Banks & Property Sold Off on Moody’s, but not Nickel!
The market opened ok, although it ignored the strong performance from overseas indices as investors / traders were clearly waiting to see the reaction to Moody’s downgrade of our banks. The market was fairly stable until the RBA minutes at 1130am where they also expressed concern over the risks around housing prices.
The selling slowly gathered momentum after lunch and suddenly the ASX200 was down a painful 47-points / 0.8%. The “big 4” banks were all hit with Westpac (WBC) the worst -1.85%, but the energy -1.75% and real estate sectors -1.95% certainly helped drag the overall market lower.
Most of today’s movements seemed to have been led by the SPI Futures. On the broader market today, the Consumer Discretionary sector led the way, while most weakness was felt in the Energy and Real Estate sector with an overall range of +/- 52 points, a high of 5809, ending the session at its low of 5757, off -47pts or -0.82%.
ASX200 Intra-day Chart
Even with US indices again making all-time highs last night, the Australian market again feels vulnerable to a typically poor close for June.
ASX200 Daily Chart
Two stocks stood out today amongst the general weakness, both of them in the Nickel space which we touched on in the Monday Morning Report. Western Areas (WSA) was up 9.5% and Independence Group (IGO) +4.3%.
There was important bullish news from Indonesia where 13 nickel smelters, including some still under construction, halted operations as the nickel price slumped below production costs - this should create a floor for the nickel price. Global supply is growing at only 3-4% p.a. so a market which is already in deficit should slowly see prices recover.
WSA is highly leveraged to the nickel price and has suffered recently accordingly. Following the Indonesian news buying by the brave looks likely to be rewarded medium-term but we would advocate leaving some ammunition to average if the stock does spike under $1.80.
Western Areas (WSA) Weekly Chart
IGO is clearly trading towards the lower end of its last few years and with nickel potentially reaching a low, it’s an interesting prospect for a company with a world class nickel asset, plus an excellent gold operation. The company should enter FY18 with some cash and no debt – impressively, 70% of Australian miners now have net cash.
Hence, IGO would make an excellent takeover target for anybody bullish on nickel, worth watching / considering.
Independence Group (IGO) Daily Chart
Have a great night,
The Market Matters Team.
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