MID MORNING UPDATE 1-2-18

MID MORNING MARKETS

The S&P/ASX200 is up 35 points at 10.40am. Almost all sectors are in positive territory – Telcos are the exception with Tesltra (TLS ) down another cent. Utilities, Consumer Staples and Energy the best sectors. Not a lot of news to focus on – house prices pretty interesting though (see below).

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COMPANY NEWS

  • Commonwealth Bank of Australia (CBA)CBA has acknowledged today’s progress report by APRA’s Prudential Inquiry Panel to examine CBA’s governance, culture and accountability frameworks and practices. It says its cooperating fully with the inquiry and welcomes the opportunity for the Panel to review “the work we have undertaken and advise on what more we can do.” To date CBA has supported an extensive survey of employees, provided access to around 80 employees for interviews and delivered over 10,000 documents for review. The Panel’s final report, which will outline findings and recommendations, is expected by the end of April 2018
  • BT Investment Management (BTT) – Richard Brandweiner has been appointed as CEO, succeeding Michael Bargholz who will retire effective 30 July 2018.
  • Oil Search (OSH) – Drilling Report

Corelogic House prices – House prices (dwelling) down 0.3% in January. Falls in Sydney (-0.9%), Perth (-0.4%), Melbourne (-0.2%), Adelaide (-0.2%), Darwin (-0.2%), and Canberra (-0.1%). Brisbane flat. Hobart the only shining light – up 1.0% in January and 12.4% over the last 12 months (18.0% total return).

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BROKER CHANGES

  • Village Roadshow (VRL) – Ord Minnet has downgraded to a Lighten (from hold) recommendation and cut its target price by 14% to $3.25.
  • People Infrastructure (PPE $1.41) – Ord Minnett has initiated coverage with a Buy recommendation and a target price or $1.56
  • Beach Energy (BPT $1.30) – Canaccord Genuity has raise its target price by 23% to $1.14.
  • Freelancer (FLN 43c) – Canaccord Genuity has cut its target price 7.1% to 65c.
  • Independence Gold (IGO $5.03) – Canaccord Genuity has raised its target price 6.1% to $3.50

TODAY

  • Economic data – Building permits, AIG Manufacturing index, Import and export prices, Corelogic house prices
  • Chinese Caixin manufacturing PMI. Yesterday’s official data was mixed – the manufacturing was below expectations (although still expansionary at 51.3 while the services index was stronger.

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  • Japan – Nikkei manufacturing index

TONIGHT

  • US ISM index, as well as construction spending, unit labour costs and productivity
  • European and UK manufacturing PMI

OVERNIGHT

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SPI FUTURES -3

US EQUITIES – S&P500 +11 (+0.059%), Dow Jones +73 (+0.28%), Nasdaq +9 (+0.12%).

Main themes –

  • FOMC left rates unchanged, but said it expects inflation to rise this year. The Committee no longer expects that inflation will “remain somewhat below two percent in the near term.” It was Janet Yellen’s last meeting. Jerome Powell will officially become Fed Chair on 3 February.
  • Market expectations for a rate hike in March rose to 83.1% from 70.9% following the FOMC release, with 3 rate hike still expected from 2018.
  • President Donald Trump’s first State of the Union address failed to offer any comfort to dollar bulls.
  • Boeing (+4.3%) jumps to new records following upbeat earnings/guidance

EUROPEAN MARKETS – Generally lower. STOXX -0.17%, UK FTSE -0.72%, German Dax -0.06, French CAC the exception +0.15% and other peripheral markets ok including Spain +1.24%.

CURRENCIES

  • The US dollar closed marginally lower at 89.12.
  • The Aussie dollar is also a lower at US80.57

BONDS – 2-yr: +2 bps to 2.14%, 5-yr: +1 bp to 2.52%, 10-yr: -1 bp to 2.72%, 30-yr: -4 bps to 2.94

COMMODITIES

  • WTI was up US23 at US$64.73. Brent was up US3c to US$69.05. EIA crude stockpiles rose by 6.8mb (week), compared with the 100k rise expected.
  • Gold futures were up 0.08% to US$1,341.00
  • Iron ore down US40c to US$73.10.
  • LME metals ticked up – aluminium +0.54%, nickel 87%, copper +1.09%

ECONOMIC DATA, NEWS & POLITICS

  • FOMC statement – Near-term risks to the economic outlook appear roughly balanced, but officials are keeping an eye on inflation, which has been slow to pick up despite a tightening of the labor market. Fed officials expect that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.
  • US economic data – Weekly MBA Mortgage Index -2.6% (prior 4.5%), January ADP Employment Change 234K (consensus 190K; prior 250K), Q4 Employment Cost Index 0.6% (consensus 0.5%; prior 0.7%), January Chicago PMI 65.7 (consensus 61.0; prior 67.6), December Pending Home Sales 0.5% (consensus 0.6%; prior 0.3%)
  • US Treasury to boost offering sizes: plans to sell $66 billion of longer-term debt in February, up from $62 billion in November
  • Eurozone data – December Unemployment Rate 8.7%, as expected (prior 8.7%). January CPI +1.3% yoy, as expected (last 1.4%) and core CPI +1.0%yoy, as expected (last 0.9%)
  • Other European data: Germany’s December Retail Sales -1.9% (expected -0.4%; last 1.9%) and -1.9%yoy (consensus 2.8%; last 4.3%). January Unemployment Change -25,000 (expected -17,000; last -30,000) and January Unemployment Rate 5.4% (expected 5.5%; last 5.5%); Spain’s January CPI -1.1% (expected -1.0%; last 0.0%) and +0.5%yoy (consensus 0.9%; last 1.1%); France’s January CPI -0.1% (expected -0.3%; 0.3%). December PPI 0.0% month-over-month (last 1.4%); Italy’s December Unemployment Rate 10.8% (expected 10.9%; last 10.9%)

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