BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
Banks and energy stocks have pushed the local market into positive territory in a quiet day.
Welcome to the BusinessNow live blog for October 3. The local market is stronger amid subdued trade, with the banks and energy companies driving the gains.
6.02pm:Hitachi Construction Machinery bids for Bradken
Hitachi Construction has launched a $689 million takeover bid for Bradken, in what is being described as an “amicable deal” between both parties. Read more.
5.40pm: No steering wheel? No worries
California regulators have changed course and opened a pathway for the public to get self-driving cars of the future that lack a steering wheel or pedals.
It’s not going to happen immediately — automakers and tech companies are still testing prototypes.
But, in a shift, the state’s Department of Motor Vehicles (DMV) said in a revision of draft regulations released last week that the most advanced self-driving cars would no longer be required to have a licensed driver if federal officials deem them safe enough. The redrafted regulations will be the subject of a public hearing October 19 in Sacramento.
The DMV has been wrestling for several years with how to oversee the emerging technology. Read more.
5.11pm: Any ‘Brexodus’ would be to NY
European financial centres will not enjoy easy pickings after Brexit should businesses decide to leave, the head of the London Stock Exchange says. Xavier Rolet, chief executive of the LSE Group, hailed London as unparalleled in its provision of services and raising capital, whether for projects in China, India or European small and medium-sized business.
However, the next port of call for businesses seeking to leave post-Brexit would not be Paris, Frankfurt and Amsterdam, but New York, as it is the only other global financial centre that could centrally and efficiently clear all 17 major currencies, he said.
Writing in the Daily Telegraph, Rolet said: “The UK financial ecosystem, with clearing at its heart, makes London the most economically attractive and stable destination for global investors and issuers.
“It is no longer just a few banks transacting individual products but the innovative home of global finance.” Leaving the UK could cost firms tens of billions of dollars and that would also take money from the European real economy, warned the Frenchman who was appointed head of the exchange in 2009.
Rolet called for entrepreneurs to be “at the centre” of the post-Brexit industrial strategy.
He said: “This ecosystem must be championed and protected. The best way is to secure continued regulatory equivalence with the EU, membership of which also provides equivalency with the US.
“But people in Europe and the UK should realise this isn’t a zero sum game. If business leaves the UK, the European economy would suffer - and very little of that business is likely to go to Europe anyway.” AP
4.37pm:Banks drive stocks firmly higher
Daniel Palmer
The Australian sharemarket has surged into a positive close, with the big banks and energy groups enjoying a strong bid to start the week.
At the closing bell, the benchmark S&P/ASX 200 index had rebounded 42.6 points, or 0.78 per cent, to 5,478.5, while the broader All Ordinaries index advanced 39.6 points, or 0.72 per cent, to 5,564.8.
Australia’s big four banks combined to contribute 19 points to the benchmark market’s gains, driven higher by an improvement in sentiment around Germany’s Deutsche Bank as talk surfaced late last week it would face a fine from the US Department of Justice of around half initial expectations. Read more.
3.59pm:Still room to ease: Japan
Bank of Japan Governor Haruhiko Kuroda on Monday denied speculation that the central bank is reaching the limit of monetary easing measures.
“We think there is still plenty of room for easing,” he told a lower house budget committee.
In September, the BOJ adopted a new strategy to fight deflation by holding down interest rates of up to 10 years around zero.
Mr Kuroda said on Monday that the new framework makes its monetary policy “more flexible and sustainable.” Dow Jones
3.34pm:Brexit trigger news drags on pound
The British pound fell in Asia on Monday after Prime Minister Theresa May said the UK would kick off the process of separating from the European Union by the end of March.
In early afternoon Asian trading, the pound had fallen 0.3 per cent to $US1.2935. The daily drop wasn’t spectacular — the pound posted five larger daily declines last month — but it followed another rough quarter for the currency.
The pound lost 2.5 per cent against the US dollar in the third quarter, recording its fifth consecutive quarterly loss. The British currency fell 1.2 per cent against the dollar in September, marking its largest monthly percentage decline since June.
A slowdown in trade could spur the Bank of England to further cut interest rates. In August, the central bank cut its benchmark interest rate to a record low and reduced its 2017 growth outlook.Wall Street Journal
3.24pm:China state manufacturers outpace private
Activity in China’s manufacturing sector expanded again in September, which might indicate that recent positive momentum can be sustained. The official Purchasing Managers’ Index (PMI) stood at 50.4 in September, identical with the previous month’s level. A reading above 50 shows growth on a monthly basis.
