downside protection in Woodside Petrolem's ((WPL)) LNG contracts is expected to limit revenue declines to 3%.

Coal

NAB analysts expect hard coking (metallurgical) coal contract prices to average US$89/t in the second half and US$84/t in 2017. Thermal coal prices are expected to decline in the next Japanese fiscal year to US$58/t.

Citi upgrades its thermal coal price forecasts for 2016-19 by 12-37% and coking coal forecasts by 2-19% for 2016-18. The broker expects a recovery in coal, as well as in oil and copper prices, will drive BHP Billiton's earnings higher in FY17, partly offset by the bearish outlook for iron ore prices. For Rio Tinto, the broker suspects the upgraded coal prices will be largely offset by higher Australian dollar forecasts.

Base Metals

For base metals, the NAB analysts note demand from China has supported copper recently while aluminium faces favourable long-term demand from car making and power generation. Weak prices for nickel have delayed rather than cancelled new supply, they observe. Meanwhile, zinc deficits are expected in 2016 and 2017 and lead remains well supplied.

UBS observes the new government in the Philippines is placing its mining industry under greater scrutiny. This has potential to constrain or reduce the nickel ore export trade over time. At stake is around 400,000tpa of contained nickel supply which is mostly exported to China. This trade accounts for around 20% of global mined supply and almost all of China's nickel pig iron feed.

The nickel spot price has lifted around 10% to US$4.46/lb which is attributed, in part, to the supply risk emerging from the Philippines. UBS maintains spot prices have not reached levels which would put the industry back on a sustainable footing and cash losses are still accruing for many producers.

Nevertheless, there are some positives emerging on the demand side as China's stainless steel consumption has lifted 5.7% in the year to date, with the mix shifting to nickel-bearing stainless. UBS also suspects re-stocking in stainless could be a source of potential upside.

Gold

The NAB analysts suspect the US will take a more cautious approach to monetary tightening post the Brexit vote and this signals further upside potential for gold in the near term. They nonetheless expect gold prices will resume a modest downward trend in the December quarter. Gold is expected to trade above US$1300/oz for the remainder of the September quarter, ending 2016 at US$1280/oz before moderating to US$1100/oz by end 2017.

Citi upgrades its gold price forecasts by 4% for 2017 and 2% for 2018, but ascertains the impact is largely offset by higher forecasts for the Australian dollar.
 

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article 3 months old

The Overnight Report: Caution At The Top

By Greg Peel

The Dow closed up 25 points or 0.1% while the S&P was flat at 2152 and the Nasdaq fell 0.3%.

Struggling

On a technical basis, the ASX200 trading at over 5300 since Monday suggests further upside towards 5800 is on the cards. The index still has to get through brick wall resistance at 5400, and thereafter there has to be a fundamental reason to support further gains.

With the world now settling down again following immediate Brexit fears, albeit still wary of further possible bouts of volatility, the local market may need to wait until the reporting season next month to find a new driver. Meanwhile, yesterday’s session may have been positive but there remained an air of caution.

The big movers yesterday were the resource sectors, thanks to big commodity price jumps. Materials was up 2.0% and energy 1.5%. But only three other sectors finished in the green yesterday – the banks, telcos and utilities. All offer yield as their primary attraction, not cyclical growth.

It was not a straight line rally yesterday either. After a spurt up on the opening rotation, interest faded. Late buying then righted the ship. There were also the Chinese trade numbers for June to consider.

Exports fell a slightly worse than expected 4.8% year on year following May’s 4.1% drop. Imports fell 8.4% compared to 0.4% in May, when a 5.0% fall was expected. While the numbers are not very positive there is no great panic, given Beijing is expected to rev up the stimulus any moment now beyond renminbi devaluations.

The index closed yesterday at 5388. Following a flat session on Wall Street and the futures up only 8 points this morning, today is unlikely to be a day to retest 5400. We also had oil falling back last night.

The local June jobs numbers are out today but nothing particularly market-moving is anticipated. There will likely be some caution in the market today ahead of tonight’s Bank of England policy meeting.

For so long, we’ve not been particularly interested in BoE meetings. The UK’s economic surge following the London Olympics brought expectations of a likely rate hike from a post-GFC 0.5%, but that surge soon faded and for the past few years the UK has simply bungled along, stuck on the same cash rate.

