Today's Trade: Woolworths up as offshore wind buoys ASX
- Strong US equities markets behind this morning's rise in the ASX
- Woolworths marked up, IAG marked down, despite the latter's rise in profit
- The risk-on tone lifted USD and weighed on havens from US Treasuries to gold
By Saxo Capital Markets
Overnight and early trading
The big winner in this morning's early trading has been Woolworths shares, whose shares rose 1.3% in the first hour of trade. The company's price has lifted, despite reporting that underlying net profit from continuing operations slipped 3.6% to $1.42 billion in 2017.
But that didn't worry the markets, which love big dividends. The full year dividend of A$0.84 is a “real surprise” and 7% ahead of consensus.
Insurance Australia Group fell 7.1% in the first hour, even though annual profit climbed almost 50% to hit $929 million, but underlying margins were hit.
Asian stocks are set to track gains on Wall Street as risk appetite returned to global markets with political tensions taking a back seat to optimism about the Trump administration’s efforts on business-friendly reforms.
The risk-on tone lifted the dollar and weighed on havens from Treasuries to gold.
Technology companies led a broad upswing in US stocks on Tuesday, as investors scooped up shares following recent declines.
The Dow Jones Industrial Average shed 418 points in the two weeks to Friday, but gained 196.14 points, or 0.9%, to 21,899.89 on Tuesday alone. The S&P 500 added 24.14 points, or 1%, to 2452.51, and the Nasdaq Composite gained 84.35 points, or 1.4%, to 6297.48, its biggest gain since June 28.
The SPDR S&P Retail exchange-traded fund rose 1.4% after declining 3.7% last week.
Local markets and commodities
- The S&P/ASX 200 Index futures contract rose 0.6%; futures relative to estimated fair value suggest an early gain of 0.5%.
- Bank of New York Australia ADR Index +1%, BHP Billiton ADR +1.2% to A$26.17 equivalent, 0.7% premium to last Sydney close, Rio Tinto ADR +2.1% to A$58.34 equivalent, 10% discount to last Sydney close.
- Gold prices fell on Tuesday, pressured by the stronger USD ahead of an annual meeting of central bankers this week, while palladium fell from its highest level since February 2001. Spot gold was down 0.4% at $1,285.25/oz holding near last week's peak at $1,300.80/oz, its highest since early November. US gold futures settled down 0.4% at $1,291/oz.
- Investors awaited speeches by European Central Bank President Mario Draghi and US Federal Reserve Chair Janet Yellen on Friday at Jackson Hole, Wyoming, for clues to the direction of interest and currency rates. The firm greenback makes dollar-denominated commodities more expensive for holders of other currencies, which could subdue demand. The Federal Reserve next meets on September 19-20. Fed funds futures prices show traders see a 42% chance of an interest rate increase by the December meeting, with a marginal chance of a rate cut, according to CME Group's FedWatch tool.
- Preventing deeper losses were tensions between North Korea and the United States. US forces began long-planned joint military drills with South Korea on Monday. North Korea said the drills were a step towards nuclear conflict. Gold stocks in Toronto moved lower overnight dropping 0.68%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil pared gains after the American Petroleum Institute unexpectedly reported higher inventories of US gasoline and diesel last week, even as crude supplies declined. The API estimated Tuesday that stockpiles of gasoline rose 1.4 million barrels last week and diesel expanded 2.05 million, according to people familiar with the data, which is only disclosed to members. That would be a third straight increase for gasoline at a time when supplies typically shrink because of summer demand. Analysts surveyed by Bloomberg before the government’s weekly tally on Wednesday estimated a decline of 1.3 million barrels.