After a significant pick-up in March, China’s official PMI slipped, falling below 50 in July before showing expansion in August.
In an encouraging sign, new export orders increased in September, rising to 50.1 from the previous month’s 49.7.
In September, output edged up to 52.8 from 52.6 in August, but the index for total new orders slipped to 50.9 from 51.3.
A sub-index for smaller firms fell, while performance at larger companies improved, a sign the government’s dependence on big state firms for growth in 2016 has not changed. Read more.
2.54pm:The miners behaving badly
Tim Boreham
Pollster Gary Morgan’s eternal gold battler Haoma Resources (HAO, 10.5c) features among eleven stocks accorded the embarrassment of being suspended from trading for failing to lodge their full-year accounts (annual reports) by today’s pre-trading deadline.
As is usually the case, the culprits have a strong resources flavour, with seven of them in the mining (or more accurately, wannabe mining) sector.
Not all of the suspended stocks are basket cases and for some their stay in the ASX naughty corner might be brief. But most have a history more tortured than that of the Western Bulldogs and Cronulla -- at least before the weekend -- and this is reflected in their lowly share prices. Read more.
1.22pm:Funtastic in danger of collapse
Funtastic remains in danger of collapse, the group’s auditors have warned, after the retailer’s accounts showed its loss for the 12 months to July 31 was larger than expected, Daniel Palmer writes.
In its full-year accounts, the toy, homewares and confectionery distributor said its earnings before interest, tax, depreciation and amortisation (EBITDA) showed a loss of $8.2 million.
This compared unfavourably to an August 1 update that revealed an expected loss of between $5.5m and $6m, before factoring a potential inventory writedown of $1m to $1.5m.
Read more
12.46pm:Stocks lift 1pc in light trade
Australian stocks have made a strong 1 per cent gain today in light trade as Victorian investors make the most of the fact that much of the country is taking the day off.
Trading volume is sitting 51 per cent below the 20-day average, with just $2.8 billion expected to change hands today on the ASX.
At 12:30pm AEST the S&P/ASX 200 was 1 per cent higher as major banks pick up a healthy lead.
The big four have risen between 0.8 per cent and 1.9 per cent, while Telstra is 0.2 per cent higher and big resources stocks lift on oil price gains.
TPG lost another 1.2 per cent as its horror run continues – the stock touched a low of $8.42, which its weakest level since early 2015.
12.15pm:NAB finalises life insurance sale
National Australia Bank has finalised the $2.4 billion sale of 80 per cent of its life insurance business after almost a year of sorting through the finer details, writes Daniel Palmer.
The transaction, first agreed with Japan’s Nippon Life in October last year, completes the bank’s divestment program.
The asset sales program was designed to refocus the group on its core Australian and New Zealand operations, with the demerger of its UK unit – Clydesdale Bank – the highlight.
Read more
12.05pm:S&P/ASX 200 index hits intraday high
Australia’s S&P/ASX 200 share index is up 1 per cent at an intraday high of 5490.9, amid further gains in financials, energy and materials stocks.
The local market is reacting to the solid bounce in offshore markets following the surge in Deutsche Bank shares on Friday.
It seems unfazed by weekend reports of a fresh legal challenge against Deutsche Bank in Italy. Share trading volume in Australia is less than half of normal levels due to the Labour Day holidays in NSW, SA and ACT.
11.58am:Macquarie values Bravura at $353m-$425m
Float hopeful Bravura Solutions is expected to list as a company worth between $353 million and $453m, according to Macquarie analysts.
Research from analysts at the investment banks working on the deal is being distributed today.
Bridget Carter
Read more
11.55am:Inflation gauge rises in Sept
Melbourne Institute’s Australian inflation gauge rose 0.4 per cent in September and 1.3 per cent in the past year, accelerating from 0.2 per cent and 1.2 per cent the previous month.
The second straight month of improvement in this series could lift the prospect of an uptick in official inflation data on Oct 26.
11.25am:OZ Minerals shares down 2.3pc
OZ Minerals shares have fallen 2.1 per cent to $5.94 after rising as much as 1 per cent in early trade.
At around 10:00am AEDT the company reported that its gold production could fall below the low end of guidance due to the recent extreme weather event affecting its Prominent Hill mine. However, this fact wasn’t picked up by Bloomberg until 11 AEDT. It seems as though there’s been a delayed negative reaction to the gold production guidance.
