RunningMoney

The ASX200 is down 8 points in mid-morning trade, after being up 19 points earlier. IT and Healthcare lead, Materials ok and banks slump. IRI profit warning, NWL FUA update, VEA lists today. Chinese trade data today, RBA minutes and employment data next week. #ausbiz

TODAY

• Viva Energy (VEA) comes online at $2.50
• Chinese – Trade data.
• Japanese – Capacity Utilization, Industrial Production

TONIGHT

• US economic data – Import Prices, Export Prices, Univ. of Mich Consumer Sentiment – Prelim
• US earnings – JPMorgan (JPM), Citigroup (C), and Wells Fargo (WFC)

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COMPANY NEWS

• Rio Tinto (RIO) – RIO will sell its interest in Grasberg to Inalum, Indonesia’s state mining company, for $3.5 billion. The Grasberg mine in Indonesia is currently owned by FCX (90.64%) and the Government of Indonesia (9.36%). Rio Tinto currently has a right to 40% of production above a pre-agreed level and 40% of all production after 2022. In 2017 the Grasberg mine produced 468kt and Rio Tinto’s share of mined copper was 5.7kt. Macquaire has an Outperform recommendation with a target price of $94. The sale of Grasberg, combined with the exit from Australian coal and some aluminium smelters, suggests the company will raise US$8.5bn in asset sales in 2018. Macquarie says that given low debt levels, the proceeds will boost ongoing capital management programs.
• Netwealth (NWL) – Profit guidance raised to 6% above FY18 proforma prospectus forecast. FUA up $1.95bn in Q4 to $17.95bn. FUA increase of $5.2bn yoy (up 41%). Big growth in flows.

• Integrated Research (IRI) – Profit guidance – Total revenue growth to be flat and NPAT up 1-%, reflecting the cyclical downswing in Infrastructure and an underperforming European operation. Though the result is disappointing, IRI says the fundamentals of the business remain sound with stronger licence growth anticipated for the new financial year

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ANALYST CHANGES

• A2Milk (A2M $10.50) – Group revenue for FY18 up 68% to ~$922million. Also expects EBITDA/sales of 30%.
  • Macquarie has an Outperform recommendation with a target price of $12.40. The analyst notes that FY18 sales of NZ$922m is up 68% and higher than May guidance. The FY19 outlook is for further revenue growth although costs will be higher. They still see longer-term value in the stock given it is building a business in a disruptive and growing category.
  • Morgans has an Add recommendation with a target price of $11.85 (from $12.48). The FY revenue was ahead of guidance with a 30% margin expected. The analyst expects strong cash flow conversion and a capital management announcement. They note FY19 expectations have softened because of investment across the business and they’ve downgraded FY19 and FY20 net profit forecasts by 6.9%.
  • UBS has a Neutral recommendation with a target price of NZ$11.20. The EBIT forecast was 3% ahead of UBS estimates. A2M has guided to flat earnings margins of around 30% in FY19 with easing US losses to be offset by higher marketing costs.
  • It will be very interesting to see if shares can resume the uptrend considering that they have moved back to the uptrend support line.

• Freedom Foods (FNP $5.94) – Trading update yesterday. Continues to experience strong demand across its business activities in Australia, China and SE Asia. But delays in implementing the product range for certain new products. Net sales for FY 2018 expected to be $353 million, up 35% on pcp but below the upgraded net sales revenue target of $360-$380m. Expects net sales revenue in FY 2019 $500-$530 million.
• Citi has a Buy recommendation with a target price of $6.90 (from $6.90). The analyst notes some were disappointed but they see positives and the long term investment thesis remains intact. They see infant formula compensating for growth reductions elsewhere. Estimates have been reduced by 4%-6% for FY18-FY19.
• After recent strength, yesterday’s fall was an over-reaction but not a huge surprise. Shares have been overbought on a technical basis and a bit more consolidation could be expected but the longer tern outlook (based on fundamentals) remains positive.

• Noni-B Limited (NBL) – Trading update. Like-for-like sales +4.5%; Total sales $364m; The Group’s store network increased from 614 stores to 641 stores; Online grew to 5.8% of total sales. Guidance: EBITDA for FY2018 to be up 70% to $37m, consistent with broker analyst expectations.
• Morgans has an Add recommendation with a target price of $3.83 (from $3.50). The analyst is increasingly comfortable with the company given the Pretty Girl acquisition. The turnaround of the recently-acquired Specialty Fashion brands should also mean earnings double from FY18-20.
• It’s an exponential looking chart but there are no indications as yet to indicate a possible pull-back.

• ResMed (RMD $14.65) –The US Centres for Medicare and Medicaid Services have proposed changes to the durable medical equipment schedule and competitive bidding process that set the process and reimbursement rates for durable medical equipment providers in 2019 and beyond.
  • Morgan Stanley has an Overweight recommendation with a target price of US$112. They see broader access to Medicare beneficiaries from FY19, which will support volume growth and an improved pricing outlook.
  • UBS has a Neutral recommendation with a target price of US$106 (from $104). They consider the changes will be indirectly beneficial for ResMed, with maximum bids and lead pricing resulting in a simpler and potentially higher reimbursement framework.
  • Shares are very overbought on an RSI basis and the chart looks scary…but there are no technical signals yest to suggest it’s about to end just yet.

• Sonic Healthcare (SHL $26.46) – Morgan Stanley has an Overweight recommendation with a target price of $29.00 (from $27.10). The analyst sees high single digit earnings growth over the next 3 years and they are confident about the long volume growth, noting timing and size of fee reductions in the future are less visible.

