Key Points: Daily Market Update

• U.S. stocks slumped late in the session on bets the Fed will cut back its bond buying this U.S. summer

• Bill Gates dethroned Carlos Slim as the world’s richest man as Microsoft Corp. hit a five-year high

• Japan’s economy grew at an annualised rate of 3.5% last quarter, above forecasts of 2.7%

• The Australian dollar has continued its slide against the greenback, falling below 98 cents overnight

• Virgin Australia (VAH.ASX) plunged 17.4% on the back of a profit down grade on Wednesday night

Overnight Market Update

After reaching record highs in nine of the previous 10 trading sessions, the S&P 500 slumped 0.5% overnight as Federal Reserve Bank of San Francisco President John Williams said the Fed may reduce the pace of its US$85 billion a month in asset purchases as early as this summer. Cisco Systems surged 13%, the most since August 2011, as the biggest maker of networking equipment reported Q1 profit that topped estimates. Wall Mart Stores fell 1.7% after forecasting Q2 EPS of $1.22-$1.27, with the range below analysts’ estimates of $1.29.

Key Points: Daily Market Update

• Overseas markets rallied as weak data spurred bets that central banks will extend stimulus measures

• Europe’s economy contracted for a record sixth straight quarter in Q1 as France entered a recession

• The pound advanced against peers as BOE chief Mervyn King said a recovery is in sight for the UK

• Gold futures fell below $1,400/oz, extending its longest slump in three months to five days

• The ASX 200 fell 0.6% after the budget revealed an $18 billion deficit this year

Overnight Market Update

The S&P 500 rose to yet another record high overnight as weak US industrial production data and a drop in producer prices fuelled bets the Federal Reserve is in no hurry to scale back its asset purchasing program. European stocks rallied as weak economic growth reports throughout the region added to bets the European Central Bank (ECB) will expand on measures to boost growth.

Key Points: Daily Market Update

• The S&P 500 rose to a record for the 8th time in nine days amid improving U.S. economic confidence

• Billionaire fund manager David Tepper said he’s “definitely bullish” and that the recovery is ongoing

• Copper dropped 2.1% to US$3.288/lb, the most in two weeks, on forecasts of slowing Chinese growth

• The Aussie dollar fell to an 11-month low after the govt budget forecasted an A$18Bn cash deficit

• McMahon Holdings (MAH.ASX) soared 20% after predicting growth in a “challenging environment”

Overnight Market Update

European markets pared losses on a report showing euro-zone industrial production increased 1.0% in March, beating analysts’ expectations for a 0.5% gain and up from 0.3% in February, offsetting weaker than expected German investor confidence. European stocks and S&P 500 futures erased losses before the open in New York as David Tepper, the billionaire who runs Appaloosa Management, told CNBC he’s “definitely bullish” and that the U.S. economy is in the early stages of an economic recovery.

Key Points: Daily Market Update

• U.S. markets were flat overnight as weak leads from Asia offset strong U.S. retail sales data

• The AUD continued its recent slide in overnight trading before the release of today’s budget

• China's industrial production growth missed estimates, rising 9.3% in April vs 9.4% expected

• Gold dropped 0.2% to $1,434/oz, the third consecutive fall and the longest decline in five weeks

• REA Group (REA.ASX) climbed 5.8% after it reported a 20% jump in 3rd quarter sales

Overnight Market Update

European stocks declined from a near five-year high as Commerzbank AG slumped on a news report that it will undertake a capital raising this week and Air France-KLM Group fell 4% to lead airlines lower after France reported its second coronavirus-related infection. U.S. markets closed flat overnight as a weak lead from Europe and Asia offset stronger than expected U.S. retail sales data. Materials stocks slumped 0.8%, leading losses on the back of a report showing Chinese industrial production grew less than expected in the year to April.

