The ASX200 is down 25 points in mid-morning trade. Gold strong but banks and materials lower. Lots of news. NEC/FXJ “merger”, New MQG CEO and update, FMG and NCM Q reports. Facebook falls will weigh tonight. #ausbiz



Inflation was a slight miss on the headline numbers 0.4%/2.1% compared with 0.5%/2.2%, but the RBA’s preferred measure, the Trimmed Mean, was bang in line at 0.5%/1.9%, which is unchanged from the previous quarter.


Major influences – automotive fuel (+6.9%), medical and hospital services (+3.1%), and tobacco (+2.8%). These rises are partially offset by falls in domestic holiday travel and accommodation (-2.7%), motor vehicles (-2.0%) and vegetables (-2.9%).

It’s only the second annual rise above 2.0% since September quarter 2014. Most of this annual growth is due to strength in fuel, electricity and tobacco. Annual growth in prices of discretionary goods such as clothing and footwear, and furniture and household equipment remain subdued.”

All groups CPI 0.4 2.1
Alcohol and tobacco 1.6 7.8
Transport 1.6 5.2
Health 1.9 3.4
Housing 0.2 3.1
Education 0.1 2.7
Insurance and financial services 0.4 1.5
Recreation and culture -0.4 0.8
Food and non-alcoholic beverages -0.4 0.3
Furnishings, household equipment and services 0.3 -0.5
Clothing and footwear 1.3 -2
Communication -1.3 -4.2

Looking at the various sectors and the impact potential price increases might have on earnings season, it looks like most retailers have struggled to raise prices over the last year, while transport costs are up 5.2% due to higher fuel costs. Not particularly good news. Health care, housing related stocks, education and insurance and financial services have managed modest price increases over the year.


  • Economic data – Import Prices/Export Prices


  • ECB Interest Rate Decision
  • US economic data – Adv. International Trade in Goods, Durable Orders
  • US earnings – AllianceBernstein (AB), American Airlines (AAL), Anheuser-Busch InBev (BUD), Bristol-Myers (BMY), DR Horton (DHI), Goodyear Tire (GT), Hershey Foods (HSY), KKR, McDonald’s (MCD), Mastercard (MA), New York Times (NYT), Nokia (NOK), PulteGroup (PHM), Royal Dutch Shell (RDS.A) Spotify (SPOT), Under Armour (UAA), Xerox (XRX) After-market – Amazon (AMZN), Chipotle Mexican Grill (CMG), Starbucks (SBUX)


  • Nine Entertainment (NEC)/Fairfax (FXJ) – Merger. Nine shareholders will own 51.1% of the combined entity with Fairfax shareholders owning the remaining 48.9%. The combined business will be led by Nine’s current Chief Executive Officer, Hugh Marks. Three current Fairfax Directors will be invited to join the Board of the combined business, which will be chaired by Nine Chairman, Peter Costello and include two further current Nine directors. The combined business will include Nine’s free-to-air television network, a portfolio of high growth digital businesses, including Domain, Stan and 9Now, as well as Fairfax’s mastheads and radio interests through Macquarie Media. Under the Proposed Transaction, Fairfax shareholders will receive consideration comprising: 0.3627 Nine shares for each Fairfax share held (Scrip Consideration) and $0.025 cash consideration per Fairfax Share (Cash Consideration). The Aggregate Consideration implies a: 21.9% premium to Fairfax’s closing price on 25 July 2018 of $0.770 and 22.6% premium to Fairfax’s one month VWAP to 25 July 2018 of $0.766
  • Fortescue Metals Group (FMG) – June Q report. Record iron ore shipments of 46.5mt and cash production costs (C1) of US$12.17 per wet metric tonne (wmt). Other highlights – TRIFR of 3.6; US$12.17/wmt C1 cost; 46.5mt shipped taking full year shipments to 170mt; US$160 million of debt repaid reducing gross debt to US$4.0 billion at 30 June 2018; Approval of the Eliwana mine and rail project


  • Macquarie Group (MQG) –  Shemara Wikramanayake, currently Group Head of Macquarie Asset Management, will replace MD and CEO Nicholas Moore effective 30 November. 1Q update – Operating groups performing well, in line with expectations; 1Q19 operating group contribution up on 1Q18 and down on a strong 4Q18; Financial position comfortably exceeds regulatory requirements; Group capital surplus of $A3.4 billion (Bank CET1 ratio 10.3% (Harmonised: 12.8%); Leverage ratio 5.6% (Harmonised: 6.4%); LCR 155%3 ; NSFR 112%); Continue to expect FY19 result for the Group to be broadly in line with FY18
  • Villa World (VLW) –  Guidance Update FY19 targeting a statutory profit after tax of approximately $40 million in FY19. This figure assumes that revenue from certain stages of the above projects will move from FY19 to FY20, due to delays with planning authorities in Victoria. There remains a possibility that revenue from these projects may be delivered sooner than anticipated (in FY19), and the Company will update the market as necessary.
  • Newcrest Mining (NCM) –


  • Beach Energy (BPT) – Strong operating performance lifts production 10%, liquids generated over 60% of revenues; Free cash flow generation further strengthens balance sheet, provides strong growth platform; Beach moves to 100% ownership of the Otway Basin assets; Beach announces material increase to reserves and contingent resources as at 30 June 2018; FY18 production at high end of guidance range, capex below bottom end.
  • Catapult (CAT) – FY preliminary results. Group revenue up 26% to $76.8m (19% on pro-forma basis), in line with guidance. Group underlying EBITDA $0.6m (in line with guidance). Core business: Elite Wearables (Revenue $34.0m, 29% growth; ARR $24.4m, 29% growth; Subscriptions accounted for 60% of Elite Wearables revenue, up from 58% in FY17; Subscription mix 57% of total units sold, Elite Video (Revenue $39.4m, 9% growth on a pro-forma constant currency basis; ARR $28.4m, 5% growth). New business – New Product revenue $3.4m (Prosumer) up from $1.0m in FY17; Successful launch of new Prosumer product, PLAYR, in June 2018 with minimal revenue contribution in FY18.


