BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
Crown has suffered its worst day in eight years as investors panic following news of arrests.
- Growth stocks at risk
- Gambling stocks drag on ASX
- Bob Day to resign
- Bank dividend cuts likely: Citi
- Resources, Crown weigh on ASX
- Crown shares nosedive on arrests
- Profits recession ending: CS
Welcome to the BusinessNow blog for Monday, October 17.
8.06pm:Banks slam Apple’s claims
Richard Gluyas
The nation’s banks have accused Apple of making “completely baseless” claims to try to enforce a lockout of third-party digital-wallet providers from its iPhone platform.
In response to “incorrect and potentially misleading” submissions by their opponents to the competition watchdog, the banks contradicted Apple’s position that allowing third-party access to the platform would compromise security settings.
“Apple’s claim that providing (access) to the near field communication function would undermine security or customer experience is completely baseless,” a statement by the banks said. Read more.
7.39pm:Hong Kong casino stocks slide
Asian shares were mixed on Monday, with casino-related stocks in Hong Kong falling sharply on news that Chinese authorities detained employees at casino operator Crown Resorts for suspected gambling crimes.
Hong Kong’s Hang Seng Index was down 0.8 per cent, as nervous investors jettisoned their holdings in Macau-based casino stocks out of fear of further crackdowns by Chinese authorities. Casinos in Macau depend significantly on VIP gamblers, or high rollers, the bulk of which come from China.
The CES Gaming Top 10 Index of the 10 largest gambling stocks listed in Hong Kong was last down 3.5 per cent. The worst performer in the CES index, Melco International Development, is an associate company of Melco Crown, of which Crown Resorts is a 27 per cent shareholder. Melco International Development was recently down 7.2 per cent.
“Investors are worried that [the intervention] could impact any other casino in Asia,” said Chelsey Tam, a market analyst at Morningstar.
Among other Macau casino stocks traded in Hong Kong, Sands China was last off 3.4 per cent, Wynn Macau declined 3.4 per cent, and SJM Holdings lost 2.7 per cent. Dow Jones.
6.51pm:European stocks fall at the open
European stock markets dropped at the open Monday, with attention fixed on central bank policy before an ECB meeting this week and speculation on the outlook for US borrowing costs.
London’s benchmark FTSE 100 index slipped 0.3 per cent to 6,990 points compared with the close on Friday.
In the eurozone, Frankfurt’s DAX 30 lost 0.3 per cent to 10,544.69 points and the Paris CAC 40 shed 0.4 per cent to 4,452.72. AFP
6.37pm:Govt formally notified of Crown detentions
Beijing has formally notified Canberra of the detention of three Crown Resorts employees, who are Australian citizens, in China.
The trio were among 18 employees arrested by the Chinese government last week.
Australian consular officials are now making arrangements in Shanghai to visit the Australians and offer assistance, Foreign Minister Julie Bishop said in a statement.
Crown has provided legal representation for the detainees.
6.10pm:Tokyo stocks end stronger
Tokyo stocks closed higher for a second straight day on Monday as major exporters were lifted by a rally in the dollar against the yen.
Investors are increasingly betting on a US interest rate hike before the end of this year -- sending the dollar rising above 104 yen -- following a string of upbeat readings on the world’s number one economy.
A weaker yen inflates the profitability of Japan’s exporters. “Stocks are looking good today, but many of the investors probably want to have a look at the earnings reports for Japanese companies, a lot of which will start being released next week, before pushing stock prices much higher,” Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management, told Bloomberg News.
The benchmark Nikkei 225 index ended up 0.26 per cent, or 43.75 points, at 16,900.12, while the broader Topix index of all first-section issues rose 0.40 per cent, or 5.37 points, to 1,352.56.
Fukushima operator Tokyo Electric Power tumbled 7.89 per cent to 385 yen on dimming hopes that reactors at Kashiwazaki-Kariwa, the world’s largest nuclear plant, will be restarted.
An anti-nuclear candidate won a local weekend election in the central Japan prefecture where the plant is located.
