need2know: Positive sentiment for local open

Local shares are poised to open higher, buoyed by gains on Wall Street and in Europe on mostly strong corporate earnings.
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What you need2know

SPI futures up 34pts at 5607

AUD at 72.91 US cents

On Wall St, S&P 500 +0.7%, Dow +0.7%, Nasdaq +0.4%

In Europe, Stoxx 50 +0.6%, FTSE +1.2%, CAC +0.8%, DAX +0.3%

Spot gold up $US2.08 or 0.2% to $US1097.56 an ounce

Brent crude up 32 US cents or 0.6% to $US53.62 a barrel

What’s on today

Australia import and export prices, building approvals, Eurozone consumer confidence, US Federal Reserve meeting, economic growth

Stocks in focus

Hartleys upgraded Saracen Minerals to a “buy” recommendation from “accumulate” with a price target of 68¢. The recent sell down of gold stocks was particularly evident in the SAR share price which currently trades around 20 per cent lower as a result of the 5 per cent fall in the AUD gold price. “We believe now is a good time to purchase one of the better quality AUD gold stocks at a large discount to NAV.”

Deutsche Bank has a “buy” on Iluka Resources with a price target at $8.90 a share.

Craig Swanger at FIIG Securities assesses the impact of falling oil on local companies. “Energy producers such as Woodside, Origin Energy and Santos will struggle to improve earnings in this environment.  Service providers such as Worley Parsons and Ausdrill also face headwinds due to the lack of investment that follows the lower for longer forecast. The winners from a lower for longer oil price are the consumers of oil. Qantas and Virgin are the clear winners, given that around one-third of their cost bases are made up of jet fuel costs.”

Currencies

The greenback rose as the Federal Reserve moved a step closer to raising interest rates amid improvements in the labour market. The US currency gained as policy makers cited “solid job gains and declining unemployment” in a statement after their July meeting concluded Wednesday, without providing a clear signal on the timing of the first interest-rate increase since 2006.

ANZ currency strategist Daniel Been notes that the Australian dollar “continued its downward spiral as commodities continue to weaken and as signals of recovery in manufacturing in China remain elusive”. He says in a report, these factors have offset the more neutral domestic environment, including a signal from the Reserve Bank of Australia governor Glenn Stevens that while further easing is possible, it is not imminent.

“With the AUD now closer to fair value on a number of metrics, the sensitivity of the AUD to these various factors will likely be heightened in both directions. We have lowered our forecasts by US1¢ to US72¢ at the end of 2015. We remain structurally bearish on the AUD, targeting US70¢ by June 2016,” Been said.

Commodities

Iron ore advanced for a third day, taking gains to 25 per cent from a six-year low even as the world’s top shipbroker predicted renewed losses. Ore with 62 per cent content delivered to Qingdao climbed 4.6 per cent to $US55.89 a dry metric ton on Wednesday, according to Metal Bulletin Ltd. That was the biggest increase since July 9. While the gain of more than 20 per cent from the July 8 low met the common definition of a bull market, prices remain 22 per cent lower this year.

Oil advanced the most in three weeks in New York after US crude stockpiles unexpectedly decreased as production and imports declined. Inventories fell 4.2 million barrels last week, Energy Information Administration data show.

Nickel declined for the sixth time in seven sessions as stockpiles increased by the most in two months. Nickel inventories tracked by the London Metal Exchange climbed 1.2 percent to 457,890 metric tons, the biggest gain since May 26.  LME nickel for delivery in three months dropped 0.7 per cent to settle at $US11,250 a metric ton.

United States

US stocks rallied for a second day, as earnings topped forecasts and the Federal Reserve said the labor and housing markets are improving.

“Most peoples’ expectations are that we’re going to get a hike by the end of the year, and the Fed [statement] today didn’t do anything to change that narrative,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research.

After the closing bell, Facebook said its second-quarter sales topped estimates, thanks to a robust advertising business and a growing number of mobile users. Shares fell as spending jumped 82 per cent.

Europe

European stocks had their biggest two-day gain in two weeks as companies from Bayer to PSA Peugeot Citroen reported better-than-estimated earnings and deals activity intensified.

Bayer and Peugeot rose more than 3.9 per cent. GlaxoSmithKline climbed 3.5 per cent after the UK’s biggest drug maker posted second-quarter profit that declined less than analysts had estimated. Barclays added 1.8 per cent and Numericable-SFR SAS added 3 per cent as profit rose. Italcementi surged 49 per cent as HeidelbergCement said it will buy it. The German company lost 6.3 per cent.

“EPS and top line beats are quite good,” said Tobias Britsch, who helps oversee about $US30 billion at Meriten Investment Management in Dusseldorf, Germany. “M&A activity will continue. It’s companies making use of high cash piles to buy top-line growth to react to lower organic growth.”

What happened yesterday

Australian shares rode a wave of improved global sentiment on Wednesday, with all sectors finishing in positive territory, as investors prepare for next week’s earnings season.

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