Tonight is expected to see a rate cut. BoE guvna Mark Carney has already hinted at one and the local market is pricing in an 80% chance. The risk to global markets, both to the downside and upside, is either no cut or a full 50 basis points to zero. A 25bps cut will no doubt be a non-result.

Let’s see some results

If Australia now needs to wait for results season, the same is true on Wall Street where quarterly results are now trickling through. So far we’ve seen earnings beats from Alcoa and rail company CSX, while fast food conglomerate Yum Brands is up around 5% in the aftermarket as we speak, having reported after the bell.

It’s early days, and as late as last night analysts were still downgrading their expectations for JP Morgan’s result, due tonight. JPM will be the first of the big banks and first Dow stock to report.

Having hit new highs in the S&P and Dow, Wall Street stalled last night. In Tuesday night’s session we saw a rush out of the safe havens of gold and Treasuries but last night gold clawed back ten dollars and the ten-year yield fall back 4 basis points to 1.47%.

This week’s US Treasury auctions of three-years and ten-years struggled to find any buyers. Last night’s thirty-year auction was a different story. Buying interest was the strongest it has been since September last year for a yield of 2.17%. That’s not a lot more than the current inflation rate but if we bear in mind last night Germany issued its first ever ten-year bund with a negative coupon, and that Swiss fifty-year bonds are currently trading negative, a 2% thirty year backed by the US economy looks like manna for pension fund managers at this time.

But that 2.17% settlement rate is still the lowest on record. Welcome to the new normal.

The latest Fed Beige Book was released last night. This anecdotal assessment has had US economic growth fluctuating between “modest” and “moderate” for so long now traders have stopped taking any interest. Never has a publication been so aptly named.

Commodities

It was that time of the week last night when the US weekly oil inventory numbers are released, and as usual they surprised. The drawdown on crude was not as big as expected and persistently high levels of gasoline stocks in the middle of summer have the market concerned.

Having jumped 6% on Tuesday night, West Texas crude is currently down US$1.51 or 3.2% at US$45.11/bbl. Having tried and failed at 50, it looks like 45 will be the pivot level for WTI for the time being.

Copper kicked on with a further 1% gain last night on the LME but nickel and zinc fell back 1%.

Iron ore fell US10c to US$58.70/t.

Gold is up US$9.60 at US$1342.30/oz with the US dollar index down 0.2% at 96.35.

The Aussie is off 0.2% at US$0.7606.

Today

The SPI Overnight closed up 8 points.

As noted, the local jobs numbers are out today but the big drawcard is the BoE meeting tonight.

Iluka Resources ((ILU)) and Transurban ((TCL)) will post quarterly reports today.
 

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article 3 months old

Strong Upside For Silver


Bottom Line 12/07/16

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 18.50 - 19.00 / 17.15 / 15.88
Resistance Levels: 22.74 / 25.76 / 27.05

Technical Discussion

We have now reverted from an initial trend reversal pattern succeeding and completing, to a full blooded proposal of an Elliott Wave count that continues to have further bullish outcomes attached to it over the coming months. The thing we like about Elliott Wave theory is that firstly it is the earliest trend identifier around bar none, plus it has a set of core rulings that clearly informs us when we are right and when we are wrong. So the theory embodies an ongoing 'prove / disprove' structure that keeps our analysis not only on track, but also accountable.     
   
Reasons to revert to bullish:
→ 200 day moving average remains supportive
→ bullish cup and handle pattern target has now been met
→ resistance zone now broken above circa 18.50 - 19.00
→ Elliott Wave count starting to take on bullish structures

We were initially buoyed that a turnaround in Silver prices could be bubbling away when the cup and handle formed and attained target. Yet post this we now have other aspects to the chart that are sustaining price in a northerly direction. Firstly the 200 day moving average throughout the best part of 2016 has held prices above it. So from being a resisting force on a multi year basis, it now looks to have reverted to being supportive. And with price continuing to prove and breaking strongly through overhead resistance circa 18.50 - 19.00, it was certainly time to start adding some numbers to the overall patterns. So what we are now looking for moving forward, is some form of 5-wave pattern to evolve to the upside.

