Article / 22 August 2017 at 0:55 GMT

Today's Trade: BHP back in the black with $US5.9bn full-year profit

Trading Desk / Saxo Capital Markets
Australia
  • BHP posted a $US5.9bn profit, but earnings missed expectations 
  • The ASX200 was up 0.3% in early trade on a busy day for corporate earnings
  • Bridgewater’s Ray Dalio says democracy is being threatened and he is reducing risk
  • Doubt's over Trump's ability to enact reform weakened USD and bond yields
  • Investors braced for North Korea's response to US-South Korea military exercises
  • Equities trading was down 15% as the US saw its first total solar eclipse in 99 years


By Saxo Capital Markets (Australia)

Overnight and early trade

The local market lifted at the open. The ASX200 was up 0.3% in early trade at 5742.20 after BHP announced a full-year profit of $US5.9bn.

The yen held onto gains as Asian stock-index futures indicated a firmer open after a lackluster US session and as Bridgewater’s Ray Dalio said he was reducing risk.

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  BHP has swung back from last year's massive loss to a $US5.9bn profit, but its earnings look to have missed analyst expectations. Photo: Shutterstock

Japanese stock-index futures rose with contracts in Australia, South Korea and Hong Kong after the S&P 500 Index halted a two-day slide. Trading was about 15% below the 30-day average on a day when the first total solar eclipse to sweep the US from coast to coast in 99 years was the highlight. Treasuries climbed, gold was closer to $1,300 per ounce and oil maintained losses.

The Dow Jones Industrial Average regained some ground on Monday, eking out a gain after its biggest two-week decline of the year. The blue-chip index traded in a narrow range for much of the session, wobbling between small advances and declines before rising into the close.

The day’s moves were muted, a departure from the previous week, when a string of disappointing corporate earnings and flaring geopolitical tensions swung major indices, government bonds and gold.

With earnings season winding down and little on the economic calendar this week, some investors and analysts say this year’s stock rally could remain on pause.

The S&P 500 has risen 8.5% so far this year.

The Dow industrials rose 29.24 points, or 0.1%, to 21703.75 on Monday, for their biggest gain in a week. Home Depot led the index higher, rising $1.71, or 1.2%, to $149.20.

The S&P 500 edged up 2.82 points, or 0.1%, to 2428.37 and the Nasdaq Composite ticked down 3.40 points, or less than 0.1%, to 6213.13, falling for a third consecutive session.

The VIX declined to 13.19.

Shares of energy companies in the S&P 500 fell 0.6%, with Chesapeake Energy, Newfield Exploration and Pioneer Natural Resources ending the day as the biggest decliners in the sector.

US crude oil for September delivery fell 2.4% to $47.37 a barrel, deepening its declines for the year. Oil prices have come under pressure as investors have tried to gauge whether output cuts by global producers would ease a supply glut.

Government bond prices edged higher for a fourth consecutive session, with the yield on the 10-year US Treasury note falling to 2.182% from 2.196% on Friday. Yields fall as prices rise.

