MID MORNING MARKETS 16-4-18

The ASX 200 is up 30 points in late morning trade, with strength across the board. Gold the only negative sector. Bank royal commission starts up again, BLA profit warning, RIO force majeure and a look at the week ahead #ausbiz

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TODAY

RBA Financial Stability Review
Ex–dividend – Turners (TRA) 3.6c
Chinese trade data

TONIGHT

German Inflation Rate
US economic data – JOLTS – Job Openings, University of Michigan Consumer Sentiment
US earnings – Citigroup, JP Morgan Chase, Wells Fargo
Fed Speak – Boston Fed President (alternate voter) Eric Rosengren, St. Louis Fed President (alternate voter) James Bullard, Dallas Fed President (alternate voter in 2019) Robert Kaplan

COMPANY NEWS

Bank Royal Commission – The focus today is on financial advice provided by the banks, particularly where there were conflicts of interest when providing financial advice. Fee for “no service” will be a key topic and whether the laws need to be tightened.
Rio Tinto (RIO) – Is implementing sanctions on various Russian individuals and companies. The arrangements include Rusal’s 20% interest in Queensland Alumina Limited in Australia, including Rusal’s associated supply and offtake arrangements, bauxite sales to Rusal’s refinery in Ireland and offtake contracts for alumina that are used at Rio Tinto’s smelters, mainly in France and Iceland. As a result of the imposition of these sanctions, Rio Tinto is in the process of declaring force majeure on certain contracts and is working with its customers to minimise any disruption in supplies. Rio Tinto is fully committed to complying with the US sanctions.
Bluesky (BLA) – Market update (and guidance downgrade). Has revised fee-earning AUM guidance for FY18 from $4.25-$4.75bn
Infigen Energy (IFN) – Has said it met on 13 April 2018 with representatives of Brookfield Asset Management Inc to discuss their interest following the recent 9% purchase. Brookfield said it has no current intention of making a takeover offer for Infigen Energy. (But this could change). At this stage, Chairman Len Gill said that the discussions were constructive and Infigen Energy is pleased to have Brookfield join the register as a strategic investor with a long term interest in Infigen.
Transurban (TCL) – March quarter 2018 update. Average Daily Traffic increased by 2.7%, with growth across all Australian markets. Traffic growth was affected by the timing of the Easter holiday period.
Lynas (LYC) – Quarterly report
Mineral Resources (MIN) –
Perpetual (PPT) – FUM (31 March 2018) was $30.2bn, down $2.6bn on the prior quarter. Net outflows for the quarter were $1.3bn. The decrease in FUM of $2.6bn was attributable to market depreciation of $1.3bn and $1.3bn of net outflows – $1.4bn net outflows from Australian Equities primarily from the Institutional Channel and $0.1bn of net inflows into Cash and Fixed Income primarily from the Intermediary channel
Spark New Zealand (SPK) – Spark New Zealand and TVNZ to bring coverage of Rugby World Cup 2019 and other world rugby tournaments to New Zealanders

BROKER NEWS

AMA Group (A@M $1.01) – UBS has a Buy recommendation with a target price of $1.30. AMA intends to sell its panel business to Blackstone for $508m. Shareholders will be given the option to receive either all-cash or a mix of cash and shares in Queen TopCo, a company formed by Blackstone. The board has also recommended that the remaining automotive component, accessory and procurement business be de-merged into a separate ASX-listed company. The de-merger is expected to be completed in September.
Ansell (ANN $25.37) – Credit Suisse has an Underperform recommendation with a target price of $23.60 (from $21.75). The analyst has reviewed activity trends over the March quarter, noting positive trends in industrial production. US distributors have reported pricing inflation from manufacturers, which suggests the company has been able to pass on price increases to offset higher raw material costs. However they have kept the recommendation due to valuation issues.
Capitol Health (CAJ 26c) – Credit Suisse has reinstated recommendation with an Outperform recommendation with a target price of 53c. The analyst believes the company has been sensible in walking away from the Integral Diagnostics (IDX) proposal to a more conservative strategy. They consider the revenue environment sound and regulatory risks negligible. Guidance of $129-132m for FY18 revenue implies around 3.5-6% organic growth rate for the Victorian business and Credit Suisse estimates are at the mid point of the range.
CSR – Ord MInnett has a Hold recommendation with a target price of $4.90 (from $4.45). The analyst has raised earnings projections and factored in revised aluminium price forecasts, but expects FY18 to be the peak in profitability for the building products division. They also think capacity additions from peers in glass and plasterboard could provide a challenge to increasing prices and the company’s market share.
Origin Energy (ORG $9.03) – Macquarie has upgraded to an Outperform (from Neutral) recommendation with a target price of $9.89 (from $9.21). The analyst thinks ORG’s position as a firm provider of +3GW of electricity is increasingly attractive as grid-grade wind and solar farms emerge to meet renewables targets. A mild summer, and the increasing growth of household solar, saw a drop in demand, but surplus gas can be redirected to exports. Stronger oil prices are supporting APLNG cash flows, while cost initiatives provide for further upside.
Wesfarmers (WES $41.04) – Media reports that it has bought a 3-4% holding in Fletcher Building. Morgan Stanley has an Underweight recommendation with a target price of $39. The analyst believes WES has the means to acquire this business and Fletcher Building fits its existing acquisition framework. They say there is considerable overlap between the two in the NZ home improvement market, and the NZ regulator may require Wesfarmers to sell Fletcher’s Placemaker if a takeover is proposed, given it competes directly with Bunnings.
Woodside Petroleum (WPL $30.32) – Morgan Stanley has an Overweight recommendation with a target price of $36.00. The analyst sees a number of catalysts over coming months and believes its growth thesis for the business is slowly playing out. Catalysts include Wheatstone production rising over 2018 and becoming evident in quarterly reports; a number of exploration wells, which could lower development costs for late-life Pluto gas; and a number of international oil exploration wells. They also believe emerging similarities between Woodside and the super majors, such as Shell, in relation to paying a large dividend mean investor focus on the dividend profile is likely to intensify over time.
Seven West Media (SWM 58c) – UBS has a Neutral recommendation with a target price of 60c (from 70c). SWM will pay around $75mpa to broadcast simulcast cricket test matches and Big Bash with Foxtel. The UBS analyst believes the combination of cricket and tennis in FY19 could act as a catalyst for the Seven network and reverse underlying share declines. They expect modest earnings growth from TV will be offset by print declines in FY19, with EBIT of around $235m.

