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The ASX has lost everything its gained since the US election as investors begin to reassess the new president.
- Woolworths healthy as price war dies: UBS
- Downer still pricey after ‘ripper result’
- Has Coke lost its fizz?
- James Hardie takes a hit in early trading
- Aussie sharemarket optimism evaporates
BusinessNow: live market coverage on Friday, February 3. Ahead: REA and James Hardie earnings, car sales and Chinese manufacturing data.
Scott Murdoch 4.34pm: PineBridge sells out of Eclipx
Eclipx Group’s major shareholder, PineBridge Investments, is believed to have sold out of the vehicle fleet leasing and management group on market today.
The group’s share price is trading at $3.75, up nearly half a per cent, after the major trade cross took place at $3.70.
Almost 14 million shares have traded hands which brokers say reflects the 5 per cent shareholder of PineBridge, a Melbourne-based private equity fund.
The group sold some shares late last year and held the remaining stake in escrow which expired recently.
Eclipx (ECX) shares were trading as high as $4.32.
4.27pm: Aussie sharemarket optimism evaporates
Australian stocks have now lost everything they gained in the global equities rally that followed the election of US president Donald Trump, with the worst week in 13 pulling the local index within reach of the 5600 point level.
Major mining and bank stocks led the local market into negative territory in the afternoon after an initially positive start wore off, as a week’s worth of Donald Trump headlines and half yearly earnings numbers had investors feeling cautious.
At the close the S&P/ASX 200 was 0.4 per cent weaker for the day, at 5621.6 points, below where it was when news broke that Donald Trump was taking the White House.
For the week, the benchmark was down 1.5 per cent.
Technical analysts are nervously watching the 5600 point level — only slightly below today’s close — as many expect a break below that level to trigger further selling.
“We continue to watch the 5600 level in the cash market, as a break here sees price print a lower low and suggests a fairly quick response down to 5525 points,” IG chief strategist Chris Weston said. Read more..
3.25pm: One bond started the weekend too early...
To get a sense of why I literally feel liked I've aged 10 years this morning, just look at this chart of the 10-Year JGB yield... pic.twitter.com/oGrHBwuZSy
— David Ingles (@DavidInglesTV) February 3, 2017
3.15pm: ASX heading for 3-month low
With around an hour remaining in the trading day the local market has dropped well into negative territory, looking certain to record its worst week in 13 as the materials sector loses 2 per cent, energy stocks drop 1 per cent overall and the heavy financial sector slips 0.3 per cent.
At just after 3pm AEDT the S&P/ASX 200 was 0.3 per cent in the red after spending most of the session in positive territory — the index is heading for a 1.5 per cent loss for the week, which will be its worst since early November.
3.00pm: VIDEO: The hidden home loan formula
John Durie 2.40pm: CIMIC bid cleared by ACCC
The ACCC has pre- cleared CIMIC’s $174 million bid for MacMahon Holdings which means the final hurdle is shareholder approval.
The competition regulator reviews some takeovers subject to public reviews, but in other cases it pre-clears the deal because it doesn’t think it will substantially lessen competition.
The combination of CIMIC and MacMahon in the mining services sector was seen to run against the countervailing power of the big mining companies like BHP BIlliton and Rio plus competitors like Downer.
2.34pm: Commodity futures...not so bright
The Year of the Rooster hasn’t been kind to commodities thus far:
Not a great start to the year of the Roosters - CSI 300 -0.8%, Iron ore futurues -3.6%, coal -3.8%, steel -5%
— Chris Weston (@ChrisWeston_IG) February 3, 2017
Stephen Bartholomeusz 2.11pm: Virgin headwinds gather
Virgin Australia may have reported relatively solid underlying profitability for the second quarter but its trading update reflects a significant slowdown in demand and earnings in the first six months of the year.
Virgin said today it had generated an underlying pre-tax profit of $45.9 million in the December quarter, which is a significant improvement on the $3.6m loss it reported for the first quarter.
