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What happened today?

twiggy

ASX 200 up 103.6 points to 4980.4 as yesterday’s losses are reversed. Resources and energy stock lead the charge on a weaker USD. Banks bounce on positive Clydesdale reception. China winding down for New Year, up 0.84% as Japan slips 0.88%. US futures up 67. Yesterday never happened as bears punished.

A huge bounce today as confidence returned and the ‘risk on’ trade was back. Wall Street obliged with a rally and more important for resources, the fall in the USD was the big driver for underlying commodities and relief was palpable. Course Andrew Robb will take the credit for the TPP signed today.

Aussie dollar hits a 1 month high

A 8% rally in the oil price helped immeasurably with a glimmer of hope that some of the big players will sit down and talk production cuts. As we talked about yesterday in a game where no one can win why play at all? Our market started tentatively after some disappointing corporate numbers from BHP, PRG and Ansell before resources grasped the baton and sprinted away. The successful (so far) launch onto the ASX for UK bank Clydesdale was also a tick in the box for the abused banking sector. Industrials felt a little left out as the resource juggernaut rolled on crushing some of the shorters in its path. The volatility is set to continue back as usual it looks like the 4900 level is the buy again.

ASX 200 Index Today                                   Aussie Dollar Today US71.69c.

  

The conventional wisdom is a lower AUD is better for our economy. Looking at the currency though, the last time the AUD was at $1.10 back in July 2011, the ASX was trading around 4400.

As the AUD fell, so the market rallied before it reached 6000 in March with the AUD at 80 cents. Downhill for both since then.

Stocks and Sectors

  • It was all about resources and energy stocks today. BHP +8.27%, RIO +8.91% and Fortescue Metals (FMG) +11.73% in the iron ore stocks together with South32 (S32) +14.21% following a restructure and cost cutting.
  • Energy stocks punished the bears today, Santos (STO) +13.36%, Woodside (WPL) +5.81%, Oil Search (OSH) +7.14%, AWE +6.1%. An energy stock going backwards though was Z Energy (ZNZ)-1.46%
  • Gold stocks also lifted Newcrest (NCM) +9.66%, Evolution Mining (EVN) +6.64% even Alumina (AWC) +8.5% in other metal stocks. Base metals were a stand out too as Zinc hits a three month high, OZ Minerals (OZL) +9.02%, Sandfire (SFR) +7.43% and Western Areas (WSA) +13.59%.
  • Banks were also in demand Commonwealth Bank (CBA) +2.15%, Westpac (WBC) +3.57% and National Bank (NAB) +1.93% with new entrant Clydesdale Bank (CYB) +8%.
  • Some casualties today in the industrials as they were wall flowers. Domino’s Pizza (DMP) -5.89% and Seek (SEK) -3.16% both struggled as did Brambles (BXB) -1.12% on a stronger AUD.
  • Media stocks rebounded with TEN +6.47% pushing off the recent lows. Nine Entertainment (NEC)+2.05% and Seven West (SWM) +2.47%.
  • Speculative stock of the day: 1st Available (1ST) +30% after signing a Primary Health Care dental group. 1ST is a leading online search and appointment booking system for health professionals.

Corporate News – The good, the bad and the ugly.

