MID MORNING MARKETS 30-4-18

The ASX200  is up 15 points in mid morning trade.  Weak UK and French data. Energy and Materials lagging. Consumer sticks on the lead. AMP chair and Comp Secretary gone. Alinta to submit offer for Liddell later today. #ausbiz

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TODAY

  • Ex-dividend – MCP Master Income Trust (MXT) 0.8c, Premier Investments (PMV) 29.0c
  • Transurban (TCL) – Investor day
  • Q reports – Northern Star (NST), Origin Energy (ORG), Syrah Resources (SYR), Stockland (SGP)
  • Economic data – HIA New Home Sales, Private Sector Credit
  • Chinese data – NBS Manufacturing PMI, Non Manufacturing PMI

TONIGHT

  • European data – Loan Growth, German Inflation Rate
  • US economic data – Personal Income, Personal Spending, PCE Prices, Chicago PMI, Pending Home Sales

COMPANY NEWS

  • AMP Chair Catherine Brenner has resigned. Mike Wilkins has been appointed Executive Chairman. Group General Counsel and Company Secretary Brian Salter will also leave and his outstanding deferred remuneration forfeited. The Board also said it is satisfied that the former Chairman Catherine Brenner, former Chief Executive Officer Craig Meller and the other directors did not act inappropriately in relation to the preparation of the Clayton Utz report and suggested that the number of drafts were because of the Salter’s interaction with the Board. All Board members will see a 25% cut in fees for the remainder of 2018. An external review will determine the consequences for those individuals responsible for the fee-for-no-service issue. AMP will be making a formal submission to the Royal Commission by Friday 4 May in response to the matters raised in closing submissions by Counsel Assisting the Royal Commission.
  • AGL Energy (ALG) – AGL has responded to market speculation, saying it has not received any offer from Alinta as yet and has has sought clarification – Alinta has advised that its offer will be submitted later today. AGL will provide further updates to the market as appropriate. AGL has not sought to sell the Liddell Power Station, as it requires Liddell to provide energy to its customers until 2022 and for repurposing as part of its NSW Generation Plan post 2022
  • Spark New Zealand (SPK) – S&P has reaffirmed SPK’s A- credit rating and noted that it is applying its captive finance methodology to its interest free mobile device offers.
  • Northern Star (NST) – Gold sold in the March quarter totalled 119,976oz; all-in sustaining costs (AISC) were A$1,075/oz. Company expects to produce more than 150,000 ounces in the JunQ as the benefits of its investment in exploration and development flow though to its production and financial results. FY2018 guidance has been narrowed to 540,000oz – 560,000oz (from 525,000oz – 575,000oz).The forecast for all-in sustaining costs is unchanged at A$1,000 – A$1,050/oz. With Northern Star now having completed the capital investments associated with the 600,000ozpa growth strategy, this production increase is expected to result in a significant surge in free cashflow from the June quarter onwards.
  • Syrah Resources (SYR) – Q report. Q1 actual net cash outflow of US$31.4 million versus forecast of US$35.0 million. Q2 2018 net cash outflow forecast US$25 million, forecast cash on hand at 30 June 2018 US$55 million with significantly lower net cash outflow forecast in Q3 than Q2
  • Transurban (TCL) – Investor Day. TCL is holding an investor today. The presentation is available on the website here. It’s 61 pages.

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  • Stockland Group (SGP) – 3Q Update. “In line with guidance, we are on track to achieve FFO growth of 5.0-6.5% for the full year and are targeting a distribution per security of 26.5 cents, representing 4% growth on FY17, assuming no material change in market conditions.”
  • Worley Parsons (WOR) – WOR, with JV partner Special Technical Services (STS), has been awarded a 5-year contract by BP Oman to provide services to the BP Khazzan facility. The JV will provide engineering, procurement and construction services for modification and sustaining capital works at the Khazzan facility in Oman.
  • Santos (STO)/Oil Search (OSH) – PNG LNG resumes normal production. ExxonMobil, the PNG LNG operator, advises that LNG train 2 has safely restarted and the plant is operating at normal production rates. Exports of LNG have also resumed. Full capacity expected to be reached in May, ahead of the estimated 8 week time-frame.
  • Infigen Energy (IFN) – 3Q production

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  • Origen Energy (ORG) – Q production

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  • Galaxy Resources (GXY) – Trading halt pending an announcement