In the corresponding half of the previous financial year, however, Virgin had underlying pre-tax earnings of $85.1m. The $42.3m total for the first six months of this financial year is therefore $42.8m, or just over 50 per cent, less than it earned in the same half of 2015-16.
1.47pm: Downer still pricey after ‘ripper result’
Credit Suisse has left its rating for Downer EDI unchanged ‘underperform’ despite calling yesterday’s first-half earnings result “a ripper”.
Downer EDI (DOW) yesterday reported a net profit of $78.2 million — up from $72.1m last year — and raised its full-year guidance. Analysts Sam Webb, Andrew Peros and Mark Samter said was “hard to find an area that disappointed”.
At just before 1:30pm AEDT Downer shares were down 2.6 per cent for the day at $6.89 — giving back some of yesterday’s 13.1 per cent gain.
Despite applauding the infrastructure company’s latest set of numbers Credit Suisse is remains sceptical on Downer shares.
“We still struggle to get a valuation close to the share price, hence retain our underperform rating,” the analysts said. “A result like this, however, is unlikely to do much to compel holders to sell, particularly if they feel further earnings upside surprises can be delivered.”
“For us, with decent [earnings per share] growth forecast into fiscal 2018 and trading on ~16x [price to earning multiple] these earnings (vs. historical 10-year average of ~10x) we maintain an Underperform despite raising our target price to A$5.90/share.”
1.18pm: PODCAST: Trump good for Australia?
Is a belligerent freewheeling US president good or bad for Australian investors? Why are there so many class actions on the ASX (Bellamy’s, Sirtex and Spotless in the last week) ...and what is Peter Costello really up to at the Future Fund?
In the first episode of a new weekly podcast James Kirby (Wealth Editor) and Alan Kohler (Business Editor at Large) cover the week’s business, economic and finance news in the Money Cafe podcast.
Listen to this week’s episode below and subscribe on iTunes.
Darren Davidson 1.00pm: Review clears Seven chief Worner
An independent review into allegations of misconduct by Seven West Media chief executive Tim Worner concludes the claims have not been substantiated.
Confirming a report in The Australian this morning, Seven’s board said there are “no grounds to take any further disciplinary action” against Mr Worner, a statement to the ASX disclosed.
12.25pm: Dollar heights take reality check
The Aussie dollar has trickled lower this morning after hitting a fresh three-month high overnight following healthy local trade data and continued selling of the greenback thanks to Donald Trump’s controversial remarks in recent days.
At 12:05pm AEDT local currency was buying US76.48 cents down from last night’s high of US76.96c — its strongest position since November 10.
“The Australian dollar is just so strong at present and easily the best G10 currency over the past month (+6.7 per cent), with AUD/USD trading just shy of US77c (session range of $0.7696 to $. 7582), helped to a degree by yesterday’s trade data, where real net exports could add a touch to growth,” IG chief strategist Chris Weston said.
“With price now coming into the markets preferred sell zone AUD/USD is also firmly on the radar.”
John Durie 12.08pm: Coles strategy: ‘we’re not changing’
Coles boss John Durkan has declared “we are not changing” in the face of increased momentum from rival Woolworths.
He added: “Australian consumers have never had it any better.”
Mr Durkan was speaking after unveiling a series of management changes to boost the performance of the Wesfarmers-owned (WES) supermarket chain.
“Lower prices, better availability and better quality” were the Coles catch words, he told The Australian.
“We’re not changing — we are continuing to invest in our customers and in our service.”
Sarah-Jane Tasker 11.47am: Why Tabcorp chief backs digital revival
Tabcorp (TAH) chief David Attenborough is backing digital expansion to resuscitate retail stores and protect the wagering giant’s market share from online bookmakers, as investments on future growth hit the company’s profit.
