The ASX200 is up 46 points in mid morning trade. FOMC refines the subtlety. All sectors up. NAB result a bit disappointing. TLS down again. SUL +ve update. WOW perf living up to its name #ausbiz




  • Economic data – AIG Services Index, Imports /Exports, Balance of Trade, Building Permits
  • Ex-dividend – Australian Pharmaceutical Industries (API) 3.5c, CBG Capital (CBC) 1.5c, Waterco (WAT) 2.0c
  • Japan – Constitution Day


  • European data – PPI, Inflation Rate
  • UK – Local Elections
  • UK economic data – Markit/CIPS UK Services PMI, Productivity-Prel,
  • US economic data – Unit Labor Costs – Prelim, Trade Balance, Factory Orders, ISM Services
  • US earnings – Avon Products (AVP), DowDuPont (DWDP), Ferrari (RACE), Kellogg (K), KKR, World Wrestling (WWE). After The Close – CBS, Fluor (FLR), GoPro (GPRO), Motorola Solutions (MSI), Weight Watchers (WTW)


  • National Australia Bank (NAB) – 1H results. 1H profit up 1.5% (down 5.7% over the half) but cash earnings down 16% to $2.76bn. Cash earnings hit with $755m in costs before tax for restructuring, mainly related to job cuts planned over the next three years Credit impairment charge for the half year declined 5.3% yoy to A$373m, benefiting from a decline in its exposure to individual impaired loans that offset higher collective provisions for the lender’s exposure to certain sectors that experienced higher levels of risk. NAB’s net interest margin expanded by 5 basis points thanks to lower funding costs and increases to mortgage rates; revenue up 2.5% but expenses for the six months climbed by 25%, due in part to restructuring-related costs. CET1 ration 10.21%. Interim dividend of 99c a share. Will exit the advice, platfrom, superannuation and asset management business, including MLC by end 2019 and will invest  in more focused wealth offering. MLC business.
  • Commonwealth Bank (CBA) – Has been unable to confirm the scheduled destruction by a supplier of two magnetic tapes which contained historical customer statements. The tapes contained customer names, addresses, account numbers and transaction details from 2000 to early 2016. The tapes did not contain passwords, PINs or other data which could be used to enable account fraud. Most likely scenario was that they had bene destroyed


  • Santos (STO) – Sale of non-core Asian portfolio to Ophir Energy plc (Ophir) for US$221m. Will result in Santos making country exits from Vietnam, Indonesia, Malaysia and Bangladesh. The assets sold to Ophir include the following interests: 31.875% in the Block 12W PSC2 (Chim Sáo and Dua oil fields), Vietnam; 67.5% in the Madura Offshore PSC (Maleo and Peluang gas fields), Indonesia;45% in the Sampang PSC (Oyong and Wortel gas fields), Indonesia; 20% in the Deepwater Block R PSC (Bestari oil discovery), Malaysia;45% in the SS-11 PSC, Bangladesh;50% in Block 123 PSC and 40% in Block 124 PSC, Vietnam.
  • Super Retail Group (SUL) – Trading Update. The profit performance of the Group has been in line with expectations. Supercheap Auto is on track to hold full year EBIT margins in line with the prior comparative period. Rebel’s EBIT margins are tracking at 0.1% points below the prior comparative period and BCF’s EBIT margins are tracking at 1.0% points below the prior comparative period. “BCF’s sales performance has been impacted by differing weather conditions across the country during February and March with like for like sales in New South Wales growing by 6.5% so far this half year while declining by 4.5% in Queensland.”



  • Newcrest (NCM) – Encounter (ENV) completes five new joint ventures with Newcrest in the Tanami and West Arunta regions of WA and will receive up to $1 million in new funding.

MACQUARIE AUSTRALIA CONFERENCE – Another stack of companies reporting. Again, no time to look thorugh them all but if you hold any of these companies, it’s worth checking out the “investor” section of thei company websites to see if there is anything exciting in the presentations. Companies include – Cleanaway (CWY), Computershare (CPU), Steadfast (SDF), Seek (SEK), MYOB (MYO), GUD, Syrah REsources (SYR), APA Group (APA), Orocobre (ORE), Speedcast (SDA), Bapcor (BAP)


  • ANZ – result on Tuesday. Morgans has an Add recommendation with a target price of $30.00. First half cash earnings were broadly in line with the analyst’s forecasts. Asset quality and capital were the strong points and they see benign asset quality posing an upside risk for FY18 earnings.
  • CSL – UBS has a Buy recommendation with a target price of $175. The analyst points to the earnings reports from drug companies Merck and GSK, which showed strong growth for Gardasil and Cervarix, translating into around US$35m in royalties for CSL. US industry data also show strong IG growth is still evident.


