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UBS says there’s still global equity optimism, but are the market’s Trump fears amassing?
- Why the Trump honeymoon is over
- Local sharemarket defies US jitters
- The stocks in an upbeat UBS portfolio
- OFX vulnerable, but not broken: Macquarie
- Trump weight on plasma could hit CSL
BusinessNow: live market coverage on Wednesday, February 1st. Ahead today: GUD Holdings first-half earnings, ABS cost of living data, AIG’s manufacturing index, CoreLogic’s monthly home prices and China’s January PMI.
5.22pm: Tokyo shares lift on bargain hunting
Tokyo shares closed higher on Wednesday on bargain-hunting after two days of losses and as a rise in the value of the yen fizzled.
The benchmark Nikkei 225 gained 0.56 per cent, or 106.74 points, to 19,148.08, while the Topix index of all first-section issues was up 0.40 per cent, or 6.10 points, at 1,527.77. AFP
4.45pm: Local sharemarket defies US jitters
The Australian share market rallied today following a poor start to the week, as the resources sector’s return to form helped defy offshore jitters around Donald Trump’s policies.
The S&P/ASX 200 finished the session 0.6 per cent higher at 5653.2 points, rebounding from a cumulative 1.6 per cent loss over Monday and Tuesday.
The energy and materials sectors led the rally, gaining 1 per cent and 0.8 per cent respectively, while financial stocks rose 0.5 per cent.
“Buying support for mining stocks has offset ongoing profit taking in banks, allowing the ASX 200 index to nervously hold the line in early trade following two weak days,” CMC Markets chief analyst Ric Spooner said.
Elsewhere, the falling US dollar was front of mind for the market, with Donald Trump turning up the heat on currency markets with remarks suggesting Japan, China and Germany were benefiting from weaker currencies. The US dollar slipped to two-month lows on his comments.\
Richard Gluyas 4.26pm: The new role driving ANZ strategy
Prize ANZ Bank recruit Maile Carnegie’s digital strategy is starting to take shape, with the return of products and marketing chief Matt Boss to the US triggering a split in his role and a much deeper focus on data analytics.
Kath Bray, who negotiated ANZ’s successful Apple Pay deal and previously reported to Boss, has been promoted to managing director of products, reporting to CEO Australia Fred Ohlsson.
The more telling appointment given chief executive Shayne Elliott’s determination to leave a digital legacy is the recruitment of Emma Gray as chief data officer.
The new role was created after a December meeting of the ANZ executive committee considered how best to use and manage the unquantifiable amount of data that the bank collects about its customers.
3.55pm: Aussie steady amid US proclamations
James Glynn writes:
The Australian dollar was little changed in Asia on Wednesday, with attention focused on the White House and rising currency and trade concerns.
At 3.10pm (AEDT), the Australian dollar was at US$0.7560, compared with US$0.7566 in Asia late Tuesday.
The Trump administration cranked up the tension in currency markets overnight with remarks suggesting Japan, China and Germany were benefiting from weaker currencies, comments that pushed the U.S. dollar to two-month lows in early Asian trade Wednesday.
“Every other country lives on devaluation,” President Donald Trump said at a meeting with U.S. pharmaceutical executives. “They play the devaluation market and we sit there like a bunch of dummies.”
Separately, a U.S. trade adviser told the Financial Times that Germany was using a “grossly undervalued” euro to gain an advantage over trading partners, including the U.S.
The comments sent the dollar lower against the yen, euro and other rivals, and prompted responses from officials in Germany and Japan, who rebutted the claims — read more.
Wall Street Journal
3.30pm: China’s PMI points to stable growth
AMP Head of Investment Strategy Shane Oliver’s take on China’s December PMI figures released today:
China official manu PMI -0.1 to 51.3, > exp & still in uptrend. Non-manu PMI +0.1pt to 54.6. Solid & points to stable growth(6.5-7% for GDP)
— Shane Oliver (@ShaneOliverAMP) February 1, 2017
3.18pm: Citi cuts Telstra earnings forecast
Telstra’s (TLS) strong hold on the mobile market will be under scrutiny and pressure this year, with the possibility of a new competing network and regulatory intervention, according to analysts at investment bank Citi.
Citi — which has cut its earnings forecasts ahead of Telstra’s interim results on February 16 — says a government-run spectrum auction in April, from which Telstra is excluded, could enable the entry of a fourth mobile network and further tighten competition — read more.
AAP
2.54pm: Why the Trump honeymoon is over
Donald Trump’s honeymoon with the markets is over.
