daytrading july 17 afternoon

Afternoon all,

Thanks Endless, Gttrain, Trees and to all regulars.

The Australian share market has been flat since noon.

At 1011 AEST on Wednesday, the benchmark S&P/ASX200 index was down 7.1 points, or 0.14 per cent, at 4,978.9, while the broader All Ordinaries index was down 8.1 points, or 0.16 per cent, at 4,960.5.

What you need to know

•SPI futures are 7 points lower at 4940
•The $A is higher at 92.6 US cents
•In New York, the S&P500 was lost 0.37% to 1676.26
•In Europe, the FTSE100 lost 0.45% to 6556.35
•China iron ore gained $US2.10 to $US129 a metric tonne
•Gold added 0.7% to $US1290.56 an ounce
•WTI crude oil lost 52 US cents to $US105.80 a barrel
•Reuters/Jefferies CRB index added 0.59% to 288.48

Making news today

In economics news:

•Westpac leading index for May - Read more: http://www.forexlive.com/blog/2013/07/17/australia-westpac-leading-index-for-may-0-2-mm-prior-was-0-6/

In company news:

•BHP reports June quarter results – Read the report: http://www.bhpbilliton.com/home/investors/reports/Documents/2013/130717_BHPBillitonProductionReportfortheYearEnded30June2013.pdf

Analyst rating changes:

•Billabong raised to neutral at JPMorgan
•Billabong raised to hold at Deutsche Bank
•Perseus cut to sector perform at RBC Capital
•SMS Management cut to buy at BBY Ltd
•Iluka raised to neutral at Credit Suisse
•Treasury Wine Estates raised to outperform at Macquarie
•Aurizon upgraded to overweight at Morgan Stanley
•Ansell cut to sell at Citi
•Origin cut to neutral at Citi
•AGL cut to neutral at UBS

Offshore overnight

United States

US stocks snapped a three-day streak of records as investors looked ahead to testimony on Wednesday from Federal Reserve Chairman Ben Bernanke.

Key numbers:

•Dow Jones Industrial Average lost 0.21% to 15,451.93
•S&P 500 lost 0.37% to 1,676.26
•Nasdaq Composite Index lost 0.25% to 3,598.50

Europe

Europe’s stock markets retreated as traders weighed conflicting European data but mainly awaited testimony from US Federal Reserve chief Ben Bernanke.

Key numbers:

•London’s FTSE 100 lost 0.45% to 6,556.35
•Frankfurt’s DAX 30 lost 0.41% to 8,201.05
•In Paris the CAC 40 lost 0.71% to 3,851.03

Asia

Asian markets mostly rose following a rally in the previous session, while Tokyo enjoyed a pick-up after a long weekend as the US dollar remained strong against the yen.

Key numbers:

•Japan's Nikkei added 0.64% to 14,599.12
•China's Shanghai composite added 0.31 % to 2,065.72
•Hong Kong's Hang Seng was flat at higher to 21,312.38

Commodities

Energy

Oil prices traded mixed on Tuesday on the eve of US petroleum supplies data and Federal Reserve Chairman Ben Bernanke’s testimony to Congress on the economy and monetary policy.

•New York’s main contract, West Texas Intermediate (WTI) for August delivery, closed at $106.00 a barrel, down 32 cents from Monday.
•In London, the European benchmark, Brent North Sea crude for August, added 31 cents to close at $109.40 a barrel, on the contract’s last day of trade.
Precious Metals
Gold futures settled higher as a weaker US dollar and higher inflation data bolstered investor appetite for the hard asset.
•The most actively traded contract, for August delivery, rose $US6.90, or 0.5 per cent, to settle at $US1,290.40 a troy ounce on the Comex division of the New York Mercantile Exchange.

Base metals

The London Metal Exchange’s flagship metal, copper, rose after upbeat US industrial production data stoked investor hopes for better demand before the focus turned to a Federal Reserve testimony to Congress.

