Market Update & Important Indicators
Widespread gains had the Dow Jones Industrial Average on track to close above 26000 for the first time Wednesday following a spate of bank earnings and corporate updates. The Dow industrials notched their best first 10 trading days of the year since 2003 Tuesday, helped by signs of an accelerating global economy. Some investors have said they expect a favourable economic and earnings backdrop to continue lifting stocks as the year progresses. A close above 26000 would mark the Dow industrials' fastest rise from one 1,000-point marker to the next. The blue-chip index closed above 25000 for the first time Jan. 4. The 30-member stock average climbed 286 points, or 1.1%, to 26078. The S&P 500 advanced 1%, with all 11 sectors posting gains, and the tech-heavy Nasdaq Composite rose 1.1%. Investors were largely watching results from major lenders on Wednesday, although tax changes have hit many firms with large one-time costs. The U.S. gold price traded lower again overnight, falling 0.9% to finish at 1,326.60 US$/oz.
European shares closed lower after disappointing trading updates, while Goldman Sachs posted its first quarterly loss in six years weighs on investor sentiment. Regionally, the U.K.'s FTSE 100 fell 0.4%, Germany's DAX by 0.5%, France's CAC 40 by 0.4% and Spain's IBEX 35 by 0.4%, but Italy's FTSE MIB closed up 0.1%.
In Asia, stocks mostly edged lower after the declines in the U.S., with some regional benchmarks easing from record and multiyear highs set on Tuesday. Japan's Nikkei, which set fresh 26-year highs in the previous session, was down 0.4%, hindered by recent weakness in the dollar against the yen. In China, banking stocks remained strong, with investors looking to capitalize on value. Hong Kong's Hang Seng Index was up 0.2% the day after it topped 2007's record close and the Shanghai Composite rose 0.2%. China's banking sector is expected to return to double-digit profit growth in the current fiscal year–from close to zero growth over the last three years.
Australian shares slid to fresh 5-week lows, pressured by noted profit taking in heavyweight miners BHP Billiton and Rio Tinto. Faltering a second day running amid broad local weakness, the S&P/ASX 200 fell 0.5% to 6015.8 as the mining duo continued to pull back from recent multiyear highs in falling some 3%. Meanwhile, fellow metals firm South32 dropped 1.5% after a mixed quarterly report and Oz Minerals climbed 1% after notching a solid end to 2017. Large banks also weighed as they added to recent declines; the Big Four fell 0.3-0.6%. Health care and REITs were the only sectors in positive territory today.
The London Metal Exchange’s 3-month copper contract traded lower overnight, falling 0.6% to finish at $7,034/t. Most other base metals also finished lower. Aluminium prices rose 0.6% to 2,193/t, whilst lead prices traded flat at 2,541/t. Zinc prices were 1.2% weaker at 3,408/t, whilst nickel prices slipped another 1.0% at 12,351/t. Tin prices bucked the trend, rising 0.1% to 20,530/t.
In this issue
Industrials | Small Caps | Interims preview
Small caps (ex-mining services) under coverage have performed well in recent months and are up 28% on average since 30 June 2017. Over this period GCS has fared the best (up 48%), TOX is up 43% following the bid from CWY in December, and CLX is up 40%. Exposure to the east coast and infrastructure has helped the share prices of DCG and SXE climb by more than 30%. PGC is up 5%, and ASB is up the least (although the 1% gain masks sharp moves both ways during the period).
Saracen Mineral Holdings (SAR) | December Quarter production | SELL
Market Cap $1,351m | Current Price $1.66 | Target Price $1.46
Saracen (SAR) released December Q results with group production of 78koz, down 4% QoQ, at all-in sustaining costs (AISC) of A$1,176/oz (vs Sept Q AISC $1,008/oz). 1H production of 158koz is tracking well above the 300koz guidance for FY18. Cash increased to $82.9M (from $60.5m). We expect the 2HFY18 will be equally positive with high grade ores from Kailis and productivity improvements at Carosue Dam. Exploration continues to highlight the potential for mine life extension ahead of the upcoming 5-year plan. Despite the positives Argonaut continues to believe the stock is trading ahead of our risk weighted DCF valuation. We retain our preference for producers on significantly cheaper metrics such as Ramelius Resources (RMS, Not rated) and emerging producers such as Dacian Gold (DCN). We maintain our SELL recommendation and a revised $1.46 target price (prior $1.50).
Recent Contacts & Presentations
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), PharmAust Ltd (PAA), Alice Queen Ltd (AQX), Jervois Mining Ltd (JRV), St George Mining Ltd (SGQ), Overland Resources Ltd (OVR), Metro Mining Ltd (MMI), Botanix Pharmaceuticals Ltd (BOT), Xanadu Mines Ltd (XAM), Orthocell Ltd (OCC), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Minotaur Exploration Ltd (MEP), Panoramic Resources Ltd (PAN), Sino Gas & Energy Holdings Ltd (SEH), Great Boulder Resources Ltd (GBR), Metallum Ltd (MNE)