11.15am:Banks’ mortgage share stabilising: CS
Banks’ mortgage market share has stabilised since August after a reduction in price competition in terms of new business discounts, according to Credit Suisse bank analyst Jarrod Martin.
“Seen together, the feedback as to recent discount pricing actions and the demonstrable stemming of entrenched mortgage market share losses amongst key mortgage providers suggests a return to more rational new mortgage discounting position,” Martin says.
He notes that banking system housing lending growth continued at a healthy pace of 7.3 per cent in the year to August.
“We see these dynamics as supportive of our major bank net interest margin assumptions, namely flat margins in FY16, with 1-2 basis points annual decline thereafter,” Martin adds.
11.02am:Have shorters got it all wrong on banks?
The number of short positions in big Aussie banks has been creeping higher recently, with the market seeming to expect some air to be let out of the tires in the coming weeks.
“Over the past month we have seen an increase in short positions as a percentage of shares on issue for the majors, with CBA the exception,” Deutsche Bank analyst Andrew Triggs said.
“Excluding CBA, major bank short positions increased by ~39bps to 1.6 per cent on average. This reverses the downward trend we had seen since May.
“ANZ and WBC currently have the highest level of short positions at 1.9 per cent, while NAB is the lowest (1 per cent) and CBA is at 1.5 per cent. The regionals are higher, with Bendigo & Adelaide bank at 7.8 per cent and Bank of Queensland at 3.3 per cent,” Mr Triggs said.
Could these shorters be setting themselves up for heartbreak? That’s very possible, according to a note released by Credit Suisse last week in which equity strategist Hasan Tevfik said the banks are “dangerous shorts”.
“The Aussie banks currently trade on a 6.3 per cent dividend yield, which is 100 basis points higher than the long-term average,” Credit Suisse equity strategist Hasan Tevfik said.
“They seem to be priced for sharp DPS [dividend per share] cuts but these are less likely if they are lowering their exposure to a peaking housing market.
“Also, as the ‘Selfies’ are filling some of the lending-void with equity, not debt, the potential for secondary effects on the banks from a rise in defaults will be limited. While we are not big buyers of the banks (we have Westpac in our Long portfolio), we believe current valuations suggest they are dangerous shorts.”
10.48am:OZ Minerals may miss gold guidance
OZ Minerals has conceded its FY17 gold production may be below the lower end of its guidance after recent adverse weather. But more importantly, its copper production is expected to stay within guidance.
It expects power to Prominent Hill mine to be progressively restored over the next 7-10 days and underground mining is being resumed on a limited basis. OZL last up 0.5$ at $6.11.
10.38am:Stocks higher in subdued trade
Crickets are chirping around the ASX this morning, but those investors and traders not taking the day off have pushed the index to a healthy early lead.
The trading volume is a whopping 88 per cent below the 20-day average and estimates are for less than $750 million to change hands today compared with the usual $5.75 billion.
The S&P/ASX 200 lifted 0.7 per cent at the open in quiet trade to 5476 points, with banks leading the way and modest gains seen by pretty much all blue chips.
The big four rose between 1 per cent and 1.3 per cent, while BHP picked up 1.3 per cent and Rio Tinto, which isn’t exposed to the oil price, opened flat.
Telstra lifted 0.3 per cent, Wesfarmers added 0.8 per cent and Woolies gained 0.3 per cent.
Woodside Petroleum added another 0.9 per cent as the price of oil continues to rally, while gold miners struggled at the open.
10.22am:ASX lifts on banks, energy
The Australian sharemarket has rebounded at the open, aided by a strong finish to the week on Wall Street as global fears around Germany’s Deutsche Bank eased.
At the 10.15am (AEDT) official market open, the benchmark S&P/ASX 200 index rallied 35.2 points, or 0.65 per cent, to 5,471.1, while the broader All Ordinaries index gained 34.1 points, or 0.62 per cent, to 5,559.3.
While financials led the way offshore, the energy sector also outperformed, a good sign for the local market.
10.15am:House prices just keep going up
Australian house prices rose 2.9 per cent through the September quarter, a modest slowdown from the sharp 3.8 per cent in the June quarter, writes Daniel Palmer.
Melbourne was seen leading the way, picking up the slack left as Sydney’s booming market cooled a little, according to CoreLogic.
For the month of September Melbourne’s prices surged 2.3 per cent, while its quarterly growth struck 5 per cent.
In contrast, Sydney’s quarterly growth eased from an eye-watering 6.8 per cent in the June quarter to a still robust 3.5 per cent after a 0.8 per cent rise in the month of September.
