MID MORNING MARKETS 2-3-18

The ASX200 is down 45 points in mid-morning trade, with Gold the only sector up. WPL up on ACCC news. BSL up despite going ex-div 6c and Trump tariff turmoil. #ausbiz

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  • Ex-dividend – Argo Global Listed Infrastructure (ALI) 1.3c, Altium (ALU) 13.0c, Australian Governance Masters , Index Fund (AQF) 5.0c, Bingo Industries (BIN) 1.7c, Beacon Lighting Group (BLX) 2.5c, BlueScope Steel (BSL) 6.0c, Bravura Solutions (BVS) 4.5c, Capitol Health (CAJ) 0.4c, Eumundi Group (EBG) 2.3c, HiTech Group Australia (HIT) 4.0c, McPherson’s (MCP) 6.0c, Medical Developments International (MVP) 2.0c, Mystate (MYS) 14.3c, Pengana Capital Group (PCG) 6.5c, Pental (PTL) 0.6c, Southern Cross Media (SXL) 3.8c
  • Japanese Household Spending and Unemployment Rate

TONIGHT

  • European PPI
  • UK – Construction PMI FEB
  • US economic data – Michigan Sentiment – Final

COMPANY NEWS

  • Helloworld (HLO) – Completion of Magellan Travel Group acquisition (announced last December). The network involves 97 members and 129 agencies.
  • Cedar Woods (CWP) – The WA Minister for Planning decides not to support the rezoning of the Mangles Bay Project land in Rockingham (WA). The decision will likely constitute the end of Cedar Woods’ involvement with the Project. Carrying costs for the Project are $6.3million, which represents only 2% of net assets. If costs are not fully reimbursed by Government, the decision may result in an impairment of up to $2.6m (after tax) in the FY18 financial statements.
  • Atlas Iron (AGO) – Has signed an agreement with Sinosteel Australia Pty Ltd to export lithium direct shipping ore (DSO) sourced from the Pilgangoora Lithium Project owned by Pilbara Minerals Limited. AGOwill sell up to 1.5mt of lithium DSO to Sinosteel over a 15-month period on a fixed priced basis. As part of the arrangement, Sinosteel will advance funds to cover prepayments due to Pilbara Minerals for DSO mine development costs. Pilbara Minerals has commenced an expedited mining program for the lithium DSO. Atlas will process and transport the ore using its existing infrastructure, including its Mt Dove crushing hub and Utah Point facilities. After allowing for payments to Pilbara Minerals and its own costs, Atlas expects to generate an operating margin of $15-20 per tonne and is on track to commence the first exports in the June Q.
  • Woodside Petroleum (WPL) – The ACCC has authorised Chevron, INPEX, Shell and Woodside to coordinate maintenance activities at their LNG facilities in Western Australia and Northern Territory. “LNG producers can now schedule maintenance together without risking breaching competition laws, reducing concurrent work at their facilities. This will improve efficiency and maximise LNG production,” ACCC Chairman Rod Sims said.
  • Fortescue Metals Group (FMG) – Successful completion of US$500m high yield offering. Proceeds will be used to repay outstanding notes.
  • Carsales (CAR) – Chair Jeffrey Browne to retire, Richard Collins interim Chair.

BROKER CHANGES

  • Orica (ORI) – Macquarie has cc 4.8% to $18.65. Citi has cut its target price to $$16.5 (from $17.00) It comes after yesterday’s profit warning. Profit warning. Now expects to report lower EBIT for 1H. Unplanned plant maintenance at the Yarwun and Kooragang Island plants would take $17m off 1H earnings, while a further $15m is linked to disruptions because of extreme weather in North America, continued challenges in the cyanide market and ongoing underperformance of the Minova business, which services the mining, tunnelling and engineering industries. “Whilst we do not anticipate any interruption to customer supply, there will be a one-off net negative EBIT impact of approximately $19 million for the full financial year, expected to be weighted towards the first half…mainly due to additional freight and sourcing costs,”
  • Bega Cheese (BGA) – UBS has upgraded to a Buy (from Neutral) recommendation and raised its target price by 5.1% to $8.30.
  • Beadell Resources (BDR) – Citi has upgraded to a Buy (from Neutral) recommendation and cut its target price to 15c from 21c.
  • AMA – Canaccord Genuity has raised its target price by 3.2% to $1.30
  • UBS on reporting season – Best and worst? In large caps, best were Qantas, Flight Centre, Fairfax, a2 Milk, ResMed, Computershare, CSL, Insurance Australia Group and Origin Energy. The disappointments came from Vocus Group, Suncorp, Tabcorp, South32, Star Entertainment Group, Domino’s Pizza Enterprises, and Harvey Norman.