Source: Bloomberg, TradingFloor.com, WSJ.com

Local markets

  • Bank of New York Australia ADR Index up 0.4%, BHP Billiton ADR up 1.3% to A$25.77 equivalent, 0.3% premium to last Sydney close, Rio Tinto ADR up 1.3% to A$56.94 equivalent, ~11% discount to last Sydney close
  • Gold rose on Monday as tensions over North Korea fueled safe-haven demand, while doubts about US President Donald Trump's ability to enact pro-business policies pushed US bond yields to near two-month lows and weakened the dollar. Investors braced for North Korea's response to computer-simulated military exercises begun by South Korean and US forces on Monday that will continue until August 31. "Gold is being supported by the war games and the uncertainty in Washington," said Saxo Bank analyst Ole Hansen. Spot gold was up 0.58% at $1,291.50 an ounce. US gold futures for December delivery settled up at $1,296.70 an ounce. Gold on Friday surged above $1,300 an ounce for the first time since November following attacks in Spain and rising fears over Trump's ability to push through tax reform and investment, which pushed stock markets lower. But gold prices fell back after Trump fired his nationalist and anti-globalisation chief strategist Steve Bannon. Hansen said gold could fall further due to a large build-up of speculative long positions, which last week rose in COMEX gold for a fifth consecutive week to a two-month high. "We've seen in gold's previous attempts to break higher that once it becomes clear that it is not going to break, selling accelerates from longs being reduced," Hansen said. Gold stocks in Toronto rallied just shy of 1% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil slipped the most in a week in New York and London as traders betting on higher prices were seen closing out positions after Friday’s rally. Futures tumbled more than 2% in both markets, with Brent crude sliding from near a three-month high on Friday. Libya is working to reopen a pipeline linking the Sharara oil field to the Zawiya export terminal after loadings were halted. Meanwhile, a committee of Opec and allies was said to see slightly lower compliance to their output-reduction deal in July. Oil in New York has lingered below $50 a barrel as investors weighed supply cuts by the Organization of Petroleum Exporting Countries and allies against rising output from US shale fields, as well as Libya and Nigeria -- cartel members that are exempt from production limits. While the US oil rig count dropped last week, American output has continued to expand, climbing to the highest level since July 2015. The Joint Technical Committee of Opec and non-Opec nations meeting in Vienna on Monday is said to see July compliance to the production-cuts deal at 94%, two people with knowledge of the meeting said. That compares with 98% in June, according to Opec’s website. But Opec is on track to curb output by the most in five months in August, according to tanker tracker Petro-Logistics SA. 
  • West Texas Intermediate for September delivery, which expires on Tuesday, fell $1.14 to settle at $47.37 a barrel on the New York Mercantile Exchange. Total volume traded was about 22% above the 100-day average. Prices advanced $1.42, or 3%, to $48.51 on Friday. October WTI dropped $1.13 to settle at $47.53 a barrel. Brent for October settlement declined $1.06 to end the session at $51.66 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.13 to October WTI, the widest since 2015. Hedge funds had boosted Brent net-long positions to the highest since mid-April in the week ended August 15, weekly ICE Futures Europe data on futures and options show. US crude stockpiles have slipped for seven straight weeks and the nationwide oil rig count declined by five to 763 last week, the second decrease this month. However, the number of active rigs in fields is still near the highest since April 2015 and output from major shale plays is set to climb to a record next month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices also pushed higher amid this growing optimism about the global economy. Steel futures in China rose strongly, once again drawing raw material prices higher. Steel mills appear to be happy to continue restocking, with iron ore stockpiles continuing to fall. According to SteelHome data, inventories at Chinese ports fell for a fourth consecutive week to 135.2 million tonnes. Spot iron ore rallied 2.6% or $1.99 to close at $79.93. 
