MID MORNING MARKETS 12-03-19

The ASX 200 is +25 points (was ↑43) in mid-morning trade after strong o/n leads. Energy & Materials best, Gold worst. APX back online & itm. NAB bus conf ahead and Brexit focus . #ausbiz

m1m2m3TODAY

  • NAB Business Confidence
  • Japanese data – BSI Large Manufacturing
  • Chinese – FDI (YTD)
  • Ex-dividend – Ausdrill (ASL) 3.5c, Apollo Tourism & Leisure (ATL) 2.0c, Duxton Water (D20)2.6c, GTN (GTN) 2.4c, Michael Hill International (MHJ) 2.5c, News Corporation (NWS) 9.9c, New Zealand King Salmon Investments (NZK) 1.9c, Pro Medicus (PME) 2.5c, PSC Insurance Group (PSI) 3.1c, Regis Resources (RRL) 8.0c, Sims Metal Management (SGM) 23.0c, SRG Global (SRG) 1.0c, Villa World (VLW) 8.0c

TONIGHT

  • UK – Construction Output, Industrial Production, Manufacturing Production, Balance of Trade, GDP
  • Parliamentary Vote on Brexit Deal
  • US economic data – NFIB Small Business Optimism Index and CPI

COMPANY NEWS

  • Appen (APX) – Successfully raised $285m at $21.50 to fund the acquisition of San Francisco-based Figure Eight Technologies. Well supported and also new investors.
  • Oz Minerals (OZL) – Investor presentation.

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  • IPH –Has submitted a proposal to acquire Xenith IP Group for a combination of cash and IPH shares valued at $1.97. IPH believes the IPH Proposal provides compelling benefits for Xenith’s shareholders, its leading IP attorneys and other stakeholders, and is superior to the QANTM Merger proposal.

BROKER CHANGES

  • ANZ – Credit Suisse has downgrade to a Neutral (from Outperform) recommendation with a target price of $28 (from $30). Credit Suisse points out ANZ’s recent announcement, that it may have been too conservative in its approach to mortgage lending, has been interpreted by some that this is an inflection point for growth. The analyst suggests this is not the case and the earliest there is likely to be a change is at the end of FY19. The analyst also suspects the bank may pause capital management, and it may be less than expected. Credit Suisse assesses the next initiative is not likely until FY20 and decreases buyback estimates by $1.5bn. Earnings estimates are downgraded by -3-8% over the forecast period.

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  • Appen (APX) – UBS has a Neutral recommendation with a target price of $24.00. Based on acquisition of Figure Eight, a machine learning platform that transforms unstructured text, image and audio data into customised training data. The upfront consideration is US$175m. The acquisition is expected to be positive for earnings by the second half of 2020, excluding synergies. UBS considers the deal strategically positive, although further analysis is required.

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  • BHP Billiton (BHP) – Credit Suisse has a Neutral recommendation with a target price of $36 (from $34). Credit Suisse has upgraded FY19 estimates for EBITDA by 7% and FY20 by 9%, driven by increases to iron ore price forecasts. The analyst believes the balance sheet is well-positioned and, with a de-risked capex profile and more favourable commodity mix, considers BHP well-placed to perform at least in line with the market.

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  • Fortescue Metals (FMG) – Credit Suisse has a Neutral recommendation with a target price of $6.40 (from $6.00). Credit Suisse believes the rally in the share price has been justified on the back of the surge in iron ore prices, and considers the stock far from expensive. However, finding the catalysts to push the stock even further is getting increasingly difficult. While the target has been raised based on new iron ore price assumptions, the analyst awaits a cheaper entry point and retains a Neutral rating. Irrespective of the tragedy at the tailings dam in Brazil, the broker believes a strong investment case for Fortescue Metals was well established, as iron ore prices were resilient and realisations were recovering.

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  • Rio Tinto (RIO) Credit Suisse has a Neutral recommendation with a target price of $84 (from $79). Credit Suisse believes management’s strategy of prudent capital discipline has been highly effective in creating value. However, even with upwardly revised iron ore prices, the analyst cannot get its numbers to stack up. They retains a cautious house view on Chinese steel demand, underpinned by some leading indicators. Management has been explicit about value over volume and retaining discipline when exploring M&A opportunities. Credit Suisse agrees this has served Rio Tinto incredibly well but organic growth is limited and it remains a struggle to find what upside risk/catalyst is looming, outside of Chinese housing surprising to the upside.

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OVERNIGHT

m11

SPI FUTURES +38

US EQUITIES – S&P 500 +40 (+1.47%), Dow +201 (+0.79%), NASDAQ +150 (+2.02%)

Main themes

All sectors closed higher

FAANG stocks outperformed after Apple (+1.46%) was upgraded to ‘Buy’ from ‘Neutral’ at Bank of America/Merrill Lynch. Facebook (+2.55%) was upgraded to ‘Buy’ from ‘Neutral’ at Nomura.

Fed Chair Powell set the tone after he reiterated the Fed’s patient stance in an interview with 60 Minutes on Sunday. Granted, this wasn’t “new” information, but his comments seemingly helped soothe a market fearful about slowing growth.

EUROPEAN MARKETS – All higher. STOXX500 +0.78%, UK FTSE +0.37%, German DAX +0.75%, French CAC +0.66%.

CURRENCIES

  • The USD is a bit lower at 97.16
  • The Aussie dollar is stronger at US70.71.

BONDS – 2-yr: +3 bps to 2.47%, 3-yr: +2 bps to 2.44%, 5-yr: +1 bp to 2.44%, 10-yr: +2 bps to 2.64%, 30-yr: +2 bps to 3.03%

COMMODITIES

  • Oil – WTI futures were up US72c or 1,3% at US$56.79. Saudi Energy Minister Khalid al-Falih indicated that an end to OPEC-led supply cuts was unlikely before June
  • Iron Ore – IRESS reports iron ore unchanged at US$86.00 a tonne. CommSec reports iron ore was down US$1.85 or 2.2% to U$83.00.
  • LME metals – Mixed. Copper +0.48%, nickel -1.51%, aluminium -0.43%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – January Retail Sales 0.2% (consensus -0.1%; prior -1.6%) and Retail Sales ex-auto 0.9% (consensus 0.2%; prior -2.1%); December Business Inventories 0.6% (consensus 0.6%; prior -0.1%)
  • Boeing (-5.33%) underperformed following second fatal plane crash involving its 737 MAX 8. Was down 13.5% but staged a strong intraday rebound
  • Chinese preliminary trade data (first nine days of March) showed esports rose 39.9%yoy. Chinese officials acknowledged that the release was aimed at spreading “positive news that could help shore up confidence”.
  • The White House proposed a $4.75tr budget for fiscal 2020, involving higher military spending and significant cuts to non-defence spending.
  • European data – German Industrial Production -0.8% in January but December revised up to +0.8% (from -0.4%). The German government has also reportedly lowered its GDP growth forecast for 2019 to 0.8% from 1.0%
  • Brexit – Parliament will hold another vote on Prime Minister Theresa May’s Brexit deal tomorrow. Barring any last-minute changes, the vote is not expected to pass, which would prompt a Wednesday vote on a no-deal Brexit.

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