MARKET CLOSE 23-05-19

The ASX 200 closed down 19 point, but off the lows. Energy down on oil↓ overnight. Banks bounce stalls. ALL results, KGN ACCC proceedings, IRN acquisition, TRS ↓date and CEO exit, FNP cap raising and ↓guidance. Euro PMIs tonight. #ausbiz

m1m2m3TODAY

  • Ex-dividend – Gazal Corporation (GZL) 17.0c, Pendal Group (PDL) 20.0c
  • Japanese data – Nikkei Manufacturing PMI Flash

TONIGHT

  • European data – Markit Composite PMI Flash, Markit Manufacturing PMI Flash, Markit Services PMI Flash
  • US economic data – New Home Sales
  • Fed Speak – Richmond Fed President (non-voter) Thomas Barkin; Atlanta Fed President (non-voter) Raphael Bostic; San Francisco Fed President (non-voter) Mary Daly; Dallas Fed President (non-voter) Robert Kaplan

COMPANY NEWS

  • Ausdril (ASL) – Earthmoving parts and equipment subsidiary, BTP, has been awarded a 3-year extension worth $126m to its existing contract with Peabody Australia.
  • Viva Energy (VEA) – April refinery margins. GRM for April 2019 is US$7.8/Barrel (BBL), with crude intake of 3.6MBBLs, positively affected by improvements in regional refining margins compared to the first three months of 2019.
  • Aristocrat (ALL) – Normalised revenue up 29.8%. Normalised profit up 16.8% to $422.3m.
  • Kogan (KGN) The ACCC has commenced proceedings against Kogan, alleging it engaged in misleading conduct in respect of a promotion conducted for four days in June last year. KGN denies  the allegations
  • Freedom Foods (FNP) – $130m equity raising at $4.80 – 5.5% discount to the 20 day VWAP. Projects FY 2019 Net Sales Revenues to be in the range of $480-490m, an increase 36-39% on FY 2018 sales revenue but down from original guidance of $5000-530m.
  • Infigen Energy (IFN) – Acquisition of the 109MW flexible, fast-start Smithfield Open Cycle Gas Turbine (“OCGT”) in Western Sydney for $60m in cash. Also announced the expected payment of distribution of 1c for 2H/FY19. OCGT transaction highlights: Strategically located flexible, fast-start generator with 109MW of capacity on one of the best load corridors in the National Electricity Market (“NEM”); Direct access to city gate gas hub, the Sydney Short Term Trading Market (“STTM”), for reliable gas supply; Smithfield’s firming capacity positions Infigen to significantly grow its Commercial and Industrial (“C&I”) customer base in New South Wales; Enables Infigen to profitably grow intermittent renewable energy generation by 300-400MW, on a Capital Lite basis; The acquisition is expected to facilitate a substantial increase in contracting into higher priced, longer tenor and more stable markets, delivering higher quality of earnings;  Expected remaining useful life of 20-30 years; Meets Infigen’s 12% post tax nominal levered equity return hurdle on a standalone basis, with additional value created as increased renewable volumes are firmed.
  • The Reject Shop (TRS) – Total Sales 2nd Half to Date: 1% below pcp; with Comp and Non-Comp Stores below expectations; Comp Sales 2nd Half to Date: -2.9% (YTD: -2.7%); Gross Margins in 2nd Half well below expectations; Forecast for full year NPAT revised from a $3.1m – $4.1m profit to a full year Net Loss of $1.0m to $2.0m; CEO Ross Sudano to leave the business; Dani Aquilina, TRS General Manager Supply Chain, Strategy and Innovation, appointed acting Chief Executive Officer; Board renewal continues with the pending appointment of Zachary Midalia (representative of major shareholder, Allensford) and Steven Fisher; 3 New Stores offset by 7 Closures in 2nd half (357 Stores at end June 2019)

OVERNIGHT

m10m11

SPI FUTURES -11

US EQUITIES – S&P 500 -8 (-0.28%), Dow -101 (-0.39%), NASDAQ -35 (-0.45%).

