Metals getting carried away?

But my cautious head has been asking are markets getting a little carried away? You see, economically things will get a lot worse before they get better and what the punters are banking on is that this is the beginning of the new world. Alternatively those punters that got this run up may at some point in time take some profits. They are not there for life.

Copper is oft thought of as Noah’s white dove after the big storm and maybe that has some validity.

Copper like many metals and currencies has had strong moves and this may continue in the coming year or so – moves in both directions. Let’s look at a couple of charts for copper – the daily, followed by the weekly:

click to enlarge

click to enlarge

The daily chart shows a classic wave four pullback – but we know that wave three can go right up to the projected wave five before we see a pullback. But you can say that all is fine and dandy with the short term projection. And it is sort of consistent with what we are hearing out of China.

But the weekly chart is still projecting a savage low and at this stage I remain open minded about that with an inclination to the view we will see that leg down.

But the key ‘takeaway’ from this is that there is movement at the station. And in fact there has been plenty of movement in futures. And so those traders who are ’sitting pat’ waiting for ‘mana for heaven’ you need to take control and become pro-active.

At Trading Tutors Newsletter we try to provide some training, a different point of view, some humour too, maybe a useful projection or whatever but you must take responsibility for your own guidance.

I will chance to say that proportionally, more money was lost in this bear market, by those that relied on ‘advisers’ compared with those that actively manage their own account.

There is a lesson to be learnt in that.

The market is up 68 on the back of an 89 point rise on Wall St and a 53 point rise in the Futures this morning. Our market is following the US lead with financials up 1.7% and resources up 2.2%. Macquarie Group is holding up today (up 1.7%) after yesterday’s 9.6% fall as UBS cut their target price to $48 from $60 and warned about “impairment” charges against associated investments. QAN down 6.5% as it goes ex dividend 17c and falls 24c, IAG is ex 9c and OZL 5c. Ex dividend tomorrow - AGK, COH, DOW and SUN. BHP goes ex dividend on Monday along with Woodside and Woolworths.

The Dow Jones had a good session – up 89. Up 141 at best. Down 31 at worst. The main driver was durable goods up much more than expected boosting confidence about the economy. Oil and energy up strongly. Resources up. Financials outperformed on positive news about Fannie Mae and Freddie Mac. 9 out of 10 sectors up – volumes even lighter than yesterday – once again, the lowest level for the year as the US runs into a long weekend for the Labor Day holiday on Monday. Financials up 1.7% - Fannie Mae and Freddie Mac up 15% and 20% after Standard and Poor’s reaffirmed their debt ratings and Bank of America and American Express both up over 2% as the Commerce Department report increased expectations that the economy was recovering. The NASDAQ closed up 0.87%.

• The SFE Futures suggested a 53 point gain in the market.
• Both BHP and RIO up in ADR form overnight, 1.79% and 1.60%.
• Metals mostly up overnight – Nickel up 4.78%, Zinc up 3.34% and Copper 0.86%. Aluminium down 0.15%.
• Oil price up $1.86 to $118.17 – third straight day of gains – on concerns that tropical Storm Gustav could enter the Gulf of Mexico and disrupt oil and natural gas production.
• Gold up $5.90 to $830.10
• Bonds up with the 10 year yield down to 3.77% from 3.78%

Another busy day on the announcement front, not long to go before life returns back to normal and the reporting season comes to a close.