Most of Japan’s reactors remain offline following the 2011 Fukushima accident caused by the earthquake and tsunami.
Automakers were broadly higher with Toyota closing 0.61 per cent higher at 6,030 yen and Nissan up 0.22 per cent at 996.2 yen. AFP
5.32pm:Dollar edges up as rates eyed
Stronger commodity prices and reduced expectations of another local rate cut this year have given the Australian dollar a slight boost.
At 5pm (AEDT) on Monday, the local unit was trading at US76 cents, up from US75.77c on Friday.
Westpac senior currency strategist Sean Callow said consistently stronger iron ore and coal prices and reduced market expectations of another Reserve Bank rate cut this year were supporting the Aussie.
“The Aussie is tracking well against the US dollar and is outperforming a range of currencies, including the Kiwi and the euro,” he said.
“It is being supported by better commodity prices and as expectations of a rate cut fade.
“It is quite range-bound however, and is likely to trade within 75 and 77 cents in the week ahead.” He said a resilient US dollar on the back of strong market expectations of a Federal Reserve rate hike in December was crimping the Aussie’s gains. The next major local event will be the release of the Reserve Bank of Australia’s minutes behind its October interest rate decision, where it kept the cash rate steady at 1.5 per cent, at 11.30am (AEDT) on Tuesday.
RBA governor Philip Lowe will also deliver a speech earlier that morning.
AAP
5.08pm:Fed’s Rosengren eyes yield curve
Since 2014, when it ended its last round of quantitative easing, the Federal Reserve has largely kept its balance sheet on autopilot. Federal Reserve Bank of Boston President Eric Rosengren wants to change that.
Using his bank’s annual economic-policy conference this weekend as a backdrop, Mr Rosengren suggested altering the Fed’s asset portfolio to replace long-term securities with short-term ones.
The Boston chief’s suggestion represents an alternative way of tightening monetary policy, one that wouldn’t entail raising short-term interest rates. Although Mr Rosengren has called for raising the federal-funds rate, he hasn’t had much success convincing his colleagues and voted against the Fed’s decision last month to hold short-term rates steady.
Mr Rosengren’s proposal is relatively simple. By converting securities with longer maturities into securities with shorter maturities, the Fed would drive down the price of those long-term assets. Bond prices and yields move in reverse. That means the Fed would be pushing up longer-term interest rates and steepening the yield curve.
A steeper yield curve could deflate asset bubbles before they get too big. In particular, it could ease the run-up in commercial real-estate prices, a trend that worries Mr Rosengren.
“One of the reasons why long-term rates are low right now is we have a fairly large balance sheet with a fairly long duration,” he said in an interview with The Wall Street Journal on Saturday. “When you’re worried about things like commercial real estate, one way to address that would be to allow the duration to get shorter.” Dow Jones
4.29pm:Stocks slump as Crown hammered
The Australian sharemarket has ended steeply lower after a fresh bond sell-off and the shunning of gaming stocks following the detention of several Crown employees in China, Daniel Palmer writes.
At the close, the benchmark S&P/ASX 200 index slumped 45.3 points, or 0.83 per cent, to 5,388.7.
While defensive yield stocks were out of favour, their losses paled into insignificance against heavy selling in Crown Resorts shares, which plunged 13.9 per cent.
The heavy $632 million retreat – Crown’s worst fall on record – came after questions were raised over its VIP business in the wake of 18 of its staff being arrested in China on gambling promotion charges.
Key rival Star Entertainment was dragged down as well, slumping 3.7 per cent by the close.
In energy, Santos softened 2.4 per cent to $3.62, Oil Search slipped 1 per cent to $7.09, while Woodside was off 1.5 per cent to $29.10.
Action in materials was mixed, with BHP Billiton backtracking 0.9 per cent to $22.39 and Rio Tinto losing 0.8 per cent to $50.62, while Fortescue bucked the trend to surge 2.6 per cent to $5.01.
In finance, ANZ led the way among the big four with a 0.3 per cent rise, while Westpac traded steady, CBA lost 0.3 per cent and NAB retreated 0.7 per cent.
