Australian stocks soar to 12-year high on rate cut bets, upbeat US earnings
The broader All Ordinaries has set fresh closing records amid rate cut and trade talk optimism.
- BHP, Rio, Anglo cut by major broker
- Vale restart prompts iron ore drop
- Coca-Cola Amatil follows Coke rise
- Abacus taps market for $250m
- KKR set to buy Arnott’s for $2bn
That’s it for the Trading Day blog for Wednesday 24 July.
Australian shares set fresh 12-year highs following optimistic US quarterly earnings reports and positive trade talks developments from the US overnight. Meanwhile in Britain, the Conservative Party has elected pro-Brexit former London mayor Boris Johnson as its new leader and prime minister.
Samantha Bailey 4.26pm: All Ords sets new record
The local sharemarket soared to 12-year highs on Wednesday amid speculation of deeper RBA rate cuts and following a rally on Wall Street overnight.
The ASX200 is now 1.1 per cent off its all-time high of 6851.5.
Gains came after the major US indices all gained more than half-a-percent overnight on stronger-than-expected earnings.
Adding to equitiy positivity, Westpac’s Bill Evans said he now predicts the RBA will cut the cash rate to 0.75pc in October and 0.5pc in February.
“It was a solid day for our market. There are only 5 days of trade left now in July and we are up more than 2 per cent this month so there’s a pretty good chance that this will be the 7th consecutive month of gains for our market,” CommSec market analyst Steven Daghlian said.
“It’s not really because the economy is doing really well, it has a lot more to do with the very low interest rate we are seeing now globally at the moment which is seeing money flow into the sharemarket.”
Despite overall positivity, a late drop in iron ore miners threatened ASX gains. Brazilian authorities approved a restart at major miner Vale this afternoon, set to add five million tonnes into supply.
By the close of trade, BHP lowered 0.6 per cent to $41.33 while Rio Tinto lost 2.2 per cent to $100.51. Fortescue fell 0.6 per cent to $8.73.
In financials, ANZ rose 0.8 per cent to $27.65 while Commonwealth Bank gained 1 per cent to $82.35. Westpac lifted 1.7 per cent to $28.39 while NAB climbed 1.7 per cent to $28.33.
AUDUSD last traded at 69.82c, with rate bets weighing on the currency.
4.13pm: Stocks soar on earnings, rates
The local benchmark has held on to daily gains to close at 12-year highs, as the broader benchmark sets fresh records.
Strength in the local market was fuelled by better-than-expected US earnings overnight, alongside the latest rate cut bets from influential economist Bill Evans, suggesting a further cut by October.
Intra-day, the benchmark ASX200 hit as much as 6768.3, before closing 52 points or 0.77 per cent higher at 6776.7.
Meanwhile, the All Ords set new records on a closing basis - adding 50 points or 0.73 per cent to 6862.4.
3.56pm: Rio, BHP, Anglo cut by major broker
London-based equities brokerage and investment house Liberum has cut its rating for iron ore miners BHP, Rio Tinto and Anglo American, suggesting the iron ore “top may be in”.
As reported by Bloomberg, the three London-listed miners have been cut to Hold by the broker - what is ricocheting onto the local market in late trade.
Rio Tinto has been hit hardest, after Liberum cut its target price by 45 pounds - trading down 2.4pc ahead of the ASX close.
Meanwhile, BHP is lower by 0.67pc.
3.47pm: Online job ads fall for 6th month
The number of jobs advertised online dipped 0.6 per cent in June, marking a sixth consecutive month of falls recorded by the federal government’s Internet Vacancy Index.
The numbers, released by the Department of Jobs and Small Business on Wednesday, indicated a drop of 1,100 ads from the previous month and a 6.7 per cent slump in listings in the past year.
The IVI measure is based on a count of all new job ads posted on three employment websites - Seek, CareerOne and Australian JobSearch - during the month.
NSW ads had the biggest fall over the past 12 months, sliding 10.8 per cent, while the figures dropped 10.6 per cent in the Northern Territory and 6.6 per cent in Victoria.
The survey of online job classifieds also recorded a drop of 4.9 per cent in Queensland, a fall of 2.6 per cent in Western Australia and a 0.7 per cent dip in South Australia over the past year.
Job vacancies on an annual basis increased by 7.1 per cent in the ACT and by 10.5 per cent in Tasmania.
