MID MORNING MARKETS

The ASX is up 10 points in late morning trade, in very quiet trade. Energy and Materials in the lead, while Telcos lag (TLS!). MYR relief rally after result comes in at the top-end of expectations. Fed decision tonight #ausbiz

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Ex-dividend – CML Group (CGR) 0.8c, Clime Investment Management (CIW) 1.5c, IPE 3.8c, Newcrest Mining (NCM) 9.5c, RXP Services (RXP) 1.5c, Supply Network (SNL) 5.5c, Xenith IP Group (XIP) 3.0c

No domestic data

TONIGHT

  • UK data – Average Earnings excl. Bonus, Unemployment Rate and CBI Industrial Trends Orders
  • US – Current Account Balance and Existing Home Sales
  • FOMC Rate Decision

COMPANY NEWS

  • Bank Royal Commission continues today – Yesterday the focus was on administration failures and mistakes in interest rate calculations with mortgage offset accounts.
  • MYER (MYR) – 1H profit of $40.1m, at the top end of the guidance range of $37-41m. Non-cash impairment charge of $500.2 million (post-tax) on the carrying value of Myer goodwill and brand name intangibles on the Company’s balance sheet and other asset impairments of $6.4m (post-tax). Implementation costs were $9.7 million (posttax). No dividend. Sales down 3.6% or 3.0% on a comparable store basis. Expect a bit of a relief rally in the shares today as the numbers were not as bad as feared.
  • Rio Tinto (RIO) – Rio Tinto will sell its interest in Hail Creek coal mine and the Valeria coal development project in Queensland to Glencore for $1.7 billion. The sale includes Rio Tinto’s 82.0% interest in the Hail Creek operating mine and its 71.2% interest in the Valeria project. Rio Tinto will use some of its surplus liquidity to further reduce gross debt, today launching a bond purchase and redemption plan for up to $2.25 billion equivalent.
  • Crown Reports (CWN) – James Packer has resigned from the board.
  • Nufarm (NUF) – 1H results
  • Monadelphous Group (MND) – 6,875 ordinary shares will be released from escrow on 6 April 2018. A further 6,875 will remain in escrow.

Newcrest Mining (NCM) – Credit Suisse Asian Investment Conference

BROKER CHANGE

  • Bluescope Steel (BSL) – Morgan Stanley has reinstated coverage with an Overweight recommendation with a target price of $20. The analyst thinks global steel trends are providing a favourable backdrop which will provide support for earnings and meaningful cash flow, giving rise to further capital management. Supply reforms in China have removed capacity and improved the supply/demand dynamics but they think it’s too early to form a definitive view on the impact of US tariffs and the impact of displacement.

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TPG Telecom (TPM) – 1H results yesterday. Underlying NPAT up 5% to $217.7m on revenue growth of 1%. Earnings bridge shows detractors included margin reduction, iiNet fixed voice falls, and increased electricity prices. This was more than offset by “other growth”. 2 cent dividend. Upgraded guidance of 2-3% to $820-30m.

  • Credit Suisse has an Underperform recommendation with a target price of $4.55. The result was slightly ahead of the analyst’s forecasts. The think the upgrade results from fewer customers moving to the NBN this year because of the delays in the roll out. They believe market share in broadband reduced to -24.3% at the end of 2017, reflecting ongoing intense competition.
  • Deutsche Bank has a Hold recommendation with a target price of $5.90 (from $5.80). The analyst has raised its FY18 EPS estimate by 24%, FY19 by 8%, but they’ve cut FY20 by -13% and FY21 by -20%. Overall, earnings headwinds from the NBN migration have been pushed into outer year forecasts, in line with management’s approach which allowed the company to slightly upgrade its guidance. Deutsche thinks the earnings profile looks challenging.
  • Macquarie has a Neutral recommendation with a target price of $6.50. The analyst was disappointed with subscriber trends, although there were efficiency gains. There was positive progress on the mobile roll out, but they think investors are unlikely to price in material upside from mobile strategies in the near term.
  • Morgan Stanley has an Overweight recommendation with a target price of $7.00. The result was above the analyst’s estimates and they expect a positive share price response.
  • Morgans has a Hold recommendation with a target price of $5.74 (from $5.95). The results were in line with the analyst’s expectations and they have upgraded FY18 operating earnings estimates by 1.5% and downgraded FY19 by -0.3%. They think the company is on track and fully committed to its Singapore and Australian mobile roll out. While there is a medium-term upside opportunity, the outlook remains challenging.

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OVERNIGHT

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SPI FUTURES +7

US EQUITIES – S&P500 +4 (+0.15%), Dow Jones +116 (+0.47%), Nasdaq +20 (+0.27%).

Main themes –

  • FOMC meeting gets underway – Decision expected tomorrow, with a rate hike expected along with updated economic and interest rate projections. The key issue is whether this will include expectations for 4 interest rate rises this year instead of 3 currently
  • The G20 Finance Ministers meeting underway
  • Report that the Trump Administration will announce $60bn of tariffs on Chinese imports this Friday. The tariffs are targeted at 100+ products which were supposedly developed using US trade secrets.
  • Also some reports that “Phase Two” of Trump’s tax plan, which could possibly make individual tax cuts permanent, could be announced soon. Worries about increasing deficit are developing as a result.
  • Further falls in Facebook after reports of Federal Trade Commission (FTC) probe and UK summons of Zuckerberg. Twitter (-10.32%) shares were also weaker in the data privacy unrest.

EUROPEAN MARKETS – Partially recovered previous day’s losses. STOXX +0.51%, UK FTSE +0.26%, German Dax +0.74%, French CAC +0.57%.

CURRENCIES

  • The US dollar rallied 0.73% to 90.42.
  • The Aussie dollar is weaker, and currently trading at US76.84c.

BONDS – 2-yr: +4 bps to 2.33%, 5-yr: +4 bps to 2.68%, 10-yr: +3 bps to 2.87%, 30-yr: +3 bps to 3.11%

COMMODITIES

  • WTI oil rose US$1.34 or 2.2% to US$63.40 a barrel, with tension in the Middle East and potential falls in Venezuelan output the major influences (see commentary below)
  • Gold futures were down US$5.90 or 0.50% at $1311.900, with the firming US dollar weighing on process.
  • Iron ore was down US$2.50 to US$70.50.
  • LME metals were weaker – copper -1.44%, nickel -0.19%, aluminium -0.57%.

ECONOMIC DATA, NEWS & POLITICS

  • Oil market – The Saudi Arabian crown prince Mohammed bin Salman and US President Trump meet tonight. On Monday, the Saudis called the accord between Iran and six world powers “ a flawed agreement”, while trump has threatened to withdraw from the accord. This could lead to new sanctions against Iran which could damage its oil industry. Alsos supporting prices was concern about Venezuela whose production has halved since 2005 to below 2mbpd due to an economic crisis.
  • Oracle (-9.32%) weaker following earnings release. The better-than-expected numbers were overshadowed by a disappointment with the growth in the cloud computing business and the impact of a lower tax rate which had helped drive the positive earnings surprise.
  • UK CPI +0.4% (expected +0.5%; prior -0.5%) to be +2.7%yoy (expected +2.8%; prior +3.0%); core CPI +2.4%yoy (expected +2.5%; prior +2.7%).
  • German PPI -0.1% (expected +0.1%; prior +0.5%); ZEW Economic Sentiment Index 5.1 (expected 13.1; prior 17.8)
  • European ZEW Economic Sentiment 13.4 (expected 28.1; prior 29.3)

QUOTE OF THE DAY

“What other people think of me is none of my business.” – Gary Oldman, English actor born this day in 1958.

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