MID MORNING MARKETS 5-3-18

The ASX is down 8 points in mid-morning trade. LYC up on results, RFG bounced from losing half its value (now down a third). Big week ahead for data and central bank action (or inaction???) #ausbiz

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TODAY

  • Australian Economic data – AIG Services Index, Building Permits, Business Inventories, Company Gross Profits, ANZ Job Advertisements
  • Exdividend – 8IP Emerging Companies (8EC) 1.0c, Australian Finance Group (AFG) 16.7c, Ainsworth Game Technology (AGI) 1.5c, BWX (BWX) 3.3c, Credit Corp Group (CCP) 31.0c, Collection House (CLH) 3.9c, Contrarian Value Fund (CVF) 4.0c, ERM Power (EPW) 3.5c, Fleetwood Corp. (FWD) 1.0c, InvoCare (IVC) 27.5c, Lifehealthcare Group (LHC) 7.5c, MNF Group (MNF) 4.3c, Mineral Commodities (MRC) 0.7c, Sandfire Resources (SRF) 8.0c, Shine Corporate (SHJ) 1.0c
  • Chinese National People’s Congress
  • Chinese data – Caixin Composite PMI, Caixin Services PMI
  • Japanese – Average Cash Earnings, Nikkei Services PMI

TONIGHT

  • European data – Markit Services PMI Final, Markit Composite PMI Final, Retail Sales
  • UK data – Markit/CIPS Services PMI
  • US data – ISM Services

COMPANY NEWS

Retail Food Group (RFG) – Underlying net profit after tax down 31.8% to $24.7m, reflects disappointing performance in challenging trading conditions. Revenue up 20.8%.

Business-wide review complete – c.160-200 domestic outlets will be closed by end of FY19, predominantly due to unsustainable rent and declining shopping centre performance; c.$10m targeted in annualised operational savings through the restructure of RFG’s existing shared service corporate model; $1.5m investment to bolster capability within enhanced franchisee field service model

Impairments, writedowns and provisioning of $138m – from planned store closures, recent trading performance, and a re-assessment of near-term trading prospects,

Net debt as at 31 December 2017 was $259.7m and in compliance with all banking covenants at this date. $150m debt facilities extended into longer maturities.

Dividends suspended.

Outlook – Confident in the strength of the Company’s underlying business operations and the Group’s ability to support its Brand Systems and their franchisees. However, it recognises that retail trading conditions, especially in shopping centres, will remain challenging for the foreseeable future and RFG needs to improve the support it provides to its franchisees as a consequence.

Difficult to predict full year outcomes.

Lynas (LYC) – 1H results. Big growth in earnings and revenue up 75%. Increased production and sales volumes, improved prices and  cash flow, debt down to US$236.5 (from US$425m).

MMM2

  • Toxfree (TOX) – Federal Court orders convening of scheme meeting.
  • Dexus (DXS) – Daiwa conference presentation
  • Seek (SEK) – Moves to 100% of Seek Asia
  • Oil Search (OSH) – Staus update on earthquake in PNG. Exxon says may take 8 weeks to restore output. Minimal impact seen on Gobe production facilities. Damage to processing facilities less than feared, central processing facility seen operational in 2-3 weeks, The timeframe for restarting facility is still under review.

Santos (STO) – PNG LNG update. Might take 8 weeks to complete repairs. Donate US$200k. Some damage to equipment and foundation supports at the Hicks conditioning plant, yet to be fully assessed. Pipeline not damaged.


OVERNIGHT

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SPI FUTURES +12

US EQUITIES – S&P500 +14 (+0.51%), Dow Jones -71 (-0.29%) and another day you can ignore the DOW performance, Nasdaq +77 (+1.08%)

Main themes –

Escalating protectionist concerns as the “trade war” threat heats up

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

CURRENCIES

  • The US dollar fell 0.4% to 89.98.
  • The Aussie dollar is little changed at US77.66c.

BONDS – 2-yr: +3 bps to 2.23%, 5-yr: +5 bps to 2.62%, 10-yr: +5 bps to 2.86%, 30-yr: +4 bps to 3.13%

COMMODITIES

  • WTI oil was up 26c at US$61.25 (hit a low of US$60.18). OPEC representatives meeting with US shale firms next Monday in Houston. The Baker Hughes rig count rose by 1 rig
  • Gold futures were uo 1% at US$1318.70 on trade war concerns.
  • Iron ore was down US50c at $80.00.
  • LME metals were mixed – copper -0.35%, nickel -0.07%, aluminium +0.09% again the exception due to possible tariffs

ECONOMIC DATA, NEWS & POLITICS

  • US Economic data – Final February Michigan Consumer Sentiment Index (actual 99.7; Briefing.com consensus 99.5; last 99.9)
  • The Fed’s balance sheet was reduced by $18.26bn during the week ended February 28.
  • Reports in the WSJ that Richard Clarida is likely to be nominated as Fed vice chair, a role which has been vacant since Stanley Fischer resigned in October.
  • Italina election – Exit polls suggest a hung parliament, centre-right bloc set to win most seats.

THIS 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.

LAST WEEK

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QUOTE OF THE DAY

“If you pay a child a dollar to read a book, as some schools have tried, you not only create an expectation that reading makes you money, you also run the risk of depriving the child for ever of the value of it. Markets are not innocent.” – Michael Sandel, American philosopher born this day in 1953.

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