Wall St lifts on Apple; base metals extend slide

Commodities rebounded somewhat after the Fed minutes. Both gold and silver pared earlier losses.

Oil fell to near three-month lows and US crude futures slipped to below $US40 a barrel before settling higher on Wednesday as short-covering lifted a market initially suppressed by worries about a global supply glut.

US crude inventories grew by 252,000 barrels last week, according to data from the Energy Information Administration (EIA) that came in below a 2 million-barrel build forecast by analysts in a Reuters poll. The smaller-than-expected stockpiles growth convinced some traders and investors to cover short positions in late trading, helping oil prices recover. Crude futures tumbled earlier after the EIA data showed the eighth straight week in builds leaving inventories at 487.3 million barrels, within a hair of the April record of 490.9 million.

US crude's West Texas Intermediate (WTI) futures settled up 8 cents at $US40.75 a barrel, after hitting a session low at $US39.91. The last time WTI traded below $US40 was on August 27.

Brent settled up 57 cents, or 1.3 per cent, at $US44.14, helped by a relatively better outlook for the global crude benchmark versus WTI.

Earlier on Wednesday in the US, Federal Reserve Bank of Atlanta president Dennis Lockhart said he's comfortable with raising rates soon, and the path of increases will be shallow and slower than in the past. His remarks came during a panel at a Clearing House event in New York. Traders are pricing in a 68 per cent probability of a move - odds that shot up after a stronger-than-expected October jobs report on November 6.

As policy makers assess the strength of the economy, data overnight showed new-home building declined more than projected in October, led by a slump in apartment construction. On the positive side, construction permits for single-family homes increased the most since 2007, indicating ground-breaking will rebound in coming months.

A solid core of Federal Reserve officials rallied behind a possible December rate hike at the central bank's last policy meeting, but central bankers also debated evidence the US economy's long-term potential may have permanently shifted lower.

Today's Agenda

• Bank of Japan monetary policy decision, Japan trade date (Oct)
• ECB publishes Oct meeting notes
• UK retail sales (Oct)
• US Intel hosts investors meeting, US Philly Fed report (Nov), US weekly jobless claims, US leading indicators (Oct)
• Earnings: Best Buy, Intuit, Gap, ThyssenKrupp

Market Highlights

• Based on the latest available data, the Dow Jones industrial average rose 246.99 points, or 1.41 per cent, to 17,736.49, the S&P 500 gained 33.08 points, or 1.61 per cent, to 2083.52 and the Nasdaq Composite added 89.19 points, or 1.79 per cent, to 5075.20.
• In Europe, the Stoxx 50 slid 0.58pc, the FTSE 100 gained 0.16pc, the CAC 40 shed 0.62pc and the DAX edged 0.1pc lower.
• In London, Rio Tinto rose 2.1pc. BHP Billiton was 0.41pc higher.
• SPI futures are up 58 points.
• The Australian dollar is trading at US71.06¢, compared with US71.01¢ at Wednesday's local close.
• On commodities markets are rallying in the wake of the Fed minutes, Brent crude is up 1.2pc, spot gold is up 0.04pc. Base metals though still are doing it tough. Comex-traded copper lost 1.4pc. Zinc for delivery in three months lost 1.8 per cent to $US1519.50 a ton at 4.38pm on the London Metal Exchange. The metal earlier touched $US1510.50, the lowest since July 2009.
• Iron ore was up 1.69 per cent, or US77¢, at $US46.35 a dry metric tonne, according to Metal Bulletin.

Today's News

• James Hardie Industries said its first-half net operating profit rose 22 per cent to $US190.2 million ($268 million) from $US156.1 million in the year-earlier period.
• Investors should look at exposure to copper to capitalise on China's transition from heavy industry and exports to more consumer-driven growth.
• US hardware giant Lowe's burnt just over $21 million on Masters in the third quarter compared to $17.8 million in the same period last year, pushing the Australian dollar losses for the US giant out by just under 20 per cent for the three months to the end of October.
• Treasurer Scott Morrison will prevent the sale of S. Kidman and Co to foreign investors, saying it would be contrary to Australia's national interest.
• For a while it looked like Glencore had turned the tide, but now pressure is back on to drive cost-cutting efforts harder and faster.

From Today's Financial Review

• NAB sees pick up in home lending: National Australia Bank says owner-occupier home loan volumes have rebounded in the past seven weeks following a drop immediately after the banks raised mortgage rates last month.

