Tag Archives: Precious Metals

article 3 months old

Make Or Break For Gold

Bottom Line 24/11/16

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 1183 / 1121 / 1058
Resistance Levels: 1233 / 1338 / 1385 / 1412

Technical Discussion

Gold on Wednesday night dropped below 1200 per oz for the first time since February. It has essentially become heavily weighed since the Trump victory and reconfirmation of his inflationary type policies which have put a rocket under the Greenback. For the most part Gold and the U.S Dollar trade inversely to each other, so it does appear as though Gold's substantial weakness of late is attributed almost entirely to a stronger dollar. Some upbeat reporting in the States last night saw Core durable goods beating forecasts although employment claims disappointed at 251,000 with the expected reading being more towards 241,000. Technically the metal is now on a knifes edge, so lets take a closer look.

Reasons to be cautious:
→ price chart starting to look damaged
→ 61.8% retracement zone now under threat
→ drop below 1200 backing seller strength

Our longer term bullish rhetoric on Gold, and precious metals in general, has now come under extreme pressure. Ever since the Wave-B high (see chart) was locked into place on election day, it's simply been all down hill. Big wide ranging key outside reversal days like this nearly always have follow through and price has yet again not failed to disappoint. Volume since the 9th November has also been strong with November likely to lock in one the biggest contract turnover months for Gold seen in many years.

The problem though is that it has been full of sellers, and price is now sitting right on a ledge. The 50.0% retracement zone has been achieved at 1221, the 61.8% at 1182 and Wave-A vs Wave-C equality sits right in between at 1192. Last night price tagged 1181 before closing at 1189. Simply put, if our longer term bullish analysis is to continue to remain valid, buyers now need to return and pretty much immediately. Another negative session that closes on its lows on high volume sets the scene for the major support zone circa 1050 - 1100 to be retested, which means all the hard work price action has undertaken since the beginning of the year, will have all been for nothing.

With any recovery from back down at major support likely to be long and arduous. Best case scenario from there would be a potential double bottom locking in which could have bullish outcomes over the coming years if triggered, with the worst case scenario being gold dropping below major support which would mean there will be no more glitter coming from Gold for many years to come. Clearly its make or break time right here.

Trading Strategy

Shorting Gold post the aforementioned key outside reversal day would have been the ideal strategy for nimble traders. Yet if price can now start to find some support, then low risk opportunities on the long side will continue to be considered. Yet as mentioned in our technical review tonight, any move from here that sticks below 1180 means all bets are off. We are not in the business of catching falling knives and this is what price action will be labelled if it keeps capitulating from here. Stand aside for now.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Overnight Report: Holiday Spree

By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.1% to 2204 and the Nasdaq fell 0.1%.

Let slip the bulls

The SPI Overnight was suggesting only a 7 point gain before the opening bell on the local market yesterday – a fair call despite more records on Wall Street given the ASX200 had rallied 60-odd points the day before. Iron ore had jumped 6% that night but iron ore futures had already rallied during Tuesday so the market was on to it.

But we closed up another 71 points. The chartists had suggested a breach of 5400 would pave the way for a move to 5500 and there seemed some level of self-fulfilment yesterday. As was the case on Tuesday, the local market did not step-jump up yesterday, it started from zero and tracked a straight line up to the close, without as much as a stumble. Momentum was at work.

It seems as if the local market has been in a daze this past couple of weeks as it tries to come to terms with a Trump presidency. There have been many reports in the media warning of just how bad Trump could prove for Australia. But as each passing day indicates Trump’s policy pledges were all about winning the election and not about how he would actually run the country, those initial fears have begun to be tempered.

If it didn’t happen on Tuesday, it happened yesterday – investors suddenly saw Wall Street breaking records and decided Australia was missing the boat. Get in and buy!

Only the healthcare sector missed out on an otherwise market-wide rally yesterday, thanks to the ongoing fallout from Fisher & Paykal Healthcare’s ((FPH)) earnings result. That stock was down 7% and the healthcare sector closed flat. Otherwise, it was green-on-screen.

The resource sectors were again in the frame – materials up 2.0% and energy up 1.3% -- but the fact industrials were up 2.2%, telcos 2.1% and utilities 1.4% indicated investors were moving back into the likes of bond proxy stocks and previous high-PE names that had been trounced over the past month or more. The banks also made their contribution with a 1.1% gain.

Did anyone notice yesterday’s major data release? It seems not.

Construction work done fell 4.9% in the September quarter to be down 11.1% year on year. It was a much softer result than economists were expecting. Private sector work fell 6.6% to be down 36%. The bulk of that fall reflects the ongoing wind-down of resource sector construction. Engineering fell 3.8% to be down 23.2%.

Last year it was all about building work, particularly residential, striking the balance. Building work in general fell 5.7% to now be only 1.4% higher year on year. Within that, residential fell 3.1%. The decline in resource sector construction will soon reach its nadir, but now we see the beginning of the cooling of the housing market. The Australian economy needs a new hero.

Within those companies most impacted over the last few years by the mining downturn – engineers & contractors – a scramble has been on to diversify into public infrastructure and away from the mining and oil & gas sectors in order to re-establish themselves. In the September quarter, public construction rose by only 1.4% but it is 15.7% higher year on year. Economists estimate the overall construction number for the quarter will shave 0.4 percentage points off GDP. As housing cools, public sector spending will need to take the baton.

Happy Thanksgiving

The healthcare sector was also a drag on Wall Street last night. Test results showed that Eli Lilly’s prospective Alzheimer’s drug failed to deliver. That stock fell 10% and weighed generally on biotechs, sending the Nasdaq down 0.1% following two record-breaking sessions.

It looked for most of the session that the S&P500 would also ease back after its record thirteen-day winning streak, but the broad market index just managed to fall over the line at the death. The Dow, on the other hand, powered on.

The Trump theme continues to underscore for many of the big caps in the Dow Industrials and very much so in the Dow Transports. But there was more to be positive about last night.