  • In company news, BHP has swung back from last year's massive loss to a $US5.9 billion ($7.4 billion) profit, but its earnings look to have missed analyst expectations. In financial year 2016, huge asset value write-downs and weak commodity prices dragged the world's biggest miner to a $US6.2bn loss — a reversal in those trends over the 2017 financial year saw BHP post a $US5.9bn net profit. Even BHP's underlying earnings, excluding one-off costs and write-downs, only managed a 454% rise to $US6.7bn, well below the 500-plus percentage increase that most analysts had tipped, which would have taken earnings as high as $US7.5bn. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Zinc prices climbed to their highest in nearly a decade as expectations of a large market deficit this year fuelled speculative buying, although technical factors are likely to limit gains. Benchmark zinc on the London Metal Exchange ended 0.1% up at $US3125.5 a tonne. Prices of the metal used to galvanise steel had earlier touched $US3180.5, the highest since October 2007. Nickel closed 3% higher at $US11,315 a tonne. The stainless steel raw material earlier touched $US11,355, its highest since the middle of December. Aluminium ended up 0.9% at $US2081. The premium for the cash aluminium contract over the three-month contract ended at $US9.50 a tonne on Friday. That compares with a discount of $US26 a month ago. Copper gained 1.6% to $US6586 a tonne, lead slipped 0.6% to $US2348 and tin was up 1.3% at $US20,500. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trading ex-dividend: Computershare, IPH, REA Group, Wesfarmers, iSelect
  • Aconex (ACX): FY results expected; NOTE: FY17 adj. net income est. A$7.7m (6 analysts)
  • Amcor (AMC): FY results expected; NOTE: FY17 adj. net income est. $704.6m (9 analysts)
  • AMP (AMP): Outlook revised to stable from negative by S&PGR; Plans subordinated debt issuance as early as this week: AFR
  • Beach Energy (BPT): Says assessing several acquisition opportunities
  • Corporate Travel Mgmt (CTD): FY results expected; NOTE: FY17 adj. net income est. A$64.96m (5 analysts)
  • Greencross (GXL): FY results expected; NOTE: FY17 adj. net income est. A$43.3m (4 analysts)
  • Monadelphous Group (MND): FY results expected; NOTE: FY17 adj. net income est. A$58m (9 analysts)
  • Northern Star Resources' net profit for the 2017 financial year rose 42% to a record $215.3m, up from $151.4m a year earlier. Earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 16% to a record $461.3m while revenue slipped 0.4% to $883.8m, due to the sale of one of its gold mines, Plutonic, during the period. Northern Star adopted a capital management plan – announcing it would pay dividends equal to 6% of its revenue while maintaining a minimum cash balance of $300m. The miner declared a 6c per share fully franked final dividend, up 50% from a year earlier to reflect its new policy. The dividend will be paid on September 13 to shareholders of record on August 30.
  • Sydney Airport said it had "increased confidence" in its business outlook as it raised its full-year dividend guidance and reported a 4% rise in interim net profit to $167m from $167m in the year-earlier period. The airport is now forecasting a 2017 dividend of 34.5¢ per share, 1¢ above its previous guidance of 33.5¢ per share. Earnings before interest tax depreciation and amortisation (EBITDA) rose 7.7% in the six months ended June 30 to $577.6m, meeting analysts' expectations, from $536.1m in the year-earlier period. Revenue, meantime, climbed to $714.2m from $661.9m, the company said in a statement to the Australian stock exchange.
  • Murray Goulburn has plunged to a $370.8m loss from year-earlier profit of $39.8m after a series of write-downs related to its milk payment crisis in 2016. The processor's milk volumes fell 21.8% to 2.7bn litres. The company will not pay a final dividend. A year ago it paid investors in its unit trust 3.91c per unit. Revenue totaled $2.491bn in the year ended June 30, down from $2.778bn a year earlier.
  • Kerry Stokes's Seven Group Holdings has bettered guidance with a 17% increase in full-year earnings. Net profit rose 16.6% to $213.7m in the year ended June 30 and earnings before interest and tax (EBIT) climbed 10% to $333.3m, which was at the upper end of guidance. Seven said it expected 2018 financial year EBIT to increase 5-10% . The result was driven by a turnaround in its Coates business and higher energy earnings with a strong result for Beach Energy.
  • Poultry producer Inghams has reported full-year pro-forma net profit of $102m, up 22.8% on the year earlier. Pro forma revenue in the year ended June 30 rose 3.3% to $2.38bn, the company said in a statement to the ASX. It will pay a 9.5c final dividend, fully franked.
  • Monadelphous Group said its full-year net profit fell 14.1% to $57.563m. Revenue in the year ended June 30 fell 8.7% to $1.249bn, the company said in a statement to the ASX. It will pay a franked 30c final dividend, down from the year-earlier 32c payout. The dividend is payable on September 29 to shareholders of record on September 8.
  • Oil Search (OSH): 1H results expected; NOTE: 1H rev. est. $676m (3 analysts)
  • Sky Network TV (SKT): FY earnings fall less than expected
  • Virtus Health (VRT): FY results expected; NOTE: FY17 adj. net income est. A$30.5m (4 analysts)
  • Western Areas (WSA): FY results expected; NOTE: FY17 adj. net income est. A$2.4m (9 analysts)

