Banks Beat Earnings Estimates | Rio Update

20 January 2021

Global markets were broadly in the green overnight, as Wall Street’s main indexes rose on Tuesday after upbeat earnings from big US banks and Halliburton (S&P 500 index +0.9%).

Investors are buoyed by anticipation of the departure of Trump and inauguration of Joe Biden, and the expected improvement in COVID-19 handling and stimulus checks that should follow. Incoming Treasury Secretary Janet Yellen said President-elect Biden will not repeal the 2017 tax cuts while the economy is performing poorly, and she is committed to a wide range of policies to address climate change and restoring incentives for electric vehicles.

Also, China’s fourth-quarter GDP data was better than already solid expectations, increasing 6.5% from a year earlier, making it the only major world economy to grow last year amidst the global pandemic.


Rio Tinto (RIO:ASX)

Rio Tinto was higher yesterday as it reported a +2.4% rise in fourth-quarter iron ore shipments, helped by industrial activity in China and signalled it is likely to boost iron ore exports in 2021. Rio said it would ship 325 million – 340 million tonnes of iron ore this year amid extremely high prices for the steel-making ingredient. That guidance range straddles the 330.6 million tonnes that Rio shipped from Western Australia last year, but implies there is more scope for growth than a reduction in output.

The price of iron ore has had a tremendous run, up to $170 per tonne from less than $100 in mid 2020. The rise was initially driven by China as economic activity recovered and by ongoing supply disruption in Brazil. There is still scope that demand stays strong as the global economy rebounds as COVID-19 vaccines are implemented.

Given the high iron ore prices, this flows straight to RIO’s profit line and RIO forecast they have net cash of $1.5bn. Assuming an 80% pay-out ratio RIO’s dividend yield could be a very attractive 9% for 2021.

While there is always commodity price related risk when investing in mining companies, on balance we maintain our High-Risk BUY rating.


Australia & New Zealand Market Movers

The Australian market was higher yesterday as (ASX 200 index +1.2%) financials Westpac (+1.9%), ANZ (+1.7%) and NAB (+1.6%) lead a broad-based rally in which only the utilities sector ended lower.

Waste management business Bingo saw its shares jump +20% as it confirmed it is considering a conditional $3.50-a-share cash buyout proposal from a consortium led by private equity group CPE Capital.
The New Zealand market snapped a 6-day decline on Tuesday (NZX 50 index +0.3%) as data showed retail spending is on the rise but spending on accommodation and fuel is lower than a year ago.

Air NZ will continue running its skeleton international schedule until the end of June 2021, in response to ongoing travel restrictions and low passenger demand. However, the airline will be ramping up its Pacific flight routes from 28 March with a daily return service from Auckland to Rarotonga confirmed. The airline will also be operating a weekly service from Auckland to Nadi, Niue, Samoa and Tonga, respectively.

Outside of the top 50 stocks, car dealer Turners Automotive Group jumped 4.7% after it upgraded its profit expectations by $4 million, largely on the strength of writing more finance business.


3 Things Markets will be Watching this Week

  1. ​​​​​​​​​​The week ahead is a busy one with Biden’s inauguration on Wednesday (US time) a focal point.
  2. There are also a number of central bank decisions including the European Central Bank and the Bank of Japan.
  3. Quarterly US earnings season is underway, with the week ahead dominated by financials. Key results include: Netflix, Procter & Gamble, United Air, Bank of America, Morgan Stanley, Goldman and Gilead.


China’s fourth-quarter GDP data was better than already solid expectations, increasing 6.5% from a year earlier, making it the only major world economy to grow last year amidst the global pandemic.

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