At the moment we have labelled this move as having a completed a wave-iii of (iii) of 3 , and if this interpretation is correct, it is about as bullish as you can get. More immediately though we are looking for some short term weakness over the coming days, with any upcoming consolidation ideally coiling away above the old resistance zone now acting as support. Price clearly rejected off the recent move to 21.23, and this is where we have locked in our wave-iii . It was on high volume as well so some profit taking definitely took place on this day. We also have some strong looking Type-A bearish divergence in play so further weakness / coiling is what is going to be needed to get this fully unwound back to an oversold position. This will then set the scene for another move higher to trigger once again. Nothing not to like here from a bullish perspective. 

Trading Strategy

Put Silver on your watch list and any Silver related ASX stocks. We will be looking for a low risk set up to trade long over the coming days / weeks if the immediate wave-iv can form above old resistance. A micro triangle or a flatter type pattern would be ideal as either will be bullish.


Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

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article 3 months old

The Overnight Report: Now The Dow

By Greg Peel

The Dow closed up 120 points or 0.7% while the S&P gained 0.7% to 2052 and the Nasdaq rose 0.7%.

Resistance

Two weeks ago we were worried about the ASX200 falling through 5100. Yesterday the index had a good look at 5400. And to a great extent it’s all about politics.

Eight years ago Barrack Obama said “Yes we can”. On Monday night the Tories said “Theresa May”. At the height of Brexit concerns, and the depth of global markets, the transition from David Cameron to new UK prime minster was expected to take three months. But Cameron is currently wrapping the glassware and souveniring ash trays as we speak.

May may have been anti-Brexit, and bears a scary resemblance to a certain predecessor, but her rapid ascent to PM has ended at least one period of Brexit-related uncertainty. Presumably the Brexit button will now be pushed, but markets have come to acknowledge that the process of exit is actually going to take time, and that time has the capacity to smooth the transition.

On the weekend the Abe government won a landslide victory in the Japanese upper house. On Monday Malcolm Turnbull achieved a majority. That’s actually yet to be confirmed, but who would argue with Anthony Green?

Political uncertainty has thus been dampened. Political certainty means fiscal mandate. Fiscal policies, backed by central bank monetary support, are shortly expected to be underpinning the economies of Japan, China and perhaps even Australia. The bottom line is there’s no reason not to buy stocks.

The ASX200 scored a ton on Monday, and yesterday waved its bat at 50 points up before the air became a bit rarefied. The 5400 level has been brick-wall resistance these past few months. At 5391, the profit-takers moved in. And fair enough – there were plenty of profits to be had.

As the index fell back to close up only 16 points, profits were taken on the cyclicals that have led this recent surge. But defensives continue to be sold, underscoring the “risk on” nature of this rally as opposed to the yield-driven rallies of the previous months. Banks, as I noted yesterday, sit somewhere in between, and closed higher again yesterday. Materials won the day with another 0.9% jump.

Materials is set for another good session today, assuming the stock market hasn’t already jumped the gun. Global stimulus is a boon for commodities prices. Base metal, iron ore and oil prices all surged overnight. The offset is gold – which is not a commodity but a currency – which has fallen overnight in “risk on” fashion.

NAB released its June business confidence survey yesterday, which was conducted post-Brexit but pre-election. Despite the volatility Brexit unleashed, the confidence index (looking ahead) rose to 6.1 from 3.0 in May and the conditions index (right now) rose to 12.0 from 9.7. Stock markets like business confidence. The RBA also pays attention as well.

Sky’s the Limit

Last night the Dow closed at 18,347, above the previous all-time closing high of 18,312 set in May last year. The Dow briefly traded above the all-time intraday high of 18,351 before slipping back a tad. At 2152, the S&P500 has breached 2150 resistance and is now trading in blue sky. The S&P mid-cap and S&P small cap indices also traded up to all-time highs last night, suggesting the rally has breadth.

Supporting the breadth were relatively solid volumes on Wall Street last night. Rising volumes at new highs have chartists all excited. The Nasdaq is still short but is back over 5000 and as of last night, back in positive territory for the year. Still lagging is the Russell small cap, which contains a lot more smaller caps than the S&P small cap, and the Dow Transports.

Proponents of Dow Theory would suggest the rally in the Dow Industrials cannot be sustained unless the Dow Transports is leading the way. Proponents of Dow Theory wear boaters and striped jackets and dance the Charleston.

Confirming the swing to “risk on” in the US were last night’s twenty dollar fall in gold and a further 8 basis point jump to 1.51% in the US ten-year yield. The US Treasury has been holding bond auctions this week and suddenly the buyers have disappeared.

