MID MORNING MARKETS 25-7-18

The ASX200 is down 19 points in mid-morning trade, despite a strong leads and good support for resources. Tariffs start to bite, with US and Chinese responding with support, Staples and H’care hit. CSR reviewing glass, FWD trading halt pending acquisition, further falls for KGN and TWE gives up some gains. CPI later today.  #ausbiz

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TODAY

  • Economic data – Inflation Rate

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TONIGHT

  • European data – Loan Growth/M3 Money supply
  • UK data – CBI Business Optimism Index, CBI Distributive Trades, New Home Sales
  • US earnings – Boeing (BA), Coca-Cola (KO). General Motors (GM), NASDAQ (NDAQ), T Rowe Price (TROW), Tupperware (TUP). After market – Legg Mason (LM), Mattel (MAT), PayPal (PYPL), Universal Hralth (UHS), Visa (V)

COMPANY NEWS

  • CSR – Has confirmed it is reviewing strategic alternatives in relation to its Viridian glass business, including potential sale options. CSR has received interest from external parties. No decision to sell the business at this stage, but will assess this potential interest over the next few months. As noted at CSR’s full year results in May and last month’s annual general meeting, Viridian’s performance in Australia and New Zealand is improving and the business remains on track to increase earnings this year
  • Updater (UPD) – Has announced that Local Services vertical as its fifth vertical for selling Business Products. The Local Services vertical relates to Business Products that match Updater Users with products and services provided by the thousands of local US Businesses targeting Movers each year.
  • Fleetwood (FWD) – Trading halt in relation to acquisition and capital raising.

ANALYST CHANGES

  • Atlas Arteria (ALX $6.46) – Toll revenue and Traffic Stats yesterday. Weighted average toll revenue and traffic for the June 2018 quarter1 increased by 5.9% and 3.5% respectively on pcp, reflecting increased aggregate traffic levels, primarily at APRR, and revised toll schedules implemented over the past 12 months. For the six months to 30 June 2018, weighted average toll revenue grew 5.7% while traffic over the same period was 3.4% above pcp
    • Deutsche Bank has a Buy recommendation with a target price of $6.85. 2H toll revenue growth was ahead of the analyst’s forecasts. There was a stronger-than-expected boost from the airline and train strikes earlier in the year, while higher fuel prices have not yet had an impact.
    • Morgans has an Add recommendation with a target price of $6.85 (from $6.76). The analyst saw strong growth on the APRR asset amid traffic declines on Dulles Greenway. As APRR contributes more than 80% of the equity value, they see this as net positive. They have raised forecasts for the 1H but don’t expect a change to 2018 distribution guidance of $0.24.

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  • Amcor (AMC $14.75) Morgans has a Hold recommendation with a target price of $13.54 (from $13.74). The analyst forecasts 3% operating earnings growth for FY18. The main focus is on the impact of higher raw material costs, beverage volumes in North America and emerging markets. They think the valuation is starting to look attractive but the operating environment remains uncertain with downside risks, particularly while oil prices trend upwards.

C2

  • Iluka (ILU $11.29) – Q report yesterday
    • Citi has a Buy recommendation with a target price of $14.00 (from $13.70). The analyst thought the report was strong, even with the inclusion of downgraded production from Sierra Rutile, with a higher realised rutile price that they had forecast, suggesting a strong market. They have raised estimate.
    • Credit Suisse has an Outperform recommendation with a target price of $12.30 (from $11.10). The analyst was happy with the sales and guidance as well as the 14% rise in rutile pricing. They expect further upside to realised prices in 2H when Iluka begins a new contract period for zircon. 1H mineral sands revenue was 13% above their estimates.
    • Morgan Stanley has an Overweight recommendation with a target price of $12.60. 2H rutile pricing was higher than the analyst had expected, while rutile guidance was downgraded to 185,000t for 2018. They note all 2H high-grade titanium dioxide feedstock production has been contracted and supply requests have exceeded Iluka’s ability to supply, while zircon markets also remained tight in the first half.

