Overseas Market Report – U.S. Stocks Fall; Rate Hike Eyed
U.S. stocks moved sharply lower on Monday, as increased odds of a Federal Reserve rate hike in December, following a surprisingly strong jobs report last week, turned investors cautious.
The modest pullback follows six straight weeks of gains, which was the longest positive streak since November 2014.
At the close, the Dow, the S&P 500 and the NASDAQ were all down by around 1%.
For Australian ADRs listed on the NYSE, BHP Billiton slipped 81 cents (2.63%) to $29.94, ResMed fell 39 cents (0.67%) to $57.97, Telstra Corporation lost 32 cents (1.75%) to $18.26, Spark New Zealand shed 14 cents (1.34%) to $10.71 and Westpac declined 33 cents (1.47%) to $22.06.
At 7:45 AM (AEDT), the 10-year Treasury note yield was 2.35% and the 5-year yield was 1.74%.
Shares of narrow-moat Priceline (PCLN) fell after the firm reported a solid quarter, but issued disappointing guidance. The company enjoyed strong constant-currency international bookings (89% of total bookings) growth of 25% (versus 16%-23% guidance) and agency revenue margins (metric measuring international profitability and brand strength) of 18.3% (versus 17.8% the previous year). This drove total revenue growth of 9.4% (versus 1%-8% guidance) and gross profit growth of 12.5% (3%-10% guidance). That said, the fourth-quarter outlook for a decrease in U.S. bookings (11% of total bookings) of 5%-10% represents a meaningful deceleration from the 2.5% decline (versus flat guidance) reported in the third quarter.
European shares were lower.
The FTSE 100 was off 0.9%, the French CAC 40 fell 1.5% and Germany's DAX was down 1.6%.
Asian markets were mixed.
The Shanghai Composite was up 1.6%, the Nikkei 225 was up 2%, while the Hang Seng was down 0.6%. India's Sensex also fell 0.6%.
Australian Market Report – Local Market Expected To Open Lower
Ahead of the local open, SPI futures were 46 points lower at 5,071.
Monday 9 November – close. The Australian share market opened lower and continued to fall throughout the day. Major losses were led by the miners with index heavyweights BHP and RIO being the worst performers. The big banks also suffered heavy losses. All the sectors experienced negative results, with the exception of health care. The Australian dollar appreciated against most major currencies.
The All Ordinaries lost 89.40 points to 5,180.30 while the S&P/ASX 200 lost 95.50 points to 5,119.50.
In This Issue
Argonaut Research | Austal (ASB) | BUY
After years of hard work ASB is in an enviable position. A strong balance sheet, US$ earnings, maturing programmes, quality clients, and increasing sustainment work are key positives. Success positions ASB for further work in the US, and in Australia under a continuous shipbuild programme that could extend decades. The strong share price gain this year is therefore unsurprising. Although it has neared our $2.40 valuation (prior $2.15), a spotlight on local industry opportunities encourages us to maintain a buy call.
Argonaut Research | MZI Resources (MZI) | BUY
Argonaut visited MZI Resources’ (MZI) Keysbrook mineral sands project last week. The standout observation from our tour of the mine and wet processing facility was the rate at which the project is ramping-up. Just one week since commissioning began, the wet concentration plant (WCP) is stringing together shifts at nameplate production. The Doral Mineral Separation Plant (MSP) at Picton (dry separation) also produced the first batch of saleable product last week. MZI is finalising a ~$45m equity raising at $0.40/sh which will be used to repay US$25.5m in bridging loans to Resource Capital Fund (RCF) as well as working capital to advance expansion and improved recovery studies. Argonaut maintains a BUY recommendation with a $0.73 target price.
BHP Billiton (BHP)
BHP Billiton provided an update on the incident at the Samarco Mineracao iron ore operation in Minas Gerais, Brazil on 5 November 2015. The Samarco operations include a 3 tiered tailings dam complex. Within this complex, the Fundao dam failed and the downstream Santarem dam has been affected. This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream. The third dam in the complex, the Germano dam, is being monitored by Samarco. At this time, there is no confirmation of the causes of the tailings release. The number of people in the communities impacted by the incident is yet to be confirmed, but the local authorities have reported that, at this stage there are at least 15 people from the communities unaccounted for. BHP slid $1.28 to $21.42.
QBE Insurance Group (QBE)
QBE Insurance Group announced that it has successfully priced US$300m 30 year non call 10 Tier 2 subordinated debt securities. The securities will qualify as Tier 2 Capital under the Australian Prudential Regulation Authority's capital adequacy framework and will include the following terms: securities will bear 6.10% per annum interest, payable semi-annually in arrear; interest will be reset on 12 November 2025 and 12 November 2035 to a rate calculated by reference to the then mid-market swap rate plus a margin of 3.993% per annum, payable semi-annually in arrears. The net proceeds from the issue of the securities will be used primarily for general corporate purposes. Settlement and the issue of US$300m of the securities at an issue price of US$200,000. Each is scheduled for 12 November 2015. QBE added 11 cents to $13.50.
Recent Contacts & Presentations
Agrimin (AMN), Wildhorse Energy (WHE), Reward Minerals (RWD), Berkeley (BKY), Matrix (MCE), Ausdrill (ASL), Hot Chilli (HCH), Austal (ASB), Southern Cross Electrical (SXE), AWE Limited (AWE), Medusa (MML), Resolute (RSG), Kingsgate (KCN), Troy (TRY), Northern Star (NST), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Dacian (DCN), Empire Oil & Gas (EGO), FAR Limited (FAR), Central Petroleum (CTP), Fortescue Metals (FMG)