Morning Market Update - 27 April 2018

Pre-Open Data

International Markets vs Australian Markets

Key Data for the Week

Key economic data released this week:

  • Thursday – US – Durable Goods Orders rose 2.6% in March, which follows an even bigger 3.5% advance in February. The strength was driven by demand for commercial aircraft.
  • Friday – US – Gross Domestic Product
  • Friday – UK – Gross Domestic Product

Australian Market

ASX 200 Last 12 months

The benchmark ASX 200 declined 0.2% yesterday, to close at 5,910.8. Weakness in the Financials sector weighed most on the market, although Health Care performed strongly on a Healthscope takeover offer.

The big four banks all fell between 1.6-3.6%, Westpac was the biggest drag, as it received a broker downgrade from UBS. Among other stocks, CSL Limited gained 2.4%, while Woolworths and Wesfarmers added 1.4% and 0.6% respectively.

Healthscope Ltd (HSO) announced it has received an unsolicited proposal from a consortium of financial investors to acquire 100% of HSO for $2.36/share via a scheme of arrangement. The price represented a 16% premium to the company’s previous trading day’s closing price and a forward FY18 EV/EBITDA multiple of 14.1x. The scheme remains subject to a significant number of conditions, including due diligence and arranging debt financing for the acquisition. The Board has commenced an assessment of the proposal and will update the market in due course. HSO gained $0.30, to close 14.8% higher, at $2.33.

The Australian futures market points to a 0.74% rise today, being driven by broadly stronger overseas markets.

Overseas Market 

Both US and European markets rose strongly overnight, as a flurry of positive company earnings results buoyed global markets. The US S&P 500 added 1.0%, while the STOXX Europe 600 index rose by 0.9%.

Facebook shares surged 9.1% overnight, after the company posted earnings and revenue for the first quarter that beat analyst expectations, despite backlash from the well-publicised Cambridge Analytica security breach.

Visa also released earnings that beat expectations on revenue and profit, which saw the share price rally 4.8%, to US$127.08. In addition, further strong earnings releases were received from Amazon and Intel after the market closed, with Amazon pointing 7.0% higher and Intel rising 4.9% in after-hours trade.

CNIS Perspective 

The 10-year US Treasury bond yield has this week broken through the 3.00% mark for first time since January 2014.

Signs of inflationary pressures helped spur the yield rally, with oil prices approaching US$70/barrel, tax cuts, near full employment and upward pressure on wage growth all contributing factors.

The strengthening 10-year bond yield has delivered a significant boost to the US Dollar, improving the relative attractiveness of US government bond yields over those of their international peers, with the US Dollar Index rising to its highest level since January 12.

The recent move has further enhanced the likelihood that continued US rate hikes are on their way, with June futures pricing in 100% probability, while the probability of 3 further rate hikes before year end now sits at 48%, up from 33% in March.

10 Year US Treasury Bond Yield

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