Commodities

Market Wrap for Tuesday, June 18: Stocks Rally Ahead of Fed Statement

Scott Rubin — Tue, 18 Jun 2013 20:22:20 +0000

Risk appetite was brisk on Wall Street on Tuesday as investors purchased stocks ahead of Wednesday's FOMC statement. The Fed is expected to provide clarity on when it may begin tapering its current $85 billion per month bond buying program.

Although there is uncertainty, the market seems to be pricing in the likelihood that the Fed will continue its dovish monetary policy for the foreseeable future in order to keep interest rates down and stimulate the economy.

Ahead of Wednesday's Fed commentary, the Dow rose triple digits for the second day in a row and both the S&P and Nasdaq also posted strong gains.

Major Averages

The Dow Jones Industrial Average rose 138 points, or 0.91 percent, to 15,318.

The S&P 500 climbed 13 points, or 0.78 percent, to 1,652.

The Nasdaq rose 30 points, or 0.87 percent, to 3,482.

CPI

Consumer prices rose 0.1 percent for the month of May. This was the first increase in CPI since February and compares to a decline of 0.4 percent in April. The consensus expected CPI to rise 0.2 percent in May.

Core CPI, which excludes volatile food and energy costs, rose 0.2 percent in May versus a gain of 0.1 percent in both March and April. This compares to consensus estimates calling for an increase of 0.1 percent.

Housing Starts

New home starts rose 6.8 percent in May to 914,000. This compares to 856,000 new starts in April and consensus expectations calling for housing starts of 950,000 last month.

Commodities

Crude oil rose along with the stock market on Tuesday. Late in the day, NYMEX crude futures were up 0.70 percent to $98.45. Brent contracts had climbed 0.51 percent to $106.01. Natural gas added 1 percent on the session and was last trading at $3.91.

Precious metals fell on ...

Mid-Afternoon Market Update: Markets Rally Ahead of Fed Announcement Tomorrow; MannKind Drops

Jake L'Ecuyer — Tue, 18 Jun 2013 19:54:13 +0000

Toward the end of trading Tuesday, the Dow traded up 0.97 percent to 15,327.18 while the NASDAQ surged 0.94 percent to 3,484.41. The S&P also rose, gaining 0.83 percent to 1,652.81.

Top Headline
FactSet Research Systems (NYSE: FDS) reported an 11% rise in its fiscal third-quarter earnings.

FactSet's quarterly profit surged to $53.4 million, or $1.20 per share, versus $48 million, or $1.05 per share, in the year-ago period. Excluding one-time items, its adjusted earnings came in at $1.15 per share in the recent period.

Its revenue rose 6.1% to $214.6 million. FactSet in March had expected earnings of $1.14 to $1.16 per share on revenue of $213 million to $216 million. FactSet's operating margin narrowed to 33.4% from 33.9%.

For the current quarter, FactSet expects earnings of $1.18 and $1.21 per share on revenue of $218 million to $221 million. However, analysts were projecting earnings of $1.18 per share on revenue of $220 million.

Equities Trading UP
Walter Energy (NYSE: WLT) shot up 17.68 percent to $13.77 after Morgan Stanley defended the stock Monday evening, sending traders to the bullish side.

Shares of FLIR Systems ...

Fadel Gheit: Avoid the Middle East, Invest in U.S. Refineries

The Energy Report — Tue, 18 Jun 2013 18:09:22 +0000

The Energy Report: During your last interview in March, you said that oil prices were inflated by about 30% based on replacement costs of about $70/barrel ($70/bbl). Do you still believe that or are prices more realistic today?

Fadel Gheit: Nothing really changed over the course of the year. Oil prices are still inflated. I still stand by my estimate that oil should be trading between $70 and $80/bbl, not $90 or $100/bbl.

TER: What are your top picks among the large-cap exploration and production (E&P) companies in the oil and gas space?

