ASX 200 rallying another 51.7 points to 5188.8, having briefly pushed through 5200. Materials, energy and banks the standouts. ‘Risk on’ as defensive stocks underperform. Asian markets took their cue from US strength. Japan up 3.58% and China up 0.24%. AUD strong again at 77.75c at near 18-month high and US futures down 21 points.

A very strong day straight out of the blocks with resources and energy leading the advances. A solid move in the iron ore price coupled with a far better (surprise) performance from oil, helped push the ASX 200 above 5200 again. Unfortunately we failed to hold the level topping out at 5219 before a low of 5153 at the open. Volume was a little underwhelming for a move of this magnitude but we are building on the 4.5% gain of last week. It was very much a case of ‘sell defensives and embrace risk’ again as banks now out of the limelight are rallying hard too. Consumer stocks and health appeared to be missing out on the rise as it is concentrated in the unloved sector playing catch up.

The Australian dollar was the star today as it heads towards 78 cents. 77.85c and rising. It remains to be seen what the reaction will be from the RBA to a 78c AUD, but jawboning and analysts’ clarion calls for rate cuts will no doubt ensue.

ASX 200 Index & Aussie dollar charts – Today

 

STOCKS AND SECTORS

  • Resources starred again as BHP +5.19%, RIO +3.88% and Fortescue Metals (FMG) +6.75% rallied. Base metals joined in with Independence Group (IGO) +8.41%, Sandfire Resources (SFR) +7.44%,Western Areas (WSA) +7.47% and even Iluka Resources (ILU) +5.58%
  • Energy roared back with Oil Search (OSH) +4.98% following quarterly production numbers, Santos (STO) +5.15%,Origin Energy (ORG) +5.73% and Woodside (WPL) +4.03% putting in another strong performance. LNG -9.52% reversed yesterday’s gains. We also saw Whitehaven Coal (WHC) +2.78% and Paladin Energy (PDN) +4.0% better on the continued re-rating of this bombed out sector.
  • Gold stocks were in profit taking mode as the strengthening AUD is weighing heavily on the AUD bullion price back to $1584. Northern Star (NST) -0.83%, St Barbara (SBM) -2.55%, Evolution Mining (EVN) -0.28% and Newcrest (NCM) -0.33%
  • Financials and Banks back in fashion with good gains especially in National Bank (NAB) +2.49% and Macquarie Group (MQG) +3.01%. Insurers were also better led by Suncorp (SUN) +1.39% and IAG +0.9%. REITS though missed out on the rocket fuel today as these defensive assets were sold and money put to work in the risk sector like materials and miners. Westfield (WFD) -0.39% Dexus Property (DXS) -1.95% and Goodman (GMG) -0.73% amongst the most affected.
  • Industrials felt a little unloved especially in the consumer sector. JB Hi-Fi (JBH) -3.18%, Harvey Norman (HVN) -1.36%, Pacific Brands (PBG) -3.30% and Webjet (WEB) -4.03%. Media stocks also took a hit with Seven West (SWM) -3.94% and APN News (APN) -1.63% followed by digital advertising stocks APN Outdoor (APO) -4.75% and Ooh!Media (OML) -2.4%. One to buck the trend was Nine Entertainment (NEC) +3.11%. News from Netflix on subscriber numbers and the loss of 5% of the prime time audience continues to weigh on the sector.
  • ‘Clean and green stocks’ were mixed. Blackmores (BKL) +0.63% and Bellamy’s (BAL) -1.16%, Tassal (TGR) +6.42% and Select Harvest (SHV) +6.33% continuing to bounce back after presenting at a PAC Partners Agribusiness conference.
  • One of yesterday’s casualties found some friends today with McGrath (MEA) +9.44% following an announcement that director Daniel Petre has bought another 111,111 shares. JP Morgan who has been a long term supporter and the power behind the float, has cut its price target from 210c to 160c. Unfortunately, the other casualty from yesterday did not fare so well with Qantas (QAN) -4.14% again as industry war nerves continue. The fall in Qantas was enough to set some jitters into Sydney Airport (SYD) -2.37% and Transurban too (TCL) -2.5%.
  • Speculative stock of the day: Segue Resources (SEG) +100% following a deal with Zeus (ZEU)  +115.38% signing a farm in and JV agreement on the Mortimer Hills project.