• China's GLAM has $1b to spend on agriculture investment: Genius Link Group founder Joel Chang says he wants to build a "small Cargill" and he has $1 billion to fund his Australian agribusiness ambitions.

• Commodities collapse will end | Chanticleer: As the commodity collapse enters its sixth year the bulls are seeing light at the end of the tunnel and the bears more certain of blackness.

United States

• A solid core of Federal Reserve officials rallied behind a possible December rate hike at the central bank's last policy meeting, but central bankers also debated evidence the US economy's long-term potential may have permanently shifted lower. After a summer and early fall that saw the Fed rattled by US market volatility and a sell-off in China, "most" participants felt conditions for a rate hike "could well be met by the time of the next meeting", minutes of the Fed's October 27-28 meeting released on Wednesday said.

• US stocks closed with gains of more than 1 per cent on Wednesday. Based on the latest available data, the Dow Jones industrial average rose 246.99 points, or 1.41 per cent, to 17,736.49, the S&P 500 gained 33.08 points, or 1.61 per cent, to 2083.52 and the Nasdaq Composite added 89.19 points, or 1.79 per cent, to 5075.20.

• With earnings season coming to an end, Keurig Green Mountain and Victoria's Secret owner L Brands are due to post results on Wednesday in the US. Of companies in the S&P 500 that have released so far, 74 per cent beat profit estimates while only 44 per cent exceeded sales projections. Analysts project profits for members of the benchmark dropped 3.7 per cent, an improvement on a predicted 7.2 per cent fall at the start of the season.

Europe

• European stocks were little changed as investors assessed value after the strongest rally in six weeks, while France's CAC 40 Index retreated after a police gun battle with suspects linked to the Paris terror attack. Air Liquide SA slid the most on the French equity gauge, falling 7.4 per cent after agreeing to purchase US rival Airgas Inc. The CAC 40, which jumped the most in six weeks yesterday, retreated 0.6 per cent at the close of trading in Paris after the shootout left at least two people dead. L'Oreal SA slid 1.7 per cent and LVMH lost 1.1 per cent in France. The Stoxx Europe 600 Index fell 0.1 per cent to 379.33, paring earlier losses of as much as 0.8 per cent.

• The Stoxx 600 stalled after a rally in energy producers helped push it higher in the two trading days following the attacks in Paris. The gauge closed yesterday 12 per cent higher than its September low, boosted by optimism that the European Central Bank will add to stimulus measures. "You've had a good run in the market so there's a short- term profit taking after a really strong day," said Patrick Spencer, equities vice chairman at Robert W. Baird & Co in London. "On top of that, the strong US inflation numbers put further evidence that there's going to be a rate hike and that's a concern of European equities as it makes borrowing more expensive for companies."

• European stocks will be under pressure in the near term because it's unlikely that riskier assets such as equities will do well if the Fed raises rates and financial conditions tighten, Deutsche Bank's Sebastian Raedler wrote in a note published November 17.

• Among other companies active today, UK Mail tumbled 12 per cent to the lowest in almost three years after the delivery service said it's cutting dividends as expenses associated with a new headquarters and upgrading equipment will weigh more than previously expected on 2016 earnings.

Asia

• Japanese stocks closed little changed, trimming gains in the afternoon session as the yen rose against the dollar. Consumer lenders led the advance while insurers fell. The Topix index closed at 1586.53, paring an increase of as much as 0.8 per cent, as five shares fell for every four that rose. The Nikkei 225 Stock Average climbed 0.1 per cent to 19,649.18 after adding as much as 1.1 per cent. The yen rose 0.2 per cent to 123.25 per dollar.
• Acom Co added 2.4 per cent to lead an advance among consumer lenders. MS&AD Insurance Group Holdings and Tokio Marine Holdings sank at least 2.2 per cent after earnings releases by the non-life insurers disappointed investors. Tohoku Electric Power tumbled 7.5 per cent after selling 120 billion yen of convertible bonds.
• The BOJ began a two-day meeting Wednesday, with all 41 economists surveyed by Bloomberg News predicting no change to already record Japanese stimulus despite a report Monday showing Asia's second-biggest economy has slipped back into recession. The result is in contrast to last month's survey, when 44 per cent of economists said the BOJ would add to easing on October 30.

