MID MORNING MARKETS 24-05-18

The ASX 200 is down 13 points in mid-morning trade after dovish FOMC minutes. Consumer stocks ok but Banks and Materials/Energy all lower. ALL results, RWC acquisition but other quiet newswise. RC Round 3 continues #ausbiz

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TODAY

  • Economic data – Westpac Leading Index
  • Ex-dividend – Mantra Group (MTR) 16.0c, Pendal Group (PDL) 22.0c, Tilt Renewables (TLT) 1.8c
  • Company news – Westfield (WFD) AGM
  • Japanese – Reuters Tankan Index, Coincident Index Final, Leading Economic Index Final

TONIGHT

  • ECB Meeting minutes
  • UK Retail Sales
  • US economic data – FHFA Housing Price Index, Existing Home Sales
  • Fed speak – Philadelphia Fed President (non-voter) Patrick Harker

COMPANY NEWS

  • Reliance Worldwide (RWC) – Trading halt. Will buy John Guest Holdings for £687.5m ($1.22bn), reflecting a 12.4x multiple to FY17 Adjusted EBITDA (reducing to 10.3x including expected total synergies). John Guest is global leader in plastic PTC fittings with products distributed worldwide. Strong strategic fit. Expected to be more than 20% accretive to EPS and more than 30% including expected total synergies. Equity raising A$20m. Guidance: Expects EBITDA of $150-$155m in the 2018 fiscal year
  • Chorus (CNU) – Management changes. Nick Woodward, General Manager, Products Sales and Marketing, is leaving. Ed Hyde is to be appointed as Chief Customer Officer. Ed Beattie, GM Network and Field Management (NFM) also leaving. Current Chief Financial Officer (CFO) Andrew Carroll will transition into the GM NFM role.
  • Aristocrat Leisure (ALL) – 1H18 results. NPAT up 2.8% (5.7% on a constant currency) on revenue up 28.5% (up 31.6% on a constant currency)
  • Orecobre (ORE) – Updated Cauchari resource estimate to 3.0mt lithium carbonate equivalent (a 6-fold increase). The updated resource covers a significantly larger area and extends to greater depths in the NW and SE Sectors; Significant potential for additional resource expansion at depth; The brine has excellent chemistry for processing and the Mg/Li ratio averages 2.5, very similar to Orocobre’s Olaroz project; Phase III drilling is underway to upgrade this inferred resource and underlying brine to measured and indicated resources for the definitive feasibility study (DFS) scheduled for completion in Q2 2019
  • Spark Infrastructure (SKI) – AGM. Reaffirmed distribution guidance of 16.0cps for 2018, growth of 4.9% on 2017. Acknowledge that low inflation affects the CPI-X adjusted revenue allowances permitted to recover by the Regulator. Expect distributions to grow by at least CPI through to the end of the regulatory periods for Victoria Power Networks and SA Power Networks in 2020.
  • Origin Energy (ORG) – Will sell its Acumen metering business for $267m to intelliHUB (jointly owned by Pacific Equity Partners and Landis+Gyr), with commitment to a competitive long-term agreement with Acumen for the ongoing deployment and management of digital meters for Origin’s electricity customers.
  • CIMIC (CIM) – Wins $380m transport infrastructure works. Selected by Singapore’s Land Transport Authority to deliver a tunnel and infrastructure contract as part of the North-South Transportation Corridor project. Schedules to start 2Q18 and completed by 2026. Include 640m of twin, three-lane vehicular tunnels; the underpinning of an existing expressway flyover; a new facility building; and an entrance ramp and exit ramp

ANALYST UPDATES

  • Blackmores (BKL $128.83) – Credit Suisse has a Neutral recommendation with a target price of $130. The recent update was positive, with good results from recent Chinese marketing initiatives. The analyst thinks the implied sales momentum in the fourth quarter has lifted from “high single digit” growth in China in the third quarter.

CHT1

  • Brambles (BXB $9.25) – Credit Suisse has an Outperform recommendation with a target price of $10.25 (from $10.40). The analyst thinks the impact of higher input cost inflation (transport, lumber and labour) will be more sever for BXB’s competitors due to its scale and margins advantage and the cyclical headwinds are now providing an attractive buying opportunity.

CHT2

  • Cochlear (COH $194.67) – UBS has a Sell recommendation with a target price of $170 (from $150). New analyst with new model and methodology. They still see downside risk due to higher operating spend. While the growth outlook is strong, the price as full.

