Global markets rallied overnight, as Wall Street indexes edged higher to records after Federal Reserve chair nominee Jerome Powell's comments on interest rate hikes and deregulation fired up financial stocks.
Banking heavyweights JP Morgan and Bank of America led the charge as Powell, in his confirmation hearing before the Senate Banking Committee, positioned himself as an heir to the central bank policies of current chair Janet Yellen. Powell also defended the need to potentially lighten regulation on the financial sector. All else equal, banks benefit from higher interest rates as lending margins improve, and clearly de-regulation would be another boost to the sector going forward.
Stock in Focus: BHP Billiton (BHP:AX)
Mining giant BHP released an update on unit costs at its Australian mines and copper prices yesterday, although the market seemed unimpressed.
BHP said it aims to cut costs further across its Australian mining operations, targeting another 10% drop in unit costs over the medium term and US$1.6 billion in additional productivity gains over the next two years. BHP minerals Australia president Mike Henry said large, long-life and low-cost operations in the country underpinned the resources company's current margins and options for the future. He said the company had sustainably reduced costs over the past five years but had further to go.
We have been vocal supporters of BHP as our top mining sector pick for some time now. One of the reasons for our preference for BHP is its scale and ability to operate at low cost with the highest margins, which is reinforced by yesterday’s update.
We currently have a BUY rating on BHP.
Members should look out for a full update on BHP to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was slightly lower yesterday (ASX 200 index -0.08%) after a choppy trading session as some strong gains for supermarkets and Origin Energy not enough to offset losses for miners and banks. In stock news, Origin Energy reaffirmed its full-year earnings guidance even as it lifts generation from its biggest power plant to take advantage of higher prices.
The New Zealand market sold off on Tuesday (NZX 50 index -0.42%) led lower by big moves in Mercury New Zealand and Chorus, and as Orion Health and Trilogy International dropped on first-half earnings. Orion Health, the health software developer, whose shares have lost almost half their value this year, widened its first-half loss and lowered its outlook for the full year. The loss was $25.9 million in the six months ended Sept. 30 from a loss of $18 million a year earlier.
3 Things Markets Will be Watching this Week
1. The US Senate Banking Committee holds a hearing on Tuesday to confirm the nomination of Jerome Powell to succeed Janet Yellen.
2. US economic data – with GDP released Thursday and manufacturing data at the end of the week.
3. US Politics with Tax Reform taking centre stage.
Have a Great Day,
Team