daytrading july 16 afternoon

Afternoon all,

Thanks Endless, Gttrain, Trees and to all regulars.

The Australian share market has opened higher.

At 12PM AEST on Tuesday, the benchmark S&P/ASX200 index was up 2.5 points, or 0.1 per cent, at 4,985, while the broader All Ordinaries index was up 10.3 points, or 0.21 per cent, at 4,975.9.

Making news today

In economics news:

•Minutes of Reserve Bank of Australia monthly board meeting released

In companies news:

•Rio Tinto second quarter operations review

Analyst rating changes:

•Treasury Wine cut to underperform at CIMB
•Newcrest cut to market perform at BMO
•Iluka raised to neutral at Credit Suisse
•BlueScope raised to buy at Bank of America-Merrill Lynch
•Beach Energy raised to buy at Goldman Sachs
•Alumina cut to underperform at Macquarie

Offshore overnight

United States

US stocks closed higher, edging to new all-time highs as in-line Chinese economic growth data offset disappointing US retail sales figures.

Key numbers:

•Dow Jones Industrial Average added 0.14% to 15,485.64
•S&P 500 added 0.14% to 1,682.61
•Nasdaq Composite Index added 0.21% at 3,607.49

Europe

European stock markets ended the session on an upbeat note as Chinese growth data met analyst expectations.Wall Street also traded higher despite weak US retail sales.

Key numbers:

•London’s FTSE 100 added 0.63% to 6,586.11
•Frankfurt’s DAX 30 added 0.27% to 8,243.81
•In Paris, the CAC 40 added 0.61% to 3,878.58

Hong Kong

Asian markets rose after China released data showing the world’s second largest economy grew in line with expectations in the April-June quarter. While the news out of Beijing pointed to a further weakening in the economy, it met forecasts and added to broadly upbeat sentiment that was helped by another record-breaking finish on Wall Street.

Key numbers:

•China's Shanghai composite added 0.98% to 2,059.39
•Hong Kong's Hang Seng added 0.12% to 21,303.31
•Tokyo was closed for a public holiday

Commodities

Energy

Oil prices pushed higher despite weak economic data in China and the US, the two biggest global consumers of crude.

•In New York the benchmark WTI crude for August delivery gained 37 US cents to $US106.32 a barrel
•In London trading, Brent North Sea crude for delivery in August added 28 US cents, settling at $US109.09

Precious metals

Gold eased in quiet trade after last week’s sharp gain, as investors await Federal Reserve chairman Ben Bernanke’s testimony before US Congress later this week for market cues. The metal rose overnight after data showed China’s economic growth slowed in the second quarter, and later a report showed US retail sales rose less than expected in June.

•US gold futures for August delivery settled up $US5.90 at $US1,283.50 an ounce, with trading volume about 30 per cent below its 30-day average
•Silver gained 0.3 per cent to $US19.83 an ounce, having risen nearly six per cent last week

Base metals

Base metals on the London Metal Exchange (LME) closed lower as data confirmed a slowdown in top industrial metal consumer China, and a stronger US dollar weighed upon dollar-denominated assets including metals.

•At the close of open-outcry trading, LME three-month copper was 0.6 per cent lower on Friday’s settlement price at $US6,915 a metric ton
• Aluminum was down some 2.2 per cent at $US1,804 a ton, and nickel fell two per cent to $US13,505 a ton

How we fared yesterday

Australian shares finished the session marginally higher in volatile trade, reflecting relief that Chinese GDP data was in line with expectations plus last week's Wall Street rally.

At the close on Monday the benchmark S&P/ASX200 index was up 7.2 points, or 0.14 per cent, at 4,981.1. The broader All Ordinaries index was up 8.1 points, or 0.16 per cent, at 4,965.6.