Deer & Co shares jumped 11% following that company’s earnings report. Deere is not a Dow stock but peer Caterpillar is. The banks continued on their merry way last night and because of the peculiarities of the arcane price-average, recent addition Goldman Sachs is very influential because it is a US$200-plus per share stock.

US durable goods orders surged 4.8% in October when 3.3% was expected. It mostly came down to lumpy aircraft orders, but ex-transport the result was still a 1% gain.

The minutes of the November Fed meeting were released last night but no one paid any attention, given they are pre-Trump. The indications are nevertheless a rate rise next month is baked in, but everyone knows that.

There would have been no surprise had Wall Street eased off last night as traders squared up ahead of what is effectively a four-day holiday. But that was not the case. We’ll need to see what happens next week after everyone’s had a rest.

Commodities

Iron ore is up another US$1.10 at US$74.90/t. At what point will the Chinese government step in with more dramatic measures to curb speculation?

And not just in the bulks, but in base metals too. Aluminium and lead rose another 1% last night, copper and nickel 2% and zinc 3%.

These moves came, yet again, despite a stronger greenback. After one little dip, the US dollar index is back up 0.6% at 101.64.

Alas, the death knell sounded for gold. It fell US$24.60 to US$1187.10/oz, accelerating once the 1200 mark was breached.

The oils were little moved last night.

The Aussie is down 0.2% at US$0.7386. On a combination of US dollar strength and the weakness in yesterday’s Australian data, we might expect a bigger drop. But look at those commodity prices.

Today

The SPI Overnight closed down one point.

There’s no holiday in Australia tomorrow, but with Wall Street closed, it may be a case of looking to square up a bit downunder, particularly after a 130 point rally over two sessions.

Today brings September quarter capital expenditure numbers.

It is also a very big day on the AGM calendar, with highlights including South32 ((S32)) and Woolworths ((WOW)).
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: Dow 19,000

By Greg Peel

The Dow closed up 67 points or 0.4% at 19,023 while the S&P rose 0.2% to 2202 and the Nasdaq gained 0.3%.

Buy Everything

Surging commodity prices were the major trigger but new all-time highs on Wall Street also seemed to spur investors into diving back into the Australian stock market as a whole yesterday, given no sector finished in the red in a 1.2% rally for the ASX200. Rotation of any sort was not apparent, although not every sector performed equally.

Materials (up 2.8%) and energy (up 2.6%) led the charge on stronger base metal and oil prices, despite a weak overnight session for iron ore, and helped by little counter-movement in gold. Iron ore futures went the other way and traded “limit up” in the session, negating that offset. In contrast to trading over the past couple of months, the next best sector was utilities, up 2.1%.

It has been typical in recent times for resources and other cyclicals to trade inversely to yield stocks and defensives. Yesterday was different; seemingly more of a case of buying anything that looked sufficiently cheap. Not joining the party were the banks and telcos, up only 0.3% each.

Telstra ((TLS)) has been a volatile stock of late – not what you’d normally associate with a supposedly defensive telco. It seems talk of an NBN-related “earnings gap” ahead has investors thinking twice. And the lingering possibility of the banks having to raise new capital to meet new regulations, or at the least cut their dividends, may also have investors shying away from that sector.

Yesterday’s rally was not a step-jump but a classic case of moving steadily upward as the day progressed. This suggests “real” buying. In sights was the technical level of 5400 for the index which was surpassed late morning, sparking some brief profit-taking, but once the rally resumed it fed on itself.

If the index holds over 5400, chartists suggest then 5500 is in play.

Blue Sky

Donald Trump must be starting to think he’s a bit of a hero, if he didn’t already. The S&P500 has now posted a thirteen-day winning streak since Trump’s victory speech, to the tune of almost 3%. Nixon managed to spark a similar response, but Trump is still well behind Republican pin-up boy Ronny Ray Guns, whose election was worth over 8% in the same period.

The Dow has closed over 19,000 for the first time in history. The S&P has closed over 2200 for the first time in history. The Nasdaq and Russell small cap indices also hit new all-time highs last night, marking the second consecutive session of all four doing so – a feat not seen since 1998. The thirteen-day day winning streak for the S&P is the first since 1996.

Across Wall Street all talk is of just how far this rally can run on election promises (that are already being broken – “lock her up” is now off the table) which will take time to implement. Surely the honeymoon must fade at some point.  Tonight in the US is all about trains, planes and automobiles. A mass exodus will begin from lunch time. A good day to take profits ahead of the Thanksgiving holiday?

Commodities

Recent volatility in bulks and base metal prices has had a lot to do with the Chinese government increasing margin requirements to curb rampant speculation, offsetting Trump euphoria. We’ve seen some sharp dips in iron ore and coal prices lately as a result. But is Beijing winning?

Iron ore is up US$4.00 or 5.7% at US$73.80/t. Thermal coal is up 6.2%.

There were some very big moves up for base metals on Monday night, with aluminium a smaller mover. Last night aluminium jumped 2% while copper, lead and nickel all added a further 1% and nickel fell 1%, having jumped over 5% in the prior session.

West Texas crude has now rolled into the January delivery contract and last night it fell US17c to US$48.07/bbl after Monday night’s big move.

The US dollar didn’t much come into play last night, ticking up less than 0.1% to 101.07.

Gold is flat at US$1211.70/oz.

The Aussie is up 0.5% at US$0.7399 despite the steady greenback, driven by commodity prices strength and, presumably, all this sudden talk of the next move in Australian interest rates being up. There are plenty of economists holding the opposite view.

Today

The SPI Overnight closed up 9 points.

Locally we’ll see September quarter construction work done numbers today.

Japanese markets are closed.

Wall Street will see a big dump of data tonight, including the minutes of the November Fed meeting, before the evacuation begins.

