ASX 200 up as GDP misses estimate; Medibank sued by OAIC; Xero dives on convertible note offering, block trade

March quarter GDP slower than expected. Incoming Crown chair will also head Balmoral Group. Xero dives on convertible note offering, block trade. Medibank  falls as Australian Information Commissioner sues. 

Economic growth trajectory, rates and inflation on investor radars this week. Picture: Nikki Short

Welcome to the Trading Day blog for Wednesday, June 5. The ASX 200 index rose 0.4 per cent to 7769 points as mining and energy falls offset gains by the property and consumer staples sectors.

The Aussie dollar was trading near US66.53c after GDP rose 0.1 per cent in the March quarter.

Updates

4:30 pm June 5, 2024

ASX 200 ends up 0.4pc on bond rally

David Rogers

Australia's share market closed at its highest point in over a week as a valuation uplift from falling bond yields outweighed a potential hit to resources sector earnings from a recent pullback in commodity prices.

US futures rose slightly, adding to positive US leads after the 10-year bond yield fell 6.1bps to a three-week low of 4.33 per cent on weak job openings data.

The S&P/ASX 200 index closed up 0.4 per cent at 7769 after rising to 7774.3.

March quarter GDP rose 0.1 per cent on quarter and 1.1 per cent on-year.

GDP growth was a tenth lower than expected for both measures, although it didn't lift expectations for rate cuts as household spending proved resilient.

The communications, property, health care and consumer staples sectors led gains with Telstra up 1.4 per cent, Goodman up 1.5 per cent, ResMed up 2.7 per cent, Treasury Wine up 5.3 per cent after reaffirming its earnings guidance and Seek up 4.9 per cent after agreeing to sell its Latin American assets.

BHP fell 0.9 per cent as iron ore futures hit a two-month low of $US106.55 after disappointing China and US manufacturing PMI data in recent days.

Woodside fell 1.1 per cent and South32 lost 2.8 per cent as crude oil and base metal prices remained weak. Xero dived 4.5 per cent on a large block trade.

The Bank of Canada is expected to cut interest rates overnight and the focus will be on its framing of the outlook for further rate cuts.

US ISM services PMI data are also due overnight.

The ECB is expected to cut on Thursday and US jobs data come Friday.

2:49 pm June 5, 2024

Palmer sues former ASIC boss

Angelica Snowden

Billionaire businessman Clive Palmer is suing the former chair of Australia’s corporate regulator James Shipton amid claims of public misfeasance, and wants $3.5m in damages.

Mr Palmer launched legal action against Mr Shipton personally in the Federal Court Tuesday.

In a public statement, the former politician claimed he was seeking damages from Mr Shipton "for failing to perform the functions of public office.

"James Shipton, while serving as ASIC chairman, clearly acted beyond his authority, and acted untruthfully," Mr Palmer tweeted.

2:10 pm June 5, 2024 Highlight

Borghetti to chair Balmoral Group

Lisa Allen

Virgin Australia's former chief executive and incoming Crown Resorts chairman John Borghetti will also be independent chair of the Oatley family-owned Balmoral Group.

The Balmoral Group owns the billion-dollar Hamilton Island in Queensland’s Whitsunday Islands. The Oatley family attempted to sell Hamilton Island last year for $1bn, but were unsuccessful.

The Oatley family said it was pleased to appoint Mr Borghetti as its inaugural independent chair given the retirement of Andrew ‘Sandy’ Oatley.

"My father was well known for hiring around him advisors of the highest quality. In that tradition, over the past 8 years since his passing, my siblings and I have rejuvenated the board, appointing three excellent independent directors. The appointment now of John… is the next step in this process…," Mr Oatley said. "I know that in handing the board chairmanship to John, I leave the business leadership in the best possible hands."

Mr Borghetti takes over as the chair of the US private equity group Blackstone'-owned Crown business from July.

1:38 pm June 5, 2024

Aus Unity Q&A triggers ASIC action

Valerina Changarathil

Financial regulator ASIC has temporarily stopped Australian Unity Funds Management from issuing or distributing interests in its Select Income Fund to retail clients.

The action, valid for 21 days unless revoked earlier, is in response to its concerns that Australian Unity is reliant on a retail client questionnaire "with significant flaws as a key step for compliance with its obligations". "Australian Unity has failed to take reasonable steps likely to result in distribution conduct being consistent with its target market determination (TMD)," ASIC's statement says.

When applying for interests in the fund, retail clients who have not received financial advice must respond to Australian Unity's questionnaire. ASIC says the questions and response options were based on and relied predominantly on "complex consumer attributes" set out in the fund's TMD.

There was a high risk that retail clients would not understand the questionnaire, which may lead to inaccurate responses and distribution of interests in the fund outside the target market, ASIC says.