Today’s Financial Calendar

?(AU) - minutes of RBA meeting
?(EZ) - ZEW investor sentiment, Jul
?(EZ) - CPI, Jun
?(EZ) - trade balance, May
?(NZ) - CPI, Q2
?(UK) - CPI & PPI, Jun
?(US) - CPI, Jun
?(US) - industrial production, Jun
?(US) - housing market sentiment, Jul
?(PRU) - quarterly production report
?(RIO) - quarterly production report

The Overnight Report: Steady As She Goes

The Dow rose 20 points, or 0.1%, while the S&P gained 0.1% to 1682 and the Nasdaq added 0.2%.

There was much nervousness on Bridge Street yesterday ahead of the release of China’s June quarter GDP following downgrades to 2013 forecasts from various houses and generally pessimistic chatter. The market opened to the upside, but fell ahead of the release, fearing the worst.

Whether or not Beijing’s GDP numbers are in anyway accurate is by the by, with little else to use as a gauge. Thus when the result came in at bang on expectation at 7.5% year on year growth there were sighs of relief. Bridge Street recovered to close relatively flat on the day.

The accompanying data for the month of June were a mixed bag, but not too far off expectations either. Retail sales posted a heartening 13.3% (yoy) gain, up from 12.9% in May and against 12.9% expectation. This figure is particularly important as Beijing tries to shift the Chinese economy to a greater consumer focus, and away from export reliance. Industrial production fell to 8.9% from 9.2% and missed a 9.1% forecast, while fixed asset investment fell to 20.1% from 20.9% and missed a 20.2% forecast. Unlike the June trade numbers released earlier this month, this data set was close enough to the mark.

Also pleasing was a 6.3% increase in electricity consumption. Many economists look to electricity use as a more accurate proxy for Chinese growth viv a vis the largely cooked up GDP, although electricity numbers are also a bit rubbery. But economists were very worried when consumption fell in 2012 to 5.5% year on year growth and this year Beijing is expecting 9%. The June number is a step in the right direction.

There was also a mixed bag of data on Wall Street overnight. June retail sales showed a 0.4% gain, well short of 0.9% expectation and pumped up by the higher cost of petrol. On the other hand, the Empire State manufacturing index showed an acceleration in New York State activity with a rise to 9.5 this month from 7.8 in June (zero neutral).

With the US heavily reliant on consumption it is assumed weaker retail sales would encourage the Fed to hold off on QE tapering, implying the “Bernanke put” will ensure all economic data, good or bad, will be well received. Last night BA-Merrill Lynch upgraded its year-end S&P 500 to 1750 from 1600, albeit the index is already at 1680 and in blue sky. But it will all come down to earnings in the end, and to that end the upside surprises continued last night.

Citigroup beat forecasts to post a solid result and enjoy a 2% share price gain. Meanwhile Boeing (Dow), which had dragged down the indices on Friday night after a Dream-liner fire, bounced 3.7% last night to recover some of the 5% fall. It appears the fire did not represent a return of the aircraft’s much troubling battery issue.

The US dollar index crept higher last night by 0.1% to 83.05. The volatility that dominated US financial markets over the past couple of months on the yes/no tapering debate seems to have abated now as markets accept that the Fed still intends to react to the data rather than a predetermined plan. The earnings season has provided Wall Street with something more tangible to focus on. The Australian stock market has also settled a little, but is much more susceptible to China fears, as is evident in the movement of the Aussie dollar since Friday. Having marked 89.99 on the Chinese finance minister’s 7% blooper, the currency has since recovered and is now up 0.4% from Friday’s close to US$0.9100.

Gold was steady at US$1284.90/oz and the US ten-year bond yield slipped 5 basis points to 2.55%.

London metal traders were not as relieved over yesterday’s Chinese data as other markets, with reports from the LME suggesting 7.7% growth was expected when everyone else had penciled in 7.5%. The 7.5% result thus sent base metal prices slightly lower, and aluminum was worst hit with a 1.5% fall. Copper fell 0.2%.

The oil markets were looking for 7.5% nonetheless, and despite the impact a slowing China should have on energy demand, Brent rose US28c to US$109.09/bbl and West Texas rose US43c to US$106.38/bbl.

