The ASX200 is down 55 points in mid market trade despite a good recovery in the US. Broad-based losses. Banks trashed again. WES Q sales for Coles strong. Big week ahead with employment data, US results season, local AGMs. #ausbiz


  • Ex-dividend – NZME (NZM) 1.8c, TPG Telecom (TPM) 2.0c, United Overseas Australia (UOS) 0.5c
  • Japanese data – Capacity Utilization and Industrial Production


  • US – Retail Sales, Empire Manufacturing, Business Inventories


  • Wesfarmers (WES) – 1Q sales. Continued good momentum in Coles, driven by a successful ‘Little Shop” promotional campaign, improved in-store execution and investments in flybuys promotions. Comparable food sales up 5.1%driven by significant growth in average customer basket size, units sold and transaction growth. Priice inflation was 0.6% for the quarter, although excluding fresh and tobacco, price deflation was 0.8%. Coles online +30%.


  • Commonwealth Bank (CBA) – Has appointed Alan Docherty as Chief Financial Officer
  • Fletcher Building (FBU) – Has withdrawn its proposal to acquire Steel & Tube due to lack of support from Steel & Tube’s Board to progress the proposal in a timely manner.
  • Evolution Mining (EVN) – Q Report.
  • Chorus (CNU) – Investor Roadshow.


Housing finance data on Friday – Total housing finance was down 2.1% in sa terms. Expectations were for a 1% fall.  This month it was actually driven by owner-occupier lending which fell 2.7%, while investor lending was down 1.1%. The drop in OO was the biggest in over 2 years. New OO loans fell 3.9 per cent in August.

Loans to housing investors are now at their lowest monthly total since August 2013

The trend series was more in line with what we have been seeing recently. Total housing finance was down 0.6%, with owner-occupier down 0.2% and investment housing down 1.2%.

In original terms, the number of first home buyer commitments fell to 17.8% of total owner-occupied housing finance in August from 18.0% in July 2018. Between July 2018 and August 2018, the average loan size for first home buyers fell $1,000 to $345,000. The average loan size for all owner-occupied housing commitments fell $300 to $395,800 for the same period.

Chinese trade data on Friday



  • Domain (DHG $2.77) – Trading Update
    • Citi has a Sell recommendation with a target price of $2.50 (from $2.70). The analyst now forecasts flat revenue in 1H and growth in operating expenditure of 5%. Lower property listings in Sydney, structural changes in media display and rapid print declines have contributed to reduced revenue estimates. While there should be modest improvements in revenue in 2H they suspect it will be insufficient to offset costs growth. Citi thinks most of the revenue decline should be temporary, with improved volume after the federal election, although margins could remain subdued for some time.
    • Macquarie has cut its forecasts by 13% in FY19 and FY20.
    • Morgans has a Reduce recommendation with a target price of $2.52 (from $2.81. The analyst notes 1Q revenue growth is less than half previous forecasts. Digital revenues grew to 6% in the first 15 weeks of FY19 versus 19.9% growth in FY18. They think Domain is paying a price for over exposure to NSW, where the drop off in advertising has been more severe. While there is likely to be several years of growth ahead for the business they think shares are overpriced.
    • UBS has a Neutral recommendation with a target price of $2.75 (from $3.35). While the analyst says the market should have been aware of the potential for a softer trading update because of weak listing volumes and a lack of guidance at the FY18 result, the extent of the downgrade was a surprise as the extent to which a soft housing environment amplifies print bundling/revenue was underestimated. They also think media, developer and commercial revenue growth probably turned negative in the first 15 weeks of FY19.


  • Fairfax Media (FXJ 67c) – FY19 year-to-date overall group revenues are 5% below last year
    • Citi has a Neutral recommendation with a target price of 72c (from 90c). The analyst notes the NEC share price fall has now eliminated the premium from the merger bid for FXJ shareholders. At this stage, the benefit to FXJ shareholders from the merger is less obvious and the broker is no longer confident it will proceed under current terms. They are now valuing FXJ on a fundamental basis rather than with an implied takeover price. Earnings forecasts are reduced by 4-8% across FY19-20 to account for the latest trading update.
    • Macquarie has cut is earnings forecasts by 7% in FY19-21.
    • UBS has upgraded to a Buy (from Neutral) recommendation with a target price of 80c (from 85c).


  • Nine Entertainment (NEC $1.84) – Trading Update. Continues to expect FY19 Group EBITDA of $280-300m, before Specific Items.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $2.00. The analyst notes the TV ad market has softened, as has Nine Entertainment’s growth. TV advertising revenues were broadly flat in the first quarter.
    • UBS has a Buy recommendation with a target price of $2.15 (from $2.60). The analyst thinks the reaction in the share price to the DHG downgrade is excessive. NEC would need to downgrade FY19 net profit by around 18% to justify the share price reaction.


  • REA Group (REA $75.50) – Morgans has an Add recommendation with a target price of $92.02 (from $95.21). The analyst is more cautious and has lowers forecasts for REA given the downgrade by DHG. REA is more geographically diversified but it is not resistant to the drop in top-end residential listings in Sydney and Melbourne. They think the current ‘for sale’ listing volumes are unsustainably low but a return to normal is difficult to pin down. REA is expected to deliver several more years of double-digit earnings growth.


  • Japara Healthcare (JHC $1.24) – Morgans has a Hold recommendation with a target price of $1.35 (form $1.84). The analyst expects higher wage, audit and compliance costs are likely across the sector due to the RC. The main downside risk is likely to be changes to the structure of the industry. Hold rating maintained.