  • Invocare (IVC $12.14) – Performance Update. Q1 Gross sales were down 6% with case volumes down 6.7%. Management expects 1H18 EBITDA to be down 12% yoy, attributing half of the decline to expenses related to the Grow and Protect strategy. IVC forecasts a strong recovery in 2H18 earnings with management guiding for FY18 EBITDA to be in line with FY17 (previously guided to low single digit growth). EPS is expected to decline low single digits (prior guidance was for flat EPS).
    • Deutsche Bank has a Sell recommendation with a target price of $10.80 (from $12.00). The analyst was concerned by the sharp decline in Q1 case volumes, which can partly be explained by site closures for refurbishment, but also highlights a worrying fall in core ANZ volumes, likely the result of a weaker market as well as market share losses. The company is also increasing costs and capex as part of its Grow and Protect strategy, exacerbating the earnings decline. They view management’s revised guidance as too optimistic, and see risks of further downgrades. They have concerns around the pricing component of revenue growth, however do see merit in management’s Protect & Grow strategy, although it will take time to see evidence of success and acknowledge that it presents risks and will dilute returns. It will also disrupt operations as sites are refurbished, leading to FY18 earnings declines. Share price upside seems limited over the next 6-12 months until evidence emerges around the strategy’s success. The FY18 and FY19 EBITDA forecasts have been cut by 7% and 8% to reflect the challenging operating environment.
    • Macquarie has a Neutral recommendation with a target price of $12.71 (down 11%). EBITDA now expected to be in line with FY17. The analyst thinks the company’s Protect & Grow strategy is essential for long-term growth but will cause business disruption as additional sites are revamped. They downgraded FY18 estimates for earnings per share by -5% and FY19 by -2%.
    • Morgan Stanley has downgraded to an Equal-weight (from Overweight) recommendation with a target price of $12.60 (from $15.70). The disruption to the business from the capital expenditure program has been greater than the analyst expected. They have cut EPS forecasts by 6% for 2018-20. The main concern is that 43% of the volume decline in the March quarter could not be attributed to intentional one-off closures. Market share loss appears to have accelerated, excluding the impact of refurbishing initiatives.
    • Morgans has a Hold recommendation with a target price of $12.24 (from $14.45). The analyst considers the stock expensive until there is evidence of an improvement in the earnings profile.
    • UBS has upgrade to a Neutral (from Sell) recommendation with a target price of $12.65 (from $13.65). While the Protect & Grow strategy offer long term opportunities but in the short term, the negative impact of closures is greater than the analyst expected. Market share losses, a slow domestic death rate and the temporary closure of Singapore all contributed. They think the strategy is a good one but the new growth profile is yet to be proven and will require more capital. While still cautious, they have upgraded due to the share price weakness.
  • MMM7
  • JB Hi-Fi (JBH $23.28) – Negative trading update at the Macquarie Conference yesterday. Group NPAT now to be circa $230 million (previous guidance of $235-$240m). The Good Guys performance affected by challenging conditions in the Home Appliance market. They have blamed unfavourable weather conditions coupled with heightened price competition.
    • Deutsche Bank has a Buy recommendation. The analyst observes underlying sales trends accelerated for both JB Hi-Fi and The Good Guys in the March quarter but suggests Harvey Norman (HVN) is giving The Good Guy’s a hard time in an effort to capitalise on the disruption stemming from the ownership change. The Buy remains due to valuation and continued strength of the brand, but they prefer HVN.
    • Macquarie has an Outperform recommendation with a target price of $28.80 (from $31.30). The Macquarie analyst anticipates continued margin pressure going forward, while JB Hi-Fi sales growth remains at strong levels.
    • Morgans has a Hold recommendation with a target price of $25.5 (from $27.05). There was strength for JB sales while TGG showed some improvement. The analyst is concerned that the cooling housing market could have further downside implications for The Good Guys.
    • UBS has a Neutral recommendation with a target price of $24.50 (from $25.40). JB Hi-Fi stores continue to perform well but the analyst notes new iPhone sales are now tapering off. They’ve trimmed earnings forecasts to below consensus, reflecting a more cautious view as the industry continues to shift to online. While well placed to maintain or grow market share, JBH is facing margin pressure.
  • MMM8
  • Woolworths (WOW $27.99) – Comparable growth in sales was 4.4%, or 3.6% adjusted for Easter. Australian Food comparable growth was 4.4% or 4.0% adjusted for Easter. (This compares with Coles 0.9% and 1.3% adjusted for Easter.)
    • Citi has a Buy recommendation with a target price of $30.30. Citi thought it was a good result, given the higher base that was cycled. Solid momentum is expected to continue in food and liquor. They see EPS growth of 11% in FY18 and 13% for FY19.
    • Credit Suisse has a Neutral recommendation with a target price of $25.96. The analyst is conscious that expectations remain high for the company’s food business with respect to margin expansion, which is likely to be the main reason for a growing difference between its forecasts and consensus. Big W is a relatively important variable in the medium term outlook. Whilst the rate of sales decline decelerated, the business remains on track for an operating earnings loss well in excess of -$100m.
    • Deutsche Bank has a Buy recommendation with a target price of $30.00. The analyst notes the Australian food business outperformed in the March quarter with the underlying trend even better than the headline suggests. While Big W remains tough, the broker believes the market is already capitalising sufficient operating losses.
    • Morgans has upgraded to a Hold (from Reduce) recommendation with a target price of $25.87 (from $22.62). The analyst has upgraded on a higher return profile but prefers Wesfarmers (WES).





