daytrading july 23 afternoon

Afternoon all,

Thanks Endless, Gttrain, Trees, Suzie and to all regulars.

Australian shares have posted a positive start after Wall Street's S&P500 rose to a new record despite some disappointing US earnings.

The All Ords is 26 points higher or at 5,027 at noon today. A rise in the gold price has delivered resources stocks a boost and helped to lift the local sharemarket.

Tokyo shares have opened 0.70 per cent lower on a lack of trading cues and a weaker dollar, dealers say.

The benchmark Nikkei 225 index was down 102.68 points to 14,555.36 at the start on Tuesday.

‘‘The yen has shown signs of pesky resilience, which will act to cap further stock market advances,’’ SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.

‘‘Otherwise the expectations that had been built into the market on the back of the Sunday upper house election results have already been vented, leaving the market short of trading cues before corporate earnings reporting season cranks up in earnest.’’

Iron ore giant Fortescue recorded a 41 per cent jump in shipments last financial year.

Fortescue says it shipped almost 81 million tonnes of iron ore during the 2012/13 financial year, up 41 per cent on the previous year.

The company shipped 25 million tonnes in the June quarter, up 24 per cent compared to the previous three-month period.

Fortescue said it expects to produce and ship between 127 million tonnes and 133 million tonnes of iron ore in the 2013/14 financial year.

The company said it was still in negotiations surrounding the potential sale of a stake in its Pilbara rail infrastructure.

‘‘These negotiations continue and a sale of a minority interest will only be executed on the basis that Fortescue receive full value, reflecting the long-term worth of these world-class infrastructure assets and efficiency of the integrated logistics chain,’’ the company said.

Fortescue said it had reduced production costs through lower strip ratios, costs savings initiatives and operational efficiencies.

Australia's third largest iron ore miner behind Rio and BHP, expects iron ore prices to trade in a range of between $US110-$US130 per tonne for the remainder of 2013, citing steady demand from Chinese steel mills.

The price of iron ore, China's top commodity import by volume, rose nearly 4 per cent last week and is up 13 per cent so far in July, potentially heading for its best monthly performance since last December.

The benchmark spot iron ore price was last quoted at $US131.50 a tonne.

The petrol price has been one of the most obvious victims of the recent fall in the Aussie dollar since hitting US$1.05 in April, the Aussie dollar had plummeted to about US0.92.

As a result, the Aussie-dollar price of fuel in Singapore - which sets retail prices - recently spiked to a five-year high. This is because fuel is traded in US dollars and these have recently become a whole lot more expensive for Australians to buy. Here's a look at how that stacks up since 2008.

Oil and gas producer Oil Search has suffered a revenue hit despite a one-third surge in sales volumes. Crude oil prices fell by 8.2 per cent in the June quarter to $US104.58 as world commodity prices came under pressure.

This in turn negated Oil Search’s sales success, as the timing of shipments boosted volumes by 33 per cent during the March quarter.

Total operating revenue fell to $US381 million in the first half of 2013, down 4.4 per cent from $398.5 million during the corresponding period in 2012.

Shares are down 1 per cent.

Gold stocks will be in focus today after a nearly 3 per cent jump in the precious metal's price overnight to above $US1300 an ounce.

We'll have a look at the actual numbers in a moment, but the gold miners are continuing strong recent gains on the stock market today, following positive numbers yesterday.

"Yesterday we saw nice gains broadly across the sector and that will carry on today I think," Leyland Asset Management senior portfolio manager Rohan Schmidt said.

"They have been bashed about of late and you'll probably want to look at the companies that don't have any management or issues that have hurt them in the past such as Newcrest, and you want to look at companies that are the lowest-cost producers.

"From what I've seen, you would look at Regis and Beadell as the lowest-cost producers and they're probably the two picks in the sector but I think it will be across the board and good for the whole sector."

The rally in the gold price was due to the unwinding of short positions on Monday as well as weaker-than-expected US housing data overnight, Jordan Eliseo, chief economist at precious metal supplier ABC Bullion, says:

•It started in early Asian trading and it was probably sparked by a report, which showed that a lot of the short positions that have been in place for gold and that have been at record highs of late have started to unwind. People got nervous and they also started covering their positions and that caused the initial rally up above $US1300.
•There was a continuation overnight-off the back of some disappointing US data. Home sales came out worse than expected and a continuation of the weakening trend in US housing since yields started to pick up. What we're seeing is a realisation from the market that the Fed cannot taper, or if they do taper, it'll a long way away from normalised monetary policy and people ... don't want to be short gold anymore.