Programmed Maintenance ((PRG)) will release its earnings report today while the centres of attention in another round of AGMs will likely be Estia Health ((EHE)), following its torrid few months, and one of the most volatile stocks on the market at present, lithium producer Orocobre ((ORE)).

Rudi will appear on Sky Business today, 12.30-2.30pm, instead of his usual Thursday appearance.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

Newcrest Outlines Growth Ambitions

Gold and copper miner Newcrest has provided further clarity on growth plans for its key producing mines. Not all brokers are convinced.

-Options being considered to lift Cadia output to, potentially, 40mtpa
-Rising cost profile at Lihir and more work required to firm up viability of 17mtpa
-CEO suggests US-based investors find deep value in the stock, brokers less convinced
 

By Eva Brocklehurst

Gold and copper miner Newcrest Mining ((NCM)) has put more flesh on the bones of its key producing mines, ahead of site tours to Cadia Valley and Lihir Island, with further clarity on the growth plans for the two sites.

Newcrest is on track to hit its 13mtpa target for Lihir and has lifted this goal to 14mtpa by December 2017. The company also provided a more detailed grade profile for Cadia East for the medium and long term, with a focus on options to lift throughput rates to, potentially, 40mtpa.

Ord Minnett observes Newcrest continues to prioritise internal growth opportunities, by reducing bottlenecks and expanding core assets, while acknowledging a desire for more development-stage assets in its portfolio. The broker suspects throughput and grade at Cadia could be weaker than consensus estimates.

No constraints were identified in the expansion of Cadia to 32mtpa but issues with permits, tailings and water need solving in a 40mtpa scenario. The company expects to achieve a 28mtpa rate by FY18.

At Lihir the conceptual target of 17mtpa involves a fines bypass crusher and scrubber and needs more metallurgical work, in the broker's opinion, to firm up the viability of the option. Ord Minnett forecasts a rising cost profile at Lihir, as grades decline and material movement increases, noting the company can combat rising costs by increasing throughput and completing the fines bypass project.

Meanwhile, Newcrest has committed to invest in its Telfer mine until FY19, ahead of a future decision to proceed with the $70-90m in cut-backs required from FY19 onwards.

Macquarie welcomes the detailed guidance, believing this presents upside risks to its base case forecast, but retains a Neutral rating. The indicative mine plans broadly match its forecasts and the upgrade profile presents upside risk for the next six years for production, and downside risk beyond that.

There was also more details on the life-of-mine guidance for other operations, which highlight the comparatively short life compared with the two core assets. The outlook for Telfer was mixed, the broker notes, with higher grades in the open pit offset by lower throughput rates and lower grades from the underground.

Guidance for Gosowong and Bonikro highlight the comparatively short life of these projects. Overall, FY17 guidance is unchanged for gold and copper production, costs and capital expenditure.

UBS understands why the operation of of the company's projects has improved over the last two years. Big data, the EDGE program and an overhaul of the approach to safety have all contributed to the turnaround. Yet, while the outlook and confidence have improved, it still does not justify a premium valuation, in the broker's opinion.

The CEO has suggested that some US-based investors find deep value in the stock, and that a marketing push into the US in 2017 is on the cards. UBS counters this with the observation that while Newcrest might appear favourable on a simple enterprise value/reserve metric, a large part of its reserves are tied up in undeveloped, or long-life, assets, which carry a good deal of uncertainty. This, subsequently, makes a high-level comparison for the company quite difficult.

The main new piece of new information, the broker notes, was the grade profile at Cadia East. Near-term earnings are expected to improve at Cadia but UBS calculates that after FY18, grades decline steadily to 0.54-0.57g/t gold by 2023/25. This would mean annual production halves to 430-460, 000ozs per annum. Copper grades are maintained over this period and, at spot prices, this should mean the revenue mix shifts to 55% gold from the current 70%.

UBS observes this production decline includes expansion to 32mtpa in 2020. With a declining production profile in view, it appears clear to the broker why the company is keeping its options open on expanding to 40mtpa. The broker's target and Sell rating are based on a long-term decline in the company's production profile, amid concern that the market may not be pricing in the size of this decline.

Deutsche Bank notes the focus is returning to growth and believes Cadia provides one of the best growth options in the global gold space, while acknowledging the strategy at Lihir is less certain. The case for expansion at Cadia is contingent on the Cadia East panel cave operation being able to deliver at the required rate but, overall, the broker supports the company's desire to assess the potential to push to 40mtpa.

Deutsche Bank notes the merger and acquisition conversation is strengthening, and believes the company's caving expertise is a point of difference and could be a critical element when justifying transactions, such as buying into an open pit asset where there is caving potential at depth.

FNArena's database shows two Buy ratings, one Hold and five Sell. The consensus target is $20.96, signalling 1.2% upside to the last share price. Targets range from $12.25 (UBS) to $27.05 (Morgans not yet updated on the investor briefing).
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Material Matters: Strategy, Gold And Gold Miners

Expectations for the metals market and the impact of Donald Trump's election on gold and gold stocks.

-Base metal prices likely over-reacted as US accounts for under 10% of global demand
-Sell off in Oz gold equities seen more than capturing weakness in gold prices
-Deutsche Bank, Macquarie take constructive views on the ASX gold sector
 

By Eva Brocklehurst

Commodity Strategy

The market hopes, after the surprise win by Donald Trump in the US election, that proposed infrastructure spending will boost demand for base metals. Yet Commonwealth Bank analysts observe that base metal prices have probably over-reacted, as the US only accounts for under 10% of global demand for the major commodities.

China, which accounts for 40-60%, is expected to remain the primary driver of demand for a while yet. With regulators stepping in to lift margin requirements at Chinese commodity exchanges, the analysts expected speculative demand to slow immediately.

The analysts have upgraded price forecasts for iron ore and coal over the next year, amid expectations Chinese demand will remain more resilient and the recent uptick in mining commodity prices indicates deficit concerns are increasing. The analysts still expect prices to ease next year as China steps up to take the heat out of its property sector.