Since the latest boom began in June 2012, capital city dwelling values are up 41.3 per cent.
Here’s a couple of tweets from market watchers:
Home prices in September compared with a year ago.#ausbiz pic.twitter.com/H2FRHi1M3q
— CommSec (@CommSec) October 2, 2016
CoreLogic Sept Aust home prices cap cities +1%mom/7.1%yoy. Syd 10%yoy & Melb 9%yoy still too strong. Perth & Darwin still falling. pic.twitter.com/HTM6gKsFhK
— Shane Oliver (@ShaneOliverAMP) October 2, 2016
10.02am:Pengana favours gold stocks
Pengana portfolio manager Tim Schroeders, speaking on SKY Business, says he favours gold stocks, particularly Evolution, for a short-term trade over the next five to six weeks.
The underlying commodity has a chance of outperforming before the US election on November 8, though it retreated last week as Hillary Clinton pulled away from Donald Trump in opinion polls, and Deutsche Bank shares recovered at the end of the week.
Mr Schroeders notes that metallugical coal stocks have done well in recent months, but says he would be inclined to take some profits there.
9.45am:Manufacturing index bounces back
Australia’s performance of manufacturing index bounced back to 49.8 in September after falling to a 14-month low of 46.9 in August, according to the Australian Industry Group.
But the trend since March remains down, since a higher Australian dollar has offset lower interest rates as the Fed has continued to delay hikes there.
Focus now turns to CoreLogic’s house price index and Melbourne Institute’s inflation index due later today.
9.34am:Keep an eye on energy stocks
Wall Street pulled itself higher on Friday, with the S&P500 adding 0.8 per cent. The financial sector gained 1.6 per cent as positivity around Deutsche Bank started to seep back.
Energy was the second-best performing sector following further gains from the oil price, but, as IG’s Angus Nicholson says, cracks are starting to appear.
“Oil gained 7.9 per cent in September after the OPEC deal – its biggest monthly gain since April,” Mr Nicholson notes.
“But cracks are already starting to show with Iraq stating that it does not agree with OPEC estimates of its production levels. And there are major questions over how to police the production caps. At this stage there seems to be a high hurdle for getting an even more comprehensive deal together in November.”
That said, the recent momentum, along with the latest oil price gain, could see Australian energy stocks push higher today.
9.20am:Stocks to lift in quiet start to week
Aussie stocks look set to start what is expected to be an extremely quiet day stronger as most investors gingerly haul themselves out of bed following a cracking weekend of footy-related celebrations.
Victoria decided to be difficult and take Friday off instead of today, so here we are.
The ASX will run as a “non-settlement day”, which means the seller has an obligation to deliver sold securities on the second business day after the transition and the buyer pays for them on that same day.
The SPI200 is pointing to a 0.6 per cent rise, which would see the index regain almost everything it lost on Friday.
The S&P/ASX 200 managed to squeeze out a 0.1 per cent rise last week, which is pretty much flat but we’ll count it a win. The market has not finished higher for two weeks in a row following a nasty five-week losing streak.
8.50am:Deutsche Bank’s amazing survival
From Alan Kohler’s column today:
It is quite amazing that Deutsche Bank has so far managed to avoid a run on its deposits — has a bank ever worked harder to earn insolvency than this one?
A year ago it announced a new CEO followed by a $2.5 billion fine for rigging Libor and a massive cost reduction. That was just a curtain-raiser.
In January, it announced a €6.8bn loss; in February, the CEO told staff that the bank is rock solid — a very bad sign indeed; in March, it disclosed €52bn worth of derivatives on its books and then, on June 29, the IMF put out a report containing this statement: “Deutsche Bank appears to be the most important net contributor to systemic risks in the global banking system.”
The very next day, the US Federal Reserve followed up by announcing that Deutsche had failed its stress test.
Read more
8.24am:RBA to leave rates on hold
New Reserve Bank governor Philip Lowe will preside over his first meeting of the bank’s board tomorrow but is considered certain to leave the benchmark cash rate at its record low of 1.5 per cent, writes David Uren.
Dr Lowe has expressed his optimism about the outlook for the Australian economy, expecting the end of the downturn in investment in the resources sector and stronger export prices to bring further gradual falls in the unemployment rate over the year ahead.
The most important reports on the Australian economy since last month’s board meeting were the national accounts, which showed the economy grew by an above average 3.3 per cent last year, and the latest labour force report showing the jobless rate is down to a three-year low of 5.6 per cent.
