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Morning Market Report

Trouble on the horizon for resources companies, with forecasts revised in in the face of falling demand.

  • The market is up 36 points.
  • The Dow Jones was up 116 at 16,374. The market edged higher during the day and ended on its highs in a 110 point range.
  • A number of factors supported the rise. Economic data was generally better than expected, particularly retail sales which rose 0.2%. Export prices and inventories were also suggestive of positive future growth. Earnings results from the banks were generally positive from an industry perspective. The other key influence was talk by two Fed officials who both highlighted that tapering will continue because the economy can withstand the reduction in stimulus.
  • The S&P rose 20 points to 1839.
  • Oil was up 0.76% at US$92.50.
  • Gold fell $7.00 to US$1244.10 per ounce.
  • The US$ was stronger against most major currencies. The Aussie dollar was weaker and is currently trading at US89.61c.
  • VIX volatility index fell 7.53% to 12.28.
  • US treasury markets were weaker  —  the yield on the 10 year bond rose five basis points to 2.827% following the strong retail sales data.
  • European shares were stronger  — the UK FTSE rose 0.14%, the German DAX was up 0.32% and the French CAC rose 0.26%.
  • European bonds were mixed  —  the yield on the Euro 10 year bond was unchanged at 1.813%. The UK 10 year bond yield rose one basis point to 2.834% and the German yield was also flat.
  • Base metal prices were mixed  —  nickel continued its strength, rising 0.92%, lead rose 1.21% and zinc was up 0.41%. Aluminium and copper bucked the trend, falling 1.10% and 0.82% respectively.
  • Iron ore was down US$1.40 at US$129.50 a tonne.

STORIES

  • OZ Minerals (OZL) —  Have released a positive quarterly production report, OZL up 13%. It produced 73,362 tonnes of copper, a decline on the 101,362 tonnes in the year to December 2012. In the same period, OZ Minerals produced 128,045 ounces of gold, compared to 140,746 in 2012. Both numbers fell within the upper end of its financial year guidance (70,000 - 75,000 copper and 120,000-130,000oz gold). OZL reiterated its 2014 guidance of between 75,000-80,000 t copper and 130,000 oz-140,000 oz gold. But the company’s cash position continues to fall, cash now standing at $363 million which was once over $1 billion. Cash costs of 179.6 US cents per pound of copper in 2013 are forecast to fall to between 115 US cents and 125 US cents per pound of copper.
  • Fortescue Metals Group (FMG) — Says it will repay $US1.64 billion in senior unsecured notes early, as the mining company accelerates its debt reduction program. That will take Fortescue’s net debt to $US7.8 billion down from $US10.53 billion.
  • US economic data was the key driver for international markets overnight. Retail sales rose 0.2% in December following a 0.7% rise in the previous month (revised up from 0.4%). The positive data helped offset concerns about Friday’s disappointing employment data and supported the view that weather related factors were behind the weakness. The holiday sales period was slightly under expectations, with sales in November and December rising 3.8% from last year.
  • US earnings season gathering steam with JPMorgan Chase and Wells Fargo reporting fourth quarter results. Wells Fargo reported an 11% rise in profit with a big drop in bad loan provisions. JP Morgan said profit had fallen 7.3% after it was forced to pay penalties for not reporting suspicions of fraud by Bernie Madoff. There are more bank results later in the week — Bank of America, Citigroup and Goldman Sachs.
  • Data out today in Australia includes consumer sentiment, lending finance and new motor vehicle sales.
  • Data in the US tonight includes PPI, the Empire manufacturing index, and the Fed’s Beige Book is released. We will also be hearing some more Fed officials   — Chicago president Charles Evans and Atlanta President Dennis Lockhart are both scheduled to make remarks tonight.
  • Outlook for iron ore  — Analysts have been downgrading their forecasts for iron ore due to seasonal weakness in steel demand and higher supply. Some are tipping $US95-$US120 in the fourth quarter this year. Since the start of the year the price of iron ore has fallen and is trading at around $US130 a tonne, the lowest level in five months. But in the short term, China may look to start restocking ahead of its Chinese New Year Holiday period in late January-February which could see the iron ore price recover back to $US135.

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