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The Round Up
10 August 2010
Issue No. 384
Equities
Move Last % Move Range Volume
ASX 200 +28.8 4594.9 +0.6% -26 to +33 $4.3 bn(A)
SPI - yesterday +30.0 4559.0 +0.7% -47 to +37 27,626(A)
Dow Jones +45.2 10698.8 +0.4% -4 to +66 Low
S&P 500 +6.2 1127.8 +0.5% -1 to +8 Low
Nasdaq +17.2 2305.7 +0.8% +1 to +21 Low
FTSE +78.1 5410.5 +1.5% u.c to +86 Avg
Commodities
Move Last % Today % Past Month
Oil-WTI spot +0.77 81.47 +1.0% +7.1%
Gold Spot -3.95 1201.45 -0.3% -0.8%
Nickel (LME) +31.62 1031.12 +3.2% +16.9%
Aluminium (LME) -0.41 98.56 -0.4% +9.5%
Copper (LME) +2.46 335.62 +0.7% +9.8%
Zinc (LME) +0.88 96.15 +0.9% +13.0%
Silver -0.12 18.35 -0.6% +1.2%
Sugar -0.51 17.73 -2.8% +6.7%
Equity Structured Products and Warrants
Overnight Commentary
US Equities traded up on speculation the FED will take further steps to boost the economy and at tomorrows FOMC. The
S&P closed near its highs +0.5%, in what was the quietest trading day of the year.. (see note on QE below)
UK stocks were up for the first time in 5 days as investors in Europe also await potential Fed moves to help the economy.
Financials were the leaders after their strong reporting season and energy companies followed the crude price higher.
German Trade Balance also gave investors hope after coming in ahead of expectations. Exports and Imports were close
to or better than pre crisis levels.
This could be announced in tomorrows FOMC. The more aggressive, but near term less likely, option is further expansion
of the balance sheet. This would be meaningful for markets. It could also further weaken the US$ but is not the current
base case.
Equity Structured Products and Warrants
Commodities Commentary
Oil +1%, Gold -0.3%, Nickel +3.2%, Aluminium -0.4%, Copper +0.7%, Zinc +0.9%, Silver -0.6%
Currencies Commentary
FX – Trends
DXY INDEX: 80.68( +0.4%) last: noting 12mth high of 88 and low of 74
Markets globally now sit and await the FOMC. Tame moves in cross rates above don't lead me anywhere today but I
suspect tomorrow will be a different story.
SPI Commentary
The SPI traded up 34 pts to 4559. Open at 4525 with a high of 4566 and a low of 4453. Volume 32,280. Overnight the SPI traded up
5pts to 4564.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
Equity Structured Products and Warrants
Summary
RIO reported underlying earnings of US$5.8bn, ahead of consensus at US$5.5bn and well above our forecast US$5.2bn.
The difference related to iron ore where RIO achieved better prices than we had expected (we took a conservative view
on price realisations in light of the move from benchmark to quarterly contracts). A dividend of US$0.45ps was declared,
inline with our forecast. Net debt at the end of the period stands at US$12bn (US$19bn YE2010), with gearing at 19%.
Overall a strong result in our view.
Divisional NPAT (US$m) 1H10E Consensus Actual Diff vs RBS Diff vs RBS
Iron Ore 3,420 3676 4108 688 20%
Aluminium 387 348 358 -29 -7%
Copper 1,185 1153 1062 -123 -10%
Energy 620 793 642 22 4%
Diamond and Minerals 83 81 121 38 45%
Other Operations 4 -61 -2 -6 -148%
Underlying NPAT (US$m) 5,188 5,515 5,767 579 11%
Iron ore remains the key swing factor for RIO, with 2/3rds of earnings coming from the division. 3Q10 iron ore prices will
be the average of the March to May spot price, implying US$147/t FOB (above the spot price of US$134/t). This
represents another gain qoq, which will see positive earnings momentum continue.
Corporate items
RIO is about to enter a growth phase which is positive for production growth, however a significant amount of capex
needs to be spent.
Buy Long MINI MQGKZD for short/medium term trade to $45 or hold for the long term.
Source: IRESS
Source: IRESS
Our view is that there will be no default in Europe but that resolution of the crisis may still be some time off. We show
below that while debt markets have deteriorated this is certainly no GFC event. With the Australian market trading on a
12.2x forward market PE, some good buying opportunities are emerging on any sort of medium-term view.
Equity Structured Products and Warrants
For further information please do not hesitate to contact us on the details below
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