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The big miners ended in the red as investors rushed for the exit, while the ASX closed lower.
- Sell BHP and Rio: Citi
- RBA pays $3.2bn dividend to govt
- Slaters to defend against class action
- Property downturn greatest threat
- Stocks dip as investors eye US rate hike
- Analysts put Moly-Cop value at $1bn-$1.5bn
Welcome to the BusinessNow blog for Thursday, October 13. The local market closed lower as blue chips came under pressure, while a Fitch Ratings survey says a housing market downturn is more of a threat to the economy than any potential hard landing in China.
4.55pm:Stocks end lower as miners hit
Local stocks were hit hard today as weak Chinese trade data fuelled risk-off sentiment through the market, particularly in the mining and energy sectors.
At the close the S&P/ASX 200 had given up 0.7 per cent to 5435.5 points, with blue chips seeing some nasty selling.
BHP Billiton lost 2.9 per cent to finish the session at $22.75, while Rio Tinto dropped 2.7 per cent to $51.57. Both had their worst day on the market in a month.
The mining giants were squeezed in two directions – China recorded weak numbers for both imports and exports for September in an ominous sign for commodity companies, while at the same time Citi analysts opted to cut their rating on both BHP Billiton and Rio Tinto to ‘sell’ from ‘neutral’, warning investors that dark days are ahead for miners.
“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.
4.17pm:AusPost CEO’s pay jumps to $4.8m
A return to profit at Australia Post has seen the return of chief executive Ahmed Fahour’s bonuses and led to his pay for last year increasing to almost $4.8 million, writes John Durie.
This works out at double the $2.4m paid last year to Royal Mail boss Moya Greene and places Fahour at the top of the Federal Government pay list.
The Australia Post annual report tabled in Federal Parliament today doesn’t break down Fahour’s salary but instead includes it as part of a break out on senior executive salary.
The top eight executives at the company earned $18.7m last year compared to $13.8m the prior year, which includes $12.7m in basic wages plus bonuses.
4.05pm:Sell BHP and Rio: Citi
Citi has slashed its rating on Australia’s two biggest miners to sell, with analysts saying the rally seen by the market giants won’t last much longer.
BHP Billiton and Rio Tinto have gained 27 per cent and 16 per cent respectively in the year to date as commodity prices surprise on the upside.
Since September 19, BHP has surged 16 per cent, while Rio Tinto has risen almost 12 per cent.
But those moves leave Citi analysts running for the exit.
“Both stocks have rallied strongly on the back of higher bulk commodities, which has been the key driver of performance within the sector YTD, 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.
The cut has helped take the wind out of the miners’ sales today, with BHP down 2.9 per cent to $22.76 with 15 minutes of trade to go, while Rio Tinto has lost 2.7 per cent to $51.60.
Citi cut $1 off its 12-month price target for BHP to $20, and lifted its target for Rio Tinto by $1 to $47.
At 3.55pm AEDT BHP was down 2.92 per cent to $22.76, while Rio Tinto had fallen 2.64 per cent to $51.60.
3.52pm:RBA pays $3.2bn dividend to govt
The Reserve Bank will deliver a healthy $3.2 billion dividend to the government despite reporting a 58 per cent slide in net profit in 2015-16, writes Daniel Palmer.
In its annual report, the central bank said it had logged a net profit of $2.9bn in the 2016 financial year, down $4bn on the prior year.
Its earnings available for distribution jumped $1.1bn on the prior year to $4.6bn, however, allowing it to hand a welcome $3.2bn dividend to Treasurer Scott Morrison.
3.42pm:Aussie dollar, ASX lower after China data
The Aussie dollar hit a fresh three-week low of US75.19c and the S&P/ASX 200 share index hit a two-week low of 5420.8 after disappointing China trade data.
China’s trade balance shrank to CNY268.4bn in September versus the CNY346bn expected, as exports fell 5.6 per cent instead of the 2.5 per cent rise expected.