8.04am:Caltex ready to fill up at Woolies
While Caltex is still tipped as the front runner to buy Woolworths’ $1.5 billion portfolio of petrol stations, it is interesting to note that among the parties to have inquired about the offering earlier on in the contest were the global trading houses Glencore and Gunvor Group.
Gunvor is a global commodity trading company registered in Cyprus and is the fourth-largest crude oil trader in the world behind Glencore, Vitol and Trafigura.
All of the parties are thought to have shown some level of interest in the Woolworths sale, particularly Puma Energy, which is 49 per cent owned by Trafigura.
Bridget Carter
7.40am:M&A deals down, but bankers hopeful
Investment bankers are hopeful their clients will provide some cheer in coming months, after a sluggish year for deals, with signs of a pick-up in big-ticket takeovers and chunky stockmarket floats, writes Michael Bennet.
As markets last week grew anxious about the health of global colossus Deutsche Bank, some of the nation’s most senior investment bankers told The Australian corporate boards were more actively mulling mergers and acquisitions, or divestments, to deliver growth amid subdued demand.
There has been a healthy mix of major deals in the past month, including Victoria’s $10 billion Port of Melbourne privatisation, private equity’s $1bn takeover play for listed company SAI Global and JB Hi-Fi’s $870 million purchase of rival The Good Guys.
Read more
7.20am:BHP under the pump
BHP Billiton is under pressure to firm up plans for its petroleum division in the face of low oil prices at an investor briefing on Wednesday to be hosted by the division’s new president, Steve Pastor, writes Barry Fitzgerald.
The London-based briefing will occur after the close of the local market.
No radical departure from the division’s strategy is expected, although the rally in the oil price from a low of $US33 a barrel in January to last week’s $US48.24 a barrel has increased BHP’s options, particularly for the US onshore shale business.
Read more
7.02am:Local market set for solid start
Australian financial markets will be in a slightly more constructive mood when trading resumes today after a sharp bounce in Deutsche Bank shares buoyed global markets, though the German lender’s tribulations continued over the weekend with a fresh legal challenge from an Italian court.
NSW, South Australia and the ACT will remain closed for Labour Day.
Deutsche Bank surged 14 per cent to €11.67 in European trading — its biggest rise in six months — after Agence France Presse said the lender was nearing a $US5.4 billion ($7bn) settlement with the US Department of Justice in regard to mortgage-backed securities, less than half the amount initially requested.
The swift recovery in Deutsche Bank sparked a 0.9 per cent rise in the Dow Jones Industrial Average. The flagship S&P 500 index rose 0.8 per cent while the Nasdaq 100 also gained 0.8 per cent.
At 0645 AEST on Monday, the share price index was up 30 points at 5,446. Locally, in economic news on Monday, Australian Industry Group performance of manufacturing (PMI) index for September is due out, as is the RP Data Core Logic Home Value Index, also for September.
No major equities news is expected.
In Australia, the market on Friday closed lower, hurt by financial and resources stocks amid concerns about Deutsche Bank’s future and the possible implications of its financial woes.
The benchmark S&P/ASX 200 index dropped 35.4 points, or 0.65 per cent, to 5,435.9 points.
The broader All Ordinaries index fell 33.1 points, or 0.6 per cent, to 5,525.1 points.
Read more
With AAP
6.55am:Aussie dollar up in early trade
The Australian dollar is higher against the US dollar in early trade.
At 0635 AEST on Monday, the local unit was trading at US76.60c, up from US76.04c on Friday.
6.45am:Iron ore teeters above $US55
The iron ore price has dropped to a whisker above the $US55 a tonne threshold as one credit ratings agency offered a bearish view of the commodity’s short and long-term outlook, Elizabeth Redman writes.
Iron ore fell 1.6 per cent to $US55.20 a tonne in the most recent session, according to The Steel Index, from $US56.10 the previous day.
In London trade on Friday, BHP Billiton fell 0.5 per cent, while Rio Tinto lost 2.3 per cent.
The move comes as Fitch Ratings estimated an average price for the commodity of $US45 per tonne both in 2016 and over the long term, a forecast offered in a report affirming Australia’s rating as AAA with a stable outlook.
Read more
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Trump’s trade war tariff thaw
In a thawing of relations, the US will delay raising tariffs on Chinese goods after “substantial progress” in trade talks.
China puts heat on coal miners
Shares in pure-play coal miners pared early sharp losses as fears of China port ban eased throughout the session.
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