ASX brightens up as investors parse earnings

ASX brightens up as investors parse earnings

Australian shares pulled off early lows to end with mild gains on Thursday, as investors focused on earnings from some of the country’s biggest companies.  The S&P/ASX 200 index rose 13 points, or 0.2 per cent, to 5890 while the broader All Ordinaries rose by the same point and percentage amount to 5995 and the Australian dollar traded at US78.22¢.

The Australian share market started out in the red after a volatile session overnight on Wall Street where shares eventually ended the trading day with small losses.  Investors are still nervous following the savage sell-off that took place at the start of the week as markets attempted to adjust to the idea of higher bond yields and higher interest rates.

According to RBC strategists, the US Federal Reserve probably welcomed at least one development stemming from the selloff.  “What the recent market rout did that the Fed will probably view as a welcome devolvement is realign financial stability as evidenced by the sharp move in financial conditions indices,” the strategists said.  “This reprieve means the Fed can stick with its mantra of gradual rate increases. In our view, this includes an outlook where they can go four times in 2018 – something that gets them to ‘neutral’ by year-end – but frees them from having to overreact to ‘frothing’ asset valuations,” the strategists added.

Financials were helping the Australian market to advance on Thursday and were the strongest sector in points terms, adding 15 points to the index.  NAB shares climbed 2.3 per cent to $28.90 after it said it was on track to meet it targets as it reported a 3 per cent rise in first-quarter cash profit.  Elsewhere in the financial services sector, AMP shares rose 3.6 per cent to $5.21 after the financial services firm’s full-year underlying profit more than doubled to $1.04 billon.  Origin shares fell 2 per cent to $8.77 after the firm said that it would take a $533 million write down related to its gas operations.  Other companies reporting earnings included AGL, which lost 2.1 per cent to $22.01 after it posted a 26.7 per cent rise in first-half underlying profit.  Tabcorp dropped 6.7 per cent to $4.76 after posting a 58 per cent drop in net profit following a poor result from its UK start-up operation Sun Bets.

Market movers

China trade

China’s overseas shipments held up despite the stronger yuan and rising trade tensions with the US, while import growth surged reflecting calendar effects and higher commodity prices. Exports rose 6.0 per cent in January in yuan terms from a year earlier, the customs administration said Thursday. Imports increased 30.2 per cent, to leave a trade surplus of 135.8 billion yuan ($27.4 billion). Factories and offices close for weeks around the Lunar New Year, distorting economic data for the first two months of a year. This year’s holiday runs Feb. 15-21, later than last year, when it began in January.

NAB business conditions

The NAB business conditions index rose 1 point to +15 in the fourth quarter to a level the bank said was well above the long-run average. The index rise was driven by improvements in employment, while trading conditions eased slightly and profitability was steady, according to NAB. Employment conditions have been holding up at levels that suggest likely further improvement in unemployment over coming quarters, NAB said. Meanwhile, the NAB business confidence index eased slightly from +8 to +6 points in the quarter, a little above the average, NAB said.

NZ rates

Acting Reserve Bank governor Grant Spencer kept New Zealand’s official cash rate unchanged at 1.75 per cent and continued to signal rates won’t be raised until the latter half of next year at the earliest. He said this was due to the lack of inflationary pressure, with the kiwi dollar falling after the release of the cash rate statement. “Monetary policy will remain accommodative for a considerable period,” Spencer said in a statement. “Numerous uncertainties remain and policy may need to adjust accordingly.”


The Australian dollar is trading at US78.22¢ against its US counterpart, compared to US78.77¢ on Wednesday. Westpac’s Imre Speizer noted that the US dollar had one of its better days of recent months on Wednesday. “The US dollar outperformed all the majors, the US dollar index is up 0.9 per cent on the day,” he said. Against this backdrop “commodity currencies were hit hard,” he added. He said he could not see the local currency gaining much ground in the immediate future. “(It) retains downward momentum, with minor support at US78.10¢ vulnerable given commodity weakness and US dollar strength.”


Domino’s Pizza shares rose 3.9 per cent to $49.00. The company’s results are due on February 14 and Morgan Stanley analysts said they believe the market will react positively to the earnings. The analysts are expecting the firm to report first-half underlying net profit after tax growth of 13.9 per cent, with the figure rising to 27.9 per cent in the second half. “Investors shouldn’t be alarmed by relatively soft first-half profit growth relative to the approximate 20 per cent full-year profit growth guidance,” they said The analysts, who are overweight on the stock, broke down how they expect growth to accelerate in the second half: We see “the drivers of the growth differential with the Japan put option contributing 3.8 per cent, FX impacts 0.9 per cent, faster second-half store growth 2.7 per cent, greater second-half same store growth of 3.7 per cent, Hallo Pizza earnings contribution at 1.3 per cent and operating leverage at 1.5 per cent”.


By – Sarah Turner

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