MID MORNING MARKETS 11-02-19

The ASX 200 is up 10 points in mid-morning trade. Banks ↓. Materials ↑. Aged care ↑ on funding boost ahead of RC, JBH relief and BEN -ve on earnings, IPL weather downdate, SIG +ve on operation review, #ausbiz

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  • Royal Commission into aged care. The government has also just announced a boost to funding.
  • China back on line after Chinese New Year closures
  • China – Foreign Exchange Reserves

TONIGHT

  • UK – GDP and industrial production

 


COMPANY NEWS

  • Aged Care sector – Federal government will provide $662m in funding – with $280m committed for 10k additional home care packages and $320m allocated for aged care providers to help increase support. Additional to what might come form the RC, which starts today
  • Bendigo Bank (BEN) – statutory profit up 0.2% to $203.2m, Underlying cash earnings flat at $219.8m; Cash EPS down 0.2c at 45.1c, Fully franked final dividend: 35 cents
  • JB Hi-Fi (JBH) – Total sales up 4.2% to $3.8bn; Positive comparable sales growth across all brands; EBIT up 4.8% to $236.6m; NPAT of $160.1 million, up 5.5%; EPS up 5.4% to 139.4 cps; Interim dividend up 5.8% to 91 cps. January sales Aus +3.0% (Jan 18 +7.5%), and 1.5% SSS (2018 +4.8%). Good Guys +1.8% (2018 -3.5%), with 0.3% sss (2018 sss -4.7%). “The Company continues to see positive sales growth, however in the Christmas quarter and January there has been increased volatility and a bias in customer purchasing towards key promotional periods.

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  • Incitec Pivot (IPL) – Extreme weather impact. Closure of the rail line between Townsville and Phosphate Hill. IPL began a progressive shutdown of plants within its Phosphate Hill facility over the weekend and is continuing to run each plant for as long as possible given storage and input constraints. Currently estimates that the impact of the rail closure will reduce EBIT by approximately $10m per week. IPL’s Phosphate Hill facility has not sustained any damage. The Townsville fertiliser distribution and port facilities suffered only very minor damage and are operational.
  • Amcor AMC) – NPAT +3.4% to USD 328.5m (cc); EPS +3.4% to US 28.4c currency basis; PBIT +2.4% to US$ 509.6m; Operating cash flow +27.0% to US$115.3m; DPS US21.5c paid A29.78c, up 13.8%; and all-stock Bemis transaction expected to close in the second quarter of calendar year 2019. Outlook unchanged “We remain on track to deliver against the full year outlook we provided in August 2018, which has not changed. In the 2019 financial year we expect both the Flexibles and Rigids segments to achieve solid underlying earnings growth in constant currency terms, and cash flow is expected to be strong.”
  • Aurizon (AJZ) – Outlook: FY2019 Underlying EBIT guidance for Aurizon’s non-Network businesses (excluding redundancy costs) remains between $390 – $430 million. This accounts for the weather-related events in North Queensland during January and February 2019 and the cessation of the Mt Gibson contract (end of mine life) in January 2019 but remains contingent on no other major weather impacts or changes to operating conditions occurring during 2HFY2019 Aurizon’s FY2019 above rail coal haulage volumes remain within previously advised guidance of 215 – 225 million tonnes.

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  • Sigma Healthcare (SIG) – Market Update. Has identified $100m of cost savings following significant business review. Also FY19 Underlying EBIT guidance of around $75m confirmed; Expect to deliver FY20 Underlying EBITDA of $55-$60m; The outlook incorporating the business review outcomes points to over 10% per annum underlying EBITDA growth for FY21-FY23; Expect minimal net debt from FY20 despite an extensive capital investment program and retention of a high dividend payout ratio
  • Spark Infrastructure (SKI) Notes Federal Court decision on the tax treatment of certain cash contributions and gifted assets for Victoria Power Networks (“VPN”) for the tax years 2008 to 2011. Lowered distributions guidance.

LAST WEEK

International markets last week. AU 10yr bond -10bps and $A ↓ on RBA comments, oil weaker, iron ore higher, European markets underperform.

