MID MORNING MARKETS 21-5-18

The ASX 200 is off early lows to be down 1 point in mid-morning trade, with weakness across both the banks and resources. Health Care the leader and some Industrials also ok. Trade talk dominates, new VOC CEO, revised STO bid and AGL says no to Alinta. RC Round 3 underway. Quiet week ahead #ausbiz

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TODAY

  • Ex-dividend – Australian Masters Yield Fund No 4 (AYK) 26.0c, Australian Masters Yield Fund No 5 (AYZ) 33.0c, Elders (ELD) 9.0c
  • Company Events – Seven West Media (SWM) Investor Day
  • Banks – Royal Commission. Round 3 will consider the conduct of financial services entities in respect of their dealings with small and medium enterprises, in particular in providing credit to businesses. The hearings will also explore the current legal and regulatory regimes, as well as self-regulation under the Code of Banking Practice. The first topic is “Responsible lending to small businesses” and the case studies involve ANZ, Bank of Queensland, CBA, Westpac and Suncorp.

COMPANY NEWS

  • Wisetech Global (WTC) – Has issued ~$100m in shares to a single global institutional investor. 7,560,153 WTC ordinary shares (2.59% of current issued share capital) will be issued to Capital Group’s SmallCap World Fund at $13.30 per share on 22 May 2018.
  • AGL Energy (ALG) – Response to offer from Chow Tai Fook and Alinta for the Liddell Power Station. “The AGL Board has determined that the Offer is not in the best interests of AGL or its shareholders. The Offer significantly undervalues future cash flows to AGL of operating the Liddell Power Station until 2022 and the repurposing of the site thereafter.” AGL reaffirmed its decision to close Liddell in December 2022 and will continue progressing its NSW Generation Plan, which includes repurposing Liddell. The Australian Energy Market Operator has confirmed that completion of this Plan will address the capacity shortfall that may occur as a result of Liddell’s closure.
  • Skycity Entertainment Group (SKC) – Project expansion of the Adelaide casino expansion
  • Vocus Communication (VOC) – Kevin Russell has been appointed Group Managing Director & CEO, effective 28 May 2018. He will join the board along with Mark Callander, CEO of Vocus New Zealand.
  • Sandfire Resources (SFR) – Doolguinna Project exploration update
  • Ooh! Media (OML) – Responds to media speculation which suggests OML submitted a revised offer to HT & E (HT1) to acquire Adshel. OML confirms it made a revised bid on 30 April for $470m which has not been accepted to date.
  • Santos (STO) – Revised bid from Harbour Energy at US$5.21 (equiv to A$6.95 at US75c exchange rate). This is up from the last bid at $4.98 and US$5.12 received on 19 May. The revised bid is conditional on STO hedging oil-linked production in 2019 of around 30%. Harbour would increase its offer to US7.00if STO agrees to hedge 30% of 2020 oil-linked production. The STO directors will consider the revised proposal and update shareholders.
  • WorleyParsons (WOR) – Has been awarded an offshore engineering, procurement, construction, installation and commissioning (EPCIC) contract by Neptune Energy. It’s a 3 year contract to service the Nova field tie-back to the Gjøa platform on the Norwegian continental shelf.

BROKER CHANGES

  • CSL ($182.95) – Upgraded guidance due to a positive product and geographic sales mix shift, particularly with better than expected sales of Idelvion® and Haegarda®. Seqirus is also performing well, following a severe northern hemisphere influenza season.
    • Citi has a Buy recommendation with a target price of $215 (from $175). The analyst has raised estimates and target and note higher margins for Haegarda and Idelvion as the main drivers. CSL is their preferred healthcare exposure because of the attractive plasma industry and strong growth.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $155.00. The analyst thought the higher guidance was necessary given share price performance and high PE
    • Morgans has a Hold recommendation with a target price of $168.50 (from $156.00). The analyst points out that the core plasma business wasn’t behind the upgrade and is still slowing in 2H. Most of the gains came from non-repeating items or the benefits of delays.
    • UBS has a Buy recommendation with a target price of $195 (from $175). The analyst has upgraded estimates by 4-5% and they see material expansion for Behring in FY18.
    • Deutsche Bank has a Hold recommendation with a target price of $189 (from $169). The analyst argues some of the factors will recur (shift to higher margin mix) but others will pose a headwind for FY19 (such as weaker flue season). Their estimates suggest 9.5% growth
    • Macquarie has an Outperform recommendation with a target price of $190 (from $172).

CHT1

  • Sydney Airport (SYD $6.95) – Traffic Statistics for April. Overall passengers up 2.6% for the month, or 3.8% over the same period last year. Macquarie has an Outperform recommendation with a target price of $6.85. They note the April stats were misleading due to Easter and school holiday timing. Looking at March and April together, the numbers suggest the stronger-for-longer story is still intact.