Weaker crude oil prices have also encouraged some risk aversion, with WTI crude futures hitting a three-day low of $US49.62.
Australia’s 10-year bond yield hit a two-day low of 2.23 per cent as US 10-year Treasury yields fell three basis points.
The Australian dollar was last at US75.32c, while the S&P/ASX 200 is 0.7 per cent lower at 5434 and the 10-year bond yield has slipped 7bps to 2.24 per cent.
3.20pm:Slaters to defend against class action
Slater and Gordon has said it will “vigorously defend” itself against a $250 million-plus class action filed on behalf of 3000 aggrieved shareholders by rival law firm Maurice Blackburn, writes Daniel Palmer.
The response comes after Slater & Gordon was officially served a Statement of Claim today in relation to a disastrous UK expansion and a severe guidance downgrade last year that together wiped over $2 billion from its valuation.
Maurice Blackburn will represent investors who purchased shares in Slater & Gordon from March 30, 2015 until February 24, 2016, with its proceedings just one of two class actions Slater & Gordon is likely to face in relation to the botched $1.3 billion purchase of the professional services operation of UK-based Quindell and sharp downgrade in guidance in late-2015.
2.20pm:China exports sink in September
China’s exports fell sharply in dollar terms in September from a year earlier, as global demand for goods from the world’s second-largest economy remained sluggish.
Exports tumbled 10.0 per cent from a year earlier, following a decline of 2.8 per cent in August, the General Administration of Customs said.
The figures indicate that China’s overseas shipments, once an important generator of growth, are continuing to weigh on its overall economic performance.
1.46pm:Infigen confirms new CEO
Wind power group Infigen Energy has tapped former Alinta Energy and Stanwell boss Ross Rolfe to replace longserving chief executive Miles George.
The transition will take place on November 17 following the $600 million group’s annual general meeting, with Mr George deciding the time was right to retire after seven years in the top job.
He will formally cease employment at the end of the year, although he will offer advisory services follow his retirement.
Daniel Palmer
1.20pm:Magellan faces “key man risk”
Magellan Financial Group has admitted it has yet to crack the code on how it would cope with a sudden departure of high-profile leader and co-founder Hamish Douglass, aware the threat could provide a heavyweight blow.
Mr Douglass, a rich lister who serves as the face of the $40 billion fund manager, currently operates in the roles of chief executive officer and chief investment officer, while also serving in the crucial position as lead portfolio manager of the group’s global equity strategy.
His importance to the $3.5 billion business, tagged as “key man risk”, has forced the business to consider how it would manage without him at the helm.
Daniel Palmer
12.45pm:Transurban succession plan in works
Transurban chairman Lindsay Maxsted has told investors a succession plan for board renewal is in the works as he seeks re-election at the toll road operator’s AGM today.
Mr Maxsted, who has served on the board for eight-and-a-half years and as chairman for six, said he was unlikely to serve another full three-year term as a successor is sought.
“In relation to my tenure, if re-elected today, it is possible that as part of orderly succession planning for the board, and in acknowledging that I am the longest-serving director, I may not serve a full term of three years,” he said.
12.30pm:Iluka revenue, production hit
Iluka Resources says quarterly mineral sands production fell 9.6 per cent on year and revenue was hit by lower zircon sales.
The Perth-based company (ILU) reported combined third-quarter production of 289,100 tonnes of zircon, rutile, synthetic rutile and ilmenite, down from 319,900 tons in the same period the year prior.
Sales revenue in the quarter fell by 30 per cent on year to $134.2 million from $185.9 million a year earlier.
12.05pm:Seven to sell Sky stake
Kerry Stokes’ Seven West Media is understood to be selling its stake in the company that owns Sky News Australia, as negotiations with suitor News Corp edge towards a conclusion.
News Corp is in advanced negotiations to buy Australian News Channel, which is owned by Seven, Nine Entertainment and Britain’s Sky, after launching an initial bid nearly two years ago.
Seven (SWM) had been keen to keep its holding and operate a joint venture with News Corp after the sale.