Among other blue chips, Telstra eased 1 per cent to $5.03, while Qantas weakened 1.5 per cent to $3.19.
Elsewhere, Westfield slid 2.1 per cent, Dexus tumbled 2.7 per cent and Stockland dipped 1.7 per cent as the high-yielding property sector came off the boil.
Meanwhile, the Australian dollar was steady around US76c as investors awaited key local jobs data later in the week.
Read more
3.56pm:Packer takes $632m hit
James Packer’s wealth has taken a $632 million hit as shares in his casino investment, Crown Resorts, dived after 18 of its staff were arrested in China, Sarah-Jane Tasker writes.
The arrests could hit Mr Packer’s $2 billion bet on his planned Sydney casino at Barangaroo by deterring Asian high-rollers, analysts warned.
The staff were arrested at their homes four nights ago in an apparent crackdown on gambling promotions. They could face jail terms of up to 10 years, depending on the seriousness of any offence committed. Among those arrested was Melbourne executive Jason O’Connor, who is head of Crown’s international VIP programs.
Mr Packer has a 48.2 per cent stake in the Australian-listed Crown Resorts. He resigned as its chairman last year.
Read more
3.24pm:Investors abandon Britain
Britain has lost its place as one of the top five investment destinations in the wake of the
country’s decision to leave the European Union, according to a survey released on Monday.
In a half-yearly report of business executives, consulting firm EY said uncertainties related to the Brexit vote are discouraging potential investors, particularly from Europe, from planning deals in the country.
According to EY, Britain is now ranked seventh in terms of investment destination over the coming year, behind the United States, China, Germany, Canada, France and Japan. In the previous survey in April, Britain was second.
2.38pm:ACCC digs into car dealers
Over the last five years the price of new cars has fallen by 7 per cent, John Durie writes.
However the cost of spare parts has risen by the same amount and repairs and maintenance have risen by 11 per cent.
The Australian Competition and Consumer Commission wants to know why this has happened, and just whether car dealers are milking the aftermarket services for their own wallets as opposed to looking after consumers.
Read more
1.59pm:Growth stocks at risk: Goldman Sachs
Acquisitive growth has been all the rage with investors in the low interest rate environment, but with a few high-profile casualties of the roll-up strategy over the past 12 months, Goldman Sachs is warning investors to tread warily.
In a note ominously titled ‘Roll-ups unravelling? Who could be next’, analysts headed by Matthew Ross noted a list of a dozen stocks that are at-risk of price falls given lofty valuations, including market darlings Domino’s Pizza, Aconex and Seek.
The rationale is that investors will not continue to pay substantial premiums for ‘growth stocks’, with outperformance from companies pursuing deals seen dramatically above the market average since 2012.
Consolidation in fragmented industries has made plenty of sense over the past five years, Goldman Sachs added, as investors hunted growth stocks and larger firms received a funding advantage.
Daniel Palmer
1.51pm:Gambling stocks drag ASX to 2-week low
Australian shares have slipped to a two-week low as gambling stocks lose big following allegations of corruption in China.
At 1:30pm AEDT the S&P/ASX 200 was 0.4 per cent weaker at 5411.1 points – its lowest level since September 28.
Crown Resorts is making headlines today with an almost 10 per cent fall on the back of 18 staff members being arrested in a crackdown on gambling promotions.
Star Entertainment is feeling the pain too, with shares falling 5.6 per cent as investors flee gambling stocks.
The companies are weighing heavily on the consumer discretionary sector, which is down 1.9 per cent overall for the day.
And gains are hard to come by more broadly, with Rio Tinto, NAB and Telstra all 0.6 per cent lower for the day, while BHP, Westpac and ANZ around 0.3 per cent down for the day.
Woolworths and Wesfarmers are outperforming the market as they hover around neutral ground, while Macquarie is 0.1 per cent higher for the day.
1.15pm:Bob Day to resign from Senate
Family First senator Bob Day says he will resign from parliament following the collapse of his Home Australia house-building empire.
Senator Day said Home Australia and its subsidiaries in South Australia. Western Australia, Victoria and New South Wales would be liquidated by McGrathNicol.
