Recent models point to 1 in 20
people out of Wuhan’s 11m population will likely contract the virus, putting
the potential death toll in that city alone at 5,000 to 10,000 using the
current 1-2% mortality rate
Over the weekend there were
rumours that the government was increasingly adopting lockdown protocol’s in
Chengdu, China’s 6th largest city with 14.4m inhabitants
The market was optimistic that
some of the business interference would begin to clear up this week with
investors excited by Apple supplier Hon Hai’s intention to restart production
in Shenzhen this week, however Chinese authorities have delayed the restart
indefinitely as of Monday morning
More countries have begun to
limit travel to and from China
For Australia in particular,
businesses beyond the tourism sector are now being impacted with notable news
in the commodities sector being major Chinese energy group’s endeavouring to
enforce force majeure on scheduled cargos of LNG from Australian and global oil
majors. BHP (BHP) is trying to provide Chinese buyers of copper with greater
flexibility on deliveries as a means to avoid having force majeure declared on
these similar copper shipments
U.S. Politics
The start of the U.S. Presidential Election campaign kicked off with an own-goal by the Democrats after the debacle involving vote-tallying at the Iowa caucus failed to deliver a clear result within hours of polls closing
Understandably President Trump seized on the disorganisation and his polls strengthened and with that, investment markets similarly took heart, rising +3% on the week in the U.S
This week we see the New Hampshire primary on Wednesday morning AEST
Economic data released
Australian Business Confidence falls to a 6-year low in December
Last week saw the release of industry data from the Australian Industry Group for January and there was precious little to get excited by
Manufacturing sector sentiment for January plumbed to a near 6-year low and new orders worsened in spite of the tailwind offered by Australian Dollar softness
Construction and service sector activity both weakened again month-on-month with new orders and sales for both residential and commercial construction falling. Service sector activity began to wane after a sound end to 2019.
From a headline standpoint at least, Building Approvals activity looked OK, rising +2.7% annually for January and making its first annual gain in 18 months. However, the underlying data points to merely a stabilisation in absolute approval numbers on a month-to-month basis and the annual figure benefits from the easy January 2019 comparative. We remain hopeful of an improvement in residential activity in 2020 but it will be a slow burn, particularly with engineering and civil work now showing signs of weakness.
RBA unflinchingly upbeat in statement
The RBA took a rather glass half full attitude to 2020 growth in their statement accompanying last Tuesday’s interest rate decision
The RBA remains expectant of a buoyant 2.75% GDP growth in 2020, suggesting that the bushfires were unlikely to impact growth too materially, followed by a jump to 3% growth in 2021
The 2.75% growth assessment does look very optimistic with several private forecasters suggesting Australian growth to land in the 1.9% to 2.3% range for 2020
U.S. economic momentum rolls into 2020
January manufacturing data in
the United States bounced back to a 6-month high and new order momentum was
sound
Employment again surprised
many with a jump of 225,000 new non-farm roles in January and a welcome jump to
a 6-year high in the labour force participation rate pointing to continued
likely wage gains.
Annual wage gains for January
landed at 3.1%
Company News
Nufarm (NUF) seem set to benefit from east coast downpour
Recent torrential rain across much of the Australian eastern seaboard will do wonders for replenishing dams and soil moisture after major drought
NUF has profit-warned on multiple occasion in the past 12 months due to unforeseen local drought, and should benefit to some extent from the large rains seen over NSW and Queensland in recent days and set to continue in the coming week
A return to 2016-2017 levels of profitability in the NUF Australian business would see a 15% upgrade to broker estimates for 2021
NUF currently trades on a multiple of approximately 6x EBITDA which is a hefty discount to the 10x multiple on which it sold its Latin American business to major shareholder and manufacturing partner Sumitomo Chemical last year, and this is despite still potential blue sky opportunity in the coming decade o emerge from commercialisation if its Omega-3 infused canola seed technology
We remain BUYERS of NUF
Boral (BLD) announce more downgrades but CEO to step aside
BLD announced a comprehensive statement to the market Monday morning, quantifying the ultimate cost of financial misreporting at its U.S. Windows business but also announcing a lowered 2020 profit guidance
Though the impact on the business from the ‘accounting irregularities’ at U.S. Windows came in at or around initial expectations, the company disappointed investors with a lowering of 2020 guidance by some -10-15% for a variety of reasons spread over multiple divisions
The company does indeed look to be in disarray from an internal reporting perspective and for that reason it was announced that BLD CEO Mike Kane would stand aside following the release of interim results in a fortnight. This is the one positive to come from todays news and should set the company up for potential restructuring and asset sales.
We are likely to ADD to holdings in BLD in the coming days/weeks
Looking ahead
Monday: Earnings from GPT (GPT), JB Hi Fi (JBH), Aurizon (AZJ)
Tuesday: AU Home Loans (Dec), NAB Business Confidence (Jan), U.S. NFIB Small Business Confidence (Jan), U.S. Job Openings (Dec), Earnings from Challenger (CGF), Transurban (TCL), Suncorp (SUN)
Wednesday: Earnings from AMCOR (AMC),Commonwealth Bank (CBA), Downer (DOW), Insurance Australia (IAG), CSL (CSL), Computershare (CPU), Carsales.com (CAR), James Hardie (JHX)
Friday: U.S. Retail Sales (Jan), U.S. Michigan Confidence (Feb)
Australian
corporate reporting becomes the market feature for the coming month, and as we
have highlighted a lot already, we expect it to be one of the more
disappointing results periods in some time.
Outside
of the corporate front, markets will continue to keep an eye on both the
evolution of infection for the coronavirus and its impact on business as well
as the Democrat primary in New Hampshire on Tuesday.
Friday 5pm values
Index
Change
%
All Ordinaries
7121
–
–
S&P / ASX 200
7022
+5
+0.1%
Property Trust Index
1680
+12
+0.7%
Utilities Index
8088
-117
-1.4%
Financials Index
6260
+5
+0.1%
Materials Index
13941
-121
-0.9%
Friday closing values
Index
Change
%
U.S. S&P 500
3327
+102
+3.2%
London’s FTSE
7466
+180
+2.5%
Japan’s Nikkei
23827
+622
+2.7%
Hang Seng
27404
+1092
+4.2%
China’s Shanghai
2875
-101
-3.4%
Key dividends
Monday10th February 2020: Div Pay Date – MXT & MOT
Tuesday 11th February 2020: N/A
Wednesday 12th February 2020: Div Ex-Date – RESMED (RMD)
Thursday 13th February 2020: N/A
Friday 14th February 2020: Div Pay Date – Sydney Airport (SYD), Transurban (TCL)
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