FG: There are three or four categories of companies. The large, integrated oil companies are Chevron Corp. (CVX:NYSE), Exxon Mobil Corp. (XOM:NYSE), Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE), Total S.A. (TOT:NYSE) and the like. This is a shrinking universe because most of these companies are breaking up. ConocoPhillips (COP:NYSE) used to be a major integrated company and it split into two separate companies. But of all the major integrated companies, Chevron has been the best-performing stock. It's highly leveraged to oil prices. It has a strong balance sheet and has really outperformed its peers and the S&P 500 in the last 10 years, so Chevron would be our top pick among the large-cap companies.

The large independent E&P companies are Anadarko Petroleum Corp. (APC:NYSE), Apache Corp. (APA:NYSE), ConocoPhillips and Occidental Petroleum Corp. (OXY:NYSE), and of all these companies, we like Occidental a lot because of its restructuring potential.

We like to pick stocks for investors, not make bets on oil and gas prices, because I've been in this business 30 years and I believe no one can accurately forecast oil and gas prices. We're trying to pick stocks that have a catalyst, or for which we expect a catalyst, that will increase valuations. Occidental is a good example. It had massive changes on the board; the chairman was not reelected and the lead member did not stand for reelection. Now the CEO is trying to break up the company and create much higher value for shareholders.

TER: You have suggested that Apache exit Egypt because of growing instability. What should the company do instead with the funds?

FG: Egypt is a problem that Apache or any other company cannot solve. The International Monetary Fund is trying to help Egypt, and Egypt's problems are daunting. The political, economic and civil situation in Egypt is likely to deteriorate even further. The main problem in Egypt probably is economic. It is a poor country with high unemployment, and it has lost the biggest revenue generatorthe tourism industry.

Apache has the highest earnings exposure to Egypt; a big percentage of its profit is generated from the country. Although its operations have not been interrupted and Apache is getting paid its share of profit regularly with no delays, the market has concluded that Egypt is a big risk for Apache and therefore it is better for Apache to leave Egypt.

Apache would be better off selling its Egyptian assets to another company that has the appetite for this political risk and using the proceeds to buy back its stock. That will do two things: remove the risk, which means the shares will receive higher multiples of earnings and cash flow, and shrink the number of shares outstanding, thus improving earnings and cash flow per share and ultimately boosting the valuation. It's a win-win situation for Apache and for its shareholders.

TER: What other large caps and majors are in areas they should exit?

FG: No one wants to be in Libya because of the security situation. I have a dim view of the Middle East in general. The situation in Syria could drag the world into war, and that's the last thing we need. The troubles have spilled over into Lebanon and Iraq. Now Turkey, Russia and Iran are getting involved. This is really a very messy situation, which is going to get worse. Investing in North America is preferable because it's safer.

That's good for U.S. oil production. The U.S. is importing less and is producing more, keeping capital at home. Unfortunately, because of what is happening in the Middle East and uncertainty about supply and the expectation that we have, disruption could send oil prices back to $150/bbl, which we had five years ago.

TER: Your latest research on Hess Corp. (HES:NYSE), which is also a global producer and refiner, expresses concern that a threatened proxy fight is contrary to investors' best interests, but your rating for the company is Outperform. Why are you feeling ambiguous about Hess?

FG: Hess has lagged its peers in the market for many years because of bad decisions. That prompted activist hedge fund Elliott Group to take a large stake in Hess and to present investors with an alternative strategy to create shareholder value. It estimated that the stock should be worth no less than $97/share and as high as $123/share. The stock at the time was trading at $50/share, so the huge upside potential attracted a lot of attention and resulted in a proxy fight.

"For American industries and the American consumer, lower natural gas prices will open up a second industrial renaissance."

The Elliott Group won the proxy fight 60% to 40%, and it had nominated five board members; Hess had nominated five new board members. The Elliott Group won, but settled for three board seats. Since thenthat was a few weeks agoa news blackout remains and the stock is going sideways because of the uncertainty. Under pressure from Elliott, Hess accelerated the restructuring plan. It is planning to sell $7.5 billion ($7.5B) of assets, mostly exiting the downstream operation, which is refining, marketing and transportation, and become a pure oil-and-gas producer with a big position in the Bakken in North Dakota. Of the proceeds from restructuring, $4B would be used to buy back stock, which is 15% or more of the shares outstanding, $2B to pay down debt and $1.5B to beef up liquidity on the balance sheet.

