BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
Qantas is leading the ASX 200 today after announcing a new path to China.
- Stocks run out of fizz
- Oil stocks fried: Credit Suisse
- Qantas soars on new flight path
- RBA warns on apartment glut
- ASX rebounds, miners stumble
- US equities stretched: Kerr Neilson
- Fantastic accepts takeover offer
Welcome to the BusinessNow blog for Friday, October 14. Fantastic Holdings has recommended a takeover offer from Freedom owner Steinhoff Asia Pacific, while the local market ended the week little changed.
4.25pm:Stocks run out of fizz, end week flat
The Australian sharemarket has ended a lacklustre week flat as investors declined to make heavy bets.
At the close, the benchmark S&P/ASX 200 index inched up 0.8 of a point, or 0.01 per cent, to 5,436.3, while the broader All Ordinaries index tacked on 1.9 points, or 0.03 per cent, to 5,520.2.
For the week the benchmark index lost 0.6 per cent, with early week gains given up as sentiment turned negative on the big miners.
The materials sector was lower for a third day, with BHP Billiton weakening 0.9 per cent to $22.54, Rio Tinto sliding 1 per cent to $51.05 and Fortescue dipping 0.4 per cent to $4.88.
In energy, Santos edged down 0.3 per cent to $3.71, Origin Energy weakened 0.7 per cent to $5.52, while Woodside bucked the trend to rise 0.2 per cent to $29.54, with the three groups bouncing off lows as oil prices rallied through Asian trade.
Daniel Palmer
4.18pm:Fantastic couldn’t snub ‘bird in the hand’
A “fragile relationship” with sceptical investors and a constant struggle to explain its results to the market helped foster an environment ripe for global furniture giant Steinhoff to make a $361 million takeover bid for Fantastic Holdings, the lead independent director for Fantastic said today.
Fantastic (FAN) director John Hughes, a former chief executive of agricultural services company Ruralco, said the board of the furniture group, whose brands include Fantastic Furniture, Plush and Dare Gallery, were unanimous in the belief the $3.50 per share offer from Steinhoff was a “bird in the hand’’ it could not refuse.
“We have had what some would refer to as a fragile relationship with the market etc, and it takes a considerable period of time and effort — not just to deliver the (financial) results — but to get the market positive on a consistent style of basis,’’ Mr Hughes told The Australian.
“Then you have to stand back, particularly as a non-executive independent director, and say well there is the bird in the hand here with a very full and fair offer, or do we reject that and say ‘no’, we think we can do better over the next couple of years.
Eli Greenblat
4.11pm:Aussie dollar climbs on upbeat Asia
The Australian dollar climbed strongly in Asia, but traders were grasping for reasons to explain the move.
Some said the rise reflected a more upbeat mood across the region, as seen in higher share prices.
Japan’s Nikkei Stock Average posted gains of around 0.1 per cent, Korea’s Kospi was up 0.5 per cent, while Thailand’s stock market rebounded from losses seen in the days leading up to the death of King Bhumibol Adulyadej.
The Thai SET Index, which opened up 3.5 per cent, has pared some gains and was last up 3.1 per cent.
At 2.40pm (AEDT), the Australian dollar was trading at US75.87c compared with US75.29c at a similar time in local trading Thursday.
James Glynn
3.50pm:Housing ‘exuberance’, but is it a bubble?
Australian house prices showed an acceleration in ‘exuberance’ through the second quarter, Dallas Federal Reserve data shows, as valuations struck a new record high.
The figures feed an ongoing debate around the latest surge in residential property prices, with UBS analysts headed by Scott Haslem hinting the RBA’s suggestion of a moderation of house price growth may have been wide of the mark.
“Overall, the unique Dallas Fed data show momentum in Australia’s housing market has picked-up in 1H16, consistent with the data we have been following in Australia,” Haslem says.
“Moreover, valuation metrics have reached a new record high, having risen 23 per cent over the past four years, the second fastest of the 23 country data set. This is a clear cautionary tone for policy.”
UBS recently tagged Sydney’s market as the fourth most at-risk of a bubble in the world and while the Dallas Fed data stops short of bubble talk, UBS is adamant the local market is expensive.
“While our own nominal metrics suggest quite a significant amount of exuberance in Australia’s property valuation, the more sophisticated econometric techniques utilised by the Dallas Fed suggest there is less evidence of explosive exuberance in Australia’s housing market over recent quarters,” Haslem said.