AAP
3.35pm: Mercedes Benz maker swings to loss
German premium car maker Daimler AG said Wednesday that it swung to a loss in the second-quarter, hit by costs from investigations into its diesel cars and provisions for a recall of Takata air bags.
The maker of Mercedes-Benz cars reported a net loss of 1.3 billion euros ($2.08bn) compared with a net profit of EUR1.73 billion a year ago. Revenue rose 5 per cent to EUR 42.65 billion.
Earnings were hit by EUR4.2 billion in one-off items, it said. Daimler had already warned investors that earnings would be below expectations less than two weeks ago and at the end of June.
Daimler backed its recently lowered outlook.
Dow Jones
3.18pm: Vale restart prompts iron ore drop
Shares in the major miners are retracing in the final hour of trade, after Brazilian miner Vale received approvals to recommence partial production.
The decision from Brazilian authorities today gives Vale approval to recommence dry processing at the site, which will add five million tonnes of production for the year.
ASX200 last at 6773.1.
Heavyweights BHP, Rio Tinto and Fortescue have been cheering a surge in iron ore prices since Vale’s Brumadinho dam Collapse in January.
But today, those same miners have given back gains, pulling the benchmark ASX200 from 12-year highs.
With one hour of trade to go on Wednesday, BHP is lower by 0.48 per cent, Rio Tinto has lost 2.48pc and Fortescue is retracing by 1.02pc.
It comes just a day after Vale flagged production delays of up to three years.
2.52pm: Coca-Cola Amatil follows Coke rise
Local Coke bottler Coca-Cola Amatil is following its US parent’s lead on the market, adding 0.33 per cent in local trade after the beverage giant beat earnings expectations.
Overnight, Coca-Cola shares hit record highs in the US as the company increased its full year revenue expectations and said it was winning customers with new drinks.
NYSE-shares gained 6.07 per cent in the US session to $US54.33.
The company attributed its performance to 4pc volume and transaction growth in its namesake brand, as well as strength in its Zero Sugar lines.
On the local market, Coca-Cola Amatil shares are trading 0.33 per cent higher to as much as $10.64, its highest since April 2016.
2.42pm: Magellan hits record high... again
Magellan shares have hit new record highs in Thursday trade, marking a near 50 per cent rise in the stock since the start of June.
In Thursday’s trade, shares rose 3 per cent to $61.28.
Other stocks hitting record highs on the ASX200 are Wesfarmers, Altium, Credit Corp and Charter Hall.
1.53pm: Asian equities cheer new trade talks
The latest scheduled trade talks between the US and China have sparked a boost in Asian equities on Thursday.
US Trade Representative Robert Lighthizer is set to lead a delegation to China next week, in the first in-person talks since the two countries’ leaders met at G20 last last month.
China’s Shanghai Composite is trading higher by 1.01pc at its lunch break, while Hong Kong’s Hang Seng is up by 0.9pc.
Japan’s Nikkei is rising by 0.38 while Korea’s KOSPI is the only to lower, last down 0.2pc.
“Asia equity markets are feasting on the positive after-effects from better than expected US earnings and the constructive vibe around the resumption of trade talks while the dovish central bank scrim is providing the icing on the cake,” Vanguard Market’s Steven Innes said in a note.
ASX200 last at 6773.2.
1.41am: All Ords headed for record close
The All Ordinaries is trading higher by 0.7 per cent after lunch, and is on path to close at record highs if these levels persist.
With just over 2 hours left of Wednesday’s trade, the All Ords is holding at 6860.4 - above its last record closing high of 6853.6 from November 2007.
The benchmark is still off its record intra-day high of 6873.2.
Meanwhile, the ASX200 is higher by 51 points or 0.8 per cent to 6775.3.
All Ords above its 2007 closing high. It took 12 years because it was such a high hi following the huge mining boom related run up last decade..just like the US share market took 13 years to surpass its tech boom high.#Ausecon pic.twitter.com/snj0qQSvD2
— Shane Oliver (@ShaneOliverAMP) July 24, 2019
1.18pm: Chinese rivals to test A2, Bellamy’s
Australian infant milk formula producers in China are increasingly coming under threat from domestic brands, and changes in daigou channel, according to analysts from Citi.
In a note to clients, analyst Sam Teeger warned Chinese competitors were dominating in lower tier cities, and set to ramp up thanks to increased support from Chinese authorities.
