The ASX200 is up 39 points in mid-morning trade after strong offshore leads with strange US employment report. Resources leading, WBC result a hit but ORI a miss. ANZ advice business changes and MQG up with upgrades. #ausbiz


  • Company newsWestpac (WBC) earnings, Orica (ORI) earnings, HT&E (HT1) – AGM
  • Economic data – AIG Construction Index, NAB Business Confidence, ANZ Job Advertisements
  • Chinese data – Foreign Exchange Reserves
  • BoJ Monetary Policy Meeting Minutes


  • German Factory Orders
  • UK market closed
  • European Retail PMI
  • ECB Praet Speech
  • US economic data – Consumer Credit

Westpac Statutory profit up 7% to $4.198bn. Revenue up 4%. Cash earnings up 6% to $4.251bn (consensus $4.17) boosted by consumer and corporate lending. Dividend of 94c unchanged (a bit of a miss on 95c expectations). Common equity Tier 1 capital ratio 10.5% (market was expecting 10.2%), in line with APRA’s unquestionably strong benchmark


  • Consumer Bank – cash earnings growth of 12% and revenue growth of 7%, supported by a 6% growth in mortgages.
  • Business Bank – 13% increase in cash earnings reflects good growth in the small business segment and a lower impairment charge as credit quality improved.
  • BT Financial Group had a solid performance, with cash earnings increasing 7% due to lower general insurance claims and growth in Private Wealth, funds administration, and insurance premiums.
  • WIB – cash earnings were 12% lower: While the underlying performance was solid, the prior corresponding period had a strong markets performance which was not repeated.
  • Operating expenses rose 1% compared to the second half last year (includes RC costs of $34m), and our cost to income ratio fell to 41.7%.
  • NIM up 7bp from prior period to 2.17%.

Outlook statement – Westpac’s credit portfolio is fundamentally sound and continues to be well positioned. “While the housing market is expected to continue to cool, this dynamic means that opportunities are opening up for first home buyers, who are beginning to step up in place of investors. With solid underlying demand relative to supply, and almost 70% of our customers ahead on their repayments, the Australian housing market is in good shape.

  • ANZ – News that ANZ has scrapped bonuses for pushing affiliated products. Performance metrics related to “sales” for planners have been removed, with bonuses now based on customer satisfaction as measured by a net promoter score, meeting compliance and audit standards and adhering to ANZ values including being collaborative respectful. ANZ will now also employ planners with a relevant bachelor degree and relevant professional certification, while exisitng planners will be required to attain (or start) these minimum education qualifications by 1 January 2019, with completion by 1 January 2023.
  • Orica (ORI) –  1H loss (statutory) of $229. Underlying net profit down 37% to $124m. Earnings affected by operational issues, with EBIT down 20% on pcp to $252m ($258 exp). Key features: Improved volumes and firmer pricing drove a four per cent increase in sales revenue; EBIT decline of 20 per cent to $252m includes the impact of operational issues previously advised; Individually significant items of $353m; Business improvement initiatives delivered net benefits of $35m; Integration of GroundProbe is well advanced; Interim ordinary dividend of 20c (unfranked, 24c expected), represents payout ratio of 61%. Outlook unchanged. The second quarter results indicate we are on track to deliver a substantial uplift in the third and final quarters of the year, and we expect this momentum to continue into the next financial year. We remain positive that the majority of headwinds are behind us and we can capitalise on the improved outlook for volume demand and firmer pricing”. Second half global AN volumes are expected to increase by around 10% from the first half, and full year global AN volumes are expected to be at the upper end of the previously stated range of 3.65mt (+/- 5%). Significantly stronger EBIT is expected in the second half from: Continued volume growth, particularly in Australia; Improved performance across all regions/businesses; Positive contribution from the recently acquired GroundProbe business; Improving manufacturing reliability. The second half result will benefit from deferred contract renegotiations offset by lower forecast business initiatives.
  • Mineral Resources (MIN) – Additional information relating to the ore reserves in its announcements about Wodgina Mineral Resource.
  • Macquarie Group (MQG) – Capital Notes 3. MQG is raising $600 to repay MCN due to be redemmed on 7 June 208


