Afternoon Report / Market roars early, fades late (FMG, BHP, IPL)

By Market Matters 02 April 19

Market roars early, fades late (FMG, BHP, IPL)

Market Matters Afternoon Report 2nd April 2019

WHAT MATTERED TODAY

Aussie stocks were bullish early thanks to strength overseas – resources the main driver early on pushing the index up to a 6270 high  - smack on the high we saw on 7th March before the market pulled back ~150pts. Those same jitters seemed to kick in today with the ASX 200 dropping 33points after the lunchtime high before tracking sideways into the close. Tech stocks also had a day in the sun with AfterPay Touch (APT) trading at an all-time high ($23.40 close), ditto for Z1P Money (Z1P) which closed at $1.87 and Xero  (XRO) which is closing in on its all-time high of $52.58

A lot of domestic data out today with Building Approvals better than expected, the RBA kept rates on hold at 1.5% and of course we get the Federal Budget out tonight.  

 

Overall today, the ASX 200 added  +25 points or +0.41% to 6242. Dow Futures are trading down -22pts / -0.11%

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

RBA kept rates on hold at 1.50% as expected,  the AUD copped some selling as a result and settled the day back below the 71c handle.

Aussie Dollar

BHP -0.05% down smalls today after hitting an early high of $39.40. the Big Australian saying the recent Cyclone will impact Iron Ore production by 6-8mtpa which obviously adds to the supply issues from rivals RIO which said supply would be -14mpta plus of course Vale has the longer term issues impacting supply by around 40mpta for the next 2-3 years. All in all, this makes for a tight Iron Ore market and today we saw RIO hit the $100 handle – the first time since the GFC.

Rio Tinto (RIO) Chart

 

Fortescue (FMG) +2.96% was also out today with some positive news saying it would move ahead with stage 2 for the joint venture at Iron Bridge. The project will deliver a higher grade iron ore than Fortescue is used to, to be blended with existing product to ultimately  sell a 60% blend  – above FMGs 57%, but still below the market standard 62% grade, although ore will be produced at a grade as high as 67% out of Iron Bridge. The project will require around $US 2.6b of investment, with Fortescue up for the bulk of the capital. This was a plan devised when the discount for FMG Ore was sitting around 40% and FMG were in the cross hairs of Asian Shorter’s…Today FMG hit a high of $7.86, before closing at $7.65

Fortescue Metals (FMG) Chart

The fertilizer supplier Incitec Pivot (IPL), -2.85%, slumped today after confirming another hit to earnings as well as plans to combine two Victorian facilities for a cost of $13m. They have been under pressure the past few months with both ends of the weather spectrum impacting earnings. The Queensland floods in February is set to cause a $100-$120m hit to earnings with rail lines curbing product distribution, while the company today flagged another $20m hit coming from dry weather dragging demand. Sales will come in around 200,000 tonnes lighter than the year before when the company announces full year results in late May. We like agriculture stocks into weather related weakness, and like Incitec’s proactive response in cutting costs with the factory merger which will help earnings in the medium term.

Incitec Pivot (IPL) Chart

 

Broker Moves:

·         Fortescue Upgraded to Hold at Deutsche Bank

·         Harvey Norman Downgraded to Sell at Morningstar

·         Platinum Asset Upgraded to Neutral at Credit Suisse; PT A$4.70

·         Magellan Financial Cut to Neutral at Credit Suisse; PT A$35

OUR CALLS

No changes today 

Have a great night

James / Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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