Market Update & Important Indicators:
Declines in internet stocks dragged down the S&P 500 intraday as investors awaited updates on key trading relationships. Wednesday's stumble for technology shares came as Twitter Chief Executive Jack Dorsey and Facebook Chief Operating Officer Sheryl Sandberg testified in front of Congress about their platforms' handling of manipulation by foreign actors during the 2016 presidential election. Worries about heavier regulation have hung over the market's best-performing sector, and some investors are also anxious that tariffs will hurt trade-dependent internet firms. Those broader concerns about trade and the outlook for emerging markets have hurt major indexes lately, with some analysts expecting the U.S. to escalate tariffs on China this week. The S&P 500 dropped 0.3% and was on track for its third decline in the past four sessions, though it remains near an all-time high. The Dow Jones Industrial Average was recently up 23 points, or less than 0.1%, to 25971, while the tech-heavy Nasdaq Composite shed 1%. The US gold price was up 0.4%, to record 1,196.30 US$/oz.
European shares fell as trade tensions weighed on broader global sentiment. The Stoxx Europe 600 dropped 1.1%, or 4.15 points, to 375.68 while the euro gained 0.37% to $1.16. Italian banks advanced, with Banco BPM the sector's top riser, up 7.2%, on reports that Rome is considering setting a budget more in line with EU rules than previously expected. The DAX drops 1.4% and the CAC 40 falls 1.5%.
The Shanghai Composite fell 1.7% after a private gauge Wednesday showed that growth in activity in China's service sector slowed in August, in contrast with official data that pointed to a faster expansion in the sector. Hong Kong's Hang Seng fell 2.6%, led lower by the technology sector as index heavyweight Tencent Holdings dropped 4.1%. Japan's Nikkei Stock Average shed 0.5%, with travel-related companies and cosmetics makers leading declines amid worries about the impact of Typhoon Jebi on tourism, which had boosted cosmetic sales. One of Japan's largest airports, Kansai International, was closed indefinitely by damage.
Australian stocks steadied in the late afternoon, but not before logging some of the bigger declines in Asia Pacific amid a fresh lack of buying of equities in the region. The S&P/ASX 200 fell 1% to 6230.4, a fifth-straight decline to log a streak not seen since late May. It was also the biggest drop since March 23. The heavily weighted materials sector slid 2% today as commodity prices have been weak of late, notably in metals. Conversely, the energy sector only dropped 0.5% after yesterday's underperformance. Meanwhile, the Australian dollar's midday jumps on a stronger-than-expected second-quarter GDP increase faded by day's end. Equities, though, didn't react intraday to the upbeat economic reading in the wake of the region's stock selling.
Base metal prices were mixed overnight on the London Metal Exchange. Losses were recorded in lead which was down 1.6% to 2,032/t, along with nickel and tin, both down 0.2%. The 3-month copper contract advanced 1.0% to 5,854/t, as zinc and aluminium added 0.1% and 0.3% respectively.
In the news:
Orient Express | China Metallurgical Coal Supply Tightening
Coking coal prices started to pick up after a month-long weakness. Both Chinese and Australia FOB hard coking coal prices increased by ~3% since early August. The shut-down of some coal processing plants in Lvliang city of Shanxi Province to meet environmental protection standards worsened the supply of coking coal (particularly premium coking coal). Meanwhile, coke plants need to replenish their stockpile as downstream steel production remains strong. We expect domestic demand will trigger more coking coal imports and prices will rise further. Stocks under Argonaut coverage which should benefit from this event include Fushan (HL:639, Under Review) and Stanmore (ASX: SMR, BUY).
Swick (SWK) | Momentum | BUY
Market Cap $53m | Current Price $0.23 | Valuation $0.38
Drilling segment EBITDA of $19.1m was in line with the update in July. Key though, was the steady improvement in EBITDA margin through FY18 (from ~10% in Q1 to ~18% in Q4). This is moving toward the 20%+ margin we believe SWK needs to generate appropriate returns on assets and equity. It reflects a strategy to roll over contracts at higher prices and the discipline to walk away from clients unprepared to accept higher rates. We believe the Drilling business (blended valuation $0.32) more than supports the current price. We add another $0.06 for Orexplore to get a valuation of $0.38 (prior $0.37). BUY.
Recent Contacts & Presentations:
Dimerix (DXB), Aspire Mining (AKM), Austal Limited (ASB), Macmahon Holdings Limited (MAH), Nickle Mines Limited (NIC), Carnarvon Petroleum Limited (CVN), Prodigy Gold (PRX), Ausdrill Ltd (ASL), Bionomics Ltd (BNO), Gold Road Resources (GOR), Encounter Resources Ltd. (ENR), OZ Minerals Limited (OZL), Melbana Energy (MAY), Botanix Pharmaceuticals Ltd (BOT), Novo Litio (NLI), Classic Minerals (CLZ), OZ Minerals (OZL), Saturn Metals (STN), Antipa Minerals (AZY), SRG Ltd (SRG) Bowen Coking Coal (BCB), Birimian (BGS), Breaker Resources (BRB), Galena Mining (G1A), Valmec (VMX),Bryah Resources (BYH), Calima Energy (CE1) Genesis Minerals (GMD), Agrimin (AMN), Magnetic Resources (MAU), Core Exploration (CXO), Marindi Metals (MZN), MOD Resources (MOD), Santos (STO), Adriatic Metals (ADT) Bio–Gene Technology (BGT), Walkabout Resources (WKT), Triton Minerals (TON), Calima Energy (CE1)
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