  • Sirtex (SRX) – The Scheme meeting (scheduled for today) has been postponed due to the new proposal form CDH on Friday.
  • Newcrest Mining (NCM) – Over the weekend Newcrest began depositing tailings into the Cadia Hill open pit following the completion of the construction and commissioning work for the pipeline infrastructure. After a short ramp up period, Newcrest expects Cadia to return to full production rates before the end of the current financial year.
  • Magellan Financial Group (MFG) – FUM grew 1.4% due to growth in global equities. There were net outflows of $268m which included net retail outflows of $64m and net institutional outflows of $204m


  • AMP – submission to the RC.
    • Citi has a Neutral recommendation with a target price of $4.15. While AMPs submission has the right tone, it is unlikely to repair the damage to its brand and the analyst struggles to determine whether the current share price offers good value. Although the cost of remediation, so far, is relatively small, there are significant risks to future profitability from brand damage which remain unquantifiable.
    • UBS has downgraded to a Sell (from Neutral) recommendation with a target price of $3.80 (from $5.40). The analyst sees a number of risks and operating challenges that can’t be readily quantified and there is a 2-3-year rebuild before management, structure, governance and operating stability return. The turnaround in insurance always take longer.


  • Macquarie Group (MQG $109.9) – Great result on Friday.
    • Citi has a Sell recommendation with a target price of $101.19. FY18 cash profits were 5% better than the analyst expected, and the dividend was better. It was another strong result, underpinned by lower taxes.
    • UBS has a Buy recommendation with a target price of $11.00. The analyst though that revenue guidance was subdued although the dividend was well above consensus. While it was a solid result, shares are close to their target.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $11.00. The analyst see risks skewed to the upside, which should support the share price…although shares are currently well priced. They expect an improvement in the contribution from capital markets but a modest decline in annuity style earnings for the first time since the financial crisis.
    • Morgans has an Add recommendation with a target price of $115.8 (from $109.60). A great result benefiting from diversification, although other income and charges remain a significant driver of current performance. The highlight for them was a lift in performance of the capital markets-facing businesses in Q4. They have cut FY19 and FY20 EPS estimates 1-3% but raised their target price.
    • UBS has a Buy recommendation with a target price of $117 (from $110). The UBS analyst expects shares to continue to be supported (due to a lack of alternative), despite its price performance,


  • Cochlear (COH $195.60) – Investor Day. Macquarie has an Underperform recommendation with a target price of $166 (from $160). While the market opportunity is substantial, it will require ongoing investment. The product offering is attractive but the market is factoring in market share and industry growth rates well ahead of the analyst’s base case. They forecast a forward PE of 40x and a total shareholder return of -14% and have lowered the target price accordingly.


  • Graincorp (GNC $8.24) – Morgans has downgraded to a Hold (from Add) recommendation with a target price of $8.00 (from $8.47). While it is early in the new season, the Morgans analyst has revised FY19 forecasts due to the poor start to cropping conditions on the east coast. Over February to April rainfall across most cropping regions, particularly in NSW and Victoria, was very much below average and these regions also experienced some of the warmest temperatures on record.


  • IOOF (IFL $9.54) – UBS has downgraded to a Neutral (from Buy) recommendation with a target price of $10.00 (from $11.50). IFL has avoided the direct fall-out affecting other vertically integrated operators but as an almost pure play in the sector, the analyst believes the cost and flow implications are more pronounced. They suggest a 20% probability to a scenario where advice and platforms are structurally separated, which would be negative.





US EQUITIES – S&P500 38 (+1.28%), Dow Jones +332 (+1.39%), Nasdaq +121 (+1.71%).

Main themes –

  • Jobs data was mixed. The increase in jobs was less than expected (164K versus consensus 190K) but the unemployment rate fell more than expected to 3.9% and wages growth was lower at 0.1%.
  • Apple (+3.92%) shares rallied after Warren Buffet revealed Berkshire Hathaway had bought an additional 75 million shares in the first quarter.

