Market Update & Important Indicators
US stocks have posted big gains for the second straight session as strong American economic data extended a global rally that began with a surge in beaten-down Chinese equities. The Commerce Department reported the US economy grew at an annual rate of 3.7 per cent in the second quarter, much higher than the 2.3 per cent initially estimated. The US growth report added to positive momentum from a 5.34 per cent rise in the Shanghai stock exchange, ending the worst five-day rout for almost two decades, and solid gains in European bourses.
Europe's main stock markets jumped, boosted by the latest US data showing the recovery is on track in the world's biggest economy. "The US economy continues to perform on a consistent basis …. (showing) that its economic recovery is sustainable … The United States is leading the global economy as it has been since late last year," said FXTM chief market analyst Jameel Ahmad. The news gave comfort to investors rattled by slagging Chinese growth, and sent US indices at or near 1.7 per cent higher in mid-day trade in New York, after snapping a six-day losing streak on Wednesday by closing about 4.0 per cent ahead.
Asian stocks finished higher, with Shanghai leading the gains after a rally on Wall Street cheered investors and eased fears of a deep and lasting global market rout. William Dudley, the head of the New York branch of the Fed, said the reasons for a rate hike in September had been dampened by the turmoil gripping financial markets. A better-than-expected official US manufacturing report showing orders for durable goods – products expected to last at least three years – jumped 2.0 per cent in July also added to the optimism.
The Australian market looks set to open higher after on international markets, including China's, with good economic data also helping to boost US and European shares. At 0750 AEST on Friday, the share price index futures contract was up 90 points at 5,276. Equities in Europe and on Wall Street climbed on revised US data showing stronger US growth in the second quarter of 3.7 per cent, compared with the previous estimate of 2.3 per cent. Locally, no major economic news is expected on Friday. In equities news, Harvey Norman, Slater & Gordon, IOOF, Lovis, Mayne Pharma, Regis Healthcare, Regional Express and Woolworths are expected to post full year results.
US oil prices have surged more than 10 per cent, climbing back above $US40 ($A56.25) a barrel after strong American economic growth data lifted confidence about the world's biggest economy and petroleum user. They rallied after official reports said the US economy expanded at an annual rate of 3.7 per cent in the second quarter, much above the initial appraisal of a 2.3 per cent gain. The more robust April-June growth mainly reflected higher investment, state and local government spending, and consumer spending than was reported in the initial estimate.
Gold has eased, and is headed for its biggest weekly rout since March, as upbeat US growth and jobs data drive up stocks and the US dollar, though uncertainty over the timing of a Federal Reserve rate rise held losses in check. "The data came in above expectations, and it's really going to be down to the wire for the rate hike," ING commodities analyst Hamza Khan said. "It's not making the picture for gold any clearer." US Federal Reserve policymaker said the case for an interest rate increase next month seemed "less compelling" than it was a few weeks ago.
Most metals on the LME were up on Friday with Nickel and Copper the biggest gainers, up 5.2% to US$10,031/t & 4.3% to US$5,176/t. The largest mover for Copper price was the production cuts announced by Freeport-McMorn. After hours Carl Icahn announced he had taken an 8.5% stake in Freeport, which rose 20% in after hours trading having risen 29% during the market. Gold was flat, trading at US$1,125/oz and Brent was up 10.2% to US$47.56/bbl. The AUD/USD is trading at 0.717.
In This Issue
Ausdrill (ASL) | BUY
ASL’s weak result, impacted by one-off costs of $19.0m in addition to impairments of $202.8m, was not unexpected. Underlying PBT of $2.1m was only marginally positive. However ASL once again proved itself capable of generating positive free cash flow and paying down secured debt, which we expect to be almost eliminated by the end of this year. Recovery will be slow but ASL is significantly undervalued on a longer term view.
Saracen (SAR) | BUY
Saracen (SAR) reported FY15 financial results, including NPAT of A$11.1m and EBITDA of A$66.5m. FCF was A$16.2m (~A$30m when adjusted for Thunderbox). These results do not reflect the benefit of the Thunderbox acquisition, which will commence production in FY17. The stock offers solid margins, expanding production, exposure to a weakened AUD, a sizable inventory and tangible exploration upside. The recent acquisitions (Kailis and King of the Hills) are likely to prove highly value accretive in due course, due to the modest acquisition cost and the complementary nature of the Kailis ore. Argonaut maintains a BUY recommendation and A$0.55 target price.
Recent Contacts & Presentations
Dacian (DCN), Evolution (EVN), Austal (ASB), Resolute (RSG), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), Central Petroleum (CTP), Senex Energy (SXY), Newmont, Coventry (CYY), Energia (EMX), Minemakers Limited (MAK)