“As I have always agreed to sign personal guarantees to creditors, this closure also has serious implications for me and my family,” he said.
Ben Butler
1.10pm:Bank dividend cuts likely: Citi
Recent results indicate revenue growth expectations for the banks may be too high, according to Citi, putting the onus on banks to explain where improved performance will emerge.
Westpac is likely to be the most active in this regard with better cost disclosure and more proactive targets, Citi analysts say. They also note mounting pressure on boards to lower their dividend payout ratios in response to weaker revenue growth.
They expect NAB and Westpac to cut dividends at their results this month.
“With payout ratios already at about 80 per cent, the weaker-than-expected revenue growth is set to see a change of tack,” they say.
Citi has a ‘buy’ rating on ANZ and Neutral ratings on the other big three banks.
12.55pm:Transurban shares slide
Transurban hasn’t been able to carry the boost it received from Citi on Friday across the weekend, with shares in the toll road operator sliding in lunchtime trade.
Citi analysts bumped up their view on Transurban to ‘buy’ from ‘neutral’ on positive revenue numbers and a hefty share price fall on Friday but investors remain hesitant to dive in.
The positivity triggered some early buying on Friday, with the stock lifting an initial 2.2 per cent but the stock slipped to close 1 per cent higher for the day. TCL is down 0.6 per cent today to trade at $10.71.
The stock has dropped a whopping 15.5 per cent since its 2016 peak on July 8 and has analysts looking to load up.
“The underlying business continues to perform very well, while at the same time management continue to progress growth options,” Citi analysts led by Anthony Moulder said.
“The recent share price weakness over the last several months has been overdone in our view.”
High-yield defensive stocks like Transurban, Sydney Airport, Westfield and Telstra have been punished by investors in recent weeks and months as bond yields recover. With government yield returning, investors are less enthusiastic about backing equities for income.
Analysts remain in favour of Transurban, with Bloomberg data showing nine ‘buy’ ratings, four ‘holds’ and only two ‘sell’ recommendations.
12.20pm:Saunders joins Ophir Asset Management
Andrew Mitchell’s investment house Ophir Asset Management has secured Rob Saunders as its new sales chief, luring the former trader from Bell Potter’s institutional sales desk.
Saunders will start as investment director and head of sales after seven years at Bell Potter, which he joined from Morgan Stanley.
Kylar Loussikian
12.13pm:Regis Resources raised to Neutral: Citi
Citi has upgraded Regis Resources to ‘neutral’ vs ‘sell’ today with a $3.22 target vs the previous target of $3.31. The gold miner’s shares fallen 12 per cent in the past month amid weaker gold prices.
Regis shares are down 2.7 per cent at $3.32 as spot gold remains weak, having closed at a four-month low of $1251.03 on Friday. Meanwhile, US 10-year bond yields closed at a four-month high on Friday after US Federal Reserve chief Janet Yellen’s discussion on possible effects of running a “high pressure” economy.
12.04pm:Stocks flirt with positive territory
Australian stocks are flirting with positive territory, edging into the black for a brief period before dipping back into the red.
At just before 11:40am AEDT the S&P/ASX 200 was 0.1 per cent higher at 5437 points, but by 12.04pm AEDT it was in negative territory once again, down 0.15 per cent at 5425. While investors are stunned to see Crown take a 10 per cent hammering, the broader index is largely mixed.
Major banks are holding up well, with ANZ and Westpac both up almost 1 per cent, while CBA gains 0.4 per cent and NAB trades flat.
Crown has the undivided attention of the market today following the arrest of a handful of employees in China amid a corruption crackdown – the shares fell as much as 12.7 per cent but are now 9 per cent lower for the day.
The casino’s shares are hovering around a four-month low and are on track for their worst day since 2008.
11.03am:Crown drags Star down
Crown is dragging rival Star Entertainment down with it today following a series of arrests in China amid a gambling corruption crackdown.
At just before 11am AEST Crown shares were 11.7 per cent worse off than Friday’s close at $11.43 – they’re on track for their worst day since November 2008.