China

• China's stocks fell for a second day after President Xi Jinping said the world's second-biggest economy was facing "considerable downward pressure". "China's economy is still coping with the complicated internal and external environment, considerable downward pressure and the temporary pain of deep reforms," Xi said at the Asia-Pacific Economic Cooperation chief executives summit in Manila on Wednesday.
• The Shanghai Composite Index slid 1per cent to 3568.47 at the close, led by industrial and technology companies. Data on Wednesday showed China's home-price recovery slowed in October, adding to a slew of reports including manufacturing and exports that show the government may struggle to achieve its 7 per cent growth target for this year. CRRC, China's biggest maker of railway equipment, declined 1.7 per cent. Wangsu Science & Technology slumped 3.6 per cent, paring this year's rally to 172 per cent.
• "There's no spotlight in the economy now as the new growth engine has yet to emerge," said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. "The rebound in the broader market has already reached a critical level and it may take more time to digest some profit taking and to consolidate here."
• Trading volumes in the Shanghai Composite were 11 per cent lower than 30-day average on Wednesday. The CSI 300 Index lost 1.1 per cent. The Hang Seng China Enterprises Index in Hong Kong fell 0.2 per cent, while the Hang Seng Index lost 0.3 per cent.

Currencies

• The greenback retreated from a seven-month high against the euro. The US currency weakened 0.2 per cent to $US1.0662 to the euro. The greenback was little changed at 123.45 yen.

• Russia's rouble strengthened for a third day, rising 0.3 per cent, and the dollar-denominated RTS Index of stocks rose 2.1 per cent, bringing its advance this week to 8.1 per cent, amid signs of a rapprochement with the West.

• Sweden's krona climbed against all but two of its major peers as Riksbank deputy governor Martin Floden said action to weaken the currency "feels rather remote" and that it "ought to take quite a lot" for bank to contemplate such a step. Norway's krone and South Africa's rand also rallied.

• The forces driving the EUR/USD lower are fundamentally significant and unless these drivers change, the path of least resistance for the pair will be lower, Kathy Lien, managing director of FX strategy for BK Asset Management, says. "This requires the ECB to move forward with easing monetary policy next month and the Fed to raise interest rates. At this stage, ECB easing is almost certain but we still do not know if the Fed will proceed with a rate hike. France is the second largest economy in the eurozone and the attacks will have a significant impact on economic confidence, trade and tourism activity. In recent months, France's economy returned to growth as Germany was slowing but now with the two regional powerhouses both experiencing troubles, the ECB will have no choice but to act."

Commodities

• Zinc slid to the lowest price since 2009 as Chinese President Xi Jinping acknowledged downside risks to growth and property data underscored the slowdown. Zinc lost as much as 2.3 per cent to $US1512 a metric ton on the London Metal Exchange and copper slumped as much as 1.9 per cent.

• The LME index of six industrial metals has tumbled 25 per cent in 2015 and is heading for its worst year since the global financial crisis as China, the biggest user, faces the weakest growth in a quarter of a century.

• Iron ore was up 1.69 per cent, or US77¢, at $US46.35 a dry metric tonne, according to Metal Bulletin.

• Iron ore will extend declines into 2016 as weakening steel output hurts demand while the world's biggest suppliers raise production further, according to a former chief economist at Rio Tinto Group, who said China would do well to demolish unneeded mills. "There's about 300 million tons of surplus capacity in China that needs to be not just shut down, it needs to be eradicated, it needs to be bulldozed," David Humphreys, who held the title at Rio for eight years to 2004, said in a phone interview. Steel "production needs to fall," said Humphreys, 63, who is now an independent consultant.

• Gold fell to a five-year low of $US1064.55 a troy ounce.

• US crude's West Texas Intermediate (WTI) futures settled up 8 cents at $US40.75 a barrel, after hitting a session low at $US39.91. The last time WTI traded below $US40 was on August 27. Brent settled up 57 cents, or 1.3 per cent, at $US44.14, helped by a relatively better outlook for the global crude benchmark versus WTI.

• Most US shale oil producers have reported Q3 15 operating results and after analysing the top 10 producers (covering close to 40 per cent of production in the US Bakken, Permian and Eagle Ford shale basins) ANZ analysts found that: Production is expected to decline q/q in Q4 15, but not by much. We estimate crude oil production from US shale fields will fall just 2.5 per cent q/q based on production guidance and our estimates; Costs continue to fall. While most have reported statutory losses, cash costs of oil and gas production remain well below revenues from product sales; and There was little price hedging done in Q3. While activity picked up a little, it's not enough to substantially cushion producers from further falls in the oil price. This supports our view that prices are in a 'lower for longer' mode, as producers have adapted to life with lower prices.