C3

  • Redbubble (RBL $1.52) – Results yesterday. Morgans has an Add recommendation with a target price of $1.91 (from $1.66). The analyst thought the result showed strong growth in revenue and gross profit, in line with expectations. They have downgraded forecasts but raised their target price due to using DCF valuation alone. They think RBL is on track for another year of 30% growth and risks are considered to diminish greatly if the company hits FY19 guidance.

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  • Treasury Wine Estates (TWE $19.34) – Export data released yesterday showed wine exports to China were up 55% by value over FY18.
    • Deutsche Bank has a Hold recommendation with a target price of $16.00. The analyst suggests the data, in light of the recent issues relating to Treasury Wine’s exports to China, provide some indication as to whether or not port bottlenecks have persisted.
    • Morgan Stanley has an Overweight recommendation with a target price of $20.00. The analyst still remains cautious about extrapolating the data to Treasury Wine. While encouraging overall, TWE has experienced delays in some wine destined for China so the latest data may not necessarily be in line with its experience

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OVERNIGHT MARKETS

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SPI FUTURES +16

US EQUITIES – S&P500 +13 (+0.48%), Dow Jones +198 (+0.79%), Nasdaq -1 (-0.01%).

Main themes

  • Tech sector underperforms despite strength in Google.
  • Chinese fiscal measures to boost growth support commodity prices

EUROPEAN MARKETS – Generally stronger. STOXX 600 +0.86%, UK FTSE +0.70%, German DAX +1.12%, French CAC +1.04%.

CURRENCIES

  • The US dollar was virtually unchanged at 94.61
  • The Aussie dollar is stronger at 74.28

BONDS – 2-yr: UNCH at 2.62%, 5-yr: -1 bp to 2.82%, 10-yr: -2 bps to 2.95%, 30-yr: -3 bps to 3.08%

COMMODITIES

  • WTI crude futures rose US63c at US$68.52. Key factors included news that China will increase infrastructure spending, suggesting higher oil demand, along with escalating tensions between the US and Iran.
  • Gold futures were down US$5.50 at $1,225.60 due to the higher US dollar.
  • Iron Ore – IRESS reports iron rose US50to US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US40c at US$65.20/dry ton. (CFR Tianjin port)
  • LME metals – Rallied strongly. Cu +2.69%, Ni +1.49% and Al +0.75%.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – May FHFA Housing Price Index (actual 0.2%; Briefing.com consensus 0.4%; prior 0.2%)
  • US earnings – Eli Lilly (5.03%), Biogen (+4.11%) 3m (+0.93%), Harley Davidson (7.67%), Verison (1.50%). After market – AT&T (-0.88% despite beating estimates).
  • Earning scorecard – 21.4% of S&P 500 companies have reported, 80.6% have beaten earnings expectations while 74.1% have beaten revenue estimates.
  • Tariff offset – The Trump administration will offer $12bn in aid to farmers hit by tariffs.
  • European data – July Manufacturing PMI 55.1 (expected 54.7; last 54.9) and Services PMI 54.4 (expected 55.0; last 55.2); German July Manufacturing PMI 57.3 (expected 55.5; last 55.9) and Services PMI 54.4 (expected 54.6; last 54.5); French July Manufacturing PMI 53.1 (expected 52.6; last 52.5) and Services PMI 55.3 (expected 55.7; last 55.9). July Business Survey 108 (expected 110; last 110)
  • Chinese policy measures announced late yesterday – Additional tax cut of ¥65 billion ($13 billion) to companies with R&D expenditure; Expedite non-budgeted special bond sales to assist local government infrastructure financing; Ease restrictions on banks’ issuance of financial bonds for small firms; Activate private investment by introducing projects in transport, gas, and telecommunications; Further open up and improve policies to attract foreign businesses to re-invest; Push local governments to make good use of untapped fiscal funds; Guide financial institutions to ensure reasonable funding to local government financing vehicles, so that necessary projects aren’t held up; Facilitate construction and planning of a number of big projects that will meet development purposes and public demand; Accelerate fundamental research and core technology breakthroughs

QUOTE OF THE DAY

It is unfortunate, considering that enthusiasm moves the world, that so few enthusiasts can be trusted to speak the truth.” – Arthur Balfour, British Prime Minister (1902-1905), born this day in 1848. Died 19 March 1930.

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