Apr 29, 2014

Morning Market Report

Local markets stay steady, despite overseas trends.

The market is up eight points.The Dow Jones was up 87 points at 16,449 -- Interest was mainly in large cap names with trading dominated by corporate activity and the continued theme of selling momentum or high growth stocks. The financial sector lagged after Bank of America announced an adjustment to regulatory capital ratios. Bank of America shares were 6.3% lower. The market fell at the open and was down as much as 49 points before strengthening throughout the day in a 190 point range. Trading volume was above average. European markets were stronger -- The UK FTSE was up 0.22, the French CAC was up 0.38% and the German DAX was 0.48% higher. Greece fell 2.38%. The US bond market was mixed but the 10 year bond lagged, with its yield rising four basis points to 2.702%. The Aussie dollar was weaker and is currently trading at US92.61c. Iron ore fell US$2.40 to US$108.60 a tonne. Base metals were weaker -- aluminium fell 1.46%, nickel fell 1.45% and copper was 0.25% lower. But zinc rose 0.50%. US EARNINGS -- Herbalife -- down 0.25% in after-hours trade, NetSuite -- up 3.0% in after-hours trade, Suncor energy -- down 2.03% in after-hours trade, Franklin Resources -- down 2.46% US ECONOMIC DATA> -- PendingHomeSales: Actual 3.4%, consensus 1.0%, prior -0.8% (revised -0.5%) GLOBAL ECONOMIC DATA -- Italian consumer confidence rose to 105.4, its highest since January 2010 with a reading of 105.4, from 101.9. No major Australian economic data today Company news --Wesfarmers(WES) quarterly sales results and G8 Education (GEM) AGM. Lots of production results (see the diary for full details). The FOMC starts in the US tonight and concludes Wednesday (Thursday morning our time) before Janet Yellen gives a speech on Thursday. Other key events for the week include -- European inflation on Wednesday (markets looking for evidence supporting further stimulus), Chinese manufacturing PMI on Thursday and US employment data on Friday. STORIES
  • Asciano (AIO 540c) -- Say they are on track to hitting their financial year profit target on the back of stronger than expected coal volumes. It expects to hit low single digit profit growth for the 2013/14 financial year after a 22% rise in the amount of coal transported during the March quarter to 40.8 million tonnes. Strong volumes have offset a decline in the amount of grain it hauled in the wake of drought in northern NSW and Queensland. The company said "we continue to pull the levers within our control to drive earnings growth and remain well positioned to take advantage of new opportunities that continue to arise across the business.”
  • Wesfarmers (WES) -- Is up slightly on the back of their quarterly sales numbers. Coles, Bunnings and Officeworks have driven group performance for the third quarter higher. For the third quarter, Coles recorded total sales growth of 3.6% with food and liquor within the supermarkets group up 3.9%. Bunnings posted sales growth of 12.3%, while Officeworks saw sales rise 6.7%. Kmart posted a 0.4% increase while Target sales fell 3.6%.
  • Oil Search (OSH) and Santos (STO) -- LNG production has started early at their $US19 billion PNG LNG project. OSH and STO are JV partners. Project operator Exxon Mobil announced that production had started ahead of schedule, with first cargo to be shipped before the expected start in the middle of the year.
  • Quarterly Production reports have been released by: AQGIRNNSTSXYPNA,AQABCIBPTCOE, SBMSEAAWE and WSA.
  • G8 Education (GEM) -- Have announced that they have contracts in place that give the company the right to acquire seven premium childcare and education centres from a number of different vendors. The total purchase price for the seven centres is $16.3 million. The company has also released a statement that confirms settlement of purchased centres via existing cash reserves.
  • Roc Oil (ROC) and Horizon Oil (HZN) -- Have announced plans to merge in a deal worth $800 million.
  • Stockland (SGP 386c) -- Is expected to release a third quarter update tomorrow. The property group recently made a takeover bid for Australand Property Group (ALZ) which was subsequently rejected and deemed too low. The market isn't expecting SGP to increase the offer but it is expecting third quarter earnings numbers to be above analyst forecasts. This should help increase SGP’s share price and will help increase their all scrip bid for ALZ, putting pressure back on the board. SGP, which already owns 19.9% of ALZ, offered 1.111 of its shares for every ALZ share. The offer had an implied value of 420c per ALZ share based on SGP’s pre-bid price, representing roughly a 1.9% discount to ALZ’s closing price of 428c. JP Morgan have an Overweight recommendation with a target price of 431c. They say that ALZ’s rejection was of little surprise given SGP’s 420c bid was below the ALZ share price. They don’t see SGP raising their bid or adding a cash component to it.

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