Meanwhile Star Group is down 5.4 per cent as investors flee gaming stocks. Star shares were trading at $5.42, while the broader ASX 200 was just 0.3 per cent down for the day at 5420.4.
10.45am:Resources, Crown weigh on ASX
The Australian sharemarket has edged lower as persistent weakness in resources and a heavy sell-off in Crown shares overcame strength among the big banks, writes Daniel Palmer.
At the 10.15am (AEDT) official market open, the benchmark S&P/ASX 200 index dipped 4.1 points, or 0.08 per cent, to 5,429.9, while the broader All Ordinaries index inched down 5.8 points, or 0.11 per cent, to 5,512.7.
Leading the falls on Monday was James Packer’s Crown Resorts, which plunged 11.5 per cent on news 18 of its staff had been arrested in China on gambling promotion charges.
Energy stocks continued to come under pressure as a recent rally in oil prices stalled, although falls appeared modest against Crown’s woes.
10.18am:Crown shares nosedive on arrests
Crown resorts shares have been smashed this morning following 18 staff arrests in China on accusations of gambling crimes.
Crown shares slumped 10.8 per cent to a four-month low of $11.59 and is on track to see its worst day since November 2008.
The broader ASX 200 started the session only slightly lower for the day at 5429 points.
“Given the scale of the arrests, it begs the question of whether the Chinese government has redefined what foreign casinos are able to promote in China and they are making an example of Crown,” said CLSA analyst Sacha Krien.
9.52am:Australian “profits recession” ending: CS
A “profits recession” in Australia is on the verge of ending and the S&P/ASX 200 should reach 6000 points by mid-2017, according to Credit Suisse.
Earnings per share in S&P/ASX 200 companies has fallen 13 per cent in the past 24 months, mainly due to due to weaker commodities.
But Credit Suisse economists now expect stronger global economic growth to generate a 5 per cent rise in EPS in the 12 months to June.
“History suggests sharp recoveries tend to follow sharp downturns, but the current profits recession is the most benign in almost 40 years so we should expect a modest rebound,” says Credit Suisse Australia strategist Hasan Tevfik.
In fact the average profits recession has seen a 30 per cent fall in EPS over a 30-month period, according to Tevfik.
Whereas share prices have risen since February - despite falling EPS - the coming phase should see share prices “grind higher” while EPS expands.
This phase should see moderate, but positive share price gains, generating 10 per cent capital returns and 15 per cent total returns in the year ahead, Tevfik says.
He expects the premium associated with growth stocks to diminish as profits growth becomes less scarce, whereas lowly valued companies like BlueScope, Caltex, Computershare, Macquarie Group and Myer should benefit.
9.40am:Evolution buys Newcrest mine
Gold miner Evolution will pay Newcrest around $10 million for control of the Marsden copper-gold project in New South Wales, writes Daniel Palmer.
The figure incorporates a $3m upfront cash payment and a $7m future payment contingent on a decision to mine.
9.18am:A big Telstra rally could be on the way
Keep an eye on Telstra – the ‘panic low’ mightn’t be far off.
Analysts at Marketmatters.com.au over the weekend looked past the risk associated with the NBN and what increased capex could mean for the future of its dividend and share buybacks, and focused on the stock’s metrics.
“Surely with these metrics Telstra should be a buy here?”, the analysts said.
“At current prices Telstra trades on a forecast yield of 6.1 per cent plus franking (8.7 per cent gross) based on 31 cents per share forecasted dividend, which is likely to stay flat until at least FY19 on our numbers. The stock is not overly expensive, trading on 14.2 times expected FY17 earnings, so about a 15 per cent discount to the market.”
Over the last 10 years Telstra has traded at an average of 13.8 times forward price to earnings, so it might be that the point of interest comes more from the 15 per cent discount to the ASX, which is larger than the historic average.
“[The risks] now seem very well known, with the market having digested this over the last few months – hence the weakness in the stock. The reason we say this is that when the market is collectively positioned a certain way as it is with Telstra it sets the scene for strong counter trend moves. At some point, Telstra will rally hard and we’ll be looking to get set for this when it happens.