Broker upgrades and downgrades

  • APN Outdoor Group (APO): Raised to buy at APP Securities, PT A$5.71; Cut to hold at Morningstar; Cut to neutral at UBS, PT A$5.25
  • G8 Education (GEM): Raised to buy at Moelis & Co., PT A$4.47
  • GBST (GBT): Raised to buy at APP Securities, PT A$2.60
  • GWA Group (GWA): Cut to underperform at Credit Suisse, PT A$2.90
  • Insurance Australia (IAG): Cut to hold at Bell Potter, PT A$7.15
  • NIB Holdings (NHF): Cut to underweight at Morgan Stanley, PT A$4.95
  • Rio Tinto (RIO): Raised to reduce at AlphaValue
  • Treasury Wine (TWE): Cut to sell at Morningstar

Aussie earnings

Wednesday: 
  • Woolworths FY result $1.5bn cash profit down a bit on last year. Sales growth building, Big W still a problem, but Masters isn't anymore
  • Coca Cola Amatil first-half result $190m cash profit, flat like the demand for its fizzy drinks. Impact of container deposit scheme could be a factor
  •  IAG FY result $970m cash profit, up 40% (pcp). A better year, pricing momentum improving, but claims inflation growing too
  • Worley Parsons FY result $130m cash profit, down 13% (pcp). May have bottomed after a tough couple of years in energy construction. Guidance important
Thursday:
  • S32 FY result $US1150m cash profit after a $US1.6bn impairment hit loss last year. Plenty of cash for dividends this time
  • Flight Centre FY result $225m cash profit down 10% (pcp). International airfares stabilised but demand for US and Europe down
  • Santos FY result will be a big loss, having flagged $1.1bn oil price-related impairments. Total write-downs on GLNG stake approaching $3bn
  • Perpetual FY result $130m cash profit, flat. Poor final quarter, funds under management fell. Focus on cost-cutting and new products
Friday:
  • Nine Entertainment FY result $115m cash profit, down a bit on last year. Tough times and still uncertainty over media law changes
  • Medibank Private FY result $435m cash profit up 4% on pcp. Ongoing problems with brand and low margin business cannibalising premium business

Source: ABC Business

Aussie stocks to watch

Qantas (QAN) appears to have formed a double top near 5.90, which coincides with 100% extension of the rally that was seen during 2014-2015. This year’s rally (nearly 70%) has been impressive but at the same time QAN is trading at an overbought territory, thus potential reversal is a likely scenario if 5.90 holds.

QAN chart
1
 
Whitehaven Coal (WHC) broke the previous double top level 3.35 last Thursday but it made a sharp reversal just below the 2013 high of 3.63. This price action seemed to suggest a false break but WHC maintained the short-term uptrend (from the Jun low of 2.44). We are still anticipating WHC should continue to push higher as long as it stays above the interim support level of 3.

WHC chart
1
 

USDCHF & NIKKEI

USDCHF was again testing the recent support level at the 0.96 handle which corresponds to 50% retracement (Jul low 0.9438 and Aug high 0.9773). We are yet to witness a daily close below 0.96 this month, therefore we expect this level to remain valid.

USDCHF chart
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Nikkei futures briefly made a false break below the 200-day moving average overnight, however settlement comes in above here. The Japanese Index has this session to move away from the 200DMA to eliminate the threat of another break. Note also the rising RSI, which signals that losses are losing steam.

1
 
Source: Both charts, Saxo Bank - Create your own charts with SaxoTrader; click here for more
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Susan McDonald
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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