MID MORNING MARKETS 7-12-18

The ASX 200 is up 40 points in mid morning trade as the SP500 recovered early losses. Broad gains although Materials lag. APRA action against IOOF, ABC guidance ↓ and RBA drops the “rate cut” bomb. Big night in the US #ausbiz

m1m2m3TODAY

  • Economic data – AIG Construction Index, Home Loans
  • Ex-dividend – Fisher & Paykel Hlth (FPH) 9.2c
  • Japanese data – Household Spending, Average Cash Earnings, Leading Economic Index Prel, Coincident Index Prel

TONIGHT

  • UK Halifax House Price Index,
  • European data – Employment Change, GDP Growth Rate QoQ 3rd Est
  • US data – Nonfarm Payrolls, Avg. Hourly Earnings, Unemployment Rate, Wholesale Inventories, Consumer Credit

COMPANY NEWS

  • Not company but still significant – RBA speech by Deputy Governor Guy Debelle whichimplied the RBA would cut rates if required and might even resort to QE in a crisis, saying we are in uncharted territory in relation to the housing market while the economy is travelling well.
  • IOOF (IFL) – APRA will impose licence conditions on IOOF’s APRA regulated entities, along with court proceedings and a show cause notice from APRA in relation to alleged breaches of the Superannuation Industry Act. The proceedings seek certain declarations and disqualification orders against Managing Director Chris Kelaher, Chairman George Venardos, Chief Financial Officer David Coulter, Company Secretary Paul Vine and General Counsel Gary Riordan, for failing to act in the best interests of superannuation members . IFL said “IOOF will continue to actively progress the agreed initiatives and will further consider the allegations raised by APRA. However, IOOF believes that these allegations are misconceived, and it and its executives intend to vigorously defend the proceedings.”
  • ANZ – Has made comments about the IFL announcement. ANZ Deputy CEO Alexis George said: “Given the significance of APRA’s action, we will assess the various options available to us while we seek urgent information from both IOOF and APRA.”
  • Adelaide Brighton (ABC) – Expects underlying FY18NPAT of $188-195m ($190.3m last year), below previous guidance of $200-210m. The ramp up in a major South Australian infrastructure project has been slower than expected in the current year, however overall project volumes are on forecast. “A slower than expected start to the historically busier second half of the year in the construction market in Western Australia and recovery from the earlier adverse weather conditions in the east coast markets has not been as strong as expected.”

OVERNIGHT

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SPI FUTURES -3

US EQUITIES – S&P 500 -4 (-0.15%), Dow -79 (-0.32%), NASDAQ +30 (+0.42%)

Main themes

  • Trade deal worries – Concerns any trade deal will be averted after the Huawei Technologies CFO was arrested in Canada (expected to be extradited to U.S) on allegations the company violated US trade sanctions on Iran

EUROPEAN MARKETS – All lower. STOXX500 -3.09%, UK FTSE -3.15%, German DAX -3.48%, French CAC -3.31%.

CURRENCIES

  • The USD is down 0.35% at 96.73.
  • The Aussie dollar is also lower at US72.34c.

BONDS – 2-yr: -3 bps to 2.77% after hitting 2.68% intraday, 3-yr: -4 bps to 2.77% after hitting 2.70% intraday, 5-yr: -4 bps to 2.75% after hitting 2.68% intraday, 10-yr: -5 bps to 2.87% after hitting 2.82% intraday, 30-yr: -3 bps to 3.14% after hitting 3.11% intraday

COMMODITIES

  • WTI crude futures were down 36c or 2.7% at US$51.49, after OPEC delayed a decision on production cuts. There were reports the Saudi Arabia oil minister floated proposal a cut of 1mbpd, less than the 1.3mbpd the market expecting.
  • Iron Ore – IRESS reports iron ore was up US$1.00 at US$68.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US$1.45 or 2.1% at US$66.10 dry ton. (CFR Tianjin port)
  • LME metals – Mostly weaker. Cu -1.70%, Ni -3.34%, Al -1.68%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – ADP employment Change for November 179,000 (consensus 225,000, Prior revised to 225,000 from 227,000); Q3 Productivity 2.3% (consensus 2.2%, Prior 2.2%), Unit labor costs 0.9% (consensus 1.2%, Prior 1.2%); October Trade Deficit -$55.5bn (consensus -$54.7bn, Prior revised to -$54.6bn from -$54.0bn); Factory Orders -2.1% (consensus -2.0%, Prior revised to +0.2% from +0.7%); ISM Non-Manufacturing Index 60.7% (consensus 59.0%, Prior 60.3%)
  • Brexit – Cabinet members reported to be urging Prime Minister May to delay the Dec 11 Brexit vote
  • Oil prices drop on reports Saudi Arabia oil minister floated proposal to cut daily production by 1mbpd, which is less than the market was thinking. No formal agreement has been reached yet.
  • Fed Speak – Dallas Fed President Kaplan (non-FOMC voter) said the Fed needs to be gradual and patient and that he thinks the fed funds rate is a little bit below neutral but that the Fed is approaching the neutral rate. Atlanta Fed President Bostic (FOMC voter) says the fed funds rate is within shouting distance of neutral.
  • JPMorgan Chase CEO Jamie Dimon told CNBC that if there is a bubble anywhere, it is in US government bonds.

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