Gold was trading at $US1336.40 about 9am today. Silver was also up, trading at $US20.57.

Eliseo says it's important to remember that gold remains in bearish territory this year. Gold has lost 20.23 per cent this year, while silver has slipped 32.22 per cent:

•It's not that people are getting wildly bullish on gold, they're just not as bearish anymore. But the futures market was so tilted to the short side that even people just removing bearish bets is enough for the price to rally quite strongly.

Macquarie Private Wealth analysts have taken a look at the gold sector as companies adjust to the lower gold prices since the price fell from $US1600 in April.

"For those investors who are seeking exposure to the gold space, while limiting the risk to the downside we believe that with their low cost operations and free cash flow generation Regis Resources and Beadell Resources are the stand-outs in the sector," the analysts said in a research note today.

"We reiterate that we see the gold sector as an under-performer relative to the broader market over the short to medium term.

"That said, for those investors with a longer time horizon or those willing to trade the volatility in between, we believe that the opportunity to derive significant returns from the space will present itself, namely in the chance to buy quality names at cyclical lows."

Morgan Stanley analysts said their valuations also favoured low-cost operators such as Medusa Mining or those with cash balances, such as Alacer Gold, or a combination of both, such as Regis Resources.

"These companies are most resilient to a lower gold price, but also exhibit good valuation leverage to gold price upside. ... We maintain an Overweight recommendation on MML, and equal-weight recommendations on AQG, EVN, GRY, PRU, RRL and RSG."

Gold is hanging onto its overnight gains, trading near its highest in a month after gaining 3 per cent the session before and breaking through key resistance at the $US1300 level.

A weaker US dollar supported bullion prices, but stricter Indian import rules and continued outflows from exchange-traded gold funds could cap gains.

Spot gold is flat at $US1335 an ounce after hitting a one-month high of $US1338.91 overnight, as speculators fearing a reversal of the recent downward price trend rushed to buy back bearish bets.

The Australian dollar has extended gains to a third day as rising commodity prices and a drop in volatility supported demand for higher-yielding assets.

‘‘Helping the Aussie is a big jump in gold prices,’’ said Ray Attrill, the Sydney-based global co-head of currency strategy at NAB. ‘‘Declining volatility is giving a little bit of support to higher-yielding currencies as well.’’

The Australian dollar has added 0.3 per cent today to 92.80 US cents.

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A quick look around the region's share markets:

•Japan (Nikkei): +0.9%
•Hong Kong: +1.8%
•Shanghai: +1%
•Taiwan: +1.1%
•Korea: +1%
•ASX200: +0.5%
•Singapore: +0.3%
•New Zealand: +0.5%

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WHAT YOU NEED TO KNOW:

•SPI futures are 14 points higher at 4974
•The $A is higher at 92.49
•In New York, the S&P500 was 0.2% higher at 1695.53
•In Europe, the FTSE100 0.11% lower to 6623.17
•China iron ore lost 20 US cents to $US131.50 a metric tonne
•Gold rose 3.3%to $US1337.30 an anouce
•WTI crude oil lost 1% to $US106.91 a barrel
•Reuters/Jefferies CRB index added 0.12% at 291.04

Making news today

There is no major economics news scheduled for today.

In company news:

•Fortescue Metals Group fourth quarter production
•Oil Search second quarter production

Offshore overnight

United States

US stocks have ended higher after a series of mediocre earnings reports limited buying enthusiasm.

Key numbers:

•Dow Jones Industrial Average added 0.01% to 15,545.55
•S&P 500 added 0.20% to 1,695.53
•Nasdaq Composite added 0.36% at 3,600.39

Europe

European stocks suffered mixed fortunes with high gold prices offering some support while a string of uneven US earnings fuelled investor caution over economic activity.

Key numbers:

•London’s FTSE 100 lost 0.11% to 6,623.17
•Frankfurt’s DAX 30 was flat at 8,331.06
•In Paris the CAC 40 added 0.37% to 3,939.92

Asia

Asian shares mostly rose following a mixed lead from Wall Street, while Tokyo was boosted by a parliamentary election win for Prime Minister Shinzo Abe’s ruling party.

