Markets Falter on Earnings | Rio Tinto Rallies

20 July 2018

Global markets were mostly overnight, although the UK market and US small cap stocks outperformed. 

US stocks dropped on Thursday after earnings disappointed and trade jitters escalated over worries that the European Union could slap retaliatory tariffs on goods imported from the United States. Shares in Alcoa plunged -13.3% after the aluminium producer cut its full-year forecast, blaming tariffs. It was not all bad news, as after the closing bell  Microsoft posted quarterly profit and revenue that beat analysts' estimates.

 

Stock in Focus: Rio Tinto (RIO:AX)
As we touched on yesterday the mining stocks have been supporting gains for the Australian market in recent times, and both mining giants BHP and Rio Tinto have released solid production updates this week (ahead of their full results to be reported next month).


Rio's production results for the second quarter showed that iron ore shipments had increased by 14%, as the company said operational performance was solid across most commodities.

This was a sound update from Rio, although we do continue to prefer BHP as our top mining pick given its diverse commodity production base (the majority of Rio’s business is iron ore). We remain positive on the mining sector as commodity prices generally rise with inflation late in the economic cycle. 

We currently have a HOLD rating on Rio Tinto. 

Members should look out for a full update on Rio Tinto to be released in our weekly report.

 

Australia & New Zealand Market Movers
The Australian share market was once again higher on Thursday (ASX 200 index +0.28%) buoyed by modest gains from the banks and mining stocks. Australia's banks were among the market leaders on Thursday, with ANZ (our top banking stock pick) the best performing of the four majors. The share move of the day was experienced by Afterpay which jumped a massive +24%. The Tech stock reported quarterly sales growth of 39% in the fourth quarter of the 2018 financial year with underlying sales of $736 million, up +171% from the same period in 2017.

The New Zealand market continued to drift lower yesterday (NZX 50 index -0.32%) with market losses led lower by A2 Milk and Z Energy, while Trustpower and Summerset gained. Turnover was low as trading remains subdued and company specific news-flow is light ahead of the local corporate earnings season. Trustpower was the best performer yesterday as the power generator company gave an investor day presentation which was warmly received by market as the company said there was potential for them to continue with special dividends.

 

3 Things Markets Will be Watching this Week

1.               US corporate earnings season means investors will be shifting their focus back to company profit announcements.

2.               Trade will remain in the headlines after the United States announced further tariffs on an extra $US200 billion worth of Chinese goods.

3.               Key economic news flow includes – Chinese economic data (GDP figures and retails sales) are published on Monday. Australian employment figures are released on Thursday

 

Have a Great Day,

Team

US stocks dropped on Thursday after earnings disappointed and trade jitters escalated over worries that the European Union could slap retaliatory tariffs on goods imported from the United States.

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