Key Points: Daily Market Update

• The S&P 500 capped its third weekly advance on earnings that beat estimates and strong Asian data

• Standard Chartered said in a report that second quarter Chinese growth will slow to 7.6%

• U.S. treasury yields have climbed to two month highs on signs of an improving economy

• The Nikkei surged 2.9%, capping a weely rise of 6.5% as the yen depreciated past 100 per U.S. dollar

• Karoon Gas (KAR.ASX) soared 25% after the company announced that it had expanded its Bilby well

Overnight Market Update

The S&P 500 advanced 0.4% on Friday to a record 1,633.70 on the back of a strong lead from Asia and a series of strong earnings results. Apple Inc. sank 0.8% and energy companies dropped 0.5% as crude oil fell, limiting gains for U.S. stocks. U.S. consumer cyclical stocks advanced 0.8% as Gap Inc., the largest U.S. apparel chain, rallied 5.6% after posting first quarter profit forecasts that beat analysts’ estimates. Priceline Inc. rose 3.8% after reporting sales and earnings that beat estimates.

Key Points

• Australian resource project investment is a major driver of the RBA's interest rate decisions

• Weak recent WA jobs data and WPL, BHP & RIO cutting CAPEX may signal lower resource investment

• Given Australia's relatively high rates and inflation under control, the RBA has room to cut rates

• If resource investment disappoints, we think an RBA rate cut in June and a lower AUD is likely

• Preferred exposure to a falling AUD through a currency exchange traded fund (ETF), USD.ASX

Australia's economy and resources

In March 2013, the Reserve Bank of Australia (RBA) released its Industry Dimensions of the Resource Boom research paper, which found that the 'resource economy' accounted for ~18% of gross value added (GVA) in 2011-12, around double its share of the economy in 2003-04. This includes resource extraction (11.5%), the process of extracting minerals and energy, and resource-related activity (6.5%), which is mainly service sector directly related to the industry.

Key Points

• Australia's population is ageing and its eyesight is fading - the opthalmic industry stands to benefit

• With 19 clinics, Vision Eye Institute (VEI.ASX) is Australia's largest provider of opthalmic services

• Vision has reduced debt substantially and implemented a new remuneration model to retain doctors

• Forecast to post FY 13 earnings of $10.6m, putting it on a FY 13 P/E of 10.2 vs. peer average of 18.4

• Given Vision's significant cash flow generation, we see the potential for dividends as early as 2H 2013

Australia's getting old

By any measure, Australia is getting old. The number of Australians over 40 is forecast to increase from around 11 million now to over 13 million in 2023. According to Access Economics, around 40% of Australia's over 40 population suffers from some sort of eye health issue or vision loss (ophthalmic condition).

Key Points

• Northern Star Resources (ASX: NST) is a WA gold producer with earnings growth and an attractive yield

• Expects to generate A$65-85m in surplus cash in CY 13 due to low cash cost (A$601/oz Q1 CY 13)

• Using maiden (2.5c) and interim (1c) div, NST is trading on a 6.9% yield (inc. franking credits)

• With strong cashflow and a substantial cash balance of A$58m, NST has scope to increase dividends

• FY 2013 earnings set to beat FY 2012 by +30%, but NST still trades at a FY 2012 P/E of less than 10

The flash crash in gold

Gold has taken a big hit recently, falling 15% in just four trading sessions to a closing low of US$1348.21/oz on 15/04/13. The fall was triggered by massive paper selling and Cyprus' intention to sell its so-called "excess reserves" of gold, but the groundwork for the drop was set by stronger U.S. data (sparking bets for an end to Federal Reserve quantitative easing this year).

Key Points

• Gold suffered its worst 2 day fall in three decades last week, plummeting over 13%

• Sentiment had turned bearish on the back of strong U.S. data and specualtion over the end of 'QE'

• Cyprus' intention to unload "excess reserves" and massive paper selling tipped the price over a cliff

• Strong retail demand after the crash suggests underlying support for gold and the lack of a bubble

• Given the past experiences of the U.K. and Cyprus we see further official sector gold sales as unlikely

The flash crash in gold

It's no secret that gold took a beating on Friday 12 April and Monday 15 April, falling around 13%, for its biggest two day drop in over three decades. Monday's 9.3% fall was the largest daily drop since 17 March 1980, but why? This week we examine some of the possible causes and whether it's likely to happen again.

