Sell strength – buy weakness, the mantra continues (FMG, NCM, SGR) ** BHP.LN, JPM.US, IEM, COPX. US, BNKS**
WHAT MATTERED TODAY
As one of the traders we deal with said today, same old deal, buy weakness and sell strength….he must read the MM daily note! Early strength at the index level was ultimately sold into and the market trickled down into the close. Energy the standout sector today after crude bounced overnight – Santos (STO) broke to the upside and now looks bullish - our previous downside target not reached, while Woodside (WPL) also had a day in the sun rallying +2.36% - both look good here. Stock options expiry today so a busy one on the desk + I’m trying to make sailing tonight, hence a brief note today.
Overall, the ASX 200 closed +20pts higher today to 6693, Dow Futures are trading down -3pts/-0.01%.
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE;
Fortescue (FMG) +0.46%; up today, but more or less in line with the market. They were out with their 1st quarter production numbers before market which saw iron ore output up 5% with C1 costs coming in at $US12.95/wmt, well below the guidance range. The great deleveraging story continues with net debt down to just $500m, and even with a tax bill and dividend coming in the next quarter, Fortescue is well below their leverage targets.
Tightness in the iron ore market has helped squeeze the discount FMG takes for their lower grade ore down to an average of 11% for the quarter vs the peak at ~44% back in January 2018. All in all a good set of numbers with guidance maintained, and FMG rallied strongly early before giving back the bulk of the gains as the session rolled on. We own FMG in the Growth Portfolio.
Fortescue Metals (FMG) Chart
Newcrest Mining (NCM) -1.6% : Another tough day for NCM after their 1Q production numbers were a touch light on. Gold production was 511,636 ounces (about a 14% miss v mkt expectations) due to a change in the processing method at Telfer and an extended shutdown at Cadia. 1Q marked the lowest quarterly output in a year. Lower grades also had an impact and saw higher costs for the period. All-in sustaining costs (AISC) surged to $899 an ounce vs. the market's expected $790. Copper also a slight miss however offsetting these was increased FY20 production guidance for gold and copper by 1.5% and 19%, respectively, to 2.38-2.54 million ounces of gold and 130,000-145,000 tons of copper. We own NCM, although it’s starting to test our patience
Newcrest Mining (NCM) Chart
Star Entertainment (SGR) & JB Hi-Fi (JBH) both had good sessions up +5.38% & +6.77% respectively while Qantas (QAN) was down on the back of weakness from Hong Kong riots and the trade war, the flying Kangaroo off -3.68%. Star now broken out and looks good here with the Casino operator saying that revenue was up +1.5% in the first half so far plus they talked about $45m of cost outs.
JBH hit a record high despite all the gloom around retail – seems peeps are still buying electrical goods. They reaffirmed FY20 guidance - as the 8th most short stock on the ASX, this strength could last longer.
Star Entertainment (SGR) Chart
Broker moves;
· Fortescue Cut to Sell at Morningstar
· Bendigo & Adelaide Rated New Underperform at Jefferies
· Mercury NZ Raised to Hold at Deutsche Bank; PT NZD4.54
· Genesis Energy Raised to Hold at Deutsche Bank; PT NZD2.83
OUR CALLS
We are allocating further capital into both the MM International Equities Portfolio, and the MM Global ETF Portfolio.
**International Equities**
We are buying BHP, however buying on the London Stock Exchange to get the benefit of any British Pound Strength. Obviously buying in Australia is also relevant & clearly easier for the majority.
BHP Group PLC (BHP.LN) Chart
We are also increasing our exposure to US banks through the purchase of JP Morgan in the US
JP Morgan Chase (JPM US) Chart
**Global ETF**
A fair bit happening here to better align this portfolio with a global macro views
We are looking for Emerging Markets to outperform US markets as $US weakness prevails, as such we’re buying the IEM which is listed on the ASX
iShares Emerging Markets ETF (IEM) Chart
We are bullish copper into 2020 with our preferred way of investing around this view via the Global X Copper Miners ETF (COPX US) listed in the US. For more information on this ETF go to: https://www.globalxetfs.com/funds/copx/
Global X Copper Miners ETF (COPX US) Chart
We are keen on the banking sector into 2020, a sector which enjoys rising margins as interest rates and reflation rise. Our preferred ETF for global banks’ exposure is the BetaShares Global banks ETF (BNKS) which is listed in Australia and is currency hedged : https://www.betashares.com.au/fund/global-banks-etf-currency-hedged/
BetaShares Global Bank ETF (BNKS) Chart
Lastly we feel our “anti” growth opinion can be best played through going short the US NASDAQ. Our preferred ETF for a short exposure to the NASDAQ is the ProShares short QQQ ETF (PSQ US) : https://www.etf.com/PSQ
PSQ. US Index Chart
Major Movers Today
Have a great night
James, Harry & the Market Matters Team
Disclosure
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.
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