Mr Attenborough reported a 28.1 per cent drop in half-year profit to $58.9 million yesterday, with the hit linked to fighting the financial intelligence agency’s legal case against it and Tabcorp’s move on Tatts.
11.30am: Has Coke lost its fizz?
11.00am: Woolies healthy as price war dies: UBS
Woolworths shares have been raised to buy from sell at UBS as analysts become “less negative” on the Australian grocery market and say Woolies is best placed from an investor perspective.
Analysts led by Ben Gilbert say Australian supermarket growth is expected to lift from a 20-year low of 2.8 per cent in 2016 to between 3.2 per cent and 3.7 per cent this year, and see a the chance of a price war falling away.
The upgrade from UBS puts the analysts at odds with peers, with Bloomberg data showing only four buy rating on Woolworths, five holds and six sell ratings. UBS’ revised price target of $27.30 — a long way above its previous $19.10 — also lands above the consensus $26.14.
“While we believe the market will remain competitive, the risk of a price war is falling,” Mr Gilbert said.
Woolworths (WOW) shares have already piled on 14.8 since their December low $22.34 and have this morning gained another 0.8 per cent to $25.49.
“We are becoming less negative on the Australian grocery market, as industry margins start to bottom and the MSCs signal a more rational pricing backdrop. In our view, Woolworths is the greatest beneficiary of our revised sector view, particularly given increasing evidence of improved execution at WW (c80 per cent EBIT). While the market appears to be pricing an improved outlook for WOW, we believe it is slower than UBSe, creating scope for upside. MTS remains our least preferred.”
The elephant in the room, as always, is Aldi, which is expected to continue to steadily growing its market share and put pressure on Coles and Woolies. Given the shape of this market share chart it’s no wonder Metcash is UBS’ “least preferred” choice in the sector.
10.40am: James Hardie hit in early trading
James Hardie (JHX) shares fell as much as 5.7 per cent to a 2.5 month low of $19.61 following the building products maker’s second profit warning in three months.
The company now sees FY17 adjusted net operating profit of $245m-$255m compared to its November forecast of $250m-$270m — a 3.8 per cent downgrade. But 3Q underlying NPAT of $US52.6 was also disappointing.
RBC says it was 5 per cent below their forecast of $US55.2m, due to weaker margins.
“This is clearly a disappointing result that is unlikely to be well received,” RBC’s Andrew Scott says.
“We note that the revised guidance would see negligible growth from JHX in FY17, something that is hard to reconcile with the high PE implied by the current share price.”
“We expect that the market will need to gain comfort that margin issues will not recur in FY18 and that the growth trajectory will resume from thereon.”
JHX last down 3.2 per cent at $20.19.
10.20am: The bank stepping up to the big four
Deutsche Bank has upgraded Suncorp (SUN) to Buy vs. Hold with a $14.00 price target.
It says Suncorp is significantly undervalued versus IAG and QBE.
Suncorp has a 20 per cent PE discount to IAG despite broadly similar products, the broker says.
It concludes that SUN is well placed to be an active consolidator in the regional banking space and should gain partial Advanced Accreditation for its bank this calendar year, allowing it to compete on a level playing field with the major banks and lift its market share in banking.
SUN last up 0.5 per cent at $13.26.
10.00am: Brekky Wrap: Can stocks flick the switch?
Local stocks will be aiming to creep higher this morning, with the ASX currently limping toward its worst weekly result since early November as global investors start to worry Donald Trump’s policies could become more of a problem for markets than first thought.
The SPI 200 futures index is unchanged but fair value is pointing to a 0.2 per cent rise, with BHP Billiton heading for a 1.4 per cent drop, according to its ADRs.
The ASX 200 has lost 1.2 per cent over the last four sessions, which has it on track for its worst week in three months. Half-yearly earnings reports are dragging Aussie eyeballs away from US politics, with numbers from James Hardie, Virgin Australia, Downer EDI and Tabcorp making a splash today and yesterday.