“While SAMR registration picked up during the first half of CY19, ~78 per cent of approvals were for domestic Chinese brands, while two of the three foreign brands who received approvals had direct links to Chinese entities,” Mr Teeger says.
“With approvals and overseas site inspections once again grinding to a halt prior to the release of draft IMF registration regulations, barriers to entry are creeping even higher for new entrants; particularly foreign brands.”
He notes that pressure on the daigou channel is intensifying under new e-commerce laws, and set to hurt a2 the most, as the channel accounts for 20pc of sales.
Citi rates both a2 Milk and Bellamy’s at Neutral.
a2 Milk shares are 2 per cent lower to $16.38 in today’s trade, while Bellamy’s is higher by 1pc to $9.97.
1.03pm: Zoom Phone launches in UK, Aus
Zoom Video Communications said Tuesday its Zoom Phone cloud phone service is now available in Australia and the UK.
Zoom Phone is available as an add-on to Zoom’s platform, the company said.
Zoom also said it was releasing a number of enhancements for its service, including Office 365 and Gmail integrations. Zoom is also offering a multi-language prompt service, among other new features.
Users will also be able to multi-task with Zoom chat and other features while on a Zoom phone call, the company said.
Dow Jones
12.41pm: US PE circles Crazy Domains for $105m
Dreamscape Networks, the developer behind domain name brand Crazy Domains, has been courted by New York private equity firm Siris Capital, in a deal worth $105 million.
The developer this morning announced it had entered into a scheme implementation deed with Web.com, the wholly owned subsidiary of Siris, for cash consideration of 27c per share.
That sent the company’s ASX-listed stock up 25 per cent in trade, to as much as 26.5c - a record high for the company.
Dreamscape’s board have unanimously recommended the scheme, saying the shares had never traded at a price higher than the bid since its listing in 2016.
The bid price reflects an enterprise value of $119 million for the company, 9.8x its FY19 unaudited earnings.
“Dreamscape’s customers will benefit from the resultant increase in scale to deploy unique, simple and innovative online solutions, as well as a broader product suite and service capability,” chairman Peter James said.
“In addition, the Scheme is great news for Dreamscape staff. We believe there will be excellent opportunities for all of our staff to be engaged with Web.com’s global ambitions.”
DN8 last traded at 25.7c.
12.28pm: Regis drags on downgrade
Regis Resources is the worst performer on the market at lunch following its fourth quarter report released yesterday, and after Macquarie analysts cut the stock to Underperform.
In a note to clients, the broker said production of 91,000 ounces was in line, but higher costs at its Duketon North site were higher than expected and likely to persist over the next few years.
Analysts expect earnings per share to fall by 32 per cent in FY20, as a result of higher costs and in line guidance, and by 45 per cent in FY21.
“The reduced earnings outlook has lowered our target price 11 per cent to $5.10. With recent strength in RRL’s share price, we downgrade our recommendation from Neutral to Underperform,” Macquarie said.
Regis Resources is the worst performer in the top 200 at lunch, last down 9.12 per cent to $5.88.
12.15pm: Tabcorp rejects Racing QLD fee claim
Betting giant Tabcorp believes its subsidiary UBET was entitled to withhold an alleged $11 million in fees from Racing Queensland last year as an offset to the state’s new wagering tax.
Tabcorp, which was served with a damages claim from the administrator in June, said details revealed in the Supreme Court of Queensland on Wednesday confirmed RQ was seeking compensation for an alleged underpayment by UBET. The claim relates to the extent to which Queensland’s new point of consumption tax is borne by UBET or RQ, and impacts fees calculated under two contractual arrangements.
Tabcorp said it was preparing a formal defence but maintains it will “defend the charges vigorously”.
The gambling company says previously redacted court documents show RQ is alleging an $11 million underpayment by UBET between the introduction of the tax in October, through to December.
The claim is then extended across the potential impact across the 25-year term of the deed between the two parties, Tabcorp said in its release to the ASX.
TAH shares last down 0.11pc to $4.61.
AAP
11.42am: Zip customer boost buoys BNPL players
Buy now, pay later provider Zip has posted strong transaction growth and customer numbers for the full year, prompting a boost across the whole of the sector.