  • South32 (S32) +14.21% surprised the market in a good way today with news of a non-cash write down of US$1.7bn. Job losses of 620 in South Africa in its manganese assets was also a reason to cheer as it remains committed to cost cutting and production closures to deal with falling commodity prices. Four manganese smelters will remain closed indefinitely, while mine production in South Africa will be reduced by 23%.
  • Clydesdale Bank (CYB) +8% approx kicked off trading on a deferred settlement basis today and continued to build on the performance in London overnight. The volume was pretty good at
  • Ansell (ANN) -20.64% tried to sneak through a profit downgrade last night when no one was watching. Unfortunately for the company it failed. Ansell said it expected sales in the six months ended December 31 to be down 7% to $US785 million on the prior corresponding period. Although the figure would be “on par… after adjusting for currency changes.” The company is set to announce its audited profits next Monday. FY eps now expected to be around US$95c to US$1.10
  • Tabcorp (TAH) -2.88% profit fell 33% to $81.9m from the year-earlier $122.4m because of several one-off items. Removing the significant items, profit actually rose 7.3% to $97.5m from $90.9m a year earlier.
  • Programmed Maintenance (PRG) -35.44% appear to be caught on the hop with the speed of the falls in the oil price leading to a $75m impairment charge to be taken by the company. It also downgraded its expectations for overall operating earnings for its financial year ended March 31, 2016 by about 10 %. It now expects EBITA to be around $65m. Earnings forecasts for 2016-17 have also been cut by about 10% and are now expected to be between $100m-$110m.
  • Macquarie Group (MQG) -4.98% must be scratching their heads after the announcement this morning shook the price down 9% at one stage. This is shaping up as their second best profit ever. CEO Nick Moore announced that trading conditions were ‘satisfactory’ however the market took fright at news that the. Analysts are predicting in a record annual profit of $2.1 billion, well ahead of a previous high of $1.8bn booked in 2008. The worry seems to be the commodities and financial markets to come in below 2015 after saying it would be in line back in October. Clearly recent gyrations have taken their toll.
  • AGL Energy (AGL) +2.16% has decided to make a lot of farmers happy and end all production and exploration in NSW and Queensland, taking a $640m after tax impairment charge.
  • Downer EDI (DOW) +8.81% “very challenging” as the contractor reported a 24% drop in first-half net profit to $72.1m. Revenue fell 1.2% to $3.54bn but they did reaffirm their full year forecast of $180m in net profits. The fall in profits reflected a $13 million write-off of bidding costs after Downer failed to win a contract to build Canberra’s new light rail system
  • Computershare (CPU) +1.43% has bought a loan servicing business in the US for US$71m following its deal as the preferred bidder to manage some UK mortgage loans.
  • Virgin Group (VAH) +0.0% posted an eight-fold rise in underlying profit before tax in the first half to $81.5 million as a result of ongoing fare increases in the domestic market and better conditions in the international market. On a bottom line basis, Virgin reported a $62.5m profit in the first half, up from a $47.8m loss in the same period the prior year.

Economic News

  • NAB found business confidence lifted 3 points to 4 index points, while business conditions slipped 1 point to a still-elevated level of 9 showing confidence remained elevated in December. Overall, NAB said, the survey suggested that the improvement in the non-mining economy remained well entrenched, while the outlook was generally positive as well.

In Asia

  • China set a range for its economic growth target for the first time in two decades, saying the world’s second-largest economy would expand 6.5% to 7% this year, slower than last year’s goal of about 7%. In determining how to set the new target, the leadership considered the pace of growth, the labour market, and price stability according to the Chairman of the National Development and Reform Commission chair Xu Shaoshi.
  • The People’s Bank of China said Tuesday it cut the minimum deposit to 20% that a first home buyer needs, the lowest ever, as it steps up support for the property market.
  • Sharp Japan has jumped 14% as it was urged to consider Foxconn’s recent offer for the company.

Europe and US

  • Swiss pesticide maker Syngenta has been bought in a deal worth US$43bn by ChemChina for cash. offered $US465 a share in cash, according to a statement on Wednesday. The offer, endorsed by Syngenta’s board, is about 20% higher than the stock’s last close.
  • In US news Goldman Sachs has now changed its mind on the timing of the next rate increase from the Fed. Previously they have thought March was most likely. Today they changed that to June. They have noted that financial conditions have worsened since December.

Expect to see some sanity return tomorrow with only the US jobs numbers to look forward to. Bear in mind that the Fed is watching these numbers like a Hawk (or is it Dove?). A good number will challenge the ‘one and done’ view and a bad number will ignite the markets on the prospect of no rate rise for a while.

Ahead in Europe

  • FTSE  +83 points.
  • DAX  -127 points.
  • CAC -56.50 points.

Clarence

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NT Markets

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