Wall Street’s rally of the past two sessions has come without any economic data releases of note and just the one earnings report from a major cap company. Alcoa posted a beat. JP Morgan will report on Thursday night.

What will derail the rally? Well, that’s the scary part. It’s being driven by central bank smoke and mirrors. To justify the surge in global PEs we’ll need to see supportive, hard fundamental evidence. This particular US earnings season will be an important one.

Commodities

West Texas crude is up US$1.87 or 4% at US$46.62.

Aluminium closed up 1.5% on the LME, copper, lead and zinc 2.5% and nickel 4%.

Iron ore closed up US$3.40 or 6% at US$58.80/t.

Gold is down US$21.60 at US$1332.70/oz.

All commodity price movements occurred on a flat US dollar index, unmoved at 96.52.

Far from unmoved is the Aussie, which is up another 1.2% at US$0.7623. Over to you Glenn.

Today

The SPI Overnight closed up 30 points or 0.6%. 5400 is 57 points away.

China’s trade numbers for June are out today.

Westpac will release its June consumer confidence survey result.

The Fed will publish its Beige Book tonight.
 

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article 3 months old

The Overnight Report: Getting High

 

By Greg Peel

The Dow closed up 80 points or 0.4% while the S&P gained 0.3% to 2137 and the Nasdaq rose 0.6%.

Surge

Well it’s amazing what one good US jobs report can do. A reconfirmation of a US economy still growing, a big jump on Wall Street, and Australian banks rise 2.5%. The iron ore price was unchanged, gold little changed, and the materials sector rises 2.9%. But was it about US jobs?

It is likely the rebound in US employment, putting to bed any fears over the May anomaly, was a contributing factor. But for further incentive we can look to a 4% jump in the Japanese stock market on the day.

Many have called Abenomics a failed experiment and with good reason. Everything the government and Bank of Japan has thrown at the Japanese economy has amounted to little to date, and the yen remains stubbornly high. Not that it’s all Japan’s fault, as the country continues to lose out in the global race to the bottom.

Over the weekend Shinzo Abe’s coalition won a landslide victory in the upper house election – something a certain Mr Turnbull would give his right arm for (his right arm, of course, being Tony Abbott). The implication is that Abe has been granted an even more definitive mandate to keep doing what he’s doing. It is now expected the government, fiscally, and the BoJ, monetarily, may be preparing for some shock and awe, after a couple of years of pure frustration.

So tick the box on further Japanese stimulus. China is expected to ramp up its stimulus measures any time soon. The Bank of England is expected to cut its cash rate and/or reignite QE on Thursday night. The ECB is no doubt readying itself for more of “whatever it takes” post Brexit. And despite the strong US jobs number, the Fed is not expected to raise its cash rate due to global uncertainty.

Here come the helicopters. What does one do with all that free cash? Invest in the only market offering a positive return.

There was clearly an element of “risk on” in yesterday’s local rally as well as a search for yield. Cyclical sectors performed well. Defensives were slightly more muted. The banks lie somewhere in between. For all the angst surrounding that sector, it’s impossible to overlook the yields on offer.

And while we tend to obsess over China, it must be remembered Japan is also a major importer of Australian resources.

Back to the future

It was May last year when the S&P500 closed at 2130, which for all that time has been the all-time high. Last night the S&P closed at 2137. It was not a volatile session – the US indices opened higher from the bell and despite a bit of a fade in the afternoon, basically held their ground.

Why did Wall Street rally? See all of the above.

The US rally was also more notably “risk on”, with defensive sectors rising but underperforming, having outperformed for a couple of years now. It was also notable to see the US ten-year bond yield spike up 7 basis points to 1.43% despite the promise of more central bank stimulus around the globe. It would appear some investors elected to remove money from that crowded trade to put into stocks.

Similarly, gold fell back US$11.

So, here we are, back at the high. Now attention will turn to the US earnings season. It will begin to kick into gear later this week.

Commodities

Stock markets may have been surging across the globe last night but it was more of a mixed bag for commodities. The US dollar index rose 0.3% to 96.53 which may explain the US$11.10 fall in gold to US$1354.30/oz but this is most likely due to some unwinding of the safe haven trade.

Copper rose 1% on the LME and nickel 1.5%, but the other base metals barely moved the dial.

Iron ore rose US20c to US$55.40/t.

West Texas crude fell US41c to US$44.75/bbl.