Jake Mitchell
11.55am:Qantas takes Virgin fight to China
National carrier Qantas has said it will resume direct flights to Beijing out of Sydney in January for the first time since the financial crisis as its competition with Virgin Australia is taken offshore.
The airline (QAN) said daily flights between Sydney and the Chinese capital would begin on January 25, 2017, with return flights timed for connections with its domestic and trans-Tasman network.
It will be the first time Qantas has operated the route since 2009 amid a financial crisis-led pullback.
Daniel Palmer
11.44am:Aussie dollar tests 3-week low
AUD/USD has fallen about 30 points since the NY close, testing initial support from the three-week low of US75.34c for the third day running.
A stronger US dollar has weighed on the Aussie in recent days, with the US dollar index up 0.3 per cent overnight. But AUD/USD seems to be tracking oil prices this morning.
West Texas Intermediate crude hit a four-day low of $US49.76 in early Asian trading amid growing concern about OPEC’s latest plan to cut back production.
As well as recent lows near US75.34c, the Aussie dollar has technical support from the 100-day moving average at US75.38c.
If it breaks US75.34c, it could potentially test the 200-day moving average at US74.39c, which is near the September trough support at US74.42c.
The weekly downtrend line from March 2013 is still capping the Aussie near US76.30c despite some minor false breaks in recent weeks.
Focus will now turn to China’s monthly trade data, due later today.
The Australian dollar was last trading at US75.38c.
11.25am:Housing greater threat than China: Fitch
The nation’s largest fixed-income investors have shifted their view on the greatest risk factor for the local economy, labelling a housing market downturn as the primary threat ahead of any potential hard landing in China.
A Fitch Ratings and KangaNews survey of managers with over $300 billion of fixed-income assets — around three-quarters of the local real-money market — ultimately downplayed the prospect of an imminent crash despite pinpointing housing as a growing risk.
Just 4 per cent of the money managers surveyed tipped house prices to tumble by over 10 per cent by mid-2019, largely due to confidence around low unemployment and interest rates.
“At the same time, a string of regulatory initiatives, coupled with active supervision have added starch to bank underwriting standards,” Fitch noted.
Daniel Palmer
10.55am:Stocks dip as investors eye US rate hike
The Australian sharemarket has seen red in early deals as investors tweak their portfolios ahead of an increasingly likely US rate hike later this year.
At 10.40am (AEDT), the benchmark S&P/ASX 200 index slipped 26.6 points, or 0.49 per cent, to 5,447.7, while the broader All Ordinaries index lost 24.8 points, or 0.45 per cent, to 5,530.4.
Resources led the way down for a second day, with recent momentum coming to a screeching halt as commodity prices turn lower, while losses in the finance sector were also significant, with the big four banks off between 0.6 per cent and 1 per cent.
Daniel Palmer
10.40am:Analysts put Moly-Cop value at $1bn-$1.5bn
Analysts have released research today on Arrium’s Moly-Cop ahead of a prospective float of the grinding media business, indicating that it should list as a company worth between $1bn and $1.5bn.
On an enterprise value, the company is worth between $1.3bn and $1.9bn, the analysts estimate.
The valuation range equates to between seven and nine times its earnings before interest, tax, depreciation and amortisation.
Moly-Cop is subject to a dual track process, and UBS, Macquarie and Deutsche Bank are working on the prospective float.
Deutsche Bank valued the company at between $US1.03bn and $US1.223bn, equating to between seven and nine times its earnings before interest, tax, depreciation and amortisation. Macquarie valued Moly-Cop at between $US1.24bn and $US1.3bn, or between eight and 9.5 times EBITDA, while UBS’s estimate was between $US1bn and $US1.2bn, equal to 6.7 times to 8.3 times EBITDA.
The release of the research this morning will kick off the start of the analyst marketing campaign for the company that will last a fortnight.
