MID MORNING MARKETS 16-7-18

The ASX200 is down 17 points in mid-morning trade, after a lacklustre Friday offshore. Banks down on funding gap and cost pressure, Q prod season starts with WHC, GEM takeover spec, SHV China deal, RHC expansion plans. Big Chinese data today, RBA minutes and employment data later in week. #ausbiz

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TODAY

  • Chinese data – Fixed Asset Investment, GDP Growth Rate, Industrial Production, Retail Sales

TONIGHT

  • US economic data – Balance of Trade, Retail Sales, Empire Manufacturing, Business Inventories
  • Earnings – US Bank of America (BAC), BlackRock (BLK). After-market: Netflix (NFLX)

THIS WEEK

  • See below for full details – 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

COMPANY NEWS

  • Atlas Iron (AGO) – Directors unanimously recommend the Hancock offer. At 4.2c
  • G8 Education (GEM) – Media reprots GEM has appointed advisers to ward of takeover approach.
  • Ramsay Health Care (RHC) – Ramsay Générale de Santé (RGdS), has launched an unsolicited takeover bid (the “Offer”) for pan-European healthcare company, Capio at SEK 48.5, valuing Caprio at €661m. The offer will be funded by a combination of debt and equity. Capio has healthcare operations in five countries (Sweden, Denmark, Norway, Germany and France) with sales of €1.6 billion and EBITDA of €116 million. The combined entity of RGdS and Capio would become a leading private pan-European healthcare services operator with a strong focus on operational excellence. The combined group would deliver high quality, innovative care to patients and be an attractive workplace for doctors and employees. RGdS anticipates pre-tax synergies of approximately €20 million, the majority of which are expected to be realised within two to three years
  • Fletcher Building (FBU) – Management appointments. Michele Kernahan (currently Chief Executive Construction) will move into the role of Chief Executive Building Products, and Peter Reidy (currently Chief Executive KiwiRail) has been appointed as the new Chief Executive Construction.
  • Unibail-Rodamco-Westfiled (URW) – The ATO has released two products (a fact sheet and online calculator) to assist former Westfield Corporation shareholders  complete their 2018 Australian income tax returns in respect of the acquisition of Westfield Corporation by Unibail-Rodamco (“the Transaction”). They are available here ato.gov.au/General/Capital-gains-tax/In-detail/Events-affectingshareholders/Westfield-Group—takeover-by-Unibail-Rodamco-SE-(2018)
  • Ausdrill (ASL) – Board changes. Has appointed two new non-executive directors, Mr Robert Cole and Ms Alexandra Atkins.
  • Syrah (SYR) – Board changes. Ms Lisa Bahash as an independent Non-Executive Director.
  • Select Harvests (SHV) – Select Harvests Ltd and PepsiCo Foods (China) Co have entered into a Trademark License & Distribution Agreement to distribute and market the Lucky branded nuts, seeds and blends in China. SHV will produce and supply the products, PepsiCo China will be responsible for marketing, sales and distribution. Both co-investing in marketing to support the launch of the Lucky brand in China, making significant commitments to an advertising and marketing program over the first 18 months of the agreement, which has an initial term of 5 years.
  • Whitehaven Coal (WHC) – Q Production report

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  • Transurban (TCL) – The Monash Freeway Upgrade completion was announced by the Victorian Government yesterday. New lanes opened on the Monash Freeway in May, two months ahead of schedule. Re the West Gate Tunnel Project – planning approvals, in the form of a Planning Scheme Amendment, have passed through the Legislative Council in Victoria.

ANALYST CHANGES

  • A2Milk (A2M $10.29) – Citi has a Neutral recommendation with a target price of $10.90) – The analyst has downgraded EPS forecasts by 4%-6% though FY18-20 after management admitted more needs to be done to market the product to Chinese consumers. But their target prices has remained flat due to higher market multiples.

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  • Netwealth (NWL $9.13) – 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. Credit Suisse has a Neutral recommendation with a target price of $7.90. The analyst is fairly downbeat, implying the new guidance is in line with consensus (but the share price performance would suggest otherwise).

