Morning Notes

14/11/2017 Argonaut Morning Note

Market Update & Important Indicators:

U.S. stock indexes inched higher Monday amid a flurry of corporate news. Reports on takeover bids and profit forecasts drove swings in shares of companies across the industrial, consumer-discretionary and technology sectors while leaving major indexes little changed. The Dow Jones Industrial Average edged up 0.1% to 23,440. The S&P 500 added 0.1% and the Nasdaq Composite rose 0.1%. Senate and House Republicans have released two different bills that diverge in some key areas, including the timing of a corporate tax cut. Hopes for tax cuts helped bank stocks, bond yields and the U.S. dollar jump after the November 2016 election, although many of those moves have faded this year as investors have contended with uncertainty around policy changes. Later this week, analysts say they will be eyeing addresses by central bank leaders, with European Central Bank President Mario Draghi and Federal Reserve Chairwoman Janet Yellen both set to speak Tuesday. Analysts will also be watching for the latest consumer-price index reading due Wednesday, which should shed light on the state of inflation with the Federal Reserve widely expected to increase rates in December. The U.S. gold price was mildly stronger overnight, rising 0.2% to finish at 1,277.4 US$/oz.

European stocks closed lower for a fifth straight session, after French utility Electricite de France issued a profit warning, and on concerns about Brexit weighing on growth prospects for the Eurozone. Markets also appeared rattled by uncertainty surrounding progress for a cut in U.S. taxes. The Stoxx Europe 600 fell 0.7% to end at 386.13 for its lowest close since Sept. 27, according to FactSet data. On Friday, the regional benchmark fell 0.4% and closed out last week by falling 1.8%, the biggest weekly percentage loss in three months. France's CAC 40 gave up 0.7% to end at 5,341.63, and Germany's DAX 30 index slipped 0.4% to finish at 13,074.42. The U.K.'s FTSE 100 fell 0.2% to end at 7,415.18.

In Asia, most major stock indexes logged declines, with Japanese stocks again underperforming after their gains of the past two months. After logging its biggest drop percentage-wise in two months Friday, the Nikkei Stock Average fell a further 1.3%. Monday's decline in Japan came despite a pullback in the yen. Earnings, which had been supporting the market, also clouded sentiment. In South Korea, the Kospi index closed down 0.5%, while Hong Kong's benchmark index got a boost from technology stocks. The Hang Seng Index was up 0.2%.

Gains by mining stocks weren't enough to offset two of Australia's big banks trading ex-dividend as the S&P/ASX 200 fell 0.1% to 6021.8 following a choppy session. ANZ and Westpac together knocked almost 17 points off the index as their stock prices were adjusted ahead of shareholder payouts. But BHP Billiton rose 0.8% and Rio Tinto added 1.1% following Friday's gains in iron-ore and coking-coal prices.

The London Metal Exchange’s 3-month copper contract traded higher Monday, rising 1.6% to finish at $6,895/t. The other base metals finished mixed. Aluminium prices rose 0.2% to 2,089/t, whilst tin prices gained 0.4% to 19,606/t. Nickel prices were the biggest mover as the metal gained support from gains in Chinese steel rebar futures, jumping 3.1% to 12,432/t. Losing ground was zinc which shed 0.8% to finish at 3,242/t. Lead prices remained steady at 2,514/t.

In this Issue:

Gold Sector | Time to rotate into the developers
Gold prices have fallen by 2% in AUD terms and 1.6% in USD terms during the September Q. Funds flow has been predominantly into grass roots explorers evident in the surge of the ASX Small Resources (XSR) index which has risen by 31% FY18 YTD vs the ASX Gold Index (XGD) up by +13% FY18YTD. Equity valuations in the mid-tier producers has become stretched and we struggle to identify significant value in the sector. Emerging developers have recorded only incremental gains which presents an opportunity for investors looking for companies that screen cheaply with a short timeline to production. Our key picks include RRL in the producers and DCN, GCY, GOR and WAF in the emerging developers.

Recent Contacts & Presentations:

Xanadu Mines Ltd (XAM), Orthocell Ltd (OCC), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Minotaur Exploration Ltd (MEP), Panoramic Resources Ltd (PAN), Sino Gas & Energy Holdings Ltd (SEH), Great Boulder Resources Ltd (GBR), Metallum Ltd (MNE), Gold Road Resources Ltd (GOR), Apollo Consolidated Ltd (AOP), De Grey Mining Ltd (DEG), Triton Minerals Ltd (TON), Evolution Mining Ltd (EVN), Silver Mines Ltd (SVL), NTM Gold Ltd (NTM), Gascoyne Resources Ltd (GCY), Southern Cross Electrical Ltd (SXE), MOD Resources Ltd (MOD), Meteoric Resources NL (MEI)

Please read Argonaut's Important Disclaimers & disclosures

Log in to the client area below to download the full Morning Note PDF

Argonaut Morning Note