Morning Notes

14/02/2018 Argonaut Morning Note

Market Update & Important Indicators
Major U.S. stock indexes edged slightly higher intraday, rising for a third consecutive session, though investors remained on edge ahead of a key report on inflation. The Dow Jones Industrial Average fell as much as 180 points earlier in the session before giving up those losses to eke out a slight gain later in the day. Despite the intraday swing, investors appeared to avoid making any drastic trades ahead of Wednesday's Bureau of Labor Statistics report on consumer prices. Further evidence of inflation will likely prolong the market selloff, similar to how strong wage growth in January pressured U.S. bonds ahead of last week's correction, analysts added. The Dow industrials rose 39 points, or 0.2%, to 24640 in afternoon trading, while the S&P 500 added 0.3%. The Nasdaq Composite climbed 0.4%. The dollar slid intraday, as some investors locked in profits on the U.S. currency a day ahead of key economic data. The Wall Street Journal Dollar Index, which measures the U.S. currency against a basket of 16 others, was recently down 0.5% to 83.66. The U.S. gold price traded higher overnight, gaining another 0.5% to finish at 1,329.30 US$/oz.

European stocks fell, as advances for mining and travel shares weren't enough to guide the market toward a second consecutive win. The Stoxx Europe 600 index shed 0.1% to 372.62, with the telecom and technology groups losing the most. But the basic materials and consumer services sectors were moving higher. On Monday, the benchmark climbed 1.2%, the first win in three sessions. Germany's DAX 30 index fell 0.3% to 12,245.82, and France's CAC 40 index slipped 0.1% to 5,132.10. The U.K.'s FTSE 100 was up 0.2% to 7,191.24.

The global rebound for stocks continued as Asian markets rose broadly once again, though gains eased as afternoon trading progressed. The pullback in gains was most pronounced in Japan, where the Nikkei Stock Average went from finishing morning trading up 1.3% to finishing the day down 0.6% as the yen saw an afternoon rally following stable trading throughout the morning. Hong Kong's Hang Seng Index rose to 1.3% after dropping nine of the past 11 trading days. The Shanghai Composite Index rose 1%. Stock indexes were up at least 0.5% in much of Asia excluding Japan and a few small Southeast Asian markets, where gains were no more than 0.2%.

Miners helped drive a broad recovery in Australian stocks. Shares finished near session highs as the S&P/ASX 200 rose 0.6% to 5855.9 after Monday's fresh four-month low. With a modest rise in Chinese iron-ore futures, BHP Billiton and Rio Tinto each gained more than 1%. The major banks also climbed, led by Commonwealth Bank's 0.6% advance after recent underperformance. But energy stocks fell further following the overnight retreat in oil prices that's been partially reversed in Asian trading. Woodside shed 0.7% ahead of its 2017 results Wednesday.

The London Metal Exchange’s 3-month copper contract traded higher overnight, jumping 2.3% to close at $6,988/t. The other base metals also finished higher. Aluminium prices traded 0.5% stronger at $2,132/t, while lead prices added 1.9% to close at $2,565/t. Zinc prices rose 2.5% to $3,493/t, while Tin prices bounced 1.9% to $21,588/t. Nickel prices were strongest, closing 2.7% higher at $13,408/t.

In this issue
Global Construction (GCS) | Combustible Cladding: Slow Burn | BUY
Market Cap $167m | Current Price $0.79 | Valuation $1.05

We previously highlighted the widespread combustible cladding issue, the scale of which is now coming to light. Initial audits indicate thousands of buildings across Australia will likely be impacted. What is clear is the sheer scale of the problem, what isn’t yet clear is the timing and costs of necessary rectification. With the involvement of lawyers and governments any replacement will likely be a slow burn. We expect the issue to unravel over a number of years as the blame-game plays out in the courts. Immediate action will be focussed on high-risk buildings such as hospitals; already we are seeing the Queensland Government take action at Brisbane’s Princess Alexandra Hospital and Lendlease (ASX:LLC) footing the bill for cladding replacement at Melbourne’s Royal Women’s Hospital. We believe Global Construction (GCS) stands to benefit from combustible cladding replacement over the coming years as court battles play out and rectification is enforced.

Recent Contacts & Presentations
Primary Gold Ltd (PGO), Sino Gas & Energy Holdings Ltd (SEH), Australis Oil & Gas Ltd (ATS), Explaurum Ltd (EXU), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Melbana Energy Ltd (MAY), Genesis Minerals Ltd (GMD), Proteomics International Laboratories Ltd (PIQ), Ramelius Resources Ltd (RMS), MOD Resources Ltd (MOD), Greenland Minerals & Energy Ltd (GGG), Walkabout Resources Ltd (WKT), Marindi Metals Ltd (MZN), Volt Power Group Ltd (VPR), PharmAust Ltd (PAA), Alice Queen Ltd (AQX), Jervois Mining Ltd (JRV), St George Mining Ltd (SGQ), Overland Resources Ltd (OVR), Metro Mining Ltd (MMI), Botanix Pharmaceuticals Ltd (BOT), Xanadu Mines Ltd (XAM), Orthocell Ltd (OCC), Whitebark Energy Ltd (WBE)

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