So far, the restructuring plan is more than 50% ...

Seven Australian Companies to Survive a Metals Market Correction

The Critical Metals Report — Tue, 18 Jun 2013 18:08:46 +0000

The Metals Report: Australian mining Newcrest Mining Ltd. (NM:TSX; NCM:ASX) has announced huge layoffs and capital expenditure cutbacks. Does this signify a crisis in the space?

Andrew Richards: "Crisis" is certainly a strong word, but there is definitely a correction occurring in the market. Gold and iron ore in particular have come off their peaks. What we are seeing in Australia is a lot of cost-cutting across the board. That's probably something that needed to happen because labor costs had risen significantly over the last few years due to competition for personnel. The big companies, such as BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK), have said that Australia has become relatively uncompetitive because of very high labor and engineering costs.

With the fall in some of the commodity prices, companies have had to lay off people where they can and put a stop to some of the planned growth projects. Newcrest was an example of that. Companies are now focusing on cash flow rather than just growth. They want to maintain or improve margins where they can. But I will say I think Australian costs have peaked and are already on their way down.

TMR: Australian mining billionaire Gina Rinehart last month accused Prime Minister Julia Gillard of treating the mining industry like an ATM. How much of a threat to the industry is the Labour government's mining tax?

AR: The mining tax, at this stage, affects only iron ore and coal. And companies need to make a profit of at least $75 million ($75M) before that tax kicks in. It certainly has an impact on big companies, such as Fortescue Metals Group Ltd. (FMG:ASX), BHP and Rio Tinto. Having said that, the government had estimated significantly higher revenues from the tax than it has received. Maybe that's a reflection of the pullback in commodity prices, particularly iron ore.

Moving forward, there is an election in Australia in September, and the polls are saying that the current government will lose. The incoming government, should they win, has said publicly that they would remove this tax. So we'll wait and see what happens in September.

TMR: Let's talk about some of the companies you cover. Alkane Resources Ltd. (ANLKY:OTCQX; ALK:ASX) has zirconium, niobium and gold. What are the challenges of managing a company that has such diversified resources?

AR: Alkane's Dubbo zirconium-niobium project is certainly unique. With these sorts of projects, you have to make sure you have a flowsheet that works and is proven. Alkane has had a pilot plant operating for over four years now, so it has actually proven that flowsheet and sent product off to customers. It has signed an offtake agreement with a significant Japanese company, Shin-Etsu Chemical Co. Ltd. (SHE:Fkft). Obviously, there are always risks as you scale up from the pilot plant to the major plant, but I think the company has mitigated them as much as possible. The key now is getting Dubbo funded.

TMR: In April, Alkane came out with a revised feasibility study for Dubbo with a capex of $996M. How is this new feasibility study better than the previous one?

AR: Alkane did reduce the capex by around $70M. It made some improvements with the water recycling, which means that it could reduce the size of the evaporation ponds required. That was quite positive. Also, it slightly improved the costs, and the company has some improvements coming through on recoveries, which could help on the revenue side.

TMR: How does Alkane intend to raise this nearly $1 billion ($1B)? How important are offtakes and cash flow from its Tomingley gold project in this regard?

AR: Tomingley will produce 50,000-60,000 ounces (5060 Koz) annually starting early next year. It's a nice little cash flow generator: At current gold prices, the project should generate about $2025M/year. Alkane may well look to do some hedging should the gold price find support and have a bit of a run up over the next three to six months.

The plan with Dubbo is to sell up to 15% at the project level for anywhere from $150200M. I mentioned Shin-Etsu, which has signed a memorandum of understanding (MOU), and there is strong interest from other companies in Asia and North America. The company is also talking to government agencies, which could provide cheap debt, up to $400M at low interest rates. So that adds up to around $550600M. Alkane has appointed Credit Suisse and Sumitomo Corp. (8053:TKY; SSUMF:OTCPK) of Japan to help facilitate the project selldown and negotiate government debt. All together, that could mean $800M in funding. The balance would be equity, and Alkane is targeting a maximum of $200M. The first thing we'll see will be the selldown, hopefully by the end of this year.