It doesn’t mean the Australian share market can’t still reach 6000 points this year, but until investors see something positive to focus on — like a firm commitment to major US fiscal stimulus, or stronger-than-expected earnings reports and capital management from Australian corporates — the recent optimism about the new US president could swing to fear.
Mr Trump’s executive orders to build a wall against Mexico and halt immigration from seven predominantly Muslim countries were in line with his pre-election stance, and for two months the markets didn’t worry about the implications of his hard-line positions on borders and trade.
2.40pm: The stocks in an upbeat UBS portfolio
Global equity markets remain in “glass half full mode”, according to UBS equity strategist David Cassidy, despite many investors fidgeting nervously as Donald Trump wastes no time throwing his weight around as President.
“Considerable policy uncertainty in respect of the new Trump administration” hasn’t been able fully knock the wind out of market sails yet, he says.
“This reflationary backdrop is supportive of equities, albeit equities don’t look particularly cheap in an absolute sense. Potential risks over coming months would appear to be either policy risk (President Trump emphasising protectionism over tax and infrastructure stimulus), or the seemingly improving global growth pulse fading yet again,” Mr Cassidy said.
With this in mind UBS has added Boral (BRL), Computershare (CPU), Origin Energy (ORG) and Woolworths (WOW) to its portfolio, and removed Brambles (BXB), Caltex Australia (CTX), Healthscope (HSO) and Incitec Pivot (IPL).
John Durie 2.30pm: Too late for the supermarket bandwagon?
The bandwagon behind Brad Banducci and Woolworths is building fast as retail analysts jump on board forecasting better earnings for the supermarket sector as a whole this year.
Some would argue the latter day converts have left their run too late but in the competitive market there is a certain safety in numbers which makes it easier to be on the buy side when everyone else is.
Some would use the recent rush behind Banducci as a classic example of the herd mentality which runs the sharemarket but Banducci and his chair Gordon Cairns are unlikely to let that worry them and are simply happy to be a market darling again.
Whether they remain as such of course depends on execution, which explains the caution at news the company had hired former Tesco executive Claire Peters as the new supermarkets boss.
Stephen Batholomeusz 2.14pm: Trump’s latest currency manipulators
The Trump administration’s war on everyone and everything continues to widen. Now Germany has joined China, Mexico and Japan in being labelled a currency manipulator by the US.
That’s despite the fact that Germany doesn’t actually have a currency of its own, having abandoned the Deutsche Mark a decade-and-a-half ago in favour of the euro.
Trump’s key adviser on trade, Peter Navarro, head of the new US National Trade Council, told the Financial Times yesterday that the euro was like an “implicit” Deutsche Mark whose grossly low valuation gave Germany an unfair advantage over its trading partners.
Damon Kitney 1.30pm: Fairfax King-hit on bribery claim
Fairfax Media has unreservedly apologised to Wal King after settling a potential multimillion-dollar defamation action launched by the former long-serving chief executive of Leighton Holdings over a series of articles alleging his involvement in bribery and corruption activities in Iraq while he was CEO.
Reports in The Age, The Sydney Morning Herald and The Australian Financial Review in late 2013 implicated the former Leighton boss through a note allegedly written by then Leighton Holdings acting chief executive David Stewart in November 2010.
It alleged Leighton International chief executive David Savage had told him Mr King had approved $42 million in kickbacks to Monaco-based Unaoil on a project in Iraq.
1.20pm: Sirtex given ultimatum by lawyers
Sirtex Medical (SRX) has been given a deadline to enter settlement talks with lawyers alleging shareholders were misled by the company’s strong sales forecasts. Law firm Portfolio Law has told Sirtex it will commence proceedings in the Federal Court if the company fails to indicate by midday on February 6 that it wants to discuss a settlement.
The proposed legal action is linked to Sirtex’s statement in August that it would achieve double digit dose sales growth in the 2016/17 financial year, a forecast it downgraded on December 9.
Sirtex shares plunged 37 per cent on the day it lowered its expectations for sales growth and warned full year earnings were anticipated to decline 12 per cent.
AAP
Elizabeth Redman 12.40pm: CoreLogic says home price growth to slow
Dwelling values in almost all capital cities rose in January, with the largest monthly gains posted in Hobart, Sydney and Melbourne, according to figures from CoreLogic.
Sydney dwelling values were a standout, up 1 per cent in the month and 2.7 per cent over the three months to the end of January, having now soared 70.5 per cent since June 2012, the research showed.
In aggregate, capital city dwelling values increased 0.7 per cent in January, with every capital city except Darwin posting gains.
