Market Update & Important Indicators:
U.S. stocks soared Thursday, putting the Dow Jones Industrial Average on course for its biggest one-day gain in four months, as upbeat earnings reports and stabilizing commodities prices helped dim investors' fears about the global economy. Stocks around the world had slumped just a day earlier as fears about an economic crisis in Turkey spread through a variety of markets, pulling everything from copper to oil prices lower. Much of the slide had been driven by fears among investors that what had begun as a relatively limited pullback in emerging markets could trigger a more violent, durable reversal across risky assets around the world. Some of investors' fears appeared to fade Thursday as copper and the Turkish lira stabilized and a flurry of upbeat data and earnings reports pointed to sustained strength in the U.S. economy. Signs that Washington and Beijing were willing to resume negotiations on trade also helped reassure investors, sending stocks and Treasury yields higher. The US Gold price decreased 0.1% to 1,173.70 US$/oz.
The Stoxx Europe 600 index closed up 0.5% at 381.43 as the potential for a resurrection in trade talks between China and the U.S. boosted sentiment and lifted mining stocks. A continued recovery in the Turkish lira also allowed investors to breathe a further sigh of relief. Germany's DAX rose 0.6%, the U.K.'s FTSE 100 was up 0.8% and France's CAC 40 was up 0.8%.
It was a down day for Asian stocks, but not nearly as bad as it looked in early trading. A number of indexes had logged declines of more than 1%, but by the close, the biggest decline was 0.99% for both of Shenzhen's smaller-cap indexes in China. Many benchmarks in the region fell about 0.5%, though Japan barely declined, while Thailand was a tick higher following the large Wednesday declines in the Americas and Europe. The Shanghai Composite Index was down 0.7% and Hong Kong's Hang Seng 1.1% lower. The moves came as trade tensions between the U.S. and China appeared to ease slightly after the two countries said they would hold lower-level talks later in August. The discussions would be the first since May when talks fell through and both countries imposed tariffs on the other's goods in the following weeks.
Australia's stock benchmark steadily climbed out of a hole, ticking into positive territory ahead of the close. The S&P/ASX 200 finished down 0.7 point at 6238.3 after having fallen as much as 0.7% in early action amid overnight declines in the Americas and Europe and the fresh swoon in commodities prices. But risk sentiment improved across Asia Pacific as fresh U.S.-China trade talks apparently loom. Health care and consumer staples each rose 0.7% to set more record highs and financials gained 0.3%. But the energy sector fell 1.5% and materials lost 1.7%.
Base metal prices were up on the London Metal Exchange. Leading gains were lead that increased 5.9% to 2,014/t, followed by zinc that rose 4.4% to 2,384/t. Nickel performed positively and appreciated 3.7% to close at 13,230/t. The 3-month copper contract was up 2.5%, as aluminium and tin gained 1.2% and 1.1% respectively.
In this issue:
Ausdrill (ASL) | Digging deeper | BUY
Market Cap $1,168m (post cap raise & acquisition) | Current Price $1.71 | Valuation$2.45
ASL’s FY18 result (underlying EBITDA of $161.4m) was in line with expectations, but the main news was the proposed acquisition of Barminco and associated $250m capital raise. In our view it is compelling for a number of reasons, despite the recognition of significant intangibles and a number of one-offs. We assume the transaction proceeds and have EPS of 20.7c in FY20 (first full year impact). BUY maintained on a $2.45 valuation (prior $2.40).
Metro Mining (MMI) | Offtake locked in – Site Visit | BUY
Market Cap $298m | Current Price $0.22 | Target Price $0.40
Argonaut visited Metro Mining’s (MMI) Bauxite Hills Project in Northern Queensland. The project is ramping up strongly after commencing mining in April 2018. MMI is producing comfortably at the 2Mtpa 2018 guidance rate and ratcheting up to the 3Mtpa 2019 guidance rate. The Company recently executed additional offtake contracts with 90% of 2018 production and 80% of 2019 production now committed to Chinese customers. While Bauxite Hills is still technically in ramp-up mode, we expect positive cash flow in the September Q. We model ~A$9/t EBITDA margins for H2 2018, increasing to A$20/t as the project achieves the target 6Mtpa rate by 2021. BUY recommendation maintained with a $0.40 target price.
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