MID MORNING MARKETS 5-6-18

The ASX200 is 32 points in mid-morning trade, after strong US jobs numbers and reduced political and trade concerns. Energy and Utilities weaker but other sectors higher. CBA higher after settlement with AUSTRAC, YOW op update, KGN goes into whitegoods  Retail sales later today and big week data-wise #ausbiz

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TODAY

  • Economic data – HIA New Home Sales, Business Inventories, Company Gross Profits, ANZ Job Advertisements, Retail Sales
  • Ex-dividend – Infratil (IFT) 9.9c

TONGHT

  • European data – PPI
  • UK – Construction PMI
  • US – Factory Orders

COMPANY NEWS

  • CBA – AUSTRACK resolution. Civil penalty of $700 million together and AUSTRAC’s legal costs of $2.5m, CBA has admitted further contraventions of Australia’s Anti-Money Laundering and Counter-Terrorism (AML/CTF) Act, beyond those already admitted, including contraventions in risk procedures, reporting, monitoring and customer due-diligence. AUSTRAC’s civil proceedings are otherwise dismissed. CBA provided for an estimated penalty of $375m in the last half and the $700m will be recognised in the FY18. CEO Matt Comyn “While not deliberate, we fully appreciate the seriousness of the mistakes we made. Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.”
  • CYBG (CYB) – Revised proposal for Virgin Money. CYB has made a revised proposal for Virgin, equivalent to 1.2125 new CYB chares for each Virgin Money shares. Virgin shareholders would own 38% of the combined group.
  • Vicinity Centres (VCX) – $1bn of asset sales in regional and neighbourhood shopping centres.
  • Bubs Australia (BUB) – New China deal with China based supply chain and service provider New Times Asia, to supply Bubs and CapriLac products to up to 20 e-commerce platforms in China.$17M sales commitment for FY19 represents at least 100% increase to total business sales revenue. Minimum sales commitment increases to $24M in FY20, and $37M in FY21.Opens up new vertical platforms, including Suning, Jumei, Mia, BeiBei, Baby Tree, and MamaGo, in addition to enhancing existing supply agreements with JD.com, Kaola.com, VIP.com, and RED.
  • Kogan (KGN) – Entering Whitegoods and Built-In Kitchen Appliance Market with its own range of Exclusive Brand price-competitive products. No detail provided at this stage. Expecting more info before the end of the year
  • Yowie (YOW) Operational update featuring Continued growth in distribution across all US distribution channels; Significant cost cutting program implemented with $3m annualized savings; Series 4 Launch in the US. Share of US market continues to increase to 42.1% (from 36.9% in April 17)

ANALYST CHANGES

  • AGL Energy (AGL $21.79) – Credit Suisse has downgraded to a Neutral (for Outperform) recommendation with a target price of $23.25 (from $26.00). The analyst notes large customers are increasingly being offered below-market prices for committing to larger volumes and terms. Other factors – including gov’t pressure, competition and lower electricity futures, mean higher retails prices may not result.

CHT1

  • Bluescope Steel (BSL $17.81) – Credit Suisse has an Outperform recommendation with a target price of $16.90. The analyst confirms there will be no tariffs or quotas for BSL-exported steel. The existing 29% dumping tariff on hot rolled coil exports remains under review and may still be removed.

CHT2

  • Domino’s Pizza (DMP $52.41) – UBS has a Buy recommendation with a target price of $57.50. Again a focus on football, with the analyst noting that it will really depend on the success of the French and German teams, as well as the weather. But overall they think guidance is achievable.

CHT3

  • Estia Health (EHE $3.22) – Macquarie has a Neutral recommendation with a target price of $3.60 (from $3.37). The analyst is still cautious about the aged-care sector but EHE is their preferred exposure and a conservative greenfield development book will reduce earnings drag in the near terms. Macquarie also has a new analyst.

CHT4

  • Japara Healthcare (JHC $1.88)-  Macquarie has a Neutral recommendation with a target price of $1.86 (form $2.25). The see JHC with the highest execution risk and more capital is likely to be required.

CHT5

  • Regis Healthcare (REG $3.80) – Macqurie has downgraded to an Underperform (from Neutral) recommendation with a target price of $3.50 (from $4.25). There is a new analyst who thinks EBITDA growth will be expensed to D&I, resulting in declining distributions.

