MID MORNING MARKETS 06-06-19

The ASX 200 is up 35 points in mid morning trade after another strong night. Yielding utilities and AREITS best, Energy and Materials worst, banks ok. NEA goes 3D, APT update, Trade data for us, EBC meets tonight. #ausbiz

m1m2m3TODAY

  • Economic data – Exports/Imports, Balance of Trade
  • Ex-dividend – Gentrack Group (GTK) 4.7c, Kathmandu Holdings (KMD) 3.3c, OFX Group (OFX) 3.3c

TONIGHT

  • European data – Employment Change, GDP Growth Rate (3rd Est)
  • ECB Interest Rate Decision
  • US economic data – Trade Balance, Productivity-Rev., Unit Labor Costs – Rev.

COMPANY NEWS

  • Santos (STO) – y announced the Dorado-2 appraisal well has confirmed a major oil and gas resource in the Bedout Basin, offshore Western Australia. “This is a great result which indicates the Dorado discovery is larger than anticipated and which significantly de-risks a future development.”
  • Afterpay (APT) – Business update. Underlying sales were approximately $4.7 billion in the 11 months to 31 May 2019 (unaudited), up 143% on the prior comparable period; There are over 4.3 million active customers transacting with Afterpay as at the end of May, growing at an average of approximately 7,900 new customers per day since 31 December 2018; Further, Afterpay has partnered with approximately 30,600 active merchants as at the end of May, up 7,400 or 32% on 31 December 2018.

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  • Rio Tinto (RIO) – Exploration Update on the Winu project. Additional data. Results continue to indicate relatively wide intersections of vein style copper mineralisation associated with gold and silver beneath relatively shallow cover which ranges from 50 to 100 metres. While results continue to be encouraging, the exploration project is still at an early stage and drilling to date does not allow sufficient understanding of the mineralised body to assess the potential size or quality of the mineralisation nor to enable estimation of a Mineral Resource.
  • Bank of Queensland (BOQ) – George Frazis has been appointed Managing Director & CEO. Previously Chief  Executive of the Consumer Bank at Westpac. In this role he had responsibility for consumer distribution, digital, marketing, transformation and banking products and services for Westpac, St George, Bank SA, Bank of Melbourne and RAMS.
  • Fletcher Building (FBU) – Hamish McBeath, currently the Chief Executive of Steel, has been appointed Chief Executive Building Products, a portfolio which will also now include the Steel Division.
  • Nearmap (NEA) – Has launched Nearmap 3D, its 3D online and Beta verions AI products.
  • Iluka (ILU) – Strategic partnership with International Finance Corporation (IFC) in relation to ILU’s Sierra Rutile operation. Under the terms agreed, IFC will subscribe to new shares equivalent to a 10% stake in Sierra Rutile for US$60m.

BROKER CHANGES (from yesterday)

  • Coca-cola (CCL) – Deutsche Bank has a Hold recommendation with a target price of $8.00. The profit on the sale of the SPC business is expected to be around $10-15m. Given CCL effectively wrote the value down to zero this is better than the analyst expected.

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  • CSL – UBS has a Buy recommendation with a target price of $223.00. The latest monthly data in the US show IG growth remains robust at 8.8% while haemophilia softness has broadened. The results are in line with UBS’s CSL forecasts. The see key catalysts ahead as the result in August, resolution of albumin licencing issues in China and the next round of data.

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  • Fletcher Building (FBU) – Sale of Formica completed with revised guidance of NZ$620-650m, versus NZ$650-700m at the half-year result
    • Credit Suisse has a Neutral recommendation with a target price of NZ$5.43 (from NZ$5.28). They notes this completes the divestments of international assets and FBU will end FY19 with a strong balance sheet and, while this provides some options with respect to capital management, a conservative approach is likely.
    • Morgan Stanley has an Equal-weight recommendation with a target price of NZ$5.00. The analyst was not surprised by the reduction but believes the completion of the sale will return the balance sheet to a healthier, albeit under-leveraged, position. The company will hold an investor briefing on June 26 when capital management could be announced. The broker suspects this is likely to be a buyback.
    • UBS has a Neutral recommendation with a target price of NZ$5.15. The analyst asked whether the company can add value with the proceeds or whether a historically low multiple is justified. They think the guidance downgrade also reflects margin pressure in steel.