Spot iron ore rose US10c to US$126.90/t.

The SPI Overnight closed up a relatively enthusiastic 18 points or 0.4%.

Bridge Street will be on edge this morning for the release of the RBA July minutes, given expectations have swung solidly towards an August rate cut. Rio Tinto (RIO) and Perseus Mining (PRU) will release quarterly production reports.

The ZEW survey is out in Europe tonight along with the eurozone trade balance, while inflation, industrial production and housing sentiment numbers are due in the US.

On the US earnings front, Johnson & Johnson (Dow), Coca-Cola ((Dow), Goldman Sachs and Yahoo step up to the plate.

---------------------------------------------------------

BROKER ALERTS:
A few quality selections;

Citi rates SFR as Buy (1) -

Target $7.20 (was $7.40). The broker has downgraded copper price forecasts by around 5% and nickel prices by around 15% across the medium-term. This results in updates across the mining sector, with Sandfire ((SFR)) remaining the broker’s preferred copper exposure.

FY13 EPS is down by 2% on the lower copper price assumptions, which is offset by slightly lower FX forecasts. FY14-15 EPS revisions are positive and the Buy call is maintained.

Target price is $7.20 Current Price is $5.73 Difference: $1.47

If SFR meets the Citi target it will return approximately 26% (excluding dividends, fees and charges).

The company's fiscal year ends in June. Citi forecasts a full year FY13 dividend of 0.00 cents and EPS of 67.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.55.

Market Sentiment: 0.5

---

Citi rates ILU as Downgrade to Neutral from Buy (3) -

The broker notes a price and volume recovery are both price, making Iluka look less attractive than other stocks in the sector that have underperformed significantly in 2013. Downgrade to Neutral.

Target price is $11.00 Current Price is $10.41 Difference: $0.59

If ILU meets the Citi target it will return approximately 6% (excluding dividends, fees and charges).
The company's fiscal year ends in December. Citi forecasts a full year FY13 dividend of 20.00 cents and EPS of 33.70 cents.

At the last closing share price the estimated dividend yield is 1.92%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 30.89.

Market Sentiment: 0.3

Credit Suisse rates ILU as Upgrade to Neutral from Underperform (3) -

IIuka will report June quarter production on July 17. Credit Suisse is concerned that zircon sales may have weakened. After strong demand was reported early in the second quarter there has been no reports of prices increases since early May. The broker is concerned that easing housing sales in China, combined with falls in social financing, may be affecting demand and output.

There is a risk that zircon price forecasts for the second half of 2013 may be over optimistic and the broker will be watching the commentary. Credit Suisse maintains a view that demand for titanium feedstocks will remain weak until late in the year as de-stocking downtream in the pigment market continues.

The rating has been upgraded to Neutral from Underperform and the target price is steady at $11.00.
Target price is $11.00 Current Price is $10.41 Difference: $0.59

If ILU meets the Credit Suisse target it will return approximately 6% (excluding dividends, fees and charges).
The company's fiscal year ends in December. Credit Suisse forecasts a full year FY13 dividend of 10.00 cents and EPS of 15.02 cents. At the last closing share price the estimated dividend yield is 0.96%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 69.31.

Market Sentiment: 0.3

---

Citi rates OZL as Buy (1) -

Target $5.00 (was $5.55). The broker has downgraded copper price forecasts by around 5% and nickel prices by around 15% across the medium-term. This results in updates across the mining sector, with Sandfire ((SFR)) remaining the broker’s preferred copper exposure.

For OZL, FY14 and FY15 earnings are downgraded on lower copper prices, while a mark to market for the FX rate has driven FY13 upgrades.

Target price is $5.00 Current Price is $4.11 Difference: $0.89

If OZL meets the Citi target it will return approximately 22% (excluding dividends, fees and charges).