12.25pm: Live Q&A: Investing in Trump’s America
The inauguration of Donald Trump last month marked the single most important investment event since the global financial crisis, however we still don’t know whether President Trump will ultimately be good or bad for overall returns.
Put your questions our Wealth Editor James Kibry now in our live Q&A in the comments section here.
12.12pm: Ansell still stretched, says JP Morgan
Ansell (ANN) hasn’t been able to impress JP Morgan analysts with yesterday’s announcement of a $94 million acquisition of UK company Nitritex, with the broker cutting Ansell to a hold recommendation from sell.
The company’s valuation is stretched by rising rubber costs, the analysts say, and while Ansell is “levered to a potential uplift in economic conditions, this is now largely reflected in the share price”.
“Despite the benefit from the Nitritex acquisition, we are wary as the hoped-for economic uplift has not yet provided a meaningful boost to Ansell’s sales,” JP Morgan said.
“In addition, the group could face challenges from US tax reform given its Asian-based manufacturing. Given these factors, we cut our recommendation on Ansell to Hold from Buy but leave our target price at $25”
Sarah Jane-Tasker 11.45am: Trump pick favouritism ‘baloney’ says CEO
The head of a small listed Australian drug developer at the centre of Senate confirmation hearings for US President Donald Trump’s new health secretary has denied the representative was given a “sweetheart” share purchase deal.
Innate Immunotherapeutics (IIL), which is developing a drug to treat advanced multiple sclerosis, has been the focus of the US hearings this week, a move that has supported its share price. The company’s shares have been on a stellar run since November 4 last year, when it was trading at 56c. It jumped 58.9 per cent yesterday to close at $1.24.
Innate has come into the US spotlight because Mr Trump’s nomination for secretary of health and human services, representative Tom Price of Georgia, is a shareholder in the Sydney-based company. Mr Price’s purchase of Innate’s stock has been questioned during Senate hearings to confirm his nomination.
Testifying before the Senate Health, Education, Labour & Pension Committee, Mr Price said his arrangement was not a “sweetheart deal”.
Innate chief executive Simon Wilkinson supported that view, saying it was wrong to paint a picture that Mr Price was privileged and got something almost no other investor was offered.
“That is complete baloney,” he told The Australian yesterday.
11.19am: OFX vulnerable, but not broken: Macquarie
Macquarie has kept its Outperform rating and $1.80 price target on OFX despite the share price slump on a profit warning today.
“We do not believe the OFX business is broken but there is clearly lots of work to do to get it back on track,” the broker says.
“We also think if current management are not able to execute then other trade and financial buyers are likely to try.”
OFX walked away from takeover talks with Western Union 12 months ago after the bidder didn’t submit a binding proposal.
OFX shares last down 18 per cent at $1.37 a share after hitting $1.335.
11.10am: Broker ratings update
Ansell (ANN) cut to Hold vs. Buy — JP Morgan
Iluka Resources (ILU) cut to Lighten vs. Hold — JP Morgan
Aristocrat (ALL) initiated at Buy; $25 price target — Ord Minnett
Crown Resorts (CWN) initiated at Hold; $12.15 price target — Ord Minnett
Star Entertainment (SGR) initiated at Buy; $6.00 price target — Ord Minnett
Tabcorp (TAH) initiated at Lighten; $4.25 price target — Ord Minnett
Tatts Group (TTS) initiated at Lighten; $4.20 price target — Ord Minnett
See more broker ratings changes here.
Michael Roddan 10.25am: OFX’s ‘confidential’ search for CEO
The board of online foreign exchange and payments company OFX Group (OFX) had launched a “confidential” search in late November to replace ousted chief executive Richard Kimber after the company continually failed to meet earnings forecasts.
OFX Group today announced the immediate replacement of its CEO as it revealed another earnings downgrade and detailed how post-Brexit currency caution has damaged its earnings outlook.
ohn Alexander Malcolm will replace Mr Kimber, who spent less than two years in the position, with chairman Steven Sargent saying the delivery of Mr Kimber’s strategy “has not been to the board’s or shareholders’ expectations”.
10.10am: Trump weight on plasma could hit CSL
CSL could face lower plasma product prices under Donald Trump’s administration according to CLSA.
CLSA analyst David Stanton notes that Trump told Pharma industry leaders on Tuesday to lower their prices, deliver “better” innovation, and “move back your companies back” to the US.
He also notes that Trump promised to speed up drug development and end “global freeloading” by countries that use price controls to keep their drug spending down.