The analysts observe producers are yet to respond to rising commodity prices with much investment in new greenfield project. On current numbers spot prices provide the returns for a number of new projects, particularly in the coal and iron ore market. Yet, miners are justifiably cautious, suspecting Chinese demand for additional volumes may not exist when these projects reach completion in a few years time.

Instead, the analysts observe producers are looking to re-start idled operations, such as the Glencore Integra coking coal mine, where the capital costs are low and the returns more immediate. While the analysts believe miners will remain reluctant investors in new projects for now, should prices remain elevated for another six months they could change their views.

Meanwhile, precious metals are noted to have fared worse since Donald Trump's victory, amid expectations his policies will be stimulatory and increase the likelihood the US Federal Reserve will boost interest rates. The analysts expect the Fed to lift the Fed Funds rate in December and have downgraded gold and silver price forecasts, given the recent deterioration.

Gold And Gold Miners

Market expectations of US fiscal stimulus should lead to higher 10-year bond yields and an increase in inflation, albeit not at the same pace, Deutsche Bank contends. Despite this, the Australian dollar gold price is only 10% below its record high of $1820/oz. Meanwhile, the ASX gold sector has de-rated 25% in the last four months and is now on the lowest multiples since early 2016. The broker believes the sell-off more than captures the fall in the US dollar gold price and expectations of further weakness.

The broker believes the economic advantages in the incoming US administration outweigh the risk factors for now, and the big move in yields has been priced in. Deutsche Bank moves to a more constructive outlook for the ASX gold sector, having previously been bearish.

In a stronger US dollar environment, Australian dollar currency benefits allow the ASX gold sector to outperform global gold peers. The broker upgrades OceanaGold ((OGC)) and St Barbara ((SBM)) to Buy from Hold, and Regis Resources ((RRL)) and Northern Star Resources ((NST)) to Hold from Sell.

Macquarie expects near-term volatility in gold as markets continue to focus on the implications of the election of Donald Trump. The broker remains positive on the medium to long-term outlook and envisages current weakness in the equities as a buying opportunity.

Overall, the broker considers the argument that a Trump economic policy is negative for gold is rather weak, as his policy is not certain and its consequences even less so. After the rise and subsequent fall in gold prices over the election process, the broker observes gold did not fail as a safe haven as investors decided safe havens were not needed.

Moreover, the broker believes gold takes its lead from bigger markets, such as equities, bonds and FX. Markets appear to have decided that, not only is the incoming administration not as worrying, it may actually be economically positive. Macquarie also distinguishes between a more hawkish stance from the US Fed because of a change in personnel and a response to rising inflation. The latter is more plausible at present as the US economy is nearing full employment and wages and prices have accelerated recently.

In a case of where the Fed cannot raise rates as fast as it wants because of political pressure or personnel changes (Janet Yellen's term as Fed chairman expires in February 2018), this would mean faster growth and higher inflation that could get out of hand. Macquarie ascertains that this would indeed be bullish for gold.

The broker's gold forecast already has a constructive view on the US economy and the fact that rate hikes are likely. The broker expects the gold price to rise in 2017. Macquarie notes FY16 was a record earnings season for all the Australian producers and growth should continue into FY17.

The broker continues to favour Evolution Mining ((EVN)) and St Barbara for their earnings potential and strong de-leveraging stories. Northern Star is favoured for its cash generation and aggressive organic growth. Outside of Australian-based producers, OceanaGold is also a key pick for the broker as it is trading at a significant discount to valuation.

Significant falls in the share prices of Alacer Gold ((AQG)) and Doray Minerals ((DRM)) in the past few days has led the broker to upgrade their respective recommendations to Outperform and Neutral. Whilst valuations imply upside for both stocks the broker is cautious over the near-term, given both are engaged in the construction phases of the respective growth projects.

Macquarie also upgrades Regis Resources to Outperform from Neutral. For domestic development exposure the broker flags Gold Road ((GOR)) as it has just secured joint-venture funding for Gruyere and offers low risk upside, as does Dacian Gold ((DCN)) for its Mt Morgans project.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Overnight Report: Commodity Price Surge

By Greg Peel

The Dow closed up 88 points or 0.5% while the S&P gained 0.8% to 2198 and the Nasdaq rose 0.9%.

Confused

It was a quiet session on the local bourse yesterday. Volume was weak as the ASX200 meandered its way in a minimal range to a soggy close. But again the lack of movement in the index belies what was going on underneath amongst the sectors.

It would seem investors are simply not sure how they should be positioned going into year-end. I have highlighted in the previous couple of sessions that it appeared the long sell-off of yield stocks and defensives was finding a bottom and the abrupt run-up in resource stocks was tipping over. But yesterday, we went back the other way once more.

On a tick-up in the oil price, energy was the best performer on the day with a 1.7% gain. It would seem traders were heartened by the WTI price rising back through the US$45/bbl mark on cautious confidence of an OPEC agreement being reached, rather than tanking down through 40. That buying will prove rather prescient today.

Materials chimed in with a 0.3% gain but other than a flat day for the banks, all other sectors finished in the red. Notably, consumer staples and healthcare each fell 1.3%, telcos fell 0.9% and utilities fell 0.5%. The theme of the previous couple of sessions was reversed. Perhaps the seemingly relentless rise of US bond yields is just too much.

The US bond yield stalled last night and the US dollar index dipped for the first time in several sessions. The door was opened for commodities to take centre stage.

Commodities

APEC meetings are not what we’d normally think of as market movers but aside from the attention being drawn by it being President Obama’s final outing, the attendance in Peru of Vladimir Putin and Xi Jinping has provided us with some headlines.

The Russian president sees “a high probability” of an agreement being reached in Vienna on November 30, when OPEC tries to implement a production freeze. Russia will cooperate, Putin suggested, as a production freeze “is not an issue for us”.

Those comments were worth 4.2% for the West Texas crude price, which rose US$1.92 to US$47.49/bbl.