Bridget Carter
10.32am:Henderson-Janus tie-up an alpha signal
The Henderson-Janus tie-up could mean that the “high-water mark” for passive investing may has been reached and the multi-year rotation from active to passive investing may be turning, according to CLSA.
“Passive has found favour for a number of reasons (including) a macro backdrop of unparalleled complexity, increased regulatory interference and a seismic information-driven shift in the industry,” CLSA analyst Jan van der Schalk says.
“The Henderson/Janus deal actually creates — across the board — increased leverage to his anticipated comeback of alpha.”
10.25am:ACCC’s blow to NSW over Pillar sale
The New South Wales Government has received a blow in its push to sell state-owned funds administrator Pillar Administration as regulatory risks rise on arguably the most likely buyer.
In a statement of issues released this morning, the Australian Competition and Consumer Commission indicated it could block any proposed purchase from perceived auction frontrunner Link Administration.
The ASX-listed Link outlined its interest in Pillar in August, sparking the ACCC probe.
It has since confirmed this morning the development of an acquisition proposal it believes is “compelling”.
Daniel Palmer
10.16am:Investors jump at 30-year bond issue
Australia’s debut 30-year bond issue got $13.8bn worth of bids, nearly twice the $7.6bn issue, and 62 per cent of the investors were from overseas, according to government agency AOFM.
The deal was priced at 3.27 per cent, 101 basis points above 10-year bond futures and 45 basis points over 20-year futures.
It suggests that demand for AAA bonds is quite strong after the recent sell-off, which pushed yields up to four-month highs yesterday.
10.02am:Elanor Retail Property launches bookbuild
Elanor Retail Property Fund will launch its bookbuild today, ahead of its plans for an initial public offering.
The bookbuild will close at 2pm.
The deal is being handled by Moelis, with shares offered at $1.35 each.
Bridget Carter
9.59am:Commodities jump reshapes economic outlook
Spectacular price gains from a broad sweep of commodities — and strong growth in LNG exports against a backdrop of prospective price increases — is reshaping Australia’s economic outlook.
The nation’s top five commodity exports — representing more than $130 billion in annual income — have benefited from price rises since January, in a move that is expected to translate to a multibillion-dollar windfall for Canberra’s budget bottom line.
The move came as iron ore magnate Andrew Forrest declared yesterday that the “worst is behind us” in terms of the commodity price rout.
Barry Fitzgerald, David Rogers
9.46am:Broker rating changes
SCA Property Group raised to Accumulate vs Lighten — JP Morgan
Alumina cut to Sell vs Neutral — Citi
9.20am:Transurban revenue lifts on higher charges
Toll road operator Transurban has reported a 10.8 per cent jump in underlying revenue through the first quarter, as higher charges and improved traffic combined to lift sales, writes Daniel Palmer.
The September quarter update revealed traffic growth of 4.9 per cent across its broad network, which includes major roads in Melbourne, Sydney and Brisbane.
The lift in traffic combined with higher toll road charges to lift toll revenue 12.3 per cent to $513 million, while proportional toll revenue — which provides a fairer comparison to prior quarters — rose 10.8 per cent to $529m, as against the September quarter last year.
9.13am:UBS model portfolio update
UBS has added APN Outdoor and BlueScope Steel to its model portfolio and removed Alumina and South32.
The broker dropped South32 in light of its strong share price outperformance and its view that coal and manganese prices should start to normalise. It added BlueScope based on its share price underperformance and the view that its valuation is undemanding, while coal price normalisation should improve steel spreads.
APN Outdoor was added as UBS feels the structural growth story for advertising remains intact, while Ansell was cut after share price gains.
8.54am:Broker rating changes
Alumina cut to Neutral vs Overweight — JP Morgan
BHP Billiton cut to Sell vs Neutral; target cut to $20 vs $21 — Citi
Rio Tinto cut to Sell vs Neutral; target raised to $47 vs $46 — Citi
Medibank Private raised to Neutral vs Underperform — Credit Suisse
REA Group raised to Outperform vs Neutral — Credit Suisse
Village Roadshow raised to Overweight vs Neutral — JP Morgan
8.42am:What the FOMC is hinting at
A rate hike in December is now looking pretty likely, according to IG market analyst Angus Nicholson.
