Another day of light volume through given school holidays - the market swinging around in a reasonable 43-point trading range, closing up but selling into the close saw the market finish off the highs. As we suggested this AM, even the dovish comments around rates by Jerome Powell were not enough to make fresh 2019 lows for US 10-year bond yields, implying they have reached a new level of equilibrium, at least for now. Hence we now expect rates to trade sideways while markets wait on further economic data – the catalyst is probably earnings. If markets are being driven by rates, and rates are now in a holding pattern as official moves catch up to market positioning, then it implies that equities could stall around current levels.
Today we again saw some intra-day weakness play out, similar to what we’ve seen over the last few days and that has created a negative short-term technical picture for MM with our initial downside target for the ASX200 ~6590, only marginally lower, but lower nonetheless.
Overall, the ASX 200 added +26 points today or +0.39% to 6716. Dow Futures are trading up +43 points / +0.16%.
ASX 200 Chart
ASX 200 Chart
CATCHING OUR EYE;
AMP $2.14 unchanged: 1.16% of the company changed hands this morning with 34.2m shares trading at $2.14. We like this sort of action in beaten-up stocks as it shows that new money is starting to become attracted. Stocks generally don’t rally in a sustainable way until the stale longs are out, and new money has looked at the story with fresh eyes. AMP needs a final washout low to look interesting we think.
Whitehaven Coal (WHC) +4.93%; kicked off the quarterly reporting period for the miners today, releasing their June quarter production report which is providing a positive read through for their full-year results due out next month. The final quarter’s contribution pushing the year’s output above guidance for raw coal production numbers. Run-of-mine (ROM) production came in at 23.2Mt, above the upper level of guidance at 22.8Mt. The result was driven by a big beat at the Narrabri facility, however there are signs that this may not flow through to a big profit beat at the result. Saleable coal production, the finished product which WHC can then offload, missed guidance by around 5% at 19.8Mt.
On the pricing side of things, Whitehaven managed to negotiate a 5% premium to the index for their thermal coal product in the quarter. Prices on the metallurgical side came in even better, with a 12% beat to the spot over the June quarter. Technically, the rejection of the $3.60 level is a positive in the short term. Medium to longer-term Whitehaven becomes a little more tricky. We like it for an income play with high free cash flow on low CAPEX.
Whitehaven Coal (WHC) Chart
Broker moves; Bluescope Steel (BSL) - one of our new holdings in the Platinum Portfolio copped an upgrade today from Goldman Sachs. We bought into the stock on the recent retracement with the view that analysts had baked in a lot of the negativity around earnings which the company could weather on the back of a strong balance sheet. They continue to buy back stock in the market, supporting any softness in the share price. A change in fortunes from a steel margins perspective will help the stock higher.
- Platinum Asset Downgraded to Sell at Bell Potter; PT A$4.22
- New Hope Upgraded to Buy at Wilsons; PT A$3.60
- Evolution Downgraded to Hold at Morgans Financial; PT A$3.44
- Resolute Mining Upgraded to Buy at Goldman; PT A$1.60
- Newcrest Downgraded to Sell at Goldman; PT A$26
- OceanaGold GDRs Upgraded to Buy at Goldman; PT A$4.80
- Sims Metal Downgraded to Neutral at JPMorgan; PT A$11
- Bluescope Upgraded to Buy at Goldman; PT A$13.51
- Woodside Downgraded to Underweight at JPMorgan; PT A$33.85
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