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SPI FUTURES -48

US EQUITIES – S&P500 -36 (-1.33%), Dow Jones -420 (-1.68%) but off its lows of down 587. Nasdaq -92 (-1.27%)

Main themes –

  • Initial optimism on the second leg of Fed Chair Jerome Powell’s testimony to the Senate Banking Committee. No new information provided and the chance of 4 rate hikes this year has eased to 28.1% from 31.9% on Wednesday.
  • Selling intensified after President Trump announced tariffs on steel and aluminium imports, effective next week, giving support to steel names (US Steel +5.75%) but putting pressure on car markers GM -3.96%, Ford -3.02%…not to mention sparking concerns of a trade war.
  • Important PCE data – The peronsla income and spending data revealed a stable rate of inflation. The PCE Price Index (the Fed’s preferred inflation gauge) was up 1.7% yoy for the third straight month while the core PCE Price Index was up 1.5% for the fourth straight month. It’s not enough to change the current expectations for at least three rate rises this year.

EUROPEAN MARKETS – All lower. STOXX -1.26%, UK FTSE -0.78%, German Dax -1.97%, French CAC -1.09%.

CURRENCIES

  • The US dollar eased 0.1% to 90.51but is still mear its 5-week highs.
  • The Aussie dollar is also lower, down 0.15%, at US77.51c.

BONDS – 2-yr: -6 bps to 2.20%, 5-yr: -8 bps to 2.57%, 10-yr: -7 bps to 2.80%, 30-yr: -4 bps to 3.09%

COMMODITIES

  • WTI oil was down US65c or 1.1% at US$60.99 (hit a low of US$60.18). Still negative sentiment after Wednesday’s US crude inventory data showed a 3mb increase, above expectations for 2.1mb. Next Monday OPEC officials will meet US shale executives at a US energy conference, a gathering that underlines the influence of American output in keeping a lid on global prices.
  • Gold futures were down 0.54% at US$1310.80..
  • Iron ore was down US50c at $80.50.
  • LME metals were mostly weaker – copper -0.13%, nickel -2.39%, aluminium +0.70% the exception

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – January Personal Income 0.4% (consensus 0.3%; prior 0.4%); Personal Spending 0.2% (consensus 0.2%; prior 0.4%); PCE Prices 0.4% (consensus 0.4%; prior 0.1%); PCE Prices – Core 0.3% (consensus 0.3%; prior 0.2%), weekly Initial Claims 210K (consensus 227K; prior 220K), and Continuing Claims 1931K (prior 1874K); February ISM Index 60.8 (consensus 58.4; prior 59.1) and January Construction Spending 0.0% (consensus 0.3%; prior 0.8%)
  • Federal Reserve’s Balance Sheet update at 16:30 ET – was last at -$23.20bn
  • European data – Manufacturing PMI 58.6 (expected 58.5; last 58.5), German Manufacturing PMI 60.6 (expected 60.3; last 60.3), French Manufacturing PMI 55.9 (expected 56.1; last 56.1); Italian Manufacturing PMI 56.8 (expected 57.9; last 59.0) and January Unemployment Rate 11.1% (expected 10.8%; last 10.9%); Spanish Q4 GDP +0.7% as expected (last 0.7%); +3.1% year-over-year, as expected (last 3.1%), Manufacturing PMI 56.0 (expected 54.8; last 55.2).
  • UK Manufacturing PMI 55.2 (expected 55.1; last 55.3). BoE Consumer Credit £1.36 billion (expected £1.40 billion; last £1.58 billion). Mortgage Approvals 67,480 (expected 62,000; last 61,690). Nationwide HPI +2.2% yoy (expected 2.6%; last 3.2%)

YESTERDAY’S NEWS

CAPEX numbers disappointed – Private investment fell 0.2% in the December quarter (seasonally adjusted), much worse than the 0.9% expected and down from 1.9% previously. CAPEX is 4.0% higher than year ago levels.