Australian Sharemarket

• Investors being lured by siren call of growth stocks | Philip Baker: Investors seem to be over-paying for stocks showing any sort of growth, while tossing aside decent long-term companies.

• The sharemarket staged a spectacular turnaround on Wednesday, defying a savage commodity rout as investors snapped up relatively cheap bank stocks. At the close the ASX 200 and All Ordinaries indices each posted 0.3 per cent or 15 points gains to 5133.1 and 5189.1 respectively.

• Commonwealth Bank of Australia climbed 1 per cent to $77.84, Westpac Banking Group rose 0.6 per cent to $30.77, ANZ Banking Group added 1 per cent to $26.75 as did National Australia Bank, up 1 per cent to $28.79. The reason for the bank support was that they were beginning to look irresistible, Watermark Funds Management analyst Omkar Joshi said. "The banks are starting to look pretty good from a valuation perspective in terms of both PEs [price-earnings ratios] and dividend yields now," he said. "They have fallen quite significantly but [at] around 10 to 11-times earnings they are pricing in most of the negatives now."

• BHP Billiton, which had stubbornly closed above $20 in recent sessions ended the day below that point for the first time since 2008, slumping 2.8 per cent to $19.81 and capping off a miserable fortnight ahead of Thursday's annual general meeting.

Stocks in Focus

• The world's biggest explosives maker, Orica, is expecting its earnings to lift slightly in 2016 with further improvement the following year after it dived into the red in 2015 following a $1.69 billion write down.

​Street Talk

• OzForex receives a takeover approach from Western Union: Online foreign exchange company OzForex Group has had a preliminary takeover approach, as revealed by Street Talk Online on Wednesday.
• Brokers, investors ready for late hybrid call: The festive season is fast approaching and the runway for hybrid capital raisings is getting very short. But that doesn't mean the window is shut just yet.
• MassMutual joins Hastings talks, hires Morgan Stanley: America's MassMutual Financial Group has met Hastings Funds Management executives in New York, as part of sale plans for the Westpac Banking Corporation-owned asset manager.

Broker Watch​

• Bell Potter is keeping a "hold" recommendation on Ruralco Holdings, with a target price of $3.72, down from $4 previously. Ruralco (RHL) is an agribusiness service provider with in excess of 500 sales points in Australia and more than 40 specialist businesses operating across its network. "Underlying NPAT of $18.7 million was 13 per cent below our expectations and was primarily due to the inclusion of a $4.2 million bad debt expense (largely relating to an insolvent live export customer) in the underlying figures. Adjusting for this bad debt expense, reveals an underlying NPAT result broadly consistent with our $21.5 million forecast at an estimated $21.6 million. Higher investment in working capital and acquisitions resulted in net debt at year-end of $59 million (above our $50 million forecast) and a lower than expected 2H DPS saw FY15 DPS 1¢ below expectations at 16.0¢ps."
• Suncorp Group is a "buy" at Bell Potter, which sees "exceptional value" and has an unchanged $15.25 12-month price target on the stock. "SUN Bank's recent APS330 disclosures suggest credit quality has further improved with a 1Q16 BDD charge of $6 million or 9bp of GLA (vs $20 million in 1Q15). This is in line with the experience of retail- and business-oriented banks such as CBA, WBC and BOQ. The specific charge and actual net write-offs have almost halved while impaired assets are also 7 per cent lower on a QOQ basis and 28 per cent lower on a PCP basis (mainly greater than $1 million bucket). Overall past due loans have trended lower over the respective periods. 1Q16 CET1 capital ratio was 8.86 per cent, down from 9.13 per cent in the previous quarter following the bank's dividend payment to the group. However, the ratio remains comfortably within management's target range of 8.50-9.00 per cent and sits at the top end of the sector range on S&P's RAC basis. Excess bank capital is currently estimated at $34 million or about 3¢ps and this is expected to build up again over the rest of 2016."
• Hartleys initiates coverage of Hot Chili with a "speculative buy" and a 12-month target price of 24¢. Hot Chili owns the very large, but low grade, Productora Copper Project in Chile. "The company has completed a scoping study, and is close to finalising a PFS. Productora is planned to be a long life, bulk tonnage open pit mine producing up to 60ktpa of copper, hopefully with first production in 2019. In the Reserve (March 2014), C1 cash costs were estimated to be about $US1.70 a pound Cu ($US3750 a tonne) after credits for around 45kt a year payable copper. With capex around $US600 million and current commodity prices, it suggests the project is marginal. However, HCH hopes to improve the economics with the current PFS, by increasing scale (lower units costs), decreasing strip ratio (include oxide heap leach), increasing mine life and introducing higher grade feed."
• Deutsche Bank has a "hold" recommendation on Arrium and a 12-month price target of 9¢, up from 8¢ previously. "At Arrium's AGM, management announced iron ore exports will likely increase to 8-10mtpa from 6-8mtpa in FY17 and FY18 (unchanged in FY16). While this reduces the FY17E EBIT Iron Ore loss $13 million to -$25 million, we remain concerned around Arrium's balance sheet in the absence of asset divestments (given our view the iron ore price will remain at low levels). Nonetheless, FY17E NPAT increases 11 per cent (we now factor in 9mt of iron ore exports in FY17E)." Credit Suisse has an "underperform" on Arrium and a target price of 15¢.

