MID MORNING MARKETS 18-04-19

The ASX 200 is up 23 points in late-morning trade despite US weakness. CSL continues to drag and Telstra to lead, Materials and banks ↑. Qs from FMG, WPL, SBM, SYD. More NAB charges and GNC hit. Jobs is the word #ausbiz

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TODAY

  • Economic data – CommBank Australia Composite PMI Flash, CommBank Australia Services PMI Flash, CommBank Australia Manufacturing PMI Flash, Employment Change, Unemployment Rate

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  • Japanese data – Nikkei Manufacturing PMI Flash

TONIGHT

  • Europe – Markit Composite PMI Flash, Markit Manufacturing PMI Flash, Markit Services PMI Flash
  • UK – Retail Sales
  • US economic data – Retail Sales, Philadelphia Fed Index, Business Inventories, Leading Indicators
  • US earnings – American Express (AXP), Blackstone (BX), Manpower (MAN).
  • Fed Speak – Atlanta Fed President Raphael Bostic

CHINESE GROWTH

All the numbers out today were positive. And generally better than expected.

A big improvement in industrial production – up 8.5% (from 5.3%), retail sales up 8.7% (exp 8.4%) and GDP up 1.4% in the quarter and 6.4% over the year.

While some analysts may have doubts about the accuracy of the data, there have been some other recent positive numbers – both public and private sector – which support the view that recent stimulus measures by Chinese authorities, had led to a modest improvement in the Chinese economy.

The Aussie dollar spiked on the news, rising above 72.06 before easing

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COMPANY NEWS

  • Fortescue Metals Group (FMG) – Average price received increased to US$71 dmt up 47% from US$48/dmt in December (benchmark increase of 16%); Total shipments of 38.3mt including 3.8mt of West Pilbara Fines; Impact of Tropical Cyclone Veronica limited to 2.5mt of shipments lost due to closure of the Port Hedland Port for five days; C1 cost of US$13.51/wmt; Approval of the development of Stage 2 of the Iron Bridge Magnetite Project announced on 2 April; Eliwana Mine and Rail Project progressing on schedule and budget; Fortescue Future of Mobility Centre launched in Karratha, Western Australia. GUIDANCE: 165-170mt in shipments, inclusive of West Pilbara Fines product of 8-10mt; C1 costs expected to be between US$13-13.50/wmt; Average strip ratio 1.5; Total capital expenditure of US$1.2 billion, inclusive of Fortescue’s share of the Iron Bridge; Magnetite Project for FY19; Depreciation and amortisation of US$7.10/wmt.

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  • Bubs Australia (BUB) – Strategic equity-linked alliance with Chemist Warehouse. Bubs existing products to be sold in Chemist Warehouse pharmacies nationally; 28 products on shelves from June 2019; Chemist Warehouse to provide sales and marketing services for a fee, linked to sales performance targets; Chemist Warehouse to use sales and marketing fee to purchase up to 49,426,508 shares in Bubs over three years; Powerful alignment with Chemist Warehouse, the clear leader in the pharmacy channel with over $5 billion in retail sales, of which over $200 million stem from infant formula; Provides a strong gateway to China; Rounds out Bubs foundation strategy: vertical integration plus key partners in place.
  • Alumina Limited (AWC) – Aloca Q report.

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  • Graincorp (GNC) – Announced the Grains business unit had experienced a disruption to grain trading conditions over the last six weeks of the half, due to the impact of international trade tensions on grain flows, coupled with the impact of ongoing drought conditions in eastern Australia, which significantly impacted summer crop production, most particularly sorghum. Expected to reduce EBITDA by approximately $40m.
  • National Australia Bank (NAB) – Announced additional charges of $525mn after tax ($749 million before tax) for increased provisions for its customer-related remediation program. Expected to reduce 1H19 cash earnings by an estimated $325m and earnings from discontinued operations by an estimated $200m. Of the 1H19 charges, approximately 91% are for Wealth related matters, with the remainder for Banking. In combination with provisions raised in 2H18 which have not yet been utilised, this brings total provisions for customer-related remediation at 31 March 2019 to $1,102m. Last sentence of the announcement was interesting. “The matters in this announcement remain subject to finalisation of NAB’s 2019 Half Year results, including review by the auditors and, as is the usual practice, the Board will also review NAB’s dividend settings.” Is there a cut ahead…
  • HUB24 (HUB) – Q update. Quarterly net inflows $793 million (up 33.3% on pcp) and gross inflows of $1.2 billion (up 40.9% on pcp) – both records for a March quarter; FUA of $11.5b (up 55.7% on March 2018); HUB24 achieved 1st place overall for December quarterly industry net flows and maintained the fastest rate of growth in the industry in percentage terms relative to its size; HUB24 platform achieved 1st place for both Managed Account Solution and Decision Support Tools in the Investment Trends Competitive Analysis and Benchmarking Report; 19 new licensee agreements for the HUB24 platform were signed during the quarter including agreements with 2 stockbroking firms, 2 large advice licensees and a rapidly growing advice practice aggregator.
  • Sydney Airport (SYD) – Traffic Performance. International passenger numbers were impacted by a shift in timing of both Easter and Lunar New Year driving decreases in both seat capacity and load factors. However, strong load factors on North American routes helped boost US traveller growth to 11%

