The ASX200 is down 14 points in mid-morning trade with few major drivers. Energy leads, Materials lower, banks mixed. SCO takeover at $4.40. CAR ex-div. No major data. US Fed the highlight for the week. School holidays rule…(sort of) #ausbiz
- Ex-dividend – Carsales.com (CAR) 23.7c, Chorus (CNU) 11.9c, Sg Fleet Group (SGF) 10.0c, Vita Life Sciences (VLS) 1.5c
- UK data – CBI Industrial Trends Orders
- Scottish Pacific (SCO) – Takeover proposal from SME Capital (owned by Affinity Equity Partners) at $4.40 cash, 27.8% premium to 1 month VWAP. Directors recommend
- Lynas (LYC) – Notes media speculation in Malaysia regarding a potential government review of Lynas’ Malaysian operations, followed by lots of information about what a good corporate citizen it is in Malaysia, Concludes by saying “The media has speculated that the chair of the proposed committee may be a long time anti-Lynas campaigner. If that appointment is confirmed, then that will raise concerns. However, Lynas will advocate for a review that is transparent, impartial and scientific, consistent with other recent initiatives of the new government.”
- oOh!media (OML) – Former Virgin Mobile Chief Executive Officer, David Scribner has been appointed Chief Customer Officer, a new role to support the strategy of being a new Out of Home media company.
- Eden (EDE) – Has announced the start of first Federal funded highway repair project in Twiggs County, Georgia, which is estimated will use approximately US$525,000 worth of EdenCrete®. It’s the first Federal funded contract and the largest individual contract received to date.
- Boral (BLD $6.86) – Morgan Stanley has an Overweight recommendation with a target price of $8.00. The analyst notes reports that a prospective owner of the Navajo generating station in Arizona has ended efforts to acquire the plant. The plant is scheduled to close at the end of 2019. This is BLD’s most significant US coal plant slated to close, given its location and the volume of fly ash produced. While a sale could have meant additional volumes above those announced in August, the analyst remains positive on the fly ash business, given Boral’s strategies for increasing volumes.
- James Hardie (JHX $20.81) – UBS has a Buy recommendation with a target price of $26.20. Site tour continues. The Plant City facility management has emphasised its core strategy and target of 20-25% in margins for North America, supported by the new CEO, Jack Truong. The analyst is impressed with the potential of the facility, which plays to expectations that lower unit costs can expand margins or drive greater reinvestment. While the internal initiatives are positive, they suggest this is not a pivot away from growth.
- Challenger (CGF $11.13) – Morgan Stanley has an Underweight recommendation with a target price of $10.50. The analyst thinks CGF multiples could suffer if the MyRetirement implementation is delayed – with current plans to require trustees to offer products that provide income for life no matter how long they live. New pension eligibility tests for lifetime annuities have been introduced, opening the market up for deferred lifetime annuities. They think CGF is a major beneficiary of the proposals and political uncertainty overhangs the outlook.
NEXT WEEK – FOMC meeting will be the key focus, with a rate rise pretty much fully priced into markets. Other data includes final GDP numbers in the UK and US, and Chinese Caixin PMI on Friday. Domestically very quiet with private sector credit on Friday the only item of note.
- GLOBAL MARKETS – US tech sector key drag. US yields above 6%, Aussie 10-year yield up 10 bp. Chinese equities outperform. Aussie dollar stronger. European banks rally
- LOCAL MARKETS – Materials and banks the key outperformers. AREITS, Consumer discretionary and energy lag. Aged care and tech sector lower.
SPI FUTURES -23
US EQUITIES – S&P500 -1 (-0.04%), Dow Jones +87 (+0.32%), Nasdaq -41 (-0.51%).
Main themes –
- Added volatility due to quadruple witching and a major sector rebalancing.
EUROPEAN MARKETS – All higher. STOXX500 +0.43%, UK FTSE +1.67% German DAX +0.85%, French CAC +0.78%.
- The US dollar was 0.4% higher at 94.22.
- The Aussie dollar is lower at 72.91c (after reaching a high of 73.04c overnight).
BONDS – 2-yr: +1 bp to 2.81%, 5-yr: -1 bp to 2.95%, 10-yr: -1 bp to 3.07%, 30-yr: -1 bp to 3.21%
- WTI crude futures closed up US45c to US$70.78 ahead of a meeting between major OPEC/non-OPEC producers on Sunday in Algeria to discuss increasing production to offset falling supply from Iran resulting from US trade sanctions. It comes after Trump tweeted on Thursday from OPEC to get prices down.
- Iron Ore – IRESS reports iron ore was unchanged at US$69.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down 55c at US$69.20/dry ton. (CFR Tianjin port)
- LME metals – MIxed. Cu +4.62%, Ni +4.95%, Al +2.35%.
ECONOMIC DATA, NEWS & POLITICS
- European data – Flash September Manufacturing PMI 53.3 (expected 54.4; last 54.6) and Flash Services PMI 54.7 (expected 54.4; last 54.4); German Flash September Manufacturing PMI 53.7 (expected 55.7; last 55.9) and Flash Services PMI 56.5 (expected 55.0; last 55.0); French Flash September Manufacturing PMI 52.5 (expected 53.3; last 53.5) and Flash Services PMI 54.3 (expected 55.2; last 55.4). Q2 GDP +0.2%qoq (as expected (last 0.2%)
- Brexit – ECB Council President Donald Tusk said British Prime Minister Theresa May’s Chequers plan shows an evolution in the UK’s approach to Brexit, but it remains insufficient. Prime Minister May said the UK does not plan to change its approach and that the UK and EU are at an “impasse”
- S&P raised its credit outlook for Australia to stable from negative
- Chinese growth outlook lowered – Fitch lowered China’s 2019 growth forecast to 6.1% from 6.3%
- Sector rebalancing – Several tech companies move to communications/consumer discretionary sectors on Monday. The old telecommunications sector (dominated by AT&T and Verizon) will be renamed Communication Services and almost double with the addition of Alphabet, Netflix, Twitter and Facebook. CBS and Disney will also be added. The new Communication sector will now represent 9.8% of the S&P500 (telecom currently 2%). The US technology sector will drop from 26% of the S&P 500 to 20% and will be dominated by Microsoft and Apple. Consumer Discretionary (dominated by Home Depot, McDonalds and Nike) will see Amazon added.
QUOTE OF THE DAY
“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” – F. Scott Fitzgerald, American author born this day in 1896. Died 21 December 1940.