Ex Dividends

• Incitec Pivot

Yesterday's Market Movers

• Top gainers: Cabcharge +6.2pc, Mayne Pharma +5.8pc, Slater & Gordon +5.7pc
• Top losers: Northern Star -7.9pc, Paladin Energy -7.7pc, Evolution Mining -7.1pc

Australian Economy

• The latest NAB Online Retail Sales Index shows sales experienced relatively strong month-on-month (MOM) growth of 1.1 per cent in September, seasonally adjusted (sa). This is a considerable improvement on the sales weakness evidence in July (-1.4 per cent), comments Alan Oster, group chief economist at National Australia Bank. "The September growth has been generated by domestic online retail sales, which accelerated (+1.8 per cent), while international contracted (-1.1 per cent). In year-on-year (YOY) terms, domestic online retail (7.3 per cent) continues to outpace international (1.3 per cent). Comparable YOY growth in traditional bricks and mortar retail (up 4.1 per cent in September) was still outpaced by the improvement in online retail (5.7 per cent). That said, recent online growth has been more subdued than the 20-30 per cent YOY growth rates recorded in earlier years. In September the seasonally adjusted MOM change was 1.1 per cent. The trend estimate of 0.3 per cent suggests online retail sales continue to slow. By category, the results are mixed. Growth rose significantly in electronic games and toys, although this segment accounts for a small share of overall online spend. Daily deals, a sector that has been contracting in YOY (-6.9 per cent) terms, saw the second highest MOM growth in September (4.8 per cent). Overall there are not currently large differences in the growth rate of online spend by age group. Online spend across all age categories increased. While those aged 35-44 had marginally weaker online growth in September, this age group still contributed most to annual growth as they represent the largest share of spend."

Debt Markets

• The steady and remorseless weakness of major commodity prices is possibly a bigger story, comments Kit Juckes at Societe Generale, especially if it fails to feed back into bigger global worry through equity markets. "I saw a poll yesterday showing an even 50-50 split on whether the Fed is likely to hike in December, as people saw yet another reason for the Fed to delay. But if equity markets remain resilient and there are no surprises in the CPI data, for starters, then the market will slowly become more confident again of a December lift-off. Of course, I'm not alone in hoping the Fed acts just so that we can move on from wondering when they finally will (even if we know all we'll do then is wonder when the second hike will come instead). Still, if weaker commodity prices don't de-rail risk sentiment, then we get left with deteriorating fundamentals across a swathe of emerging market assets with no compensation from the Fed."

• Australia's largest commercial flight training firm Ansett Aviation Training completed its first bond issue, a $40 million issue to wholesale investors including SMSFs, which closed oversubscribed. The 5-year fixed rate senior unsecured issue, arranged by FIIG Securities, pays a coupon rate of 7.5 per cent.

• The extra yield US Treasury two-year notes offer over their Group-of-Seven peers widened to the most in eight years as the Fed considers tightening while the European Central Bank may add to stimulus at its meeting next month. "The Fed is talking about 'We're going to raise rates' and the ECB is talking about easing," said Roger Bridges, chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management Australia, which oversees $US16.4 billion. "That's really saying that the US is cheap."

• The yield on 10-year Treasury notes added two basis points to 2.29 per cent.

• The rate on German 10-year bunds was little changed at 0.52 per cent after touching 0.49 per cent, the lowest level since October 29. Germany sold two-year notes with a record-low yield of minus 0.38 per cent and auctions of Portuguese bills also drew negative yields.

with Reuters, Bloomberg, AAP

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Elise Shaw, elise.shaw@afr.com.au 02 9282 3501