ASX200 finishes down 21.6 points to 4979.6 as banks and financials suffer and resources rally. Results again the focus with BHP making half the profit of Qantas. Asian markets slightly weaker with China down 1.23% and US futures down 53. AUD backed off the 73 cents level to be 72.3 at the close.

A disappointing day as only the ASX 200 can deliver. After the positive leads overnight in commodities, coupled with some good corporate results this morning (QBE, Seven Group), the bulls should have been happy. Unfortunately, a rally in resources cannot make up for the apathy in financials at the moment. Yet more theories of ‘doom and gloom’ in the property sector were on display from various ‘experts’ on the state of our housing market. Predictions of our prices going the same way as Spain or Ireland are so wide of the mark it is not funny. In the last 25 years, there have been so many predictions for the end of Sydney or Melbourne housing and none of them have come to pass. In the meantime, they have just gone ever skyward with the bears trailing in their wake.

Resources though were far more positive; this was despite BHP abandoning its stone tablet carved dividend policy. This was hardly unexpected given the state of the commodity markets. The ironic thing is that after cutting the dividend after 28 years, the commodity cycle is starting to actually improve. After some dithering at the open following the results, the market decided to look forward rather than in the rear view mirror and reward BHP for taking the tough choices. The stock rallied together with the energy stocks, albeit briefly as this rally too was snuffed out, leaving just some selective industrials trying valiantly to stem the now growling bears. As we hit lunch, the index had sagged and showed no signs of any recovery as the afternoon wore on.

ASX 200 Index Today                                  Aussie Dollar Today US72.32c

  

A high early on of 5033 was a bridge too far as the 5000 level was breached. Asian markets failed to launch with both Japan and China flat lining or slightly weaker.

Where oil goes, so does the equity markets.

Stocks and Sectors

  • Resources were in focus today following bullish commodity price moves, with iron ore and oil the stand outs, although in Singapore May futures fell 4% to US$44.60 a tonne. BHP +2.62%, RIO +1.43% both better although Fortescue Metals (FMG) -3.23% gave back some of the recent gains. Gold stocks were surprisingly firm with second liners coming through led by Beadell Resources (BDR) +11.63% and Resolute Mining (RSG) +7.61%. Energy shares though were a little weaker generally after Oil Search (OSH) -3.03% reported, Caltex (CTX) -1.12% slipped too although coal stocks seemed to be starting to stir New Hope (NHC) +5.86% and Whitehaven Coal (WHC) +6.32%.
  • Industrials were once again mostly positive but very focussed on results. Aurizon Holdings (AZJ) +3.37%, Asciano (AIO) +1.58% and Qube Logistics (QUB) +9.95%. Media stocks were firm on confirmation that cabinet had approved changes to existing media ownership laws. Nine Entertainment (NEC) +3.23%, Southern Cross Media (SXL) +6.85%, Fairfax (FXJ) +2.58% and Seven West Media (SWM) +2.16%. Consumer staples Woolworths (WOW) -0.3% and Wesfarmers (WES) -0.5% remain in the dog house although with the latter’s exposure to coal and insurance we may see some investors start to look them over again.
  • Financials were once again the fly in the ointment as the big four banks remain under pressure. Westpac Banking (WBC) -1.5% the worst of the bunch although newcomer Clydesdale (CYB) unchanged, put in a relatively good performance although still down a long way from its initial highs at 421 cents back at the beginning of the month. REITs too were easier with Scentre Group (SCG) -1.97% and Stockland (SGP) -2.05%. Insurers were buoyed by QBE +8.47% results, dragging Steadfast (SDF) +7.38% in its wake, but wealth mangers eased back again with Magellan Financial (MFG) -4.07% with Macquarie Group (MQG) +0.24% bucking the trend.
  • Telcos are still suffering from a weaker Telstra (TLS) -2.08% as defensive stock exposure is rotated back into risk and resources. Telstra has an issue with its Asian strategy given the track record of companies like ANZ with their half-baked Asian plan.
  • Talking tech, IT was a sexy sector today following Aconex Limited (ACX) +16.03% results and news from Freelancer (FLN) +9.93% on good results although iSentia (ISD)-13.64% collapsed as it announced disappointing numbers. Actually not that disappointing so maybe the reaction was overdone. Rule number one of reporting season, do not disappoint.
  • Speculative stock of the day: Not a winner but a loser today with 1Page (1PG) -12.02% as it looks like BoA has been reducing its shareholding. The stock has been a huge disappointment since topping out at 544 cents in September 2015.

Corporate News

  • BHP +2.62% as it halved its dividend (finally) and moved to a flexible policy based on the payout ratio. The loss was huge at US$5.7bn and the dividend is now US16 cents, with an underlying profit of US$412m below expectations of US$727m. An impairment charge of US$4.9 billion against the carrying value of the onshore US assets; US$858 million for the financial impacts of the Samarco dam failure on the group’s income statement; and US$390 million for global taxation matters.