TMR: How crucial have offtakes become to companies involved in setting up nonprecious minerals projects?

AR: They are important; there's no doubt about it. I think there is a window open over the next four ...

A Buying Appetite In Corn Market

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Mid-Day Market Update: Dow Surges Over 100 Points, John Wiley Shares Down

Jake L'Ecuyer — Tue, 18 Jun 2013 16:24:02 +0000

Midway through trading Tuesday, the Dow traded up 0.77 percent to 15,296.18 while the NASDAQ surged 0.79 percent to 3,479.41. The S&P also rose, gaining 0.66 percent to 1,649.81.

Top Headline
FactSet Research Systems (NYSE: FDS) reported an 11% rise in its fiscal third-quarter earnings.

Equities Trading UP
Walter Energy (NYSE: WLT) shot up 15.04 percent to $13.46 after Morgan Stanley defended the stock.

Shares of FLIR Systems (NASDAQ: FLIR) got a boost, shooting up ...

Mid-Morning Market Update: Markets Open Higher, FactSet Research Q3 Profit Up 11%

Jake L'Ecuyer — Tue, 18 Jun 2013 14:40:46 +0000

Following the market opening Tuesday, the Dow traded up 0.32 percent to 15,228.62 while the NASDAQ surged 0.27 percent to 3,461.48. The S&P also rose, gaining 0.18 percent to 1,641.91.

Top Headline
FactSet Research Systems (NYSE: FDS) reported an 11% rise in its fiscal third-quarter earnings.

Equities Trading UP
Walter Energy (NYSE: WLT) shot up 6.07 percent to $12.41 after Morgan Stanley defended the stock.

Shares of FLIR Systems (NASDAQ: FLIR) got a ...

Technical Forecast for Silver

Jason Sen — Tue, 18 Jun 2013 13:32:27 +0000

Silver is mostly just moving sideways. Fibonacci support at 21.83 & then at 21.46/41 which could hold the downside today. A break lower looks unlikely but could target 21.19, possibly 20.98 but we expect to see a bounce from here.

If we ...

Technical Forecast for Corn

Jason Sen — Tue, 18 Jun 2013 13:31:08 +0000

Corn rocketed higher through 664/665 to retest resistance at 673/674. We should struggle here today but a break higher cannot be ruled out and could target the 100 day moving average & Fibonacci resistance at 686/687. We will look very overbought short term at this stage so use this as ...

Technical Forecast for Copper

Jason Sen — Tue, 18 Jun 2013 13:30:41 +0000

Copper failed to beat resistance at 321.50 which did trigger a drift lower to 318.50 as expected. This just held the downside as hoped as we bottomed just below at 317.80. We are just starting to look oversold on the daily chart. If we can beat resistance at 322/323 we could start to look ...

Greek Politics Threaten to Tear Down Stronger Euro

Laura Brodbeck — Tue, 18 Jun 2013 11:26:44 +0000

The euro climbed to a four month high on Tuesday after data showed that German investor sentiment rose for the second month in a row in June. The common currency has remained strong at $1.33 ahead of the US Federal Reserve meeting at which US central bankers are expected to determine whether or not to continue with their quantitative easing plan.

The German ZEW survey showed that the nation's economic sentiment increased from 36.4 in May to 38.5 in June. According to Reuters , the figure beat out original forecasts of just 38.1. The report was welcome news to eurozone policy makers as it fueled speculation that the region could see an economic recovery at the end ...

Brent Slips Modestly Ahead of Fed Meeting

Laura Brodbeck — Tue, 18 Jun 2013 11:23:49 +0000

Brent crude oil eased slightly as investors awaited details from the two day Federal Reserve meeting that kicked off on Tuesday. The commodity traded at $105.24 at 9:52 GMT on Tuesday morning.

The US Federal Reserve has been closely watched since Chairman Ben Bernanke indicated that the bank would roll back some of its stimulus spending if US data showed steady improvement. Its $85 billion per month bond buying plan has weakened the dollar by pumping the currency into the market which in turn boosted commodity prices.

