MID MORNING MARKETS 7-02-19

The ASX 200 is up 50 points in mid-morning trade, boosted by Dr Lowe’s “Next move in rates unknown!” Utilities the only laggard. All else fab! Results from AGL & IEL, ASL contract, AMP leadership change. $A ↓ to 71.1#ausbiz

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RBA COMMENTS

Governor Philip Lowe spoke at the press club yesterday. It was a big speech. Here are some of the key features.

  • Rates outlook more balanced, and there is flexibility to cut rates, but no strong case for a near term change
  • Growth outlook weaker
  • Growth outlook cut to 3.0% and next year by 2.75% (down around 0.25%) due mainly to the outlook for residential construction and household consumption.
  • Employment strong – and the forward indicators are also positive. This can only flow through to wages.
  • Credit supply – need quality loans but concerned the pendulum may have swung too far the other way. It needs to be balanced and sensible. (Prices oversupply, overseas, lending standards)
  • This pull-back has not been driven by unemployment or a rise in mortgage rates.
  • Property market – Critical of the terms used in the media to describe the property markets. Referred to a manageable adjustment that won’t derail the economy. It was both appropriate and desirable.
  • Prices still up 75%/70% in Syd/Melb from a decade ago. Wealth effect not as strong.
  • Noted that developers are struggling to achieve presales and source funding.
  • RC – needed wide and broad reform but didn’t need a revolution

COMPANY NEWS

  • AGL – 1H results. Statutory NPAT -53% to $290m; Statutory EPS -53% to 44.2c; Underlying NPAT +10% to $537m; Underlying EPS +10% to 81.9c; Net cash from operating activities -15% to $678m; Interim dividend 55cps (80% franked), up 2%; ROE 13.1% up 1.4 percentage points. Guidance – Tracking midpoint of $970-$1070m. Reflects the continued strong performance of the AGL portfolio, offsetting the earnings impact of customer affordability initiatives, our decision to increase operating expenditure at our coal-fired power stations to support future availability and, in the second half, lower forecast gas sales volumes and the cost of absorbing consumer electricity price cuts and loyalty schemes.”
  • Downer EDI (DOW) – 1H NPATA =23.8% to $163.4m. Revenue +8.6% to $6.623bn. Dividend up 7.7% to 14cps.FY19 NPATA target guidance increased to $352m (takes into account the fair value gain of $17 million from acquiring the remaining 50% of the Downer Mouchel JV in late 1H19.)
  • Spark Infrastructure (SKI) – Trading halt pending an announcement to the market in relation to the outcome of litigation between Victoria Power Networks (in which Spark holds a 49% interest) and the ATO. Judgment will be handed down in the Federal Court today.
  • Navitas (NVT) – Has signed an agreement with Lancaster University to assist it establish and operate a new managed campus in Leipzig, Germany.
  • AMP – Leadership changes – Alex wade gets a bigger portfolio in wealth management and Paul Sainsbury will leave. Megan Beer will move to Resolution as CEO AMP Life, Craig Ryman appointed COO.
  • IDP Education (IEL) – Revenue up 26% to $304.3m (+23% on cc). EBITDA +33% to $66.8m (+31% on cc),
  • Ausdrill (ASL) – Recently acquired subsidiary, leading hard-rock underground miner Barminco, has been awarded an underground mining services contract at the Rampura Agucha Mine in India from Hindustan Zinc Limited (HZL) worth approximately $100m.
  • Magellan Financial Group (MFG) – FUM. FUM increased 3% in January, with net inflows from both retail and institutional investors

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OVERNIGHT

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SPI FUTURES +18

US EQUITIES – S&P 500 -6 (-0.22%), Dow -21 (-0.08%), NASDAQ -27 (-0.36%)

Main themes

  • Lacklustre trading session
  • Earnings – General Motors (+1.55%), Walt Disney (-1.11%) and Snap (+22.02%)
  • Trump address – China and the U.S. are working on a new trade deal, but it must “include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”

EUROPEAN MARKETS – Much stronger. STOXX500 +0.15%, UK FTSE -0.06%, German DAX -0.38%, French CAC -0.08%.

CURRENCIES

  • The USD is higher at 96.38.
  • The Aussie dollar is weaker after Dr Philip Lowe’s speech yesterday at US71.17c.

BONDS – 2-yr: +1 bp to 2.53%, 3-yr: -1 bp to 2.50%, 5-yr: UNCH at 2.51%, 10-yr: UNCH at 2.70%, 30-yr: UNCH at 3.04%

COMMODITIES

  • WTI crude futures were up US35c at $54.01.
  • Iron Ore – Chinese markets closed.
  • LME metals – Mixed. Copper +0.74%, nickel -0.88%, aluminium -0.78%

ECONOMIC DATA, NEWS & POLITICS

  • US Economic data – Weekly MBA Mortgage Index -2.5% (prior -3.0%); November Trade Balance -$49.30bn (consensus -$54.00 bln; prior -$55.70 bln)
  • Earnings – 55% of S&P 500 companies reported, with 68% beating expectations.
  • Brexit – Irish Prime Minister Leo Vardakar said the current Brexit withdrawal agreement stands and that instability in London shows why the Irish backstop is needed. European Council President Donald Tusk said that the EU will not make any new offers to the UK. British Prime Minister Theresa May is expected to meet with European Commission President Jean-Claude Juncker in Brussels tomorrow.
  • German factory orders -1.6%mom (expected 0.3%) in December while the November decrease was revised up to -0.2% from -1.0%.
  • Toyota lowered its FY19 NPAT forecast due to losses on investments, but left its revenue forecast intact.

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