Today

The SPI Overnight closed up 26 points or 0.5%

Locally we’ll see the NAB business confidence survey for June today which I believe would have been conducted prior to the election.

Alumina ((AWC)) will provide a quarterly production report.


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article 3 months old

Material Matters: Production, Mineral Sands, Lead And Oil

-Lift in bulk volumes expected
-Titanium dioxide feedstock price rising
-Lead buying likely relative to zinc
-Modest oil price rise seen for 2017
 

By Eva Brocklehurst

Production Preview

With the March quarter affected by seasonally-induced weather interruptions, UBS looks for a sequential lift in bulk volumes – iron ore, coal and manganese - in the June quarter. Channel checks among the three major Pilbara producers suggest an 8% lift in exports.

The broker also observes the Platts 62% iron ore price declined over May but did lift into the end of the June quarter, closing at US$55.66/dmt. This is around the same level it started the quarter, which implies relatively benign adjustments to realised prices for the quarter.

BHP Billiton's ((BHP)) Western Australian iron ore shipments are expected to recover, yet UBS forecasts shipments of 257mt, slightly short of the 260mt provided as guidance.

UBS also suspects Newcrest Mining ((NCM)) could beat on gold production guidance, given quarter on quarter strength. The broker looks for 628,000 ozs in the June quarter, taking full year production to 2.47m ozs and in line with guidance of 2.50m ozs.

On the other hand, OZ Minerals ((OZL)) incurred unplanned maintenance in the first two months of the quarter and this could lead to lower-than-expected production. UBS estimates for copper production are set at 32,000 tonnes. Gold producer Regis Resources ((RRL)) is also a possible suspect to beat forecasts, led by ongoing positive grade reconciliation at Rosemont, the broker maintains.

Mineral Sands

Ord Minnett upgrades rutile price expectations by 6% for 2017 and 2018 on the back of improving demand. Zircon price estimates are largely unchanged. The broker notes pigment producers have been increasing prices and sales in the last quarter, which should improve titanium dioxide feedstock consumption and provide confidence in re-stocking.

Against a backdrop of improving demand the broker expects the higher grade titanium dioxide feedstock market to tighten, increasing rutile prices to US$797/t in 2017 and US$843/t in 2018.

The broker notes evidence of price rises in lower grade feedstocks, with Base Resources ((BSE)) passing on a US$15/t rise for the September quarter. The broker retains a Hold rating on the stock and upgrades the price target to 24c from 5c.

Ord Minnett upgrades Iluka Resources ((ILU)) to Hold from Lighten given expectations of higher production levels from the Mining Area C, and resultant royalties for Iluka, as well as improved titanium dioxide feedstock pricing. The broker suspects the stock will remain range-bound as, despite the improving titanium dioxide market, zircon markets remain lacklustre.

Lead

Lead prices on the London Metal Exchange climbed 8.4% in the last week of June, second only to nickel in a week that Macquarie observes was strong for base metals all round. Whereas nickel benefitted from fears of mines closing in the Philippines there was no news story to account for the lead rally.

Demand is considered seasonally soft in the northern hemisphere summer and stocks have been flat. The broker ventures the view that, with zinc's strength being tempered recently, some of the profit taking or new short positions in the metal has been countered by buying of lead on a relative value trade.

Macquarie finds no clues in the physical market. On the supply side, recycled lead is tight after a mild winter but in certain regions there is over capacity at the second stage which means refined output from such sources is strong. Primary supply has been dented by zinc-lead mine closures and imports into China are down 20% year on year in May. Still, none of these factors can really be attributed to the rally.

Lead markets are not as big and important as other base metals, with over half of the market contained in the closed loop of battery recycling. Hence, Macquarie concludes that the rally in zinc was probably the most influential driver of lead prices, tempting relative value players with such wide spreads.

Energy

Deutsche Bank observes oil prices have firmed recently as supply disruptions start to tighten the market amid strong demand growth. The broker expects oil prices will pause after rallying in anticipation of the upcoming inventory drawdown. The price is expected to be broadly flat at US$50/bbl in the second half, before rising to US$57/bbl by the end of 2017 as the tightening supply becomes more entrenched.