Main themes –

  • Lingering trade concerns – no new developments or arrangements to schedule talks.
  • FOMC meeting minutes – The US Federal Reserve won’t be making any changes to interest rates “for some time”. Quashed some participants hopes for a rate cut.
  • Qualcomm (-10.9%) after a US judge ruled it violated antitrust law by unlawfully suppressing competition in the cellphone chip space by threatening to cut off supplies and extracting excessive licensing fees. Dragged down other chipmakers and Apple -2.05%.
  • Earnings in the retail space. Target (7.75%) as earnings, revenue and sss beat estimates. Lowe’s (-11.84%) and Nordstrom (-9.25%) on lower than expected earnings

EUROPEAN MARKETS – All lower. STOXX600 -0.08%, UK FTSE +0.07%, German DAX +0.21%, French CAC -0.12%

CURRENCIES

  • The USD is a touch stronger at 98.07.
  • The Aussie dollar is little changed at US68.82.

BONDS – 2-yr: -2 bps to 2.22%, 3-yr: -2 bps to 2.17%, 5-yr: -4 bps to 2.19%, 10-yr: -3 bps to 2.39%, 30-yr: -2 bps to 2.82%

COMMODITIES

  • Oil – WTI futures were down US$1.71 or 2.7% to US$61.39 a barrel on news that US inventories increased 4.7mb over the week to the highest since July 17 (exp -599K barrels)
  • Gold – Futures are up US50c or 0.4% at US$1,273.70 an ounce
  • Iron Ore – IRESS shows iron ore unchanged at US$103 a tonne. CommSec has iron ore up 2.6% to US$103.6 a tonne.
  • LME metals – All weaker. Cu -1.26%, Ni -0.87%, Al -0.84%

ECONOMIC DATA, NEWS & POLITICS

US economic data – Weekly MBA Mortgage Index 2.4% (prior -0.6%)

  • Fed Speak – St. Louis Fed President James Bullard (voter) “Rates are at a good place in the U.S. right now, if anything we are a little restrictive I would say…I am concerned we may have slightly overdone it with our December rate hike but I was pleased that the committee pivoted.”
  • President Trump held an impromptu press conference in the Rose Garden, saying he cannot support an infrastructure bill while being investigated by the Democrats.
  • A federal judge in New York City on Wednesday said Deutsche Bank and Capitol One can turn over financial documents related to President Donald Trump and his businesses in response to subpoenas from House Democrats.
  • Chinese trade – Steven Mnuchin told CNBC that a trip to Beijing to retake trade negotiations has not been scheduled yet. This lowered hope of a speedy resolution to the US-China trade war. China’s Ambassador to the United States, Cui Tiankai, criticised US officials for changing their mind “so often,” but he conceded that Chinese officials remain ready to continue talks.
  • May FOMC Minutes – Showed policymakers are comfortable with the current fed funds rate range while “a number of participants” saw a moderation in risk and uncertainties surrounding their outlooks for the year.
  • Brexit – There was speculation that British Prime Minster Theresa May was about to resign but this didn’t eventuate, while House of Commons leader Andrea Leadsom did resign from government.
  • US-Japan trade talks – Nikkei reported that trade talks between the United States and Japan have hit an impasse over tariffs charged on auto imports from Japan.
  • Construction activity yesterday – The value of work done fell by 1.9% in the quarter to be down 6% for the year. Compares to expectations for a flat number and is the 3rd consecutive quarter of decline in construction activity, although the previous reading was revised up from a 3.1% fall to a 2.1% fall). Housing (-2.5% q/q and -3.2% yoy) and engineering construction (-3.9% q/q and -12.4% yoy) continued to decline, while non-residential building strengthened (+3.6% q/q). Public sector construction (-3.7% q/q) fell further than private sector construction (-1.3% q/q), which is surprising given the infrastructure pipeline.” “Private sector construction was dragged down by engineering construction (-5.0% q/q) and residential construction (-2.4% q/q). Both new building (-2.2% q/q) and renovations (-3.6% q/q) fell. Private non-residential building, on the other hand, was a bright spot, recording its strongest quarterly increase since 2012 (+7.8%).” Residential construction feeds directly into GDP calculations This will further weigh on the GDP numbers due on 6 June). It didn’t have much  of an impact on building and construction stocks, which are still benefiting from RBA and APRA developments on Tuesday

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