In a quarterly update to the market this morning, Zip Co said it had posted record quarterly revenue of $27 million, up 17pc on the previous quarter and had more than doubled its transaction volume from a year ago to $1.1 billion.
At the end of June, it had 1.3 million customers on its platform, and average number of transactions per customer in a month increase by over 30pc.
“Consistent with Zip’s strategy of penetrating everyday spend, the average transaction value on a Zip account dropped by 25 per cent to $217. Interestingly this compares with $103 for Visa and Mastercard, and $229 for American Express,” the company said.
Shares in the company are trading higher by 9.43 per cent on Wednesday, to $3.48 while rival Afterpay is up by 3pc to $25.43 and Splitit is up by 7.1pc to 68c.
11.05am: Production decline hits St Barbara
St Barbara has posted a decline in gold production for the June quarter, prompting a 4.5 per cent sell-off in its shares today.
Lodging its quarterly this morning, the miner said full year production was 362,346 ounces, down from 403,089 ounces in the previous, but said its extention of the Gwali project remained on schedule.
Earlier this week, the company completed its acquisition of Canadian miner Atlantic Gold, integration of which is expected over the next six months.
The company said its guidance for the acquired company would be released with its September quarterly, but forecast Gwali proudction between 200,000 and 210,000 ounces and SImberi production between 110,00 and 125,000 ounces.
“What prevents us from a more constructive investment view is the uncertainty around the likely cost and capex implications at Gwalia given the ongoing optimization of the trucking solution for long-term production at that asset,” RBC mining analyst Paul Hissey said.
“The recent acquisition of Atlantic Gold helps to provide further visibility on mine life, though we still consider SBM to be contending with a declining production profile prior to a more material increase in volumes from Moose River in FY23e.”
SBM shares are trading 4.9 per cent lower at $3.39.
10.47am: Stocks hit 12-year high
Australia’s S&P/ASX 200 share index has jumped 0.7pc to a 12-year high of 6772.1.
The strong rise comes amid a combination of stronger offshore markets and speculation of deeper RBA rate cuts.
Westpac now predicts the RBA will cut the cash rate to 0.75pc in October and 0.5pc in February.
Falling interest rates favour bond proxies, housing-related stocks, discretionary retailers and offshore income earners, at the expense of banks and insurers.
Index last up 0.6pc at 6766.7.
10.32am: Sentiment, jobs prompt Oct cut: Evans
Westpac chief economist Bill Evans had previously forecast the RBA would cut the cash rate to a “terminal rate” of 0.75pc in November but today has revised that move earlier to October.
He says that by October the path of the unemployment rate will be “sufficiently contrary to the RBA’s plans that they will have appropriate justification to ease policy a little earlier than we had previously expected”.
The RBA’s September meeting will also be a “live” meeting but Mr Evans expects the Board will wait for more data, such as the June quarter national accounts, before moving again.
Despite the now consensus forecast of a 0.75pc cash rate by November, AUD/USD has risen from $US69.20 to $US0.7020, partly due to the higher terms of trade and the prospect of a lower US federal funds rate.
“We expect that the near term boost to demand from the higher terms of trade will be limited by a cautious response from both the private and public sectors,” Mr Evans warns.
And economic data have highlighted downside risks for demand, wages and the labour market.
“In particular we have been surprised by the response of consumer sentiment to the rate cuts in June/July, having fallen by nearly 5 per cent,” Mr Evans says.
“Furthermore, our measure of unemployment expectations has also deteriorated markedly.”
His forecasts of inflation and unemployment emphasise the extent of the challenge faced b the RBA in boosting demand and wages and reaching their own targets.
“We expect that the RBA will eventually see only one more rate cut, in October, as being an insufficient response.”
10.19am: Iluka dives to 5-week low
luka Resources has dived 8.2 per cent to a 5-week low of $10.16 after a disappointing second quarter production report.
It said mineral sands output fell 11pc on-year to 251,300 tonnes, with zircon sales down 6pc on year to 72.700 tonnes.
Zircon sales will be second-half weighted and sales may be lower than production, with producer inventories expected to rise over 2H.
The 50-day moving average is currently offering support at $10.19.
ILU last down 6pc at 10.43.
10.18am: Westpac tips October cut
Westpac has revised lower its rate expectations, saying it now sees the RBA cutting rates to 0.75 per cent in October and then to 0.5pc in February from 1pc currently.
