XJO Update: Miners Lead The Index Lower

Posted on | by Todd | Leave a Comment on XJO Update: Miners Lead The Index Lower

The ASX XJO Index fell 1.1% for the week and traded below the 6000 level for the first time this year.

Mining stocks and the major banks led the downside following weakness in commodity prices.

The ASX Gold index dropped four sessions in a row and lost 1.3% on Friday to close at 4874.60.

Iron Ore prices posted their first weekly loss in over a month, which pressured shares of mining giants BHP and RIO Tinto lower for the week.

Shares of RIO fell 4.6% to $78.00 while  BHP slipped 3.7% to end the week at $30.70

Internal momentum indicators are looking fairly neutral on the daily charts, which suggest the index could see range trading next week between 6070 and 5985.

XJO Index

 

RIO Slips After Q4 Output Report

Posted on | by Todd | Leave a Comment on RIO Slips After Q4 Output Report

Shares of Rio Tinto are down almost  1% in early trade near $81.00.

This could be a case of “buy the rumor, sell the fact” as the mining giant’s Q4 production numbers were largely as the market expected.

Earlier today, RIO announced a 3% increase in Pilburra iron ore output , producing just under 88 tons, and reaching its 2017 guidance figures of 330 tons for the year.

Since posting a low of $68.60 on December 12th, RIO shares have rallied over $13.00 in just over a month.

This is a 20% gain on what has been a surprisingly resilient Spot iron Ore market over the last 8 weeks.

RIO has been in our Top 50 Model portfolio since March 6th when it was trading at $61.50.

We will look for a pull back into the $73.00 area before adding to long positions.

Rio Tinto

 

Will The US Tax Reform Destabilize Global Banks?

Posted on | by Todd | Leave a Comment on Will The US Tax Reform Destabilize Global Banks?

A key part of the US Tax Reform passed last week includes giving US companies a tax break on profits earned and kept in banks overseas.

As per the legislation, US firms can now repatriate offshore earnings at a tax rate of 15.5%, compared with the previous rate of 35%.

In 2005, the Bush administration had a similar “tax amnesty” when over 50 US firms sent back about $350 billion in profits earned overseas.   

In an interview last week, Mr Trump estimated that the total amount of US corporate profits on deposit offshore is between $3 and $5 trillion. 

This is a pretty wide spread. But considering that just 5 tech firms (Apple, Microsoft, Google, Cisco and Oracle) are estimated to be holding over $650 billion offshore, it’s clear that the repatriation numbers will be much higher than in 2005. 

In fact, Apple CEO, Tim Cook, announced that they intend to repatriate over $250 billion during 2018, which is over 70% of the 2005 total spread across 50 firms. 

The most obvious impact of this massive transfer of funds will be the boost in demand for US Dollars. The amnesty plan in 2005 triggered a 12% rally in the USD Index from 81.00 to over 90.00 from March to July.

However, with some EU and Japanese banks already teetering from bad debts and non-performing loans, the short-term implications could be devastating to the banks that have been holding the cash that Mr Trump wants back.

We believe that with just one company like Apple draining $20 billion a month from the European banking system, there will be a negative impact on the health of many EU banks.

At this point we don’t have any clear numbers reflecting the amount of money being held in Australian banks, but we would expect the general strengthening of the USD, on a global basis, will see the AUD/USD retreat back into the lower .7000 handle.

ASX listed stocks which will benefit from the lower Aussie dollar include RHC, QAN, TWE, RIO and NCM.

Aussie Dollar

 

  

 

 

 

 

 

 

 

 

 

 

RIO Extends Buy-Back Scheme Into 2018

Posted on | by Todd | Leave a Comment on RIO Extends Buy-Back Scheme Into 2018

Shares of RIO Tinto are trading near a 6-year high of $75.00 as the resource giant announced yesterday that it would buy back an additional $1.9 billion worth of on-market shares by the end of 2018.

This is in addition to the $1.5 billion worth of shares the company bought back in 2017 as part of RIO’s commitment to return the proceeds from the sale of its Coal & Allied assets to shareholders.

With the share price over 8% higher since December 1st, the internal momentum indicators are approaching an over bought condition.

