MID MORNING MARKETS 7-2-18

The ASX 200 is up 72 points in early trade, losing some of initial gains (was up 104). Materials and Energy in the lead, with Gold the only sector. Recovery in growth companies. Focus on results from CBA and CIM. RMD ex-div. RIO result after market.

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TODAY

  • Results – Commonwealth Bank (CBA) Consensus is for $5.2bn NPAT (C $5.18bn, BP $5bn, Rio Tinto (RIO) Consensus is for $8.675bn (C $8.416bn, BP $8.698bn), Carsales (CAR) BP $60m, Nick Scali (NCK) consensus is for $23.0m. BP $23.9
  • Ex-dividend – ResMed (RMD) $3.07

TONIGHT

  • US economic data – MBA mortgage applications, consumer credit

COMPANY NEWS

  • Commonwealth Bank (CBA) – Reported cash earnings down 1.9% to $4.74bn, which was below consensus of $5.2bn. The dividend of $2.00 was also below expectations of $2.08. Income was up 2.3%, with interest income up 6%. Positive stuff included the 50bp improvement in the CET1 ratio to 10.4%, impairment charge down 0.5% and net interest margin (NIM +6bp to 2.16%. But there were a couple of provisions – $375 for a potential penalty for the Austrak compliance breach and $200m provision for costs relating to regulatory, compliance and remediation programs including the royal commission.
  • Genworth Australia (GMA) – Underlying net profit down 19% to $171.1 with 12c dividend. GMA plans to continue its share buyback in 2018. Outlook – the Housing market is expected to ease further in 2018 with prices to be flat.
  • CIMIC (CIM) – Net profit up 21% to $702.1m for the full 2017 year and forecast 2018 earnings of $720-780m in 2018. 75c dividend. Work in hand rose to $36.0bn up $2.0bn over the year. Outlook – “There is an extensive pipeline of new work opportunities ahead for Cimic Group, providing us with a positive outlook.”
  • Carsales (CAR) – 1H net profit up 27% to $60.2m. Sees solid annual growth.
  • Nick Scali (NCK) – 1H net profit up 15% to $23.5m
  • Murray Goulburn (MGC) – 1H net loss of $27.5, down from a loss of $31.9m a year ago.
  • Wisetech (WTC) – Has acquired a leading Belgian logistics solution provider

BROKER CHANGES

  • Macquarie Group (MQG $97.88) – Citi has raised its target price by 2.6% to $79.50. CS raised target price 4.8% to $11.00
  • Shopping Centres Australasia Property Trust (SCP $2.20) – Citi has upgraded its recommendation to Neutral and raised its target price by 1.4% to $2.14. UBS has cut its target price by 4% to $2.16.
  • APA Group (APA $8.11) – UBS has initiated coverage with a Neutral recommendation with a target price of $8.55.
  • Ardent Leisure (AAD $1.885) – Citi has double upgraded to a Buy (from Sell) and raised its target price by 60% to $2.40.
  • Magellan Financial Group (MFG $25.21) – Morgan Stanley has raised its target price by 1.9% to $27.00.
  • Brambles (BXB $9.70) – CS raised target price 3.3% to $9.30.
  • Aurizon (AZJ $4.60) – CS has upgraded to a Neutral recommendation with a target price of raised 1.1% to $4.75
  • Greencross (GXL $6.02) – UBS has downgraded to a Neutral recommendation (from Buy) and cut its target price by 12% to $6.15.
  • Lifehealthcare (LHC) – Bell Potter has raised its target price up 22% to $3.51.

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OVERNIGHT

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SPI FUTURES +100

US EQUITIES – S&P500 +46 (+1.74%), Dow Jones +567 (+2.33%). Nasdaq +148 (+2.13%).

Main themes –

  • The Dow was down 567 at worst and up 600 at best, giving a 934-point range.
  • At one point it jumped 200 points in 2 minutes, going from -0.7% to flat. Reuters is calling it “Whipsaw Wallstreet”,

EUROPEAN MARKETS – All weaker. STOXX -2.41%, UK FTSE -1.42%, German Dax -2.32%, French CAC -2.35%.

CURRENCIES

  • The US dollar closed up 0.18% at 89.72.
  • The Aussie dollar continues to weaken – down to 78.96.

BONDS continued to show strength after early weakness – 2-yr: +1 bp to 2.09%, 5-yr: -1 bp to 2.51%, 10-yr: -2 bps to 2.77%, 30-yr: -3 bps to 3.04%

BONDS continued to show strength after early weakness – 2-yr: +1 bp to 2.09%, 5-yr: -1 bp to 2.51%, 10-yr: -2 bps to 2.77%, 30-yr: -3 bps to 3.04%

COMMODITIES

  • WTI was down US76c or 1.2% to US$63.39. Brent was down US69c or 0.9% to US$66.99. WTI had earlier traded lower at a 2 week low but rebounded as financial markets stabilised. The US continue to pressure prices.
  • Gold futures were up 0.43% to US$1,336.07
  • Iron ore unchanged at US$76.00.
  • LME metals mostly lower – aluminium -1.857%, nickel -2.62%, copper -1.30%

ECONOMIC DATA, NEWS & POLITICS

  • Comments from Carl Icahn – There are too many exotic, leveraged products for investors to trade and one day these funds are going to blow up the market. He said “The market is a casino on steroids” with these derivatives and they are the “fault lines” that will lead to an earthquake on Wall Street. He said the market will one day ‘implode’ because of these wacky funds using so much leverage. More positively, “I don’t think this is the explosive time…I think this thing will probably bounce back.”
  • US economic data – December Trade Balance -$53.1bn (consensus -$52.3bn; prior -$50.4bn), December Job Openings and Labor Turnover Survey 5.811m (prior 5.978m)
  • Greece – Has postponed its 7-year debt sale due to volatility in markets.
  • UK – Britain may have to abide by as many as 40 EU directives during the two-year transition period.
  • Bundesbank President and ECB member Jens Weidmann said that complacency is the biggest risk in the Euro area.
  • European data – Eurozone Retail PMI 50.8 (last 53.0), Germany December Factory Orders +3.8% (expected 0.7%; last -0.1%), France Q1 Industrial Investment +4.0% (last 4.0%)
  • China has sent the US a demand for compensation for imposing tariffs on imported solar panels and washing machines
  • Bitcoin – up 1.1% to US$6,990.

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