Market Wrap – 20th June 2018

Market Summary

The Australian market closed slightly lower on Tuesday, after a solid open which saw the index rise more than 0.6%. Performing strongly on Tuesday, healthcare heavyweight CSL Limited (ASX: CSL) rose to a new-record high as the company continues to rally on the back of a strengthening US currency. Despite such, pessimism kicked in throughout the trading day with US President Donald Trump’s threats to impose further tariffs on China. Fears carried through and were amplified across the Asian region, the major Chinese markets (as well as the Hang Seng in Hong Kong) all falling in excess in 3% on Tuesday. In particular, the Shanghai Composite Index fell to its lowest level intraday since July 2016. This sentiment carried through to the US markets, closing lower on fears of a potential trade war as US President Donald Trump threatened the imposition of a 10% tariff on an additional $200 billion worth of Chinese products.

 

US markets were down – Our market is expected to open higher.

  • AUSTRALIA:
    ASX200  was down 2 points or -0.03% to 6,102
    ALL ORDINARIES down 3.9 points or -0.06% to 6,209
    SPI futures contract is up 35 points to 6,154
  • U.S.A:
    DOW  -1.16% to 24,700
    S&P500 -0.40% to 2,763
    NASDAQ -0.28% to 7,726
  • ASIA: 
    HANG SENG  -2.86%
    NIKKEI -1.80%
    SHANGHAI -3.92%
    CSI 300 -3.65%
  • EUROPE: 
    CAC  -1.11%
    DAX -1.23%
    EURO STOXX 50 -0.91%
    FTSE 100 -0.36%
  • COMMODITIES: 
    WTI Crude Oil  -0.98%
    Brent Crude -0.35%
    Gold -0.34%
    Aluminium -2.23%
    Iron Ore -3.07%
    Copper -1.97%
  • BONDS: 
    US 10-year yield  moved to 2.900% from 2.920%
    AUS 10-year yield moved to 2.660% from 2.666%
  • CURRENCIES: 
    AUD  -0.64% to US 0.7376
    US Dollar Index +0.25% to 94.65

 

Top Performers on ASX200:                                                                                             

  • Vocus Group (VOC): +6.48%
  • Nanosonics Limited (NAN): +2.85%
  • CSL Limited (CSL): +2.71%

Bottom Performers on ASX200:

  • Mineral Resources (MIN): -44%
  • OZ Minerals (OZL): -84%
  • Bluescope Steel Limited (BSL): -3.35%

 

Stock News                                                                                                                      

  • Vocus Group (VOC): +6.48% – the telecommunications company rose to the top of the index of Tuesday after it had won a $136.6 million contract with the Australian Government for the construction of a sub-marine cable trailing between the Solomon Islands, Papua New Guinea and Australia (expected to be completed in late 2019). This follows the completion of a scoping project valued at $2.8 million awarded to the company in December of last year. Through ‘advanced, multi-terabit’ technology, construction will allow for the introduction of high-speed international telecommunication cables to the Solomon Islands as well as improved connectivity in Papua New Guinea. Furthermore, Vocus is also providing a domestic sub-marine network in Solomon Islands, extending benefits beyond Honiara (the capita).
  • Insurance Australia Group (IAG): +2.43% – the insurance company rose after announcing that it had entering into an agreement for the sale of the its operations in Thailand (98.6% of Safety Insurance) and Indonesia (80% of PT Asuransi Parolamas) to Tokio Marine & Nichido Fire Insurance Co Limited for approximately $525 million. In addition, IAG reached an agreement for the sale of its 73.07% interest in AAA Assurance Corporation, located in Vietnam (note that the buyer was not specified in the company’s release). All these deals are expected to be complete by the end of the 2019 financial year. After considering transaction costs and foreign currency translation reserve effects, such is anticipated to result in an after-tax profit in excess of $200 million (note that these transactions will be recorded as an ‘unusual item’).
  • Mineral Resources (MIN): -4.44% – the miner fell to the bottom of the index on Tuesday after the Board of Atlas Iron had assessed the off-market takeover offer from Hancock Prospecting. More specifically, Atlas’ Board deemed such offer to be superior to the original offer of Mineral Resources (though has continued to advise shareholders to take no action with respect to the Hancock offer). With that being said, under the Mineral Resources Scheme Implementation Deed, the matching rights principle provides Mineral Resources three business days to provide a counter proposal (this will expire on 21st June).

 

Economic News                                                                                                               

  • RBA Meeting Minutes: as compared to the previous two minute releases (April and May), the June minutes did not conclude with a statement in which alluded to the next move in interest rates likely to be upwards rather than down (should economic conditions remain the same). This has led to speculation that the Reserve Bank of Australia is potentially becoming more dovish with respect to interest rates. The meeting was held of 5th June; though on the 13th June, Governor Phillip Lowe highlighted that the next move was likely up, should the economy continue to trend in its current direction. Furthermore, the RBA noted that the Sydney and Melbourne housing markets have continued to ease. This is driven by tighter lending standards and greater information collection from loan applicants.
  • US Housing Starts and Building Permits Data for May: housing starts in the United States rose 5% to a seasonally-adjusted level of 1.35 million units in May. This was the highest level recorded since July 2007 and exceeded market expectations for a reading of 1.31 million units. This was driven by gains to both single (up 3.9%; primary driver) and multi-family home constructions. However, such was subdued by 4.6% fall in building permits in May to 1.301 million units (seasonally-adjusted), as compared to market expectations for a decline to 1.35 million (note that this is the lowest level since September 2017). in addition, permits for single-family house construction fell by 2.2% in May, translating to a potential slowdown in homebuilding moving forward.

 

This week we are awaiting the following economic news

  • Today Bank of Japan Monetary Policy Meeting Minutes 
  • Thursday US Existing Home Sales for May 
  • Thursday RBA Bulletin 
  • Thursday Bank of England Interest Rate and Quantitative Easing Decision 
  • Friday Euro Areas Flash Consumer Confidence Data for June 
  • Friday Japan Inflation Rate Data as of May

 

By Roger Haidar and Christopher Youssef

 

This content has been written and published by KOSEC – Kodari Securities.

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