Afternoon Report / Markets edge higher on better China – US trade rhetoric (FMG, SM1, ISX)

By Market Matters 12 September 19

Markets edge higher on better China – US trade rhetoric (FMG, SM1, ISX)

Market Matters Afternoon Report 12th September 2019


The market was set to open around ~20pts higher this morning thanks to positive leads overseas, however that move was out played when US Futures put on another ~0.50% underpinning a +45pt move for our market on open. News breaking from both China and the US that implied a more conciliatory tone for the upcoming trade negotiations underpinned the move, China saying they may allow companies to resume purchases of U.S. agricultural products in a show of goodwill ahead of the  talks while President Trump said he was postponing the imposition of 5% extra tariffs on Chinese goods by two weeks.

That sets up a more positive backdrop (for now at least) to this round of negotiations at a time when President Trump’s approval rating has fallen below 40% amid growing concerns about the US economy -  around 60% of Americans now believe a recession is very likely hence the volatile President needs to resolve US – China trade sooner rather than later to kick start his 2020 election campaign. I would have thought the positive backdrop today would have seen our market higher than it was – it struggled to rally on good news implying it’s losing steam.

The other obvious influence on our market today came from the Aussie Dollar which traded up to a 6 week high setting around US68.81c. A resolution of the China/US trade spat should be positive for the local currency. We remain controversy bullish the AUD at current levels believing the consensus / crowded short AUD trade has seen its best days.

Aussie Dollar Chart

Overall, the ASX 200 was up +16pts today or 0.25% to 6654, Dow Futures are now trading up +88pts/0.33%.

ASX 200 Chart – a weak performance overall today

ASX 200 Chart


Fortescue Metals (FMG) +2.74%: Traded up through the $9 handle today as Iron Ore prices edged higher, although FMG the big outperformer in the sector when considering RIO +0.63% and BHP  +0.14%, although the latter was weighed down by its Oil exposure.

Fortescue Metals (FMG) Chart

Synlait Milk (SM1) -11.99%; the New Zealand based dairy processing and products company, a new addition to the S&P/ASX 300 index, has seen its shares tumble today on a soft full year report that missed at the profit line by more than 6%.  A small miss on the revenue line was exacerbated at the bottom line as margins were compressed on both sides of the equation. Costs moved higher, with overheads up over 14% as the company focusses on R&D and increase headcount ahead of new facilities coming online. On the price received side, the average milk price per kgMS fell 3% in the year and would have been worse if not for an increase in incentive payments.

The outlook statements for SM1 were behind consensus as well. The company is looking for “profitability increasing at least at a similar rate to that of FY19” which suggests at least 10% profit growth to get $NZ 90.4m, well below current FY20 expectations of $NZ 104m. The company is doing reasonably well in an effort to drive growth. They have a new facility that is set to open in a matter of weeks while launching a few new products late in FY19. Milk prices have also recovered, with spot prices above last year’s average, closer to $7/kgMS. Still we see more pain before a recovery here.

Synlait (SM1) Chart


Isignthis (ISX) -34.04%: Hit hard today on what we hear is the issuance of a substantial number of performance rights. This has been a momentum favourite and today it took a massive hit as momentum players scrambled for the exits. No news from the company today however expect the ASX  to ask the question about today’s move…more to come on this one no doubt.

Isignthis (ISX) Chart


Broker moves;

·         EVN AU: Evolution Upgraded to Neutral at Citi

·         NCM AU: Newcrest Upgraded to Neutral at Citi

·         NST AU: Northern Star Upgraded to Buy at Citi

·         OGC CN: OceanaGold Upgraded to Buy at Citi

·         RRL AU: Regis Resources Upgraded to Neutral at Citi

·         SAR AU: Saracen Mineral Raised to Outperform at RBC; Price Target A$3.75; Upgraded to Neutral at Citi

·         SBM AU: St Barbara Upgraded to Neutral at Citi


No changes today, although some good moves in portfolio stocks including JHG +3.67%, DMP +3.87%, CSR +2.69% and FMG +2.74%

Major Movers Today

Have a great night

James, Harry & the Market Matters Team


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