CHT6

  • Galaxy Health (GXY $3.49) – UBS has upgraded to a Buy (from Neutral) recommendation with a target price of $3.95 (form $3.10).

CHT7

  • Inghams Group (ING $3.99) – Morgans has downgraded to a Hold (from Add) recommendation with a target price of $4.20 (form $4.05). While the analyst is still positive about the FY18 result and management improvements to the balance sheet, they have downgraded FY18-30 forecasts due to emerging headwinds.

CHT8


THIS WEEK

It’s a very big week domestically with an RBA meeting and GDP. Lots on in China and Japan as well, while the US is a bit quieter

  • The RBA meets tomorrow, although there is no expectation of any changes to interest rates. Major data includes retail sales and ANZ job ads today, GDP on Wednesday and trade data on Thursday
  • The Chinese services PMI number is out tomorrow with the composite number, This is followed by trade data on Friday and inflation and PPI on Saturday.
  • Japanese GDP is released on Friday after a full week of releases including household spending, leading and coincident indices and the current account.
  • European data includes PPI, retail sales and a third estimate of GDP. ECB president speaks on Tuesday and there are a few other ECB officials speaking over the week.
  • A quiet week in the US with factory orders tonight the highlight.

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LAST WEEK

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OVERNIGHT

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SPI FUTURES +34

US EQUITIES – S&P500 +29 (+1.09%), Dow Jones +219 (+0.90%), Nasdaq +112 (+1.51%).

Main themes

  • US jobs numbers better than expected and unemployment rate dipped to 3.8%.
  • US President Trump confirmed the original details of the planned meeting with North Korea’s Supreme Leader Kim Jong-un, in Singapore on June 12
  • Italian political crisis calmed after a coalition government was approved

EUROPEAN MARKETS – All stronger.  STOXX 600 +1.01%, German DAX +0.95%, French CAC +1.24% Italian MIB +1.49% (ended the week -1.29%). Greek market was up +2.77% to be up 2.8% for the week

CURRENCIES

  • The US dollar was up 0.2% at 94.16.
  • The Aussie dollar is a little weaker at US75.71c.

BONDS – 2-yr: +7 bps to 2.48%,5-yr: +7 bps to 2.74%, 10-yr: +8 bps to 2.90%, 30-yr: +6 bps to 3.05%

COMMODITIES

  • WTI oil futures closed down $1.23 or 1.8% to US$65.81 to finish the week down -2.65% after a 5% fall the previous week.. Brent’s premium over WTI remain at a 3-year high above US$10. The Baker Highes rig cou t rose by 2 to 861, the highest since March 2015.
  • Gold futures fell US$5.40 at US$1299.30.
  • Iron Ore – IRESS reports iron ore up US50c at US$65.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US30c to US$64.30/dry ton. (CFR Tianjin port)
  • LME metals – Mostly higher. Cu +0.64%, Ni +1.48%, Al +0.57, Pb -0.57% the exception

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Nonfarm Payrolls 223K (consensus 190K; prior 159K from 164K), Nonfarm Private Payrolls 218K (consensus 177K; prior 162K), Unemployment Rate 3.8% (consensus 3.9%; prior 3.9%), Average Hourly Earnings 0.3% to be +2.7%yoy (consensus 0.3%; prior 0.1%), Average Workweek 34.5 (consensus 34.5; prior 34.5), ISM Index 58.7 (consensus 58.0; prior 57.3), Construction Spending +1.8% (consensus 1.0%; prior -1.7%)
  • Italian politics – New government sworn in. Movimento 5 Stelle leader Luigi Di Maio was named vice-premier and minister for labor and economic development while Lega leader Matteo Salvini was named vice-premier and interior minister in charge of immigration.
  • European data – Manufacturing PMI 55.5 (as expected, last 55.5), German Manufacturing PMI 56.9 (expected 56.8; last 56.8), French Manufacturing PMI 54.4 (expected 55.1; last 55.1), Italian May Manufacturing PMI 52.7 (expected 53.0; last 53.5), Spanish Manufacturing PMI 53.4 (expected 54.2; last 54.4)
  • UK Manufacturing PMI 54.4 (expected 53.5; last 53.9)

QUOTE OF THE DAY

“Strength does not have to be belligerent and loud.” – Russell Brand, English comedian born this day in 1975.

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