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  • Select Harvests (SHV) – UBS has a Neutral recommendation with a target price of $7.25 (from $6.65). The analyst says SHV has posted an “exceptionally strong” crop performance, 11% above previously upgraded guidance, thanks to ideal conditions, new technology and risk mitigation investment in, for example, frost fans. While it faces higher costs for leasing and water, this can be offset by strong performance and lower processing costs. US-China trade relations offer volatility in almond pricing but no changes to price forecasts.

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  • Vocus (VOC) – Deutsche Bank has a Hold recommendation with a target price of $3.90 (from $4.70. The analyst is not surprised that EQT has withdrawn its indicative proposal at $5.25, but considers this an incremental negative as Vocus has now received four unsuccessful bids in the last two years. Despite the withdrawal, the tihnk takeover interest continues and now incorporates a 15% takeover premium into the valuation.

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  • Village Roadshow (VRL) – Citi has a Buy recommendation with a target price of $3.90 (from $3.75). The analyst thinks VRLS’s plan to invest $50m over the next 18 months to develop three new attractions at Sea World and improve customer experience at its theme parks could result in market share gains. VRL is their top pick in the small cap leisure sector.

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OVERNIGHT

m10m11

SPI FUTURES +21

US EQUITIES – S&P 500 +23 (+0.82%), Dow +207 (+0.82%), NASDAQ +48 (+0.64%).

Major themes

  • Continued optimism about the potential for rate cuts, after Jerome Powell made comments confirming the Fed would do what it must to “sustain the expansion”
  • More positive rhetoric on the new Mexican tariff proposal – White House trade advisor Peter Navarro said earlier on Wednesday that US levies on Mexican goods “may not have to go into effect” depending on how talks between the two countries go.
  • Also talks between Steven Mnuchin and PBoC Governor this weekend.
  • Apple +1.61% after CEO Tim Cook it had not been targeted by China amid rising US-China trade fears.
  • Weaker than expected ADP Employment Change 27,000 (consensus 170,000; prior 275,000. The worst since March 2010.
  • Chinese growth downgraded – The IMF lowered its forecast for 2019 GDP growth in China to 6.2% (from 6.3%) and for 2020 growth to 6.1% (from 6.2%). The Fund expects that growth in China will slow to 5.5% by 2024. The IMF also warned that US-Chinese tariffs could wipe 0.3% off global growth in 2020, with 0.5% if threatened tarfiss were introduced.

EUROPEAN MARKETS – All higher. STOXX600 +0.38%, German DAX +0.08%, French CAC +0.45%

CURRENCIES

  • The USD is higher at 97.30.
  • The Aussie dollar has eased to US69.66.

BONDS – 2-yr: -5 bps to 1.83%, 3-yr: -4 bps to 1.80%, 5-yr: -2 bps to 1.86%, 10-yr: UNCH at 2.12%, 30-yr: +2 bps to 2.62%

COMMODITIES

  • Oil – WTI futures closed down 3.4% to US$51.68 (after hitting the lowest level since January of US$50.66) after EIA inventories rose 6.8mb (exp -649K barrels). US production hit an all time high of 12.4mbpd for the week.
  • Gold futures rose 0.4% to US$1,330.60
  • Iron Ore – IRESS has iron ore up US50c at US$106.00 a tonne. CommSec has iron ore unchanged US$99.90 a tonne.
  • LME metals – Mixed. Cu -1.65%, Ni -0.85%, Al -1.06%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Weekly MBA Mortgage Index 1.5% (prior -3.3%), May ADP Employment Change 27,000 (consensus 170,000; prior 275,000); May ISM Non-Manufacturing Index 56.9 (consensus 55.4; prior 55.5)
  • Chinese growth downgraded – The IMF lowered its forecast for 2019 GDP growth in China to 6.2% (from 6.3%) and for 2020 growth to 6.1% (from 6.2%). The Fund expects that growth in China will slow to 5.5% by 2024.
  • China’s Caixin Services PMI decreased to 52.7 in May (expected 54.3) from 54.5.
  • GDP yesterday – +0.4% (expected 0.5%; last 0.2%) to be 1.8%yoy (as expected, last 2.3%). May AIG Services Index increased to 52.5 from 46.5 while May Services PMI increased to 51.5 (expected 52.3) from 50.1.
  • UK politics – A new prime minister will be named before the week of July 22.
  • European data – Retail Sales -0.4% (as expected, last 0.0%) to be +1.5%yoy (as expected, last 2.0%). May Services PMI 52.9 (expected 52.5, previous 52.5).

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