CHT3

  • Technology One (TNE $4.56) – Macquarie has downgraded to a Neutral (from Outperform) recommendation with a target price of $4.77. The recent guidance was below the analysts estimates and implies flat growth. For any re-rating, they would need to see a turnaround in consulting, acceleration of the SaaS platform and clarity around upcoming accounting changes

CHT4


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SPI FUTURES -14

US EQUITIES – S&P500 +9 (+0.32%), Dow Jones +52 (+0.21%), Nasdaq +48 (+0.64%).

Main themes

  • Early weakness due to US-China trade relations and uncertainty about the US-North Korean summit, with S&P down as much as 15 points.
  • FOMC minutes seen as a little dovish and gave markets a boost – the FOMC noted that a “temporary” period of inflation modestly above 2.0% would be consistent with the committee’s goal.
  • Financials underperform with a flattening of the yield curve and rally in bond markets. The US 10 year yield moved back below 3.0%.
  • Technology sector outperformed. Netflix +3.95%.

EUROPEAN MARKETS – All weaker. STOXX 600 -1.10%, UK FTSE -1.13%, German DAX -1.47%, French CAC -1.32%. Italian yields picked up again, rising 7bp

CURRENCIES

  • The US dollar is up 0.42% at 94.00.
  • The Aussie dollar is a little weaker at US75.59c.

BONDS – Big rally on Fed minutes. 2-yr: -3 bps to 2.53%, 5-yr: -7 bps to 2.83%, 10-yr: -6 bps to 3.00%, 30-yr: -4 bps to 3.17%

COMMODITIES

  • WTI oil futures were down 36c at US$71.84 after US inventories rose 5.8mb compared to expectations of a 1.6mb decrease. There were also talk that the meeting this week between oil ministers from the UAE, Saudi Arabia and Russia would result in a move to raise output as early as June (cutting the production cuts). EIA production levels were roughly unchanged at just over 10.7mbpd.
  • Gold futures closed 0.2% higher at US$1294, supported by trade talk uncertainty
  • Iron Ore – My IRESS feed is saying iron ore is still unchanged at US$68.00 but the CommSec site says China Import (Fines 62% Fe) was down US$1.10 or 1.7% to US$63.40/dry ton. (CFR Tianjin port)
  • LME metals – Prices were mixed. Cu -1.60%, Ni -0.88%, Al flat

ECONOMIC DATA, NEWS & POLITICS

  • Fed Minutes – dovish due to comfort with inflation above 2%. Another interest rate increase would be warranted “soon” if the US economic outlook remains intact. Expectations are for a June rise
  • US economic data – Weekly MBA Mortgage Index -2.6% (prior -2.7%), New Home Sales 662K (consensus 677K; prior revised to 672K from 694K)
  • Volker Rule – The Fed will consider modifying the Volker rule (which bans proprietary trading by banks) at a meeting on May 30.
  • Italian politics – Giuseppe Conte will lead a Movimento 5 Stelle-Lega government. Mr Conte said he will act as a defence attorney for the Italian people.
  • Turkey – The Turkey central bank held an emergency meeting and raised its late liquidity window rate by 300 basis points to 16.5%
  • European data – May Manufacturing PMI 55.5 (expected 56.1; last 56.2), Services PMI 53.9 (expected 54.7; last 54.7). Consumer Confidence 0.2 (expected 0.4; last 0.3); German Manufacturing PMI 56.8 (expected 57.9; last 58.1), Services PMI 52.1 (expected 53.1; last 53.0); French Manufacturing PMI 55.1 (expected 53.6; last 53.8), Services PMI 54.3 (expected 57.1; last 57.4)
  • UK economic data – CPI +0.4% (expected 0.5%; last 0.1%) to be +2.4%yoy (expected 2.5%; last 2.5%). core CPI +2.1%yoy (expected 2.2%; last 2.3%). Input PPI +0.4% (expected 1.0%; last 0.1%) and Output PPI +0.3% (as expected, last 0.3%). House Price Index +4.2%yoy (expected 4.4%; last 4.2%). May CBI Distributive Trades Survey 11 (expected 4; last -2)
  • RBA Governor Lowe speech last night – Focus on relationship with China

QUOTE OF THE DAY

“Politicians have conflicting values but not conflicting knowledge” – Louis B. Rosenberg PhD, American inventor born this day in 1969. I feel like these words are shouting at me at the moment.

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