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Morning Market Report

The market rose after a trifecta of good economic data, better-than-expected corporate earnings from Yahoo, and confirmation from Federal Reserve chair Janet Yellen that the central bank would continue supporting the economic recovery.

The market is up 28 points. The Dow Jones was up 162 at 16,425. The market rose after a trifecta of good economic data, better-than-expected corporate earnings from Yahoo, and confirmation from Federal Reserve chair Janet Yellen that the central bank would continue supporting the economic recovery. Trade was below average and the market closed on its highs in a 160-point range.

US economic data was generally better than expected —  factory production rose 0.5% in March, and industrial production rose 0.7%, beating expectations. But home construction bounced back less than expected and homebuilder confidence rose less than forecast.

European shares were stronger —  The UK FTSE rose 0.65%, the German DAX rose 1.57%, the French CAC rose 1.39% and Italy’s FTSE MIB was 3.44% higher. China’s economy grew 7.4% year-on-year  in March, above the 7.3% expected.

The Aussie dollar rose overnight —  it reached a high of US 93.89c and is currently trading at US93.70c. Gold was US$3.10 higher at US$1,303.10 an ounce. Base metals were stronger —  led by lead up 1.68%, aluminium up 1.41%, copper up 1.25% and nickel up 1.12%. Iron ore fell US$0.90 to US$116.20 a tonne.

US EARNINGS

  • Google  — down 2.79% in after-hours trade;
  • Bank of America  — down 0.25% in after-hours trade;
  • IBM  — down 4.2% in after-hours trade; and
  • SanDisk  — up 6.13% in after-hours trade

STORIES 

  • Dick Smith Holdings (DSH 220c) — Dick Smith has announced an increase in third-quarter sales. Like for like sales in the quarter were $280 million, up 1% from a year ago, although sales were down 2.7% year to date. Australian operations recorded like-for-like sales growth of 2.4% to $238.4 million for the quarter. NZ sales were down 5.6% at $41.7 million. Excluding currency movements, sales were down 18.8%. Online sales rose 47%. The company listed on the ASX last year and reaffirmed the fiscal 2014 prospectus pro forma profit forecast. The company said the latest result was consistent with the PDS forecasts and expectations were that growth would continue into the fourth quarter; roughly 3% is expected. Last night DSH opened its second ‘Move’ store. The store sells high-end mobile devices and wireless gadgets, with plans to open as many as 30 stores over the next few years. They also plan to open six new Dick Smith stores by June. Few brokers cover DSH.
  • Woodside Petroleum (WPL 3959c) — First quarter production report — March quarter revenue was up 16%, which came on the back of re-starting production at an oil venture in WA; lifting output by 5%. Revenues were up to $US1.68 billion for the quarter.
  • Santos (STO 1344c) — First quarter activities report. First quarter sales up 28% despite only a small increase in production. Sales in the March quarter were up: $913 million from $713 million. Production was up 1% to 12.2m boe from 12.1m boe. The $US18.5 billion GLNG project in Queensland is 80% complete and on time to deliver first LNG in 2015.
  • Sydney Airport (SYD 409c) — Outbound travel fell by 3.5% in March, but the inbound international market growth was high enough to compensate for the fall.
  • Fortescue Metals Group (FMG 539c) — Shares closed +1.13% yesterday after the quarterly production result. It came at the low end of expectations but the miner maintained its financial year export target despite the weaker result. The 127Mt guidance for FY14 sets a stretch target for iron ore sales of 42Mt for the June quarter, which will test the capacity of the entire supply chain, particularly the processing plants and the rail system. It is 32% above the 31.5 million tonnes shipped in the March quarter, but FMG believe they can run operations at maximum capacity during the June quarter to meet the target. The June quarter contains a few more days and is less susceptible to bad weather, but the target places a huge amount of pressure on the company. FMG’s shareprice rose yesterday despite their production numbers missing consensus forecasts. FMG’s net debt position was US$7.7bn at the end of March. So far they have repaid US$3.1bn in debt and they aim to reduce gearing to 40%. FMG has a historical tendency to surprise on the upside but it’s sensitive to moves in the iron ore price. The key question is whether the iron ore price will stay above US$100 a tonne. The outlook is mixed. Goldman’s are predicting US$80 a tonne next year while others are more optimisitic. Iron ore is at US$116.20 a tonne and has recovered from weakness earlier in the year. If you think iron ore will hover around these levels or go higher, then FMG stands to benefit. If iron ore drops below US$100 then FMG are in trouble. That’s the risk you take with FMG, it’s a play on the iron ore price.

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