MID MORNING MARKETS 13-05-19

The ASX 200 is down 17 points in mid-morning trade after another wild night/trade drama rebound. REITS & Telcos ok but banks the big drag with CBA result, ANZ & MQG ex-div. RWC downdate, LLC takeover spec, ECX impairment. Housing finance today and big data during the week. #ausbiz

m1m2m3TODAY

  • Economic data – Home Loans
  • Company – CBA 3Q trading update
  • Exdividend – ANZ Bank (ANZ) 80.0c, Macquarie Group (MQG) 360.0c
  • Chinese data – FDI (YTD)
  • Japanese data – Foreign Exchange Reserves, Coincident Index, Leading Economic Index

COMPANY NEWS

  • Commonwealth Bank (CBA) – Cash profit down 9% (excluding notable earnings). Operating income -4%, reflecting a combination of seasonal impacts, temporary headwinds (incl. unfavourable derivative valuation adjustment and weather events) and rebased fee income. Operating expenses +1% excluding notable items, or 24% including additional customer remediation provisions/notable items (Additional customer remediation of $714m). Loan Impairment Expense (LIE) was $314 million in the quarter, equating to 17bpts of GLAA5. Some pockets of stress remain apparent, with higher levels of consumer arrears and corporate troublesome and impaired assets in the quarter.
  • Reliance Worldwide (RWC) – Guidance downgrade – Now expects FY2019 EBITDA $260-$270m (from $280-290m.) Previous range was subject to an assumption that a modest freeze event would be experienced in the USA. Americas – no freeze and some channel partners have reduced inventory on hand. EMEA – Sales in the core RWC businesses in the UK and Spain have not met expectations in 2H. Exit of certain product lines (Thermal Interface Units) which has led to a bigger than expected drop in demand. APAC – decline in Aust home construction. John Guest – Integration activities continue to progress on or ahead of schedule. Realised synergies for FY2019 remain on track to meet or exceed the target of $10 million with expected run rate synergies of $20 million per annum by the end of FY2019. Tariffs not expected to have much of an impact on FY19 but will on FY2020.
  • Lend Lease (LLC) – Media reports that Mitsui is looking at the business as a takeover target.
  • Eclipx (ECX) – Expects non-cash impairment charges of $110-130m in its 1H results (due 24 May). Has received interest from a number of parties regarding the Grays and Right2Drive businesses and they are being prepared for sale. Also, Eclipx intends to sell its Australian Commercial Equipment financing business and will keep the market informed of any developments regarding these businesses over the coming months
  • Galaxy (GXY) – Mt Caitlin record production

LAST WEEK

Australia outperformed its global counterparts, even after the big rally on Friday. The S&P500 was down 2.2%, the STOXX 600 -3.4%, Japanese Nikkei -4.1% and Chinese SSE -4.5%. That compares with the XJO -0.4%. And of Australia’s performance, large caps ASX 50 leaders -0.08%, Small Ords -1.96%.

IT was the worst performing sector, following on from US counterparts (Apple -6.9%, Netflix -6.2%, Facebook -3.7%, Amazon 3.7%). Gold, Utilities and REITS were OK

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NEXT WEEK

A huge week domestically with wages and employment data, consumer confidence and housing finance. Lot’s on is Europe as well, while it “relatively” quiet in the US

  • Australia – Housing finance on Monday, NAB business confidence Tuesday, wages and Westpac consumer confidence on Wednesday and employment data on Thursday.
  • Chinese data – Industrial production and retail sales on Wednesday
  • Europe – GDP and employment and inflation data
  • UK – employment data
  • US – Retail sales, industrial production, housing starts and building permits and consumer sentiment.

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OVERNIGHT

m10m11

SPI FUTURES +29

US EQUITIES – S&P 500 +11 (+0.37%), Dow +114 (+0.44%), NASDAQ +6 (+0.08%).

Main themes –

Major reversal, with the market recovering from steep losses to close higher after more positive rhetoric.

EUROPEAN MARKETS – Mixed. STOXX600 +0.32%, UK FTSE -0.06%, German DAX +0.72%, French CAC +0.27%

CURRENCIES

  • The USD is a bit weaker at 97.32.
  • The Aussie dollar is a bit stronger at 70.06c.

BONDS – 2-yr: -2 bps to 2.24%, 3-yr: -1 bp to 2.21%, 5-yr: UNCH at 2.25%, 10-yr: UNCH at 2.46%, 30-yr: UNCH at 2.87

COMMODITIES

  • Oil – WTI futures were down US4c at US$61.66 a barrel after earlier hitting US$62.49.Chinese tariffs, Iran sanctions and conflict in Libya were the major influences.
  • Iron Ore – IRESS reports iron ore unchanged at US$98 a tonne. CommSec has iron ore up US30c or 0.3% to US$95.45 a tonne.
  • LME metals – Mostly higher. Cu +0.14%, Ni +1.10%, Al +0.14%

ECONOMIC DATA, NEWS & POLITICS

  • Tariffs – The US increased the tariff on $200bn on Chinese imports from 10% to 2%, with Trump saying China “broke the deal” by reneging on previous commitments. Trump also said he would start paperwork for 25% duties on a further $325bn of Chinese imports, saying he was in no rush for a deal. Initial falls were recovered after Treasury Secretary Steven Mnuchin described the talks as “constructive,” and China’s Vice Premier Liu He said they went “fairly well.”
  • US economic data – April CPI 0.3% (consensus 0.4%; prior 0.4%) and core CPI 0.1%; (consensus 0.2%; prior 0.1%)
  • Fed Speak – Atlanta Fed President Raphael Bostic (non-voter) said the Fed might have to cut rates if higher tariffs on imports from China begin having a negative effect on consumers and GDP.
  • European data – German March trade surplus EUR20.00 bln (expected surplus EUR18.20bn; last surplus EUR18.70bn). Imports increased 0.4% (expected 0.5%; last -1.6%) while exports grew 1.5% (expected -0.3%; last -1.2%). UK Q1 GDP +0.5% (as expected, last 0.2%) to be +1.8%yoy (as expected, last 1.4%). March Industrial Production +0.7% (expected 0.1%; last 0.6%) and March Manufacturing Production + 0.9% (expected 0.2%; last 1.0%). March Construction Output -1.9% (expected -0.9%; last 0.5%) while Q1 Business Investment +0.5% (expected -0.6%; last -0.9%). March trade deficit GBP13.65bn (expected deficit GBP13.80bn; last deficit GBP14.43bn).

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