“This may have more to do with the pace that our housing valuation is rising (i.e., less sharply than in prior upswings), rather than what appears on nearly all metrics to be an ‘absolutely’ expensive housing market.”
3.30pm:Oil stocks look fried: Credit Suisse
Santos and Oil Search have seen their rating and price target slashed by Credit Suisse, with the analysts becoming more bearish on crude.
Credit Suisse cut its long-term Brent crude expectations to $US65 from $US70, which has a dramatic impact on the way they see local energy stocks.
Both Oil Search and Santos have been cut to underperform from neutral, with commodity price risk cited as central to the downgrade.
Credit Suisse analysts, led by Mark Santer, say their decision is unprecedented and admit the market may not follow their call right away.
“We do not expect the market to change its view overnight on oil,” Credit Suisse said.
“However, with valuations so stretched, we just cannot support a positive view on the sector. We take the unusual, and unprecedented for us, step of downgrading Santos and Oil Search to join Woodside on Underperforms.
“Oil will largely determine whether this call is right, but the disconnect vs global names is also striking. For those looking for exposure, we find Origin, Beach Energy and Worley at the top of a low pile.”
The Credit Suisse target price cuts look like this:
Oil Search — $5.80 (from $6.30)
Origin Energy — $5.40 (from $5.90)
Santos — $3.50 (from $3.90)
Woodside Petroleum — $25.50 (from $26.80)
3.04pm:A heady market debut
An emerging brewer has enjoyed a strong debut on the share market, adding $2.7 million to its value.
Shares in Broo Limited (BEE) have jumped by a quarter in their first few hours on the market, up five cents from their issue price of 20 cents, taking its market value to $13.2m.
About 489,000 shares have so far changed hands since they began trading at 11am (AEDT), about 9 per cent of its shares on issue.
2.55pm:China PPI in first rise since January 2012
The price of goods at the factory gate rose in China for the first time in more than four years in September, officials said, in a positive sign for demand in the world’s second-largest economy.
The producer price index (PPI) rose 0.1 per cent year-on-year in the month, according to the National Bureau of Statistics, adding it “ended 54 consecutive months of year-on-year falls”.
Chinese firms have for years been battered by falling prices for their goods in the face of chronic overcapacity and weak demand, putting a damper on growth in a key driver of the world economy.
AFP
2.30pm:BARTHO: Medcraft oversteps the mark
From Stephen Bartholomeusz’s column today:
It is unclear whether Greg Medcraft is advocating that banks should be forced, by regulation or legislation, to introduce tracker mortgages in this market, although that would be the obvious conclusion from his comments at the latest House of Representatives economics meeting hearing today.
What is clear is that any mandating of specific products that banks have to offer would be a significant intervention into their affairs, and potentially a dangerous one. Neither politicians nor a non-prudential regulator should be dictating to banks what particular products they should be offering in a market the Financial System Inquiry determined was competitive.
Medcraft, ASIC’s chairman, went public this week with his support of the introduction of tracker mortgages — mortgages prices at a fixed margin to a benchmark rate, like the Reserve Bank’s cash rate. The committee’s chairman, David Coleman, had revealed a preoccupation with these products in last week’s “grillings” of the major bank chief executives.
2.16pm:Crisis to cost Samsung $US3bn
Samsung says the crisis over its exploding Note 7 smartphones will cost another $US3 billion-plus in lost profit over the next two quarters, but it hopes expanded sales of its other flagship handset will help cushion the impact.
The profit warning came two days after the South Korean electronics giant slashed its operating profit for the third quarter by $US2.3 billion.
After a recall problem with the large-sized Galaxy Note 7 turned into a full-blown crisis, Samsung announced earlier this week that it was scrapping the model entirely — a devastating move for a company that prides itself on the quality production of cutting-edge technology.
AFP
1.28pm:Why chicken is killing lamb
The price of beef and lamb has shot up in Australia in the last couple of decades, making chicken look cheap, cheap.
With the biggest IPO of the year happening next month — Ingham — this video unpacks the why and how of Australia’s phenomenal appetite for the chook.
1.23pm:Qantas soars on new flight path
Qantas is today’s best performing stock, with investors applauding the move to begin daily flights between Sydney and Beijing for the first time since the GFC.
The shares have jumped 3.2 per cent, while the ASX 200 remains flat, in its best day in over a month.
At $3.26, the airline’s stock is at its highest level since mid-September.
The service will be codeshared with partner China Eastern and is set to start on January 25.