  • BUILDINGS AND STRUCTURES – Down 0.2% in trend terms. Mining fell 4.5%, Manufacturing fell 0.1% and Other Selected Industries rose 3.6%. Down 2.1% in sa terms. Mining fell 9.7%, Manufacturing rose 12.3% and Other Selected Industries rose 4.2%.
  • EQUIPMENT, PLANT AND MACHINERY – Up 2.1% in trend terms. Equipment, plant and machinery for Mining rose 10.4%, Manufacturing rose 1.2% and Other Selected Industries rose 0.8%. Up 2.2% in sa terms. Mining rose 21.9%, Manufacturing fell 0.9% and Other Selected Industries fell 0.3% in seasonally adjusted terms.
  • MINING – Down 2.2% in trend terms. Buildings and structures fell 4.5% while equipment, plant and machinery rose 10.4%. Down 4.7% in sa terms. Buildings and structures fell 9.7% while equipment, plant and machinery rose 21.9% in seasonally adjusted terms.
  • MANUFACTURING – Up 0.8% in trend terms. Buildings and structures fell 0.1% and equipment, plant and machinery rose 1.2%. Rose 2.6% in sa terms. Buildings and structures rose 12.3% and equipment, plant and machinery fell 0.9% in seasonally adjusted terms.

But future spending plans have been upgraded – forecast investment spending for 2017/18 up by 4.9% from three months earlier to $115bn. Plans for 2018/19 were $84bn, which is 3.5% more than the same initial forecast for 2017/18 published a year ago. While below estimates of $87bn, it’s the first time since 2012/13 there has been an increase on the prior year. The mining industry continues to lower its future investment plans, while manufacturing and non-mining investment companies are raising expectations.

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House Prices stabilising – House prices fell 0.1% overall to be up 2.2% over the last 12 months. This represented more moderate falls than the previous 2 months (of 0.3%) Capital city prices fell 0.3% while regional prices saw growth of 0.4%. Hobart was the only city to show price growth, with median house prices up 0.7%. Adelaide flat and the losses were led by Darwin (-0.9%), Sydney (-0.6%), while values were also lower in Melbourne (-0.1%), Brisbane (-0.1%), Perth (-0.2%), and Canberra (-0.3%).

CoreLogic said the rate of decline eased over the second half of February in line with improving auction clearance rates. Sydney, Melbourne and Perth all recorded more moderate falls in values throughout February than they did in January.

On a quarterly basis, Adelaide (0.1%) and Hobart (3.2%) were the only capital cities with increases. Sydney saw the largest fall over the quarter, down -2.4%. Darwin prices also fell a further 2.0% over the quarter.

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NEXT WEEK – Just as we finish results season, we also enter a period of huge economic importance. It’s a big week for central bank meetings as well as GDP data. Meetings by the RBA, BoJ, ECB. GDP in Australia, Japan and Europe. And in the US, the all-important employment data is out on Friday.

  • Domestically there is an RBA meeting on Tuesday (no change in rates is expected and I’m pretty sure I’ve written that before) with GDP on Wednesday. Current forecasts are for 0.7% for the quarter and 3.0% for the year but expect those estimates to come down after the weaker than expected CAPEX data yesterday. Lots of other important data as well including building permits on Monday, retail sales on Tuesday and the balance of trade on Thursday.
  • In China, the National People’s Congress starts on Monday and we also have the often market-moving trade data on Thursday as well as Chinese inflation and PPI on Friday.
  • The Bank of Japan meets on Friday and major data releases include GDP on Thursday and household spending on Friday.
  • In Europe, an ECB meeting on Thursday comes after retail sales on Monday and GDP on Wednesday.
  • In the US, the focus will be employment data on Friday, which will include an update on average weekly earnings…the very number that caused the market meltdown in early February. Other key data includes factory orders on Tuesday and trade data on Wednesday.

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QUOTE OF THE DAY

“You have brains in your head. You have feet in your shoes. You can steer yourself in any direction you choose. You’re on your own, and you know what you know. And you are the guy who’ll decide where to go.” – Dr. Seuss, American writer born this day in 1904. Died 24 September 1991.

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