Market Wrap – 28th June 2018

Market Summary

The Australian market closed very slightly lower after a relatively choppy trading session on Wednesday. The main contributors to gains in the Australian market was the energy sector benefiting from the rise in oil prices the previous night, as well as technological stocks which recovered losses experience in the Tuesday trading session. Despite a surge on the open, major indices in the US market closed lower amid lingering concerns regarding the imposition of tariffs between the United States and China. The markets open strongly after US President Donald Trump emphasised that a stronger Committee on Foreign Investment in the United States (CFIUS) would have the responsibility of dealing with and scrutinising the acquisition of US technology by Chinese companies. Initially viewed as a less stringent measure (relative to 25% tariffs originally speculated), economic adviser Larry Kudlow reiterated in an interview later in the afternoon that such did not indicate a softer stance from the US leader on China. Conversely, US crude oil prices hit their highest level since 2014, contributing to gains made in the energy sector.

US markets were down Our market is expected to open lower 

  • AUSTRALIA:
    ASX200  was down 1.7 points or -0.03% to 6,196
    ALL ORDINARIES down 1.6 points or -0.03% to 6,291
    SPI futures contract is down 11 points to 6,127
  • U.S.A:
    DOW  -0.69% to 24,118
    S&P500 -0.87% to 2,700
    NASDAQ -1.57% to 7,445
  • ASIA: 
    HANG SENG  -1.85%
    NIKKEI -0.32%
    SHANGHAI -1.11%
    CSI 300 -2.08%
  • EUROPE: 
    CAC  +0.86%
    DAX +0.93%
    EURO STOXX 50 +0.84%
    FTSE 100 +1.10%
  • COMMODITIES: 
    WTI Crude Oil  +2.36%
    Brent Crude +1.69%
    Gold -0.48%
    Aluminium +0.83%
    Iron Ore -3.13%
    Copper -0.58%
  • BONDS: 
    US 10-year yield  moved to 2.830% from 2.880%
    AUS 10-year yield moved to 2.608% from 2.648%
  • CURRENCIES: 
    AUD  -0.67% to US 0.7342
    US Dollar Index +0.69% to 95.02

Top Performers on ASX200:                                                                                             

  • Australian Pharmaceutical Industries Limited (API): +4.46%
  • Beach Energy Limited (BPT): +3.66%
  • Link Administration Holdings (LNK): +3.63%

Bottom Performers on ASX200:

  • OohMedia Limited (OML): -91%
  • Metcash Limited (MTS): -71%
  • Brambles Limited (BXB): -3.26%

 

Stock News                                                                                                                      

  • Australian Pharmaceutical Industries Limited (API): +4.46% – the health care and beauty company rose to the top of the index for the third consecutive day after announcing on Monday that it had entered into a binding agreement for the takeover of Clearskincare Clinics. More those who unfortunately did not get the opportunity to view ‘market Wrap- 26th June’, the acquisition, valued at $127.4 million (all-cash offer, financed by a $65 million medium-term debt facility), will enable the company to acquire a 50.1% stake in Clearskincare’s clinics business and 100% ownership of skincare products business initially. After which, Australian Pharmaceutical Industries will gain 100% ownership of the clinics segment in September 2021. A further cash consideration of $20 million will be paid subject to the attainment of various performance measures as at 2020 and 2021. The deal is expected to generate revenue and EBITDA at $48 million and $14 million respectively in FY19 (and expected to be earnings accretive). The first phase of the eventual takeover is expected to be completed no later than 31st July 2018.
  • Cann Group Limited (CAN): +7.53% – the cannabis company rose after announcing a heads of agreement had been formulated for the lease and construction of a cultivation (Stage 3) facility located at the Melbourne Airport precinct. This investment is estimated to be in the vicinity of $100 million (whilst employing 170 members). Interestingly, the five-hectare site to-be-leased is considerably larger than the facility previously proposed by the company. Debt and equity will be utilised to finance this investment, with the company alluding to a capital raising last year as the primary financing means.
  • OohMedia Limited (OML): -9.91% – the outdoor advertiser fell to the bottom of the index on Wednesday after undergoing its raising of $329.9 million capital to fund its $560 million acquisition of Adhsel (a subsidiary of HT&E). The company is providing a 1 for 2.3 pro rata accelerated non-renounceable entitlement offer of fully-paid ordinary shares at $4.60. the $4.60 offered represents a 14% discount relative to the company’s close as of Friday, 22nd June 2018. The company returned from a two-day trading halt after the institutional component of this offering ($290 million) had been be complete. Note that the retail entitlement offer seeks to raise approximately $40 million between 29th June and 11th July 2018.

 

Economic News                                                                                                               

  • US Durable Goods Orders for May: according to the Commerce Department, orders for US durable goods have declined by 0.6% in May. This marks the second consecutive month for a fall in durable goods orders in the United States after such fell by a newly-revised 1% (from original estimates of a 1.6% decline) in April. Interestingly, gold prices fell immediately following the release of this data point. The main contributors to May’s fall is the reduction in demand for cars, metal products and aircrafts (note that tariff implementation is at the focal point of such). This is most evident in a specific measure which excludes transportation orders; falling 0.3% relative to a forecasted 0.5% rise.

 

This week we are awaiting the following economic news

 

  • Today Euro Area Business Confidence Data for June
  • Today US Final GDP Group Rate Data for the First Quarter
  • Friday UK Consumer Confidence for June
  • Friday Australian HIA New Home Sales for May
  • Friday Japan Unemployment Rate for May
  • Friday UK Final GDP Growth Rate Data for the First Quarter
  • Friday US Personal Income and Spending for May
  • Friday Baker Hughes Oil Rig Count
  • Friday China NBS Manufacturing PMI for June

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