MID MORNING MARKETS 18-6-18

The ASX200 is up 7 points in mid-market trading after negative trade developments over the weekend. Industrials and banks performing ok but Material and Energy hit. TLS loses some gains, S32 acquires Arizona Mining, AGO receives another offer and ASL CEO retires. Quiet next ahead, with BofE, OPEC and TLS in focus. #ausbiz

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TODAY

  • Japanese Balance of Trade, Imports/Export

TONIGHT

  • US – NAHB Housing Market Index

COMPANY NEWS

  • Atlas Iron (AGO) – AGO is in a trading halt, announcement regarding control transaction proposal. Will resume trading Wednesday or when announcement is made. Says it is separate to the Mineral Resources (MIN) announcement. Also announced first shipment of lithium direct shipping ore (DSO) set sail on Saturday. Pilbara Minerals will mine the lithium DSO. Atlas will process and transport the ore using its Mt Dove crushing hub and Utah Point facilities, and will sell up to 1.5 million tonnes of lithium DSO to Sinosteel on a fixed-priced basis.
  • South32 (S32) – Has acquired Arizona Mining (remining 83%) in an all cash offer of US$1.3 billion1(C$1.8 billion) or C$6.20 which represents a 50% premium to the closing price on 15 June and implies a total equity value for Arizona Mining of US$1.6 billion (C$2.1 billion).
  • Galaxy (GXY) – Red 5 Limited (ASX: RED) has sold its royalty entitlement from the Mt Cattlin mine in Western Australia to Canadian royalty company, Lithium Royalty Corporation (LRC).
  • Ausdrill (ASL) Ron Sawyers will retire after 30 years with the comapny. Mark Norwell has been appointed Managing Director and Chief Executive Officer. Mr Norwell was Executive General Manager – Strategy & Growth at Thiess Pty Ltd, and a member of Thiess’ executive leadership team. Previously with Leighton Contractors, HWE Mining and Macmahon Holdings.
  • Westpac (WBC) – On Friday, ASIC has commenced proceedings in the Federal Court of Australia against Westpac Banking Corporation in relation to alleged poor financial advice provided by one of its former financial planners, Mr Sudhir Sinha.
  • ASX – Chief Financial Officer, Mr Ramy Aziz, will retire in September 2018, An executive recruitment process is underway to appoint a successor.
  • Spark Infrastructure (SKI) – Investor presentation
  • Santos (STO) – Has awarded major engineering contracts in relation to the front end engineering and design (FEED) phase of the Barossa offshore project.

ANALYST CHANGES

  • Bapcor (BAP $6.84) – UBS has downgraded to a Neutral 9form Buy) recommendation with a target price of $7.00 (from $6.40). The analyst is still positive but has downgraded due to the strong price performance, which is starting to price in a successful roll-out in Asia and uplift in private-label penetration. They also think a potential acquisition may be implied, and this would be around 65 accretive.

CHT1

  • BHP Billiton (BHP $33.56) – Has approved US$2.9bn in capex for the South Flank project in the central Pilbara, WA. South Flank will fully replace production from the 80 Mtpa (100 per cent basis) Yandi mine which is reaching the end of its economic life. First ore from South Flank is targeted in the 2021 calendar year, with the project expected to produce ore for more than 25 years. South Flank iron ore will contribute to an increase in WAIO’s average iron grade from 61% to 62%, and the overall proportion of lump from 25% to approximately 35 per cent.
    • Macquarie has an Outperform recommendation with a target price of $36.20. The analyst has upgraded reserves and resource estimates for WA iron ore. South Flank provides a 15-20 year production outlook and should account for 50% of group cash flow over the next 5 years.

CHT2

  • Brambles (BXB $9.19) – Macquarie has a Neutral recommendation with a target price of $10.20. The analyst has updated CHEP forecasts including cost inflation and FX assumptions. While the share prices probably factors in the cost pressures in the US, they still remain cautious about the ability to grow profit.

CHT3

  • GUD Holdings (GUD $14.18) – UBS has upgraded to a Neutral (from Sell) recommendation with a target price of $14.60 (form $11.75). GUD has recently acquired Disc Brakes Australia and is adding new lines to its automotive division. The analyst notes industry feedback supports momentum in the automotive business, . They think GUD is well placed to acquire high-quality aftermarket brands that are not too reliant on sales to either Bapcor (BAP) or Repco.

CHT4

  • Retail Food Group (RFG $55c) – UBS has a Sell recommendation with a target price of 50c (from 90c). Following the downgraded to guidance ($34.5m) and FY18 reported loss of $87.6m, UBS has cut EPS estimates by 30% as the company suffers from negative setiment over mistreatment of franchisees and tough trading conditions.

CHT5

  • IDP Education (IEL) – Macquarie has an Outperform recommendation with a target price of $9.76 (from $7.25). The analyst thinks the company is well-positioned and the premium is justified, with Canada remains key to the outllok due to strengthening in international students.

