MID MORNING MARKETS 08-08-19

The ASX 200 is down 35 points in mid morning trade despite a rebound in the US. The enthusiasm has been short-lived. AMP new strategy, cap raising, impairment and revised life sale, AGL guidance disappoints. IAG dividend disappoints. Chinese trade ahead. #ausbiz

m1m2m3TODAY

  • Reports – AMP, AGL Energy (AGL), Mirvac (MGR), Insurance Australia Group (IAG)
  • Ex-div – Milton Corporation (MLT) 10.4c, Rio Tinto (RIO) 307.6c
  • RBA Bullock Speech
  • Japanese data – Current Account, Eco Watchers Survey Current /Outlook, Bank Lending
  • Chinese trade data – Balance of Trade, imports/Exports,

TONIGHT

  • US – Wholesale Inventories

COMPANY NEWS

  • AMP – New strategy – 3 year strategy to reinvent the business. Focus on funding growth, cost reductions and fixing legacy issues. Cost reduction program to achieve $300m annual run-rate savings by FY 22. Results – Underlying profit of $309m. No dividend – but will begin at 40-60% payout ratio once sale of AMP Life is completed. Impairment – $2.35bn impairment to rest the business (wealth management). Revised agreement for sale of AMP Life: Consideration of $3.0bn, comprising $2.5bn in cash and $500 million equity interest (expected to be around 20 per cent) in Resolution Life Australia, a new Australian-domiciled, Resolution Life-controlled holding company that will become the owner of AMP Life. The sale is now expected to complete in 1H 20. Subject to regulatory approvals in Australia, New Zealand and China. Capital Raising – Has announced a fully underwritten A$650 million Institutional Placement (“Placement”); and a non-underwritten Share Purchase Plan. Bookbuild with a floor price of $1.50.
  • Lendlease (LLC) – Second Class actions on behalf of shareholders who purchased an interest between 17 October 2017 and 25 February 2019.
  • ASL (ALQ) – Has acquired Laboratorios de Control ARJ S.A de C.V, based in Mexico City,Revenues over $30m.
  • IAG – Net profit up 16.6% Dividend cut and only 70% franked. FY Guidance: GWP growth in low single digit and reported insurance margins of 16-18%. Asia update – discussion had been held with external parties regarding a potential sale of all or part of its 26% interest in SBI General in India. IAG is in advanced discussions with a number of bidders, which may result in one or more transactions being completed.

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  • AGL – Underlying profit up 2% to $1,040m but statutory profit down 43% to $905m. Dividend of 64c. Onmarket buyback of up to 5% of shares. Guidance for Underlying Profit after tax of between $780 million and $860 million in FY20. Drop due to outage at Loy Yang (impact of $80-100m at top end of range previously provided); higher depreciation charges; ongoing headwinds such as lower wholesale prices for electricity and renewable energy generation certificates, increasing fuel costs as coal costs escalate and legacy gas contracts mature, and the re-regulation of retail standing offer electricity prices via the Default Marker Offer and Victorian Default Offer.
  • Kathmandu (KMD) – Trading update. Pleased considering cycling strong growth in key winter period last year. The Company is expecting: Total sales of NZ$545 million, up 9.6% on FY2018; Group same store sales (SSS) growth of +0.6% at constant exchange rates (Australia SSS up +2.7%, New Zealand SSS down -3.9%); Normalised EBIT to show 10.6-12.6% growth to NZ$82.5 million and NZ$84.0 million (FY2018: NZ$74.6 million); Normalised1 NPAT of between NZ$55.5 million and NZ$57.0 million (FY2018: NZ$50.5 million);  Net debt NZ$19.2 million (FY2018: NZ$31.4 million)

OVERNIGHT

m10m11

SPI FUTURES -11

US EQUITIES – S&P500 +2 (+0.08%), Dow Jones -22 (-0.09%), NASDAQ +30 (+0.38%)

Main themes

  • Strong rebound in the market
  • Bond yields fall, oil down 4.75 and gold above US$1,500 an ounce
  • Financial sector worst performer due to yield flattening
  • Rate cuts from three central banks in the Asia-Pacific region – Reserve Bank of India, Reserve Bank of New Zealand, and Bank of Thailand

EUROPEAN MARKETS – All stronger. STOXX600 +0.24%, UK FTSE +0.38%, German DAX +0.71%, French CAC +0.61%. Weak German industrial production -1.5% (exp -0.5%) led to a further fall in German bunds to -0.6%

CURRENCIES

  • The USD is a little lower at 97.52.
  • The Aussie dollar is a touch higher at US67.72c after hitting a low of 66.77 yesterday.

BONDS – 2-yr: -3 bps to 1.58%, 3-yr: -4 bps to 1.51%, 5-yr: -4 bps to 1.50%, 10-yr: -6 bps to 1.68%, 30-yr: -7 bps to 2.20%

COMMODITIES

  • Oil – WTI futures were down 4.7% to US$51.09 on continuing concerns about global growth, as well as a surprise increase in US oil stockpiles (+2.4mb instead of a draw of 2.8mb expected, following 7 weeks of drawdowns).
  • Gold futures were up 2.2% to US$1,522.70 an ounce to a 6 year high
  • Iron Ore – CommSec has iron ore down US$5.10 or 5.2% to US$92.80 a tonne.
  • LME metals – Mixed. Cu +0.57%, Ni +2.51%, Al -0.31%.

ECONOMIC DATA, NEWS & POLITICS

  • Central bank rate cuts – NZ, India and Thailand all cut interest rates yesterday, citing weaker economic growth in one way or another. India’s central bank noted inflation growth was mild and needed to boost the country’s economy. New Zealand’s central bank said lower rates were “necessary to continue to meet its employment and inflation objectives.” The Thai central bank said it expected economic growth to slow.
  • Reserve Bank of New Zealand – lowered the official cash rate by 50 bps to 1.00% (expectations called for a 25-bps cut). Governor Adrian Orr said that future action on rates cannot be ruled out and that that negative rates may have to be considered.
  • Reserve Bank of India – lowered the repurchase rate by 35 bps to 5.40% and cut its reverse repo rate by 35 bps to 5.15%. The cuts were 10 bps larger than expected.
  • Bank of Thailand – unexpectedly cut its repurchase rate by 25 bps to 1.50%.
  • Australian data – June Home Loans -0.9% m/m (expected 0.6%; last 0.0%)
  • Italian economy – Deputy Prime Minister, Matteo Salvini, cautioned that Italy’s deficit-to-GDP ratio will not be below 2.0% in 2020.
  • European economic data – German June Industrial Production -1.5% (expected -0.5%; last 0.1%); UK Halifax House Price Index -0.2% (expected 0.3%; last -0.4%) to be +4.1%yoy (expected 4.4%; last 5.7%); French trade deficit €5.20bn (expected deficit of €4.00bn; last deficit of €3.30bnn). June Current Account deficit €800m (expected €560m; last €300m).

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