The analysts also pointed to beaten up majors like Transurban and Sydney Airport as companies that have further to fall but say investors should be watching for “panic lows, where the market gets too bearish”.
“In terms of Telstra relative to the market, the underperformance is fairly stark … There will be an opportunity here at some point.”
Analysts covering the stock are mostly sitting on their hands, with Bloomberg data showing just three ‘buy’ ratings, 10 ‘holds’ and six ‘sell’ recommendations.
The consensus 12-month price target is $5.32, which compares with Telstra’s last price of $5.08.
9.07am:CSL raised to ‘buy’: CLSA
CLSA has upgraded CSL to ‘buy’ vs ‘outperform’ while retaining its $125 a share target. The upgrade follows CSL’s recent share price fall from $121.25 to $99.50.
CSL last traded at $105.65.
9.03am:Macmahon CEO resigns
Mining services company Macmahon Holdings has announced the resignation of chief executive Sybrandt van Dyk just a week after seeing its shares hit by news of an early exit from Nigeria and persistent red ink in relation to its services for Newcrest’s Telfer mine.
The embattled group said Mr van Dyk had opted to head up an unlisted de-watering business in which he will claim a financial stake.
Daniel Palmer
8.57am:Race to free Crown staff in China
James Packer’s Crown Resorts and Australian diplomats will renew efforts today to make contact with 18 staff arrested at their homes in China four nights ago in a crackdown on gambling promotions.
Staff face jail terms of up to 10 years, depending on the seriousness of any offences committed.
Crown confirmed yesterday that Melbourne executive Jason O’Connor was arrested and detained in Shanghai on Thursday night, soon after arriving on a business trip.
Rowan Callick, Tim Boreham
8.45am:ASX gains tough to come by today
The ASX is likely to tiptoe lower this morning after a disappointing finish on Wall Street and a potentially rough session for big miners.
US stocks gave up a 0.8 per cent gain to finish Friday’s session flat after the US 10-year bond yield picked up six basis points, putting pressure on equities.
The SPI 200 is pointing to a 0.2 per cent slide, while fair value suggests the fall could be slightly shallower.
BHP Billiton is worth keeping an eye on as it heads for a 1.2 per cent fall, according to its ADRs.
Investors could be concerned BHP’s 2016 rally has done its dash, with the stock climbing 20 per cent between September 19 and October 11. Since then it has lost 6.4 per cent to $22.54.
7.10am:Stocks set for lower open
The Australian market looks set to open lower despite gains on major international markets, although Wall Street was little changed following a speech by the Federal Reserve head.
At 6.45am (AEDT), the share price index was down nine points at 5,406.
Fed chair Janet Yellen’s comments at a conference of policymakers and academics unnerved investors, as she laid out the deepening concern that US economic potential is slipping — and may need aggressive steps to rebuild it.
On Friday the Stoxx Europe rose 1.3 per cent.
Locally, no major economic news is expected on Monday.
In equities news, Treasury Wine Estates is expected to make an announcement regarding Penfolds.
In Australia, the market on Friday ended on a flat note, as inflation data from China conflicted with the previous day’s disappointing trade numbers from the economic powerhouse.
The benchmark S & P/ASX200 index dropped 1.5 points, or 0.03 per cent, to 5,434 points.
The broader All Ordinaries index added 0.2 points to 5,518.5 points.
AAP
6.45am:Dollar gains ground
The Australian dollar has risen half a cent against the US dollar and gained against the yen and the euro.
At 6.35am (AEDT), the local unit was trading at US76.29 cents, up from US75.77 cents on Friday.
AAP
6.40am:Cyclone threat to iron ore
The iron ore price has edged higher as a forecast for unusually inclement weather off the coast of Western Australia raises the prospect of constrained supply that could boost prices for longer, Elizabeth Redman writes.
Iron ore added 0.4 per cent to $USUS56.80 in the most recent session, according to The Steel Index, from $USUS56.60 the previous day.
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Trump’s trade war tariff thaw
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