Jan 20, 2014

Morning Market Report

Markets remain quiet as traders wait for the latest GDP figures from China and the US.

  • The market is down 12 points. The Dow Jones was up 42 at 16,459. The market rose throughout the day, then dipped in the final hour before a recovering slightly in a 116 point range.
  • Stock factors were again the key influence on markets, with earnings results described as uninspiring and disappointing in outlook statements from widely held companies like Royal Dutch Shell, United Parcel Services and Elizabeth Arden. Economic releases were good enough to prevent concerns about the economic recovery -- housing stats slipped but were above expectations and were potentially weather impacted, industrial production rose by 0.3% and the Uni of Michigan Index fell to 80.4 from 82.5.
  • The S&P fell 7 points to 1839.
  • Oil was up 0.44% at US$94.37.
  • Gold rose $11.7 to US$1251.90 per ounce.
  • The US$ was stronger against most major currencies. The Aussie dollar was weaker and is currently trading at US87.76c.
  • VIX Volatility index fell 0.72% to 12.44.
  • US treasury markets were stronger -- the yield on the 10 year bond fell two basis points to 2.824%.
  • European shares were stronger -- the UK FTSE rose 0.20%, the German DAX was up 0.26% and the French CAC rose 0.19%.
  • European bonds were stronger -- the yield on the Euro 10 year fell two basis points 1.754%. The UK 10 year bond yield rose two basis points to 2.831% after strong retail sales data.
  • Base metal prices were stronger -- aluminium rose 1.30%, lead rose 0.525 and copper was up 0.50%. Nickel was flat, falling just 0.01%.
  • Iron ore was down US$1.00 at US$127.30 a tonne.
  • Chinese GDP numbers today for the December quarter -- Market expecting a number of 7.6% down from 7.8% in the September quarter. The government's full year forecast is 7.5% so any number above that will mean their target has been met. This is a fairly crucial tone setter for China for the year ahead.
  • Australian dollar fell 2.4% last week and is under its old low of 88.48c.
  • Paladin (PDN 61c) -- Last week the share price closed up 25.84% after the miner said it is confident of securing the sale of a stake in its flagship Namibian mine as a fall in uranium prices weighed on its December quarter activities report. This morning it announced an agreement to sell the 25% stake to China National Nuclear Corp for $US190 million. The deal was vital for the company and now gives them a much needed cash injection after being hit with low uranium prices since the Fukushima disaster. JP Morgan and UBS have put out reports on PDN this morning. JPM has a Lighten recommendation with a target price of 55c. They say production and sales were better than expected and the sale of their 25% stake in Langer Heinrich is positive and will improve cash flow, but this is all short term if the company continues to report negative free cash flow and uranium prices continue to remain low. UBS has a Neutral stance and target price of 55c. It says the sell down is to raise cash, it will help provide PDN with sufficient liquidity to see the long awaited rise in the uranium price it has been waiting for.
  • Production reports today from a number of smaller companies -- OceanaGold (OGC), Perseus Mining (PRU), Ramelius Resources (RMS) and Western Areas (WSA). There are more during the week. The key ones are BHP Billiton (BHP) on Wednesday and Newcrest Mining (NCM) on Thursday.
  • Markets are closed in the US on Monday for Martin Luther King Jr Day and it is a pretty quiet week for data -- the key is Thursday when weekly jobless claims, housing prices, existing home sales and leading indicators are out.
  • Hybrid securities – An article in the AFR today talks about hybrid securities tipped to be dominated once again by the big banks as they look to replace around $5 billion of maturing securities. ANZ, WBC and CBA will need to refinance $4 billion of hybrid debt due for redemption. The first off the block is ANZ which is due for redemption in June. Tabcorp retail bond also matures in May.
  • Ramsay Health Care (RHC) -- Morgan Stanley has raised its target price by 12% to 3914c; Equalweight rating retained. RHC last week announced that it had completed the acquisition of a psychiatric hospital group in France, Medispy.
  • GPT Group(GPT) -- Closed up 1.67% last Friday after announcing that it will not increase its offer for the Commonwealth Property Office Fund (CPA) nor extend the offer period.
  • Forge Group(FGE) -- Fell 15.6% last week and 11.97% the week prior. Shares tumbled after the company announced a $28 million profit write-down of its Western Australian power station.
  • Fortescue Metals Group (FMG) -- Closed up 9.23% last week after paying back $US1.6 billion of debt early and lowering its total debt to below $US10 billion.
  • OZ Minerals(OZL) -- Closed up 16.51% last week after a production report which was in line with guidance. It also expects a boost in production and lower costs in 2014.
  • Rio Tinto(RIO) – Closed up 4.19% last week on the back of their production report.
  • Warrnambool Cheese & Butter (WCB) -- Last week Bega Cheese (BGA) pulled out of the bidding war and have said it will sell its 18.8% stake in the company to Saputo.

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