May 13, 2014

Morning Market Report

A steady day on the markets, ahead of tonight's budget announcement.

The market is up 28 points.The Dow Jones was up 112 points at 16,695, another record closing high. The market rose on the opening and maintained strength throughout the day. Internet and small cap shares were the leaders and cyclical stocks performed well. Corporate activity also supported investor sentiment. Volume was well below average in a 120 point range. Ukraine -- Donetsk and Lugansk voted in favour of independent rule, with almost 90% supporting moves to become part of the Russian Federation. Kiev and the international community have not recognised the votes as legitimate. The EU has placed sanctions on two Crimean companies and 13 Russian individuals following the referendums. US Earnings -- 90% of companies have now reported. 69.2% have beaten earnings estimates and 52.9% have beaten revenue estimates. Guidance has also been seen as positive in light of concerns about the impact of harsh weather conditions. European share markets were stronger -- The UK FTSE rose 0.55%, the German DAX rose 1.26% and the French CAC was 0.37% higher. Greece was 2.28% lower due to MSCI index rebalancing (which could affect some Greek stocks) and concerns in the lead-up to local elections, with a radical left party currently leading the polls. JP Morgan lifted its rating on the mining sector to "overweight" and it added Rio Tinto to its list of top picks for European stocks. Rio rose 4.8% in London trade and basic resources were up 2.7%. Chinese market reforms, including proposals to relax rules governing foreign investment and company ownership and free up stock and bond markets, were also positive for mining stocks. The Aussie dollar was higher and is currently trading at US93.62c. Oil rose US$0.60 or 0.60% to US$100.59 a barrel. Gold was up US$8.20 or 0.64% to US$1295.80 an ounce. Base metals were stronger -- Zinc rose 1.91, copper rose 1.88%, aluminium rose 0.41% and nickel rose 5.08%. Iron ore rose US$0.30 toUS$103.00 a tonne. STORIES
  • Northern Star (NST) -- Newmont Mining Corp (NEM) has agreed to sell their Jundee gold mine in WA to NST for $82.5 million. It will make the company the second largest listed gold producer on the ASX, lifting output to 550,000 Oz from around 350,000 Oz currently.
  • Orica (ORI) -- First half profit of $242.1 million down 7.8% on year. Brokers were forecasting a 7% fall in underlying profit to $249 million (guidance $267 million) and a 37c dividend. A lax demand from miners dragged down their earnings. Prices for minerals are falling as China's economy slows. Also the US shale gas boom is reducing the need for coal in that country. ORI was also hurt by the Kooragang Island ammonium nitrate plant in Australia as costs went up by union-led strikes over working conditions.
  • PanAust (PNA) -- up 30% in early trade after receiving a takeover approach. In April PNA received a confidential, non-binding, indicative and incomplete proposal from Guangdong Rising Assets Management to acquire all the shares in PNA through an off market takeover. It is offering cash consideration of 220c per share. In subsequent discussions, it upped it to 230c.
  • Incitec Pivot (IPL 285c) -- Shares closed +1.06% yesterday after IPL posted a first half profit better than expected. Profit rose 7% to $115.7 million, above consensus forecasts due to strong growth at their ammonium nitrates plants and reduced costs. The rise came despite lower global fertiliser prices and weakness in the US coal sector where the company sells explosives. EBIT was up 14% to $193.1 million, above broker forecasts of $142 million. The dividend was up 3% to 3.5c, better than an expected 2.2c.
  • More record highs in the US and our Futures up 30 here. We have the Budget to focus on tonight, the detail can often impact individual sectors/companies but most of it has been fed into the market before time and there is more interesting global action in shares. Expecting spending cuts, tax hikes and infrastructure spending announcements.

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