** 19/01/11 - 8.09am - by James Gerrish**
Overseas markets were stronger last night with the DOW JONES up +50 points or +0.43% to 11837 (new 2 year high) while in London the FTSE 100 added +70 points or +1.18% to close at 6056. Commodities were higher, the USD lower and there was some strong progress in discussions about a safety net for peripheral Europe.
All in all a pretty strong session with the exception of Citigroup and Apple in the US. Citigroup reported below expectation on an EPS level but it wasn't all bad. The company booked its first profit in more than 2 years, added employees and was optimistic about future prospects. The is a trend we're seeing with corporate America and I'm confident that this optimism will filter through to employment numbers as the year progresses. In respect to Apple, it was just a knee jerk reaction to CEO Steve Jobs heading off on medical leave.
We had a strong day yesterday on our market with Fortesque Metals (FMG) leading the charge after releasing a strong production report and confirmed plans for a massive expansion of its Iron Ore operations. In my 2011 Outlook report I touched on the massive bets both FMG and RIO are making on the growth in emerging markets though increased Iron Ore capacity. To give this some context, FMG currently exports about 55 million tonnes PA . RIO, the world’s second largest Iron Ore miner (behind Vale and ahead of BHP) exported a record 239 million tonnes in 2010. FMG has plans underway (fully funded and planning is well underway) to ramp up to 155 MT.
What ever way you look at it, these numbers a pretty staggering particularly when costs are sitting around $41.50 a tonne and average selling price is around $150. There is certainly a strong business case to get as much out of the ground as possible at these prices.
You may like to have a look at my Stockwatch presentation which was done Monday morning - I discuss a trade in FMG.
CLICK HERE
Looking at the Bond market, 10 year Treasuries were again higher pushing yields lower even as the US Government continues to buy Bonds through their QE2 program. This is another positive for equities short term - it seems pretty clear that Bonds are no longer in Vogue as risk of a double dip subsides, and equities are offering better returns. We're even seeing strong demand for Bonds issued by Greece, Portugal and Ireland - to me it shows a level of risk appetite on the table.
From a technical sense, the S&P/ASX 200 closed around that critical level of resistance yesterday finishing at 4801 - we're likely to see another move higher today and for mine it sets up a move towards 5000 in short order.
James Gerrish
(02) 9375 0117
