The ASX 200 is down 3 points in mid morning trade after a tumultuous trading session in the US. Caution ahead of Chinese President Xi Jinping speech at 11:30am. Not much corporate news. Banks lead the losses, Energy, Gold and Materials outperfomring. #ausbiz
TODAY
- Ex-dividend – Contango Income Generator (CIE) 1.6c, Gowing Brothers (GOW) 6.0c
- Economic data – TD-MI Inflation Gauge, NAB Business Confidence
- Chinese data – New Yuan Loans
- Japanese Machine Tool Orders YoY
TONIGHT
- Bank of England Haldane Speech
- US economic data – PPI, NFIB Small Business Optimism, Wholesale Inventories
- Fed Speak – Dallas Fed President (alternate voter in 2019) Robert Kaplan
- US earnings coming up later in the week
- Wednesday – Delta, Bed, Bath and Beyond
- Thursday – BlackRock
- Friday – Citigroup, JP Morgan, Wells Fargo
COMPANY NEWS
- Orecobre (ORE) – Cauchari Drilling update.
- Infigen (IFN) – March 2018 production. The company noted that as electricity flows through the transmission and distribution networks, energy is lost due to electrical resistance and the heating of conductors. Revenue is subject to marginal loss factors that are fixed annually by the Australian Energy Market Operator to account for network losses.
- Transurban (TCL) – Mark Birrel has been appointed a non-executive director.
BROKER UPDATES
- Amcor (AMC $14.05) – Morgan Stanley has upgraded to an Equal-weight (from Underweight) recommendation with a target price of $14.80 (from $14.40). Despite a number of cyclical pressures in the past 12-18 months, the analyst sees early signs of easing and think AMC is now better equipped to deal with cost inflation. Despite a growth profile that is consistent with the industrials sectors, AMC is trading on a significant 18% discount.
- APN Outdoor (APO $4.87) – Morgans has a Hold recommendation with a target price of $4.86 (from $4.44). The analyst has upgraded profit forecasts, saying digital outdoor advertising continues to grow at high double-digit rates while static billboard revenues are declining gradually. They expect APO to resume earnings growth from FY19.
- Wesfarmers (WES $41.93) – Credit Suisee has an Outperform recommendation with a target price of $44.98. The analyst believes WES would emerge from a de-merger of Coles well funded and with adequate growth, albeit narrowly focused on Bunnings. The near term growth outlook is expected to be dominated by Bunnings Australasia and they think an exit from Bunnings UK and Ireland is likely.
- Treasury Wine Estates (TWE $17.56)) – Macquarie has a Neutral recommendation with a target price of $15.83. The analyst believes the company will continue to align its business towards the structurally opportunistic US region. They believe the acquisition of Ste Michelle would be 9% accretive to earnings. While not priced for disappointment, they think the increasing likelihood of another accretive acquisition provides support. No acquisitions are yet incorporated into forecasts.
- Smartgroup (SI $10.44) – Ord Minnett has upgraded to a Buy (from Accumulate) recommendation with a target price of $1.55 (from $11.40). They like the combination of organic and acquired growth and are attracted to the business model as it takes no residual vehicle risk, which results in strong cash conversion. They have upgraded due to recent share price underperformance.
- Mineral Resources (MIN $16.05) – Takeover of Atlas Iron (AGO) where AGO shareholders will receive 1 new MRL share for every 571 Atlas shares held on the record date. Based on the closing prices of MRL and Atlas shares on 4 April 2018, this implies a $3.02 offer price or a 59% premium to the April 4 price.
- Macquarie has an Outperform recommendation with a target price of $23.00. The analyst believes this bid demonstrates MIN’s commitment to its Pilbara infrastructure strategy. AGO’s Utah Point capacity also presents near term operating options for lithium DSO and iron ore shipments.
- Morgan Stanley has an Overweight recommendation with a target price of $22.50. The analyst believes the takeover will have potential for strategic and operating benefits, including the Utah Point capacity. AGO’s iron ore assets are in proximity to the planned BOSS rail track, which implies these assets could benefit from the cost savings the company has previously flagged for its iron ore assets.