•At the close of open-outcry trading on Tuesday, LME three-month copper was 1.2 per cent higher on the previous session’s close at $US6,998 a metric ton.
•Aluminium rose 0.5 per cent to $US1,814 a ton, and nickel closed 1.9 per cent higher at $US13,765 a ton.

How we fared yesterday

Australian shares have closed slightly higher, boosted by gains from resource companies on the back of record production results from mining heavyweight Rio Tinto.

At the close on Tuesday, the benchmark S&P/ASX200 index was up 4.9 points, or 0.1 per cent, at 4,986.0. The broader All Ordinaries index was up 3.0 points, or 0.06 per cent, at 4,968.0.

Today’s Financial Calendar

•(JP) - minutes of BoJ meeting
•(UK) - minutes of BoE meeting
•(US) - housing starts, Jun
•(US) - Bernanke testifies to Congress
•(US) - Fed Beige Book
•(BHP) - quarterly production report - Read the report: http://www.bhpbilliton.com/home/investors/reports/Documents/2013/130717_BHPBillitonProductionReportfortheYearEnded30June2013.pdf
•(BLT) - EGM
•(GBG) - quarterly production report
•(ILU) - quarterly production report
•(KAR) - analyst day
•(TGZ) - AGM

The overnight report: Waiting for Mr. BB

The Dow fell 32 points, or 0.2%, while the S&P lost 0.4% to 1676 and the Nasdaq slipped 0.3%.

After a period of extreme volatility, Bridge Street has suddenly gone very quiet. To some extent this reflects the fact the Aussie, while still making some sharp intraday moves, appears to have settled in the low 90s for the time being. Foreign selling has eased off. Yesterday we pushed up against longstanding resistance at the 5000 mark in the ASX 200 once more, then backed off. As to whether that level can be breached will possibly come down to what Ben Bernanke says to Congress tonight, but in the wider scheme we are rapidly approaching the local earnings season, when reality sets in.

Doubts crept in to previously definitive expectations of an RBA rate cut in August after the release of the minutes of the July meeting yesterday. After months of head-scratching over why the Aussie was so high, the central bank is now wary of the lower Aussie sparking inflation. Although as the following paragraph from the minutes suggests, the board is hardly in panic mode:

“The news in recent months had generally been consistent with the outlook for growth being a little below trend and inflation remaining consistent with the medium-term target. The most significant change had been the depreciation of the exchange rate, though members noted that it remained at a high level. The depreciation was expected to add a little to inflation over time, but the forecast was for inflation to remain consistent with the target. Members noted that it was possible that the exchange rate would depreciate further over time as the terms of trade and mining investment declined, which would help to foster a re-balancing of growth in the economy.”

Obviously the RBA is now looking to see just how much effective “loosening” can be achieved by the lower Aussie, thus negating the need for a lower cash rate. But we’re certainly not at that point yet:

“Given the exchange rate adjustment that was occurring, and with the substantial degree of monetary stimulus already in place, members assessed the current stance of policy to be appropriate for the time being. The Board also judged that the inflation outlook, although slightly higher because of the exchange rate depreciation, could still provide some scope for further easing, should that be required to support demand.”

The June quarter CPI result will be released next Wednesday, and the next RBA meeting is two weeks later. Meanwhile the forex market decided yesterday that an August rate cut was now off the cards, or at least less likely. Throw in last night’s fall in the US dollar index of 0.7% to 82.46, representing a square-up ahead of Bernanke, and the Aussie is up one and a half cents over 24 hours to US$0.9252.

Wall Street appeared pretty much in wait and see mode last night. At one point the Kansas City Fed president spoke out to suggest tapering should begin “sooner rather than later”, which did not help the indices push further into blue sky. It’s now at the stage where Wall Street is wishing these junior Fed heads would just shut the F up and end this unnecessary confusion, and leave the chairman to be the sole channel of Fed consensus.