  • And the big news of the day in the ongoing Asciano (AIO) +1.58% takeover fight. The two rival bidders seem to have called a truce and decided to divvy up the spoils, making a joint bid at 928 cents a share. This is still preliminary but it would mean that the Asciano prize would be carved up with each taking the bits they want. Qube Logistics (QUB) +9.95% rallied in anticipation of the rights issue now being unnecessary.
  • Qantas (QAN) -5.01% has revealed a profit twice the size of BHP’s today. Strange days indeed. Record first half profit of $921m, share buy-back of $500m. In flight Wi-Fi is coming and a new lounge at Heathrow. The company was helped by $448m in cost savings from the lower fuel price and an additional $261m in its three-year transformational plan.
  • Never one to not surprise, though usually to the downside, QBE Insurance (QBE) +8.47% posted a 7% dip in full-year net profit to $US687 million from $US742 million a year earlier, but it raised its dividend to 30 cents per share. The insurance profit margin of 9% also helped sentiment as did more cost cutting in plan of around US$150m brining the cost savings to US$700m over six years to 2018.
  • ResMed (RMD) -2.31% has agreed to buy health information technology group Brightree for $1.11 billion. The deal underscores ResMed’s push to integrate data and cloud software technology with its devices to improve management of chronic illnesses like chronic obstructive pulmonary disease (COPD). The price tag of $1.1bn is a sizeable bite for the $US8 billion ResMed. The price represents a multiple of 13.5 times EBITDA.
  • Oil Search (OSH) -3.03%. Core net profit for 2015 fell 25% to $US359.9 million, roughly in line with the market consensus estimate of $US356 million. The company reported a $US39.4 million full-year loss, driven by a cut in the value of some of its assets, compared with a $US353.2 million profit for 2014.
  • Caltex (CTX) +1.12% will launch a $270 million off-market share buyback, along with a dividend hike, following a lift in the 2015 net profit to $522 million in 2015, from just $20 million a year earlier. Revenue fell to $20 billion from $23.9 billion a year earlier, due to the decline in the oil price. The final dividend has been raised to 70c, giving an annual dividend of 117c, up from the 70c for the previous year.
  • Virtus Health (VRT) -2.85% after reporting a 7% jump in first-half profit to $17.9 million despite a slight drop in market share. Revenue for the half increased 15.4 % to $132.2 million, while EBIT rose 8.1% to $30.6 million. Market share in the 2015 calendar year decreased to 44.6% from 45.7%. The company declared a fully franked interim dividend of 14c per share (up 1c on the corresponding half).
  • Healthscope (HSO) +4.89% reported a 9% jump in operating earnings to $159.8 million for the six months ended December 31. Interim profits surged 52% to $97.4 million, although last year’s statutory profit was impacted by a change in capital structure in the wake of the IPO. Earnings per share of 5.5c was ahead of analyst expectations of 5c per share.
  • Seven Group (SVW) +10.39% reported an interim net profit after tax of $7.1 million. The result was down 90% on a year-earlier result of $69.2 million, primarily due to significant items of $104.5 million, including a non-cash impairment of $182.2 million to the carrying value of the group’s investment in Seven West Media. Underlying net profit after tax of $111.6 million for the December half was down 6% on the year-earlier period but remained ahead of guidance.
  • Specialty Fashion (SFH) +15.38% on track to return to profitability this year after losses halved at budget brand Rivers and core labels posted solid sales growth, underpinning a 50.6% rebound in interim net profit to $8.8 million. Underlying EBITDA rose 19.5% to $27 million. Gross margins fell to 57.2% from 60.2% but the impact was offset by a sharp reduction in costs to 51.3% of sales from 54.7% as the company closed underperforming stores and reduced base rents.
  • Aconex (ACX) +16.03%. After falling heavily in the last few weeks the stock shot up today after announcing a 46% jump in revenue for the first half to $55.7m. There was a hit to profits from one off costs to do with the acquisition of cloud service Worksite for $6.5m. Profit did jump 352% to $5.3m excluding the one off cost.

Economic News

  • ANZ-Roy Morgan consumer confidence index rose 0.6% with a pickup in auction clearance rates and the employment conditions.

In Asia

  • Finance chiefs and central bankers will meet in China this week. In this environment private indicators continue to weaken prompting calls for more stimulus measures from the PBoC.

Europe and US

The gloves are off in the UK with Boris against David now going head to head. The move from ‘BoJo’ does look like it is calculated to get him a new address in London, that of No 10 Downing Street. Whichever way the vote goes he will look like a man who stood up for the great British public.

Pound continues to suffer. Now trading at 1.95 to the AUD. That UK holiday is getting cheaper by the day.

Early Euro calls

  • FTSE -45 points.
  • DAX +209 points.
  • CAC +75.50 points.

Clarence

XXX

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NT Markets

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