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The engineering contractor has its best day on the ASX in nine years after a profit update and guidance boost.
- Downer EDI reaps rewards
- The resources fuelling our trade surplus
- Record trade boosts Aussie dollar
- Five reasons to stay dug into miners
- Investors backflip as ASX loses ground
BusinessNow: live market coverage on Thursday, February 2. Ahead: Tabcorp and Downer EDI earnings, ABS building approvals and trade data.
4.34pm: Stocks edge lower despite trade
Australian stocks edged marginally lower today as investors digested the first of the half-year earnings reports, and parsed Donald Trump’s latest comments for additional policy clues.
At the close of trade the S&P/ASX 200 was 0.14 per cent weaker at 5,645.4 points, with blue chips stocks ending mixed despite a much stronger than expected set of ABS trade numbers.
The index managed to keep its head above the 5600 point level – a key support point which analysts say could sap confidence trigger a further selloff.
“The ASX 200 avoided a confidence sapping break below chart support at 5600 points, which had been threatened on Monday,” CMC Markets chief analyst Ric Spooner said.
“The market looks like consolidating again today as investors wait on the reporting season and in the absence of any overnight news to change the macro outlook.” Read more.
4.27pm: Aussie dollar lifts on trade surplus
James Glynn writes:
The Australian dollar rallied strongly on Thursday on news of a record trade surplus in December.
At 2.40pm (AEDT), the local unit was at US76.37 cents, compared with US75.66c late on Wednesday.
Australia posted a seasonally adjusted trade surplus of $3.5 billion in December, notching a new record, the Australian Bureau of Statistics said earlier in the day.
The December result compared with a surplus of $2.04bn in November and a previous record surplus of $2.24bn in February 2009. The figure was sharply higher than analysts’ expectations of a surplus of $2.2bn.
The value of exports rose by 5.0 per cent in December from November helped by a 14 per cent increase in coal and a 10 per cent rise in iron-ore shipments, while imports rose by 1.0 per cent, the statistics bureau said - read more.
Dow Jones Newswires
Scott Murdoch 4.12pm: Wilson puts forward Hunter nominees
Wilson Asset Management is nominating three new directors to join the Hunter Hall Global Value (HHV) fund, as the company’s takeover tussle shows no signs of ending.
The fund manager has nominated former Australian Financial Review editor Glenn Burge, lawyer Kim Evans and London based fund manager Emma Davidson to replace the current board.
More to come.
4.10pm: Record trade surplus to lift profits
Marty Silk writes:
Soaring commodity prices have delivered Australia’s largest-ever trade surplus, which will likely boost corporate profits and wages but economists warn the record uplift won’t last.
Fears of a technical recession and possible loss of Australia’s triple-A credit rating have receded after the nation’s trade surplus surged 72 per cent to $3.5 billion in December, the highest level since records began in 1971, according to the Australian Bureau of Statistics.
The massive jump was triggered by a five per cent rise in exports, primarily from higher iron ore and coal prices, and higher export volumes. Coal exports leapt by 14 per cent to $5.8 billion, while ore and mineral exports also surged 10 per cent, to $7.7 billion.
HSBC chief economist Paul Bloxham said the export boom will boost company profits, dividend payments, share prices and wages in the mining sector. He said higher tax revenue and royalties would flow through to government investment and public sector wages as well.
“It may not have quite as much effect on wages as booms in the past but, given the magnitude of the rise in national income, it would be unusual not to have any impact,” Mr Bloxham said.
AAP
3.30pm: Japanese forex intervention ‘emergency’ only
Prime Minister Shinzo Abe said on Thursday that Japan will remain open to undertaking direct intervention in the currency market, keeping a brave face despite US President Donald Trump’s complaints about Tokyo’s currency policy.
“As I have been saying, the Abe administration has never carried out intervention in the foreign exchange market. At the same time, however, I wouldn’t rule it out,” Mr Abe said in parliament. “I consider it an option for emergency cases.”
Mr Abe made the remark in response to questions about the need to include a currency deal in a bilateral trade agreement, a step he said he opposes.
Commenting on his planned meeting with Mr Trump on February 10, Mr Abe said that it isn’t a good practice for the US and Japanese leaders to discuss the exchange rate at one-on-one meetings. The issue should be left for their finance chiefs, Mr Abe said.
Mr Abe said he is “paying close attention” to how the Trump administration’s currency policy is taking shape, adding that it remains “unclear.”
