MID MORNING UPDATE 5-2-18

MID-MORNING MARKETS

ASX 200 down 78 points in early trade. All sectors in the red, with Gold, Materials and Energy the worst hit.  Confession season casualties today include WES and DOW.

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 TODAY

  • Chinese Caixin Services and Composite data

TONIGHT

  • UK services and composite PMI
  • Mario Draghi is speaking
  • US ISM services index tonight

COMPANY NEWS

  • Wesfarmers (WES) – Impairments charges for UK home Homebase operations ($795m) as well as Target ($306m).

Bunnings UK is also expected to report an underlying loss before interest and tax of £97m ($165m) for HY2018, reflecting the poor trading performance of Homebase.

Managing Director of BUKI, Peter J (PJ) Davis, will retire from the business. WES is reviewing the UK operations and will report on progress in June.

1H pre-tax earnings will rise 14% despite the decline in sales.

  • AWE – Board recommends 95c offer from Mitsui
  • Worley Parsons (WOR) – New engineering and project management agreement with QGC Pty Ltd fro 3 years with 2 additional 1 year terms. No details of the size however.
  • Magellan (MFG) – Funds under management. Net inflows of $53m. which included net retail inflows into Global Equities strategies of $32m, net retail inflows into Infrastructure Equities of $35m, and net institutional outflows of $14m.
  • Downer EDI (DOW) – Will take a $77m impairment charge against the mining business in 1H18, reflecting loss of 2 contracts and delays in winning new work

BROKER RESEARCH

  • James Hardie (JHX) – Citi has raised its target price by 17% to $27. MAcqurie has raised its target price by 7.6% to $26.25.
  • Wesfarmers (WES) – UBS has cut its target price by 3.3% to $41.30, expect a further downgrade after todays announcement.
  • St Barbara Mines (SBM) – Macquarie has upgraded to an Outperform recommendation from Neutral and has raised its target price by 16% to $4.40.
  • Oneview Healthcare (ONE) – Macquarie has initiated coverage with an Outperform recommendation and a target price of $3.50.
  • GPT Group (GPT) – UBS has downgraded to a Neutral recommendation (from Buy) with a target price of $down 1.9% to $5.20
  • Mirvac (MGR) – UBS has downgraded to a Neutral (from Buy recommendation) with a target price down 7.9% to $2.32.
  • Nextdc (NXT) – Canaccord Genuity has downgraded to a Hold (form Buy) but has raised its target price by 20% to $6.05.
  • Fortescue Metals Group (FMG) – Bell Potter has cut its target price by 1.5% to $6.55.

Commodities

Goldman Sachs is still bullish on commodities and has raising its 12-month forecasts for copper, oil, iron ore and coal. From its latest Commodity Watch – “We maintain our overweight recommendation in commodities as the environment for investing in commodities is the best since 2004-2008”

Goldman lifted its 12-month target on copper to $US8000 a tonne (from $US7050) and raised its six-month target on Brent to $US82.50 a barrel from $US62. Goldman also increased its three-month target to $US85 a tonne from $US55; while its three-month target for met coal is now $US220 a tonne from $US165.


THIS WEEK – The highlights are RBA Bank of England meetings, while domestic retail sales and Chinese trade data the other data releases of note.

  • RBA meeting on Tuesday the main domestic event ahead of the Statement of Monetary Policy on Friday. Key data includes retail sales and the balance of trade on Tuesday, and housing finance on Friday
  • Chinese Caixin Services and Composite data Monday, trade data on Thursday and inflation on Friday.
  • Japanese services PMI numbers today, with earnings data and the leading and coincident index on Wednesday.
  • Mario Draghi speaking tonight and the ECB Economic Bulletin is out on Thursday
  • UK – There is a Bank of England meeting on Thursday, followed by industrial and manufacturing production on Friday.
  • Its’ a pretty quiet week in the US – ISM services index tonight and JOLTS job openings pretty much it.

Results Season – Bank updates including CBA 1H results on Wednesday, NAB trading update on Thursday and an operational briefing from Macquarie Group (MQG)on Tuesday. Key results from Rio Tinto (RIO) on Wednesday, AMP and Cimic (CIM) on Thursday.

