Market Update & Important Indicators
Stocks retreated slightly Friday following an early-week rally fuelled by a sharp rise in shares of financial companies. The Dow Jones Industrial Average fell 0.2%, the S&P 500 declined 0.1%, and the Nasdaq Composite shed 0.2%. U.S. stocks have had an impressive run. The blue-chip index and the S&P 500 have risen about 14% since their Feb. 11 low. Shares of energy companies in the S&P 500 declined 1.3% on Friday, making them the biggest laggards of the index.
European stock markets closed lower, snapping a five-session winning streak, as investors booked some profit ahead of the Doha oil meeting. The Stoxx Europe 600 index dropped 0.4% to close at 342.79. For the week, the Stoxx Europe 600 rose 3.3%.
China shares slipped Friday after fresh data showed the world's second-largest economy slowed further in the first quarter of the year. The Shanghai Composite Index ended down 0.1%, and the smaller Shenzhen Composite Index fell 0.2%. Data showed that China's economy grew 6.7% in the first quarter from a year earlier, according to the National Bureau of Statistics. The figure was in line with what analysts expected, although China's economy still slowed from the 6.8% economic growth seen in the previous quarter.
In Japan, the retreat broke a string of positive days, though the losses didn't offset the gains made earlier in the week. The Nikkei Stock Average booked a 6.5% gain this week, the first positive week since the week ending March 25.
Australia's stock market recorded a fourth-straight day of gains, ending the week up 4.5% and at its highest close in almost a month. The S&P/ASX 200 finished 0.8% higher, at 5157.5, after increases across most segments of the market.
A deal to freeze oil output by OPEC and non-OPEC producers fell apart on Sunday after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices. The failure to reach a global deal could halt a recent recovery in oil prices.
The London Metal Exchange's three-month copper contract was down 0.5% at $4,807.50 a metric ton at the PM kerb close, having hit a three-day low during the session at
$4,765.50 a ton. Aluminum closed down 0.2% at $1,545.50 a ton, zinc was up 0.3% at $1,860 a ton, nickel was down 0.9% at $8,881 a ton, lead was up 0.2% at $1,707 a ton and tin was up 0.1% at $17,185 a ton.
Thought of the Day
The Argonaut WA Dashboard
Early in 2015 the outlook for WA didn’t look good and we identified certain attributes we felt would assist a WA-based industrial company ride out the resource-led slowdown. We focussed on international opportunities, quality client lists, and an exposure to the US$. Companies like Austal (ASB), TFS Corporation (TFC), Orbital (OEC) and OBJ Limited (OBJ) ticked these boxes.
We had little interest in companies servicing and supplying the mining sector given an environment characterised by an intense cost focus amongst miners, and a substantial oversupply of equipment and people. In this space we were most comfortable with GR Engineering (GNG) given its order book, balance sheet and attractive dividend yield.
While there has been volatility in the performances of these companies, in most cases they have fared favourably against the All Ords Accumulation Index. ASB has been the only real underperformer amongst the group, driven by a couple of Company-specific factors that emerged towards the end of 2015.
Stock performance (price + dividends) to date over different time periods
We still have little interest in construction-related businesses (particularly those whose order books expanded dramatically on the back of resources mega-projects in iron ore and LNG). However, believing there was value we had another look at the beaten down contract miners in early November 2015, and revisited them again in a Morning Note last week (see Small cap mining contractors revisited, 11 May 2016). These companies are up an average 37% over the last 5 months (and 10% in the last week).
The outlook for the WA economy will continue to influence industrial investment themes so it’s important to keep on top of current trends. With this in mind we have put together the “Argonaut WA Dashboard” – a one page summary of useful current statistics.
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)