3.00pm: Downer EDI reaps rewards
Downer EDI shares are steaming toward their best one-day win for nine years after the engineering contractor posted a higher-than-expected half yearly profit and boosted its guidance.
With around an hour and half remaining in the trading day the stock was 13.1 per cent higher at $7.08, which represents a $350 million gain and puts the shares at their strongest position since May 2010. At the open Downer EDI (DOW) shot up as much as 19.4 per cent.
The company reported a net profit of $78.2 million for the six months through to December, up from $72.1 million in the year-earlier period.
It said it will pay an interim dividend of 12 cents a share, the same as a year ago.
Downer raised its projection for full-year profit to about $175 million from $163 million previously, and chief executive Grant Fenn said the company was enjoying a “very strong operational and financial performance.”
David Swan 2.32pm: Telstra services downed by fire
A fire has taken down Telstra services across parts of Australia, the telco has confirmed.
Some customers are unable to make calls or texts after a fire at a northern Sydney exchange downed services.
Telstra confirmed via its social media accounts that the outage is affecting both mobile and fixed line services, while an outage map is showing affected areas include not just New South Wales but also Victoria, Queensland, South Australia and Western Australia.
“A fire at one of our exchanges is impacting some mobile and fixed services. We’re working to resolve ASAP. Thanks for your patience,” the telco said on Twitter.
Stephen Bartholomeusz 2.19pm: How Qantas broke the tyranny of distance
When Qantas begins flying its Boeing 787-9 Dreamliners on 17,000km non-stop services from Perth to London next year, it will gain insights into a re-imagined future for its international network.
The tyranny of distance has been a limiting and disruptive influence over the shape of the Qantas network ever since the emergence of the Asian and Middle Eastern hub carriers.
As an end-of-the-line, point-to-point carrier, it wasn’t possible for Qantas to be able to compete effectively with carriers who could leverage their strategic locations to attract and aggregate passenger volumes from multiple jurisdictions and then on-fly them to multiple destinations.
The development of the Gulf hubs in particular and their dominance of the international volumes on the routes from the Asia Pacific region into Europe ultimately forced Qantas into an alliance with Emirates.
The direct flights from Perth to London and the imminent availability of new longer-range aircraft will, however, create new possibilities for Qantas.
John Durie 2.00pm: Bank chiefs to face the music
Last time ANZ boss Shayne Elliott fronted parliament, he was the only one of the big four to say he would look at cutting credit card interest rates and introducing a tracker mortgage, but next month he will be explaining why neither is happening.
The grand gestures have come to nought. Not that this should surprise anyone, but Elliott can at least say he did what he said he would — which was to look at the possibility.
Tracker mortgages operate in Britain and elsewhere and are home loans priced off the official cash rate so punters know exactly what they are getting.
In Australia, the big four, which control more than 83 per cent of the market, argue that official cash rates are only one of several factors that set the home loan rates, so if they were going to offer the product it would be more expensive and hence no one would touch it.
1.40pm: Housing slowdown key for RBA call
A slowdown in housing construction and price growth this year is more likely to be of the “soft” variety, although the extent of an expected reduction in housing activity is a key risk factor for the economy that may prompt another interest rate cut from the Reserve Bank.
NSW Treasury Corporation chief economist Brian Redican is anticipating an 18 per cent fall in residential building approvals nationally to 190,000 in 2017, from an estimated 232,000 last year. A more dramatic slowdown to the 150,000-160,000 range would suggest housing will exert a more substantial drag on the economy that would trigger concern among policymakers.
At the same time, if approvals stay above 200,000, it will fuel concern about oversupply in some states, notwithstanding higher than expected population growth in recent years.
“The scenario we are anticipating is consistent with a soft landing for the housing market,” Redican told The Australian.
1.00pm: The resources fuelling our trade surplus
James Glynn and Rhiannon Hoyle write:
Australia posted a seasonally adjusted trade surplus of $3.5 billion in December, notching a new record, the Australian Bureau of Statistics said Thursday.
By 12.48pm (AEDT), the Australian dollar had shot to US76.30 cents, up from US76c just prior to the data release at 11.30am.
The December result compared with a surplus of $2.04bn in November and a previous record surplus of $2.24bn in February 2009.
The figure is sharply wider than analysts’ expectations of a surplus of $2.2bn.