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  • Woodside Petroleum (WPL) – Sales revenue up 4% to $1,221 million on higher prices and production of 21.7 MMboe.; Commenced domestic gas production from Wheatstone LNG; Secured additional debt funding through the issue of a ten-year $1,500 million bond on the US Rule 144A/Regulation S market; Awarded the FEED contract for the SNE Field Development Phase 1 FPSO facility; Subsequent to the period, Woodside signed a heads of agreement with ENN Group for the sale of 1.0 Mtpa of LNG for a period of ten years, commencing in 2025; Completed construction of the Pluto truck loading facility.
  • South 32 (S32)
  • Galaxy (GXY) – Q report and update on Sal De Vida.
  • Whitehaven Coal (WHC) – South Project Declaration
  • St Barbara (SBM)

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OVERNIGHT

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SPI FUTURES +3

US EQUITIES – S&P 500 -7 (-0.23%), Dow -3 (-0.01%), NASDAQ -4 (-0.05%)

Main themes –

  • Strong Chinese data
  • Earnings reports
  • Health care (-2.9%) losses dominate – UnitedHealth CEO David Wichmann warned that proposals from Democratic lawmakers, such as “Medicare for All,” would “surely jeopardize the relationship people have with their doctors, destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best. ”

EUROPEAN MARKETS – All higher. STOXX600 +0.10%, UK FTSE +0.02%, German DAX +0.43%, French CAC +0.62%.

CURRENCIES

  • The USD is little changed at 97.01
  • The Aussie dollar is also little changed at US71.74 after reaching a high of 72.06c yesterday.

BONDS – 2-yr: -1 bp to 2.40%, 3-yr: -1 bp to 2.38%, 5-yr: -1 bp to 2.40%, 10-yr: UNCH at 2.59%, 30-yr: UNCH at 2.99%

COMMODITIES

  • Oil – WTI futures closed down 29c or 0.5% at US$63.76 a barrel. EIA US oil stockpiles -1.4mb (exp +1.7mb) were still about half the decline from Tuesday’s API on Tuesday
  • Gold – Futures were down US40c to US$1,276.80 an ounce
  • Iron Ore – IRESS reports that iron ore was unchanged at US$96.00 a tonne. CommSec reports iron ore was down US$1.80 or 1.9% at U$92.50.
  • LME metals – Mixed. Copper +0.95%, nickel -0.39%, aluminium -0.05%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Weekly MBA Mortgage Index -3.5% (prior -5.6%), February Trade Balance -$49.40bn (consensus -$54.00bn; prior -$51.10bn); February Wholesale Inventories 0.2% (consensus 0.4%; prior 1.2%)
  • US earnings – BNY Mellon (-9.53%), CSX (+4.02%) Ericsson (+7.33%), Morgan Stanley (+2.64%) boosted by sales in its wealth management and fixed income trading divisions, PepsiCo (+3.76%)core sales growth the highest in 3 years and Frito-Lay sales growing 5.5%, U.S. Bancorp (0.8%), After The Close – Alcoa (AA).
  • Fed Beige Book – Described the expansion in overall economic activity as “slight-to-moderate.” Most Districts saw activity comparable to what was reported in the March Beige Book. Consumer spending was described as sluggish while spending on tourism was a bit stronger. Stronger home sales were reported in most Districts, but demand for higher-priced homes was low in some areas. Continued concerns about flooding led to reports of weak agricultural conditions. Moderate wage growth was reported across most Districts.
  • Japanese-US trade talks – Economy Minister Toshimitsu Motegi said that the first round of trade talks focused on agricultural goods and autos, with currencies to be discussed by finance ministers.
  • European–US trade – The EC released a preliminary list of $20bn worth of US imports that could be subject to tariffs.
  • European growth – The German Economy Ministry lowered its 2019 forecast for German GDP growth to 0.5% from 1.0%, in-line with speculation from last week.

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