What is good for oil is seen as good for other commodities. Meanwhile, the Chinese president used his speech in Peru to confirm China’s support for a free trade area in the Asia-Pacific. The Chinese government is pushing for a Regional Comprehensive Economic Partnership of 16 countries. The now dead-in-the-water TPP was to involve 12 countries, including the big one, the US. We might presume China sees an opportunity to further step-up its global strength as the trade wall goes up around the United States.

Free trade offers up the possibility of increased Chinese imports of raw materials, including lead, up 1% on the LME last night, aluminium and zinc, up 1.5%, copper, up 2.5%, and nickel, up 5%.

Xi Jinping did not, however, manage to light a flame under the bulks, which few disagree have run too far, too fast. The thermal coal price was steady last night and iron ore plunged US$2.80 to US$69.80/t.

The 0.3% dip in the US dollar index to 100.97 provided a green light for those commodities that did rally to do so, and also allowed gold to tick back US$3.30 to US$1211.90/oz.

And the Aussie to tick back 0.3% to US$0.7361.

Quadruple Watching

The energy sector duly led Wall Street higher last night with materials trailing in its wake. But otherwise the positive mood was market-wide. The Dow, S&P and Nasdaq all simultaneously hit new all-time highs, for the first time since August. Back in August, US small caps were underperforming. Last night the Russell 2000 index also hit a new all-time high, marking a rare quadrella.

What’s good for M&M Enterprises is good for the country. Except in this case Milo Minderbinder is Donald Trump and no one can yet identify the Catch-22.

Outside of the commodity story there was no real new news to drive Wall Street higher last night. Only the dip in the greenback after a long run higher could be seen as any particular incentive. And the ten-year bond rate stalling.

Donald Trump continues to interview prospective cabinet members but there has been no new news on that front either. Either way, US business television currently features commentator after commentator suggesting a Trump presidency cannot be anything other than positive for the stock market. They just can’t see any other scenario.

The previous couple of sessions showed signs the Trump euphoria rally might be losing steam. Not so last night.

Today

Fresh all-time highs on Wall Street and surging commodity prices. How will this affect the Australian market today? Forget iron ore, the SPI Overnight has closed up 40 points or 0.8%.

Earnings results are due out today from CYBG ((CYB)), Fisher & Paykel Healthcare ((FPH)) and Technology One ((TNE)). There is another round of AGMs to digest including another prominent Kiwi, The A2 Milk Company ((A2M)).
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

Gold Prices Are Attempting To Claw Back From Support

By James Stanley, currency analyst, FXCM

[All prices US$/oz]

Talking Points:

  • Gold Technical Strategy: Longer-term bullish case exists > $1,200; near-term has been aggressively bearish.
  • A major support level on Gold is at $1,200; this is the 38.2% Fibonacci retracement of the Bretton Woods-fix to the 2011-high, and has also provided the swing-low in May.

In our last article, we looked at the deluge in Gold prices as a ‘big picture,’ long-term support zone was nearing. The swing-low on Monday of this week came-in right at the 50% Fibonacci retracement of the December low to the July high at a price of $1,210.85. But just below that level is a more critical zone of potential support at $1,200, as this is the 38.2% retracement of the Bretton Woods Fix of $35/ounce up to the 2011 high of $1,920. Perhaps more importantly, this level has been recently confirmed as support with an inflection marking the lows in May.

On the chart below, we’re looking at the 2016 move in Gold prices, and we’ve added a short-term trend-line connecting the lows in price action since February 10th.
 

USD gold one-year chart (see key below)

Red box: "Former support trend line now showing as short term resistance"
Blue box: "Confluent batch of long term support"


Since that support inflection at $1,210, sellers have begun to display a bit of tepidness. This has allowed prices to trickle back-up to the $1,230-level, and short-term price action is now finding resistance on the projection of the short-term trend-line that we looked at above. But sellers have been unable to re-take control of Gold prices over the past two days, as we’re also seeing some element of ‘higher-lows’ on the hourly chart.

So while the near-term trend is still very much bearish here, seller’s conviction appears to be waning, and should the rampant strength seen in the U.S. Dollar of recent begin to recede, the long side of Gold can become attractive again. Of particular interest to this theme will be resistance levels at $1,230 and $1,250. The level at $1,230 has shown as near-term swing-resistance, and $1,250 is a Fibonacci level that had also provided the swing-low during the Brexit referendum.

Until those highs are taken out, traders will likely want to move forward with a bearish bias on Gold.
 

USD gold eight year chart (see key below)

Red box 1: "Massive drop around/after US presidential election"
Red box 2: "Short term support trend line now showing as resistance"
Red box 3: "Short term support trend line now showing as resistance"
Red box 4: "Support inflection off of 50% Fibonacci retracement"
Brown box 1: "Near term trend is still bearish, but waning"
Brown box 2: "Equalized price action after huge move lower can be emblematic of sellers lacking conviction to drive prices lower"
Blue box 1: "Should price action break above $1230 (near term swing high) or above $1250 (prior swing low), bullish positions can become attractive again"
Blue box 2: "roughly equalized price action since support inflection"
 

Reprinted with permission of the publisher. The above story can be read on the website www.dailyfx.com here.

The views expressed are not by association FNArena's (see our disclaimer).

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.

www.dailyfx.com

Disclaimer

Forex Capital Markets is headquartered at Financial Square 32 Old Slip, 10th Floor, New York, NY 10005 USA.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before you decide to trade the foreign exchange products offered by Forex Capital Markets, LLC, Forex Capital Markets Limited, inclusive of all EU branches, FXCM Asia Limited, or FXCM Australia Limited, any affiliates of aforementioned firms, or other firms under the FXCM group of companies [collectively “FXCM Group”] you should carefully consider your objectives, financial situation, needs and level of experience. If you decide to trade foreign exchange products offered by FXCM Australia Limited you must read and understand the Financial Services Guide and the Product Disclosure Statement. FXCM Group may provide general market information and commentary which is not intended to be investment advice and the content of this email must not be construed as personal advice. By trading, you could sustain a total loss of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading in foreign exchange products. Foreign exchange products are only suitable for those customers who fully understand the market risk. FXCM recommends you seek advice from a separate financial advisor.

