The ASX is up 18 points in mid morning trade, with the Energy sector the highlight after a rally in oil prices. Not much news. Banks having a better day but that may not last. FOMC the focus this week.. #ausbiz
TODAY
- Ex-dividend – Austock Group (ACK) 1.0c, Auckland Airport (AIA) 10.0c, Alliance Aviation Services (AQZ) 2.5c, Chorus (CNU) 8.4c, Cochlear (COH) 140.0c, Naos Absolute Opportunities Company (NAC) 2.8c, 1300 Smiles (ONT) 12.0c, Reece (REH) 6.0c, Vita Life Sciences (VLS) 2.3c
- Chinese House Price Index
- Japanese Balance of Trade and Imports/Exports
TONIGHT
- European Balance of Trade and Construction Output
COMPANY NEWS
- Bank Royal Commission continues today – Last week finished with Aussie Home Loans under pressure in relation to its mortgage brokers
- Tassal Group (TGR) – Non-executive director Raelene Murphy has retired from the Board and John Watson has been appointed to the resulting vacant board position.
- Gateway Lifestyle (GTY) – Has acquired two established residential land lease communities located in one of South Australia’s major retirement markets for $45m (excluding transaction costs). The 2 properties includes 555 long-term sites of which 488 are occupied with a pipeline of 67 approved development sites. Following the acquisition, gearing is expected to remain within the Group’s target range of 25-35%. In addition, the Group continues with its asset recycling objectives, with over $18 million of sales proceeds received or committed from the divestment of non-core assets by year end.
- Newcrest Mining NCM) – Updated Wafi-Golpu Feasibility Study
BROKER CHANGES
- Wesfarmers (WES $43.80) – On Friday Wesfarmers announced it will demerge is Coles division. Will create a Top 30 company. Coles accounts for around 60% of the group’s capital and 34% of divisional earnings. “A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions. The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio. The Group expects to retain its current strong credit ratings and the dividend policy will remain unchanged.” The demerger will leave the group divisions of Bunnings, Kmart, Officeworks, and its Industrials portfolio. Wes will keep up to 20% of Coles after demerger to support the strategic alliance (including sharing data and digital etc) and retail substantial ownership in flybuys. The demerged Coles business will include a national network of 806 supermarkets as well as Coles Online; 8941 liquor stores nationally through Liquorland, Vintage Cellars and First Choice Liquor; Coles Express which operates 712 fuel and convenience store outlets under an exclusive alliance with Viva Energy; Coles Financial Services, which offers general insurance and credit cards; and Spirit Hotels, a chain of 88 hotels predominantly in Queensland. Further detail, including Coles’ proposed capital structure, dividend policy, separation, and governance arrangements will be announced later. The new Coles business will be led by Steven Cain (from Metcash), succeeding John Durkin who has had 10 years in leadership positions at Coles).
- Macquarie has an Outperform recommendation with a target price of $50.03. Macquarie is pleased the company is seeking to release hidden value and thinks a Wesfarmers ex Coles will be an attractive business for investors. The analyst also believes strategic initiatives will be more material to earnings with a smaller profit base.
- Morgan Stanley has an Underweight recommendation with a target price of $40.00. The analyst agrees with my comment on Sky last Friday that the move is a sign that the turnaround of Coles is finished. They don’t believe a separate Coles will drive accountability or performance, and expect $10-20m in incremental costs.
- Ord Minnett has a Hold recommendation with a target price of $42.50 (from $40.00). Ord Minnett considers the move positive and think it should provide a catalyst for the Wesfarmers share price performance. With Steven Cain in change, the analyst believes Coles could leverage the undemanding comparable numbers and margins to drive performance.
OVERNIGHT
SPI FUTURES +27
US EQUITIES – S&P500 +5 (+0.17%), Dow Jones +73 (+0.29%), Nasdaq flat (0.00%)
Main themes –
- Political drama I – Is he or isn’t he? The Washington Post reported that President Trump had decided to remove national security advisor McMaster but The White House has denied any imminent changes to the National Security Council.