BROKER CHANGES

  • Domino’s Pizza (DMP $43.87) – Deutsche Bank has a Sell recommendation with a target price of $36.00. The analyst points out that the positive quarterly earnings results for brand owner Domino’s US and the UK Master Franchisee, both of which led to positive responses in their markets, bode well for Domino’s Aust. They’ve still kept their negative view and target price.
  • ResMed (RMD $12.95) – 3Q result on Firday: Revenue up 15% to $591.6m (or 10% on a constant currency basis); Net income increased by 25%; non-GAAP net income up 32%; GAAP diluted EPS $0.76; non-GAAP diluted EPS $0.92; Operating cash flow of $149.1m in the third quarter. US revenue was up 7%; Brightree revenue up 14%; Europe Asia and other market revenue up 16%; Gross margins fell to 58.2% (from 58.3%). “We had a strong quarter, with solid revenue growth at the top line, and operating leverage improving the bottom line,”
    • Citi has a Neutral recommendation with a target price of $13.80 (from $13.60). While a strong result, the analyst things shares are fully valued and reflect RMD’s sustainable top-line prospects and the potential for operating leverage. New mask launches by competitors increases the risk the company can not exceed market growth throughout FY19 in this high-margin segment.
    • Deutsche Bank has a Hold recommendation. The result featured strong underlying demand, good cost controls and operating leverage. Revenue growth slowed in the Americas but industry growth continued and RMD maintained share. New products planned over the next 12 months should support revenue growth.
    • Morgan Stanley has an Overweight recommendation with a target price of US$98.00 (from US$99.50). The analyst thought the US weaker US top line was countered by better operating margins, which appear set to continue, although gross margins are not expected to improve further. They expect a continuation of robust top-line growth, supported by a large installed base and growth driven by the AirSense 10/F20 & N20 masks.
    • Morgans has an Add recommendation with a target price of $1436 (from $12.11). The analyst notes the strong international product sales. The gross margin was consistent with the second quarter and in line with guidance. They think operating leverage is sustainable on the back of stable pricing and numerous product development initiatives.
  • Sydney Airport (SYD $7.07) – Morgans has an Add recommendation with a target price of $7.45 (from $7.49). The ACCC has released its airport monitoring report for 2016/17. The Morgans’ analyst has lowered cash flow estimates as a result of changes to debt service and maintenance capital expenditure forecasts. They also note the announcement of a Productivity Commission inquiry, expected to be into economic regulation of major airports. They expect this will examine whether the ACCC monitoring is effective in constraining market power while ensuring airports continue to invest and expand capacity. The ACCC has also suggested that traffic constraints should be reviewed.

OVERNIGHT

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SPI FUTURES flat

US EQUITIES – S&P500 +3 (+0.11%), Dow Jones (-0.05%), Nasdaq +1 (+0.02 in %).

Main themes –

  • Declining geopolitical risks as the leaders of South and North Korea embraced – after pledging to work for the “complete denuclearisation of the Korean peninsula.”
  • Results – Amazon (+3.60%) rallies after good result and raising guidance, but other struggle despite good results and Exxon (-3.80%) missed bottom line estimates.
  • Slower GDP readings in France +0.3% (0.7% prior) and the UK +0.1% (0.4% prior) showed decelerating growth, raising concerns about the “synchronised global growth” story supporting global equities markets.

EUROPEAN MARKETS – All stronger. STOXX 600 +0.94%, UK FTSE +0.57%, French CAC +0.74%, German DAX +0.63%,

CURRENCIES

  • The US dollar was little changed at 91.53.
  • The Aussie dollar is stronger at US75.83.

BONDS – 2-yr: -1 bp to 2.48%, 5-yr: -2 bps to 2.80%, 10-yr: -3 bps to 2.96%, 30-yr: -5 bps to 3.13%

COMMODITIES

  • WTI oil futures closed down 9c or 0.1% to US$68.10 with prices higher over the week on expectations that the US will re-impose sanctions against Iran and concerns about the political and economic crisis in Venezuela. The Baker Hughes rig count rose by 5 to 825, the highest level since March 2015.
  • Gold futures closed up US$5.50 at US$1323.40 as the dollar eased and US bond yields pulled back a little.
  • Iron ore down US50c at US$67.00
  • LME metals mostly weaker – Copper -2.41%, nickel -2.46%, aluminium -2.29%. Over the week Al fell almost 10% after the US gave American customers of Russia’s biggest aluminium producer Rusal more time to comply with sanctions (from June 5 to October 23) and suggested further easing of the sanctions.