• AMP – AMP Ltd – Report a net profit (excluding accounting mismatches) of $278m, down 50%; analysts’ were expecting a 47% fall of $296m. Declared an unchanged dividend of 22c – market expected a dividend of 22.5c with forecasts ranging from 21c to 24c. Reaffirmed its current dividend payout policy, which is helping the share price. Up 4.5%.
• ALL – Aristocrat Leisure – IN LINE – Announce a 1H net profit of $71.4m, down 43% and in line with its recently downgraded guidance of around $70m. Credit Suisse expected $72.8m, GSJB Were $70.1m. Up 4.3%.
• ORG – Origin Energy – IN LINE - Announces a FY net profit of $516.7m and an underlying profit of $443m. Analysts’ had expected $441.6m. Will pay a final dividend of 13c. Reiterates 10-15% underlying EPS growth target. Up 0.2%.
• FLX – Felix Resources – GOOD - Said profit quadrupled to $188.26m from $46.96m. GSJB Were expected $178.7m. The result may end up being irrelevant after it announced last month that it had received takeover proposals by several parties. Up 3.7%.
• TTS - Tattersall’s Group – Announce an 11% fall in FY08 net profit to $257.6m, slightly below analysts’ expectations of $259.6m. Announce a special dividend of 10.5c, says businesses are offering good prospects into FY09. Key now is future growth opportunities after the government put the kybosh on their gaming duopoly. Down 0.8%.
• AUB – Austbrokers Holdings – SLIGHTLY AHEAD OF EXPECTATIONS – NPAT up 17% to $15.7m, slightly higher than the $15.3m GSJB Were expected and $15.3m analysts’ expected on average. Up 2.5%.
• SBM - St Barbara – BELOW EXPECTATIONS – Announce a $17.3m loss. Underlying loss weaker than what GSJB Were had expected. No change to production guidance of 295-315koz for FY09. Down 2.4%.
• PNA - Pan Australia – OK - Announce a 1H net loss of US$389,000. Result better than expected. No interim dividend. Up 2.8%.
• QGC – Queensland Gas – Underlying profit comes in at $30.6m. FY net profit of $244.6m. No final dividend. Up 0.47%.
• FKP- FKP Property Group – FY net profit down 25% to $145.3m. Operating profit (excluding property revaluations and other non-cash items) up 11% to $150.2m. Declared a final dividend of 15.7c, down from 16.5c last year. Up 6.75.
• MCC – Macarthur Coal – BELOW GUIDANCE – Announce a FY net profit of $72.7m, up 9.3%, below company’s guidance of between $80m-$90m and GSJB Were’s expectations of $83.5m. Down 7.5%.
• IGO - Independence Group– Announce a net profit of $51.5m and declared a final dividend of 5c. Up 3.3%.

Others news…

• Sedgman (SDM) announces its metal division has been awarded a 5 year operations contract at Xstrata’s Handlebar Hill mine in Mt Isa. Take the value of Sedgman’s order book to over $700m. Up 4.2%.
• Sigma Pharmaceuticals (SIP) announced it has no definitive plans to break up the company. Down 5.85.
• Babcock & Brown Capital (BCM) has provided a review of management arrangement and a share buy-back update. It has begun talks on management internalization and deferred off-market buyback. Down 6.25%.
• We are waiting for ABC Learning (ABS) to restate its results for at least the past 2 years and announce a bigger-than-expected loss from the partial sale of its US business. Still in a trading halt.
• Macquarie Group (MQG) doing OK – up 1.0% - after falling 9.6% yesterday after UBS Warburg downgraded the stock to Neutral. Citigroup says the balance sheet worries are overdone.
• Brokers maintain their BUY and OUTPERFORM recommendations on Woodside Petroleum (WPL) – after its profit result yesterday. Up 2.5%.

Midday Market Roundup 13/08/08
August 13 2008 - Australasian Investment Review – (AIR)

The market is down 110 – a fair bit worse than the 33 point fall predicted by the futures this morning. Resources down 2.2% despite BHP being up in the US. Financials flogged following the 5.2% fall in the US financials index overnight.

Dow down 139. Down all session – down 180 at worst. Resources up. Gold down heavily again. Financials worst performing sector by far - down 5.2% - Morgan Stanley buys back $4.5bn in auction-rate-securities, UBS posted 4^th-straight Qrly loss, Wachovia reported bigger-than-expected 2Q loss, JP Morgan announced a loss of $1.5bn, and Goldmans earnings estimates were cut by Oppenheimer. The Tradedeficit narrowed more-than-expected, the Budget deficit blew out to $102.8bn (triple last year’s number), retail sales growth slowed and consumer confidence remained at all-time lows. Sub-prime losses topped $500bn for the first time.

• Both BHP and RIO up in ADR form overnight, 0.69% and 0.92% respectively. BHP down 85c to 3636c. RIO down 347c to 11050c.
• Metals mostly down overnight – Zinc down 4.4%, Copper down 3.28% and Aluminium down 2.2%. Nickel up 0.75%. Oz Minerals down 7c to 166c.
• Oil price down $1.34 to $113.10 – hit a 14 month low down 23% from its record but still up 58% from last year. Woodside down 47c to 5147c.
• Gold down $13.50 to $810.80 – it was the eighth straight fall, the longest streak since 2001. Somehow Newcrest has managed to go up 61c to 2410c.
• US Bonds up with the 10 year yield down to 3.91% from 4%.