1:31 pm June 5, 2024

Defence defends PwC clearances

Ben Packham

Defence officials have defended their approval of 96 security clearances for PwC staff while the disgraced consulting giant was facing a “deep dive” investigation by the department.

Independent Senator David Pocock said he was astonished Defence had approved the clearances for the PWC employees when the company was being probed over its “shocking breach of trust” in misusing confidential tax information from Treasury.

“You're telling me that no additional probity measures, checks or balances, were added?” he said. Deputy secretary security and estate Celia Perkins said the approvals were “totally separate” to the investigation the government undertook from January to October 2023.

1:28 pm June 5, 2024

RBA rate hike 'an outright policy mistake'

Valerina Changarathil

The latest GDP figures show economic activity is "restrictive enough in Australia and does not need higher rates", according to State Street Global Advisors' APAC economist Krishna Bhimavarapu.

"This is why we believe the next RBA move should be a cut and view a hike as an outright policy mistake," he says.

State Street is forecasting two rate cuts this year – to the current cash rate of 4.35 per cent – and three in 2025, to a terminal policy rate of 3.10 per cent.

"Nonetheless, we only expect the first cut to be delivered in September, as the RBA will still be one of the last major central banks to cut rates."

1:17 pm June 5, 2024

Consumer spending may cause RBA concern

Valerina Changarathil

Further signs of strength in consumer spending and/or further disappointment on the inflation front could easily bring a rate hike back on the table, Betashares Capital's chief economist David Bassanese warns.

"The interest rate outlook remains delicately poised," he says in terms of the potential impact of the 0.1 per cent rise in March quarter GDP. "The economy continued to limp forward last quarter but not for the reasons expected – and it was only a hair's breadth from falling backwards. "It was surprise weakness in – normally strong – exports, non-residential construction and public investment that accounted for the soft GDP result last quarter."

Meanwhile consumer spending grew by 0.4 per cent in real terms. "While some of this spending could be consider essential – such as increased spending on electricity due to a hot summer and more spending on rents due to housing shortages – there was also increased discretionary spending on travel and sporting/music events," he says.

"The RBA would be concerned that consumer spending on services last quarter appeared to be quite firm, even before next month's tax cuts kick in… the risks of a rate hike have not gone away…" His base case is still for the RBA to cut rates likely around November/December.

1:03 pm June 5, 2024

Economy has 'barely grown' since Oct

Valerina Changarathil

The Australian economy has "barely grown" over the past six months and is a "a heartbeat away from being in a recession", KPMG economist Brendan Rynne says.

Gross Domestic Product in the March quarter rose just 0.1 per cent, with detailed data confirming the sideways movement seen since October, he says.

Household savings ratio fell from 1.6 per cent to 0.9 per cent as growth in gross disposable incomes of 1.1 per cent could not catch up with the rise in nominal household consumption (1.5 per cent) due to the rising costs of living.

Labour productivity, measured as GDP per hour worked, flatlined over the quarter and through the year as hours worked grew in line with GDP. With wages growth softening during the quarter, real unit labour costs declined by 0.7 per cent, but remained 3.4 per cent higher than in the corresponding period in 2023.

"In normal circumstances this weakness in economic conditions would induce the RBA to adopt loose monetary policy settings to stimulate activity," Mr Rynne says. "However, with inflation still sticky and showing this ‘last mile’ down to the target band is a much harder road KPMG expect the RBA to still sit on their hands for at least another quarter until the trajectory of headline and core inflation becomes clearer."

He expects the next RBA move to be a cut in late 2024 or early 2025.

12:35 pm June 5, 2024

Xero shares dive after block trade

David Rogers

Xero shares dive to a two-week low after a large block trade.

Shares are down 4.5 per cent at $125.80 ater hitting $125.54.

A block of 2.36m shares traded at $126.85 a share at 0900am AEST.

The deal was equivalent to about 1.7 per cent of Xero's shares on issue and worth $299.3m according to Bloomberg. UBS, ML and Citi were most active.

12:26 pm June 5, 2024

We got the budget right: Chalmers

Tricia Rivera

Treasurer Jim Chalmers says the new GDP figures demonstrate the federal government got the budget "exactly right".

Data from the Australian Bureau of Statistics released on Wednesday show real GDP expanded by just 0.1 per cent in the first three months of this year, versus an upwardly-revised 0.3 per cent in the previous quarter, dragging annual growth down to 1.1 per cent.

"The primary cause of this very weak growth in our economy was higher interest rates but in combination with moderating but persistent inflation and global economic uncertainty as well," Dr Chalmers said in a press conference.

"These numbers show that we got the budget exactly right. This is a justification for the government's approach to fighting inflation without smashing the economy.

"As you know by now, economic growth was 0.1 per cent in the March quarter to be 1.1 per cent higher through the year … this was a little bit below the median market expectation, not a lot lower, but a bit lower, and any growth is welcome in these domestic and global circumstances that we confront." He expects the June quarter will be "similarly difficult".