MID MORNING MARKETS 12-6-18

The ASX200 is up 1 point in very boring mid-morning trade. Long weekend and caution ahead of the meeting between Trump and Kim Jong Un. ASL project downdate, CTX profit update, more bad news for Prospa, housing finance today. #ausbiz

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TODAY

  • Economic data – NAB Business Confidence, Housing Finance
  • Chinese data – FDI (YTD), Vehicle Sales
  • Japanese data – PPI, Tertiary Industry Index
  • US – North Korea summit.

TONIGHT

  • European data – ZEW Economic Sentiment Index
  • UK data – Employment Change, Unemployment Rate, Average Earnings incl. Bonus,
  • US data – CPI, Core CPI

COMPANY NEWS

  • Caltex (CTX) – 1H18 historic cost profit after tax (HCOP) outlook of $385-405m, up 49% vs 1H17. Repalcement cost operating profit (RCOP) NPAT outloook $295-315m, up 4% on 1H17 despite the combined negative impacts of a lower CRM, lower retail fuel margins caused by the timing of crude and product price changes between 2017 and 2018, and ongoing store transitions
  • Ausdrill (ASL) – Project Update. Mining operations at Yanfolila are now operating at full capacity and development works have commenced at the Komana West deposit. Wodgina (PMI) – Now expect the value of the contract to be approximately half the previously announced $180m over the initial three years. Super Pit – Due to the recent wall failure at the Super Pit, our scope of works has currently reduced by 35% whilst the client reviews the longer-term mine planning. Currently difficult to provide a definitive timeframe for the reduction.
  • Wesfarmers (WES) – Has completed the divestment of Homebase in the United Kingdom and Ireland to a company associated with Hilco Capital. WES expecrs to record a loss on disposal of £200- £230m in the Group’s 2018 full-year financial results, subject to finalisation of completion accounts and review by Ernst & Young.
  • AMP – Has appointed john O’Sullivan as non-executive director.
  • AGL Energy (AGL) – Has executed two key sets of agreements in relation to its proposed liquefied natural gas (LNG) import jetty at Crib Point in Victoria. Development and Gas Transportation Agreements with APA Group and Works, Lease, and Berthing and Jetty Agreements with the Port of Hastings Development Authority for the long-term use of Crib Point Jetty Berth 2
  • Infigen Energy (IFN) – Monthly production for May.

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  • Prospa – After the float was postponed indefinitely last week, media reports today that Westpac has ended its referral relationship. It’s seen as a sign that the major banks will try and regain share in the market by offering unsecured small business lending.

ANALYST CHANGES

  • Ramsay Health Care (RHC) – Macquarie says investors are wrong to assume RHC is suffering that same issues as rival Healthscope, noting Ramsay’s share-price is down 8% since Healthscope warned on profits in May, even though that was largely due to specific problems at one of its sites in Victoria. Macquarie is bullish about RHC’s $300m investment in expanding existing hospitals that should “support revenue growth in FY19 and into FY20.” It also thinks procurement savings will continue to boost profit margins. “Our forecasts imply 8% Core EPS growth for FY18 and 10% for FY19.”
  • Bubs (BBUB) – Morgans has raised its target price by 9.3% to $82c
  • Watpac (WTP) – Morgans has raised its target price by 3.4% to $91c

THIS WEEK – Domestic employment data and an FOMC meeting dominate, but we also have an ECB and Bank of Japan meeting as well as a big week for Chinese data, employment and wages data in Europe and employment and inflation data in the UK,

  • Some important domestic releases this week, including NAB business and Westpac consumer confidence, housing finance and the main event, employment data on Thursday.
  • Company evernts include an REA Group (REA) AGM on Tuesday, investor days for Challenger Group (CGF) and Link Administration (LNK) on Wedneday and an investor day for Goodman Group (GMG) on Thursday.
  • Lots on in China – Inflation is this weeken and then Thursday in particualr is full-on with Fixed asset investment, industrial production and retail sales.
  • The Bank of Japan meets on Friday, while key data during the week includes PPI on Tuesday and capacity utilisation and industrial production on Thursday.
  • The ECB also meets next week, on Thursday and expectaiton have been increasing that members are preparing for a hawkish policy shift with four key ECB members, including Bundesbank President Jens Weidmann, mentioned expectations eurozone inflation would reach the 2.0% target soon. Data includes employment and indsutrial production on Wednesday, and inflation and wages growth on Friday.
  • It’s huge in the UK with industrial and manufacturing producrion on Monday, employment data on Tuesda,y inflation on Wednesday and retail sales on Thursday.
  • The FOMC meets on Tuesday and Wednesday and a rate rise is almost 100% priced in…but there will be interest in any comments made in the press release.

