Fiery evidence at PwC hearing; ASX 200 down 2pc-plus after big US falls, UK rate cut; Amazon, Apple results

'People were making good money for good effort. But it wasn't egregious': Luke Sayers. Mercer to cough up $11.3m for greenwashing. ASX has worst day in almost two years. JB Hi-Fi falls on downgrades. Afterpay owner among top gainers on strong guidance. 

PwC CEO Kevin Burrowes has faced Senate over his $1.2m top-up payment from PwC International. Picture: Liam Mendes

Welcome to the Trading Day blog for Friday, August 2. The ASX 200 index closed 2.1 per cent lower to 7943.20 points -- marking its worst day in nearly two years -- after big falls in the US on weak economic data, disappointing earnings and the UK's first rate cut since 2020. 

The Aussie dollar was trading around US65.15c at 5.10pm AEST.

Updates

5:04 pm August 2, 2024

ASX 200 ends down 2.1pc in $60bn wipeout

David Rogers

Australian shares were pummeled with almost $60bn wiped on Friday after weak US manufacturing data sparked a selloff on Wall Street that looked set to continue after underwhelming results from Amazon.

A day after hitting a record high of 8148.7 points, the benchmark S&P/ASX 200 share index dropped a massive 171.5 points or 2.1 per cent to a five-day low of 7943.2 on broad-based falls. The outlook now hangs on US jobs data due Friday.

In was the biggest one-day fall in the S&P/ASX 200 since March 10th 2023.

Despite bullish sentiment after lower than expected Australian inflation data and a Federal Reserve meeting that hinted that US rate cuts will start in September, markets wobbled after the ISM manufacturing report signaled a sharper contraction.

Falls were led by consumer discretionary, financials, energy and property stocks.

Wesfarmers dived 2.9 per cent, JB Hi-Fi fell 3 per cent and CBA lost 2.8 per cent.

All three hit records this week. JB Hi-Fi was cut by Jefferies and J.P. Morgan.

Property stocks suffered despite a sharp fall in bond yields.

Goodman fell 5.1 per cent even as the 10-year bond yield hit a four-month low.

Iron ore miners outperformed, potentially due to investors switching out of overvalued banks. BHP fell 1.2 per cent and Rio Tinto fell 0.8 per cent.

3:46 pm August 2, 2024

ATO shared gossip, didn't detail tax scandal: Sayers

David Ross

Former PwC chief executive Luke Sayers has told a parliamentary inquiry he cannot recall a meeting with Australian Taxation Office second commissioner Jeremy Hirschhorn, in which issues around the firm’s tax practice were raised.

In a heated exchange in parliament, Mr Sayers said he did not "believe that Mr. Hirshhorn explicitly or formally told me about a breach of confidence".

"He has even said here that it's illegal to do that," he said. "I don't remember things like that."

Mr Sayers said the ATO never wrote to PwC about confidentiality issues. Instead, Mr Sayers said Jeremy Hirschhorn told him about a number of things in their meeting in 2018, including gossip about PwC partners, tax matters, as well as a "whole range of opinions".

Mr Sayers said the ATO didn’t raise any matters concerning the Foreign Investment Review Board, as subsequently detailed in responses to parliament.

"He should have given it to FIRB and they could have investigated it at the time," he said. "Give it to them so they can do their job, don't point and pontificate."

3:02 pm August 2, 2024

Seymour aware of international links to tax scandal

David Ross

Former PwC Australia CEO Tom Seymour also says he was aware of a number of partners in the international arm of the firm who were connected to the firm’s misuse of confidential information.

He tells the parliamentary inquiry he found it strange two or three Australian partners connected to the scheme had been named but the international partners had not.

But, Mr Seymour noted it was very difficult to establish if international partners knew the information they were shared was confidential.

2:59 pm August 2, 2024

Burrowes' $1.2m top-up 'highly irregular': former PwC CEOs

David Ross

Two former chief executives of PwC Australia have characterised current pay arrangements for current boss Kevin Burrowes as very unusual.