“Our trade policy will prioritise that foreign countries pay their fair share for US-manufactured drugs, so our drug companies have greater financial resources to accelerate development of new cures, and I think that’s so important,” Trump said.
Following Trump’s comments, Mr Stanton says CSL is “potentially the most exposed” of Australian-listed, US exposed healthcare stocks.
He notes that US sales in the US will contribute 41 per cent of FY17 revenue for CSL, and Medicare is about 20 per cent of CSL’s US revenue.
“Essentially, Trump may be trying to get mandated lower prices drugs purchased by US Medicare, in line with what happens with US Medicaid, which already has an essentially mandated 30 per cent price cut on drugs used in outpatient departments of hospitals (like CSL’s products),” Mr Stanton says. “If lower prices were extended to the Medicare population it is likely that overall plasma product prices would decline in the US.”
He also says a border tax would likely affect most US exposed healthcare stocks.
Device companies like COH AU, RMD AU, SRX AU, ANN AU and FPH NZ manufacture ex-US but may have some elements of assembly in the US, he notes.
And CSL manufactures in Germany, Switzerland and US.
Damon Kitney 9.40am: Macmahon CEO upbeat despite CIMIC bid
Macmahon Holdings (MAH) chief executive Michael Finnegan has for the first time publicly talked up the company’s prospects following a $175 million takeover bid from rival CIMIC, as another of the target’s shareholders urged the board not to hand over control “on the cheap”.
The Spanish-owned CIMIC’s first supplementary bidder’s statement issued yesterday urged shareholders to sell into the offer, pointing to Macmahon’s poor financial performance over the past two years and a 41 per cent drop in the value of its order book over the period.
9.25am: Broker ratings update
Incitec Pivot (IPL) cut to Netral vs. Buy — UBS
Navitas (NVT) raised to Buy vs. Neutral — UBS
CYBG (CYB) raised to Buy vs. Neutral — CLSA
Brambles (BXB) cut to Neutral vs. Buy — Goldman Sachs
Charter Hall (CQR) cut to Neutral vs. Buy — Goldman Sachs
GPT Group (GPT) cut to Sell vs. Neutral — Goldman Sachs
Scentre Group (SCG) cut to Sell vs. Neutral — Goldman Sachs
More broker ratings changes here.
9.10am: OFX swaps CEO in ‘disappointing’ update
OFX Group (OFX), formerly known as OzForex, has this morning announced the immediate replacement of its CEO, Richard Kimber, along with a disappointing trading update detailing how post-Brexit currency caution has damaged its earnings outlook.
John Alexander Malcolm (Skander) will replace chief executive Richard Kimber, who spent less than two years in the position, with chairman Steven Sargent saying that Mr Kimber’s delivery of the strategy “has not been to the Board’s or shareholders’ expectations”.
Along with the executive changeover, OFX updated the market on the fallout from the surprise Brexit vote in June last year.
“Post ‘Brexit’ the devaluation of the pound (GBP) by more than 20 per cent has resulted in fewer large value discretionary transactions and a corresponding 35 per cent decline in revenues per transaction,” the update said. “As a result, total fee and commission income for FY2017 will be $3 million lower than anticipated.”
The group now expects statutory EBTDA for fiscal 2017 to be between $27.5 million and $28.5 million with statutory net profit after tax of at least $19 million.
The caution that followed Brexit came after Mr Kimber boasted of record trading for the foreign exchange and payments group during the wild days surrounding the surprise election result.
The group said it would not reduce spending to make up for the drop in revenue, which it says should recover in the medium term.
“OFX has continued to experience positive momentum in key operating metrics, with growth in transaction volumes and client additions, especially in its offshore markets. The lower revenue per transaction, which is expected to recover in the medium term, will therefore not be offset by any reduction in spending.”
“Today’s update on trading is disappointing,” Mr Sargent said.
“While softer market conditions in the UK as a result of Brexit have resulted in lower average transaction values, the revenue uplift from our marketing program in Australia during the third quarter and into January has not been as significant as we had hoped.
“The Board firmly believes that the growth opportunities for OFX, both domestically and abroad are substantial and that the long term outlook for the business is very strong. We look forward to keeping shareholders updated on our progress.”
8.53am: Broker ratings changes
Navitas (NVT) raised to Neutral vs. Underperform — Credit Suisse
WiseTech Global (WTC) raised to Buy vs. Hold — Bell Potter
Navitas (NVT) raised to Outperform vs. Neutral — Macquarie
Orocobre (ORE) cut to Neutral vs. Outperform — Macquarie
CYBG (CYB) raised to Buy vs. Outperform — CLSA
8.50am: Costello warns of Trump fallout
Andrew White and Michael Roddan write:
Concerns about the trade and investment policies of US President Donald Trump have added to the Future Fund’s already cautious outlook, as the $127.7 billion retirement savings pool rode a December-quarter surge in financial markets to again beat its return target.
