Jan 23, 2014

Morning Market Report

Resources stocks are beginning to rally as more credit freed up for Chinese investors.

  • The market is up 28 points. The Dow Jones was down 41 at 16,373. The market recovered from early losses -- it was down as much as 81 points in the early hours of trade -- but fell again in the final hours of trade in a 120 point range.
  • The S&P and Nasdaq rose despite the fall in the Dow for the second day. Trading was described as uninspiring, with economic data limited to the weekly MBA Mortgage Index, which rose 4.7% after an increase of 11.95 last week.
  • The S&P rose one point to 1845.
  • Oil was up 1.87% at US$96.75.
  • Gold fell $5.80 to US$1236.00 per ounce.
  • The US$ was stronger against most major currencies. The Aussie dollar was stronger and is currently trading at US88.52c.
  • VIX Volatility index fell 0.08% to 12.86.
  • US treasury markets fell -- the yield on the 10 year bond rose three basis points to 2.865%.
  • European shares were generally weaker -- the UK FTSE fell 0.12%, the German DAX fell 0.10% but the French CAC rose 0.03%.
  • European bonds were weaker -- the yield on the Euro 10 year rose two basis points at 1.734%. The UK 10 year bond yield rose five basis points to 2.885% following better than expected employment data.
  • Base metal prices were mostly weaker -- nickel rose 0.48% but copper fell 1.02%, aluminium fell 0.87% lead and zinc were down 0.64% and 0.55% respectively.
  • Iron ore was up US$0.30 at US$123.50 a tonne.
  • Insurance Group of Australia (IAG) -- Has increased guidance for the insurance margin it expects following a stronger start to the year. It has upped its insurance margin from 12.5%-14.5% to 14.5%-16.5% in the year through June. It has also cut its gross-written-premium growth forecast for the year to 3-5% from 5-7% previously. It also expects an insurance margin of 13.5% in the first half of the financial year.
  • Newcrest Mining (NCM) -- Production report. The miner has maintained guidance after increasing gold production during the December quarter. Fiscal 2014 gold production is expected to be at the upper end of the range, around 2.3 million ounces. Gold production was 621,125 ounces in the December quarter, with an average gold price of $1372 per ounce. Gold production was up from 492,906 ounces in the pcp. Copper production was 22,603 tonnes up from 19,926 tonnes. Silver production was 616,026 ounces up from 494,146 ounces.
  • PanAust (PNA) -- December quarter activities report -- Achieved the high end of production guidance by producing 64.9kt of copper versus guidance of 62-65kt. 183.8koz of gold versus guidance 160-175koz. Cash costs were essentially in-line. Group Production for the quarter of 18,524 tonnes up 8.2% from September quarter of 17,124t Cu. Overall PNA met production guidance for CY2013, but cash costs for copper production were slightly higher than guidance. The increase in cash costs was due to a one-off seasonal increase in mining costs. The reduced EBITDA forecast for 2014 is due to higher costs at Phu Kham. The market was expecting a fall in earnings in 2014, so the EBITDA forecast should not be a surprise.
  • Santos (STO) -- Fourth quarter activities report -- Has reaffirmed 2014 guidance after recording $1.1 billion in sales revenue for the quarter which was up 21% on $877 million in the pcp. It also expects 2014 production to be 52-57 million barrels of oil equivalent. Total sales revenue for fiscal 2013 was $3.6 billion, up 12%. But production was down for the 2013 financial year at 50mboe from 51mboe in 2012.
  • Continued speculation (in the Wall St journal) that the US Fed will announce a further $10 billion of tapering of quantitative easing at next week’s meeting.
  • BHP and RIO topped out after their production numbers yesterday in our market. BHP down 0.2% in the US and RIO up 1.0% overnight.
  • HSBC’s European research says BHP is its least preferred resources stock downgrading it to neutral from overweight.
  • The A$ jumped almost a cent and the 10 year bond yield jumped 10 basis points on the back of yesterday’s Australian December quarter CPI data which suggests we have seen the last of the Australian rate cuts (see below for more).
  • Gold down again by $5.80. Newcrest fell 3.89% in Toronto. Its production numbers are out today.
  • The iron ore price bounced 30c, the first rise since January 2.
  • Consumer confidence fell to pre-election levels, down 1.7% (January) after a 4.8% fall the previous month. WBC said the holiday effect was lower than normal and the employment data was a key factor.
  • We have the HSBC Chinese Flash manufacturing PMI number out today (consensus 50.3). Their December quarter GDP number this week came in at a respectable 7.7% down from 7.8%. Resources have been having a bit of a rally and need a good number to maintain the momentum.
  • The Chinese stock market jumped 2.1% yesterday as the central bank injected $255 billion yuan ($US47.38 billion) into financial markets to head off a credit crunch. The idea is to free up capital heading into the Chinese New Year, which starts January 31.
  • CIMB cuts Sandfire Resources (SFR) from Hold to Reduce following their production numbers. Target price 580c down from 610c.
  • Deutsche Bank retains a Sell on Cochlear (COH) with a target price of 5455c. They talk about the stock being overvalued with limited earnings growth.
  • CLSA forecast a 20% jump in the Hang Seng this year.
  • The jobless rate in the UK fell to an unexpected 7.1% against estimates of 7.3% sparking commentary about the recovery in the UK economy -- all good for stocks like Brambles with a European exposure. It was the best number since 2011. Sterling hit a 12 month high against the Euro. The Bank of England have talked about tightening policy once unemployment gets to 7.0%.
  • The Portuguese market fell 3.3% overnight as banks fell on a government tax issue.
  • Existing home sales numbers in the US tonight.
  • Australian CBD Office vacancy it at its highest for 17 years with 12% of office space empty.
  • Bank of Japan said at its monetary policy meeting that the measures put in place will overcome the deflation that has lasted nearly 15 years.
  • Goldman Sachs predicts a fall in the iron ore price to an average $U108t in 2014 and $US80t 2015.They say this year will market the 'transition to a structural surplus in iron ore'.
  • US earnings season continues tonight. The key ones are Microsoft, Samsung, Starbucks, McDonald's, Nokia, Southwest Air.
  • US data tonight includes initial claims, manufacturing PMI, FHFA housing price index, existing home sales and leading indicators.

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