Market Update & Important Indicators
U.S. stocks fell for the third session in a row on Wednesday, further pulling back from records as downbeat economic data raised concerns about U.S. growth. The Dow Jones Industrial Average declined 293 points, or 1.6%, to 17,719. The S&P 500 fell 30 points, or 1.5%, to 2,061. The surprise decline in durable goods orders, released Wednesday morning, set the negative tone for trading.
Orders for durable goods fell 1.4% in February from a month earlier, the latest in a series of economic reports to suggest the economy slowed sharply at the start of the year. Economists surveyed by The Wall Street Journal expected orders to rise 0.2%. Details of the report were downbeat. Durable goods orders for January were weaker than previously reported and a key measure of business investment continued to decline in February.
The dollar resumed its decline against the euro and the yen on Wednesday as investors sought a clearer direction on U.S. borrowing costs and the economy one week after the Federal Reserve's policy meeting. U.S. government bond prices fell for the first time in four days on Wednesday, hurt by lacklustre demand on a $35 billion sale of five-year Treasury notes. The new five-year notes, sold at a yield of 1.387%, drew the lowest demand since July 2009.
European stocks slid Wednesday as the euro regained traction against the dollar, keeping German shares from advancing in the wake of encouraging data from Europe's largest economy. The Stoxx Europe 600 dropped 1.1% to 398, marking the lowest close since March 17, with only the energy sector advancing. The pan-European index was stuck in the red after a better-than-expected report on German business sentiment. The Ifo Institute's business-climate indicator was at 107.9 in March, above the 107.3 forecast by a Wall Street Journal survey of economists and the highest level since July 2014.
Investors in Shanghai took profit on Wednesday after a 10-day winning streak in the stock market, while markets elsewhere in Asia steered close to flat. The Shanghai Composite Index closed down 0.8% at 3,661, breaking its longest string of gains in more than two decades. Offshore in Hong Kong, the Hang Seng Index gained 0.5% to 24,528. Further signs of China's slowdown and the prospect of higher interest rates in the U.S. continue to be foremost concerns for investors in the region. But with U.S. stocks edging lower Tuesday and the region light on economic news, major indexes in Asia finished mixed.
In commodities, gold inched up 0.2% overnight to $1,195/oz and Brent crude jumped 2.5% to $56.50/bbl. Base metals were weaker on the LME however, with copper down 0.4%, nickel off 2.0% and zinc 0.3% lower.
Thought for the day
WA Industrials – Unique international opportunities help the locals
In early February we identified four WA-based stocks with unique international opportunities, significant exposure to the US$, and impressive current and potential client lists. Nearly two months later and post the reporting season we thought we’d have a look to see how they’ve done. In all cases the results and subsequent newsflow has been pleasing and we maintain our positive views.
Alexium (AJX) | SPEC BUY: With revenue from commercial accounts starting to ramp up this half and progress reported with Department of Defense (DoD), AJX looks to be successfully transitioning to commercialisation. Further, the recent announcement of an exclusive sales contract with a prominent US based outdoor fabric manufacturer for application to tenting fabric shows the significant opportunity in the commercial market.
Austal (ASB) | BUY: ASB delivered a solid underlying 1H15 profit performance with the sale of the stock boat putting the Company in a net cash position for the first time in years and allowing the declaration of the first dividend since 2011. Our buy themes remain valid; an exposure to the US$, a solid order book, and a potential pipeline that could see work for ASB’s US operations well into the next decade.
OBJ Limited (OBJ) | SPEC BUY: Major milestones have been passed over the last few months. The first commercial product (the SK-II magnetic eye wand) is being progressively launched across Asia, and Proctor & Gamble (P&G) have added additional brands to other existing work programmes. Further, P&G has signed an exclusive evaluation agreement to research OBJ’s BodyGuard project. We believe this relationship, as well as others with Coty and GlaxoSmithKline, provides strong endorsement of OBJ’s technologies.
TFS Limited (TFC) | BUY: TFC’s 1H15 results reinforced a strong investment case. The widening and more visible end markets for sandalwood products has led to increased grower demand for investment product, while the exposure to the US$ has led to a significant revaluation of the Company’s plantations. It supports our positive view on the value of the underlying assets and the vertically integrated business model.
In This Issue
Alexium (AJX) | SPEC BUY
With revenue from commercial accounts starting to ramp up this half and progress reported with Department of Defense (DoD), AJX looks to be successfully transitioning to commercialisation. We take this opportunity to summarise the key news flow and implications since initiating research coverage on AJX (refer initiation report Getting fired up, 2 Feb 2015). Argonaut rates AJX a Speculative Buy.
Recent Contacts & Presentations
Saracen (SAR), Beadell (BDR), Pacifico (PMY), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Helix Resources (HLX), Rift Valley Resources (RVY), West African Resources (WAF), Matrix (MCE), Austal (ASB), Ausdrill (ASL), TFS Corporation (TFC), Gage Roads (GRB), Austin Engineering (ANG), Buru Energy (BRU), OBJ Limited (OBJ), Strandline Resources (STA), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MMA Offshore (MRM), Migme (MIG), Vmoto (VMT)