ASX 200 up +0.40% on the back of strong gains by the Materials sector. Global Central Bank monetary easing has proven to be a shot-in-the-arm for commodities as prices continued their strong run throughout the week. Given our strong bias towards the resource sector, Australian equities outperformed overseas markets with US markets relatively flat and Asian markets generally lower. Meanwhile the
US market near multi-year highs as positive housing data was offset by growth concern triggered by cautions comments from 'economic barometer' and international courier company FedEx.
The Shanghai market fell to a multi-year low, as investors remained concerned about the lacklustre growth in China following weak PMI manufacturing data and potential military tension between Japan and China over land title right of Senkaku (Diaoyu) Island (a 7 km tiny island with potential oil reserve underneath).
GOLD continued to perform strongly, nearing US$1,800 whilst iron ore bounced back sharply to around the US$110/t level. Meanwhile, Oil prices declined sharply after breaking through US$100/barrel last week as data showed higher U.S. inventories and Saudi Arabia, the world's biggest oil exporter, said it wants to see lower prices and will meet customer demand for its oil.
AUD/USD maintained a level around US$1.04 as commentators
called on the RBA to cut interest rates by a further 50 basis points by the end of the year. The persistently high AUD and softening in retail has led to increased pressure for the RBA to cut rates at their next Board meeting on October 2. Inflation figures remain in the RBA's target range with room to cut rates if the Board deems appropriate.
Weakness in retail was highlighted by David Jones' FY12 result, which showed net profits in the year to July dropped 39.9%. The retailer put a price target of $612m price tag on its four flagship Sydney and Melbourne CBD properties in an effort to reassure investors of the company's underlying asset value. Rip Curl Group was also the latest retailer targeted by private equity suitors following the recent bid and subsequent withdrawal for Billabong International. In a statement by founders and major shareholders, Doug Warbrick and Brian Singer indicated the "received unsolicited approaches from several international organisations which have indicated a desire to invest in our company".
Fortescue Metals rallied strongly during the week as the company managed to renegotiate terms with financiers on its debt facilities with no significant covenants, break fees or repayments until November 2015. The news wasn't so good for MacMahon Holdings after a major issue with a Rio Tinto contract caused a large profit downgrade and resignation of Managing Director Nick Bowen.
From our Option Desk, here are the three option ideas:
Position One: Sell NAB October $26.01 Puts at 56 cents
Current Share Price: $25.58
Research Target Price: $28.57
NAB will report their profit result on 31 October 2012 and trade ex-dividend on 10 November 2012.
The above position is a European option which ensures that early assignment cannot take place.
Position Two: Buy/Write in RIO - Buy shares at $53.97 and Sell November $58 Calls at 40 cents
Current Share Price: $53.97
Research Target Price: $96.54
The RIO share price was down 1.34% in London last night and about 2.7% in the USA....hence the shares should today trade lower than the suggested price in the above position.
Position Three: Sell WES October $36 Calls at 15 cents
Current Share Price: $34.41
Research Target Price: $30.06
This sold call is 5% out-of-the-money and if assigned gives a 5% return in 29 days.You may only wish to consider this position if the underlying is owned.
