Profit Hunters: Look Here

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  • The rally might be pause around now
  • A clue to Europe from Hungary
  • Plus, small-cap punters: look here

Holy smokes! February is already well and truly here. How fast did January go? It flew by.

If you think time goes by fast in your own life, keep following the financial markets. They move like lightning.

Go back to the days before Christmas last year. The US market was tanking. The S&P 500 fell 17% from September to December.

The signs for 2019 didn’t look good.

At Profit Watch we stuck our tattered bull flag in the ground and said buy the dip. 

US and Aussie stocks have astonished many and bounced back since.

The ASX is up about 6% from the low in December.

The S&P 500 over in the US is outpacing us. It’s up around 9%.

Now we’re discovering why…

US employment data came out last week. Businesses just keep hiring workers.

The American job market has now added jobs for a record 100 months in a row, according to The Guardian.

You’ve probably heard about that already. Here’s another jobs report you might have missed: the action in Hungary.

The Financial Times reports that Audis autoworkers there were on strike for better pay. And they got it…a rise of 18%.

That’s pretty hefty.

Apparently wages in central Europe are rising quite strongly.

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I find this interesting in the context of the German slowdown…

China’s current weakness is slowing the prodigious export machine that Berlin has built over the years.

And yet Audi met this demand here without much of a whimper. That suggests labour is tight.

Germany itself is grappling with a severe shortage of workers…and a demographic necessity to retain older staff and keep them labouring away for longer.

We keep hearing Europe is a basket case and teetering on the brink of recession.

These wage gains don’t quite square with that assessment.

Alas, the world only comes in shades of grey…

Mr Market: some indigestion coming?

The stock market may pause around this level, especially here in Australia.

The release of the Hayne report into the banks will be released at the end of today.

That might take some time to digest…and cause a few upset stomachs!

However, there’s another story right now I found intriguing that might get lost among the noise of the royal commission.

Small energy company State Gas Limited [ASX:GAS] is becoming a likely takeover target.

The Australian notes:

Suitors are lining up to buy the business as major producers such as Santos remain short of gas and seek to boost supplies.’

Please: don’t rush out and buy this stock. It has already doubled since late November. This potential outcome is obviously not news to the market.

However, it’s the underlying dynamic that is notable.

The three LNG export trains in Queensland are part of what’s pressuring east coast gas supplies.

Supply clearly remains tight…hence the interest in State Gas.

That’s even though gas output in Queensland hit a record high late last year.

High gas prices are a worry for the general economy here in Australia, no doubt.

It was only a few weeks ago that a manufacturer called RemaPak went into voluntary administration.

High energy costs appear to be a major part of the problem. They were up 400% for the company in the last three years.

I’m tempted to roll out the cliché about the Chinese word for crisis being the same as opportunity.

Small-cap punters: look here

That’s no comfort to the people now out of work and an Australian business with 40 years of history going.

But the market will be hunting for any company that can help get gas to market.

Keep an eye on producers and explorers for the foreseeable future. The closer they are to existing infrastructure, the better.

Don’t forget that oil plays a role here too. LNG prices in the export market are linked to the oil price.

If oil goes up, so do Asian LNG prices. That gives Australia’s LNG exporters extra incentive to ship gas out of the country.

The only thing that could stay their hand is the threat of government regulation to reserve gas for domestic users. 

We also have the potential for the Chinese to impose higher tariffs on US LNG…and then turn to alternative suppliers like Australia and Qatar.

Such an outcome could incentivise further gas exploration and production.

It makes for a tricky and unpredictable situation for gas users in Eastern Australia.

However, it does give great incentive for exploration in gas to happen…and when that goes well it can make for exploding share prices.

Suffice to say there’s a lot of potentially interesting moves coming up for gas related firms on the Aussie share market.

Cheers,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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