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ASX 200 craters then rallies to close up 13 points, on its highs for the day at 5292 after testing 5200. Big volume too. Banks suffer a sorry end to a big week despite record profits from Macquarie Group. AUD slides under 74 cents, just, on RBA outlook and inflation downgrade. Asian markets slide on a stronger USD with Japan -0.7% and China -1.8%. US futures -11 points.

Volatility is back

A horrible start to the day as worries in the banking sector re-emerged. It may have been the selloff in the AUD or Moody’s, a little more concerned about the outlook and AAA rated status, but the futures market was spot on. The market tipped and tested the 5200 level as resources and banks synchronised their falls. By lunch time we had clawed back most of the losses and had even turned positive for a brief second before a second drop and then a final rally into the close and the match out.

Employment numbers in the US tonight so no one was going to be too brave and it seems that the switch out of resources into banks was partially unwound today on some profit taking. The results from Macquarie Group (MQG) were a positive. At least they should have been but the Financial Review ran an article today on MacBank Junk Bond profits (at the expense of the tax payer) and a small slanging match broke out, taking some of the gloss off the result.

We also had the much anticipated RBA monetary policy statement which very much left the door open to further rate cuts, primarily due to its adjusted inflation rate expectations – now in the 1-2% range rather than 2-3% previously.

Financial markets are pricing in a 32% chance of a rate cut next month, rising to 80% in August and a 28% chance of TWO more cuts by the end of the year.

It has been a jam – packed week. Budget, bank results, rate cuts, dollar drops and BHP dramas. It has had it all. Yet the end result in the headline number is up 40 points…barely 0.7%.

The market has had a 3% trading range this week and heavy volume. Lack of conviction and plenty of day trading it seems given the index has gone nowhere. BHP the biggest casualty this week falling from 2068 cents to today’s 1846 cents.

ASX 200 Index & Aussie dollar charts – Today

 

STOCKS AND SECTORS

  • Resources picked up on the weakening AUD. Fortescue Metals (FMG) +2.64% BHP +0.16%, Pilbara Minerals (PLS) +3.7% and South32 (S32) +0.64%, although RIO -0.65% failed to fire following the AGM.
  • Energy stocks were weaker led by Santos (STO) -4.64%, Woodside (WPL) -0.52% and Origin Energy (ORG) -3.42%. Worley Parsons (WOR) -3.85 fared similarly as did Whitehaven Coal (WHC) -2.2%.
  • Gold shares were buoyed by the falling dollar too as the AUD bullion price hit $1727. Newcrest (NCM)  +3.78%, Northern Star (NST) +3.47%, Evolution Mining (EVN) +6.0% and OceanaGold Corp (OGC) +5.1%
  • Financials and Banks looked like a Battenberg cake on the market map. Red and green though. Falls in the REIT sector were probably a little overdue given its strength recently. Vicinity (VCX) -0.58%, Stockland (SGP) -0.22%, Westfield (WFD) -1.22% and Lend Lease (LLC) -2.59% as developers feel the APRA changes it seems. The big four were mixed. National Bank (NAB) +1.26%, Westpac (WBC) +1.02% in the green whilst Commonwealth Bank (CBA) -0.67% and ANZ-0.20% in the red. Medibank Private (MPL) -5.49% upset the apple cart with an investor presentation showing a softer June half due to increased marketing costs and slower growth after the strong first half. As a result, premium revenue growth of 4.5-5% with a management expense ratio of 8.5% and operating profit above $470 million is the target for the full year. Macquarie Group (MQG) -0.31% on its record results.
  • Industrials – After a shaky start, they pulled themselves together. Woolworths (WOW) +1.39% finished the week on a high note as did Wesfarmers (WES) +1.21%. Flight Centre (FLT) +3.67% shrugged off a conservative presentation too, dragging Corporate Travel (CTD) +7.08% in its wake. Gaming stocks improved with Star Entertainment (SGR) +0.53% and Donaco (DNA) +4.17% the standouts.
  • Speculative stock of the day: Norwood (NOR) +39.29% after a speeding ticket from the exchange with a ‘please explain’. The company noted that it is continuing to hold discussions with a range of mobile operators with the possibility of a material carrier licence or distribution agreement.