FXCM Group assumes no liability for errors, inaccuracies or omissions in these materials and does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM Group shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This email is not a solicitation to buy or sell currency. All information contained in this e-mail is strictly confidential and is only intended for use by the recipient. All e-mail sent to or from this address will be received by the FXCM corporate e-mail system and is subject to archival and review by someone other than the recipient.”

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Material Matters: Supply, Oz Miners, Aluminium, Coal And Mineral Sands

Outlook for metals; downside risks diminish for Oz miners; oversupply in aluminium; thermal coal set to weaken; strengthening in pigment markets.

-Macquarie not expecting resurgence in growth projects for metals in the near future
-Capital management potential opening up for Rio Tinto, inevitable at South32
-Increasing evidence suggests thermal coal price may be peaking
-Ord Minnett unable to identify positive catalyst for zircon
 

By Eva Brocklehurst

Commodity Supply

Macquarie believes prices for most metals and bulk commodities are now at a level where producers are making money, given the cost reductions that have occurred over the past year. In many cases current prices are near, or below, the broker's long-run forecasts, most notably base and precious metals. As a result Macquarie does not expect a resurgence in growth projects in the near future.

There are three major metals on which more than 10% of the market is still making losses. Even with the price moving back above US$5000/tonne, a proportion of copper supply does not break even, notably the smaller mines in Chile and Chinese domestic output.

In nickel, despite strong gains recently, a substantial portion of global output cannot cover cash costs, on the broker's analysis. Much of this is because the nickel price is being anchored by the cost of nickel pig iron production in China. Uranium, with the spot price moving below US$20/lb, is the only market where increased supply loses money now compared with back in January.

In bulks, coal and manganese prices are well above the level Macquarie would expect to incentivise new projects. Nickel, copper, uranium and platinum group metals, meanwhile, are below the broker's long-run expectations. Many others, including zinc and gold, are only just above. The broker notes marginal units of iron ore have come back into the market, with both Chinese domestic output and China's imports from small suppliers recovering.

The most spectacular turnaround story for 2016 is coal, Morgan Stanley notes. The broker believes the next few weeks are critical as trade flows typically leap 20-50% in November to December. Prices should then fall. Other price winners of the year include steel and most of its raw materials.

The broker notes China's credit-backed, steel-intensive infrastructure programs have pulled 40-50m tonnes more crude steel into the construction industry and the typical pull-back in September to October has been delayed.

Morgan Stanley still expects this pull-back to occur by mid winter but the impact will probably be mitigated by positioning for another year of stable steel production in China. The broker remains a bull on nickel and zinc because of tight supply and subdued about aluminium and copper, as global supply growth exceeds China's moderating demand.

Australian Miners

Credit Suisse observes, after China returned from its Golden Week holidays, there was a break out in iron ore, coal and nickel prices. The broker believes downside risks have diminished and there is a positive skew for Australian miners' earnings. While the bears will argue China has too much stimulus and there is a risk policy settings will now tighten too aggressively, the broker believes the balance of risks remains reasonable.

Credit Suisse also expected steel input prices would have eased by now, as production slows ahead of reduced construction in the Chinese winter. Instead prices are climbing as buyers readily accept higher prices, which the broker believes points to strong demand preventing a glut of materials. The rally in commodity prices is envisaged to be strong enough and last long enough to banish balance-sheet concerns for Australian mining names.

Valuations are considered to be around fair value, based on an average of the broker's base, upside and downside cases. The broker believes capital management possibilities are once again, opening up for Rio Tinto ((RIO)). Capital management also seems inevitable for South32 ((S32)).

Aluminium

National Australia bank analysts expect the aluminium market to be shaped by significant capacity additions in China's north-western region, where there is access to coal mines and lower cost electricity. This is despite the industry being singled out by the Chinese government in its new five-year plan for the non-ferrous metal sector as having severe over-capacity.

The analysts expect demand growth in China will continue to slow and growth in the rest of the world is unlikely to be fully offsetting over-supply. The run up in premiums has now reversed and the analysts note inventory levels at various London Metal Exchange locations have been on the decline. Premiums now more closely reflect underlying supply and demand factors.

They do flag some positive long-term trends for demand, such as increasing use of aluminium in car manufacturing and use of aluminium wire in preference to copper in the power sector. Overall, the analysts forecast a well-supplied market in 2016 and 2017, with prices averaging US$1595/t and US$1670/t respectively. In 2018 demand prospects may improve and a higher average price is forecast of US$1740/t.

Coal

Macquarie examines high-frequency port data which indicates thermal coal production run rates have increased materially. Rail deliveries into northern Chinese ports are now running at rates that are higher than when the 276-day rule was first implemented. The strength of the coal price over the past month has been underpinned by scepticism that the Chinese were actually raising production. The market is also suspicious that supply will be large enough to fill the entire deficit.

The broker has increasing evidence which suggests thermal coal prices may start to roll over. Any normalisation of coal markets will be determined by China, as its domestic market is 2.5 times the size of the whole seaborne market. While the data is not directly applicable to coking (metallurgical) coal, Macquarie continues to favour being long metallurgical coal versus short thermal coal exposure.

This is because the Chinese government appears to be more concerned about the effects of rising thermal coal prices than it is about steel-maker margins. Also, the seaborne thermal coal market is relatively more flexible in terms of supply compared with the seaborne coking coal market.

Mineral Sands

Ord Minnett observes strengthening pigment markets are likely to flow through to titanium dioxide while the prices for sulphate ilmenite have started to move higher. Commentary from the TZMI conference about zircon markets was more subdued than expected, with most participants expecting a surplus over the next two years. The broker has strengthened its view that titanium dioxide feedstock markets will improve.

