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Financial Insights(2016-06-22)

Australia
2016-06-22 14:04

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*Still a lot of uncertainty surrounding Brexit polls:
 
Brexit polls continue to dominate headlines. NatCen poll showed 53% support for "Remain" vs 47% for "Leave." While conducted over longer period (16-May to 12-Jun), poll incorporated new methods recommended by an official inquiry after pollsters got last year’s election so wrong. ORB/Telegraph poll also showed 53% support for “Remain,” ahead of 46% for Leave. Interesting takeaway seemed to revolve around turnout. Telegraph noted overall turnout jumped to 65% from 62% last week, driven by a nine point increase in “Remain” camp to 69%. However, online poll by YouGov for The Times showed “Leave” at 44%, up one point from last poll, ahead of “Remain” at 42%, down two points. IG/Survation poll this morning showed "Remain" at 46%, just one point ahead of "Leave" at 44%.
 
*UK papers stake out different views on Brexit:
 
UK papers continue to offer different viewpoints on upcoming Brexit vote. In terms of latest developments, Telegraph said Britain should leave. Flagged concerns about unemployment, the potential for Italian debt to trigger another financial crisis and a broken immigration system. Added vote to leave right thing for hiring and innovation, as well as trade. Also discussed implementation of an Australian-style points based system for immigration. The Sun, Sunday Times and Telegraph’s sister publication, the Sunday Telegraph, have all supported Brexit. However, Guardian joined the Times, the Daily Mail and the Observer in arguing Britain should stay in the EU. It said problems like corporate power, migration, tax evasion and labor standards more effectively addressed collaboratively. Also warned about political contagion.
 
*Soros warns Brexit would be more disruptive than Black Wednesday:
 
George Soros wrote in The Guardian that Britain's exit from EU would cause "bigger and more disruptive" sterling devaluation than 15% drop that occurred in September 1992. Estimated sterling could fall more than 20% from its current level of $1.46 to below $1.15. Unlike 1992, Soros warned there are fewer reasons to believe currency devaluation will have positive effects on UK economy. Noted limited scope for BoE easing given rates are already low, a larger current account deficit, and a lower probability of a domestic manufacturing revival given uncertainties about the outlook. Highlighted lack of awareness among British voters regarding the potential consequences of Brexit. Said it is wishful thinking to believe leaving EU will have not have effect on their personal financial position.
 
*No read-throughs on risk sentiment from sectors:
 
No great read-throughs from sectors. Energy best performer despite crude weakness. Strength fairly broad based. AAPLUS bounce and MSFT-US and FB-US strength boosted tech. Financials beat tape, but banks only largely in line again. Brexit vote and DFAST results on Thursday likely overhangs. Telecom outperformed defensives. S-US extended Monday strength. Staples in line. Food names outperformed. Industrials little changed. Airlines helped by UAL update, while truckers and rails weaker on negative preannouncements from WERN-US and CP-US. Consumer discretionary a laggard. Auto space (BofA cut US sales and NA production forecasts; KMX-US missed) hit after rallying yesterday. Biotech and specialty pharma drove healthcare pullback. Material s fared worst with steel and precious metals weakness.
 
*Yellen reiterates policy stance in testimony:
 
Fed Chair Yellen delivered her semi-annual monetary policy testimony to Senate Banking Committee this morning. Largely echoed themes from last week’s FOMC statement. Highlighted uncertainties and said she expects Fed to proceed cautiously in raising rates. Noted indicators point to a noticeable step-up in Q2 economic growth, but growth has been uneven in recent quarters. Also discussed downside risks, particularly latest readings on the labor market weak pace of investment. Low productivity growth a potential concern as well. Reiterated monetary policy not on preset course. During Q&A, noted Fed has legal basis to pursue negative rates, but pushed back against this policy option for US, highlighting significant shortcomings. Said Fed has other policy tools at its disposal. Brexit uncertainty widely discussed topic.
 
*Negative preannouncement from Werner hits truckers:
 
WERN-US guided Q2 EPS ~20% below consensus when excluding one-time benefit from real estate sale. Cited sluggish freight market conditions (analysts noted resultant utilization pressures), higher driver pay and soft used truck market. Noted that to address more challenging market conditions, continues to focus on various cost management initiatives. Added that it will not grow its fleet until market shows “meaningful improvement”, a reversal from commentary in January highlighting plans for fleet growth. Analysts noted guidance a negative for TL tocks (which have meaningfully outperformed as of late on hope of a near-term cycle upturn) given WERN’s diversification. Also flagged continued headwinds from over-inventoried retailers. In addition, WSJ discussed concerns about a slow start for peak shipping season.
 
*Lennar kicks off Q2 earnings season for homebuilders:
 
LEN-US kicked off Q2 earnings season for homebuilders on a fairly positive note. EPS beat by ~9% with revenues coming in early6%ahead of expectations. Orders a key bright spot, increasing 10% y/y. Deliveries also beat expectations. Gross margins largely in line, while SG&A 50 bp better. Some drag from lower Rialto and JV equity earnings. Company said homebuilding market has continued its slow and steady recovery. Highlighted support from low rates, modest wage growth, positive consumer confidence, low unemployment levels and tight inventory. KBH-US reports after close. WSJ recently discussed how results from LEN and KBH will provide insight into crucial spring selling season. Paper described spring season thus far as “solid but not spectacular”.
 
