The ASX200 is up 37 point in mid-morning trade after +ve leads. All sectors up, IT and Energy in the lead. WBC announces provisions, RC interim report expected today. Chinese PMI. VIC hol and NSW hol on Monday #ausbiz
- Royal Commission – Interim report to be handed to the Governor General at midday and tabled in parliament at 2pm.
- Ex-dividend – CI Resources (CII) 5.0c, Global Value Fund (GVF) 3.2c
- Economic data – Private Sector Credit
- Chinese data – Caixin Manufacturing PMI
- Japanese data – Unemployment Rate, Industrial Production, Retail Sales, Construction Orders, Housing Starts
- UK – Current Account, GDP Growth Rate QoQ Final
- European Inflation Rate
- US – PCE Prices, Personal Income, Personal Spending, Univ. of Michigan Consumer Sentiment – Final
- Westpac (WBC) – $235m hit to FY18 earnings “following continued work on addressing customer issues and from provisions related to recent litigation.” Relates to fees for no advice, refunds for inadequate advice, resolving legacy issues, provisions for costs for remediation, and litigation provisions in relation to BBSW and responsible lending. Also exiting position in Ascalon Capital Managers Limited (“Ascalon”) following an agreement with Generation Development Group Limited (ASX: GDG) under which GDG will invest in Ascalon and become its ultimate owner. BT saying it is no longer a core part of the business.
- Navitas (NVT) – Has signed a 5 year agreement with The Hague University of Applied Sciences (THUAS) for a new pathway college.
- Cimic (CIM) – CIM, as part of the Rail Infrastructure Alliance (RIA), has been awarded a $1bn package of works by the Victorian Government in support of the $11bn Metro Tunnel Project.
- Beach Energy (BPT $2.14) – Investor Day. Morgan Stanley has an Overweight recommendation with a target price of $2.00. The analyst is increasingly convinced that BPT can build into a more sustainable and larger business over time. A medium-term production target of 34-40mmboe has been outlined. BPT is targeting 100% reserve placement and expects to generate $2.3bn in free cash over the next five years.
- Nufarm (NUF $6.80) – Morgans has downgraded to a Hold (from Add) recommendation with a target price of $6.85 (from $9.00). The analyst notes that, while Nufarm usually benefits from strength in geographic diversity, everything that could have gone wrong did go wrong in FY18. They think the size of the new capital raised, negative publicity, and litigation mean any re-rating is likely to take time. Despite this, they recommend shareholders take up the entitlement offer, given the 17% upside.
- NextDC (NXT $6.51) – Morgan Stanley has an Overweight recommendation with a target price of $9.20. The analyst sees scope for a major cloud deal to lift sales and earnings beyond FY19. They have re-based S2 assumptions to reflect the growth profile (on top of the 5.4MW that has already been sold). This results in higher billings in FY20. They think the business is scalable, with strong earnings visibility and a growing track record
- Transurban (TCL $11.12) – Macquarie has an Outperform recommendation with a target price of $11.87 (from $12.28). Has acquired a 25.5% interest in WestConnex for $4.1bn. The analyst thinks the initial impact of the dilution from the rights issue outweighs the incremental value that has been added from WestConnex and is now factored into the share price. Upside should emerge with confidence in traffic, additions to the concession and use of the latent truck pricing to facilitate development.
- Westpac (WBC $27.61) – Westpac expects a reduction of -$285m to its FY18 result because of refunds and provisions for recent litigation (see above).
- Deutsche Bank has a Buy recommendation with a target price of $31.00. The analyst had expected remediation costs related to the financial advice business and suggests this is likely a harbinger of further legal and remediation costs for the banks. They have reduced FY18 net profit estimates by 2.7% as a result.
- Morgan Stanley has an Equal-weight recommendation with a target price of $27.50. The analyst notes these provisions have been weighing on the earnings outlook and reinforcing the view that profitability will be affected. They think there is growing evidence that scrutiny of banking conduct is generating civil proceedings, more customer remediation and fines and they have trimmed FY18 estimates for earnings per share by -1.5%.
- Morgans has an Add recommendation with a target price of $34.50. The analyst thought the provisions were relatively low compared to the share price performance. They think the main area outstanding in terms of customer issues now relates to aligned financial planners. WBC expects around two thirds of the cash earnings impact to be recorded as negative revenue and the remainder as costs. The Morgans analyst notes that while there is a risk of additional provisions from the Hayne Royal Commission, this is not expected to hamper the major banks achieving the unquestionably strong CET1 benchmark by January 2020. They have reduced FY18 cash estimates for EPS by 2.3%.
SPI FUTURES +28
US EQUITIES – S&P500 +8 (+0.28%), Dow Jones +55 (+0.21%), Nasdaq +52 (+0.65%).
Main themes –
- 3rd estimate of GDP unchanged but strong durable goods orders
- Tech sector outperforms – Apple +2.06% after receiving an Overweight recommendation from JPMorgan.
EUROPEAN MARKETS – Mostly higher. STOXX500 +0.35%, UK FTSE +0.45% German DAX +0.40%, French CAC +0.50%.
- The US dollar is stronger at 94.99.
- The Aussie dollar is lower at 72.06c.
BONDS – 2-yr: +1 bp to 2.84%, 5-yr: UNCH at 2.96%, 10-yr: UNCH at 3.06%, 30-yr: -1 bp to 3.18%
- WTI crude futures closed up US55c to US$72.12. There were reports that Saudi Arabia will quietly increase supply over the next few months to offset the loss in supply from US sanctions on Iran.
- Iron Ore – IRESS reports iron ore was unchanged at US$69.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US20c at US$69.20/dry ton. (CFR Tianjin port)
- LME metals – Mostly weaker. Cu -1.51%, Ni -2.03%, Al -1.69%.
ECONOMIC DATA, NEWS & POLITICS
- The SEC has charged TSLA CEO Elon Musk with fraud
- US economic data – Advance International Trade in Goods -$75.80bn (consensus -$71.00bn; prior -$72.00bn), Advance Retail Inventories 0.7% (prior 0.4%), Advance Wholesale Inventories 0.8% (prior 0.7%), weekly Initial Claims (actual 214K; Briefing.com consensus 209K; prior 202K), Continuing Claims 1661K (prior 1645K), Durable Orders 4.5% (consensus 1.8%; prior -1.2%), Durable Goods Orders-ex transportation 0.1% (consensus 0.4%; prior 0.2%), Q2 GDP – Third Estimate 4.2% (consensus 4.3%; prior 4.2%), and Q2 GDP Deflator – Third Estimate 3.0% (consensus 3.0%; prior 3.0%); Pending Home Sales -1.8% (consensus -0.2%; prior -0.8%)
- Eurozone data – September Business and Consumer Survey 110.9 (expected 111.2; last 111.6). August M3 Money Supply +3.5% (expected 3.8%; last 4.0%) and Private Sector Loans +3.1% year-over-year, as expected (last 3.0%); German September CPI +0.4% (expected 0.1%; last 0.1%) to be +2.3%yoy (expected 2.0%; last 2.0%). October GfK Consumer Climate 10.6 (as expected, last 10.5); Italian August PPI +0.4% (last 1.4%) to be +4.4%yoy (last 4.3%). September Business Confidence 105.7 (expected 104.5; last 105.0) and Consumer Confidence 116.0 (expected 114.9; last 115.3)
- Hong Kong’s Monetary Authority increased its base rate by 25bp to 2.50% while HSBC raised its prime rate for the first time in 12 years by 12.5bp to 5.125%.