The value of exports rose by 5 per cent in December from November helped by a 14 per cent increase in coal and a 10 per cent rise in iron-ore shipments, while imports rose by 1 per cent, the statistics bureau said.
Australia’s trade balance has swung quickly from deficit to surplus on the back of strong gains in iron ore and coal prices in 2016, while the volume of natural gas exports has also started to rise sharply — read more.
Dow Jones Newswires
12.50pm: Next week’s RBA cash rate consensus
All but unanimous amongst economists that RBA will be on hold next week yet almost half looking for more cuts this year #ausbiz #auspol #RBA pic.twitter.com/Nx7zJFJmg2
— Alex Joiner (@IFM_Economist) February 2, 2017
Michael Roddan 12.35pm: Banks face grilling over lending surge
Two cuts to the official interest rate last year from the Reserve Bank have reignited rampant lending to property investors.
Analysts say it is a “concerning development” given the prudential regulator’s attempts to dampen runaway house price growth and exploding household leverage.
With banks doling out loans to property investors with renewed enthusiasm, data released yesterday showed continued growth in house prices in the capital cities.
12.05pm: Broo banks on Mildura suds
Investors are toasting listed brewer Broo today following news it’s buying Mildura Brewery for $1 million.
Shares in Broo (BEE), which saw a healthy ASX debut in October last year, jumped as much a s 4.2 per cent this morning but have since settled to be 1.4 per cent higher for the session as we head into lunch. Trading volume is around 66 per cent higher than the 20-day average as investors cheer the acquisition.
The acquisition of the Mildura-located brewery, one of the first craft breweries and contract brewing facilities in Australia, includes the commercial brewery facility and the various Mildura Brewery beer brands currently in production.
At 11:40am AEDT Broo was trading at 36 cents per share.
11.45am: Record trade boosts Aussie dollar
AUD/USD jumped from 0.7601 to a 3-month high of 0.7622 on a record trade surplus.
Australia’s monthly trade surplus for December hit $3.511b vs. $2b expected, alongside a massive upward revision for the November figure to $2.04b from a previous $1.243b.
Separately, building approvals fell 11.4 per cent vs. 10.8 per cent expected.
11.30am: The $1 million dollar brew
Shares in Broo Limited (BEE) have risen after news it is buying the Victorian beer company Mildura Brewery for $1 million, giving it the capacity to expand its product range and distribute nationally.
The acquisition of the Mildura-located brewery, one of the first craft breweries and contract brewing facilities in Australia, includes the commercial brewery facility and the various Mildura Brewery beer brands currently in production.
Brew Limited shares were up 1 cent or 2.8 per cent to 36.5 cents at 1122 AEDT on Thursday.
AAP
11.10am: Investors backflip as ASX loses ground
Australia’s S&P/ASX turned briefly negative after rising 0.3 per cent to a 3-day high of 5670.6.
The intraday reversal suggests the 5611 support level remains under pressure despite yesterday’s bounce.
Bond proxies in the utilities, property and infrastructure sectors leading declines following a modest 4 bp rise in 10-year bond yields over the past 2 days.
Miners outperforming, with Deutsche Bank telling investors to “stay dug in”.
11.00am: The ASX morning movers
Downer EDI (DOW) and Tabcorp (TAH) released earnings numbers this morning and are now acting as bookends for the ASX 200.
Downer has surged as much as 15 per cent (12.5 per cent to $7.03 at 10:30am when the below chart was made) after announcing an 8.5 per cent rise in first half profit and an increased outlook for the full year. The stock is sitting at its highest level since April 2010 and is on track to see its best session in 17 years.
Meanwhile Tabcorp produced a dreary set of numbers as merger and legal costs weigh on the bottom line. The stock dropped around 4 per cent at the open.
10.50am: Five reasons to stay dug into miners
Deutsche Bank equity strategists Tim Baker and Joseph Kim see five reasons to stay “dug in’ to miners:
#1 — The miners are still in an earnings upgrade cycle, with spot prices implying greater than 50 per cent upgrades to consensus forecasts.
#2 — High commodity prices and restrained capex should see record cash flow, boosting dividends and share buybacks.
#3 — Investors are underweight miners, with data showing limited foreign buying of non-financials.
#4 — China’s cyclical upturn looks to have momentum, amid a doubling of nominal GDP and positive lead indicators.
#5 — The “China over investment story” seems “exaggerated”, the analysts say.
Despite a record capex/GDP ratio of 45 per cent, they say capex data aren’t readily comparable.