OVERNIGHT

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SPI FUTURES -6

US EQUITIES – S&P500 -8 (+0.29%), Dow Jones -123 (-0.50%), Nasdaq -34 (-0.47%).

Main themes –

Caution about a potential US-led airstrike on Syria remains.
JPMorgan Chase (-2.71%), Wells Fargo (-3.43%), and Citigroup (-1.55%) struggled despite reporting better-than-expected Q1 earnings, leading to financial sector underperformance
Fed Speak – Boston Fed President Rosengren (alternate voter) echoed recent Fed hawkish stance, calling for at least three more hikes in 2018

EUROPEAN MARKETS – All slightly higher. STOXX 600 +0.10%, UK FTSE +0.09%, German DAX +0.22%, French CAC +0.11%.

CURRENCIES

The US dollar was little changed at 89.77.
The Aussie dollar is stronger at US77.68c.

BONDS – 2-yr: +2 bps to 2.37%, 5-yr: UNCH at 2.67%, 10-yr: -1 bp to 2.82%, 30-yr: -1 bp to 3.03%,

COMMODITIES

WTI oil rallied US32c to US$67.39, bringing the weekly gain to almost 9%. supported by President Donald Trump’s comments about possible military action in Syria and reports of dwindling global oil stocks. In Friday’s news, China’s March crude oil imports were the second-highest on record and the Baker Hughes rig count rose by 7 to 815, the highest since March 2015.
Gold futures were up 0.34% at US$1,346.50 on continued uncertainty over potential military action in Syria.
Iron ore was up US$1.00 at US$66.50
LME metals were mixed after big moves over the week – Copper -1.31%, nickel +1.64%, aluminium -1.72%. Aluminium still up 11.90% for the week

ECONOMIC DATA, NEWS & POLITICS

Earnings season – Banks last night fell despite good results that were above expectations, S&P 500 earnings are forecast to have grown by 17.1% last quarter (FactSet). Financials, meanwhile, are expected to see earnings increase by 24%. Bank of America, Goldman Sachs and Morgan Stanley are all scheduled to report next week. So far, earnings growth equals 26.8% (Earnings Scout).
US economic data – February JOLTS – Job Openings 6.052m (prior 6.228m) and Preliminary April Michigan Sentiment 97.8 (consensus 100.6; prior 101.4)
European data – Eurozone February trade surplus €18.90bn (expected €20.20bn; last €19.90bn); German March CPI +0.4% as expected (last 0.4%) to be +1.6%yoy, as expected (last 1.6%). Spanish March CPI +0.1%, as expected (last 0.1%) to be +1.2%yoy, as expected (last 1.1%)

LAST WEEK

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THIS WEEK – It’s a key week with the main domestic focus being RBA minutes and employment data, while Chinese GDP along with other key data will also be important. Other major releases include European inflation UK inflation and employment and US retail sales. US earnings season will also be a major influence.

The minutes from last week’s RBA meeting will be released on Tuesday, followed by local employment data on Thursday will be the key focus. Consensus is for 17.5K new jobs to have been created (down form 38K last month)and for the unemployment rate to fall to 5.6%.
Chinese GDP is released on Tuesday, with consensus expectations of 1.5% growth in the quarter and 6.7% over the year. Other data on Tuesday includes retail sales and industrial production, while industrial capacity utilisation and house prices are on Wednesday.
In Japan, industrial production is released on Tuesday, followed by trade data on Wednesday and inflation on Friday
The key European release is inflation on Wednesday.
It’s a big week in the UK, with employment on Tuesday, inflation on Wednesday and retail sales on Thursday.

US Earnings

Monday April 16 – Bank of America (BAC), Charles Schwab (SCHW), M&T Bank (MTB). After The Close Netflix (NFLX), Pinnacle Finl (PNFP) Wintrust Fin (WTFC)
Tuesday April 17 – Goldman Sachs (GS), Johnson & Johnson (JNJ), Northern Trust (NTRS), UnitedHealth (UNH). After The Close – CSX, IBM, United Continental (UAL), WesBanco Inc (WSBC)
Wednesday April 18 – Morgan Stanley (MS), U.S. Bancorp (USB), After The Close – Alcoa (AA), American Express (AXP), BancorpSouth (BXS), Canadian Pacific (CP)
Thursday April 19 – Blackstone (BX), BNY Mellon (BK), Novartis AG (NVS), Philip Morris International (PM)
Friday April 20 – Baker Hughes (BHGE), Ericsson (ERIC), General Electric (GE), Honeywell (HON), Manpower (MAN), Procter & Gamble (PG), Stanley Black & Decker (SWK), State Street (STT), Steven Madden (SHOO)

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