The news has pushed the Aussie dollar to a two-week low of US69.86c.
Bridget Carter 9.56am: Canarvon taps market for $84m
Dataroom | Carnavon Petroleum is tapping the market for $84 million to fund the share of the costs for its Dorado project that it owns with a Santos.
Working on the raise is JPMorgan and Euroz Securities.
Carnavon plans to raise $79m through an institution al placement and $5 million though a share purchase plan.
Shares are being sold at 39c, an 8.2 per cent discount to its last closing price.
9.50am: QIC swoops on Pacific Energy
QIC has swooped on Perth-based power company Pacific Energy in a deal valuing the company at $422 million.
Pacific Energy today told the market it was backing the proposal from QIC Private Capital for acquisition via a Scheme of Arrangement.
Under the deal, shareholders in the company will receive 97.5c per share in cash, comprising of 96c per share to be paid by QIC and a final 1.5c dividend from the company.
“The proposal delivers a significant premium for shareholders and recognises the position Pacific Energy has built as the leading Build-Own-Operate power supplier to the mining industry and remote townships in Western Australia as well as the emerging opportunities from our growing east coast presence through Pacific Energy Victorian Hydro and NovaPower,” chairman Cliff Lawrenson said.
Shareholders will vote on the Scheme in October.
9.44am: Global banks under APRA heat
The prudential regulator has ordered Macquarie Bank, Rabobank and HSBC to tighten their funding arrangements to make sure local funds cannot be withdrawn by their parent companies in the event of financial stress.
The Australian Prudential Regulation Authority says the institutions must strengthen arrangements for their local banks after discovering they were “improperly reporting the stability of the funding they received from other entities within the group”.
“To ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed,” APRA deputy chair John Lonsdale said.
AAP
9.41am: Iluka production, sales dents revenue
Iluka Resources said its first-half mineral sands revenue was dented by lower production and sales.
The Australian mining company on Wednesday reported mineral sands revenue of $545.6 million for the six months through June, down 10 per cent on the year-earlier period.
Iluka said total mineral sands production was down 20pc at 448,500 metric tons, underpinned by a sharp fall in ilmenite output. Total sales were 24pc lower at 423,300 tons, it said.
Total cash costs for producing the mineral sands also increased by 12pc although that was partly offset by increases in prices for key commodities, including zircon.
Dow Jones
9.37am: Stocks to surge on offshore strength
Australia’s sharemarket is expected to open up near 12-year highs after solid gains in offshore markets.
Futures suggest the S&P/ASX 200 will rise 0.6pc to 6765 — above the 12-year high of 6769.6 it reached last month.
Valuations are getting stretched, with the year-forward PE ratio around 16.5 times versus a long-term average near 14 times but interest rates are coming down and the PE ratio has rose more than 2pc above the current level in 2007, 2015 and 2016.
Overnight, the Euro Stoxx 50 rose 1.2cp and the S&P 500 rose 0.7pc after solid earnings reports and news of US-China trade talks.
European companies including UBS, Santander, Hermes and AMS, and US companies including Coca-Cola, Lockheed Martin and United Technologies all beat expectations.
But about half the rise in the S&P 500 came from a Bloomberg report that senior US trade officials including Robert Lighthizer will meet Chinese counterparts in Shanghai early next week.
US 10-year bond yields rose 3.5 bps to 2.08pc as the trade optimism eclipsed an exceptionally weak Richmond Fed manufacturing index for July.
The IMF lowered its global growth forecasts by for 2019 and 2020 by 0.1pc to 3.2pc and 3.5pc respectively, which would make 2019 the worst since the GFC.
“The principal risk factor to the global economy is that adverse developments — including further US-China tariffs, US auto tariffs, or a no-deal Brexit — sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline,” the IMF said.
But the market remains focused on the potential for monetary policy stimulus and resolution of the US-China trade war.
Materials and Financials among the strongest US sharemarket sectors overnight, with Energy lagging despite a 1.3pc rise in WTI crude.
Index last 6725.
9.27am: Beach posts record annual volumes
Beach Energy has posted record annual production of 29.4 MMboe for the financial year, and boasted reaching net cash position two years ahead of expectations.
Releasing its June quarter results today, Beach said it had produced 6.97 MMboe in the fourth quarter thanks to strength in its Western Flank operations, in line with the previous quarter after its sale of a 40pc stake in Otway.