“The minutes for the September Fed meeting show that it was a pretty close decision to keep rates on hold, making it increasingly likely that we will see a rate hike in December,” he said.
“However, the divisions within the minutes were quite stark, and even if we do see a rate hike in December it would not be totally surprising to see some dovish dissensions.”
“Although Lael Brainard, one of the most noted Fed doves, is having her name bandied about as a potential Treasury Secretary candidate in Hillary Clinton’s cabinet, which could possibly upset the hawk/dove balance in the Fed next year.”
8.25am:Gains could be hard to find today
Australian stocks are heading for another fall today as commodity prices and a strengthening US dollar squeeze the local index.
The SPI 200 is pointing to a 0.3 per cent fall, while fair value suggests a slightly shallower 0.2 per cent slip is more likely.
“The drop in iron ore and copper alongside oil overnight do not bode well for the commodity-related stocks in the market,” IG market analyst Angus Nicholson said.
“And it could be a tough session for the market as a strengthening US dollar starts to impact elements of the market.”
At 8:15am AEST the Aussie dollar was buying US75.67 cents, a full US1 cent below where it sat 10 days ago.
Meanwhile the price of iron ore gave up 0.9 per cent overnight following its biggest rise in two months in the previous session — it’s currently going for $US57.16 a tonne.
The oil price won’t help resources and energy stocks today, WTI and Brent both fell around 1.5 per cent overnight but remain over $US50.
BHP Billiton’s ADRs point to a 1.3 per cent fall this morning, which would follow a 1.5 per cent drop yesterday as the ASX inched 0.1 per cent lower for the day.
7.05am:Local market set for soft open
The Australian market looks set to open lower after Wall Street’s major indices held modest gains, as the Federal Reserve meeting minutes did little to clarify expectations on the timing for its next interest rate rise.
At 6.45am (AEDT), the share price index was down 16 points at 5,439.
Locally, in economic news today, the Australian Bureau of Statistics releases its annual report and report on performance for 2015/16. The ANZ-Property Council Survey for September is also due out.
In equities news, Qantas is expected to make a network announcement while Transurban holds its annual general meeting in Melbourne.
In Australia, the market yesterday closed slightly lower with weaker energy and mining stocks offsetting gains by market heavyweights including Telstra and CSL.
The benchmark S & P/ASX200 index lost 5.2 points, or 0.09 per cent, to close at 5,474.6.
The broader All Ordinaries index fell seven points, or 0.13 per cent, to 5,555.2 points.
AAP
7.00am:Wall St edges up after Fed
US stocks climbed slightly overnight as investors digested the release of minutes from the Federal Reserve’s latest meeting.
Shares fell in Europe, as investors worried about the effect of high interest rates and digested British plans to allow parliament a debate over the Brexit process, while the pound hit an all-time low against a basket of currencies.
Dow Jones
6.55am:Iron ore price steady
The iron ore price is holding steady above the key $US55 a tonne threshold, a level which investment bank UBS says could offer a boost to Australia’s major miners if sustained, Elizabeth Redman writes.
Iron ore was unchanged at $US56.50 a tonne overnight, according to The Steel Index.
6.50am:Dollar slips
The Australian dollar is lower against its US counterpart.
At 6.38am (AEDT), the local unit was trading at US75.66 cents, down from US75.78 cents yesterday.
AAP
6.45am:Pound hits historic low
The British pound touched a historic low against a basket of global currencies, meaning it has likely never been lower when measured against its trading partners.
Dow Jones
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6.40am:US Fed to hike ‘relatively soon’
Federal Reserve officials meeting in September laid the groundwork to raise short-term interest rates “relatively soon,” according to minutes of the meeting, although they struggled to reconcile internal divisions over the timing of the next rate move.
Dow Jones
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