About half of Qantas’ capacity now comes from China, up from 30 per cent a decade ago, and while Qantas already runs a service directly to Shanghai, CEO Alan Joyce says the Beijing service will help build the Asia-focused network.
“The potential is tremendous,” Joyce said in the statement.
“The business travel market is another key focus for this route.”
12.20pm:Fantastic shares surge 40% on takeover
Fantastic Holdings shares have rocketed more than 40 per cent after the company said it agreed to a $3.50/share cash takeover from Freedom owner Steinhoff Asia Pacific, which values the company at about $361.4 million.
At 12.00pm AEDT Fantastic shares were 41.22 per cent higher at $3.46.
12.10pm:Lending finance slides
Risk taking remains muted among consumers and businesses alike, with lending finance falling for the fourth month in five.
Figures released by the Australian Bureau of Statistics show a 1.1 per cent slide in loans through August compared to July, a return to recent trends after a rebound in July.
The drop-off in financing was most pronounced in the personal loans sector, the third largest measured by the survey, with such loans tumbling 4.3 per cent on a seasonally-adjusted basis.
12.05pm:Sell Bendigo Bank: Market Matters
Marketmatters.com.au recommends selling Bendigo & Adelaide Bank to take profit on a long position recommended on August 30.
“Although we remain positive on the banks, we have a large weighting towards the sector and feel it’s prudent to reduce our exposures into strength,” the trading advisory service says.
11.40am:RBA in fresh warning on apartment glut
The RBA has increased its warning about a potential apartment glut in central Melbourne and Brisbane, while saying the banking system remains in good shape.
“Risks around the projected large increases in supply in some inner-city apartment markets are coming to the fore,” the RBA said in its Reserve Bank of Australia said in its semi-annual Financial Stability Review.
“There are signs that some settlements are taking longer and lending valuations are coming in below their contract price, though settlement failures to date remain low.”
At the same time, the central bank appears a little more relaxed about the country’s soaring house prices despite warnings this week from ratings agencies that a property downturn now tops the list of risks to the economy.
“Risks to financial stability from lending to households have lessened a little over the past six months,” the RBA said.
With Dow Jones
11.28am:S&P 500 turning bearish: IG
The US S&P 500 index is starting to turn more bearish, with the fall below uptrend line support near 2140, though it found support near the pivotal 2120 level last night.
“A closing break of 2116 and I would expect stronger downside risks at a time when US corporates are not allowed to buy back stock,” IG chief market strategist Chris Weston says.
He notes that earnings reports from JPM, Citi and WFC will be key tonight. US retail sales and PPI data are also due tonight.
For Australia’s S&P/ASX 200, a break of yesterday’s low at 5420 could generate a test of the 100-day moving average at 5393.
A break there could target the 200-day moving average at 5238.
The S&P/ASX 200 is currently at 5436.8.
10.55am:ASIC mulls future ASX outage options
ASIC has said a review into last month’s embarrassing ASX outage is ongoing, with the regulator assessing options to improve procedures should a similar issue be encountered in the future.
“ASIC has reviewed the initial incident report prepared by ASX, which has identified a hardware failure as the triggering event of the particular incident,” the markets regulator said.
“Secondary issues arising from this failure are also being investigated by ASX, and we will also review the conclusions from this further work.”
10.35am:NAB ‘not keen’ on tracker mortgages
National Australia Bank chief executive Andrew Thorburn said regulating pricing “would be a dangerous step” after Prime Minister Malcolm Turnbull hinted that cabinet may consider the legislating for so-called tracker mortgages if the bank inquiry committee recommends their introduction.
Mr Thorburn said the lender was “not keen” on the introduction of tracker mortgages, loans that are pegged to movements in the RBA cash rate or some other independent benchmark rate, which formed a large part of the parliamentary house economics committee’s banking inquiry earlier this month.
Michael Roddan
10.25am:ASX rebounds, miners stumble
The Australian sharemarket has rebounded due to strength in defensive corners of the market, with miners again weighed by commodity price falls, writes Daniel Palmer.
At the 10.15am (AEDT) official market open, the benchmark S&P/ASX 200 index rallied 6.2 points, or 0.11 per cent, to 5,441.7, while the broader All Ordinaries index bounced 7.5 points, or 0.14 per cent, to 5,525.8.
CMC Markets chief market analyst Ric Spooner said Chinese trade data was serving as a handbrake on more significant moves higher.
“China’s weak trade data yesterday served as a reminder that tepid global growth remains a constraint on both corporate profits and interest rates,” he said.
