Black swan events and strong reporting

In markets, events that create significant market turns are often referred to as black swan events. The 9/11 tragedy was a black swan event, but the GFC was not a black swan event. The difference is that the former was something that was never factored in and completely surprised the markets.

Iron ore
Source: Bloomberg

In the US over the weekend, a new FBI investigation into Trump’s relationship with the Russians was announced, along with several committees in progress within Congress and the Senate, some of which are already investigating alleged Russian cyber-attacks and interference in the US election. This is on top of a Senate Intelligence Committee, which has the most cohesive and robust investigation going so far.

Traders may be keeping in mind the event that launched the current rally may end with an inverse event. This would have to be considered if a connection between Trump and the Russians is proved, and there is no upside for the markets in this type of event.

The spread in the German and French ten-year bonds have again widened to 0.7363% with Le Pen continuing to increase her lead in the first round of voting in the French election, gaining 26% of the vote.

Gold, trading at the $1235.22 close on Friday, is mid-way between the June 2016 high and the December 2016 low. It’s poised to trade over this level or find rejection, so the gold plays will be looking for direction this week. Traders will again be steering towards the commodity as a safe haven against any uncertainty within the Euro region.

Also this week, the coal market will be looking at the Chinese decision to lower the number of production days to 266, down from 336. It has also halted the importation of coal from North Korea.

Whitehaven Coal has increased its revenue 43% in the fourth-quarter report. The type of coal Whitehaven produces at $56 a ton is preferred by Asian buyers as it produces less carbon.  

The turnaround story of 2016, BlueScope Steel, is reporting today. With a starting price in January 2016 of $4.46 and last traded at $12.19,  expect a net profit after tax (NPAT) of $367.6 million, and particularly of interest will be the results from sales numbers in the Asia region.

Mining services company Worley Parsons is looking for a NPAT of $41.8M after a tough 2016. This sector has potentially the most upside in 2017 following years of cost cutting and rationalization. Now that commodities prices are rising, forward comments for 2017 will be the driving factor behind the share price.

A quiet but positive start is expected for Monday with the SPI futures up five points. ADRs are mixed with BHP at $26.24 and reporting tomorrow, and the market will be looking for NPAT of $2.883 billion. FMG’s ADR shows $6.91 and Qingdao iron ore futures remain strong, last traded $90.37 (up 34 cents). The CBA ADR suggests a move to $85.84 from last close of $83.39.

Following last week’s move in the financials with across the board rises of 3% and better, this week also looks positive in the sector.

With commodities and the financials moving forward, a positive start is expected with the index expected to hold 5800 points. A continuing bullish reporting season may see the 6000 level met in the ASX 200 index.

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