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ASX runs out of puff ahead of US inflation data

The ASX fell on Wednesday, weighed down by a drop in CBA shares ahead of US inflation data that some traders believe will dictate the next move for markets.

The S&P/ASX 200 index declined 14 points, or 0.3 per cent, to 5841 and the All Ordinaries index lost 16 points, or 0.3 per cent, to 5940, while the Australian dollar traded US78.79¢.

US shares moved higher for a third straight session on Tuesday, although the advance was muted ahead of January inflation data. The CPI figures will follow data that was released early in the month and showed US wages grew at the strongest rate since 2009. Many traders pinpointed the wages data as a prime cause of the recent turbulence in global markets.

"Some G-10 traders are arguing this is the most significant economic release in the past three years and at a minimum, the consensus is that that the US CPI release on will provide the next directional signal for markets," said Stephen Innes, head of APAC trading at OANDA.

"Most certainly a higher CPI will be initially interpreted through US dollar strength, higher yields and lower equities."

Financials were the weakest performers by sector but most of the weakness was due to CBA falling 3 per cent to $73.98 as it started to trade without rights to its latest dividend payout.


Elsewhere, ANZ declined 0.3 per cent to $27.64 while NAB rose 0.4 per cent to $28.90.

Myer shares rose 1.9 per cent to 56¢ after chairman Garry Hounsell took the executive reins at Australia's largest department store chain after the sudden departure of chief executive Richard Umbers.

ASX investors were also keying into corporate earnings, with several companies seeing some big share price moves after updating investors.

Domino's Pizza dropped 6.1 per cent to $46.50 after reporting a 5.5 per cent jump in half-year profit but revising down its expectations for growth in its network of Australia and New Zealand stores.

Fletcher Building lost 7.1 per cent to $6.64 after its chairman stepped down and it revealed losses in its building and interiors division would blow out by a further $450 million and shareholders would be denied an interim dividend.

On the plus side of earnings, Computershare jumped 4.9 per cent to $17.29 has delivered a 14 per cent rise in net profit of $171.2 million for the first half of FY18.

Insurance giant IAG rose 3.2 per cent to $7.50. It said its first-half insurance profit rose 23.5 per cent to $551 million, helped by rate increases in commercial and consumer lines, and some volume growth in its motor division.

Blood products giant CSL climbed 5.1 per cent to $149.29 after it said its half-year net earnings jumped 31 per cent to $1.375 billion as it boosted its full year profit guidance and half-year dividend.

Industrial property giant Goodman Group rose 2.7 per cent to $8.03 after it upgraded its full-year earnings guidance and distribution payout after reporting an interim operating profit of $421.3 million, up 8 per cent.


BHP shares edged up 0.4 per cent to $30.02 a share, the third straight day of gains for the stock. Macquarie analysts noted that the mining giant reports first-half earnings on February 20 and said that they are expecting a strong result. The analysts have penciled in a 21 per cent increase in underlying earnings from the prior half-year period and 30 per cent about the comparable period a year ago to take into account strong top-line revenue growth. They are expecting an interim dividend of US48c a share, a 20 per cent increase on last year's payout. "BHP appears to be in a strong position to commence additional capital management beyond its dividend payments," the analysts commented.


Westpac sentiment

Westpac's Melbourne Institute Index of Consumer Sentiment showed a reading of 102.7 in February, down from from 105.1 in January. The survey was conducted over the week of February 5 – February 11 which was marked by a wave of volatility in global share markets, with the Australian market down 4.6 per cent over the week and the S&P 500 down 7.2 per cent over the week. "In those circumstances, the 2.3 per cent fall in the Index is a decent result and is now registering a fourth consecutive month where optimists outnumber pessimists," said Westpac chief economist Bill Evans.

Earnings season

Here's Macquarie's equity strategy team on the earnings season so far: "Only one week in, but overall it has been a decent start to the reporting season with 8 beats and 6 misses," the strategists said. The majority of companies that reported last week have had expected earnings revised for full year 2018, with downgrades (11) outnumbering upgrades (8), the strategists noted. Aggregate growth expectations for FY18 have fallen 163 basis points, from 8.4 per cent to 6.8 per cent amid downgrades to the banks, the strategists said.

US inflation

The US consumer price report for January is forecast to show headline inflation slowed to an annual 1.9 per cent and core inflation to 1.7 per cent. The concern is the figures could surprise on the high side as wages data did a couple of weeks ago. "The risk seems asymmetric to me," said Greg McKenna, chief market strategist at AxiTrader. "Even a slightly higher number could set the cat among the pigeons given the late cycle stimulus the Trump Administration is pumping into the US economy."


Gold prices rose for a third straight session on Wednesday to trade at $1334.94 an ounce, buoyed by a weaker dollar, while investors awaited the US inflation data for clues on the pace of future US interest rate increases. A retreat in the US dollar, in which bullion is priced, has helped gold pull back nearly 2 per cent from last week's one-month low of $1,306.81 an ounce. Inflation is sometimes regarded as gold-positive, because bullion is seen as a safe haven when price pressures are rising, but expectations that the US Federal Reserve will lift interest rates to fight inflation make the non-yielding metal less attractive.