The broker upgrades 2016 Brent forecasts by 6.8% to US$45/bbl. In 2017 the broker forecasts a more substantial deficit in the market and expects demand growth will exceed oil supply growth. Yet Deutsche Bank does not expect the inventory drawdown will be large enough to normalise inventories until 2018. A relatively modest price appreciation is expected in 2017, to an average of US$55/bbl.

The broker continues to favour Oil Search ((OSH)) among oil stocks for its high quality assets.
 

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article 3 months old

The Monday Report

By Greg Peel

Breather

The local stock market took a breather on Friday, following two weeks of Brexit volatility and election uncertainty and ahead of Friday night’s US jobs report. Nothing new is known about potential Brexit fallout, but by Friday it at least looked like the Coalition would be able to form some sort of government.

By this morning it looks quite possible the Coalition will be able to form a majority government. This reduces the risk of a possible credit rating downgrade. On Friday night the Aussie went soaring, up 1.2% by Saturday morning to US$0.7564 despite the US dollar index being little changed.

But during Friday’s local session, it seems everyone went to lunch. The only movement of any note was a further 0.6% drop for the utilities sector, as “overbought” calls continues to hit home.

Yer Kidding

The US added 287,000 jobs in June, trashing estimates of 170,000. Mind you, estimates have been none too flash of late, given 170,000 was about the assumption for May as well, minus the 35,000 striking Verizon workers. May’s number came in at 38,000.

It was assumed the May result would be revised up with the June result, being such an anomaly, but instead it was revised down, to 11,000. We now have two consecutive anomalies, so economists prefer to average out to provide a three-month running indicator, which after the June result is 147,000 per month. Late in 2015, when the Fed decided to hike, that average was running at 200,000 plus.

Not only were more jobs created in June, but more hopeful workers re-entered the market, meaning the unemployment rate rose to 4.9% from 4.7%. Average wages rose 0.1% for a 2.6% annual rate.

Under normal circumstances, Wall Street would take the June jobs numbers as reason to expect a Fed rate hike in July. The response in the stock market would then be torn between good jobs result means economic growth, which is good, and good jobs result means higher borrowing rates, which is bad. But no one expects the Fed to hike in July because despite stock markets rallying across the globe, Brexit still provides for uncertainty.

So the Fed won’t hike this month. Maybe September, if the data continue to look positive in the meantime, but even then, probably not. So what does this mean? It means you can have your cake, being strong jobs growth, and eat it too, because the Fed will keep rates low. There is no reason not to buy stocks.

The Dow closed up 250 points or 1.4%, rising back over the 18,000 mark. The S&P rose 1.5% to 2129. The all-time closing high is 2130. The Nasdaq gained 1.6%.

But was this a “risk on” rally? No. Not only did investors buy stocks on Friday night, they also bought bonds and gold – the safe havens. The US ten-year yield fell 2 basis points to 1.37% and gold rose US$5.60 to US$1365.40/oz. Typically on a positive jobs number, and thus increased Fed rate hike expectations, investors would sell bonds and gold and buy stocks. In this case, stocks were bought because there is no alternative.

It’s hard to find any commentator that doesn’t believe US stocks can continue to rally under such circumstances. It is even more difficult to find anyone who is not nervous, given the lack of any fundamental drivers. The VIX volatility index fell back to 13 on Friday night, suggesting abject complacency.

Fundamentals will come home to roost from this week, however, as we enter the US June quarter reporting season. Alcoa reports tonight, and then there’s a gap to week’s end when the first of the big banks report.

As has become the trend, earnings forecasts are weak going into the season, offering up the opportunity of a “beat”, but a bit of a hollow one. Net S&P500 earnings are forecast to fall 5%.

Commodities

The US dollar index was steady on Friday night at 96.28, which is again not what one would expect from such a stellar jobs number. Base metal traders were therefore able to see the result as economically positive, hence we saw copper up 0.5%, aluminium and nickel up 1.5%, and zinc 2.5%.

For the oil market it’s a case of being torn between good economic data and the risk of further oversupply as US rigs kick back into gear above US$50/bbl. So oil prices did nothing, with West Texas steady on US$45.16/bbl.

Iron ore was unchanged at US$55.20/t.

The Week Ahead

After a flat close to last week, the SPI Overnight closed up 61 points or 1.2% on Saturday morning.

The Bank of England will hold a scheduled policy meeting on Thursday night. Given post-Brexit indications from Mark Carney, the market will be very surprised if there is no rate cut from 0.5%. Zero is a possibility.