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LAST WEEK

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OVERNIGHT MARKETS FRIDAY

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OVERNIGHT MARKETS FRIDAY

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SPI FUTURES – +27 to 6078.

US EQUITIES

  • FRIDAY – S&P500 +9 (+0.13%), Dow Jones +75 (+0.30%), Nasdaq +10 (+0.14%).
  • MONDAY – S&P500 +3 (+0.11%), Dow Jones +6 (+0.02%), Nasdaq +14 (+0.19%).

Main themes

  • Escalating trade tensions – US President Trump and his administration escalated criticism of Canadian Prime Minister Justin Trudeau and international trade over the weekend, with Trump refusing to endorse the joint G7 statement that called for a reduction in tariffs
  • Focus on FOMC meeting. 91.3% chance that the Fed will raise rates. Probabilities ahead (at December). Only that June rate hike 12.5%, 2 rate hikes 42.5%, 3 rate hikes 40.3% and more than 3, just 4%.
  • FRIDAY – Trading was cautious as G7 began and ahead of summit with North Korea. Apple (-0.91%) after reportedly telling suppliers to prepare fewer iPhone components

EUROPEAN MARKETS

  • STOXX 600 -0.21%, UK FTSE -0.30%, German DAX -0.35%, French CAC +0.03%.
  • STOXX 600 +0.73%, UK FTSE +0.73%, German DAX +0.60%, French CAC +0.43%.

CURRENCIES

  • FRIDAY – The US dollar was up 0.2% to 93.54 and the Aussie dollar eased to US76.04.
  • MONDAY – The US dollar was up 0.1% to 93.60 and the Aussie dollar rose to US76.11.

BONDS

  • FRIDAY: 2-yr: -2 bps to 2.48%, 5-yr: UNCH at 2.78%, 10-yr: +1 bp to 2.94%, 30-yr: UNCH at 3.08%
  • MONDAY – 2-yr: +4 bps to 2.52%, 5-yr: +2 bps to 2.80%, 10-yr: +2 bps to 2.96%, 30-yr: +2 bps to 3.10%

COMMODITIES

  • WTI oil futures were up US36c at US$66.10 after reports the US had asked OPEC producers to increase production ahead of sanctions against Iran, followed by comments by Iraq’s oil minister that producers should not respond to such pressure. The Baker Hughes rig count rose by 1 to 862, its highest level since March 2015. Russian production rose to 11.1mbpd, well above the 11mbpd target production under the OPEC deal.
  • Gold futures were up 50c to US$1,303.20 on Monday after falling US30c on Friday.
  • Iron Ore – IRESS reports iron ore unchanged on Friday and Monday at US$67.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US60c to US$65.70/dry ton. (CFR Tianjin port)
  • LME metals – Mostly lower on Monday. Cu+ -0.78, Ni -0.84% and Al +0.09%. Adds to losses on Friday Cu -0.27%, Ni -0.64%, Al -0.56%

ECONOMIC DATA, NEWS & POLITICS

  • European banks were stronger, ahead of the ECB meeting this week where plans for the end of monetary stimulus are expected to be developed.
  • Italian Finance Minister Giovanni Tria reaffirmed the government’s commitment to the euro to local media, leading to strength in Italian banks
  • Friday’s data – April Wholesale Inventories 0.1% (consensus 0.2%; last 0.2%)
  • JPMorgan bearish on oil – Going into next year “oil fundamentals are expected to weaken in 2019 on the back of stronger than expected non-OPEC supply but also potential release of barrels from OPEC as the joint accord between OPEC and non-OPEC is unlikely to stay in place”.
  • UK data – Industrial Production -0.8% (expected 0.2%; last 0.1%) to be +1.8%yoy (expected 2.7%; last 2.9%). April Manufacturing Production -1.4% (expected 0.3%; last -0.1%) to be +1.4%yoy (expected 3.1%; last 2.9%). April Construction Output +0.5% (expected 2.0%; last -2.3%) to be -3.3%yoy (expected -1.8%; last -4.9%)
  • Chinese inflation – CPI fell 0.2% in May, worse than the -0.1% expected but the annual rate was in line at 1.8%. PPI was above expectations at +4.1%.

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QUOTE OF THE DAY

“Everyone talks about building a relationship with your customer. I think you build one with your employees first.” –  Angela Ahrendts, American businesswoman, Senior Vice President of Retail, Apple, born this day in 1960

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