We appeared on Sky Business “Market Moves” last Tuesday 5:30 pm with Liz Tilley and look to do more works with the network, alongside with SBS, 2CR, AFR and other media group.
Weekly Wrap (RBS Morgans)
The Aussie market eased lower throughout the week with defensive sectors holding their ground while the cyclicals and resources generally weakened. Asian markets outperformed their US counterparts with conflicting economic data and corporate earnings from both regions. We suffered a real slowdown in momentum to finish down 2.2% for the week. Having said that, ASX 200 still up 2% in the month of October.
Chinese manufacturing activity showed signs of a recovery and expectations of additional support for asset prices from the Bank of Japan, helped support Asian markets whilst the US lead the declines on the back of disappointing corporate earnings.
European markets had a more volatile week with positive results from Nordic banks and Unilever NV offset by poor earnings results on both sides of the Atlantic.
In commodities, base metals were the worst performers this week with West Texas oil also lower. Gold remained relatively flat while iron ore prices hit US$120/t to support a recovery in some of iron ore miners. Meanwhile, price weakness in coal, our other major bulk commodity export, has been well publicised and has lead to series of profit downgrades and cautious outlook statements by many of our miners. Major producers such as Whitehaven Coal and Yancoal have been in the headlines for all the wrong reasons as corporate activity and a persistent squeeze of margins still affecting the sector.
In economic news, our Treasurer unveiled the worst kept secret in Federal politics, revising Budget revenue forecasts downward in FY13, mainly due to lower than expected company tax (A$2.3bn) and resource rent tax receipts (A$1.8bn).
Whilst this has inevitably lead to spending cuts, we expect only a minimal impact on the economy's performance over the next eight months and note the Government still expects the surplus to be 0.1% of GDP. Nonetheless, this puts the onus on the RBA to continue to support growth and downward pressure on the Australian dollar.
Another sector that has been in the spotlight this week has been mining services with the giant mining supplier Caterpillar slashing 2012 guidance and providing a very cautious outlook for near term revenue growth. Comments from Worsley Parsons and Bradken reiterate concerns that the recent slowdown has been perhaps deeper and faster than originally expected. We have seen weakness persist in the sector with many of our mining services stocks falling sharply.
Refreshingly, we heard from Bernie Ridgeway, Managing Director of Imdex who gave us a timely reminder that in his decades of experience in the industry these downturns are common and will continue to be seen in coming years. Importantly the long term fundamentals for these businesses remain intact and we believe good buying opportunities will emerge.
From our Option Desk
Position One: Sell NCM November $26 puts at 72 cents
Current Share Price: $26.16
Research Target Price: $25.92
NCM's Sept 2012 production numbers were slightly below the RBS analyst's expectations. The share price has retreated from the $30 mark in mid September to finish yesterday at just above $26.
Position Two: Sell ASX November $29.50 puts at 36 cents
Current Share Price: $29.73
Research Target Price: $30.25
Whilst cash equities and IPO activity remains weak, secondary market raisings are still running ahead of weak pcp numbers. At current levels the stock is yielding 6% fully franked.
Position Three: Buy/Write in WPL - Buy shares at $34.30 and Sell December $37.22 Calls at 14 cents
Current Share Price: $34.30
Research Target Price: $40.50
The WPL share price has been range trading between $33 and $36 since the start of August 2012. If assigned on the above position, the return (before trading costs) is roughly 8%.