They also note that China uses 20 less steel than Japan and the US did in the 1960-80 period.
10.15am: Downer EDI shares surge on upgrade
Downer EDI (DOW) jumped 17 per cent to a 6.5 year high of $7.34 on a profit upgrade.
The engineering firm forecast FY17 NPAT of $175m vs. $163m in August, opposed to the market consensus was $161m according to Bloomberg.
Work-in-hand jumped to $211b vs. $18.6b in June after contract wins and first-half NPAT rose 8.5 per cent to $78.2m, with revenue up 1.7 per cent to $3.6b.
The share price has more than doubled in the past 12 months and the stock was last up 16 per cent at $7.25.
9.55am: Morgan Stanley’s pre-earnings season picks
Goodman (GMG), Dexus (DXS), Charter Hall (CHC), Mirvac (MGR), Arena REIT (ARF) are “particularly well positioned” for earnings season according to Morgan Stanley.
Despite the recent de-rating of the industry and the prospect of eventual slowing in NTA, the broker expects the industry to at least confirm previous FY17 guidance during the Feb.-17 reporting season.
John Durie 9.47am: The strategy to double Woolies’ cash flow
Woolworths (WOW) will double free cash flow by 2020 if it executes its supermarket strategy well, justifying a $40 a share price target according to Bank of America Merrill Lynch analyst David Errington.
In a note published today, BAML is tipping free cash flow at the retailer to grow from $1.2 billion this year to $2.5bn in 2020.
Errington argues supermarkets have the luxury of selling stock before they have to pay for it, so, if they can factor growth into the equation, then free cash flow yield will increase faster.
Sarah-Jane Tasker 9.40am: Tabcorp profit takes a hit
Wagering giant Tabcorp’s half-year profit has taken a hit, falling 28.1 per cent, on the back of the cost of pursuing Tatts and fighting a legal case brought against it.
The Australian-listed company (TAH) today reported net profit after tax was $58.9 million for the first half of fiscal 2017, while earnings per share was 7.1c, which was down 28.3 per cent.
The company said that while the result showed revenue growth in each of its businesses, its profit was impacted by costs associated with its Tatts takeover, Sun Bets joint venture in the UK and fighting a legal case launched by Australia’s financial intelligence agency.
Andrew White 9.20am: The billionaires behind political funding
Some in the Liberal Party might have complained that business did not do enough to advocate for its policies during last year’s election, but corporate Australia — including the big four banks — put its money behind the Coalition, the latest donations records reveal.
The bulk of corporate donations went to the conservative side of politics, but a growing number of wealthy individuals are willing to step up with large donations to the major parties as well as fringe groups.
9.05am: Broker ratings change
Vocus (VOC) initiated at Outperform; $5.30 target price — Macquarie
Adelaide Brighton (ABC) raised to Neutral vs. Underweight — JPMorgan
GUD Holdings (GUD) cut to Neutral vs. Overweight — JPMorgan
Macquarie Group (MQG) cut to Hold vs. Buy — Morningstar
GBST Holdings (GBT) cut to Neutral vs. Buy; target price cut to $3.40 vs. $4.35 — UBS
9.00am: Brekky Wrap: Traders’ outlook brightens
Australian stocks look set to tiptoe higher today after yesterday’s healthy rebound helped restore some confidence following a rough start to the week.
The SPI 200 futures index is pointing to a 0.2 per cent rise at the open, which would add to yesterday’s 0.6 per cent rise on the ASX 200. Monday and Tuesday saw the index drop 1.6 per cent.
Downer EDI and Tabcorp are releasing earnings numbers today, but it could be a reasonably quiet session, according to IG chief strategist Chris Weston.
“As it stands today there seems little to inspire the buyers, although we are seeing signs that the oil market could be ready to make a push higher,” Mr Weston said. “The various ADR’s suggest modest upside for BHP on open, while CBA looks set to drop a touch.”
As for technical levels, Mr Weston says he is eyeing the 5555 point level in the SPI futures and the 5600 point mark in the cash market — “a break here sees price print a lower low and suggests a fairly quick response down to 5525 (in the cash)”.
8.45am: How Apple broke its losing streak
Tripp Mickle writes:
Apple has snapped out of three straight quarters of falling revenue as strong demand for the iPhone 7 raised investors’ hopes that the technology giant is emerging from its roughest period since it reinvented the mobile devices market.