Resources stocks faced pressure from weaker commodity prices, however, with base metals under pressure overnight.
The materials sector was lower for a third day, with BHP Billiton weakening 1.2 per cent to $22.47, Rio Tinto dipping 1.6 per cent to $50.755 and Fortescue sliding 0.7 per cent to $4.855.
10.15am:Stock trader sues ASIC for defamation
International intraday stock trading platform Select Vantage has launched defamation proceedings against the corporate regulator, alleging it made false claims and secretly warned major market players including Credit Suisse against dealing with the company.
Select Vantage principal Daniel Schlaepfer is suing the Australian Securities & Investments Commission over a statement it released in 2014 alleging the company had engaged in “suspected market manipulation”.
Mr Schlaepfer says ASIC’s actions have caused Select Vantage — which has 35,000 staff and traders in 38 countries — to be “locked out” of the Australian market and to have lost its Australian business.
Anthony Klan
10.05am:Ominous signs for stocks?
Join Markets Editor David Rogers and BusinessNow Editor Chris Kohler for a live Q&A at 12pm (AEDT) today on the Australian stock market.
If you have a question for Chris or David, simply post it here.
Possible discussion topics this week include:
• The US presidential election — can Trump continue to hold his appeal with voters despite his latest sexism scandal? And what is the flow of the pre-election news doing to markets?
• The Federal Reserve — what hints did the FOMC minutes hold about the possibility of a rate hike this year? What would that mean for Australia?
• China — sharply weaker than expected export figures out of China this week hit resources stocks hard ... Is this an ominous sign for demand in Australia’s biggest business?
9.56am:US equities look stretched: Kerr Neilson
Platinum Investment Management CEO and billionaire Kerr Neilson said he is “tilting” his fund away from the US stock market, which is seeing “huge crowding” in utilities and REIT’s, Bloomberg reports from a conference in Sydney.
Neilson is, however, encouraged by an upturn in global PMI’s, Bloomberg adds.
9.53am:Switch from Bendigo Bank to resources?
Marketmatters.com.au says it will consider making a recommendation to sell Bendigo Bank today and either go to cash or switch to either South32, QBE Insurance or JB Hi-Fi.
9.35am:Much cash on the sidelines: Deutsche Bank
While equity market inflows softened in the June quarter, cash could flow back into equities if recent uncertainty passes, according to Deutsche Bank.
Brexit, the US election and central bank policy are among the major macroeconomic uncertainties at present.
But DB equity strategist Tim Baker notes that super funds now hold about 17 per cent of total assets as cash versus a 20-year average of 12 per cent, and foreign inflows are at six-year lows.
“History would suggest some improvement from here — foreign inflows have tended to pick up after weakness in the currency and the market,” Mr Baker says.
“And Australia still offers dividend appeal, being the highest-yielding major equity market. And after years of being out of favour for several years, resource stocks are performing which may attract foreign money.”
“While not a near-term story, foreign investors could cover some of their record underweights in the banks at some point, which could drive share price upside. This is likely to require a receding of regulatory risks and an easing of housing correction fears. Perhaps a story for 2017.”
9.28am:Mining crisis or opportunity?
Mining giants were hammered yesterday, with BHP dropping 2.9 per cent to $22.75 (and it’s eyeing another 1 per cent fall today), and Rio Tinto giving up 2.7 per cent to $51.57.
Weak Chinese trade data pushed investors towards the exit following a long and healthy rally from big resources companies this year. BHP had surged as much as 27 per cent higher in the year and added 16 per cent in less than a month, while Rio wasn’t far behind with an 11.6 per cent rise since September 19.
Soaring coking coal, oil prices and copper prices, along with a bit of help from iron ore, boosted miners but analysts now fear dark days are returning.
Citi is fleeing the major miners, opting to cut its rating on both BHP Billiton and Rio Tinto to ‘sell’ from ‘neutral’ and wiping $1 off its 12-month price target for BHP.
“Both stocks have rallied strongly on the back of higher bulk commodities … but we expect prices to pull back significantly in late-16 and into 2017 as demand cools and supply responds,” Citi analyst Clarke Wilkins said.
Not all market watchers are ready to give up on the miners, however, with Bell Potter institutional trader Richard Coppleson playing down the importance of yesterday’s China trade miss.
“This could be an early sign that the recent recovery in economic activity is losing momentum, although we would caution against reading too much in to a single data point given the volatility of the trade figures,” Mr Coppleson said.
“I’m a buyer of the resources into this weakness.”