- Oil in New York has floundered below $50/b this month as Opec and its allies work to curb a worldwide surplus fed largely by American shale. Even as US drillers withdraw rigs from fields, output from shale regions are forecast to reach a record next month. A committee set up to monitor Opec-led cuts saw compliance with the agreement at 94% in July, down from 98% in June. West Texas Intermediate for October delivery traded at $47.64/b after settling at $47.83/b on the New York Mercantile Exchange. WTI for September delivery expired Tuesday at $47.64/b. Brent for October settlement added 21 cents to settle at $51.87 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.04 to October WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Iron ore prices eased lower as Chinese steel mills warned about rising prices. Spot iron ore dropped 0.4% or $0.28% to close at $79.65. The China Iron & Steel Association said prices won’t continue to rise significantly. They also warned that planned winter curbs won’t lead to a significant shortage in the local market. However, steel demand remains basically stable. Iron ore’s mid-year rally has been so powerful that the raw material just clocked up a 50% surge in less than 50 days, rewarding bulls for their optimism about Chinese demand while handing bears further reason to be cautious about the outlook for 2018 as supply may expand. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Base metals were weaker as the USD weighed on investor appetite. However, a move by Chinese officials to further curb speculation also dented demand. The Shanghai Futures Exchange imposed a cap of 2000 lots on new positions for non-hedging clients for certain zinc contracts. They also raised transaction fees. Benchmark copper on the London Metal Exchange closed down 0.1% at $6,580/tonne, giving up gains after striking $6,649/t, the highest since November 2014. It rose 1.5% in the previous session.
- LME three-month nickel ended up 0.9% at $US11,415 a tonne after touching $US11,555, the strongest since December after LME inventories fell on Monday. LME aluminium finished 0.3% lower at $US2075 a tonne on trade selling after LME data showed on-warrant inventories - those not earmarked for delivery - rose by 16,275 tonnes, the fifth straight day of increases. Zinc, untraded in closing rings, was bid down 0.2% at $3,118 after prices climbed on Monday to $3,180.50, the highest in nearly a decade as expectations of a large market deficit fuelled speculative buying. Lead finished up 2.9% at $US2416 in closing rings, while tin fell 0.7% to $20,350. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Woolworths (WOW) says comparable store sales for Australian food unit this fiscal year will be slower than growth achieved in the fourth quarter of financial year 2017. For financial year 2017 Australian food sales were up 3.6%; with fourth quarter up 6.4%, which showed “solid progress”. Woolworths as group showed a net profit after tax from continuing operations of A$1.42 billion, slightly lower than the estimated A$1.47 bn. The company announced a full-year dividend of A$0.84 compared with an estimate of A$0.78.
- Vocus Group (VOC) reported loss for the full year of A$1.46 billion. For the financial year underlying profit was A$152.3 million and revenue A$1.82 billion. The company forecasts for financial year 2018 underlying earnings before tax in a range of A$370-A$390m. The group are also considering divestment of some of the non-core assets.
- Star Entertainment Group said its full-year net profit jumped 36% to $264.4 million from the year-earlier $194.4 million. Normalised net profit before significant items fell 11.1% to $214.5 million from $241.3 million, the waging company said in a statement to the Australian stock exchange. Revenue rose 3.2 % in the year ended June 30 to $2.432 billion from $2.358 billion.
- Property funds manager and investor Charter Hall Group delivered a $257.5 million full-year net profit up 19.7% on last year's $215.2 million. Operating earnings per security came in at 35.9 cents, up 18.1%.The group said in a statement to the Australian stock exchange that guidance for operating earnings per security for financial 2018 would be no less than FY17 of 35.9cps.
- St Barbara said its full-year net profit fell 7% to $158 million from the year-earlier $169 million. Underlying net profit in the year ended June 30 rose 26% to $160 million from $127 million, the company said in a statement to the ASX.
- Insurance Australia Group's full-year net profit jumped 48.6% to $929 million from the year-earier $625 million. The underlying margin, though, felt the sting of higher motor claims and an increase to natural peril allowance. Revenue in the year ended June 30 fell 1.6% to $16.502 billion from the year-earlier $16.772 billion, the company said in a statement to the ASX. Insurance profit climbed to $1.3 billion from $1.2 billion in fiscal 2016. The underlying insurance margin fell short of expectations, dropping 2.1% to 11.9%, which included the impact of higher claim costs in its short tail motor businesses in Australia and New Zealand, and elevated large losses in its commercial classes. An increase of $80 million to the general insurer's full-year 2017 natural peril allowance had an adverse impact of about 70 basis points. For the full year, gross written premium climbed to $11.81 billion from the year-earlier $11.37 billion. IAG said it was paying a franked 20c final dividend on October 9 to shareholders of record on September 7
- McMillan Shakespeare said its full-year net profit fell 17.7% to $67.902 million. Revenue for the year ended June 30 rose 1.7% to $513.032 million, the company said in a statement to the ASX. It will pay a final dividend of 35c, payable on October 13 to shareholders of record on September 29.
