MID MORNING MARKETS 03-06-19

The ASX 200 is down 41 points in mid morning trade, extending the Mexican trade drop. Gold looks shiny, oil slippery. MTS supply agreement, NWH in trading halt. House prices and PMI numbers today/tonight. #ausbiz

m1m2m3TODAY

  • Economic data – AIG Manufacturing Index, CommBank Australia Manufacturing PMI Final, ANZ Job Advertisements, Company Gross Profits, Business Inventories
  • Ex-dividend – ALS (ALQ)11.5c, NAOS Ex-50 Opportunities Company (NAC)1.4c, NB Global Corporate Income Trust (NBI) 0.9c, NAOS Small Cap Opportunities Company (NSC) 1.0c,
  • Japan – Capital Spending, Nikkei Manufacturing PMI
  • Chinese – Caixin Manufacturing PMI

TONIGHT

  • European – Markit Manufacturing PMI Final
  • UK – Markit/CIPS Manufacturing PMI
  • US economic data – ISM Manufacturing Index and Construction Spending

COMPANY NEWS

  • Metcash (MTS) – Has entered into an agreement with Drakes Supermarkets to supply its QLD stores for a further five years.
  • ANZ – Completed sales of OnePath Life to Zurich. 500 staff have moved from ANZ to Zurich.
  • NWH in a trading halt in relation to an update in respect of NRW’s mining contract with Gascoyne Resources (GCY).
  • Brambles (BXB) – Has completed the sale of its IFCO RPC pooling business

BROKER CHANGES

  • Boral Limited (BLD) – Investor Day did not include specific guidance.
    • Credit Suisse has downgraded to an Underperform (from Neutral) recommendation with a target price of $4.40 (from $4.80). CS suspects that given weak residential activity in both Australia & the US and poor weather in the US, a result in line with guidance would be good. Management has conceded the growth in infrastructure and non-residential activity would not be offsetting the decline in residential activity in FY20. Weakness is expected to be particularly acute in NSW, the company’s largest revenue region. The analyst has reduced FY20 EBIT estimates by 17%.
    • Deutsche Bank has a Buy recommendation with a target price of $6.70. No change to FY19 guidance, although the analyst notes a strong June is required. They are happy with the operating efficiencies and property segment and continue to envisage long-term value. Projects delayed in the first half are now largely on track.
    • Macquarie has an Outperform recommendation with a target price of $5.95. Only suggestion is that progress is in line with expectation. Weather is an issue and market conditions are slowing, implying a response required in costs. The analyst suggests delivering on FY19 expectations should lead to a re-rating given the stock is trading near a historical discount to the industrials index.
    • Morgan Stanley has an Overweight recommendation with a target price of $6.50. The analyst asserts that No news is good news, New cost reduction targets should help to offset softer Australian demand. Longer term, they like the Australian infrastructure exposure and envisages upside from the US, particularly in fly ash.

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  • Freedom Foods (FNP) – Morgans has a Hold recommendation with a target price of $5.52 (from $4.90). The analyst has updated forecasts to account for the capital raising and the capacity expansion in nutritionals as well as the downgrade to FY19 sales guidance. From the proceeds of the capital raising of $130.5m, $100m will be used to accelerates capital expenditure in nutritional ingredients. Sales are now targeted at $480-490m for FY19, while margins in the second half are expected to be higher than the first half.

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  • Eclipx (ECX) – Results
    • Credit Suisse has upgraded to an Outperform (from Neutral) recommendation with a target price of $1.40 (from 88c). CS believes the strong positive reaction share price response stems mainly from evidence that the underlying fleet and novated lease business is holding a relatively flat trajectory. There is increased comfort that the company should be able to repair its balance sheet. Disposal of the non-core businesses, Right2Drive, Grays and commercial equipment finance, should enable a reduction in debt.
    • Macquarie has an Outperform recommendation with a target price of $1.66 (from $1.06). The analyst anticipates the completion of a capital structure review come Aug/Sep, a resetting of  debt facilities to reflect the new model and any news on asset sales. They think the company has corporate appeal and successful execution of the restructure should make the stock more attractive.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $1.00. First half results were well below expectations. The analyst notes the core fleet and novated lease business performed in line and, given the tough trading environment, provided a respectable result. The non-core business did underperform and any potential disposal of these units should be taken positively.

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THIS WEEK

RBA Meeting on Tuesday with retail sales, GDP data on Wednesday (exp 0.3%/2.5% from 0.2%/2.3% previously), trade data on Thursday and housing finance on Friday.

  • China – Caixin PMI numbers and fx reserves
  • Japan – Nikkei PMIs
  • Europe – PMIs, unemployment, inflation, retail sales, GDP and ECB meeting
  • UK – PMIs
  • US – ISM index,

LAST WEEK

GLOBAL MARKETS LAST WEEK – Does “wild” cover it?. S&P500-2.62%, Stoxx600 -1.82%, oil -9.6%, Chinese market up on stimulus hopes. US 10yr yield down 20bp to 2.12%.

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DOMESTIC MARKETS LAST WEEK – XJO outperformed global peers, Small caps slightly outperform. Telcos and Banks ok. Defensives (staples, REITS, Utilities) worst (???). Wish I had put money somewhere near mouth on LYC.

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OVERNIGHT

m10m11

SPI FUTURES -24

US EQUITIES – S&P 500 -37 (-1.32%), Dow -355 (-1.41%), NASDAQ -115 (-1.51%).

Major themes

  • Treasuries rally and shares sell-off after President Trump announces a 5% tariff on Mexican imports from June 10.

EUROPEAN MARKETS – All higher. STOXX600 +0.42%, German DAX +0.54%, French CAC +0.51%

CURRENCIES

  • The USD is lower at 97.61.
  • The Aussie dollar is also little changed at US69.36.

BONDS – 2-yr: -12 bps to 1.94%, 3-yr: -12 bps to 1.90%, 5-yr: -10 bps to 1.93%, 10-yr: -9 bps to 2.14%, 30-yr: -7 bps to 2.58%

COMMODITIES

  • Oil – WTI futures fell 5.5% to US$53.50 on continued trade concerns.
  • Iron Ore – IRESS has iron ore unchanged at US$108.50 a tonne. CommSec has iron ore down US$1.90 or 1.9% to US$99.80 a tonne.
  • LME metals – Mixed. Cu -0.66%, Ni -1.03%, Al +0.59%

ECONOMIC DATA, NEWS & POLITICS

  • Mexican tariff – The initial tariff of 5% will start on June 10 and will continue increasing every month until it reaches 25.0% on October 1. The tariffs could be lifted if the White House decides that Mexican officials have done enough to curb the flow of illegal immigrants from Mexico into the US.
  • US economic data – April Personal Income 0.5% (consensus 0.3%; prior 0.1%), April Personal Spending 0.3% (consensus 0.2%; prior 1.1%), April PCE Price Index 0.3% (consensus 0.3%; prior 0.2%) to be +1.5%yoy (from 1.4%), and April Core PCE Price Index 0.2% (consensus 0.2%; prior 0.1%) to be +1.6%yoy (from 1.5%); Chicago PMI 54.2 (last 52.6); Final Michigan Consumer Sentiment Survey 100.0 (consensus 101.5; prior 102.4)
  • China – The Ministry of Commerce announced that a list of unreliable foreign entities will be compiled.
  • European data – German Retail Sales -2.0% (expected 0.4%; last -0.2%) +4.0%yoy (expected 1.1%; last -2.0%); Italian Q1 GDP growth revised down to 0.1% (expected 0.2%) from 0.2% and -0.1%yoy (expected 0.1%) from 0.1%.

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