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  • QBE (QBE $9.79) – Macquarie has an Outperform recommendation with a target price of $11.70 (from $11.60). The analyst thinks QBE needs to restructure its 2019 reinsurance program but that concerns about the longevity of insurance-link securities as a reinsurance capital source have been allayed. They think this is a sustainable funding source and there could be scope to increase exposure at the next reinsurance renewal

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  • Lend Lease (LLC) – UBS has raised its target price by 7.1% to $19.50

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  • Domino’s Pizza (DMP) – Morgan Stanley has an Overweight recommendation with a target price of $65.00 (from $55) – The analyst thinks MP has significant competitive advantage given online and retails, and that the European expansion is the biggest long-term value driver. They note DMP has reasonable penetration in northern France and Germany but lots of room to grow in the southern regions of both countries. Eg Domino’s has just 142 stores in those southern areas, compared to 1,200 McDonald’s and 7,000 rival pizza outlets

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LAST WEEK

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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.

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CORPORATE CALENDAR

  • Tuesday 17 July – Oil Search (OSH) Q report, Rio Tinto (RIO) 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)

OVERNIGHT (FRIDAY)

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SPI FUTURES -7

US EQUITIES – S&P500 +3 (+0.11%), Dow Jones +95 (+0.38%), Nasdaq +2 (+0.03%).

Main themes

  • Financials underperformed  – JP Morgan Chase (-0.46%) reported better-than-expected earnings and sales, with trading revenue up 13%. Citigroup (-2.2%) posted a stronger-than-expected profit but revenue missed. Wells Fargo (-1.20%) missed on both earnings and revenue and was hit by tax charges
  • The tech sector also underperformed, with Cisco Systems (-4.13%) down on reports that Amazon (0.91%) is considering entering the data switches market

EUROPEAN MARKETS – Mostly higher. STOXX 600 +0.17%, UK FTSE +0.14%, German DAX +0.38%, French CAC +0.43%.

CURRENCIES

  • The US dollar was down 0.14% at 94.68
  • The Aussie dollar is stronger at US74.27c.

BONDS 2-yr: -3 bps to 2.57%, 5-yr: -3 bps to 2.73%, 10-yr: -2 bps to 2.83%, 30-yr: -2 bps to 2.93%

COMMODITIES

  • WTI crude futures rose U68c 1% to US$71.01, as strike action in Norway an Iraq hit supplies. Prices were down 4.5% for the week. The Baker Hughes oil rig count was unchanged at 863
  • Gold futures were down US$5.40 at $1,241.20.
  • Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was unchanged at US$63.50/dry ton. (CFR Tianjin port)
  • LME metals – MIxed. Cu +0.14%, Ni -1.55% and Al -0.54%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – June Import Prices -0.4% (prior 0.6%), Import Prices ex-oil -0.3% (prior 0.2%), Export Prices 0.3% (prior 0.6%), and Export Prices ex-agriculture 0.4% (prior 0.5%); Preliminary July Michigan Consumer Sentiment Index 97.1 (consensus 97.8; prior 98.2).
  • The Fed’s semi-annual Monetary Policy Report showed little concern over recent US$ strength or the current tightening path. Fed Chairman Jay Powell appears before the Senate Committee on banking, Housing, and Urban Affairs on Tuesday to deliver the semi-annual report and answer questions from lawmakers.
  • European data – Germans June Wholesale Price Index +0.5% (expected 0.4%; last 0.8%) to be +3.4%yoy (last 2.9%); Spanish June CPI +0.3% (as expected, last 0.9%) to be +2.3%yoy (as expected, last 2.1%)
  • Chinese trade data on Friday – Record trade surplus with the US. The trade surplus with the U.S. was $28.97 billion, the highest in any month in data back to 1999. Exports climbed to $42.62 billion, also a high, the customs administration said on Friday.

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  • Iron ore imports showing signs of levelling off, with imports -12%yy and -3% over last 3 months versus the same period a year ago. Imports for H1 -1.63% versus H1 last year.

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QUOTE OF THE DAY

“The appeal to the white man’s pocket has ever been more effectual than all the appeals ever made to his conscience.” – Ida B. Wells, African-American investigative journalist and activist, born this day in 1862. Died 25 March 1931.

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