But the Aussie market seems to be needing a lot to get excited at the moment.
“We are staring at a flat equity open in Australia and Japan,” IG chief strategist Chris Weston said.
“Our call for the ASX 200 sits at 5653 points, which brings the weekly fall to 1.1 per cent, unwinding all of last week’s good work.
“Next week the economic data flow is light and while Trump can’t help but stay in the market’s spotlight, Aussie earnings start to ramp up, with a couple of big names in Rio Tinto and Transurban set to report.
“Valuations have come back a touch of late, with the ASX 200 now trading on 15.9x forward earnings, thanks to recent consensus EPS upgrades in the materials space, but there is still little room for disappointment.”
9.40am: Where Brambles sits in Morgans’ books
Morgans has upgraded Brambles (BXB) to Add vs. Hold, targeting $11.61 vs. $11.91 previously, following a similar move from UBS last week when it upgraded to Buy.
That followed the 17 per cent share price slump on the profit warning two weeks ago.
“While the 1H17 trading update was disappointing, we believe the long term fundamentals of the business remain sound and the current issues — US retailer destocking, deferred customer conversions, pricing pressure in recycled pallets business — are not structural and will correct over time,” Morgans analyst Alexander Lu says.
“While some risks remain — uncertainty with new CEO strategy, ability to hit FY19 ROIC target — trading on 18.8x FY17F PE we think the recent drop in the share price creates a good opportunity for longer term investors to accumulate stock in a high quality name.”
BXB last $10.22.
9.32am: James Hardie earnings to disappoint
James Hardie expects its full year earnings figures to undershoot analyst expectations and its earlier estimate as it warned investors that the US housing market remains “uncertain” and cited manufacturing inefficiencies.
The building materials company (JHX) noted analyst predictions of a full-year result of between $US252 million and $US269m, but warned it will produce a figure between $US245m and $US255m down from its earlier estimate of $US250-$US270m.
Third quarter adjusted net profit is reported to be $US52.6m — down 6 per cent year-on-year.
Paul Garvey 9.25am: Mining exports smash record
The nation’s mining industry has entered a new boom after delivering a record set of monthly exports, positioning the sector for a resurgent profit season.
The latest figures from the Australian Bureau of Statistics yesterday showed that the nation’s mines exported a record $13.4 billion of metals and coal in December, smashing the previous record of $12.4bn set in December 2013, when the last mining boom was in full swing.
The sharp rise in exports — which represents more than double the $6.4bn worth of coal and metals sold in January last year — was driven by a dramatic surge in coal prices, continued strength in other commodities, especially iron ore, and record export volumes as projects built during the last boom crank up.
9.15am: Broker ratings changes
Woolworths (WOW) raised to Buy vs. Sell — UBS
Brambles (BXB) raised to Add vs. Hold — Morgans Financial
Eastern Goldfields (EGS) initiated at Add; A$0.50 target price — Morgans Financial
Downer (DOW) target price raised to $7.45 vs. $6.50; Outperform rating kept — Macquarie
9.00am: Unearthing the robust mining outlook
Deutsche Bank strategists Tim Baker and Joseph Kim have five reasons to stay “dug into miners”.
First, the miners are still in an earnings upgrade cycle. Spot commodity prices imply that the consensus earnings forecasts for the miners could be increased by more than 50 per cent. And many of Australian miners would be trading on single-digit price-to-earnings ratios if spot prices were incorporated into analyst forecasts.
Spot commodity pricing would put BHP Billiton on a forward PE ratio of 12 times and Rio Tinto on seven times. South32 would be on nine, Fortescue Metals on four and Whitehaven Coal on six. Interesting on that score on Thursday were Australia’s international trade data showing that the combined trade surplus for November and December was more than 70 per cent higher than economists expected, mostly because of higher commodity export volumes and prices.