US EQUITIES – S&P500 -19 (0.72%), Dow Jones -174 (-0.72%), Nasdaq +64 (+0.91%).

Main themes –

  • May FOMC Statement leaves fed funds rate range unchanged (1.50%-1.75%), as expected

EUROPEAN MARKETS – All stronger. STOXX 600 +0.63%, UK FTSE +0.30%, German DAX +1.51%, French CAC +0.16%


  • The US dollar was up around 0.3% at 92.71.
  • The Aussie dollar is little changed at US74.92.

BONDS – 2-yr: -1 bp to 2.49%, 5-yr: -2 bps to 2.80%, 10-yr: -1 bps to 2.96%, 30-yr: UNCH at 3.14%


  • WTI oil futures rose US68c or 1% to US$67.93, despite a surprise increase in inventories of 6.2mb, supported by expectations that the US will reimpose sanctions.
  • Gold futures rose 0.5% to US$1313.3.
  • Iron ore unchanged at US$67.00
  • LME metals mixed – Copper +1.1, nickel +2.42%, aluminium +2.72%.


  • FOMC meeting – the FOMC removed the reference to a strengthening economic outlook but noted that inflation measures have moved close to 2.0% (the March statement described inflation as ‘continuing to run below 2.0%’). The Committee described its inflation goal as ‘symmetric’ over the medium term, suggesting an element comfort with inflation above 2.0% after an extended stretch below 2.0%. There was a short-lived increase expectations for a fourth rate hike in December – the implied probability edged up to 49.2% before returning to 48.0% by the end of the session.
  • US economic data – Weekly MBA Mortgage Index -2.5% (prior -0.2%), ADP Employment Change 204K (consensus 225K; prior 228K)
  • US earnings – Aptiv (+6.51%), Chesapeake Energy (-1.67%), CVS Health (-3.03%), Garmin (+5.02%), MasterCard (+3.09%), Molson Coors Brewing (-15.40%), Yum! Brands (-7.43%), After The Close – American Intl (-5.73% in after-hours trade), Fitbit (-6.76%), Hyatt Hotels (0.53%H), Kraft Heinz (+3.87%), Prudential (+0.76%), Spotify (-8.24%), Tesla (-5.01%)
  • European data – Eurozone preliminary Q1 GDP +0.4% (as expected, last 0.6%) to be +2.5%yoy (as expected, last 2.7%). March Unemployment Rate 8.5% (as expected, last 8.5%); April Manufacturing PMI 56.2 (expected 56.0; last 56.0); German April Manufacturing PMI 58.1 (as expected, last 58.1); French April Manufacturing PMI 53.8 (expected 53.4; last 53.4); Italian April Manufacturing PMI 53.5 (expected 54.4; last 55.1); Q1 GDP +0.3% (as expected, last 0.3%) to be +1.4%yoy (as expected, last 1.6%)
  • Russian March GDP +0.7%yoy (expected 1.6%; last 1.3%)
  • Nikkei reported that China and Japan will reopen bilateral currency swap lines after China’s Premier Li meets with Japan’s Prime Minister Abe next Wednesday
  • Domestic interest rate expectations – Commonwealth Bank has pushed back its expectation for a rate rise until February 2019 (from November 2018)


“The earth only has so much bounty to offer and inventing ever larger and more notional prices for that bounty does not change its real value.” – Ben Elton British comedian born this day in 1959


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