- A2 Milk Company said its full-year net profit more than tripled to $NZ90.65 million ($83.17 million) from a year ago. Revenue in the 12 months ended June 30 climbed 55.8% to $NZ545.53 million.
- In other news: Trading ex-dividend: AGL Energy, AMP, Pact Group;Air New Zealand (AIZ): Optimistic on FY2018 earnings outlook ;ANZ Bank (ANZ): RHB Bank, AMMB scrap proposed merger after no agreement on terms; APA Group (APA): FY results expected; NOTE: FY17 adj. net income est. A$237.8m (11 analysts); Bapcor (BAP): FY results expected; NOTE: FY17 adj. net income est. A$64m (6 analysts); Bega Cheese (BGA): FY results expected; NOTE: FY17 adj. net income est. A$27.5m (3 analysts); BHP Billiton (BHP): To spend $500m digging potash shafts it may never use; Doesn’t rule out bringing forward Escondida labor talks; Bubs Australia (BUB): Denies takeover approach after shares surge; CC-Amatil (CCL): 1H results expected; NOTE: 2-analyst rev. est. A$2.54b; Cleanaway (CWY): FY results expected; NOTE: FY17 adj. net income est. A$70.4m (7 analysts); Healthscope (HSO): FY results expected; NOTE: FY17 adj. net income est. A$185.6m (8 analysts).
- Insurance Australia (IAG): FY results expected; NOTE: FY17 adj. net income est. A$963.4m (10 analysts); Isentia (ISD): FY results expected; NOTE: FY17 adj. net income est. A$24.3m (6 analysts); McMillan Shakespeare (MMS): FY results expected; NOTE: FY17 adj. net income est. A$87m (6 analysts); National Storage REIT (NSR): FY results expected; NOTE: FY17 FFO/shr A$0.092 (4 analysts); Oil Search (OSH): Exxon’s pacific partner signals break with traditional gas deals; Qube (QUB): FY results expected; NOTE: FY17 adj. net income est. A$111.8m (9 analysts); Sirtex (SRX): FY results expected; NOTE: FY17 adj. net income est. A$48.7m (9 analysts); Steadfast (SDF): FY results expected; NOTE: FY17 adj. net income est. A$89.5m (7 analysts); Tassal Group (TGR): FY results expected; NOTE: FY17 adj. net income est. A$43m (5 analysts); Worleyparsons (WOR): FY results expected; NOTE: FY17 adj. net income est. A$128m (9 analysts).
- Woolworths FY result $1.5b 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, +40pc (pcp). A better year, pricing momentum improving, but claims inflation growing too
- Worley Parsons FY result $130m cash profit, -13pc (pcp). May have bottomed after a tough couple of years in energy construction. Guidance important
- S32 FY result $US1150m cash profit after a $US1.6b impairment hit loss last year. Plenty of cash for dividends this time
- Flight Centre FY result $225m cash profit, -10pc (pcp). International airfares, stabilised but demand for US and Europe down
- Santos FY result Will be a big loss having flagged $1.1b oil price-related impairments. Total write-downs on GLNG stake approaching $3b
- Perpetual FY result $130m cash profit, flat. Poor final quarter, funds under management fell. Focus on cost-cutting and new products
- 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, +4pc on pcp. Ongoing problems with brand and low margin business cannibalising premium business
Cable (GBPUSD) sold off clearly below the uptrend (from Mar low 1.2110) but declined seems to have paused at the last month’s low 1.2811.
GBPUSD had been showing signs of weakness in the last couple of days as it failed to print a daily close above 1.29 handle.
We are expecting further down side in the coming days thus we would look to sell the rallies upto the previous uptrend which should act as a resistance level.
GBPUSD monthly chart
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets
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