US earnings were in the frame last night. Johnson & Johnson (Dow) posted a beat and saw a mild share price response, while Coca-Cola’s (Dow) result disappointed, with the company blaming the weather, among other things. Globally?

Despite doubling profit from the same quarter last year, Goldman Sachs saw its share price ease off as concerns mount with regard to new capital regulations. After the bell, Yahoo failed to excite and its shares are down 1% in the aftermarket.

The June CPI came in at 0.5% on the headline, with fuel prices the major factor, and 0.2% on the core reading. Both numbers were in line with forecasts. Headline CPI is running at an annualised 1.8% -- not enough to force immediate Fed tapering.

Over in Europe, markets were surprised with an unexpected drop in the ZEW investor sentiment measure, which came on the same day as a surprise jump in the eurozone’s trade surplus. The issue is, of course, that there’s Germany and then there’s everyone else.

The LME liked the major data overall last night, with increased US production a positive. The weaker US dollar helped base metal prices to smallish rises, with copper up 1%. The oils were undecided, with Brent rising US31c to US$109.40/bbl and West Texas falling US46c to US$105.86/bbl.

Spot iron ore rose US$2.10 to US$129.00/t.

Gold rose US$7.40 to US$1292.30/oz.

The SPI Overnight was down 6 points.

Today sees production reports from BHP Billiton ((BHP) – see above link), Gindalbie (GBG) and Iluka ((ILU) – Read the report: http://www.iluka.com/docs/default-source/quarterly-production-reports/june-2013-quarterly-production-report.pdf?sfvrsn=2).

Tonight in the US sees earnings results from Dow components Amex, Intel, IBM and Bank of America. The Fed’s Beige Book will be released, and Ben Bernanke will explain monetary policy to Congress.

BROKER ALERTS:

Citi rates RIO as Buy (1) -

June quarter production was a bit of a mixed bag as far as Citi is concerned, with copper and coal numbers coming in ahead, aluminium pretty much in-line and the iron ore falling below the broker’s estimates.

The copper guidance was increased due to a better than expected recovery from the KUC slide, which drives a minor upgrade to 2013 estimates. The Buy call and $67.00 price target are maintained.

Target price is $67.00 Current Price is $55.52 Difference: $11.48

If RIO meets the Citi target it will return approximately 21% (excluding dividends, fees and charges).

The company's fiscal year ends in June. Citi forecasts a full year FY13 dividend of 189.32 cents and EPS of 454.26 cents. At the last closing share price the estimated dividend yield is 3.41%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 12.22.

Market Sentiment: 1.0

JP Morgan rates RIO as Overweight (1) -

Rio Tinto's June quarter was strong with improved volumes in iron ore. The Pilbara was up 7% in the quarter despite heavy rain. JP Morgan notes an increased focus on removing bottlenecks in mine capacity which could imply delays to greenfield developments. Guidance is unchanged although copper expectations have increased as the Bingham Canyon recovery progresses well.

The Overweight rating is maintained and the price target is steady at $78.00.

Target price is $78.00 Current Price is $55.52 Difference: $22.48

If RIO meets the JP Morgan target it will return approximately 40% (excluding dividends, fees and charges).
The company's fiscal year ends in June. JP Morgan forecasts a full year FY13 dividend of 172.20 cents and EPS of 514.63 cents. At the last closing share price the estimated dividend yield is 3.10%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 10.79.

Market Sentiment: 1.0

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JP Morgan rates STO as Overweight (1) -

Santos has announced the discovery of gas from the Bianchi-1 appraisal/exploration well in WA-49-R in the Carnarvon Basin, part of the Zola structural trend. Santos has not disclosed pre-drill expectations. The latest discovery, operated by Apache (30%), is strategically located from the Apache/Santos East Spar/Halyard manifold, tying back to Varanus Island.

Santos is the broker's top pick in the large cap Australian energy space and the Overweight recommendation is retained. The price target is steady at $18.02, with no contribution factored in for Zola.

