21/01/2016 Argonaut Morning Note

Overseas Market Report – U.S. Stocks End Lower as Oil Extends Rout

U.S. stocks finished lower Wednesday as oil futures extended a deep rout.

Oil futures fell below US$28 a barrel, the lowest level in 12 years. Prices continue to be driven down by demand concerns, particularly from emerging markets, and high levels of supply.

U.S. inflation fell in December, according to new data. The overall consumer price index was off 0.1% in the month and prices rose just 0.7% for the full year. Excluding volatile food and energy prices, prices were up 0.1% in the month and 2.1% for the year.

Housing starts in the U.S. fell by 2.5% in December to a seasonally adjusted annual rate of 1.149 million. Economists had expected the rate to come in at 1.20 million. Building permits were down 3.9% in the month.

The Dow closed down 1.6%, the S&P 500 finished 1.2% lower and the NASDAQ fell 0.1%.

Shares of Goldman Sachs (GS) were down after the firm reported a sharp decline in earnings due to a legal settlement. The firm agreed to pay US$5 billion to settle allegations over financial-crisis era wrongdoings, which sent earnings per share to $1.27 from $4.38 a share in the year-ago quarter.

IBM's (IBM) full-year results came in slightly ahead of Morningstar's expectations, but the company provided a disappointing outlook for fiscal year 2016 as it attempts to successfully transition away from declining legacy business lines. For the year, revenue from continuing operations fell 12% year over year to US$81.7 billion (declining 1% in constant currency). The analytics and cloud businesses were solid performers, growing 16% and 57% during the year, respectively, but outsourcing and consulting and systems integration sales remained weak given intense competition.

Shares of Netflix (NFLX) were down after the firm reported disappointing domestic subscriber growth. International subscriber growth (4.04 million net adds versus guidance of 3.50 million) was stronger than expected but that was partially offset but slightly weaker-than-expected U.S. growth (1.56 million net adds, versus guidance of 1.65 million).

For Australian ADRs listed on the NYSE, BHP Billiton slipped 69 cents (3.44%) to $19.38, ResMed gained 10 cents (0.19%) to $53.76, Telstra Corporation added 22 cents (1.22%) to $18.72, Spark New Zealand slipped 35 cents (3.22%) to $10.53 and Westpac declined 53 cents (2.48%) to $20.80.

At 7:45 AM (AEDT), the 10-year Treasury note yield was 1.99% and the 5-year yield was 1.43%.

European markets were sharply lower.

The FTSE 100 and French CAC 40 each shed around 3.5%, while Germany's DAX was down 2.8%.

Asian shares also slid.

The Hang Seng was off 3.8%, the Nikkei 225 lost 3.7% to enter bear market territory, while the Shanghai Composite lost a more modest 1%. India's Sensex declined 1.7%.

Australian Market Report – Local Market Expected To Open Higher

Ahead of the local open, SPI futures were 22 points higher at 4,824.

Wednesday 20 January – close. The Australian market traded higher after open. However, early positivity has proven short-lived as local stocks dipped below the flat-line after 11am, and continued the negative trend throughout afternoon traded, with broad-based sell-offs amongst resource stocks and the big banks weighing most heavily on the market. There were mixed results from sectors; consumer staples gained most significantly while energy and materials were the worst performers. The Australian dollar depreciated against most major currencies.

The All Ordinaries dropped 58.20 points to 4,896.90 while the S&P/ASX 200 fell 61.60 points to 4,841.50.

In This Issue

Sydney Airport (SYD)
Sydney Airport announced that international passenger traffic in December 2015 increased 8.6% compared to the pcp. Domestic and total passenger traffic also performed well growing 5.6% and 6.7% respectively. This exceptional December 2015 result was driven by both strong load factors and seat capacity growth. Strong foreign nationality demand continues to drive international passenger growth (+9.7%), with Chinese (+31.4%), UK (+10.0%), USA (+11.9%), Korean (+18.2%), Indian (+21.6%) and Singaporean (+20.4%) nationalities performing well. Australian outbound also grew strongly above trend, increasing 7.6%. The December 2015 domestic result of 5.6% was the strongest passenger growth since November 2012, primarily driven by seat capacity increases of 4.7% above the pcp. SYD rose 16 cents to $6.47.

Abacus Property Group (ABP)
Abacus Property Group announced the net impact of its fair value adjustments and other items on its statutory profit. The overall impact is a positive adjustment of $8.0m. Independent valuations have been undertaken on 21 of the Group's investment properties as at 31 December 2015 (25% of portfolio) as required by its valuation policy. Combined with internal valuations across the remainder of the portfolio, this has resulted in an estimated $36.8m or 2.8% increase on prior book values. The investment portfolio's overall weighted average capitalisation rate tightened 28 basis points from 8.05% to 7.77%. The investment portfolio is valued at over $1.46bn including $976m of commercial properties across 34 assets and $514m of storage facilities across 59 assets. ABP lost 6 cents to $2.98.

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