IG - Morning Thoughts and Opening Calls

IG - Morning Thoughts and Opening Calls

The stabilisation in the commodities space has once more kept a lid on the panic and fear seen in markets during the flash capitulation of last week.

Gold has once more recovered some of the ground lost from last week, and has now risen for the fifth straight day (the longest rally of year) as physical and paper demand increases.

The other advantage coming for the ASX today is industrial metals and energy all performed well last night, with the oil price, copper, aluminium and nickel all stabilising somewhat. All have managing to latch onto their lows, move higher and hold the gains of the last three trading days. This should see energy and materials names holding at the current levels and even punch higher.

Iron ore continues to hold in the upper ends of the $130 to $140 a tonne band. When the big named broking houses made their bear calls on iron ore, they were expecting this to start taking effect at the end of April to the beginning of May. Their expectations were that China data would be poor, global uncertainly would rise and there would be an oversupply. This was expected to see the price plunge to US$120 and then fall all the way down to US$70 a tonne by the end of the year.

The China data has come in and it wasn’t good, but nor was it bad by any stretch of the imagination. Global financial unrest hasn’t really changed for five years now; investors and traders alike are used to it and the supply issues are still yet to materialise. Watch production guidance, listen to costs guidance and how CEOs are tackling it; watch for upside surprises.

With commodity prices holding their nerve, and copper, gold and iron ore headlining the stabilisation, the bounce of the last two trading days should continue due to the positive leads out of the US and Europe. The small to medium gold and copper stocks have seen investors returning to them despite the risks from the last week.

SFR is the one stock with exposure to all three headline commodities and has jumped up 16.2% at the close of business last night, with Medusa Mining close behind it with a rally of 12.7%. One stock we have been quite negative on is NCM, and we remain of this view in the long term view due to costs and production issues. However, there is no doubt it will bounce from the six and a half year lows, and it has moved up 7% since this low. NCM is due to release its quarterly production report today. Having downgraded output already this year and with costs rising, expectations for the results today are not high. A disappointing reading here may see this bounce reverse.

Ahead of the open, we are calling the ASX 200 up ten points to 4977 (+0.20%). Gold and copper stocks should find some support today on the back of the underlying commodities. However, if NCM disappoints as well as PNA (also reporting today) this may dampen the bounce in this sector. BHP fell back in London overnight, dropping 1.08%, and BHP’s ADR is suggesting the stock could shed 35 cents today and be down 1.11% to $31.37.

However, considering the mass sell-off from last week, sell volumes are starting to dwindle, and BHP may actually be able to hold above the full ADR call, as fundamentally it is cheap and all macro eyes turn to the HSBC flash manufacturing numbers. Expectations are low here, China is anticipated to expand modestly at best, and a beat to the upside could be the spark BHP needs.

We continue to watch the defensive plays - TLS has had a slight pull-back since punching up to a five year high of $4.90, returning to the resistance level of $4.76 at the end of the session yesterday; the question is will it hold this level? The banks are finding support as we head into reporting season with all eyes on dividend growth. Investors are banking on 15% to 20% growth, a healthy pull factor for the stocks.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

EVAN LUCAS
Market Strategist
www.igmarkets.com

ENDS

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