EUROPEAN MARKETS – Mostly stronger. STOXX 600 +0.63%, UK FTSE +0.86%, German DAX +1.02%, French CAC +0.26%. The Greek market was the exception, with equities -1.84% and the 10 year bond yield up 12bp to 4.06%.


  • The US dollar is 0.2% higher at 92.57.
  • The Aussie dollar is a little stronger at US75.42.

BONDS – 2-yr: +1 bp to 2.50%, 5-yr: UNCH at 2.78%, 10-yr: UNCH at 2.94%, 30-yr: UNCH at 3.12%


  • WTI oil futures rose US5$1.29 or 1.9% to US$69.72, as expectations increase that the US will pull out of a deal to extend sanctions relief, leading a cut in oil supplies. The Baker Hughes rig count rose by 9 to 834.
  • Gold futures rose US$2.00 to US$1314.70.
  • Iron ore was up US$1.50 to US$68.00
  • LME metals mostly higher – Copper -0.01% the exception, nickel +1.81%, aluminium +3.57%.


  • US economic data – April Nonfarm Payrolls 164K (consensus 190K; prior 135K), Nonfarm Private Payrolls 168K (consensus 193K; prior 135K), Unemployment Rate 3.9% (consensus 4.0%; prior 4.1%) and the lowest since December 2000, Average Hourly Earnings 0.15% (consensus 0.2%; prior 0.2%), and Average Workweek 34.5 (consensus 34.5; prior 34.5)
  • US-China trade talks – Continued, with US Treasury Secretary Steven Mnuchin saying the discussions have been very good.
  • Talk Brexit secretary David Davis might depart the cabinet due to the inability to agree on Britain’s future relationship with the customs union.
  • The UK NIESR (National Institute of Economic and Social Research) lowered its 2018 growth outlook to 1.5% from 1.9%. NIESR doesn’t expect a rate rise next week when the Bank of England meets, instead seeing rates to start rising in August.
  • European data – Eurozone Retail Sales +0.1% (expected 0.5%; last 0.3%) to be +0.8%yoyo (expected 1.9%; last 1.8%). April Services PMI 54.7 (expected 55.0; last 55.0); German Services PMI 53.0 (expected 54.1; last 54.1); French Services PMI 57.4 (as expected, last 57.4), March Current Account -€1.30bn (last -€900m), and Q2 Industrial Investment +5.0% (last 4.0%)


CORPORATE EVENTS – More earnings and quarterly updates, with AGMs also a feature. The Westpac results Monday and AMP AGM on Thursday will be the main focus.

  • MondayWestpac (WBC) earnings, Orica (ORI) earnings, HT&E (HT1) – AGM
  • WednesdayCSR FY earnings, Incitec Pivot (IPL) earnings, Goodman Group (GMG) quarterly report, Janus Henderson (JHG) Q earnings, WorleyParsons (WOR) investor day
  • ThursdayAMP AGM, Caltex (CTX) AGM, Genworth Mortgage Trust (GMA) AGM, BT Investment Management (BTT) now Pendall (PDL) earnings, Xero (XRO) earnings, News Corporation (NWS), Nufarm (NUF) investor day
  • Friday – GrainCorp (GNC) earnings, REA Group (REA) – Q update, Oil Search (OSH) AGM


  • Domestically, we have NAB business confidence and ANZ job ads on Monday, retail sales on Tuesday, consumer confidence on Wednesday and housing finance on Friday. The Budget is on Tuesday night….
  • Chinese trade data is on Tuesday and inflation and PPI are Thursday
  • Japanese data includes household spending on Tuesday, the leading and coincident indices on Wednesday and the current account and bank lending data on Thursday.
  • Things are quiet in Europe, with a couple of speeches including one from Mario Draghi on Friday.
  • The Bank of England meets on Thursday. Other data includes industrial and manufacturing production and the balance of trade.
  • In the US, the major releases are PPI on Wednesday and CPI on Thursday, with the University of Michigan sentiment index on Friday.





“The most important thing about power is to make sure you don’t have to use it.” – Edwin Land, American inventor (best known as the co-founder of the Polaroid Corporation) born this day in 1909. Died 1 March 1991


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