A recent string of positive data from the US has many speculating that the Fed will cut back on spending sooner rather than ...

Benzinga Market Primer: Tuesday, June 18

Matthew Kanterman — Tue, 18 Jun 2013 10:20:56 +0000

Futures Edge Higher In Calm Before the Storm

U.S. equity futures rose slightly in pre-market trade Tuesday as investors eagerly awaited the FOMC decision and statement Wednesday. Monday trading was a whip-saw marked by a steep sell-off over tapering fears.

Top News

In other news around the markets:

The German ZEW Economic Sentiment Index rose to 38.5, beating expectations of a reading of 38.1 and better than the prior 36.4.
European Central Bank President spoke in Jerusalem overnight and hinted that the LTRO operations could be extended as a means of providing additional bank liquidity. Speculation had grown that the ECB could do this however it is the first time Draghi has addressed it directly.
European car sales fell to a 20-year low in May as new car registrations fell to 1.08 million from 1.15 million a year ago. Sales at General Motors (NYSE: GM) fell over 10 percent.
S&P 500 futures rose 2.8 points to 1,636.50.
The EUR/USD was higher at 1.3396.
Spanish 10-year government bond yields fell 1 basis point to 4.57 percent.
Italian 10-year government bond yields fell 1 basis point to 4.26 percent.
Gold fell 0.41 percent to $1,377.40 per ounce.

Asian Markets

Asian shares were mixed overnight in unusually quiet trading as markets eagerly anticipate the Fed's decision, the proverbial calm before the storm. ...

Market Wrap for Monday, June 17: Stocks Jump to Start Trading Week; Dow Rallies Triple Digits

Scott Rubin — Mon, 17 Jun 2013 20:21:39 +0000

The U.S. stock market rose on Monday after a series of volatile moves last week. Investors snapped up shares on expectations that the Federal Reserve will reinforce its commitment to monetary stimulus to support the economic recovery.

The Fed is expected to provide clarity on its intentions at the end of a two-day meeting on Wednesday. The stock market gapped sharply higher at the open on Monday, but pared gains in afternoon trade.

Nevertheless, the Dow finished the day up a little better than 100 points, with the S&P and Nasdaq recording similar percentage gains.

Major Averages

The Dow Jones Industrial Average rose 110 points, or 0.73 percent, to 15,180.

The S&P 500 added roughly 12 points, or 0.76 percent, to 1,639.

The Nasdaq rose a little less than 29 points, or 0.83 percent, to 3,452.

Commodities

Crude oil prices were largely unchanged on Monday. At last check, NYMEX crude futures were down 0.01 percent to $97.84. Brent crude futures lost 0.32 percent and were trading at $105.59. Natural gas jumped better than 4 percent on the session to $3.89.

COMEX gold futures fell 0.35 percent on Monday. Silver was last trading down a little better than 1 percent to $21.76. Copper futures had shed 0.28 percent and were trading at $3.1925.

In the grains complex, corn and wheat were mixed. Near the close, corn futures were up a little more than 1 percent while wheat had lost 0.04 percent. Movers in soft commodities included cocoa and sugar. At last check, cocoa was down 1.69 percent while sugar had climbed slightly less ...

Mid-Afternoon Market Update: Markets Cooling Off as Ruckus Rallies

Jake L'Ecuyer — Mon, 17 Jun 2013 19:27:03 +0000

Toward the end of trading Monday, the Dow traded up 0.38 percent to 15,129.28 while the NASDAQ surged 0.52 percent to 3,441.90. The S&P also rose, gaining 0.35 percent to 1,632.83.

Top Headline
Time Warner's (NYSE: TWX) Man of Steel, the relaunch of the Superman movie series, became the second-most successful movie of the year after the film made $113 million in its first weekend, behind only Iron Man 3.

Equities Trading UPbr> DreamWorks Animation SKG (NASDAQ: DWA) shot up 4.03 percent to $23.73 after Netflix (NASDAQ: NFLX) signed a multi-year deal with the company.

Shares of Ruckus Wireless (NYSE: RKUS) were up as well, gaining 8.80 percent to $11.62 after news that the company was involved in a patent infringement suit ...