This week will bring China back into focus.

Over the weekend we saw the release of China’s June CPI, which fell to a five-month low 1.9% from 2.0% in May. On Wednesday we’ll see June trade numbers and on Friday, industrial production, retail sales and fixed asset investment numbers.

And we’ll see the June quarter GDP result. The market is forecasting 6.6%, down from 6.7% in May.

In the US, the Fed Beige Book will be released on Wednesday ahead of CPI, retail sales, business inventories and consumer sentiment numbers on Friday.

In Australia we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday, followed by the June jobs numbers on Thursday.

On the local stocks front, this week heralds the beginning of the quarterly reporting season, which includes resource sector production reports and many a trading update from non-resource companies.

This week’s highlights include production reports from Alumina Ltd ((AWC)) tomorrow and Iluka Resources ((ILU)) and Whitehaven Coal ((WHC)) on Thursday. Transurban ((TCL)) will also report on Thursday.

Rudi will not make any appearances on Sky Business this week as he'll be presenting to investors on Gold Coast and in Brisbane.
 

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

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article 3 months old

The Overnight Report: Fed Focus

By Greg Peel

The Dow closed down 22 points or 0.1% while the S&P lost 0.1% to 2097 and the Nasdaq rose 0.4%.

Inevitable

There is much talk at present on US business television of the runaway performance of the S&P500 utilities sector over the past two years, in which downstream energy companies for example can offer, heavens above, yields in excess of 4%! And inevitably there is also much talk of this sector, and to a lesser extent the similar telco sector, being overpriced and a dangerous space to be buying into right now.

The Australian utilities sector can offer yields of 7% or more, particularly from infrastructure funds, when the differential on the US-Australian cash rate is only 1.5%. Thus it is no surprise the local utilities sector has also outperformed, and very much outperformed in the latest round of plummeting global interest rates post Brexit.

Yesterday saw a choppy session in the local market but ultimately every sector finished in the green. Except, that is, for utilities, which fell 0.9%. Telcos rose 0.5% but unlike the S&P500, in which telcos are not a big market cap, the gorilla that is Telstra is a must-have for any index fund and any offshore “Buy Australia” trade.

It was a good day for the banks, resource sectors and consumer sectors yesterday. Unfortunately it may not be so today. Late yesterday, ratings agency S&P put the country and the big four banks on negative watch implying, in the case of the country, the possible loss of a coveted AAA rating.

S&P has banks across the globe in the spotlight post-Brexit so no surprise there. These fools are geniuses when it comes to telling companies the risks have increased after the risks have increased. Pre-GFC, a brown envelope would have sorted the issue. In the case of the country, it’s all about political uncertainty post-election. There was likely some influence in yesterday’s rally from the ongoing improvement in the Coalition’s seat-count, and the increasing possibility of a majority government.

So not that much to worry about. The Aussie took a dive on the news but has since recovered to only be down 0.5% over 24 hours at US$0.7478, with the US dollar index up 0.2% at 96.24.

As to how investors respond to the banks today is another matter, if capital raising fears return. Meanwhile, a near 6% plunge in the oil price overnight does not bode well for energy today, which was yesterday’s outperformer with a 1.6% gain. Metals prices are also lower this morning, including that of gold.

Wall Street may have closed a little weaker but a 0.4% drop in the futures hints of greater weakness locally.

All About Jobs

With the pound now trading below 1.30 to the US dollar, the FTSE 100 continues to rally. It was up another 1.1% last night. It is also hoped that the weaker euro can help overcome both Brexit-inspired risk in the EU and last night’s news German industrial production took a dive in May, pre-Brexit. The German market still managed at 0.5% rally.

Wall Street opened to the upside last night, sending the S&P500 clearly through the 2100 resistance level. But then the weekly US oil inventory numbers came out.

US oil inventory numbers are a strange thing. Every week, early in the week, the American Petroleum Institute publishes its assumption on inventory changes from the week before. Then later in the week, the Energy Information Agency publishes what are considered to be the official numbers. And rarely, if ever, do the two correlate. Indeed often the results are wildly different.

On Thursday night the WTI price rallied on the expectation of a bigger than expected drawdown last week, which makes sense at the height of the summer driving season. Last night the EIA numbers indicated that the drawdown was only about average – in other words, a lot less than the market had priced in. Thus WTI plunged, it is currently down US$2.72 or 5.7% at US$45.19/bbl.