ECONOMIC DATA, NEWS & POLITICS

  • German Chancellor Angela Merkel met with US President Donald Trump at the White House to discuss the Iran nuclear deal, trade, and other issues.
  • US economic data – Q1 GDP-Advance 2.3% (consensus 2.1%; prior 2.9%), Q1 Chain Deflator-Advance 2.0% (consensus 2.2%; prior 2.3%), and Q1 Employment Cost Index 0.8% (consensus 0.7%; prior 0.6%); Final April Michigan Sentiment Index 98.8 (consensus 98.0; prior 97.8); PCE Prices 2.7% (consensus 2.6%, prior 2.7%), Core PCE Prices 2.5% (consensus 2.4%, prior .9%).
  • What it means – While the headline US GDP was above expectations, consumer spending was weak (+1.1% after increasing 4.0% in 4Q17). Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%. The employment cost reading showed that wages and salaries are trending higher, which will continue to support the current Fed rate rising trajectory.
  • US results – Cabot Oil & Gas (+0.64%), Chevron (+1.93%), Colgate-Palmolive (-0.02$), Exxon Mobil (-3.80%), Honda Motor (-1.58%), Moody’s (-1.00%), Sony (-9.33%)
  • European Economic data – Eurozone April Business and Consumer Survey 112.7 (expected 112.0; last 112.7); German Unemployment Rate 5.3%, as expected (last 5.3%); French CPI +0.1%, as expected (last 1.0%) to be +1.6%yoy (last 1.6%). March Consumer Spending +0.1% (expected 0.4%; last 2.5%). Preliminary Q1 GDP +0.3% (expected 0.4%; last 0.7%) to be +0.3%yoy (expected 2.3%; last 0.7%)
  • UK preliminary Q1 GDP +0.1% (expected 0.3%; last 0.6%) to be +1.2%yoy (expected 1.4%; last 1.4%)
  • Japanese economic data from Friday – The Bank of Japan voted 8-1 to leave rates unchanged and removed its reference to reaching its 2.0% inflation target around fiscal 2019/2020. Industrial production was stronger than expected at 1.2% and 2.2% yoy but retail sales fell 0.7%

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LAST WEEK

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NEXT WEEK

A big week for central bank activity with both the RBA and FOMC meeting Key data includes Chinese PMI, European GDP, inflation, and unemployment, and US ISM and employment.

  • The RBA meeting is the domestic focus next week. No change in rates is expected. The RBA monetary policy statement follows on Friday. Other data includes credit and trade data.
  • Cororate Events
    • Bank reporting season (ANZ Wednesday, NAB Thursday, Macquarie Friday and WBC the following Monday).
    • Production reports from AWE ltd (AWE)), Northern Star Resources (NST), Origin Energy (ORG), Syrah Resources (SYR) and Independence Group (IGO).
    • Quarterly updates from Stockland (SGP), Dexus Property (DXS), Goodman Group (GMG), Qantas (QAN) and Genworth Mortgage Insurance (GMA), and Woolworths (WOW) will deliver quarterly sales numbers.
    • Investor days from Transurban (TCL), Aristocrat Leisure (ALL), Sydney Airport (SYD) and WiseTech Global (WTC).
    • AGMs include GPT Group (GPT), MYOB (MYO), QBE Insurance (QBE), Rio Tinto (RIO) and Santos (STO)
  • The Chinese PMI numbers are released over the week, starting the official numbers on Monday, the Caixin Manufacturing PMI on Wednesday and the Services PMI on Friday.
  • Japanese PMI numbers are also out, with consumer confidence on Wednesday.
  • European GDP and unemployment are on Wednesday, followed by inflation and PPI on Thursday and retail sales on Friday. The Markit PMI numbers are also out over the week.
  • Things are quiet in the UK, with PMI numbers the focus.
  • In the US, the FOMC meets next Wednesday – Only a 6.7% expectation of a rate rise at this stage. There is also important data out, most notable the ISM index on Tuesday and jobs numbers on Friday.

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QUOTE OF THE DAY

“I visualize a time when we will be to robots what dogs are to humans, and I’m rooting for the machines.” – Claude Shannon, American mathematician born this day in 1916. Died 24 February 2001.

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