The company's fiscal year ends in December. Citi forecasts a full year FY13 dividend of 10.00 cents and EPS of 14.50 cents. At the last closing share price the estimated dividend yield is 2.43%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 28.34.

Market Sentiment: 0.5

---

Credit Suisse rates PRU as Outperform (1) -

Perseus has confirmed the June quarter was weak. The cash balance as of June 30 is $35.5m, down $2.9m from March 30. Edikan has been downgraded. Production for FY14 is seen around 200,000 ounces at all-in costs of US$1,000-1,200/oz. An updated Edikan life of mine plan is expected with the September quarter result.

Credit Suisse retains an Outperform rating and $1.40 price target.

Target price is $1.40 Current Price is $0.66 Difference: $0.74

If PRU meets the Credit Suisse target it will return approximately 112% (excluding dividends, fees and charges).
The company's fiscal year ends in June. Credit Suisse forecasts a full year FY13 dividend of 0.00 cents and EPS of 6.11 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 10.80.

Market Sentiment: 0.7


UBS rates PRU as Buy (1) -

June quarter production was in-line with UBS’s recently downgraded forecasts. Cash costs, on the other hand, came in well above the broker and above the received gold price of $1308/oz. On the quarterly numbers, the broker notes the company lost US$0.97/oz.

Guidance also came in well below the broker, with lower production levels due the head grade falling 29% over FY14. Based on guidance, the broker thinks the company will struggle to remain profitable and the broker sees shares being sold until there is some clarity about the life of mine plan for Edikan. Valuation keeps the call at Buy. The $1.30 price target is maintained.

Target price is $1.30 Current Price is $0.66 Difference: $0.64

If PRU meets the UBS target it will return approximately 97% (excluding dividends, fees and charges).

The company's fiscal year ends in June. UBS forecasts a full year FY13 dividend of 0.00 cents and EPS of 8.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.25.

Market Sentiment: 0.7

---

UBS rates SIR as Buy (1) -

The first resource estimate for the Bollinger deposit has come in at 4.4Mt at 1.8% of nickel and 0.7% copper. This is better than what UBS was expecting and the broker notes that on top of this defined resource, there is still an extra 81kt nickel and 33kt in the deposit.

The Buy call is maintained, but forecasts and the $3.31 price target are unchanged, UBS noting it is still early days, although admitting there is potential for some significant upside.

Target price is $3.30 Current Price is $1.95 Difference: $1.35

If SIR meets the UBS target it will return approximately 69% (excluding dividends, fees and charges).

The company's fiscal year ends in June. UBS forecasts a full year FY13 dividend of 0.00 cents and EPS of minus 3.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 65.00.

Market Sentiment: 1.0

---

Citi rates MBN as Buy (1) -

Target $0.30 (was $0.50). The broker has downgraded copper price forecasts by around 5% and nickel prices by around 15% across the medium-term. This results in updates across the mining sector, with Sandfire ((SFR)) remaining the broker’s preferred copper exposure.

For MBN this adds up to significant cuts to FY13-14 EPS forecasts on the back of lower nickel price forecasts. In fact, Citi says that if spot nickel prices persist in the longer-term, there will be no equity value at all in MBN. The Buy call is maintained, for now.

Target price is $0.30 Current Price is $0.06 Difference: $0.239

If MBN meets the Citi target it will return approximately 392% (excluding dividends, fees and charges).

The company's fiscal year ends in December. Citi forecasts a full year FY13 dividend of 0.00 cents and EPS of minus 10.17 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 0.60.

This company reports in USD. All estimates have been converted into AUD at present FX values.

Market Sentiment: 0.3

ASX200 CONSOLIDATING:

Chinese GDP figures yesterday were in line with expectations but some analysts are querying the convenience of that. There are some murmurings that the decline in growth has been a little quicker than that and the government is trying to avoid spooking markets.

Resource stocks have had a nice move up in the last couple of weeks so it will be interesting to see if they take a breather here at this point.

Here's a quick chart on the ASX200: