It was a quiet start to the week, with low volumes on the ASX at around $4 billion.
To put this in context very high volumes are over $7billion and very low are around $3billion.
I think that in the background we have a lot of fund managers doing their due diligence and attending presentations from the raft of placements and IPO’s currently in the market, about 13 IPO’s currently being marketed.
On Friday the cause of the +1.3% rally in the US was the strong payrolls report coming in at 204,000 versus the expected 120,000, this was complete with upward revisions of around 60,000 to prior months.
This has resulted in some analysts bringing forward the forecast date of “tapering” currently at March 2014, with some now bandying around January as the potential timing of first cuts.
Orica’s quarterly results beat expectations seeing the stock up 11.6 per cent mainly driven by positive performance in the mining services division.
To be fair the stock has been treated with disdain recently and my view is that the baby has been thrown out with the bath water in some cases in the mining services sector so good opportunities do exist.
With Ausdrill, Forge, Sedgman all recently downgrading earnings we continue to see that those companies exposed to exploration and feasibility study spend.
They will continue to struggle for the foreseeable future.
On the other side of the coin though, those involved in maintenance and production may be at somewhat of a bottom in terms of both sentiment and activity.
Commodity exposure is also key to determining possible future performance with thermal coal being the notable laggard, especially in higher cost Australian operations.
Clearly better performing for the past few years has been the sustainable yield component of the market which may continue to perform in the short to medium term as it’s not yet clear that the RBA’s next move in rates is up.
Once that is confirmed and the next interest rate move is definitely up, which I think will occur mid to late next year, the yield crunch here will begin and banks, TLS, WES etc. will see significant share price reductions.
So I think that we’re in the last six or so months of the yield trade being supported with much of the smarter money beginning to exit the sector in favour of resources and cyclicals early next year.
**Matthew Langsford is a client advisor, specialising in resources stocks.