Week on week numbers may be influential but the reality the oil market is facing is that when WTI trades up to 50, some of those rigs that were shut down over the past year are fired up again.

On the back of the oil price, the Dow fell from being up 66 to being down a hundred. But then it quietly made its way back.

The ADP private sector jobs number for June came in at 172,000 when 158,000 was expected. The forecast for tonight’s non-farm payrolls number is 210,000, which is a big step up from May’s shock 38,000. Not only will the June number be very much in focus tonight, but so too will be the inevitable revision to the May number. Revisions of US data can often be very substantial given the rush to get some sort of early guesstimate out as quickly as possible.

If it is a big number, and big revision, tonight, do we go back to expecting a September Fed rate rise? Or has Brexit put the kybosh on that concept now for the foreseeable future?

That is the question no one can answer right now. Tonight’s market response will indeed be interesting.

Commodities

As noted, West Texas crude is down US$2.72 or 5.7% at US$45.19/bbl.

Base metal prices were all weaker in London, with copper leading the way down 1.6%.

Iron ore fell US60c to US$55.20/t.

Gold finally had a down day, but only by US$3.40 to US$1359.80/oz.

Today

The SPI Overnight closed down 21 points or 0.4%.

The world once again awaits the US jobs numbers.

Beijing will publish Chinese inflation data on the weekend.
 

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.)

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article 3 months old

Oz Gold Stocks Remain In Upward Trend

Chart: ASX Gold stock sub-index (XGD)


Bottom Line 06/07/16

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: 4697 / 4421
Resistance levels: 5879

Technical Discussion

If you listen to the headlines in the press, then the reason for the recent surge in the price of gold has been Brexit. The yellow metal is reportedly benefiting from “safe haven” demand with investors flocking to it. There are arguments both for and against this theory but one thing to remember is that world equity markets have actually been rallying following the UK referendum result. As mentioned in Friday’s review of the ASX200, the FTSE has been flying, hitting levels not seen since August of last year. Whether that strength is maintainable remains to be seen but it clearly shows that investors haven’t being selling stocks to move into gold and silver.

In fact talking about the latter, there is talk of a short squeeze and the increasing use of the metal in solar panels as been the reason for the recent movement higher. So what conclusion can we draw from headlines in the press? They are best ignored as both bullish and bearish headlines are only printed to suit the price action. We prefer to concentrate on the technicals which is exactly what we’ll do now.
 
Reasons to be optimistic:
→ Price has just broken out of a basing pattern.
→ Demand is rising with output declining.
→ A weaker U.S. dollar should boost the price of gold.
→ Continued concerns regarding global growth should also underpin prices.
→ Technically, buyers have stepped up around a major zone of support.
→ Sentiment has been extremely low – often a contrarian bullish signal.
 
Before the recent break higher kicked into gear we were concentrating our efforts on the large basing pattern that took hold between mid-2013 and late 2015. This was always a bullish proposition and portended a decent leg higher once the breakout transpired. This just emphasises how potent these patterns can be with many companies within the Gold sector rallying just as hard. We are going to concentrate on the daily chart this evening though it is worth mentioning that the typical retracement zone of the whole leg down that commenced in April 2011 has now been tagged. So does this mean the bounce has run its course? It doesn’t, and for one very good reason.

Since price broke up through resistance back in October of last year price action has been strong and impulsive in nature as opposed to being corrective. This always keeps the door open for something even more bullish to unfold which is still our expectation here. In fact, from an Elliott Wave point of view we have been labelling the chart as a potential 5-wave movement at larger degree. If our wave count is correct we are in wave-(iii) of the larger degree wave-3 which is about as bullish as it gets. This characteristic has been lacking in our market over the past few years due to the continued sideways chop. However, the XGD has certainly been showing traits of a wave-3 and has actually been exhibiting more bullish traits than even Gold itself.
 
Zooming into the more recent price action shows that wave-(iii) should be underway with the 1.618 projection of wave-(i) coming within a whisker of being tagged today. This would be a logical place for this leg to draw to a conclusion meaning a pause for breath wouldn’t come as a great surprise around current levels. We also have to consider that parabolic price action isn’t particularly what we want to see as it usually means volatility is going to increase. A pause within the longer term uptrend here would also be deemed as being healthy. For now though, we’ll ride the trend higher until distribution starts to show.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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