The ASX 200 is up 5 points in mid-morning trade after more +ve trade news o/n. Energy best, banks the big drag, WBC ex-div, COL & WOW also ↓. XRO result, BWX downgrade and mgmt ∆. Employment the key focus today. #ausbiz


  • Ex-dividend – Plato Income Maximiser (PL8) 3.5c, Sandon Capital Investments (SNC) 3.5c, Westpac (WBC) 94.0c, Z Energy (ZEL) 28.8c
  • Xero (XRO) – Earnings
  • Ooh!Media (OML) – AGM
  • Economic data – Employment Change, Unemployment Rate
  • Japanese data – PPI
  • Chinese data – House Price Index


  • European data – Balance of Trade
  • US economic data – Housing Starts, Building Permits, Philadelphia Fed Index
  • Fed Speak – Minneapolis Fed President (non-voter) Neel Kashkari and Governor (FOMC voter) Lael Brainard


Wages missed expectations yesterday, signaling strong competition for jobs and pressure on operating costs.

A key issue is spare capacity – underutilisation rate, which adds the number of unemployed with the level of underemployed. The underemployment rate is currently 8.2%, which gives a combined underutilisation rate of 13.2%.

We need to see a big drop in that rate to get much of an increase in wages.

Keep in mind that real wages growth – the difference between wages and inflation – has actually increased to 0.9%, which his the highest since December 2012, so purchasing power is better than what the unemployment rate would suggest…

Employment today should see the unemployment rate stay at 5.0% or perhaps tick up slightly to 5.1%. Will be closely watched as an indicator of what the RBA might do., although I suspect it might take more than 1 bad reading to change the RBA view.



  • Xero (XRO) – 36% growth in operating revenue to $552.8 million (34% in constant currency); 32% growth in Annualised Monthly Recurring Revenue (AMRR) to $638.2 million; 31% growth in total subscribers to 1.818 million; International net subscriber additions (239,000) exceeded those from ANZ (193,000) for the first time; UK net subscriber additions accelerated significantly – 151,000 added over the FY19 year, and more than 100,000 net subscribers added in H2 FY19; Free cash flow increased by $35.0 million versus the prior year to $6.5 million; Positive H2 FY19 NPAT of $1.4 million. Outlook – Free cash flow in the financial year to 31 March 2020 is expected to be a similar proportion of total operating revenue to that reported in the financial year to 31 March 2019.
  • BWX – Downgrade, global restructure and management changes. FY19 Trading EBITDA guidance $21-$23 million (down from $27-29m). David Fenlon (from Blackmores) appointed Global CEO and MD. Global restructure. Sukin trading will be impacted in Q4 as we cycle unprofitable promotions and unnecessary stock building. We expect to see improved margins and a reduction in trade investment in FY20 as promotional activity and stock is managed to appropriate levels. All other business units continue to trade in line with expectations.
  • CSR – Has appointment of Julie Coates as Chief Executive Officer and Managing Director of the company, effective 2 September 2019. Ms Coates is currently Managing Director Australia & New Zealand at Goodman Fielder Limited, Prior to Goodman Fielder, Ms Coates spent 12 years at Woolworths in a variety of senior executive roles including Chief Logistics Officer, Human Resources Director and Managing Director of Big W.
  • CSL – Dr. Paul McKenzie, an accomplished global leader with diverse biotechnology experience, has been appointed as Chief Operating Officer (COO), effective 3 June.
  • Blackmores (BKL) – David Fenlon, Managing Director Australia and New Zealand, has resigned to move back to Melbourne where he will take up the role of CEO with BWX.