CHT6

  • Iluka (ILU $11.60) – Macquarie has a Neutral recommendation with a target price of $11.00 (from $10.60). The South Flank approval from BHP will increase ILU’s royalty from 2021 and could receive $80m more in capacity payments over 2021-24.

CHT7

  • Lend Lease (LLC $19.29) – Macquarie has an Outperform recommendation with a target price of $18.30. The recent briefing suggests a strong outlook, with Barangaroo apartments, commercial developments and a pipeline of projects worth over $30bn. They think LLC will move into a production phase between FY20 and FY22, as apartment completions taper, and earnings could still be supported by forward sales of commercial developments, the communities business, and a growing pipeline in retirement.

CHT8


THIS WEEK – It’s relatively quiet on the economic front, with the key items of interest the RBA meeting minutes, Bank of England meeting and lots of housing-related data in the US. The other key agenda items are the Telstra (TLS) investor day on Wednesday and the OPEC meeting on Friday

  • Domestically, the minutes from the RBA meeting are released next Tuesday, followed by the RBA Bulletin on Thursday. Data-wise, the ABS’s house price index is out on Tuesday. We’ve already had the much more timely CoreLogic series so the house price data is unlikely to add much to the housing story. Then we have the leading index on Thursday and new home sales on Friday.
  • Nothing in China.
  • The minutes from the most recent Bank of Japan are released on Wednesday. In terms of data, there is trade data on Monday and inflation on Friday.
  • The European PMI indices are out next Friday.
  • The Bank of England meets on Wednesday. Recent weaker economic data and Brexit concerns mean there is little expectation of a rate rise at this meeting.
  • US economic data centres around the housing market, with the housing market index on Monday, housing starts and building permits on Tuesday, existing home sales on Wednesday and house prices on Thursday.

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LAST WEEK

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OVERNIGHT FRIDAY

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SPI FUTURES flat

US EQUITIES – S&P500 -3 (-0.21%), Dow Jones -85 (-0.34%), Nasdaq -15 (-0.19%).

Main themes

  • Markets rallied off earlier lows (the S%P was down as much as 21 and the Dow was down as much as 281.
  • President Trump announced 25% tariffs on US$50bn of Chinese exports “that contain industrially significant technologies”, and threatened additional tariffs if China retaliates. 800 products worth $34bn in annual trade come into effect 6 July, with the remaining $16bn worth of products to be applied later.
  • China announced US$34m worth of retaliatory tariffs, including on agricultural products.
  • Energy sector lower after oil dropped 2.7% ahead on expectations of higher output.
  • Financials also underperformed on flattening yield curve

EUROPEAN MARKETS – Stronger. STOXX 600 -0.99%, UK FTSE -1.70%, German DAX -0.74%, French CAC -0.48%

CURRENCIES

  • The US dollar eased a little to 94.79
  • The Aussie dollar is weaker again at US74.43c.

BONDS – Bonds strengthen and the yield curve flattened further. 2-yr: -2 bps to 2.56%, 5-yr: -2 bps to 2.80%, 10-yr: -4 bps to 2.91%, 30-yr: -3 bps to 3.04%

COMMODITIES

  • WTI oil futures fell 2.7% to US$65.06 ahead of next week’s OPEC meeting. The Russian Energy Minister Alexander Novak said he and Saudi Arabia supported returning production to the market gradually. In other oil news, major Libyan oil ports of Ras Lanuf and Es Sider were closed and evacuated on Thursday due to attacks by armed brigades, causing a production loss of 240,000 bpd.
  • Gold futures were up 0.5% to US$1,308.30.
  • Iron Ore – IRESS reports iron ore unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was unchanged at US$66.00/dry ton. (CFR Tianjin port)
  • LME metals – Significantly weaker. Cu -2.19%, Ni -0.65% and Al -2.30%.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Empire Manufacturing 25.0 (consensus 20.0; prior 20.1), Industrial Production -0.1% (consensus 0.2%; prior +0.9% revised from +0.7%)), Capacity Utilization 77.9% (consensus 78.1%; prior 78.1% (revised from 78.0%)); Preliminary June Michigan Consumer Sentiment Index 99.3 (consensus 99.0; prior 98.0)
  • European data – April trade surplus €16.70bn (expected €14.20bn; last €26.90bn). Q1 Labor Cost Index 2.0% (expected 1.9%; last 1.4%). May CPI +0.5% (as expected, last 0.3%) to be +1.9%yoy (as expected, last 1.9%). May Core CPI +0.3% (as expected, last 0.2%) to be +1.1%yoy (as expected, last 1.1%); German WPI +0.8% (expected 0.3%; last 0.5%) to be +2.9%yoy (last 1.4%); Italian CPI +0.3% (expected 0.4%; last 0.3%) to be +1.0%yoy (expected 1.1%; last 1.0%).

QUOTE OF THE DAY

“A situation where people can grow old without having a job that rewards them individually while adding to the collective well-being is morally unacceptable.” – Franco Modigliani, Italian economist born this day in 1918. Died 25 September 2003.

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