- Political drama II – There were reports that White House chief of staff John Kelly could depart the administration as early as today but it looks as though Trump and Kelly have settled on a temporary “truce.” Kelly was apparently rattled by President Trump’s abrupt firing of Secretary of State Rex Tillerson (via Twitter) earlier in the week, and had told colleagues to start looking for new jobs.
- It was a positive finish to the week – although the S&P500 was still down 35 points or 1.24% for the week.
EUROPEAN MARKETS – Mostly higher. STOXX +0.22%, UK FTSE +0.34%, German Dax +0.36%, French CAC +0.29%.
CURRENCIES
- The US dollar was up 0.5% at 90.19.
- The Aussie dollar continues to drop, down to US77.20c.
BONDS – 2-yr: +1 bp to 2.29%, 5-yr: +3 bps to 2.64%, 10-yr: +2 bps to 2.84%, 30-yr: +2 bps to 3.08%
COMMODITIES
- WTI oil rallied late Friday afternoon, closing up 1.88% at US$62.34. Rsiing tention in the Middle East, as well as short covering, were said to be responsible for the spike. The weekly Baker Hughes rig count showed an increase of 4 oil rigs in the US to 800.
- Gold futures were down US$5.00 or 0.40% at $1312.30. The expected interest rate rise by the Fed next week put pressure on prices but this was limited by continued political turmoim.
- Iron ore was up US$2.00 at $73.00 a tonne.
- LME metals were mixed – copper -0.46%, nickel -0.04%, aluminium unchanged.
ECONOMIC DATA, NEWS & POLITICS
- US economic data – Housing Starts down 7% to 1236K (consensus 1283K, Prior revised to 1329K from 1326K) Building Permits 1298K (consensus 1330K, Prior revised to 1377K from 1396K), Industrial Production +1.1% (consensus 0.3% (Prior revised to -0.3% from -0.1%), Capacity Utilization 78.1% (consensus 77.7%, Prior revised to 77.4% from 77.5%), JOLTS – Job Openings 6.312m (Prior revised to 5.667m from 5.811m), Preliminary March Michigan Consumer Sentiment 102.0 (consensus 99.5, Prior 99.7), the highest since 2004 and driven by households with incomes in the bottom third.
- Key points from the US data – Capacity utilisation of 78.1% was the highest since January 2015 and the University of Michigan Consumer Sentiment Report revealed near-term inflation expectations increased to their highest level in several years. Both of these data points will keep inflation – and rate rise – expectations alive and kicking.
- European data – Final CPI +1.1% (expected 1.2%; last 1.2%) or +0.2% mom (expected 0.2%; last 0.2%). Final Core CPI +1.0% (expected 1.0%; last 1.0%); Q4 wages +1.7% (expected 1.8%; last 1.6%); Q4 Labor Cost Index +1.5% (last 1.6%); German WPI +1.2% (expected 1.5%; last 2.0%) or -0.3% for the month (expected 0.2%; last 0.9%); Italian Final CPI +0.5% (expected 0.6%; last 0.5%) after being flat for the month (expected 0.1%; last 0.1%)
LAST WEEK
THIS WEEEK – A big week with the Fed expected to raise interest rates at the FOMC meeting, as well as a Bank of England meeting and key domestic emplyment data
- Domestically, the RBA meeting minutes are released on Tuesday along with housing prices, while the key focus will be employment data on Thursday.
- Chinese house prices are out on Monday
- Japanese trade data is on Monday, followed by the leading and coincident indices on Tuesday. Inflation is Friday, where a fall to 1.2% yoy is expected.
- European data includes trade data on Monday, consumer confidence and economic sentiment on Tuesday and the Markit PMI numbers on Thursday.
- The Bank of England meets on Thursday, and there is also some key data including inflation and retail trade, employment and wages data, and retail sales
- The focus in the US will be the FOMC meeting on Tuesday and Wednesday, where there is a 94% chance of a rate hike prices into markets. Not much else on the data front – existing and new home sales and durable goods orders the main ones.
QUOTE OF THE DAY
“You are only as successful as the people who work for you want you to be.” – Leonard Lauder, American businessman and Chairman of Estee Lauder, born his day in 1933.
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