Target price is $18.02 Current Price is $13.85 Difference: $4.17

If STO meets the JP Morgan target it will return approximately 30% (excluding dividends, fees and charges).

The company's fiscal year ends in December. JP Morgan forecasts a full year FY13 dividend of 30.00 cents and EPS of 58.00 cents. At the last closing share price the estimated dividend yield is 2.17%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 23.88.

Market Sentiment: 0.8

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Citi rates PRU as Downgrade to Sell from Buy (5) -

Target $0.50 (was $1.60). 2H production came in at the bottom of the guidance range, with costs higher and FY14 guidance coming in well below Citi’s previous estimates. To make matters worse, the Sissingué project has been placed in a holding pattern.

FY13-14 EPS is cut by 33% and 142% in response. The revisions pull the price target lower, which sees the recommendation cut to Sell from Buy.

Target price is $0.50 Current Price is $0.52 Difference: minus $0.015 (current price is over target).

If PRU meets the Citi target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June. Citi forecasts a full year FY13 dividend of 0.00 cents and EPS of 7.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 7.36.

Market Sentiment: 0.4

UBS rates PRU as Buy (1) -

Target $0.90 (was $1.30). June quarter production and cash costs were in-line with UB, although costs were 19% higher given increased processing costs and some one-off cost adjustments. FY14 production guidance fell a little short of UBS, while cost guidance was a bit better. The broker also notes the Edikan life of mine plan is due out towards the end the Sept quarter, while cash and bullion at the end of the quarter was $at 48.3m, with the company remaining debt free.

Higher June quarter costs see FY13 EPS cut by 20%, with FY14-15 down by 99% and 22% after taking into account latest guidance. The Buy call is maintained on valuation grounds, although UBS expects uncertainty about the Edikan mine and the Sissingue development will keep a lid on the share price.

Target price is $0.90 Current Price is $0.52 Difference: $0.385

If PRU meets the UBS target it will return approximately 75% (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 7.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 7.36.

Market Sentiment: 0.4

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Citi rates PDN as Buy (1) -

June quarter sales and production came in a little bit ahead of the broker and bang in the middle of the 8-8.5mlb guidance range. Citi is sitting near the bottom end of FY14 guidance right now, but the broker says it sees upside risks if a steady operating performance can be maintained.
The weak uranium price of course remains a headwind, but the broker sees a good chance for upside if asset sales can be completed on time and at decent prices. The Buy call and $1.15 target price are maintained.

Target price is $1.15 Current Price is $1.03 Difference: $0.12

If PDN meets the Citi target it will return approximately 12% (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 minus 25.05 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 4.11.

Market Sentiment: 0.3

JP Morgan rates PDN as Overweight (1) -

Paladin produced a strong June quarter with both assets achieving records and sales ahead of expectations. Cost initiatives are on track but cash information won't be available until the financial results in August so the broker is yet to see whether Paladin is cash flow positive.
Taking a long view on an improving pricing environment the Overweight rating is retained and the price target is raised to $1.30 from $1.25.

Target price is $1.30 Current Price is $1.03 Difference: $0.27

If PDN meets the JP Morgan target it will return approximately 26% (excluding dividends, fees and charges).

The company's fiscal year ends in June. JP Morgan forecasts a full year FY13 dividend of 0.00 cents and EPS of minus 31.31 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 3.29.

Market Sentiment: 0.3

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Credit Suisse strategists had earlier combined potential for upside and downside surprises with potential mis-pricing in share prices. Remarkable is that they, too, found discretionary retailers are likely to provide both upside and downside surprises this reporting season. Should make for a lot of volatile share price action in the industry next month.

To avoid all miscommunication regarding Credit Suisse's graphic overview below: downside mispricing implies the likelihood of a negative surprise triggering a negative share price response. Bottom line: not everything that looks cheap at face value is automatically immune against further share price weakness. Something worth to keep in mind, surely?