8.40am: Trump woes weigh on US close
US stocks ended little changed on Thursday as the recent rally continued to stall following President Donald Trump’s latest comments on trade and the policies he will pursue.
The S&P 500 traded at levels it was six weeks ago, losing steam as investors focus on Trump’s priorities, such as restricting travel to the United States and rewriting trade deals.
Markets had run up sharply following Trump’s Nov. 8 election win on the expectation that tax cuts, deregulation and a fiscal stimulus would accelerate economic growth.
“The market had only priced in the potentially good type of policies like tax cuts,” said Arian Vojdani, investment strategist at MV Financial in Bethesda, Maryland.
“Now we’re seeing potential protectionist and populist sentiment really come out and take the front seat. That could be bad for the world economy and that’s why markets are taking a step back.”
The Dow Jones Industrial Average fell 6.03 points, or 0.03 per cent, to 19,884.91, the S&P 500 gained 1.3 points, or 0.06 per cent, to 2,280.85 and the Nasdaq Composite dropped 6.45 points, or 0.11 per cent, to 5,636.20.
“There’s a lot of noise and we have to try at best to look at fundamentals,” said Vojdani.
Earnings of S&P 500 companies are estimated to have risen 7.5 per cent during the last quarter of 2016 — the most in nine quarters, according to Thomson Reuters I/B/E/S data.
After the closing bell, Amazon shares fell 3.7 per cent as the retailer’s revenue missed analyst estimates. The company forecast a bigger-than-expected fall in operating income for the current quarter.
Reuters
8.13am: ASX set for flat Friday
The Australian market looks set to open flat, following a rocky night on Wall Street where shares were in and out of negative territory.
At 7.03am (AEDT) on Friday, the share price futures index was unchanged at 5,598. In the US, stocks reversed course and were up slightly on Thursday, as a rise in consumer shares helped offset losses in financials, but investors remained cautious over President Donald Trump’s isolationist policies. But the major indexes later did another about-turn and headed back into the red, with the Dow Jones Industrial Average down 0.18 per cent, the S&P500 0.12 per cent worse off and the Nasdaq having dropped 0.21 per cent by 7.30am AEDT.
Meanwhile, the Australian dollar has extended its gains after soaring past the 76 US cent mark after the trade data.
The local currency was trading at 76.61 US cents at 0703 AEDT on Friday, from 76.43 on Thursday.
7.09am: US stocks slip as financials weigh
US stocks edged lower Thursday, as declines in financial shares offset gains in the shares of consumer staples companies.
As of 7.06am (AEDT), the Dow Jones Industrial Average was down 28 points, or 0.1 per cent, to 19,862. The S&P 500 had lost 0.1 per cent and the Nasdaq Composite was down 0.2 per cent.
U.S. indexes have pulled back in recent sessions as investors have tried to weigh President Donald Trump’s protectionist policies against the possibility of tax cuts and fiscal stimulus. The Dow industrials, S&P 500 and Nasdaq Composite are on course for weekly losses.
Dow Jones Newswires
7.01am: Australian dollar continues to soar against greenback
The Australian dollar has risen above the US76.50 cent mark, continuing its strong gains against its US counterpart.
At 6.35am (AEDT) on Friday, the Australian dollar was worth US76.59c, up from US76.43c from Thursday.
The local currency has been an outperfomer on the world stage, extending Thursday’s trade data-related rally when it soared above the US76c-mark and reached a two-and-a-half-month high.
Australian Bureau of Statistics data on Thursday showed that Australia’s trade surplus for December skyrocketed 72 per cent to a record $3.5 billion, primarily on the back of surging commodity prices.
Meanwhile, the greenback fell on Thursday to its lowest since mid-November after the Federal Reserve gave no hint on its next interest rate rise and aggressive language from President Donald Trump’s administration kept investors focused on geopolitical risk.
However, the US dollar index was unchanged on the day.
The Aussie has also enjoyed a stellar rise against the euro and the yen.
AAP
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