Sales of the new smartphone model, which Apple unveiled in September, propelled total iPhone shipments 5 per cent higher to a record during the three months to the end of December. IPhones, which account for two-thirds of Apple’s sales, helped boost total revenue 3 per cent to a record $US78.4 billion ($103.6bn).
Apple’s services business — which includes its App Store sales and its music and payments services — continued to boom. Revenue in that segment jumped 18 per cent from a year ago to $US7.2bn, making it bigger than many large companies. It had almost three times the sales of Netflix during the same period.
8.30am: Fresh Apple earnings firm US stocks
Apple shares surged Wednesday following a strong earnings report, lifting US stocks as the Federal Reserve signalled it still expects only gradual interest rate increases.
Apple, the biggest company by market capitalisation, powered up 6.7 per cent after reporting record revenues on Tuesday after the market close of $78.4 billion in the first quarter due to its highest-ever volume of iPhone sales at 78.3 million.
The Apple rally shored up the Dow Jones Industrial Average which added 0.1 per cent to 19,890.94 The broadbased S&P 500 ended up a hair at 2,279.55, while the tech-rich Nasdaq Composite gained 0.5 per cent to 5,642.65.
The Fed offered a fairly optimistic outlook on the economy, but said it still expects US growth to “warrant only gradual increases in the federal funds rate.” Gregori Volokhine, president of Meeschaert Capital Markets described the statement as a stay-the-course stance.
“They’re remaining dovish,” he said.
Earlier, US data showed strong increases in private-sector hiring and manufacturing sector activity in January.
AFP
7.25am: ASX set for steady open
The Australian market looks set to open flat, following Wall Street’s lead with the Dow little changed despite stronger-than-expected private jobs and manufacturing data.
At 7am (AEDT), the share price futures index was up just four points, or 0.07 per cent, at 5,603.
The Dow Jones Industrial Average was up just 0.06 per cent at 7.08am (AEDT), while the S&P500 was down 0.16 per cent.
However the Nasdaq, weighted toward technology stocks, lifted 0.4 per cent following Apple’s 6.4 per cent rise on strong earnings and iPhone sales.
US data showed that factory activity accelerated to more than a two-year high in January amid sustained gains in new orders and raw material costs, pointing to a recovery in manufacturing as domestic demand strengthens and the drag from low oil prices ebbs.
Private employers boosted hiring in January, and while construction spending slipped in December, the underlying trend remained strong.
The Australian market yesterday outperformed most major global markets with stronger commodity prices sparking a rally in local mining and energy stocks. The benchmark S & P/ASX200 index rose 32.3 points, or 0.57 per cent, to 5,653.2 points, while the broader All Ordinaries index gained 29 points, or 0.51 per cent, to 5,704 points.
Meanwhile, the Australian dollar is higher against its US counterpart. The local currency was trading at US75.86 cents at 7am (AEDT), from US75.67c yesterday.
AAP
7.10am: Aussie continues to gain against greenback
The Australian dollar is higher against its US counterpart even though the greenback recovered some ground following stronger-than-expected US private jobs and manufacturing data.
At 6.35am (AEDT), the Australian dollar was worth US75.89 cents, up from US75.67 yesterday.
ADP National Employment Report showed US private employers added 246,000 jobs in January and the Institute for Supply Management said its index of national factory activity rose to 56.
The Australian dollar also climbed against the euro and the yen.
AAP
7.05am: Apple lifts Wall Street
A surge in Apple shares boosted US technology stocks as the Dow Jones Industrial Average edged higher.
Apple stock soared 7.1 per cent after the technology giant late Tuesday reported strong demand for the iPhone 7, which helped boost revenue to a record $US78.4 billion and snap three consecutive quarters of declines.
In US afternoon trade the iPhone maker’s climb helped lift the Dow Jones Industrial Average, which rose 47 points, or 0.2 per cent, to 19911. The S&P 500 gained 0.1 per cent and the tech-heavy Nasdaq Composite added 0.3 per cent.
Dow Jones
6.35am: Fed upbeat on US economy
The US Federal Reserve says it remains on track to gradually raise short-term interest rates this year and gave no hint about when the next increase might come.
Following a two-day policy meeting, officials unanimously held their benchmark rate steady in a range between 0.50 per cent and 0.75 per cent, while noting in a statement some recent improvements in the economy. They lifted rates by a quarter percentage point in December and pencilled in three quarter-point moves in 2017.
Dow Jones
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