RunningMoney

The ASX 200 is up 60 points in mid-morning trade after more +ve moves o/n. Gains across the board. Gold the exception. Banks lag. VAH ↓date. $A flops, 10-year yield record lows. Broker ↓grades for GWA, SYD and MYX. Election weekend. #ausbiz

TODAY

• Ex-dividend – Dicker Data (DDR) – 5c

TONIGHT

• European data – Construction Output, Inflation Rate
• US economic data – Leading Indicators, Univ. of Michigan Consumer Sentiment – Prelim
• Fed Speak – New York Fed President (permanent voter) John Williams; Fed Vice Chair (permanent voter) Richard Clarida; New York Fed President (permanent voter) John Williams

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COMPANY NEWS

Virgin Australia Holdings (VAH) – Expects FY19 underlying earnings to be at least $100m down on the FY18 comparative result of $64.4m, reflecting the uncertainty of revenue trading conditions in the domestic market and inclusive of annual fuel and foreign exchange headwinds in excess of $160m. Weaker demand from lower levels of consumer and business confidence, consumer spending, timing of Easter, and the impact of the Federal Election. While the Group expects revenue growth of 6% for the full year, revenue growth has moderated throughout the second half and it now expects less than 2% for the remaining two months of FY19. VAH has made some immediate adjustments to capacity and the frequency of services to better align with demand conditions.

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ANALYST CHANGES

• BHP Group (BHP) – Macquarie has an Outperform recommendation with a target price of $41.00. BHP has updated on its portfolio of organic growth options. In a turnaround, Nickel West will be retained as a core asset. New projects have been added in copper and met coal. Capex for Ruby, Olympic Dam and Jansen has been increased. The analyst notes buoyant iron ore prices continue to drive earnings, with free cash flow yields increasing to 12% in FY20-21 at spot prices. No change to forecasts ahead of the company’s strategy briefing next week.

• GWA Group (GWA) – Deutsche Bank has downgraded to a Sell (from Hold) recommendation with a target price of $2.85. The analyst expects falling home sales and listings data to affect earnings from FY20. While alterations and additions are more stable than new construction, this is closely linked to new home listings and sales. They do not expect the decline to reverse in the near term and envisages similar, although not as negative, risks in New Zealand.

• Invocare (IVC) – Citi has a Sell recommendation with a target price of $13.50. 1Q  update signalled net profit up 9% and sales revenue up 7.8%. No full year guidance was provided because of the difficulty associated with accurately forecasting winter trading. The analyst has increased 2019-21 EPS estimates by 2% because of higher margin assumptions and continues to expect the death rate to revert to the mean, as 2018 was particularly soft because of a mild winter and benign flu season. They also believe the capital expenditure program, of which 40% has been completed, will continue to cause disruptions and the benefits will not be clear until 2020.

• James Hardie (JHX) – Citi has a Buy recommendation with a target price of $21.00. Stabilising US housing market data and growing confidence in strategic targets have driven a rebound in the stock. Execution may be critical but, with falling pulp prices, the analyst sees upside earnings risks that may lead to a further re-rating. Should management deliver at the top end of its targets, they estimate the three-year growth rate could be closer to 20%.

• Sydney Airport (SYD) – Morgans has downgraded to a Hold (from Add) recommendation with a target price of $7.61 (from $7.55). The share price has surged 20% since mid January. Morgans points out government bond rates falling to historical lows and the market appetite for yield are probably the key drivers. Weakness in short-term traffic growth appears to have been disregarded by the market. The analyst has downgraded as the share price has compressed the total return potential. They note significant valuation upside exists if the market starts to factor in a lower-for-longer interest rate scenario.

• Mayne Pharma (MYX) – Citi has downgraded to a Neutral (from Buy) recommendation with a target price of 60c (from 95c). The analyst had expected a more stable generic pricing environment would eventually lead to a recovery in trading but this is not the case for the start of 2H. As a result of incorporating heightened deflationary pressures, the broker reduces FY19-21 EPS estimates 63% and 55% respectively.

 

 

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OVERNIGHT

SPI FUTURES +47

US EQUITIES – S&P 500 +25 (+0.89%), Dow +215 (0.84%), NASDAQ +76 (+0.97%).

Main themes –

• Strong earnings from Walmart (+1.4%) and Cisco Systems (+6.7%)
• Better than expected housing starts +5.7%

 

EUROPEAN MARKETS – All higher. STOXX600 +1.27%, UK FTSE +0.78%, German DAX +1.74%, French CAC +1.37%

CURRENCIES

• The USD is little changed at 97.83.
• The Aussie dollar continues to weaken, down at US68.92c.

BONDS – 2-yr: +4 bps to 2.20%, 3-yr: +3 bps to 2.15%, 5-yr: +3 bps to 2.19%, 10-yr: +3 bps to 2.41%, 30-yr: +2 bps to 2.84%

COMMODITIES

• Oil – WTI futures were up uS85c or 1.4% to US$62.87 a barrel, despite the prior day inventory data, on growing tension in the Middle East as a Saudi-led coalition launching air strikes in retaliation for recent attacks on its oil infrastructure.
• Gold was steady, up U#30 or 0.02% to US$1,296.60 an ounce.
• Iron Ore –CommSec has iron ore up US$3.05 or 3.2% to US$98.00 a tonne.
• LME metals – Another positive day. Cu +0.25%, Ni +0.05%, Al +0.27%

ECONOMIC DATA, NEWS & POLITICS

• US economic data – Weekly Initial Claims 212,000 (consensus 222,000; prior 228,000), Continuing Claims 1.660m (prior 1.688m), April Housing Starts 1.235m (consensus 1.200m; prior 1.168m), Building Permits 1.296m (consensus 1.280m; prior 1.288m), and May Philadelphia Fed Survey 16.6 (consensus 7.5; prior 8.5)
• Huawei has warned that losing access to suppliers in the US would cause “significant economic harm to the American companies”
• Trade – Ministry of Commerce spokesperson, Gao Feng, called on the US to cancel tariffs on imports from China in order to avoid causing a “recession-like” impact on the world economy.
• FX collusion – The European Commission fined Citigroup, JPMorgan Chase, RBS, Barclays, and MUFG a total of $1.20bn for colluding in the spot foreign exchange market.
• Brexit – Looks like another defeat for May’s Brexit deal in the House of Commons during the first week of June.