  • Michael Hill (MHJ 91c) – Morgans has downgraded to a Reduce (from Hold) recommendation with a target price of 70c (from $1.01). The analyst notes the trading update revealed a very weak 1Q and they make big downgrades to sales and earnings forecasts. All regions experienced heavy same-store sales declines with Australia down 12.8%, New Zealand 7.6% and Canada 11%. While the share price is likely to fall materially on the back of the update, and they are concerns about all territories being so weak simultaneously, the analyst is conscious of not becoming too negative at what could be a low point.



Some quotes and points of note:

The Royal Commission “exposed numerous examples of poor behaviour throughout the finance industry, including: inappropriate lending; excessively strict recovery of bad debts; charging fees without providing a service; not operating in the best interests of superannuation members; and unscrupulous selling and claims handling in life and general insurance.”

APRA review of CBA governance failures highlighted cultural problems. “In particular, it highlighted a culture of excessive confidence in its risk management skills (driven by many years of financial success), a legalistic approach to non-financial risk management, an insular approach to external concerns about CBA’s conduct (including from regulators) and insufficient internal challenge.” Extending the comments beyon CBA, “the report has been widely viewed as having relevance for other financial institutions and companies more broadly.”

Consequences – “International experience has shown that poor culture can have significant adverse effects on banks, including on their financial performance and capital position”. Penalties, cost of changes to business models and impct of loss of customer confidence.


A number of risks including continuing US-China trade tensions, asset prices, trading systems amplifying volatility,

“If the imposition of trade barriers were to intensify, or if it materially affected business sentiment and decisions, the negative impacts on economic growth could be more significant”

“In turn, weaker global growth would tend to increase global financial stability risks by reducing the capacity of highly leveraged borrowers to service their debt.”

“Some investors may not be well prepared for such repricing, with the potential for some large losses and reactive sales of assets (including due to margin calls, reduced access to funding or investment mandate restrictions).”

Other issues mentioned were reduced liquidity in bond markets and open-ended bond investment funds




Economic data

  • Domestically we have RBA meeting minutes on Tuesday followed by employment data on Thursday. Consensus s for 20K new jobs, with the unemployment rate expected to remain at 5.3%.
  • It’s a big week in China – inflation on Tuesday, then Wednesday there is GDP, (1.6% is expected down from 1.8%, with 6.6% yoy down from 6.7%). Other data on Wednesday includes industrial production, fixed asset investment, and retail sales.
  • Japanese data includes industrial production on Monday and inflation on Friday
  • European inflation is out on Wednesday.
  • UK employment data is released on Tuesday, with inflation on Wednesday and retail sales on Thursday
  • FOMC meeting minutes on Wednesday. US retail sales on Monday, industrial production Tuesday.

Company Events

  • Wesfarmers (WES) – Q update.
  • Australian Pharmaceuticals Industries (API) FY results on Thursday
  • Q production reports – Rio Tinto Tuesday, BHP Billiton (BHP) and OzMinerals (OZL) on Wednesday, Woodside Petroleum (WPL) and Santos (STO) on Thursday
  • AGMS – Telstra (TLS), Cochlear (COH) and Orora (ORA) on Tuesday, CSL on Wednesday, Ansell (ANN) and Treasury Wine Estates (TWE) on Thursday.

US earnings

  • Monday 15 October – Bank of American Charles Scwab
  • Tuesday 16 October – BlackRock (BLK), Morgan Stanley (MS). After market Netflix (NFLX)
  • Thursday 18 October – After-market American Express (AXP),




US EQUITIES – S&P500 +39 (+1.42%), Dow Jones +287 (+1.15%), Nasdaq +168 (+2.29%).

Main themes

  • Bonds continue to recover but equities struggled to hold onto big gains
  • Market rose initially, dipped into negative territory and then recovered
  • Wells (+1.30%) was higher despite missing estimates while JPMorgan Chase (-1.09%) shares fell despite beating estimates. Citigroup (+2.14%) also reported better-than-expected earnings,

EUROPEAN MARKETS – Minor falls. STOXX500 -0.19%, UK FTSE -0.16%, German DAX -0.13%, French CAC -0.20%.


  • The US dollar is stronger at 95.28.
  • The Aussie dollar is softer at 71.07c.

BONDS – 2-yr: -1 bp to 2.84%, 5-yr: UNCH at 2.99%, 10-yr: UNCH at 3.14%, 30-yr: +1 bp to 3.31%


  • WTI crude futures closed up US37c at US$71.34 although Brent crude was down US26c to $80.00 after the IEA and OPEC cut demand growth for next 2 years. The IEA said the market looked “adequately supplied for now”. The IEA cited a weaker economic outlook, trade concerns, higher oil prices and China data revision. WTI is down around 4.4% for the week.
  • Iron Ore – IRESS reports iron ore was up US50c US$70.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US45c at US$71.50/dry ton. (CFR Tianjin port)
  • LME metals – Volatile. Cu +0.96%, Ni -0.16%, Al +1.04.


US economic data – Export Prices 0.0% (prior -0.1%), Export Prices ex-agriculture 0.2% (prior -0.2%), Import Prices 0.5% (prior -0.6%), and Import Prices ex-oil 0.0% (prior -0.1%); Preliminary October Michigan Consumer Sentiment Index 99.0 (consensus 100.0; prior 100.1)


“Under capitalism, man exploits man. Under communism, it’s just the opposite.” – John Kenneth Galbraith, American economist born this day in 1908. Died 29 April 2006


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