Market Update & Important Indicators:
U.S. stocks were little changed as oil slipped from its two-week high. Trading has been relatively quiet the past few weeks, even as major U.S. indexes have hit records. The S&P 500 hasn't moved 1% in either direction since July 8. The broad index and the tech-heavy Nasdaq Composite had surged to record highs on Friday after a strong jobs report, but many analysts and traders said they expect stocks to largely drift along in the coming weeks, especially as earnings season winds down. Data has largely indicated that the U.S. economy is growing at a moderate pace, albeit with a few hiccups. Productivity, measured as the output of goods and services produced by American workers per hour worked, decreased at a seasonally adjusted annual rate of 0.5% in the second quarter, the Labor Department said Tuesday. It marked the third consecutive quarter that productivity has fallen.
European stocks rose, with the benchmark index rallying to a post-Brexit high and German's DAX 30 entering bull-market territory, after a round of upbeat earnings lifted sentiment. The Stoxx Europe 600 picked up 0.9% to end at 344.67, its highest close since June 23. A gain on Tuesday marked the gauge's fifth in a row, the longest string of gains since early July. The U.K's FTSE 100 rose 0.6% to 6,851.30.
Asian shares were broadly higher Tuesday, lifted by a surge in U.S. oil prices and upbeat data from China. The Nikkei Stock Average added 0.7%, while South Korea's Kospi gained 0.6%. The Shanghai Composite Index climbed 0.7%, though Hong Kong's Hang Seng Index retreated 0.1%. China's producer price index, which measures prices at the factory gate, declined 1.7% in July from a year earlier, compared with a 2.6% on-year drop in June. That was a better result than economists had expected, and suggested the declines in producer prices may be bottoming out, after lingering in deflationary territory for over four years. Earlier in the day, news that the Organization of the Petroleum Exporting Countries planned to hold informal talks in September, possibly leading to production cuts, pushed U.S. oil prices up 2.9% to US$43.02 a barrel on Monday, though prices retreated in Asian trade.
Bank and energy stocks drove Australia's equity market to a modest gain Tuesday, as earnings season gathered momentum and oil prices surged. Rising for a fourth straight session, the S&P/ASX 200 added 14.7 points, or 0.3%, to finish at 5552.5. The basket of financial shares rose 1% and the energy subindex was up 0.9%, as crude prices rallied on fresh hopes that members of the Organization of the Petroleum Exporting Countries will consider a supply freeze during informal talks.
Copper prices closed lower amid concerns about the health of the Chinese economy. The London Metal Exchange's three-month copper contract settled 0.6% lower at $4,799/t at the PM kerb close on Tuesday. Other base metals were mixed. Aluminium was down 0.1% at $1,629/t, zinc was down 0.2% at $2,270/t, nickel was up 0.1% at $10,735/t, lead was up 0.8% at $1,795/t, and tin was up 0.6% at $18,408/t.
In this Issue:
GR Engineering (GNG) | Pipeline Potential | HOLD
Market cap $245m | Current Price $1.60 | Valuation $1.45
Updated FY16 guidance for EBITDA of $25.5-26.0m is ~20% higher than expected and confirms GNG’s strong performance of late. We don’t think it’s about to end, and a large opportunity pipeline provides upside to FY17 and FY18 forecasts. However, recognising that a pipeline needs conversion and a share price that has more than doubled this year, we change our call to hold (prior buy) pending tender outcomes in coming months. Our positive view of the business is unchanged; in the limited-visibility EPC contracting space, winning work requires a strong balance sheet and a well-regarded management team.
Kibaran Resources (KNL) | 100% of production in offtake | SPEC BUY
Market cap $54m | Current Price $0.29 | Valuation $0.45
Kibaran Resources (KNL) announced a binding agreement with Sojitz Corporation for the supply of a minimum 14ktpa of graphite products into Asian markets. KNL has now committed 100% of forecast production to binding offtake agreements. More importantly, these agreements are with dominant distributers in growing non-China Asian and European markets. Debt financing is well underway and development is expected to commence early-2017. Argonaut assigns a Speculative Buy recommendation with a $0.45 target price.
Recent Contacts & Presentations:
AngloGold Ashanti (AGG), Blackham Resources (BLK), Doray Minerals (DRM), Sandfire Resources (SFR), Gold Fields Australia (NYSE: GFI), Heron Resources (HRR), Gascoyne Resources (GCY), Vimy Resources (VMY), West African Resources (WAF), Dacian Gold (DCN), Pilbara Minerals (PLS), Independence Group (IGO), Rio Tinto (RIO), Silver Lake Resources (SLR), Lynas Corporation (LYC), Evolution Mining (EVN), Regis Resources (RRL), Xanadu Mines (XAM), Mincor Resources NL (MCR) , Carbine Resources Ltd (CRB), Antipa Minerals (AZY), Energia Minerals Ltd (EMX), Pantoro Limited (PNR), Boss Resources Ltd (BOE), Metro Mining Ltd (MMI), Metal Bank Ltd (MBK), Actinogen Medical (ACW)
Please read Argonaut's Important Disclaimers & disclosures