READ David Rogers: Beijing blues depress dollar, commodities
9.17am:ASX 200 in for short-term drop: Morgans
Australia’s S&P/ASX 200 share index has lost momentum over the past week and bearish divergence between the price and the stochastic indicator points to a further pullback in the short term, according to Morgans.
“Given the current rally has lost momentum well below its previous high we think the 5600 zone will exert resistance in the near term,” Morgans technical analyst Violeta Todorova says. “Overall, we believe the market will take a breather in the next few months and trade sideways between 5200 and 5600.”
The S&P/ASX 200 closed yesterday at 5435.5.
9.10am:Fantastic Holdings agrees to takeover
Fantastic Holdings directors have agreed to a $3.50/share cash takeover via scheme of arrangement with Freedom owner Steinhoff Asia Pacific, which values the company at about $361.4 million.
The offer price represents a handy 43 per cent premium to yesterday’s close at $2.45 a share.
The all-cash deal has been unanimously recommended by the board of Fantastic and will see the target’s Fantastic Furniture, Plush and Dare Gallery brands combined with Steinhoff’s Freedom and Snooze, provided it is waved through by shareholders and regulators.
Already the prospect of clearing an investor vote appears assured as leading Fantastic shareholders Julian Tertini and Peter Brennan — with a combined 50.8 per cent of the company — have pledged to lend their support.
David Rogers, Daniel Palmer
9.05am:Weekly winning streak under threat
Australian stocks look likely to end the week lower for the first time in a month as weak Chinese export numbers and a stronger US dollar put pressure on the ASX.
The SPI 200 is pointing to a 0.2 per cent rise at the open, and fair value tips the same result.
BHP Billiton will be one to watch, with shares in the world’s biggest miner set to fall 1 per cent, according to its ADRs, which would follow yesterday’s brutal 2.9 per cent drop. If BHP gives up 1 per cent or more today it’ll be the worst week the miner has seen since early late August.
The ASX 200 has seen three consecutive weekly gains but the index is 0.6 per cent down over the last four sessions.
8.51am:Broker rating changes
Oil Search cut to Underperform vs Neutral — Credit Suisse
Santos cut to Underperform vs Neutral — Credit Suisse
Empired raised to Buy vs Hold — Bell Potter
7.10am:Cautious open tipped for stocks
The Australian market looks set to open slightly higher after a negative lead from Wall Street, which was pulled lower by weak Chinese economic data.
At 6.45am (AEDT), the share price index was up six points at 5,422.
Locally, in economic news, the Reserve Bank of Australia releases its Financial Stability Review while the Australian Bureau of Statistics releases August lending finance figures.
ASIC appears before a parliamentary economics committee in Canberra.
In Australia, the market yesterday fell as energy, resources and financial companies felt the impact of weaker-than-expected Chinese trade data. The benchmark S & P/ASX200 index dropped 39.1 points, or 0.71 per cent, to 5,435.5 points.
The broader All Ordinaries index fell 36.9 points, or 0.66 per cent, to 5,518.3 points.
AAP
7.05am:Wall St lower on China data
US stocks pared losses overnight after earlier falling more than 1 per cent in the wake of weak Chinese trade data that sparked declines around the globe.
In Europe, investors were also rattled by worries over the health of the Chinese economy, with share markets in Britain, France and Germany closing lower.
Dow Jones
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6.55am:Iron ore higher, miners hit
The iron ore price has edged further above the key $US55 threshold, even as Australia’s major miners were hammered in London trade after Citi cut its rating on both BHP Billiton and Rio Tinto to sell, Elizabeth Redman writes.
Iron ore inched up 0.2 per cent to $US56.60 a tonne overnight, according to The Steel Index, from $US56.50 the previous day.
Read more
6.50am:Dollar rebounds
The Australian dollar has gained against its US counterpart, which weakened following disappointing China trade data.
At 6.35am (AEDT), the local unit was trading at US75.71 cents, up from US75.31 cents yesterday.
The US dollar tumbled from a seven-month high as risk appetite took a turn for the worse on the soft Chinese data, which rattled markets that expect the Federal reserve to boost rates by year-end.
Data showed that Chinese imports in US dollar terms had contracted and exports dropped by a sharper-than-expected 10 per cent.
AAP
6.40am:Economists tip US recession
The US must face one of two scenarios: Either the next president will face a recession in office, or the US will have the longest economic expansion in its history.
Odds are that the recession is more likely. Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60 per cent.
Dow Jones
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