Key numbers:

•Japan's Nikkei added 0.47% to 14,658.04
•Hong Kong's Hang Seng added 0.25% to 21,416.50
•China's Shanghai composite added 0.61% to at 2,004.76

Commodities

Energy

Global oil prices closed mixed, with New York oil slumping after disappointing US housing data and

•New York’s main contract, West Texas Intermediate (WTI) for August delivery, closed at $US106.91 a barrel, a drop of $US1.14 from Friday’s close.
•In London trade, the European benchmark futures contract, Brent North Sea crude for delivery in September, crept up a scant eight US cents to settle at $US 108.15.

Precious metals

Gold futures posted their biggest percentage gain in more than year and settled above $US1,300 an ounce for the first time in a month amid hopes that loose monetary policy will prevail around the world.

Gold for August delivery, the most actively traded futures contract, on Monday rose 3.3 per cent, or $US43.10, to settle at $US1,336.00 a troy ounce on the Comex division of the New York Mercantile Exchange.

Base metals

Copper settled at its highest price in more than a month on the London Metal Exchange (LME) as a weaker US dollar and efforts to loosen lending controls in China boosted market sentiment.

•At the PM kerb close on Monday, LME three-month copper was up 1.6 per cent at $US7,029 a metric ton, its highest close since June 17.
•Aluminum was up 1.2 per cent at $US1,847.50 a ton.

How we fared yesterday

The Australian sharemarket closed at its highest levels in two months due to strong gains in the mining and energy sectors.

The benchmark S&P/ASX200 index was up 29.8 points, or 0.6 per cent, at 5,001.9. The broader All Ordinaries index was up 29.5 points, or 0.59 per cent, at 4,988.9. The S&P/ASX200 index closed above 5,000 points for the first time since May 23.

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TODAY’S FINANCIAL CALENDAR:

•(EZ) - consumer confidence, Jul
•(US) - FHFA house price index, May
•(US) - Richmond Fed mfg index, Jul
•(FMG) - quarterly production report
•(KRC) - EGM
•(LSX) - EGM
•(MBN) - quarterly production report
•(NKP) - EGM
•(OCP) - AGM
•(OSH) - quarterly production report

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THE OVERNIGHT REPORT: JUST OKAY

The Dow closed up one point, while the S&P gained 0.2% to 1695 and the Nasdaq added 0.3%.

The Aussie has been ping-ponging between the mid 91s and the mid 92s these past few sessions as Fed tapering confusion abates and focus turns more specifically towards China. This relative stability in the currency appears to have halted the great foreign sell-off for now and Friday’s move by the PBoC to remove the regulatory floor in non-mortgage lending by Chinese banks, which represents a minor form of stimulus, was enough to lift both the currency and the Australian stock market yesterday. The Aussie is up 0.7% to US$0.9254 since Friday’s close.

The ASX 200 managed to conquer its nemesis – the 5000 mark – yesterday but at a close of 5001 it is not yet convincing. A lot will depend on the upcoming corporate earnings season.

The US earnings season continues nevertheless and so far has been deemed “okay” against weak expectations. Of companies reporting to date an above average 72% have beaten earnings expectations, but a below average 50% have beaten on revenue. Net improvement in revenues is a goal that has eluded corporate America ever since the GFC. Last night McDonalds posted a weak result and offered subdued guidance, and a 2.7% fall in MCD shares dragged down the Dow.

After the bell the great success story of 2013 – Netflix, which has seen its shares rally 180% year to date – posted a result that also disappointed a no doubt optimistic market. Its shares are down 5.7% in the aftermarket.

There was also disappointment on the economic data front, with US existing home sales falling 1.2% in June when a rise of 1.9% was expected. The average house price is nevertheless up 13.5% year on year and inventories are down 7.6%, suggesting one weak month will not upset the general trend of an improving US housing market.

The Chicago Fed national activity index showed improvement, rising to minus 0.13 in June from minus 0.29 in May. A negative number still indicates contraction, putting the national result at odds with last week’s strong numbers from the New York and Philly Feds. Tomorrow night brings a flash estimate of the national July manufacturing PMI.

If the abatement of Fed taper-talk has settled the Aussie the other side of that equation is the US dollar, which for now has stopped rising and last night responded to the weak home sales data. The dollar index is down 0.5% to 82.22. I suggested yesterday that gold looked like it was keen to breach 1300 and it did so last night in fine fashion, rising US$39.50 to US$1335.80/oz.