CHT2

  • Transurban (TCL $11.40) – ACCC issues with WestConnex. The analyst thinks the residual issues should be able to be addressed by governments or undertakings by TCL.

CHT3


THE WEEK AHEAD

Economic Events

  • It’s very quiet domestically. Construction work on Wednesday and the Westpac leading index on Thursday
  • Chinese data is limited to industrial profits on Saturday
  • Japanese trade data is released on Monday, with the Nikkei manufacturing PMI on Wednesday.
  • The European Markit PMI numbers are out on Wednesday along with the flash PMI data
  • Some important data in the UK, including inflation and PPI on Wednesday, retail sales on Thursday and the second estimate on GDP on Friday
  • In the US, the minutes for the FOMC meeting are out on Wednesday along with new home sales, while existing home sales are Thursday and durable goods orders are Friday.

Company Events

  • Banks – Royal Commission 3rd round all week
  • Monday – Seven West Media (SWM) – Investor Day
  • Tuesday – James Hardie (JHX) Q earnings, TechnologyOne (TNE) earnings
  • Wednesday – Blackmores (BKL) analyst meeting, Woodside Petroleum (WPL) investor day, Boart Longyear (BLY) AGM
  • Thursday – Westfield (WFD) AGM
  • Friday – Sydney Airport (SYD) AGM

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LAST WEEK

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OVERNIGHT (FRIDAY NIGHT)

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SPI FUTURES -30

US EQUITIES – S&P500 -7 (-0.26%), Dow Jones +1 (+0.00%), Nasdaq -28 (-0.38%).

Main themes

  • Small changes for the day and losses of about half a percent (-0.54%) for the S&P over the week.
  • US-China trade negotiations continue but the biggest development – that the trade war is “on hold” – came after the market closed
  • Company news – Campbell Soup (-12.37%) cut guidance while Deere (+5.75%) gave upbeat revenue guidance

EUROPEAN MARKETS – All lower. STOXX 600 -0.28%, UK FTSE -0.12%, German DAX -0.28%, French CAC -0.13%.

CURRENCIES

  • The US dollar was stronger, up 0.2% at 93.66.
  • The Aussie dollar is little changed at US75.13c.

BONDS – 2-yr: -3 bps to 2.54%, 5-yr: -4 bps to 2.89%, 10-yr: +4 bps to 3.07%, 30-yr: -4 bps to 3.21% Italian bond markets continued to underperform, with the 10 year yield up 11 basis points to 2.22%.

COMMODITIES

  • WTI oil futures ended the day down 21c or 0.3% at US$71.28. For the week, WTI was up 1.2%, the 6th consecutive week of gains. There was caution ahead of an election in Venezuela on Sunday, which could potentially result in additional US sanctions.
  • Gold futures closed up US$1.90 or 0.2% to US$1291.30.
  • Iron ore rose was unchanged at US$68.00
  • LME metals – Prices were mixed. Cu -0.35%, Ni +1.06%, Al -1.00%

 ECONOMIC DATA, NEWS & POLITICS

  • US-Chinese trade talks began Thursday, but Trumps tweets that there were unlikely to be successful lowered expectations of any resolve. There were later reports saying China would offer the US a US$200bn trade surplus cut, but these were denied by the Chinese. However since markets closed there have been comments from US Treasury Secretary saying the trade was is “on hold”. The Wahington Post has suspended plans for new tariffs while talks proceed.
  • In other oil news, Saudi Arabia responded to Indian concerns about high prices by saying it would make sure that the world is adequately supplied. The Baker Hughes oil rig count was unchanged at 844 after 6 weeks of increases.
  • Italian politics – Movimento 5 Stelle and Lega have agreed on a governing platform and expect to nominate a prime minister in time for a meeting on Monday meeting with President Mattarella. The instability continues to influence markets, with concerns about populist parties and the risk of a debt crisis causing a level of risk aversion and demand for safe haven assets such as gold.
  • European data – Eurozone March trade surplus €26.90bn (expected €27.9bn; last €18.9bn) German April PPI +0.5% (expected 0.3%; last 0.1%) to be +2.0%yoy (expected 1.8%; last 1.9%).

QUOTE OF THE DAY

“Most asylum seekers do get permanent visas, so the earlier they receive the appropriate help, the faster they will become part of the community. They’ll get jobs and start paying taxes too. They will see Australia as a nation with a sense of care and concern. That’s so important for a cohesive society. It helps build a sense of belonging. And in terms of common decency, it’s what should be happening… For God’s sake, this is Australia, people should be treated with decency and humanity.” – Malcolm Fraser, former Australian Prime Minister born this day in 1930. Died 20 March 2015

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