CORPORATE NEWS

  • BHP +0.16% released an update on the ambit Samarco claim for $58bn. On 5th May the Federal Court of Brazil ratified the agreement the company reached earlier this year for the restoration of the environment and communities affected by the dam failure.
  • Fairfax Media (FXJ) -1.23% chief executive Greg Hywood has told investors that the company’s metropolitan publishing titles will move to a new publishing model in future years with fewer print editions and a 24/7 digital publishing focus. It might even employ some news-gathering journalists in the future rather than the high profile commentators.
  • Flight Centre (FLT) +3.67% presented today at the Macquarie Conference. The outlook is muted with an international airfare war on at the moment. Low consumer spending and election uncertainty also weighing on the outlook. The company is starting to soften up the market perhaps for a small downgrade. Flights to London are now 27% cheaper than 3 years ago.
  • Macquarie Group (MQG) -0.31% after reporting a record profit of $2.06bn, up 29%. Strong performances again from its annuity businesses and corporate and asset finance arms. It expects net profit for next year to be broadly in line with FY16. The final dividend, 40% franked, of $2.40 per share, takes the annual dividend to $4.00 per share
  • Newscorp (NWS) -2.83% reported a US$149m loss compared to a profit of US$23m pcp . Total revenues slipped 7.3% to $US1.9 billion. Advertising revenue fell 9.7% to $816m, while circulation and subscription revenue dropped 3.6% to $615m. “The third-quarter results were materially affected by a $US280 million pre-tax charge at News America Marketing to resolve a legacy lawsuit and related claims”.
  • REA Group (REA) +0.69% revenue up 20% rising from $461m from $384m in the year-earlier period. REA said its revenue surged to $147m from $123m in the year-earlier period.
  • Blackmores (BKL) +0.67% announced it was buying Byron Bay Firm Global Therapeutics for $23m. The company makes Chinese herbal medicines and has an 80% market share in Australia. CEO Christine Holgate is obviously targeting a coals to Newcastle approach to exporting to middle class Chinese. The business made $3m in EBITDA in the last year and had $20 million in sales.
  • NBN co. has now passed 2m houses. Wish they would stop at mine. Anyway today they announced they expected to connect their 1,000,000th customer and full year revenue would exceed the target of $300m.
  • Sky Networks (SKT) -14.99% in NZ fell hard on subscriber numbers disappointing. The company lost 45,000 subscribers to 830,000.
  • Oz Minerals (OZL) +1.39% announced its plans for Carrapateena near Port Augusta with a $150m copper treatment plant to be built in Whyalla creating around 100 jobs. The project is now slated for a $975m copper and gold mine in SA producing 67,000 tonnes of copper and 76,000 ounces of gold annually.

ECONOMIC NEWS

  • The RBA quarterly statement left estimated economic growth at 2.5-3.5% this year and next and predicted unemployment will remain around the current 5.7%. It gave no guidance on the interest-rate outlook after cutting to a fresh record of 1.75% this week.
  • The RBA forecast household consumption would continue at an above-average pace even as wage growth remained weak, implying a further decline in the savings ratio. It also said the terms of trade, or the ratio of export prices to import prices, would be a bit higher in the near-term, though it didn’t expect the rebound in iron ore prices to last.
  • Expect a surge in auction results this weekend as the rate cut gets buyers fired back up especially given the complex changes to the superannuation rules again.

For those looking for a unique take on the budget go no further than this classic from Clarke and Dawes this week. Well it is a Friday.

IN ASIA

  • Four-week lows on a rising USD.

  • MGM China reported revenue fell 25% in the first quarter and said the planned opening of its new casino in Macau’s Cotai area may be delayed beyond the last target of the end of the first quarter next year.
  • Didi Kuaidi is close to raising about $2bn in its latest round of funding, as China’s largest ride-hailing service battles Uber. The Chinese competitor plans to close the current funding round in the next few weeks with a valuation of about $25bn.
  • Ant Financial, raised US$4.5bn last month, a record for a private technology company.

EUROPE AND THE US

  • UK local election results will be closely watched for clues to the ‘Brexit’ vote in 6-week’s time.
  • It just gets better and better. Trump is now canvassing the idea of sacking Janet Yellen if elected. Remember Leicester City were 5000-1. Trump is 3-1. He also thinks the UK would be better off without the EU. Going to get interesting now.

FINANCE SUMMARY 

52 WEEK HIGHS / LOWS

SECTOR PERFORMANCE    

BEST AND WORST STOCK PERFORMERS

Clarence

XXX

 

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NT Markets

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