- Fortescue Metals Group (FMG $4.28) – Ord Minnett has upgraded to an Accumulate (from Hold) recommendation with a target price of $5.00 (from $5.60). The analyst thinks the share price now represents value given that the benchmark iron ore price has fallen around 20% over a month. While there remain concerned about persistently high discounts for low-grade iron ore, the absolute price of US$40/t still provides the company with an operating earnings margin of nearly 40%. The target price cut reflects wider discounts for lower-grade ore.
- BHP Billiton (BHP $28.66) – Macquarie has an Outperform recommendation with a target price of $35.70. The analyst considers the company’s oil business is a differentiator which means BHP can command a premium over some of its mining peers. As to whether a spin-off can unlock more value, they believe the case is unclear and heavily dependent on what multiple the company’s oil business should trade – the E&P peer group or the integrated oils. Scenarios are skewed slightly towards positive. The disposal of the shale business, meanwhile, is considered a positive catalyst that is likely to crystallise over the course of 2018.
OVERNIGHT
SPI FUTURES -flat
US EQUITIES – S&P500 +9 (+0.33%), Dow Jones +35 (+0.51%), Nasdaq +35(+0.51%).
Main themes –
- Equities rebounded in early trade after a “softer” tone from US offocials on Chinese trade war concerns, as well as technical support of the S&P 500’s 200-day moving average (2594) on Friday. The S&P was +49 and Dow +440 at best.
- Selling intensified into the close ahead of speech from China’s President Xi Jinping (11:30am our time)and President Trump’s response to a chemical attack in Syria
- The New York Times reported that the FBI raided the office of Trump’s personal lawyer Michael Cohen.
EUROPEAN MARKETS – All a touch higher. STOXX 600 +0.13%, UK FTSE +0.15%, German DAX +0.17%, French CAC +0.10%. Greek market +2.56%.
CURRENCIES
- The US dollar was weaker, down around 0.3% to 89.83.
- The Aussie dollar is a bit stronger at US76.99c.
BONDS – 2-yr: +2 bps to 2.28%, 5-yr: +1 bp to 2.60%, 10-yr: +1 bp to 2.79%, 30-yr: UNCH at 3.02%
COMMODITIES
- WTI oil rallied US$1.36 or 2.2% to US$63.42 as equity markets strengthened and developments in Syria.
- Gold futures were range-bound but settled 0.38% higher at US$1,341.20.
- Iron ore was up US$1.10 at US$64.10
- LME metals were mostly higher – Copper +0.90%, nickel +1.21%, aluminium +4.75% the highlight
ECONOMIC DATA, NEWS & POLITICS
- China is reportedly considering yuan devaluation as potential response to tariffs; military jamming equipment reportedly installed on contested Spartly islands
- US economic forecasts – The Congressional Budget Office released its latest Budget and Economic Outlook, projecting a slowdown in real GDP over the next two and a half years. The budget deficit is expected to grow substantially over the next few years
- European data – Eurozone April Sentix Investor Confidence 19.6 (expected 21.2; last 24.0); Germany February trade surplus €19.20bn(expected surplus of €23.10bn; last surplus of €21.50bn). February Imports -1.3% (expected 0.3%; last -0.2%) and February Exports -3.2% (expected 0.2%; last -0.4%)
- UK March Halifax House Price Index +1.5% (expected 0.1%; last 0.5%) to be +2.7%yoy (expected 2.1%; last 1.8%)
- Russia – The Ruble has fallen to November low in response to the latest round of sanctions targeting Russia’s President Vladimir Putin and his inner circle
- South African Finance Minister Nhlanhla Nene warned that some cities in South Africa are on the verge of financial ruin
- Merck rallied (+5.25%) after a committee determined Keytruda has helped previously untreated lung cancer patients live longer.
QUOTE OF THE DAY
“Put it before them briefly so they will read it, clearly so they will appreciate it, picturesquely so they will remember it and, above all, accurately so they will be guided by its light.” – Joseph Pulitzer, American publisher born this day in 1847. Died 29 October 1911.
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