Turnover on the LME remained subdued ahead of tomorrow’s round of manufacturing PMIs, which includes China. In thin trade the weaker greenback helped copper and aluminium to 1% gains, while the other metals were mixed. The Brent-WTI spread briefly kissed parity for the first time in four years last night and then immediately widened once more, with both now trading September delivery front months. Brent closed up US8c to US$108.15/bbl and West Texas closed down US1.17 to US$106.70/bbl.

Spot iron ore ticked down another US20c to US$131.50/t.
The SPI Overnight rose 14 points, or 0.3%. Can we sustain an ASX 200 level over 5000 today?

A quarterly production report due from Fortescue Metals (FMG) today might help decide. Reports are also due from Mirabela Nickel (MBN) and Oil Search (OSH).

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BROKER ALERTS (1 x GRY, 1 x PRU, 1 x SLR)
Not many standout alerts today.

Macquarie rates GRY as Downgrade to Underperform from Neutral (5) -

The rating has been downgraded to Underperform from Neutral and the price target reduced to 30c from 40c.

Gryphon will require capital to develop Banfora but Macquarie does not think it will require additional capital in the next 12 months. Gryphon has received indicative proposals from a significant number of international banks and financial institutions to provide project debt, as part of the overall financing package for the development of the Banfora project. As well, the company is evaluating funding options from export credit agencies and multi-lateral parties.

Target price is $0.30 Current Price is $0.16 Difference: $0.145

If GRY meets the Macquarie target it will return approximately 94% (excluding dividends, fees and charges).
The company's fiscal year ends in June. Macquarie forecasts a full year FY13 dividend of 0.00 cents and EPS of minus 1.50 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 10.33.

Market Sentiment: 0.5

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Macquarie rates PRU as Downgrade to Underperform from Neutral (5) -

The rating has been downgraded to Underperform from Neutral and the price target reduced to 60c from $1.00.

Macquarie believes the current gold price environment has brought into question Perseus' ability to fund the development of Sissingue. The broker does not expect Perseus to draw down debt while the project is on hold. Nevertheless, the decision indefinitely defers the growth profile for the company.

Target price is $0.60 Current Price is $0.64 Difference: minus $0.035 (current price is over target).

If PRU meets the Macquarie target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. Macquarie forecasts a full year FY13 dividend of 0.00 cents and EPS of 8.60 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 7.38.

Market Sentiment: 0.0

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Macquarie rates SLR as Downgrade to Neutral from Outperform (3) -

The rating has been downgraded to Neutral from Outperform and the price target is reduced to $1.20 from $1.80.

The company has delayed the development of the Causton underground at its Murchison project by about a year and will continue to process ore from open pits and existing stockpiles. The resulting decrease in grade has meant Macquarie is reducing annual forecasts by around 30,000 ozs. Deferral of capital in the short term is seen as a positive, but to justify investment in Murchison the capital will be required in coming years.

Target price is $1.20 Current Price is $0.84 Difference: $0.365

If SLR meets the Macquarie target it will return approximately 44% (excluding dividends, fees and charges).
The company's fiscal year ends in June. Macquarie forecasts a full year FY13 dividend of 0.00 cents and EPS of 9.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.28.

Market Sentiment: 0.3

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A few charts along with the ASX 200 finding resistance, China tests support:

The ASX 200 is consolidating in a narrow band below resistance at 5000 — a bullish sign suggesting a test of the May peak at 5250. Highs of 5000 in 2010 and 2011 give this level additional significance and breakout would indicate an advance to 5850. Follow-through above 5250 would confirm. Reversal below 4850 is unlikely, but would warn of another test of primary support at 4650.

Target calculation: 5250 + ( 5250 – 4650 ) = 5850

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China’s Shanghai Composite Index continues to test long-term support at 1950. Breakout would signal a primary decline, with a target of the 2008 low at 1660. Respect of 1950 is unlikely, but would indicate a rally to 2150.

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Japan’s Nikkei 225 found resistance at 15000, but the primary trend is upward and retracement that respects the rising trendline would suggest another advance. Follow-through above 15000 would test the earlier high at 16000.

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Short candles on the S&P 500 indicate some opposition, but breakout above resistance at 1675 suggests an advance to 1800. Follow-through above 1700 would strengthen the signal with a healthy up-trend. Reversal below 1650 is unlikely, but would warn of another test of primary support at 1560.

Target calculation: 1680 + ( 1680 - 1560 ) = 1800

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The VIX below 15 suggests low market risk.

Apologies in advance if today's afternoon wrap came out to be too long. A lot to report on today.

Appreciate the understanding. Enjoy the bull run today and make the most of it!

Eric :)