Market Update & Important Indicators
Wall Street stocks have fallen after a mixed US jobs report clouded prospects for a Federal Reserve interest rate rise amid China-induced global market turmoil. The Labor Department reported the economy added fewer jobs than forecast, 173,000, but the previous two months' job gains were revised upward, pushing the unemployment rate down more than expected to 5.1 per cent. Monday's market closures for the Labor Day holiday were also seen as a factor in the Friday slippage. "Ahead of a three-day weekend … what we see today, I think, is a risk-off mentality, as both China and European weaknesses have dictated our markets' direction for the last week," said James. The US Market is closed for Labour Day Holiday.
European stocks fell sharply, giving back gains made the previous day, as a mixed US jobs report left investors guessing whether US interest rates would rise later this month. "Given the lack of a clear steer from the report, we continue to think that the probability of US monetary policy being tightened later this month is around 50:50," he said. Rob Carnell at ING bank said: "We don't think it is sufficiently strong enough for the Fed to proceed with a September rate hike without markets worrying that the data is not good enough to support it."
Japanese stocks led a broad Asian stock slide as the yen advanced ahead of a key US jobs report later in the day and after the European Central Bank indicated it could expand its stimulus. With mainland Chinese markets closed for a second day on Friday, traders focused on macro issues, chiefly the US Federal Reserve's plans for raising interest rates. "There's nervousness in the market about growth in Asia and the implications of the Fed changing policy should payrolls be seen as clearing the way for a hike," Sean Callow, a strategist at Westpac Banking Corp in Sydney, told Bloomberg News. "The fact that dollar-yen in particular is looking soggy is obviously a bad sign."
The Australian market looks set to open lower following Wall Street's fall of more than one per cent after a mixed US jobs report clouded prospects for a Federal Reserve interest rate rise amid China-induced global market turmoil. At 0827 AEST on Monday, the September share price index futures contract was down 28 points at 4,997. Locally, in economic news on Monday, the Australian Industry Group/Housing Industry Association's performance of construction index for August is due out as is the ANZ job advertisements series for the same month. In equities news, Westpac is expected to give a strategy update.
Oil prices have fallen as investors weighed the outlook for the US economy after mixed jobs data gave no clue on the timing for a Federal Reserve interest rate increase. US benchmark West Texas Intermediate (WTI) for October delivery on Friday lost 70 cents, or 1.5 per cent, at $US46.05 a barrel on the New York Mercantile Exchange. The global benchmark, Brent North Sea crude for October, closed at $US49.61 a barrel in London, down $US1.07, or 2.1 per cent, from Thursday's settlement.
Gold prices fell after US payrolls data failed to allay uncertainty over the prospect of a near-term interest rate rise from the Federal Reserve. Spot gold was down 0.4 per cent at $US1,120.80 an ounce, while December delivery US gold futures fell 0.3 per cent to $US1,121.40. Silver fell 1.8 per cent to $US14.51 an ounce; platinum fell 1.3 per cent to $US987.74 an ounce, while palladium gained 0.8 per cent to $US577.50 an ounce.
Over the weekend the group of G20 finance chiefs met and backed Chinese governor Zhou in his plans to end the recent turmoil. The meeting in Ankara pledged to avoid further exchange rate devaluations.
All LME metals closed lower in London with Lead and Copper the hardest hit, down 3.2% and 2.5% to US$1,652/t and US$5,132/t respectively. Gold fell slightly, 0.2% to US$1,123/oz, while Brent dropped 0.4% to US$49.41/bbl. The AUD depreciated further against the USD, buying US$0.69.
In This Issue
Independence Group (IGO) | BUY
IGO is set to complete its acquisition of SIR in September with shareholders of the target voting in favour of the takeover scheme yesterday (96% approval). SIR shareholders will receive 0.66 IGO shares and $0.52 cash for every SIR share. SIR is set to cease trading on 10 September. Table 1 below lists the takeover scheme timetable. While the transaction is dilutive on a valuation basis (decreasing from $4.80 to pro-forma $4.30), it is transformation in terms of revenue and earnings. Argonaut estimate FY18 revenue (first full year of steady state Nova production) at $1,040m (from $495m FY15). With a projected combined market capitalisation >$2b, IGO will be the ~8th largest resource stock on the ASX. This should attract broader investor interest and give the Company scale to undertake further sizable acquisitions.
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