  • Dulux Group (DLX) – Results yesterday. A 15c 1H and 28special div confirmed.
    • Morgan Stanley has an Underweight recommendation with a target price of $9.80. 1H earnings were 4% below Morgan Stanley’s forecasts. Management has indicated that 2Q revenue growth returned to more normal levels and April has followed the trend. Guidance for FY19 is maintained. The takeover process by Nippon Paint continues.
    • Morgans has a Hold recommendation with a target price of $9.37 (from $9.80). 1H results were weaker than Morgans expected. Nevertheless, management has maintained guidance for FY19 underlying net profit to be higher than FY18. Morgans reduces FY19 estimates by 1%.
    • Citi has a Neutral recommendation with a target price of $9.80. The analysts notes the takeover bid from Nippon Paint is progressing and there is a low likelihood of a competing offer. DLX expects to overcome a 1H miss on earnings with a strong recovery in the second half and meet guidance. The highlight for the analyst was a stronger March quarter, which suggests that the housing market, at least in terms of detached housing or renovations, may be showing signs of bottoming out.
    • Deutsche Bank has a Hold recommendation with a target price of $9.80. 1H results were weaker than Deutsche Bank expected. The broker expects the market to ignore the result, given the takeover bid by Nippon Paint. The special dividend of 28c was higher than anticipated. Full year guidance has been maintained.
    • Macquarie – The 1H results were slightly below Macquarie’s expectations. FY19 guidance has been maintained. The acquisition by Nippon Paint is expected to be completed mid August, subject to the independent expert report, regulatory approvals and in the absence of a superior proposal.


  • South 32 (S32) – Morgan Stanley rates S32 has reinstated coverage with an Overweight recommendation with a target price of $4.05. The analyst thinks the decline in the share price recently has created an opportunity and the market under-appreciates the company’s assets, not to mention its advanced growth projects. They expect shareholder returns of 9.5% and 7.0% in FY19 and FY20, with significant upside risk. The company is improving its asset quality through restructuring, departing South Africa Energy Coal, which has underperformed.


  • Goodman Group (GMG) – Credit Suisse has an Outperform recommendation with a target price of $14.02 (from $13.22). GMG reaffirmed FY19 guidance of growth in operating earnings of 9.5% and distribution growth of 7%. The analyst notes the update highlighted the global demand for logistics space within the proximity of consumers in urban locations. The company expects development work in progress to approach $5bn by FY20 and assets under management to exceed $45bn by June this year.


  • Automotive Holdings Group (AHG) – Morgans has a Hold recommendation with a target price of $2.41 (from $2.520. AHG now expects FY19 net profit to be around $50m (downgrade from prior guidance of $52-56m). Not unexpected in light of recent industry trends. A potential write-down of refrigerated logistics receivables was a surprise but remains unquantified. The analyst still believes the impact should be relatively contained and not materially affect the valuation.


  • CSL – UBS has a Buy recommendation with a target price of $223 (from $207.50). The analyst has updated their modelling assumptions, upgrading estimates by 3% over the forecast period. While noting potential competitive pressures on certain Behring products, the overall view is unchanged. Market dynamics support robust immunoglobulin growth and Chinese albumin growth is expected to recover. Favourable market segmentation for Seqirus places the business in a position to grow share without using price as a lever.


  • Aurizon (AZJ) – Deutsche Bank has a Hold recommendation with a target price of $4.80. The Federal Court has ruled in favour of Aurizon and Pacific National in a case brought by the ACCC in respect of the proposed sale of the Acacia Ridge terminal and intermodal business in Queensland. This allows Aurizon to progress with the sale of the terminal and finalise an exit from the loss-making intermodal business. Key to the ruling was Pacific National’s decision to give undertakings which guarantee access to other players involved in the Queensland rail and road haulage industry. The court is yet to rule on costs.



Overall, the Westpac-Melbourne Institute Index of Consumer Sentiment rose 0.6% to 101.3 in May from 100.7 in April. Firmly in positive optimistic territory. Above 100 for 10 of the last 12 months. Budget had a positive impact, as well as the likelihood of a cut in interest rates. Job loss fears eased again in May. The Unemployment Expectations Index recorded a 5.1% decline

Unfortunately, the uptick we saw in the house price expectations index suffered a bit of a setback this month, falling to 89.4 from 114.9 (6.5%). Still off the low of 85.4 in March

The Time to Buy a House index also fell to 114.9 from 119.4, down 3.8% (although 13.6% higher than a year ago).

