MID MORNING MARKETS 14-09-18

The ASX200 is up 29 points in mid-morning trade so we might finish the week in +ve territory. Soft US CPI and oil ↓. $A bounces to 71.9c. Most sectors ↑. Banks and Resources both ok. Cons Disc worst. No corporate news. Chinese retail sales and IP CVW and FIG recovering. #ausbiz

m1m2m3TODAY

  • Ex-dividend – Austal (ASB) 3.0c, AVJennings (AVJ) 3.0c, ERM Power (EPW) 4.0c, Experience Co (EXP) 1.0c, Monash Absolute Investment Company (MA1) 1.0c, Mustera Property Group (MPX) 0.3c, Noni B (NBL) 4.0c, Paragon Care (PGC) 2.0c
  • Chinese data – Fixed Asset Investment, Industrial Production, Retail Sales
  • Japanese data – Capacity Utilization, Industrial Production

TONIGHT

  • European data – Balance of Trade, Wage Growth
  • US economic data – Export Prices ex-ag, Import Prices ex-oil, Retail Sales, Capacity Utilization, Industrial Production, Business Inventories, Univ. of Michigan Consumer Sentiment – prelim
  • Fed Speak – Chicago Fed President (alternate voter) Charles Evans

ANALYST CHANGES

Morgan Stanley Energy sector review. The analyst thinks uncertainty in Australia’s policy environment recently and political developments are the cause of the share prices declines. Based on the share performance through previous similar political developments, which have involved energy policy debates, they think the impact is now reflected in prices.

  • AGL Energy (AGL $19.04) – Morgan Stanley has an Underweight recommendation with a target price of $19.44. The analyst thinks there is an urgency for self-help initiatives, and earnings are likely to peak in FY19 and decline thereafter. Projected returns are near the bottom of returns for their stock coverage and they see downside risk. Technically, there is no reason to be anywhere near this one. MACD indicator in freefall and RSI yet to suggest a change in momentum

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  • Origin Energy (ORG $8.24) – Morgan Stanley has an Overweight recommendation with a target price of $10.08. PRG is not immune to competition in energy retail, but the analyst thinks headwinds are diluted by the short energy strategy and the expansion in free cash flow from APLNG. Much more interesting technically. RSI has tcked up from being heavily oversold, the MACD indicator (the blue bars) have bottomed and shares are about to pass back up through the bottom Bollinger Band.

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EMPLOYMENT DATA YESTERDAY

There was a lot to be happy about in yesterday’s employment data

  • Employment grew by 44K in August, and most (33.7K) was in full-time jobs (preferred), while part-time jobs also grew 10.2K.
  • The participation rate rose 0.2pts to 65.7%, suggesting increased job “confidence”
  • The unemployment rate remains at a 6-year low of 5.3%.

Perhaps most pleasingly, the underemployment rate fell 0.3pts to 8.1% and the underutilisation rate decreased 0.4pts to 13.4%. Falling “hidden” unemployment is a key factor for wages growth, so today’s report is welcome news for all workers, not just the recently employed.

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NEXT WEEK

It’s a bit quieter on the international economic front next week but some focus on the RBA.

  • Locally – RBA Meeting minutes on Tuesday and the RBA Bulletin on Thursday. RBA Assistant Governor Christopher Kent is speaking Wednesday. House price data on Tuesday and Westpac leading index on Thursday.
  • Bank of Japan meets on Wednesday and key data includes trade numbers on Wednesday, and inflation on Friday.
  • European inflation on Monday, consumer confidence on Wednesday and Markit PMI indices on Friday
  • UK inflation on Wednesday and retail sales on Thursday.
  • Us data mostly mid-tier level – Empire Manufacturing and Philly Fed Indices. And housing data including the NAHB Housing index, building permits, housing starts and existing home sales. Also leading indicators on Thursday

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OVERNIGHT

m10m11

SPI FUTURES -17

US EQUITIES – S&P500 +15 (+0.53%), Dow Jones +147 (+0.57%), Nasdaq +59 (+0.75%).

Main themes

  • US CPI in line but core CPI softer than expected, suggesting pressure on inflation remains limited and keeping the Fed from tightening too aggressively.
  • China welcomes US invitation for another round of trade talks
  • Trump tweet – That the US isn’t under pressure to do a deal with China and that it is China who is under pressure to do a deal with the US.

EUROPEAN MARKETS – Generally lower. STOXX500 -0.15%, UK FTSE -0.43%, French CAC -0.08%, German DAX +0.19% the exception.

CURRENCIES

  • The US dollar fell 0.3% to 94.54.
  • The Aussie dollar has strengthened further to 71.92c.

BONDS – 2-yr: UNCH at 2.75%, 5-yr: +1 bp to 2.87%, 10-yr: UNCH at 2.96%, 30-yr: -1 bp to 3.10%

COMMODITIES

  • WTI crude futures ended the rally, down US$1.75 or 2.5% to US$68.62 on an IEA that global oil supply hit a record 100mbpd in August and the downgrade of Hurricane Florence to a Category 2 storm from a Category 4 storm.
  • Iron Ore – IRESS reports iron ore was down 50c at US$68.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was to US$1.15 at US$69.25/dry ton. (CFR Tianjin port)
  • LME metals – MIxed. Cu +0.60%, Ni -0.12%, Al +0.00%.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – August CPI 0.2% (consensus 0.2%; prior 0.2%), Core CPI 0.1% (consensus 0.2%; prior 0.2%), weekly Initial Claims 204K (consensus 210K; prior 205K), and Continuing Claims 1.696m (1.707m)
  • Fed Speak – Atlanta Fed President Raphael Bostic said he expects gradual rate hikes to take place over the “next handful of quarters.”
  • Bank of England meeting – The BofE voted 9-0 to keep key rate and asset purchase program unchanged at their respective 0.75% and £435 billion. The outlook for Q3 GDP growth was increased to 0.5% from 0.4%.
  • European Central Bank meeting – The ECB made no changes to its interest rate corridor, confirming that monthly asset purchases will be reduced to €15bn in October and continue through December.
  • European data – German CPI +0.1% (as expected, last 0.1%) to be +2.0%yoy (as expected, last 2.0%); French CPI +0.5% (as expected, last 0.5%) to be +2.3%yoy (as expected, last 2.3%)
  • The Central Bank of Turkey raised its one-week repurchase rate to 24.00% from 17.75%

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