CORPORATE NEWS

  • Oil Search (OSH) +4.98% said its first-quarter sales fell 34% to $US313.1 million ($404 million) from the year-earlier period and were down 9% on the previous three months. The average realised price for oil and condensates was 32% lower than in the March 2015 quarter, while the average LNG price was down 45% at just $US6.84 per million British thermal units. MD Peter Botten said PNG LNG “achieved its highest quarterly production since coming on stream”, producing at an annualised rate of 8 million tonnes a year. He said production had been increased beyond the rated capacity of the project “at almost no additional capital cost”.
  • RIO +3.88% production numbers today and it has maintained its 2016 production targets despite weaker than expected production due to cyclone events and issues with the autohaul system of automated trucks, which is talking longer to bring on than thought. Although managmeent kept guidance for 2016, 2017 was revised down to between 330-340 m tonnes from 350m.
  • Commonwealth Bank (CBA) +0.74%, will no longer approve applications that cite self-employed foreign income. It will also not accept the foreign-currency income of temporary Australian residents, who can now only borrow up to 70% of the value of a property compared with 80%earlier.
  • Slater and Gordon (SGH) -3.85% has filed its UK accounts which include a note the company is rated as a ‘going concern’ only until the end of March 2017. This is significant as the company debts are due to be called in at the end of April next year unless the company can convince debtors of a creditable plan to get back on track by the end of the month, following the breech of banking covenants.

ECONOMIC NEWS

  • Looks like we are heading for an election on July 2, despite the government playing it down. A very long campaign is sure to test voter patience and a May budget complicates matters considerably.
  • RBA minutes today with nothing new added from what we already know. “Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards the non-mining sectors of the economy”. Governor Glenn will be keeping a watchful eye on employment trends and ‘new information would allow the board to reassess he outlook for inflation and decide whether the improvement in the labour market conditions evident last year was continuing.’
  • A Chinese-led group agreed to buy Australia’s most iconic cattle company in a deal valued at more than $300m after partnering with local investors. The venture, headed by a company controlled by Shanghai Pengxin Group, will purchase 80% of S. Kidman & Co. Australian Rural Capital Ltd. will take a 20 % stake.

IN ASIA

One reason the iron ore price is rising.

  • Stockpiles of steel reinforcement bar, used in construction, sank for a sixth week, contracting 6.8% in the period to April 15 in the biggest drop since October 2014, according to Shanghai Steelhome Information Technology Co. Rebar futures in Shanghai rallied to the highest in a year on Tuesday, and are up 38 % in 2016. Spot prices had risen 43% as of Friday.

AHEAD IN EUROPE AND THE US

  • Tonight we get Glenn Stevens speaking in New York (11:30pm). It would be surprising if we got any change of rhetoric from Glenn but currency traders will be watching closely for any change in language.
  • More on the UK steel industry with news out of a rare meeting in Brussels that China has ‘agreed’ to curb excess production over the long term. This has probably come a little late for Tata Steel and its UK operations at Port Talbot in Wales.
  • Argentina has returned to the international borrowing markets with a sale of sovereign bonds that ends 15 years of exile since its 2001 default. The country is raising up to US$15bn, but demand for the bond issue was strong and attracted orders worth US$65bn.
  • And finally it looks like the name Boaty Mc Boatface will NOT grace the prow of the new UK research ship despite it being the overwhelming favourite in an online poll. Apparently the science minster (yes they have one) will not be able to get the Royal assent for the name from the Queen. Sounds like a poor excuse. The people have spoken.

Clarence

XXXX

 

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NT Markets

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