Key Points

• The emergence of gold-backed exchange traded funds (ETFs) has come at the cost of gold equities

• Mismanagement has accelerated this shift so that valuations are now at a discount to the mining sector

• Newcrest Mining (ASX: NCM), however, still trades at a price-earnings premium to BHP

• Our analysis shows that gold equities provide poor exposure to gold and little diversification

• Gold explorers, however, provide leverage to company-specific factors, like management and geology

Let's talk about... gold equities

Last week we examined the factors that have driven the 10+ year rally in the gold price, concluding that demand for gold from exchange traded funds (ETFs) and official sources (central banks and treasuries) were central factors. We highlighted that underlying demand, via ETFs and official purchases, was likely driven by central bank quantitative easing and currency debasement, as well as income growth in emerging economies.

Aggregating veterinary clinics across Australia

Greencross (ASX: GXL) is the largest provider of veterinary services in Australia with 81 animal hospitals, clinics and laboratories; primarily in the companion animal sector. The Company’s strategy is to acquire and aggregate vet practices in a highly-fragmented industry (~1,900 enterprises in Australia) and to utilise GXL’s scale and streamlined business practises to improve profitability. GXL is targeting the acquisition of 12 practices per annum, which will be funded through a mix of debt, vendor finance and free cash flow. Since listing in June 2007, GXL has added over 50 practices to its portfolio, but with a market share of only ~3.6%, there is lots more room for growth.

Near-term gold producer with over 1 million ounces in WA

Carrick Gold (ASX: CRK) is aiming to commence mining gold ore during January 2013 from its Kurnalpi Project (100% CRK), within the larger KalNorth Field, which consists of four main projects that are all located within 50km of the gold mining town of Kalgoorlie in Western Australia (‘WA’). CRK has established a JORC-compliant Reserve base of 103,000 ounces (‘oz’) of gold (‘Au’) across two open pits, from a global JORC-compliant Resource Base of over one million ounces (‘Moz’) of gold.

Seismic Research is initiating coverage of Carrick Gold (ASX: CRK) with a 12-month target price of A$0.50.

Near-term, low-cost copper-zinc producer from the Pilbara, WA

Venturex Resources (ASX: VXR) is aiming to commence producing copper (‘Cu’) and zinc (‘Zn’), in concentrates, at its flagship Pilbara Cu-Zn Project (100% VXR), located close to Port Hedland in Western Australia (‘WA’), during the 2H of 2014. VXR has established a substantial JORC-compliant Resource base containing in excess of 550,000t of Cu-equivalent within a number of high-grade Volcanogenic Massive Sulphide-type (‘VMS’) Cu-Zn deposits (see Table 1). Preliminary results from VXR’s Feasibility Study suggest a low (C1) cash cost of A$1.15/lb Cu-equivalent.

Seismic Research is initiating coverage on Venturex Resources with a 12-month target price of A$0.10 per share, based on a peer analysis valuation.

A junior Chilean copper explorer with 'drill-ready' targets

Seismic Research is initiating coverage on Estrella Resources (ASX: ESR) with a 12-month target price of A$0.46 per share, based on a peer analysis valuation. We think this star will burn bright.

ESR is a junior copper-gold explorer primarily focused on developing its flagship Agustina Copper-Gold Project (100% ESR), which covers an area of 18.5km2, located around 90km northeast of the mining town of La Serena, in the prolific copper-producing belt of central northern Chile. Agustina is an advanced exploration-stage project with ‘drill-ready’ exploration targets. The Company is aiming to release a maiden JORC-compliant resource at Agustina by the first quarter of 2013.

A Queensland coal explorer with ‘drill-ready’ exploration targets

Allegiance Coal Limited (‘Allegiance’) is a coal exploration company with a portfolio of advanced and early-stage projects that cover a number of Queensland coal basins. While the company plans to simultaneously develop its 14 tenements, Allegiance is focusing most of its time and resources on the Back Creek and Kilmain projects, located in the prolific coal-producing regions of the Surat and Bowen coal basins, respectively.