Mr Burrowes has revealed he is receiving a top-up $1.2m payment, in addition to his $2.8m salary, from PwC international for services consulting the firm on the Australian Tax Scandal.

Former CEO Luke Sayers said it was often the case PwC Australia and International were aligned but it was clear, given the difficulties facing the local firm, there were issues.

"I would believe the Australian partners would perceive there to be a conflict," he said. Mr Sayers said CEO income was always public to partners when he was running the firm.

Former CEO Tom Seymour said he was very surprised to learn about Mr Burrowes’ pay, noting it was "highly irregular".

2:37 pm August 2, 2024

Seymour didn't question Collins' 'intelligence' on tax changes

David Ross

Former PwC chief executive Tom Seymour said he was a recipient of a key document showing the firm’s actions to get ahead of new tax laws in 2016.

Mr Seymour said he, along with two others, received an email from former partner Paul McNabb which discussed the firm’s MAAL work, which subsequently raised concerns within PwC.

Mr Seymour said the scheme outlined in the email was prepared by Mr McNab, possibly alongside former PwC tax "rover" Neil Fuller. The email notes PwC benefited from "intelligence" from PwC’s former head of international tax Peter Collins.

"When I received this email on 6 January I was on leave. I read it and looked at it and said this is an email partly from a partner saying what a great job he and the team had done," he said. "And he named a lot of people in that email, a broad group of people who’d worked on it."

Mr Seymour said he skim-read the email and didn’t give attention to the mention of Mr Collins.

"If I had interpreted this email in any way that confidential information was being used I would have immediately acted," he said.

Liberal MP Alex Hawke, who introduced the MAAL legislation, questioned "what other interpretation" Mr Seymour could offer of the references to Mr Collins’ intelligence.

But, Mr Seymour said the word should be read in a "broad context" in reference to Mr Collins’ technical skills.

Labor Senator Deb O’Neill took aim at Mr Seymour’s response to Mr Collins, noting his "market hustle".

"We wanted our partners to be out there winning clients, we wanted partners to have market hustle," he said.

2:03 pm August 2, 2024

PwC ex-CEO Seymour outlines 'tension' with Beattie

David Ross

Former PwC chief executive Tom Seymour has challenged evidence of PwC Australia's former general counsel Meredith Beattie, slating responsibility for the firm’s legal professional privilege claims over document access to her.

Former PwC chief executive Tom Seymour speaks at the Parliamentary Committee hearing.

Senator Paul Scarr noted Ms Beattie only raised “your name, Mr Seymour, when we were asking questions”.

In evidence to a parliamentary inquiry Mr Seymour said the document access process was “very difficult” and created tension with the Australian Taxation Office, but the former CEO said it was not “factually correct” to say he was responsible for the negotiations. “It was run by the legal team,” he said. “OGC Meredith Beattie was the person who ran that.”

Mr Seymour said there was “tension” between him and Ms Beattie. “I had a view we were being too legalistic with the document delivery process, in a general perspective,” he said.

1:51 pm August 2, 2024 Highlight

Mercer to cough up $11.3m for greenwashing

Valerina Changarathil

Mercer Superannuation Australia has been ordered to pay a $11.3m penalty after it admitted it made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

This was ASIC’s first greenwashing case brought before the Federal Court.

The court found Mercer made misleading statements on its website about seven ‘Sustainable Plus’ investment options offered by the Mercer Super Trust, of which Mercer is the trustee. These statements marketed the Sustainable Plus options as suitable for members who ‘are deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal. Exclusions were also stated to apply to companies involved in alcohol production and gambling.

The court found members who took up the options had investments in companies involved in industries the website statements said were excluded, including in the extraction or sale of carbon-intensive fossil fuels like AGL, BHP, Glencore and Whitehaven Coal, and also in the production of alcohol, for instance, Carlsberg, Heineken and Treasury Wine Estates. Investments were also in 19 companies involved in gambling, including Aristocrat Leisure, Crown and Tabcorp.

