Market Wrap – 21st June 2018

Market Summary

The Australian market bucked the global trend closing at a 10-year high on Wednesday. This follows strong performance from the ‘big four’ (‘five’ if we include Macquarie Group); banks all closing just shy to 3% higher (note that NAB closed up 1.92%). Furthermore, companies listed on the ASX with global exposure are currently major beneficiaries of a weakening Australian dollar, boosting offshore earnings. Conversely, Australia’s largest telecommunications company, Telstra (ASX: TLS) fell to the bottom of the index after releasing its strategic update on Wednesday (see ‘Stock News’ below for further details). US markets were mixed, as technological and media shares lead the major indices. As a result, the Nasdaq reached a new record high whilst the Dow Jones Industrial Average fell for the seventh consecutive day. In an interesting development, Disney issued a $71.3 billion counter-offer for Twenty-First Century Fox (equivalent to $38 per share), following Comcast’s $65 billion bid (all-cash offer of $35). Note that this follows Disney’s original bid of $28 per share of Comcast back in December last year.

 

US markets were mixed Our market is expected to open higher 

  • AUSTRALIA:
    ASX200  was up 70.5 points or 1.14% to 6,173
    ALL ORDINARIES up 65.7 points or 1.05% to 6,275
    SPI futures contract is up 11 points to 6,136
  • U.S.A:
    DOW  -0.17% to 24,658
    S&P500 +0.17% to 2,767
    NASDAQ +0.72% to 7,782
  • ASIA: 
    HANG SENG  +0.77%
    NIKKEI +1.23%
    SHANGHAI +0.27%
    CSI 300 +0.39%
  • EUROPE: 
    CAC  -0.34%
    DAX +0.14%
    EURO STOXX 50 +0.13%
    FTSE 100 +0.31%
  • COMMODITIES: 
    WTI Crude Oil  +0.52%
    Brent Crude -0.45%
    Gold -0.47%
    Aluminium -0.23%
    Iron Ore -1.47%
    Copper -0.03%
  • BONDS: 
    US 10-year yield  moved to 2.940% from 2.900%
    AUS 10-year yield moved to 2.680% from 2.660%
  • CURRENCIES: 
    AUD  -0.05% to US 0.7372
    US Dollar Index +0.14% to 94.78

Top Performers on ASX200:                                                                                             

  • Wisetech Global Limited (WTC): +5.65%
  • Bellamy’s Australia (BAL): +4.51%
  • Bega Cheese Limited (BGA): +3.58%

Bottom Performers on ASX200:

  • Telstra Corporation (TLS): -81%
  • Saracen Mineral (SAR): -59%
  • Greencross Limited (GXL): -3.42%

Stock News                                                                                                                      

  • Northern Star Resources (NST): +0.47% – the producer rose after announcing that it had reached its production rate target of 600,000 ounces of gold per annum. June quarter (as of 19th June) and current financial year production was at 150,000 and 540,000 ounces respectively. As a result, Northern Star Resources are on track to surpass original production guidance levels of 540,000-560,000 ounces of gold for the 2018 financial year. The company attributed such to be driven by the recent acquisition at South Kalgoorlie as well as Jundee. Note that the client flagged all-in sustaining costs (AISC) to be between $1000-1050 per ounce.
  • Mineral Resources (MIN): +2.60% – the miner rose after announcing on Wednesday afternoon that it would not make a counter-offer for Atlas Iron (ASX: AGO) after its original bid was trumped from Gina Rinehart led Redstone Corporation (a wholly-owned subsidiary of Hancock Prospecting) of 4.2 cents.
  • Cabcharge Australia (CAB): -3.20% – the tax payments group fell after announcing the acquisition of Mobile Technologies International Pty Ltd (MTI) for $6.6 million. CEO Andrew Skelton viewed the acquiring of a processing and dispatch system as more appropriate than the company building its own. MTI’s management will remain, as the company becomes a subsidiary to Cabcharge. The transaction is expected to complete in the second half of the calendar year.
  • Telstra Corporation (TLS): -4.81% – the embattled telecommunications company fell to the bottom of the index (and to a seven-year low) on Wednesday after announcing a cut to 8000 jobs, particularly in executive (one-to-four) and middle management positions. Furthermore, the company seeks to reduce consumer and small business plans from 1800 to just 20; driven by the desire to reduce customer service calls by two-thirds in the next two years. In addition to job reductions, the telco seeks to conduct up to $2 billion in asset sales over the next two year. Part of the structural shake-up, Telstra will split in InfraCo (fixed network infrastructure such as data centres, cooper, HFC cables, international subsea cables) and its retail business (including mobile).

 

Economic News                                                                                                               

  • Bank of Japan Monetary Policy Meeting Minutes: the most interesting development from the Bank of Japan’s minutes release was comments from one individual who pointed on the need for additional easing to bolster inflation within the economy. Note that no formal proposal for additional easing was made by any member, but rather was simply brought up in discussions. Scepticism follows the Bank of Japan’s recent (April) removal of a timeframe on its 2% consumer inflation level.
  • US Existing Home Sales for May: home sales fell 0.4% in May to a seasonally-adjusted rate of 5.43 million units (as compared to market expectations for a 1.5% rise to 5.52 million units). The Northeast was the only region that existing home sales rise (fell in the Midwest, South and West). The primary driver of such is a continued tightening of supply in the market and mortgage rates moving to a seven-year high.

 

This week we are awaiting the following economic news

 

  • Today RBA Bulletin 
  • Today Bank of England Interest Rate and Quantitative Easing Decision 
  • Friday Euro Areas Flash Consumer Confidence Data for June 
  • Friday Japan Inflation Rate Data as of May   

Roger Haidar | Research Analyst & Dealing Assistant

Christopher Youssef | Dealing Assistant

Laurence Parker-Brown | Senior Vice President
Level 9, Chifley Tower, 2 Chifley Square, Sydney, NSW 2000
T: +61 2 9955 3151 E: dealingdesk201@kosec.com.au
W: www.kosec.com.au