The sulphate ilmenite market is observed to be moving into deficit from a surplus, with positive price momentum set to continue. Chinese domestic ilmenite tonnage has fallen and this is a key driver of the rise in domestic prices over the last six months and an opportunity, the broker envisages, for ilmenite importers such as Base Resources ((BSE)).

In zircon, half of the projects under development that were analysed by TZMI have an inducement price below US$1000/t, which indicates to the broker that long-term consensus zircon pricing could be optimistic. On the other hand, Iluka Resources ((ILU)) believes zircon demand may be underestimated. This is because some market participants are not factoring in the movement in inventories.

Illuka believes it holds over half the world's zircon inventory and does not plan to release this until market conditions are appropriate. At the conclusion of the conference, Ord Minnett came away positive about titanium feedstock prices the near-term, with miners exposed to sulphate ilmenite particularly likely to benefit. The broker was unable to identify a positive catalyst for zircon.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Overnight Report: Bonds On The Move

By Greg Peel

The Dow closed down 29 points or 0.2% while the S&P lost 0.3% to 2133 and the Nasdaq fell 0.7%.

Sell Australia

It seemed as if we had found a bottom in the ASX200 at 5350 technical support yesterday as the index spent the morning holding its ground, following Wednesday’s surprisingly severe sell-off. But 5350 prove only a pivot point as there seemed no great desire to drive a rebound.

And sure enough, another wave of selling hit at midday, and down we went again. Reports suggest the selling has been futures-led, implying a large fund manager or fund managers have decided to “Sell Australia”. It only takes a small reallocation of a giant global portfolio to send little old Australia spiralling.

The quickest way to achieve a wholesale “Sell Australia” is to first sell the SPI futures on the ASX200. This locks in the exit, and fund managers can at a later date, when the dust settles, sell actual stock positions and buy back the futures at a lower level. When the futures are sold, those on the buy-side have the unenviable task of trying to cover by selling stocks into a falling market.

And it is unenviable at present because the local market is in a panicky mood anyway, sparked by a run of bad news coming out of AGMs and other matters. We can see the market-wide confirmation in the fact all sectors, bar one, fell in unison yesterday and the hardest hit were those where the large caps mostly reside. The top 20 will give you about an 80% or more replication of the whole 200 in market cap terms. Only info tech finished in the green, dominated by Computershare ((CPU)) which is being supported by rising US rates.

There were only a couple of notable up-movers bucking the trend otherwise – one being Ardent Leisure ((AAD)), which saw some bargain hunting despite a rather poor AGM performance. Challenger ((CGF)) has gone from strength to strength lately on the popularity of annuities, and it jumped another 4% after its AGM.

On the other side of the ledger, the biggest percentage moves down were reserved for resource sector stocks. Outside of an 11% drop for APN News & Media ((APN)) on capital raising dilution, eight of the other nine top ten down-movers were miners – the same miners who have been enjoying stellar runs lately on improved commodity prices (eg South32, Whitehaven) or futuristic over-exuberance (eg Orocobre, Syrah).

Clearly those investors having dined out lately on the outperformance of their mining-weighted portfolios were in a desperate race to lock in profits yesterday before the sky fell in.

The other big news was of course National Bank’s ((NAB)) decision not to cut its dividend, yet. NAB thus managed to fight back against solid bank selling.

Ticking Up

US monthly data flow of late has been fair to reasonable, positive but not shooting the lights out. Either way, not bad enough for the market to assume the Fed won’t hike in December. Tonight sees the more substantive first estimate of September quarter GDP, so any shock there might change the mood. But these days both the Atlanta and NY Feds publish continuous GDP run rates, thus expectations of around 2.5% growth have fairly solid evidence behind them.

As we move closer to December, the US ten-year yield is again starting to tick up. Last night it rose 5 basis points to 1.84%. We recall that 1.85% was the pre-Brexit vote high, hence traders assume that a break of 1.85% could mean a rush back to 2%. And it’s not just US Treasuries. Bunds, gilts, JGBs and others are all quietly on the move.

It’s not good news for bond-proxy stocks, hence an early one hundred point fall in the Dow last night was largely driven by telcos, utilities, REITs and the like. Yet as we have seen so often in past sessions, the early drop was met by a choppy recovery.

Choppiness can be put down to individual earnings results, which continue to be mixed but net positive, while fourth quarter guidance remains an area of concern. Among the Dow stocks, last night saw a miss from Ford and a 1% drop and a miss from Colgate-Palmolive and a 1% drop, while outside the Dow, ConocoPhillips was a winner and jumped 5%.

This morning’s major after-the-bell reports see Amazon down 5% and Dow component Alphabet (Google) up 1%.

The other big market influence at present is of course oil, and it found some support last night after Saudi Arabia actually came out with a number – a 4% production cut from those who can cop it. While the official meeting is not until the end of November, this weekend sees another gathering to further nut out possibilities.

Could it be that this time there really is a wolf?

Commodities

West Texas crude is up US49c at US$49.60/bbl.

Base metal prices all rose around about 1%, except lead, which rose modestly.

Iron ore finally retreated, down US40c to US$62.30/oz.

The US dollar index is up 0.3% at 98.91 and gold is relatively steady at US$1269.00/oz.

The Aussie is down 0.7% at US$0.7588. This may give weight to the assumption stock market selling is coming from offshore.

Today

The SPI Overnight is rather boldly up 28 points or 0.5%. This would suggest that maybe the selling has now been completed, or at least the market hopes it has. There should be some bargains on offer.

Locally we see the September quarter PPI and September new homes sales numbers today. Tonight the US GDP will be in focus.

Woolworths ((WOW)) will report September quarter sales today. Having seen what happened to its rival, they would want to be good.

Macquarie Group ((MQG)) releases first half earnings.

And there’s another handful of AGMs.

