Afternoon Report / Markets down but rally from lows (FMG, NCM)

By Market Matters 14 May 19

Markets down but rally from lows (FMG, NCM)

Market Matters Afternoon Report 14th May 2019

WHAT MATTERED TODAY

US markets were hit hard overnight, the Dow Jones down ~700pts at the worst while the tech stocks were hit harder – the Nasdaq down nearly ~3.50% on the session thanks to Chinese retaliation to US tariffs. It was always going to be a tough open locally, futures were down -54points which seemed undercooked and that proved to be the case as the market quickly sold off to a 10.45am low, down ~97point  / 6239 low. From then on though, buyers stepped up and the index moved higher into the after, eventually finishing about mid-range of the day.

US Futures moved higher, Asian markets were down but traded up from their lows and the early morning volatility petered out into the afternoon session.  Material stocks held up well led by Fortescue Metals (FMG) after it announced a big special dividend while financials were the weakest link.  The sell in May bears have their claws out and certainly won the argument today – although not emphatically.    

Overall today, the ASX 200 lost -57 points or -0.92% to 6239. Dow Futures are trading up 106pts / +0.42%.

ASX 200 Chart – hit hard early but recovered

ASX 200 Chart

CATCHING OUR EYE;

Fortescue Metals (FMG) +7.44%  big mover today thanks to a surprise dividend of A60cps announced this afternoon – it equates to a A$1.85 billion payout to be paid June 14 – meaning the dividend will be paid and franking benefit received this financial year.  It will take the payout this FY to A90c + FMG has guided to paying between 50-80% of post tax earnings as dividends into the future, meaning that if the Iron ore price remains high then more big payouts are likely – FMG the cash cow. I spoke about FMG and the mining sector last week in a video with Peter O’Connor - the No 1 ranked FMG analyst. Click here to view

Fortescue Metals (FMG) Chart

Gold stocks  rallied today across the board as the save haven sees some buying on US/China trade tensions.  Gold should perform well in this environment on safe haven buying but also as an inflationary hedge, since tariffs are ultimately inflationary. The other areas of safety are low volatility assets such as bonds and defensive shares but valuations here are high hence it’s easy to see gold move higher.

Newcrest Mining (NCM) Chart

Broker moves:

·         Integral Diagnostics Upgraded to Buy at Ord Minnett; PT A$3.30

·         New Hope Upgraded to Outperform at Credit Suisse; PT A$3.50

·         Ansell Downgraded to Hold at Deutsche Bank; PT Set to A$27.19

·         Fortescue Upgraded to Outperform at Credit Suisse; PT A$8.20

·         Liquefied Natural Gas Rated New Buy at Gabelli

·         Sims Metal Cut to Equal-weight at Morgan Stanley; PT A$10.50

·         CBA Downgraded to Hold at Morgans Financial; PT A$74

·         CBA Downgraded to Hold at Shaw and Partners; PT A$73

·         Reliance Worldwide Cut to Hold at Morgans Financial; PT A$3.94

·         SIG Combibloc Upgraded to Buy at UBS

·         CYBG Upgraded to Buy at Investec

Here’s the rundown of CBA calls post update

Source; Bloomberg

OUR CALLS

We bought MQG & ILU in the Platinum Portfolio and added Rio Tinto (RIO) to the Income Portfolio.

Have a great night

James & 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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