While shying away from criticising specific policies, Future Fund chairman Peter Costello said that anything that hindered the free flow of trade and investment would be bad for investors.
“The best kind of climate is one where there is free movement of capital flows because if you are looking to invest around the world — as we are — anything that hinders that type of investment doesn’t help your returns,’’ Mr Costello said.
“We would say from every global investors’ point of view if there are restrictions on capital flows or restrictions on trade it is not going to help us.’’
8.14am: Wall St mixed as Dow dips but Nasdaq ekes out minor gains
The Dow Jones Industrial Average slumped again Tuesday, a sign that investors’ postelection optimism could be waning.
Some investors and analysts said President Donald Trump’s move to restrict immigration and the pushback it received had tempered risk appetite at the end of an otherwise strong month for stocks. Earnings results also hurt shares of some big companies.
The blue-chip index fell 107 points, or 0.5 per cent, to 19,864 on Tuesday. The S&P 500 lost 0.1 per cent, weighed down by declines in shares of industrial companies and the Nasdaq Composite edged up less than 0.1 per cent.
Dow Jones
7.30am: ASX set to open higher
The Australian market looks set to open higher despite falls on US markets for the second straight session.
At 7am (AEDT) the share price futures index was up 16 points at 5,571.
In the US, stocks were dragged down by technology and industrial shares, amid disappointing earnings and weak consumer confidence data — a day after falling amid political uncertainty following US President Donald Trump’s travel ban. A clutch of disappointing quarterly earnings across sectors added to the dour mood.
The Dow Jones Industrial Average was down 0.7 per cent, the S & P500 had lost 0.4 per cent and the Nasdaq had shed 0.25 per cent at 7.07am (AEDT).
The Australian market yesterday fell for a second straight session in the wake of uncertainties surrounding the immigration policies of US President Donald Trump, while news from fertility clinic operator Virtus Health and education provider Navitas disappointed.
The benchmark S & P/ASX200 index fell 40.6 points, or 0.72 per cent, to 5,620.9 points, while the broader All Ordinaries index lost 39.3 points, or 0.69 per cent, to 5,675 points.
Meanwhile, the Australian dollar is higher against its US counterpart, but down against other major currencies.
At 7am (AEDT) the local currency was trading at US75.85 cents, from US75.63c yesterday.
AAP
6.57am: Dollar higher against greenback
The Australian dollar is higher against its US counterpart with the greenback set for its worst start to the year since 2006.
At 6.35am (AEDT) on Wednesday, the Australian dollar was worth US75.88 cents, up from US75.63c from Tuesday.
The greenback tumbled after US President Donald Trump’s top trade adviser Peter Navarro accused Germany of using a “grossly undervalued” euro to gain advantage over the US.
The US dollar was further hit by President Trump’s telling top drugmaker CEOs that drug makers had outsourced production because of other countries’ currency devaluation.
AAP
6.40am: US stocks slide as earnings disappoint
The Dow Jones Industrial Average slumped again Tuesday, a sign that investors’ post-election optimism could be waning.
The stockmarket rally that catapulted the Dow industrials over 20,000 points last week has stalled in recent sessions, with investors backing away from shares of financial and industrial companies while picking up havens like gold.
The blue-chip index fell 180 points, or 0.9 per cent, to 19,791 on Tuesday, on track for its biggest one-day percentage decline since Oct. 11. The S&P 500 lost 0.5 per cent, weighed down by declines in shares of industrial companies and the Nasdaq Composite fell 0.6 per cent.
Dow Jones
6.30am: European stocks surrender gains on weaker Wall Street
Europe’s major equity markets fell Tuesday, surrendering earlier modest gains as stocks on Wall Street slid over the emerging immigration and trade policies from the administration of US President Donald Trump.
Controversy over Trump’s divisive executive order to ban refugees and citizens of seven mainly Muslim countries had already sent markets into a tailspin on Monday.
But after recovering modestly earlier on Tuesday, European markets ended the session lower, pulled down by weaker prices in New York.
FTSE 100 dipped 0.3 per cent to close at 7,099.15. The DAX 30 in Frankfurt slipped 1.3 per cent to close at 11,535, while France’s CAC 40 slid 0.8 per cent to end at 4,748.90.
AFP
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