Rudi will connect with Sky Business today, via Skype, to discuss broker calls for about ten minutes, starting around 11.05am.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: Wild Ups And Downs

By Greg Peel

The Dow closed up 30 points or 0.2% while the S&P fell 0.2% to 2139 as the Nasdaq fell 0.6%.

Pent Up

For a month the ASX200 has been up and down in a range of 5400-5500, meeting bargain hunters at the bottom and profit-takers at the top. The topside has looked the least likely to be penetrated given uncertainty surrounding upcoming, very influential global events.

Which leaves us with the downside. We saw a bit of a hint of it on Monday, but on Tuesday the bargain hunters reappeared. They also reappeared yesterday when the index dropped immediately to 5400 on the open. They hung on for almost an hour but it was to no avail. There was just too much bad news about.

Yesterday’s bellwether trigger was Wesfarmers ((WES)), or more specifically Coles. Looks like the honeymoon’s finally over. Stoic investors have continued to back the big supermarkets because...well…of tradition mostly. Wesfarmers does not traditionally fall 6% but it did yesterday.

Then there’s the tragedy of Ardent Leisure ((AAD)), down another 15%, an ongoing exit from stocks reliant on the Chinese consumer, following Tuesday’s Bega Cheese ((BGA)) scare, and the other China story – Crown Resorts ((CWN)). And we have Healthscope ((HSO)). Having been sucked down in the vortex, peer Ramsay Health Care ((RHC)) issued the briefest of statements yesterday to allay fears of any similar problems. Ramsay shares managed only a very modest bounce after a solid fall.

When the levy broke at 5400 it was on for young and old – market-wide. Tuesday night saw a big jump in the iron ore price, solid moves up in base metals and a bit of a rebound for gold, yet the materials sector closed down 0.7% yesterday. It was at least an “outperformance”. The banks that had been bought up this week on the dividend play were dumped, down 1.3%, ahead of National Bank’s ((NAB)) earnings report today.

The big loser on the day was consumer staples, down 3.3% thanks to Wesfarmers, but consumer discretionary wasn’t far behind with a 2.5% fall. This sector is very much influenced by monetary policy, but it appears yesterday’s CPI release had little impact on a market already hell bent on heading south.

The media will always focus on the headline inflation rate, and it was up 0.7% in the September quarter for an annual rate of 1.3% when 0.5% and 1.1% were forecast. There goes your RBA rate hike, is the conclusion. But the core rate rose only 0.3% when 0.4% was expected for an annual 1.5% against 1.7% expectation.

The RBA focuses on the core rate, ex food & energy. Thus we can say inflation was actually weaker than expected. But not as weak as it was back in the March quarter, which prompted the last rate cut. So will we see a Cup Day cut next week?

CBA’s economists say yes, but with less conviction. St George says yes, but it’s a “line ball call”. ANZ believes the data increases the odds of a cut – next year. Others say no cut on Tuesday. Place your bets.

The immediate reaction in forex markets was no cut, given the Aussie jumped straight to 77, but then traders read further down the document, past the headline result, and by late evening the Aussie was back where it started. It is this morning unchanged over 24 hours at US$0.7643.

Did we see the shake-out in the stock market yesterday that we needed to see? The index held 5350, which is also an important technical level. Certainly some of the high-flying names for which analysts have been calling valuations overstretched have come back to earth somewhat. Buying opportunity?

Well we’ll probably have to get past Trump, OPEC and the Fed first. Santa is watching closely.

Motion Sickness

The Dow was down a hundred points from the open last night and then up 70 points before midday. The major underlying driver was oil.

US oil forecasting is a JOKE. Yesterday I noted weekly inventory forecasts are never right and in the past I’ve pointed out how numbers from the American Petroleum Institute and numbers from the Energy Information Agency are so often wildly different. Before the open on Wall Street last night, the API had predicted a weekly crude inventory build. The market was expecting a build, but not by as much.

Already looking nervous under US$50, particularly with the whole production freeze issue looking decidedly shaky, WTI plunged to below US$49/bbl from the open on Nymex. Then the EIA report came out indicating a small drawdown, and WTI shot back up over US$50. Hence we saw the Dow down a hundred and then up 70.

The oil price drifted back towards the close to be down US67c over 24 hours at US$49.15/bbl. The Dow closed up 30.

Outside of oil, we saw a weak result from Apple in Tuesday night’s aftermarket, mostly guidance related, send apple shares down over 2%. On the other hand, Boeing posted a very strong result which saw its shares up almost 5%. Both are Dow stocks, but only Apple is a Nasdaq stock. That’s why the Dow closed up 0.2% last night and the Nasdaq closed down 0.6%.

Some 40% of S&P500 companies have reported to date and the run-rate is 2.5% earnings growth. That should be good news, given a 2% fall had been predicted. And revenues are up 2.8%, which is very positive. Yet Wall Street is failing to respond in a positive fashion. One reason is aforementioned uncertainty with regard upcoming events. The other is disappointing December quarter guidance, despite strong September earnings results. But then a lot of that has been put down to uncertainty in the quarter, given upcoming events.

Commodities

Oil has been noted.

After their strong session on Tuesday night, last night saw base metals moves return to being mixed and minimal. Zinc fell 1%.

Iron ore has kicked on, rising another US$1.10 to US$62.70/t.

Tuesday night’s gold rally proved fleeting as gold is down US$7.20 at US$1266.70/oz, despite the US dollar index slipping 0.1% to 98.63.

Today

The SPI Overnight closed up 8 points. Not quite the stuff of rebounds after a day of carnage, but then Wall Street has not provided much impetus.

In a case of unfortunate timing, Ardent Leisure ((AAD)) will host is AGM today. Indeed it’s a very busy day on the AGM calendar.

But the greatest focus will be on NAB’s earnings result. And more specifically, its dividend. NAB did not cut, yet (?).

Rudi will appear on Sky Business, 12.20-2.30pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com