Market Update & Important Indicators
The beleaguered banking sector surged, pushing the Dow industrials to their highest levels this year. Better-than-expected earnings from J.P. Morgan Chase & Co., the largest U.S. bank by assets, ignited gains in financial shares. J.P. Morgan shares jumped 4.4%, and the KBW Nasdaq Bank Index of large U.S. commercial lenders advanced 3.8%, paring the index's 2016 decline to roughly 9%.
Regulators ordered five major U.S. banks to revise their so-called living wills or face potential regulatory sanctions, though the move did little to dent shares. The bank-fueled gains reflect one issue the broader market faces as it climbs. Projections for first-quarter earnings are bleak, so results that beat expectations could propel stocks. But even if earnings clear a lowered bar, the results are expected to be far from rosy, which could create headwinds for a rally that is stretching into its third month.
The Stoxx Europe 600 jumped 2.5%. Bank stocks in the pan-European index surged 6.3%. Stocks in the eurozone got a lift as the euro fell. Eurozone industrial output fell more than expected in February, data from the European Union's statistics agency showed, but remained on track to post a first-quarter gain.
Stocks in Japan had a standout day–finally, after a string of heavy losses. The Nikkei Stock Average rose 2.8%, its biggest daily percentage gain in more than a month. The benchmark had suffered in recent sessions as the Japanese yen surged, hurting competitive prospects for the country's exporters. The Nikkei is one of the world's worst-performing stock benchmarks this year. Its 14% loss is only slightly larger than the Shanghai Composite Index's 13%–but Chinese stocks have been steadily recovering as the yuan stabilizes and worries about China's economy ease. The S&P 500 in the U.S. is up 0.9% year-to-date as of its close Tuesday.
Australian shares gained for the second straight day as mining and energy stocks surged on rising oil and metals prices. The S&P/ASX 200 closed Wednesday up 79.1 points, or 1.6%, at 5054.7 points, with most sectors ending in positive territory as banks rebound strongly from recent weakness. Mining giant BHP Billiton rose 6% and Rio Tinto ended the day up 4.5%. Fortescue Metals rose 7.8% after the iron miner said it lowered production costs further last quarter as shipments of iron ore to customers in Asia stabilized, helping to bolster its cash reserves and reduce net debt. In the energy sector, Santos rose 4.3%, Woodside rose 3% and Oil Search ended 1.7% higher. Smaller peer Beach Energy rose 8.4%.
The London Metal Exchange's three-month copper contract was up 1.3% at $4,830 a metric ton at the PM kerb close, having hit an eight-day high earlier in the session at $4,855 a ton. Among the other base metals, aluminum closed up 1.5% at $1,547 a ton, zinc was up 3% at $1,875 a ton, nickel was up 1.4% at $8,953 a ton, lead was up 2.0% at $1,749 a ton and tin was up 1.7% at $17,109 a ton.
In This Issue
Fortescue Metals (FMG)| Buddying up with Vale| SELL
Market Cap $6,259 m | Current Price $3.19 | Valuation $2.50
Fortescue Metals (FMG) announced March Q results with 42Mwmt shipped at C1 costs of US$15/wmt in line. Year to date shipping of 126Mwmt indicates the Company will meet or exceed guidance of 165Mwmt. The balance sheet continued to improve with net debt declining by US$200m to US$5.9b. During the Q, FMG signed a Memorandum of Understanding (MOU) with Vale S.A. for a strategic partnership on product blending. If formalised, the benefits to FMG will include higher payability and higher demand for product blends. Downgraded to SELL with a $2.50 target price (from HOLD at $2.10).
Sandfire Resources (SFR) | Monty looks minable| BUY
Market Cap $860.6m | Current Price $5.48 | Valuation $6.00
Sandfire Resources (SFR) released a Maiden Resource for the Monty deposit with 1.05Mt at 9.4% copper and 1.6g/t gold for 99kt contained copper and 55koz contained gold. This result was below Argonaut’s estimate of 1.4Mt at 9.9% copper and 1.9g/t gold. SFR recently competed a 70% earn-in into tenements containing Monty with previous owner, Talisman Mining (TLM), who retains 30%. Studies are underway to incorporate Monty into the DeGrussa mine plan, with potential to bring the deposit into production in mid-2018. Exploration is also ongoing in the Doolgunna region with a focus on prospects proximal to the DeGrussa plant. Argonaut upgrades to a BUY recommendation with a revised target price of $6.00 (previously HOLD with a $5.65 target price).
Recent Contacts & Presentations
Evolution Mining (EVN), St Barbara (SBM), Troy Resources (TRY), Explaurum (EXU), Sino Gas & Energy (SEH), Western Areas (WSA), Finders Resources (FND), Carnarvon Petroleum (CVN), Threat Protect Australia (TPS), Austal (ASB), Paragon Care (PGC), Salt Lake Potash (SO4), Peet (PPC), Department 13 (D13), Actinogen Medical (ACW)