Commentary from Westpac was not particularly insightful: “Sentiment around housing deteriorated in May. The ‘time to buy a dwelling’ index fell 3.8% to 114.9 in May, retracing from what was a four year high in April. The index has risen 28% from its mid-2017 low but is below its long run average of 120. Improving affordability continues to see a lift in buyer sentiment in New South Wales and Victoria with the May pull back more pronounced in Queensland and Western Australia. The Westpac-Melbourne Institute Index of House Price Expectations posted a 6.5% drop, partially retracing the surprisingly strong 11.9% rise in April. Price expectations have been particularly volatile in New South Wales in recent months, but have still improved slightly since the start of the year. In contrast, price expectations have been pared back in Queensland and Western Australia, the latter showing a particularly sharp fall into negative territory and a two and a half year low in May.”





US EQUITIES – S&P 500 +17 (+0.58%), Dow +116 (0.45%), NASDAQ +94 (+1.13%).

Main themes –

  • Dow rebounds from an initial 190 point fall, from weaker Chinese data yesterday and US retail sales and industrial production numbers.
  • Reports that President Trump is likely to delay his decision on imposing tariffs on auto imports by up to 6 months (was due 18 May). General Motors (+0.89%), Ford (+1.17%). There was also optimism that the US was close to resolving its steel and aluminium tariff dispute with Canada and Mexico.
  • Trade – worst-case scenario may be avoided, with Treasury Secretary Steven Mnuchin saying he expects to return to Beijing for trade talks in the “near future”.
  • 3m-10yr yield spread inverted again


EUROPEAN MARKETS – All higher. STOXX600 +0.46%, UK FTSE +0.76%, German DAX +0.90%, French CAC +0.62%


  • The USD is little changed at 97.59.
  • The Aussie dollar continues to weaken, down at US69.28c.

BONDS – 2-yr: -4 bps to 2.16%, 3-yr: -4 bps to 2.12%, 5-yr: -5 bps to 2.15%, 10-yr: -4 bps to 2.38%, 30-yr: -3 bps to 2.82%


  • Oil – WTI futures were up uS24c to US$62.02 a barrel despite EIA inventory data – stockpiles rose 5.4mb to their highest levels since September 2017, compared to expectations of a draw o 800K barrels. Support came form geopolitical developments in the Middle East.
  • Gold was steady, up U#30 or 0.02% to US$1,296.60 an ounce.
  • Iron Ore – IRESS reports iron ore down US$ at US$97.50 a tonne. CommSec has iron ore up US$1.50 or 1.6% to US$94.95 a tonne.
  • LME metals – Another positive day. Cu +0.68%, Ni +1.92%, Al +0.73%


  • US economic data – Weekly MBA Mortgage Index -0.6% (prior 2.7%); April Retail Sales -0.2% (consensus 0.2%; prior 1.7%). Retail Sales ex-auto 0.1% (consensus 0.6%; prior 1.3%), and May Empire State Manufacturing 17.8 (consensus 7.7; prior 10.1); April Industrial Production -0.5% (consensus 0.1%; prior 0.2%) marking the 4th month with no growth in manufacturing output, Capacity Utilization 77.9% (consensus 78.8%; prior 78.5%); March Business Inventories 0.0% (consensus 0.0%; prior 0.3%) and May NAHB Housing Market Index 66 (consensus 64; prior 63).
  • Alphabet (+4.2%) after Deutsche Bank raised its price target to $1,400 from $1,300.
  • EU trade – Reports that President Trump is likely to delay his decision on imposing tariffs on auto imports, suggesting the US does not want to escalate the trade dispute with the EU at a time when negotiations with China have stalled.
  • Fed Speak – Richmond Fed President Thomas Barkin (non voter) said that it makes sense for the FOMC to remain patient on its rate outlook, given the current economic climate, adding there is no strong case to increase rates when inflation is under control.
  • Brexit – British Parliament expected to hold another vote in early June.
  • Chinese data yesterday was disappointing, resulting in expectations of further stimulus from the Chinese government.


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