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Domestic markets last week. Aust outperforms global peers. All sectors higher except Gold. Banks lead (+7.1%), Large caps best – COL (-1.7%) the only negative Top20

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NEXT WEEK

  • Domestic data – Housing finance on Tuesday, Westpac Consumer confidence on Wednesday,
  • Chinese trade data on Thursday and inflation on Friday.
  • UK – GDP and industrial production Monday, inflation on Wednesday and retail sales on Friday.
  • European industrial production on Wednesday and GDP on Thursday
  • US – CPI on Wednesday, retail sales for December on Thursday and for January on Friday. Also industrial production on Friday.

Big earnings

  • Monday – Amcor (AMC), Bendigo Bank (BEN) and JB Hi-fi (JBH)
  • Tuesday – Challenger (CGF) and Transurban (TCL)
  • Wednesday – CSL
  • Thursday – AMP, ASX, Telstra (TLS), Newcrest (NCM), South32 (S32), Woodside Petroleum (WPL)
  • Friday – Domain Group (DHG), Medibank (MPL),


OVERNIGHT

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SPI FUTURES -4

US EQUITIES – S&P 500 +2 (+0.07%), Dow -63 (-0.25%), NASDAQ +10 (+0.14%)

Main themes

  • Continuation of the stories of the previous day – concerns about slowing global economic growth and US-China trade.

EUROPEAN MARKETS – All weaker. STOXX500 -0.56%, UK FTSE -0.32%, German DAX -1.05%, French CAC -0.48%.

CURRENCIES

  • The USD is lower at 96.64.
  • The Aussie dollar is a touch stronger at US70.93c.

BONDS – 2-yr: -1 bp to 2.46%, 3-yr: -1 bp to 2.44%, 5-yr: -2 bps to 2.44%, 10-yr: -2 bps to 2.63%, 30-yr: -2 bps to 2.98%

COMMODITIES

  • WTI crude futures were up US8c at $52.72. In addition to the negative stories from yesterday – no meeting between the US and Chinese leaders and cuts to growth forecasts by the EC and BofE, support came from supply cuts. Saudi Arabia cut its January output by 400k barrels to 10.24mbpd
  • Iron Ore – IRESS reports iron ore down $4.00 or 4.42% to US$86.50 a tonne. The CommSec site shows iron ore up US$3.70 or 4.1% to US$94.20 a tonne.
  • LME metals – Almost all weaker. Copper -0.58%, nickel -3.20%, aluminium -0.69%

ECONOMIC DATA, NEWS & POLITICS

  • US/Euro trade – US Ambassador to the EU Gordon Sondland quoted (by Bloomberg) as saying, “The good faith and understanding that existed on July 25 has not been followed through on.” Referring to talks between President Trump and European Commission President Jean-Claude Juncker to open up trade.
  • Italy’s Stats Agency released its monthly economic note, observing a pronounced decline in leading indicators.
  • Euro data – French Industrial Production +0.8%mom (as expected, last -1.5%). Q4 Nonfarm Payrolls +0.1%qoq (as expected (last 0.1%); Italian Industrial Production -0.8%mom (expected 0.4%; last -1.7%) and -5.5% yoy (expected -3.0%; last -2.6%)
  • YESTERDAY – The European Commission officially lowered its forecast for 2019 Italian GDP growth to 0.2% (from 1.2%), for Germany to 1.1% (from 1.8%) and across the eurozone to 1.3% (from 1.9% but rebounding to 1.6% in 2020.). And the Bank of England lowered its 2019 GDP growth forecast to 1.2% from 1.7%, the slowest pace since 2009.

STATEMENT ON MONETARY POLICY

Released fridaty As foreshadowed by Raised its target price by RBA Governor Dr Philip Lowe, there were downgrades to growth and inflation forecasts. Growth forecasts have been downgraded by around .25%, but inflation (2019) forecast cut by 0.5% or 0.25% trimmed mean.

Sees the risk of a housing downturn Is a significant area of uncertainty. On Wednesday said it was a manageable adjustment (appropriate and desirable) and won’t derail the economy.

“In the context of high household debt, currently weak income growth and falling house prices, the resilience of consumption growth is a key uncertainty for the overall outlook.”

Reinforced the anecdotal evidence that developers were having greater difficulty getting finance and presales.

RBA believes that tighter credit conditions is not the main explanation for a fall in credit growth. Borrowers are still getting loans, although the valuations might be limited.

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QUOTE OF THE DAY

“If you have the door to your office closed, you get more work done today and tomorrow, and you are more productive than most. But ten years later somehow, you don’t quite know what problems are worth working on.” – Richard Hamming, American mathematician born this day in 1915. Died 7 January 1998.

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