Main stories

CBA RESULTS OK BUT NOT GREAT- down 1.8% - results described as “solid” and broadly in-line with no nasty surprises - posted full year net profit up 7% to $4.79bn. Cautious outlook for FY09. All-important cash profit up 5% to $4.733bn on strong business lending and robust fund management business - was slightly above the consensus of $4.729bn. Operating income up 10% with some impressive statistics around new deposits and gains in market share. Final dividend at $1.53 compared to the expected $1.55. Higher-than-expected loan impairment charges jumping to $930m from $434m last year – bit above broker’s forecasts, but are low compared to peers and doesn’t seemed to have upset anyone.

TESLTRA RESULTS A BIT FLAT - down 3.1%– net profit slightly below expectations posting $3.69bn compared to consensus of $3.78bn. EBIT up 7.7% against company guidance of 6-8%. Dividend remains 14c as expected. Guidance bit below expectations with FY09 revenue growth forecast at 3-4% and EBIT growth of 6-7% compared to analyst’s 8.5% forecast rise in EBIT.

Other

IRONORESECTOR DOWN - FMG down 4.5%. Iron ore stocks being punished – PMM down 1.2%, MGX down 5.9% and MMX down 11.7%.

GOLDS SURPRISINGLY HIGHER- Major gold stocks up despite the gold price fall – NCM and LGL up 4.3% and 3.8%.

Australian consumer sentiment bounces in August up 9.1% from July – index at seasonally adjusted 86.2 from 79.0 – reflects lower fuel prices, talk of interest rate cuts and delivery of tax cuts. Good sign for consumer stocks.

RBA clashing with the view of Australia’s major bank CEOs about dropping interest rates despite rising funding costs – RBA says the banks have no case to delay cuts if rates fall – another sign for an imminent September cut. One broker predicting 5 cuts between now and the end of 2009.

Computershare (CPU) down 8.41% on results - Full year net profit was up 21% to $282m from $233.8m a year ago - below the $324.9m expected. Dividend 11c up from 9c a year ago. Earnigns guidance for 2009 was +10%, ahead of some expectations. CPU also to buy ABC Learning’s UK childcare voucher business for GBP90m.

Goodman Fielder (GFF) down 2% on a disappointing trading update including a write down of $170m on its dairy products division. EBIT declined from $70m in FY06 to $50.5m in FY07. Guidance on ‘normalised’ net profit for the year remains the same if you ignore the write-down. Dividend unchanged at 13.5c.

Equinox Minerals (EQN) down 3.62% on results (a loss) – the 1H loss was less than the circa $18.2m expected due to lower exploration and admin costs expensed. Has sufficient funds to complete the Lumwana project.

CSL Ltd (CSL) in a trading halt pending the release of an announcement about a $1.5bn institutional share placement to raise cash for a $3.5bn acquisition of Talecris Biotherapeutics. .

HastingsDiversified (HDF) down 2.64% as Epic Energy enters into a gas transportation agreement with Adelaide Brighton forecast to earn $42m in revenues over 10 years.

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans. Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday. Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%. Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%. Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value. Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

• Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.
• Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.
• Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.
• Gold down $3 to $878.80. Newcrest down 40c to 2500c.
• US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

• Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.
• Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.
• Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%.
• Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.
• West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.
• News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.
• ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.
• UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.
• Merrills says CBA’s crucial results on the 13^th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.
• Merrills expecting Telstra’s August 18^th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.
• St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.
• Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.

australia stock market is up 98. The SFE Futures predicted an 84 point rise. More than a couple of comments from colleagues about how ridiculous the market is at the moment…volatility is massive….and “what chance do you have” trying to trade it. The reply is to say that extreme volatility is often the pre-cursor to change - after a 28% fall in the market….lets hope so. Financials up 3.4%, Resources also up 1.8%.

The Dow Jones “Lotto” index was up 266 reversing the 240 point fall yesterday. Up 267 at best closing on its highs. Down 3 at worst. It was basically the falling oil price, better-than-expected 2Q reports and increasing consumer confidence that did the trick. Financials closed up 7.5%, with investors thinking there are better times ahead for the sector. Lehmans up 11%, Bank of America increased 15%, JP Morgan up 8.2%. Merrills announced it would sell $30.6bn worth of ABS CDOs for only $0.22 in-the-dollar, or for $6.7bn – a remarkable discount – to strengthen its balance sheet. The sale will mean a $4.4bn pre-tax write-down in the 2Q. Merrills has had $51.8bn in write-downs and credit losses since the credit crisis started. In other news, US Steel Corp up 14% in the biggest one-day jump since 2002 posting 2Q profit that doubled on higher prices and July consumer confidence better-than-expected – rose 2% month-on-month – up to 51.9 and the first gain in 6-months – boded well for stock market. Earnings have topped estimates for ¾ of the 255 companies that have reported 2Q results so far – but profits down 23% on average and the earnings for banks are down 90% while the earnings in the discretionary sector are down 33%. The NASDAQ also had a strong session – up 2.45%.

