Optimism for RIO short lived following production numbers
Apologies for the late report we had technical difficulties earlier.
What Mattered Today
A weak session today with broad based selling pushing all sectors into the red. Initial optimism in the resource space following RIO Tinto’s Q4 production numbers was short lived and we saw a reversal into the close. We had a range of +/- 53 points, a high of 5748, a low of 5695 and a close of 5699, off -49pts or -0.85%. Volume was still low with less than $4bn going through the equity market.
ASX 200 Intra-Day Chart
ASX 200 Daily chart
In terms of production, RIO came in a tad ahead of expectations with Iron Ore from WA coming in at 87.7Mt, up 7% for the year – above the 86.8Mt expected. Others areas of the business performed strongly with the exception of Copper and Diamonds which were a slight miss. That prompted early buying and the stock traded higher during the morning session, pushing through $64.00 where we took a nice 25% profit on our short term options position – more on that below.
From around 11.15am the stock lost momentum and dropped more than $1from its highs. The issue seems to be the average price achieved on RIO’s ore for the period. Some analysts were factoring in around ~56 /t while they came in around $53.60/t. That’s worth around +$900m or about 3% of group revenue. There is little doubt that RIO will deliver a strong full year result on the 8th February when they report, but the stock has now run hard and this optimism may well be built in.For short term holders as we were in this instance, RIO and BHP gave sell signals today after trading at marginal new highs and failing.
Rio Tinto (RIO) Daily Chart
Elsewhere, some of the stocks we covered in the morning report today fell into BUY zones yet we didn’t pull the trigger – Why?
We wrote about Henderson Group (HGG) this morning, suggesting a buy around $3.75, with the stock making a low today of $3.76 before closing at $3.81. BT Investment Management (BTT) was also covered this morning as a buy below $10 with the stock trading down to $9.83 before recovering to close at $10.10. We did not buy these two stocks given the uncertainty ahead of Theresa Mays’ speech this evening which could have a large impact on the British Pound. Ideally, we would like to see the pound trade down to 1.18 v the USD , making a marginal new low which would confirm the buy trigger for HGG and potentially BTT. Just as RIO and BHP made marginal new highs today and failed delivering a short term bearish signal, watch the pound to make a marginal new low triggering a buy signal.
The market has now become tricky in the short term, and lower levels seem likely if resources crack lower. In terms of our portfolio, we simply didn’t have the desire to buy anything today and feel that keeping cash levels high (31%) will we worthwhile in the not too distant future – opportunities will present themselves but as we’ve suggested, remain open minded and flexible.
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ASX 200 Movers
What Matters Overseas
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