The ASX sold off after being left with its own thoughts given there was little in the way of overnight leads today with the US closed observing MLK day last night. The slip ended a 5-day winning streak for the index which had put on ~180pts/2.4% in 5 sessions, with today’s small 13pts fall just the third red day for 2020. There was large futures led buying into the close today which managed to cut around half of the index’s losses in the final match for the afternoon, a sign that even though the 5-day run is done, the rally may not be over in the short term.

Asian markets were lower today, more so than the local index, on fears the coronavirus outbreak would impact stocks. Airlines have felt some selling on the back of travel fears, Qantas down again today while Corporate Travel (CTD) was the hardest hit travel leveraged play, falling –4.58%. Three of the big 4 closed higher in the down day with CBA giving back some of its outperformance of late. The supermarkets continued to storm higher, carrying the consumer staples sector with them. Growth was on the nose with energy following a softer night for oil lower and tech on the nose with Wisetech’s (WTC) biggest fall of the year. US futures are pointing to a softer start to the week when they pick up trading tonight following Asian markets lower.

Overall, the ASX 200 fell -13pts / -0.19% today to close at 7066. Dow Futures are trading lower by -95pts/-0.32%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

BHP Group (BHP) -0.1%: traded lower today but didn’t greatly underperform peers or the market by any means after posting their 2nd quarter production report. The four main segments for BHP are tracking in line with expectations, and guidance was maintained as is as a result, although petroleum production has been talked to the lower end of the guidance range. Iron ore was production was down quarter on quarter, but only marginally so, with BHP finishing up some maintenance projects it’s now set to storm home in the second half.

Copper production grew 9% on 2Q19 as their Escondida mine ramped up – although realised grade was lower than previous quarters. Coal production was mixed with metallurgical coal showing strong growth while thermal coal fell year on year. Costs were all in line with expectations. As BHP head into the second half of the year, we doubt there will be too many changes to analyst models after today’s report, although if the iron ore price remains elevated, upgrades will be forced in.

BHP Group (BHP) Chart

Pact Group (PGH) +3.35%: shares climbed today after engaging the bankers to sell the contract manufacturing division after completing a strategic review of assets. The business up for sale provides a range of packaging solutions for manufacturers across a wide range of products contributed $25m EBITDA for FY19 which was down from $40m the prior year with higher input costs and some weaker demand hurting earnings. The sale was taken well by the market with the proceeds with the MD saying it will “strengthen our balance sheet and improve our financial flexibility.” We own PGH - they have done well to improve their debt position as capital raise fears subside, the share price has managed to edge higher.

Pact Group (PGH) Chart

Broker moves;

  • Collection House Cut to Hold at Baillieu Ltd; PT A$1.20
  • Dexus Raised to Outperform at Macquarie; PT A$13.26
  • Charter Hall Retail Raised to Outperform at Macquarie
  • nib Raised to Neutral at UBS; PT A$5.85
  • nib Raised to Neutral at Goldman; PT A$5.66
  • Sydney Airport Cut to Neutral at Macquarie; PT A$8.68
  • SCA Property Raised to Neutral at Macquarie; PT A$2.91
  • Charter Hall Long Raised to Neutral at Macquarie; PT A$5.88
  • Boral Cut to Hold at Morningstar
  • GrainCorp Cut to Hold at Morningstar
  • Fletcher Building Raised to Overweight at JPMorgan; PT NZ$6
  • Silver Lake Cut to Sector Perform at RBC; PT A$1.40
  • Silver Lake Cut to Hold at Canaccord; PT A$1.60
  • Coats Cut to Hold at Berenberg; PT 80 pence
  • Infigen Raised to Add at Morgans Financial Limited
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