• Both BHP and RIO up in ADR form overnight, 2.4% and 1.7% respectively.
• Metals all down overnight – Nickel down 3.79%, Zinc down 2.4% and Aluminium 1.92%. Copper down 1.08%.
• Oil price down $2.51 to $122.21 – hit a 7 week low – despite concerns of a militant attack on two Nigerian crude pipelines.
• Gold down $11.20 to $916.50
• Bonds up with the 10 year yield down to 4.03%.

ABN AMRO is the latest bank to cut their recommendation on the Australian bank sector (to Underweight from Neutral). They tell us the sector is likely to underperform until there is clarity on where bad debt levels will peak. They cut ANZ to HOLD from Buy and St. George (SGB) to SELL from Hold. The NAB is ABN AMRO’s only BUY recommendation. They expect flat dividends and underwritten dividend reinvestment plans across the sector, and there is now a risk of capital raisings. GSJB Were went underweight banks yesterday with a SELL recommendation on the ANZ. ANZ up 50c to 1603c, SGB up 3.5% to 2659c.

BHP Billiton have released its Letter to Rio Tinto shareholders. BHP warn RIO would be trading lower without their takeover proposal and Chairman Don Argus says BHP’s offer of 3.4 BHP for 1 Rio share represents a “substantial premium” of 45%. BHP expects the various regulatory approvals for the deal to be completed by the end of 2008, after which BHP should be in a position to send offer documents to RIO shareholders. BHP up 82c to 3909c.

We have had a busy morning on the announcement front…

• Aristocrat Leisure (ALL) down 17% (down 21% at once stage) after announcing late yesterday that its FY profit to will be down as much as 23% due to currency issues. (Weak US$, Strong AUS$ - highlights the issue for other stocks). Now expects earnings for the current year to be between $190m-$200m compared to previous guidance of $247m.
• Austar United Communications (AUN) down 4% – Good results but hasn’t done much for the share price – EBIT up 20% against guidance of up 20% - has announced a 1H loss of $7.6m compared to a $24.7m profit last year. AUN interest bill for the half rose to $30.8m from $20.7m.  AUN down 4.5c to 121c.
• Lihir Gold (LGL) said 2Q gold production came in at 177,000 ounces, up 27% on the previous Q. Maintained its guidance for FY production of more than 850,000 ounces of gold. Also mentioned that commercial production from Ballarat is due to commence in the 4Q.  LGL up 3c to 292c.
• AED Oil (AED) up 12% - it has produced 340,000 barrels of oil in the June Q. Output was impacted by a short sut-in for routine review. Output to date is at around 1.6m barrels. AED up 25c or 11.2% to 247c.
• The National Australia Bank (NAB) board is due to meet in Melbourne today. The Australian reported this morning that CEO John Stewart might be given his marching orders on the back of plans of a further $830m provision for its exposure to the US. NAB up 55c to 2533c.
• Rio Tinto (RIO) have announced they will spend $2.15bn to expand their Corumba iron ore mine in Brazil. IT wants to increase production to 12.8m metric tonnes by 2010. Ausenco (AAX) has been awarded the US$140m contract for the mine. RIO up 255c to 12170c.
• Broker downgrades this morning for Alesco (ALS) after saying yesterday its outlook will remain challenging despite announcing a solid profit yesterday. UBS cut to NEUTRAL from BUY, ABN AMRO to HOLD from BUY. ALS up 3c to 678c.
• Mirabela Nickel (MBN) up 5% - it has announced a 40% increase in production capacity at its Santa Rita nickel project in Brazil to 27,000 tons. It is due to start commissioning in mid-2009.  MBN up 23c to 424c.
• Bradken (BKN) has priced a $110m institutional placement to fund the acquisition of AmeriCast Technologies Inc. Placement will result in the issue of around 13.7m additional shares at an issue price of 805c. BKN up 13c to 897c.
• Macquarie Group (MQG) has upped their shareholding in Auckland Airport to 5%. MQG up 6.6% to 5168c.
• GSJB Were has increased their forecasts for headline inflation. Now expects headline inflation to average 4.4% & 3.6% in 2008 & 2009 respectively.
• Australian building approvals fell 0.7% in June from May - below expectations of a +1.7% rise, but well above 7.2% fall in May.