Market Update & Important Indicators
U.S. stocks tumbled intraday, as investors fretted over the ramifications of new steel and aluminium tariffs announced by President Donald Trump. The decision further stoked investors' fears of rising inflation because the tariffs will likely raise the price of goods, potentially forcing the Federal Reserve to veer from its current pace of gradual interest-rate hikes. Investors also worried it could spark a trade war with foreign countries, several of which had already warned the U.S. that such an action could prompt them to retaliate. Broad declines among the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite put all three major indexes on track for a third consecutive session of losses. The CBOE Volatility Index, Wall Street's so-called fear gauge, spiked 16% higher, while U.S. government bonds strengthened. The Dow Jones Industrial Average declined 420 points, or 1.7%, to 24609 in recent trading. The S&P 500 shed 1.3%, while the Nasdaq Composite fell 1.5%. The Dow and S&P 500 are back in the red for the year, off 0.6% and less than 0.1%, respectively. The U.S. gold price traded slightly lower overnight, closing 0.1% weaker at 1317.00 US$/oz.
The Stoxx Europe 600 closed down 1.3% at 374.86, as concerns about monetary policy tightening and higher bond yields continued to weigh on sentiment. Germany underperformed, with the DAX closing down nearly 2%, while France's CAC 40 ended down 1.1% and the U.K.'s FTSE 100 down 0.8%. Italy's FTSE MIB closed down 0.7% as investors await this weekend's elections, while Spain's IBEX 35 falls 1%.
Japan's Nikkei closed down 1.6% and headed for its worst performance in three weeks, dragged down by sectors that are especially sensitive to economic growth. Chinese shares in Hong Kong and Shanghai were an exception, and rose on the day, as private-sector manufacturing data suggested greater strength in factory activity than the official numbers had the day before.
Weaker commodities prices and fresh broad selling in Asian equities sent Australia's benchmark lower for a second day. The S&P/ASX 200 declined 0.7% to 5973.3 – a bigger drop than most in the region – with property the lone higher sector. Meanwhile, Woodside fell 2% and BHP Billiton lost 1.3%. Rio Tinto retreated 4.1% as it traded ex-dividend and Oil Search sank 4.5% as UBS cut forecasts amid Monday's big earthquake in Papua New Guinea potentially halting production there for weeks. Orica dropped 3.5% following a fiscal first half profit warning.
The London Metal Exchange’s 3-month copper contract traded lower overnight, falling 0.1% to close at $6,922/t. The other base metals mostly finished lower. Tin prices were the exception, rising 0.5% to 21,755/t, whilst Zinc prices pulled back 1.8% to close at 3,415/t. Aluminium prices slid 0.1% to close at 2,152/t. Lead prices lost a further 2.3% to 2,438/t, whilst Nickel prices slipped 2.4% to finish at 13,412/t.
In this issue
CTI Logistics (CLX) | Going national | BUY
Market Cap $86m | Current Price $1.14 | Valuation $1.50
CLX has transformed itself from a largely WA-based business to a national logistics and transport provider. After the acquisition of Jayde in the last half, CLX expects to generate ~40% of its revenue from the eastern states. From this platform we expect last half’s adjusted EBITDA of $9.5m (slightly below our $9.9m forecast) to improve over time as the WA economy picks up steam and national organic and acquisitive opportunities emerge. Our valuation drops slightly to $1.50 (prior $1.60) on amendments to forecasts, but is still well ahead of the current share price. We see value and maintain our buy call.
Sovereign Metals (SVM) | High Margin Graphite – Site Visit | SPEC BUY
Market Cap $32m | Current Price $0.12 | Target Price $0.32
Sovereign Metals (SVM) is a rapidly emerging graphite developer with projects in Central Malawi. The Company’s most advanced project, Malingunde (100% SVM), is differentiated from other graphite developments by its shallow saprolite host rock which lends itself to free dig mining and negates primary crushing. This results in sector low operating and capital costs. The June 2017 Scoping Study outlined a 44ktpa graphite concentrate operation with upfront development capex of US$29m and average opex of US$301/t (product tonne) over a 17-year mine life. SVM is taking a rational approach to development, intending to produce an undisruptive quantum of product and a focus on established graphite markets such as refractory products. Argonaut sees potential for a low-cost operation able to weather volatile graphite price cycles. Low upfront capex should also decrease financing risk. SPEC BUY recommendation with a $0.32 target price.
Recent Contacts & Presentations
Austal Ltd (ASB), Decmil Group Ltd (DCG), Ventnor Resources Ltd, Ausdrill Ltd (ASL), Alice Queen Ltd (AQX), PNX Metals Ltd (PNX), Alliance Resources Ltd (AGS), Myanmar Metals Ltd (MYL), Primary Gold Ltd (PGO), Sino Gas & Energy Holdings Ltd (SEH), Australis Oil & Gas Ltd (ATS), Explaurum Ltd (EXU), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Melbana Energy Ltd (MAY), Genesis Minerals Ltd (GMD), Proteomics International Laboratories Ltd (PIQ), Ramelius Resources Ltd (RMS), MOD Resources Ltd (MOD), Greenland Minerals & Energy Ltd (GGG), Walkabout Resources Ltd (WKT), Marindi Metals Ltd (MZN), Volt Power Group Ltd (VPR)
Please read Argonaut's Important Disclaimers & disclosures
Log in to the client area below to download the full Morning Note PDF