  • Tuesday – Janus Henderson Group (JHG), Magellan Financial Group (MFG), Macquarie Group (MQG), Shopping Centres Australasia (SCP)
  • Wednesday – Commonwealth Bank (CBA), Rio Tinto (RIO), Carsales (CAR),
  • Thursday – National Australia Bank (NAB) trading update AGL Energy (AGL), AMP, Cimic (CIM), Mirvac Group (MGR), Mineral Resources Australia (MIN), Tabcorp (TAH)
  • Friday – REA Group (REA), Newscorp (NWS), Skycity Entertainment Group (SKC)

 


OVERNIGHT

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SPI FUTURES -65

US EQUITIES – S&P500 -60 (-2.12%), Dow Jones -666 (-2.54%) and was down 697 at worst, Nasdaq -145 (-1.96%).

Main themes –

  • US 10- year yield hit a 4 year high and rose above the Aussie for the first time since April 1998. The 30year bond also rose above 3%
  • Treasuries remain pressured amid focus on strongest average hourly earnings growth since 2009. Wages growth of 2.9% annualised.
  • Energy the worst performing sector. Exxon-Mobil -5.10% reported weaker than expected earnings
  • Tech sector mixed – Amazon +2.87% to a new high after a well-received result but Apple -4.34% after reporting above expected earnings but showing lower than iPhone expected sales in the last quarter and projecting lower than expected profit margins. Alphabet -5.28% also missed earnings expectation
  • Results season – 78% have beaten bottom-line expectations, while 80% have surpassed sales estimates, according to Thomson Reuters IBES.

EUROPEAN MARKETS – Hit heavily. STOXX -1.38%, UK FTSE -0.63%, German Dax -1.68%, French CAC -1.64%. Deutsche Bank -6.21% after reporting a €487m, it third consecutive annual loss. DB is down 11.5% for the week.

CURRENCIES

  • The US dollar closed 0.59% higher at 89.19.
  • The Aussie dollar is over a percent lower at US79.38 – has been as low as US 78.21.

BONDS – 2-yr: -2 bps to 2.14%, 5-yr: +3 bps to 2.59%, 10-yr: +7 bps to 2.84%, 30-yr: +7 bps to 3.08%

COMMODITIES

  • WTI oil was down US35c or 1.8% at US$65.45. Brent was down US$1.19c or 1.7% to US$68.46. Pressure came from the strength in the US dollar. More positively, there were signs that OPEC members are continuing to comply with their deal to cap output, with adherence by OPEC producers included in the deal to curb supply rose to 138% from 137% in December,
  • Gold futures were down uS$10.60 or 0.80% to US$1,337.30
  • Iron ore up US$1.20 to US$73.80.
  • LME metals mostly stronger – aluminium -0.67%, nickel -4.07%, copper -1.04%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – January Nonfarm Payrolls 200K (consensus 180K; prior 160K), Nonfarm Private Payrolls 196K (consensus 175K; prior 166K), Unemployment Rate 4.1% (consensus 4.1%; prior 4.1%), Avg. Hourly Earnings 0.3% (consensus 0.3%; prior 0.3%), Average Workweek 34.3 (consensus 34.5; prior 34.5),  December Factory Orders 1.7% (consensus 1.3%; prior 1.7%), January Final University of Michigan Consumer Sentiment Index 95.7 (consensus 95.0; prior 94.4)
  • Oil – Positive oil commentary from UBS, saying demand had quietly been underpinning the tightening of the market over the past year. UBS said global demand should grow by another 1.3mbpd (1.6mbpd or 1.6% last year) or even more after the International Monetary Fund raised its global economic growth forecast. They also see risk to the upside., saying in each of the 10 individual years since 1980 when GDP grew by over 4%, oil consumption growth exceeded 1.5% in seven of them. Goldman Sachs also recently raised its 2018 forecast for oil demand growth to 1.86mbpd (from 1.73mbpd) with 1.6mbpd forecast for 2019, saying economic growth around the world means consumption could be even stronger.

LAST WEEK

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