*German's top court rejects challenge to ECB's OMT plan:
 
Germany’s highest court rejected the challenge to the ECB's OMT plan. Said it backed plan with some caveats. Said if volume of buys limited and purchases not announced in advance then Bundesbank may take part. European Court of Justice has already ruled in favor of the plan. Note that Bundesbank Weidmann said in February that use of the ECB's crisis tool was less likely with QE in place. So-called Outright Monetary Transactions, unveiled in 2012, are part of the ECB's backstops aimed at bringing down financing costs. Draghi's pledge to do whatever it takes to support euro when the tool was unveiled is widely regarded as main inflection point in Eurozone debt crisis. Under the plan, the ECB purchases bonds if a euro member countries meets certain conditions, including having a stabilization program in place.
 
*Big beat for German ZEW economic sentiment:
 
Latest German ZEW economic sentiment reading surprised meaningfully to upside. June improved to 19.4 from 6.4 in May, well ahead of the 4.8 consensus. Current conditions index also improved to 54.5 from 53.1, better than 53.0 consensus. Wider reading of the euro area has improved to 20.2 from 16.8, but current conditions dropped by 0.8 to (10.0). Some thoughts going into the release that recent volatility related to Brexit may be a headwind. ZEW put big beat down to the perceived resilience of the Germany economy despite weak global economic dynamics and EU vote risk. Pointed out German market analysts see 44% chance of Brexit. However, did note general economic conditions remain challenging.
 
*Aso reiterates Japan will respond to severe currency market volatility; business lobby calls for intervention:
 
Japanese Finance Minister Aso reiterated Japan would respond to outsized currency market volatility in line with G7/G20 agreements. Also said that Tokyo would not intervene in FX market lightly. However, did not provide any additional color, nor would he comment on whether Japan had contingency plans in the event of a Brexit vote. Separately, FT cited comments from Japan business lobby group Keidanren chairman Sadayuki Sakakibara, who called for authorities to bring order to a currency market that has seen the yen recently trade as strong as ¥104 to the dollar, down ~¥15 in six months, and hit a 24-year high against sterling. Also expressed deep concern about the potential for Britain to leave the EU. Noted some Japanese companies with European headquarters in London would probably move.
 
*Japan business confidence subdued according to Reuters Tankan:
 
Japanese business confidence ticked up in June but remains depressed overall according to latest ReutersTankan. Sentiment index for manufacturers rose to 3 in June from 2 in May. Article linked subdued confidence to concerns about yen appreciation around this week’s Brexit vote. Poll showed weak domestic demand dragged services sector index to 17 in June from 19 in May. Lowest reading since April since 2013. Piece said compared to three months ago, manufacturers' and service-sector firms' sentiment indexes worsened by three and seven points, respectively. Survey’s projection pointed to one and three-point improvement in the index, respectively, over next three months. Also flagged potential deterioration in business confidence when BoJ Tankan is released on 1-Jul.
 
*Spain's Rajoy stands in the way of a grand coalition:
 
Bloomberg discussed potential for a grand coalition in Spain as opinion polls point to another inconclusive election outcome. Cited people familiar with the thinking of the Socialists and Ciudadanos. Said both parties open to backing incumbent Popular Party (PP) if acting PM Rajoy is removed. Noted that Ciudadanos have even suggested alternative candidates for PP leadership, while Socialist leader Sanchez said Rajoy's failure to deal with corruption disqualifies him from leading. Political analysts think PP is under pressure to deal with this issue, though problem is there is no mechanism within the party to remove him. Article highlighted that Rajoy could cling on, hoping that Socialists will abstain in a confidence vote to let him remain in office.
 
*APN News and Media Limited (APN):
 
The Singapore-based investment firm that lost out to News Corp for control of APN News & Media’s regional publishing arm is still keen on the business if the deal fails. News Corp’s $36.6 million winning bid, which was revealed by Street Talk column on Monday night, was confirmed on Tuesday morning but still faces regulatory and shareholder approval. Any obstacles could reopen the door for Singapore’s Fetch Plus.Sources close to the deal said Fetch Plus had increased its offer for APN’s regional portfolio, which includes two daily newspapers, 60 community newspapers and more than 30 regional websites, to significantly higher than what News Corp was prepared to pay.
 
*Commonwealth Bank of Australia (CBA) and Suncorp Group Ltd Fully Paid Ord. Shrs(SUN) :
 
Commonwealth Bank has poached Suncorp’s chief risk officer, Anna Lenahan, as a new group executive, a hire that will mean women make up half of the 12 senior executive positions reporting to CEO Ian Narev. It will make CBA the only big four bank that has a half-female top executive committee – the group of managers who report directly to Mr Narev. This will be a first for the country’s biggest lender and, it is believed, the big four banks. Ms Lenahan, who has been chief risk and legal officer at Suncorp since 2011, will join CBA as its new general counsel and head of corporate affairs.
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