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SHORT CHANGED

There was a doubling in short interest last week in Sigma Health (SIG) from 3.5% to 7.4%, while the other key increases were in Inghams (ING) and JB Hi-Fi.

The shorts in APO Outdoor (APO) are pretty much out, while there was also short covering in Primary Health (PRY), Gateway (GTY) and Beadell Resources (BDL).

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NEXT WEEK – RBA minutes on Tuesday and domestic employment data on Thursday will be the key domestic focus, while major international releases include Chinese GDP on Monday, European inflation, UK employment and inflation and US retail sales. Key domestic corporate events include production reports from BHP Billiton (BHP), Rio Tinto (RIO), South32 (S32), Oil Search (OSH), Woodside Petroleum (WPL), Santos (STO). US earnings season also continues, with Bank of America, Netflix, Goldman Sachs, Morgan Stanley, Microsoft, and GE some of the key names reporting

ECONOMIC CALENDAR

• Domestically, the minutes from the last RBA meeting are out on Tuesday and the key data release will be employment on Thursday. Expectations are for 18K new jobs and for the unemployment rate to tick back up to 5.5% (from 5.4%).
• Chinese GDP is out on Monday, with the consensus forecast of 1.6% for the quarter (up from 1.4%) to give an annual increase of 6.7% (down from 6.7%). Industrial production and retail sales are also out on Monday, followed by house prices and industrial production on Tuesday.
• Japanese trade data is Thursday, followed by inflation on Friday.
• European trade data is in Monday, with inflation on Wednesday.
• There is a busy week in the UK, with employment data on Tuesday, inflation on Wednesday, and retail sales on Thursday.
• Key US data includes retail sales on Monday, industrial production on Tuesday and leading indicators. There is a bit of housing related data as well with the NAHB housing market index, housing starts and building permits also released.

CORPORATE CALENDAR

• Tuesday 17 July – Oil Search (OSH) Q report, Rio Tinto (RIO) Q report, Whitehaven Coal (WHC) Q report
• Wednesday 18 July – BHP Billiton (BHP) Q report
• Thursday 19 July – Ausnet Services (AST) AGM, CIMIC (CIM) Earnings, South32 (S32) Q report, Santos (STO) Q report, Woodside Petroleum (WPL) Q report
• Friday 20 July – Atlas Arteria (ALX) traffic stats, Sydney Airport (SYD) traffic stats.

US REPORTING CALENDAR

• Monday 16 July – Bank of America (BAC), BlackRock (BLK). After-market: Netflix (NFLX)
• Tuesday 17 Jul – Goldman Sachs (GS), Johnson & Johnson (JNJ), UnitedHealth (UNH).
• Wednesday 18 July – Ericsson (ERIC), Morgan Stanley (MS). After-market: Alcoa (AA), American Express (AXP), eBay (EBAY). IBM
• Thursday 19 July – Blackstone (BX), BNY Mellon (BK), Domino’s Pizza (DPZ), Phillip Morris (PM), After-market: Microsoft (MSFT)
• Friday 20 July – General Electric (GE), Honeywell (HON), Manpower (MAN), Stanley Black & Decker (SWK)

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OVERNIGHT

SPI FUTURES +23

US EQUITIES – S&P500 +24 (+0.87%), Dow Jones +225 (+0.91%), Nasdaq +107 (+1.39%).

Main themes –

• Tariffs brushed off – lack of immediate official response from China seen as positive
• Technology outperformed and financials lagged due to flattening yield curve

EUROPEAN MARKETS – All higher. STOXX 600 +0.78%, UK FTSE +0.78%, German DAX +0.61%, French CAC +0.97%.

CURRENCIES

• The US dollar was up 0.1% at 94.81
• The Aussie dollar is stronger overnight at US74.12c.

BONDS – 2-yr: +2 bps to 2.60%, 5-yr: +2 bps to 2.76%, 10-yr: +1 bp to 2.85%, 30-yr: UNCH at 2.95%

COMMODITIES

• WTI crude futures fell US5c to US$70.33, recovering from earlier losses, on news that production had resumed at the closed Libyan oil field. Supporting prices, the IEA said increased production from OPEC and Russia could mean spare capacity would be stretched.
• Gold futures were up US$2.20 at $1,246.60.
• Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up 80c at US$63.50/dry ton. (CFR Tianjin port)
• LME metals – MIxed. Cu +1.35%, Ni +2.27% and Al -0.87%

ECONOMIC DATA, NEWS & POLITICS

• Economic data – June CPI 0.1% (consensus 0.2%; prior 0.2%), Core CPI 0.2% (consensus 0.2%; prior 0.2%), Total CPI was up 2.9%yoy, the largest 12-month increase since February 2012. Core CPI was up 2.3%yoy, versus 2.2% in May. Weekly Initial Claims 214K (consensus 225K; prior 232K), and Continuing Claims 1739K (1742K)
• Fed Speak – Chair Jay Powell said the economy is “in a good place,” but noted that an escalation in tariffs could have a negative impact. He said policymakers do not want to ask taxpayers to backstop the financial system in the future. He noted safeguards like higher capital, higher liquidity, better risk management, stress testing, living wills, and resolution plans
• UK – The Financial Conduct Authority and Commodity Futures Trading Commission have urged banks to speed up transition from Libor to risk-free reference rates, in the hope that Libor will be abandoned by 2021
• European data – May Industrial Production +1.3% (expected 1.2%; last -0.8%) to be +2.4%yoy (expected 2.1%; last 1.7%); German June CPI +0.1% (as expected, last 0.1%) to be +2.1%yoy (as expected, last 2.1%); French June CPI 0.0% (expected 0.1%; last 0.1%)