"Today’s matter is a strong example to the financial services industry of the greenwashing action we will take," ASIC deputy chair Sarah Court said.

The court heard the contraventions admitted by Mercer "are serious" and arose from failures by Mercer to implement adequate systems to ensure that ESG claims in relation to its superannuation products were accurate, and to monitor and enforce the application of any sustainability exclusions associated with such ESG claims.

Mercer Super has also agreed to pay ASIC’s costs.

1:30 pm August 2, 2024

Tokyo tanks as Asian markets track Wall St down

Tokyo's bourse led losses across Asia on Friday due to a stronger yen and expectations for more Japanese rate hikes, while disappointing data sparked a plunge on Wall Street and fuelled fresh fears of a US recession.

The optimism that greeted US Federal Reserve boss Jerome Powell’s indication on Wednesday (US) that borrowing costs could be cut in September has given way to trepidation that the slowdown in the world’s number one economy might be picking up too much speed. But news on Thursday that the US factory sector shrunk faster than forecast in July – and for the fourth consecutive month – raised eyebrows.

And Asia fared just as poorly, with Tokyo the standout. The Nikkei 225 tanked more than 5 per cent at one point owing to a stronger yen, which hits Japan’s key export sector. The country’s tech giants were also hammered as they took the lead from losses by their US counterparts, with chip titan Tokyo Electron losing 10 per cent and Sony shedding more than six per cent.

Hong Kong and Sydney were off more than two per cent, while Seoul and Taipei shed more than two per cent, with losses also in Shanghai, Wellington, Manila, Singapore and Jakarta. Wednesday’s decision by the Bank of Japan to hike interest rates for the second time in 17 years – and talk of another to come – strengthened the yen to as much as 148.51 per dollar, its best level since March.

– AFP

12:45 pm August 2, 2024

Johns Lyng bets $57.6m on acquisitions

Valerina Changarathil

Shares in insurance building and restoration services provider Johns Lyng Group (JLG) are 1 per cent lower at $5.76 at 12.40pm AEST on a dismal day for equities after announcing $57.6m in cash and scrip acquisitions.

The group is buying all of SSKB Strata and 84 per cent of Chill-Rite HVAC.

"Both businesses have great reputations in their respective industries and are strong standalone businesses with significant potential synergies and customer opportunities – consistent with JLG’s investment criteria and acquisition strategy," the group told investors.

Johns Lyng will pay $28.8m in cash, with the balance payable in JLG shares to be issued on completion, currently slated for the first quarter of FY25. There is an aggregate earn-out of up to $15.4m, which is contingent on FY25 and FY26 earnings.

The acquisitions are expected to generate FY25 revenue of more than $45m and earnings before interest, taxes, depreciation and amortisation of $9m. The broader ASX 200 index is down 2.4 per cent to 7923 points.

12:41 pm August 2, 2024

No respite for stocks before US jobs data

David Rogers

Australian stocks continue to sink after a weak US ISM manufacturing survey.

The ASX 200 is down 2.4 per cent at 7923.2 points after hitting a four-day low of 7920 points in early afternoon trading. A day after hitting a record high of 8148.7 points, the Australian market is having its worst day since September 2022.

The ASX is forming a worrisome "Evening Star" pattern on the candlestick chart.

All sectors fall, led by financials, energy and consumer discretionary.

Major banks fall 2.4-4.1 per cent with NAB weakest.

Wesfarmers falls 2.8 per cent and Aristocrat falls 3.6 per cent.

Goodman Group dives 4.2 per cent.

It comes as S&P 500 futures fall 0.9 per cent as Amazon falls 6.9 per cent after reporting. The S&P 500 fell 1.4 per cent on Thursday. US banks fell about 3 per cent.

US non-farm payrolls data are due later Friday.