MID MORNING MARKETS 26-3-18

The ASX 200 is down 32 points in mid morning trade. Getting repetitive – Gold & Energy up, everything else lower. Banks under pressure. Management changes the theme of the day. CBA moves particularly interesting. #ausbiz

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TODAY

  • Ex-dividend – Cedar Woods Properties (CWP) 12.0c, Over The Wire Holdings (OTW) 1.0c, SEEK (SEK) 24.0c, Seven Group (SVW) 21.0c
  • There is no economic data today or tonight

COMPANY NEWS

  • AMP – Chief Executive Officer Craig Meller will retire around the end of 2018 and the Board will commence a search for his replacement.
  • Bendigo & Adelaide Bank (BEN) – Has appointed Marnie Baker as Managing Director. She will assume the role from Mike Hirst on 2 July 2018. Ms Baker joined the Bank in 1989 and has a depth of experience in leadership roles across most areas of the Group – including treasury, capital markets, technology and payments systems, digital strategy, retail banking and funds management. She has been a member of the executive team for nearly two decades, most recently as the Bank’s Chief Customer Officer.
  • Commonwealth Bank (CBA) – Changes to executive team. Melanie Laing, Group Executive Human Resources, Kelly Bayer Rosmarin, Group Executive Institutional Banking and Markets, and David Whiteing, Group Executive Enterprise Services and Chief Information Officer, will leave the Bank in the coming months. The changes are being announced ahead of Mr Comyn assuming his new role on 9 April 2018. The statement from current boss Iran Narev is very interesting, with the departures announced before the appointment of successors “Leadership transitions are inevitably a time of change in senior teams, as executives reassess their own plans, and the Bank prepares for its future. Today we are announcing the departure of three high calibre executives who have contributed significantly to CBA.”
  • Harvey Norman (HVN) – HVN subsidiary HNM Galaxy, which itself owns 49.9% of Coomboona Holdings Pty (CH). Has announced that Peter McKenzie Anderson, William James Harris and Matthew Wayne Caddy of McGrath Nicol have been appointed as receivers and managers of CH and subsidiaries of CH.
  • Chorus (CNU) – Chorus will commence a proof of concept trial using its fibre network to provide a direct broadcasting service to consumers’ homes. The service would run in parallel to any broadband service also provided over the fibre, using a second port on the Optical Network Terminal installed in homes, to connect to consumers’ TVs. The Proof of Concept trial would commence in May and steps towards a commercial service will follow once the trial is complete.

BROKER CHANGES

  • Baby Bunting (BBN $1.39) – Citi has downgraded to a Sell recommendation with a target price of $1.50. While the Australian exit of competitor Babies R Us will be a positive development longer term, the Citi analyst points to the downside of discounting in the short term putting pressure on BBN.

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  • Transurban Group (TCL $11.05) – Announced the acquisition on Friday of the A25 toll road in Montreal from Macquarie Infrastructure Partners for C$840 plus transaction costs of C$18m. The A25 is a 6 lane 7.2km toll road and bridge connecting Northern Montreal across the Rivière des Prairies to commercial and residential areas. It opened in May 2011 with a concession to September 2042. The toll road in Canada’s second-biggest city had average annual daily traffic of 46,535 vehicles last year, a 4%increase on the year earlier. Broker response today.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $13.00. The analyst considers the transaction strategically consistent and a positive for Transurban. They don’t think the enterprise value/EBITDA multiple of 26x is cheap but certainly within reasonable bounds, in view of the traffic maturity.
    • UBS has a Buy recommendation with a target price of $13.35. The analyst considers the acquisition immaterial in terms of overall value but significant in that it represents an investment outside of its existing Metropolitan networks. They note that TCL has been successful in a contested process without any obvious cost of funding advantage or asset adjacency, suggesting a more constructive view of the eventual revenue upside.
  • Treasury Wine Estates (TWE $17.40) Morgan Stanley Overweight recommendation with a target price of $18.00. Following news about China imposing a 15% tariff on wine from the US, the analyst thinks the potential impact on Treasury Wine is small but it could slow future growth of US wine to China. The price points are high and demand is relatively inelastic so the broker suggests the impact should be negligible. TWE sells 20% of US wine sales to China by value but MS figures that Treasury’s US wines sold in China equates to 0.9% of FY18 revenue. The chart below suggests a bit of weakness is possible ahead. MACD indcator (the blue bars) turned negative (a sell signal) and RSI coming down from the oversold 70 level ( also a sell signal)

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OVERNIGHT (FRIDAY NIGHT)

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SPI FUTURES -51

US EQUITIES – S&P500 -55 (-2.10%), Dow Jones -425 (-1.77%), Nasdaq -174 (-2.43%).

Main themes –

  • Further sell-off due concerns and uncertainty about a potential trade war. The S&P500 was dwon 5.95% for the week.
  • Concern about Trump’s appointment of John Bolton as National Security Advisor. Bolton has previously advocated using military force against North Korea and Iran.
  • Trump has signed the $1.3tr Omnibus spending bill into law despite being “unhappy” about it. He had threatened to veto the bill earlier in the day.

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  • Stronger than expected durable goods orders

EUROPEAN MARKETS – 2-yr: -2 bps to 2.26%, 5-yr: -2 bps to 2.61%, 10-yr: UNCH at 2.83%, 30-yr: +1 bp to 3.08%

CURRENCIES

  • The US dollar is down to 89.48.
  • The Aussie dollar is a little stronger at US77.01.

BONDS – 2-yr: -3 bps to 2.28%, 5-yr: -7 bps to 2.63%, 10-yr: -8 bps to 2.83%, 30-yr: -6 bps to 3.07%

COMMODITIES

  • WTI oil was up 2.5% to US$65.88 a barrel after the Saudi energy minister said OPEC would need to keep coordinating supply cuts with non-member countries including Russia into 2019. The Baker Hughes weekly oil rig count rose by 4 to 804 in total, up 152 rigs from a year ago.
  • Gold rallied 1.7% to US$1,349.90 on trade war risks.
  • Iron ore was down US$1.00 at US$67.50. It’s worth noting that there are a variety of iron ore contracts traded. I use the one on IRESS but the one used by CommSec (Fines 62% CFR Tianjin port) is down $3.65 or 5.4% to US$64.10.
  • LME metals were mostly weaker – copper -0.52%, nickel -1.82%, aluminium -1.18%. Zinc +0.44% the exception.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – February Durable Orders 3.1% (consensus 1.5%; prior -3.5%) and Orders ex-transportation 1.2% (consensus 0.6%; prior -0.2%), February New Home Sales -0.6% to 618K (consensus 620K; prior 622K)
  • European Commission President Donald Tusk said the EU has approved guidelines for the EU-UK relationship following the completion of Brexit.
  • Italy – Lega leader Matteo Salvini said he will not break up the centre-right coalition. Member states of the European Union will be exempt from US tariffs on steel and aluminium imports until May 1.
  • China has retaliated to Trumps $60bn in tariffs with US$3bn tariffs on 128 US imports. 25% tariff on pork imports, 15% tariffs on US steel pipes, 15% on US fruit, 15% on US wine. Strong words saying US action

LAST WEEK

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QUOTE OF THE DAY

“Life is all memory, except for the one present moment that goes by you so quickly you hardly catch it going.” – Tennessee Williams, American dramatist born this day in 1911. Died 25 February 1983.

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