  • Boral (BLD) – UBS has reinstated coverage with a Neutral recommendation with a target price of $7.19. The analyst thinks the long-term backdrop for Boral is strong, given diversification, and there is exposure to increasing Australian infrastructure expenditure as well as momentum in US housing construction. The key risk is uncertainty of margins in Australia, as pricing power is falling and competition increasing, and they think it will prevent a re-rating


  • James Hardie (JHX) – UBS has reinstated coverage with a Buy recommendation with a target price of $27.00. The analyst sees the US housing cycle at its mid point and with a dominant position in fibre cement, as well as growth in Europe, they see a strong long-term trajectory for earnings on margins. They also see several catalysts to lift margins


  • Treasury Wine Estates (TWE) – Credit Suisse has downgraded to an Underperform (from Neutral) recommendation with a target price of $15.65. The downgrade is based on the share price rally and the analyst is still confident that FY19 guidance of 25% EBITS growth is achievable. However the new US distribution model is unproven and the latest retail sales data shows volume down 17% in the supermarket channel that accounts for 40% of the company’s US volume. They think shares are fully valued.


  • Invocare (IVC$13.99) – Morgans has a Hold recommendation with a target price of $13.00 (from $12.24) –  The analyst expects the 1H result (August 16) to be affected by reduced volumes because of the temporary closure of renovated sites. They forecasts 1H operating earnings down 12%, in line with revised management guidance, while the target is raised due to increased confidence in the acquisition pipeline.


  • Incitec Pivot (IPL $3.66) – Macquarie has an Outperform recommendation with a target price of $3.95 (from $3.91) – The analyst is forecasting a 15% drop in fertiliser volumes following poor cropping season, although global prices are expected to remain firm. Adjusting for currency, the impact on FY18 earnings is a drop of 1.5%.


  • Speedcast (SDA) – UBS has downgraded to a Neutral (from Buy) recommendation with a target price of $6.00 (from $5.80). The analyst thinks SDA is benefiting from potential earnings upgrades in FY19 from a rebound in energy verticals, as well as confidence in organic growth.





US EQUITIES – S&P500 +26 (+0.91%), Dow Jones +172 (+0.68%), Nasdaq +91 (+1.17%).

Main themes

  • President Trump and EC Commissioner Juncker agree to trade concessions from the EU (details still being worked out).
  • Mixed earnings – Boeing (-0.66% and then -0.68% in after-hours) and General Motors (-4.64% and then -0.61% in after-hours trade), Coca-Cola (+1.83%), UPS (+6.90% but -1.82% in after-hours trade)
  • The positive tone was all negated by the after-hours results from Facebook (-20.05% in after-hours trade)

EUROPEAN MARKETS – Mostly lower. STOXX 600 -0.26%, UK FTSE -0.66%, German DAX -0.87%, French CAC -0.14%.


  • The US dollar was down 0.4% at 94.23
  • The Aussie dollar is stronger at 74.50

BONDS – 2-yr: +4 bps to 2.66%, 5-yr: -1 bp to 2.81%, 10-yr: -1 bp to 2.94%, 30-yr: -1 bp to 3.06%


  • WTI crude futures rose US78c or 1.1% to US$69.30. Inventories fell 6.1mb in the week (a fall of 2.3mb was expected).Key factors included news that Yemen’s Houthi movement attacked a Saudi oil tanker in the Red Sea, causing slight damage.
  • Gold futures were up US$6.30 at $1,231.80 due to the higher US dollar.
  • Iron Ore – IRESS reports iron unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US45c at US$65.80/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu -0.08%, Ni +0.59% and Al -1.08%


  • US economic data – Weekly MBA Mortgage Index -0.2% (prior -2.5%), June New Home Sales down 5.3% to 631K (consensus 670K; prior 666K). This June decline represented the largest monthly drop since December, and it took place despite a decline in median and average selling prices.
  • European data – June M3 Money Supply +4.4% (expected 4.0%; last 4.0%) and Private Sector Loans +2.9% (expected 3.0%; last 2.9%); German July Ifo Business Climate Index 101.7 (expected 101.6; last 101.8). July Business Expectations 98.2 (expected 98.3; last 98.6) and Current Assessment 105.3 (expected 104.8; last 105.1); French June PPI +0.1% (last 0.6%); Spanish June PPI +4.1%yoy (last 3.0%)
  • UK June Gross Mortgage Approvals 40,500 (expected 39,000; last 39,200). CBI Distributive Trades Survey 20 (expected 15; last 32)


“And very often the influence exerted on a person’s character by the amount of his income is hardly less, if it is less, than that exerted by the way in which it is earned.” – Alfred Marshall, English economist born this day in 1842. Died 13 July 1924


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