However, RIO has been a cornerstone stock in our model portfolio since March 6th, when it was trading at $61.50, and our ALGO engine triggered a buy signal on April 18th at $58.00.

It’s reasonable to expect some type of price correction in the near-term, but we would expect longer-term buying support in the $71.40 area over the next few weeks.

Rio Tinto

 

RIO’s CEO Flags A Chinese Slowdown

Posted on | by Todd | Leave a Comment on RIO’s CEO Flags A Chinese Slowdown

Shares of mining giant RIO Tinto are over 1% lower at $71.25 as company CEO, Jean-Sebastian Jacques expressed a negative view on the Chinese economy over the near-term.

While addressing investors in Sydney yesterday, Mr Jacques predicted a slowdown in construction, infrastructure growth and automotive demand from China over the next six months.

The company also announced that they would close some Iron Ore mines over the Christmas break as part of their “value over volume” strategy. Even with high-grade Iron Ore  price firming over the last 6-weeks, we consider the CEO’s message a negative signal for RIO shares.

Our ALGO engine triggered a buy signal in RIO back in April at $61.40. Even though the  ALGO engine has not triggered a sell signal, we suggest investors can take profits on long RIO exposure, sell a covered call to enhance cash flow, or go short the RIO CFD on our SAXO Go Platform 

The next significant level on the daily charts is near the October low of $68.50.

 

RIO Tinto

 

Chinese Imports Rise In Front Of 5-Year Plenary

Posted on | by Todd | Leave a Comment on Chinese Imports Rise In Front Of 5-Year Plenary

Chinese import data released on Friday showed a surge of 18.7% on a year-on-year basis.

Leading the the stronger import numbers was Iron Ore.

Purchases of Iron Ore expanded to 102.8 million tons compared to 93 million tons during the same time last year. Compiling the data for the first nine months of 2017, full year purchases are on course to top 1 billion tons.

Shares of RIO and BHP have responded by rising by 2% and 2.5%, respectfully, in early trade

China will convene its five-yearly congress on Wednesday. Some reports suggest that the rise in raw material imports into the lead-up of the Communist Party meeting may not be sustainable.

Looking at the daily charts, we see near-term resistance for BHP at $27.50 and at $70.70 for RIO. 

BHP

Rio Tinto

 

RIO Extends Share Buyback Scheme

Posted on | by Todd | Leave a Comment on RIO Extends Share Buyback Scheme

Shares of RIO Tinto have reached a one-month high of $70.40 following their announcement that they will return a further USD 2.5 billion to shareholders following the sale of Coal and Allied.

This will lift the total shareholder returns to USD 8.2 billion ($4 billion in share buybacks and $4.2 billion in dividends).

Considering that the share buyback scheme will be done off-market, its likely that the shares could be priced 8 to 10% below market value.

Nevertheless, with RIO’s balance sheet getting a shot in the arm, we expect additional returns in dividends in February 2018.

Our longer-term target on RIO is in the $76.00 to $76.50 area.

Rio Tinto

Chart Watch: The XJO Index

Posted on | by Todd | Leave a Comment on Chart Watch: The XJO Index

The XJO 200 Index continues to trade within a broad, sideways “Flag” pattern bound by the June 8th low of 5624 and the June 15th high of 5834.

The low price for the week at 5637 was the result of weakness in the banking names, as well as, a drop in major miners BHP and RIO; which lost 2% and 1.5% for the week, respectively.

The continuation of the “lower high” price pattern suggests a downward bias with the next key support level near the February low of 5578.

ASX XJO Index

RIO – Cash Return to Shareholders

Posted on | by Leon Hinde | Leave a Comment on RIO – Cash Return to Shareholders

RIO is likely to free up additional capital through the proceeds from the complete exit of coal and high cost aluminium smelting.

We estimate that this could raise more than $7.5 billion, potentially more than doubling shareholder cash returns in FY19

Recent sentiment around iron-ore and aluminium have helped drive RIO’s share price. We consider RIO near the top end of the valuation range.

However the share price should remain well supported, and when complimented with a covered call, we’re delivering 12% annualised cash flow.

FY 18 EBIT forecast of $9.8 billion, EPS $4.50 and DPS $2.45, places the stock on a forward yield of 4%.

Rio Tinto