Analysts had been expecting 28 to 29 MMboe for the full year.
“The strong free cash flow performance combined with the completion of the Otway Sale saw Beach finish the year in a net cash position — more than two years ahead of initial expectations,” managing director Matt kay said.
“This is a strong performance, considering we only completed the Lattice Acquisition less than 18 months ago. It is a testament to our diverse portfolio and our dedicated team.”
9.12am: Evolution output weaker, but in line
Evolution Mining said fiscal-year gold production was weaker than the year prior, although around the midpoint of guidance, and forecast steady output in the year ahead.
The Australian gold miner Wednesday reported gold output of 753,001 troy ounces for the 12 months through June.
The company, which produced 801,187 ounces of gold the 12 months prior, had earlier forecast output of between 720,000 and 770,000 ounces.
Evolution said it expects to produce between 725,000 and 775,000 ounces in the year through June, 2020.
Dow Jones
9.08am: What’s impressing analysts, what’s not
- Austal cut to Neutral — Citi
- Bellamy’s target price cut 9pc to $9.55 — Citi
- Megaport price target raised 75pc to $7 — Canaccord
- Megaport price target raised 38pc to $8.65 — UBS
- Prospa initiated at Buy, price target $4.55 — UBS
- Regis Resources cut to Hold — Argonaut Securities
- Regis Resources cut to Sell, price target cut 11pc to $4.70 — Cannacord
- Regis Resources cut to Underperform — Macquarie
- Regis Resources cut to Sell — UBS
- Senex cut to Neutral — Credit Suisse
- Transurban reinstated at Overweight, price target $16.75 — JPMorgan
9.06am: CBA lures new investors with $50 trades
Commonwealth Bank is trying to lower the barriers to budding share market investors in an effort to drum up new business for the bank. CommSec’s new Pocket app will let customers invest as little as $50 into baskets of themed shares, allowing inexperienced investors to pick areas they like rather than stocks.
Most investors currently require a minimum of $500 to enter the share market, which CBA-owned broker CommSec says is one reason only four per cent of Australian adults trade online each year.
The app charges $2 per trades up to $1,000.
“We’ve worked with ASX and ETF (exchange-traded fund) providers to bring down the amount people need to make investing more accessible,” CommSec executive general manager Richard Burns told AAP.
AAP
8.51am: Abacus taps market for $250m
Abacus Property Group is tapping the market for $250 million to fund its latest swath of acquisitions, after announcing preliminary profit of 24 cents per share.
Announcing its preliminary unaudited FY19 figures this morning, Abacus said it said Funds From Operations were 22.2 cents per security, and declared distribution 18.5c per share, 2.8 per cent higher than the year previous.
Alongside its results, the company is raising $250 million to fund its purchase of Australian Unity Office Fund, in consortium with Charter Hall, as well as Self Storage, Church St development in Richmond and a potential Sydney CBD office asset.
“Abacus is well advanced on its strategy to transition to a more annuity style, strong asset backed business model. The Equity Raising enables Abacus to accelerate this transition and positions Abacus for future growth beyond the near-term identified opportunities, with low gearing and over $900 million of acquisition capacity,” managing director Steven Sewell said.
Bridget Carter 8.28am: KKR set to buy Arnott’s
Dataroom | Kohlberg Kravis Roberts is poised to strike a deal to buy the Australian assets of Campbell’s International, which includes Arnott’s Biscuits, for a price expected to be more than $US2 billion ($2.86bn).
It is understood that an agreement was reached in New York in the early hours of the morning, with KKR said to be offering around 14 times earnings for the company that owns one of Australia’s most iconic biscuit manufacturers that makes Tim Tams and Mint Slice biscuits and Shapes crackers.
Campbell’s International — including its Danish biscuit manufacturer Kelsen Group that has just been sold to Ferrero for about $US300 million — has generated about US$200 million of earnings before interest, tax, depreciation and amortisation annually.
Final bids were due last night, with Pacific Equity Partners and Ferrero both making final offers.
More to come
7.55am: Oil up overnight
Oil rose to almost $US64 overnight, jumping late in the session after the head of US Central Command said the United States may have taken down a second Iranian drone over the Strait of Hormuz last week.
Rising tensions in the Middle East offset the International Monetary Fund’s weaker global growth outlook, which had kept prices largely flat for much of the Tuesday session.
Iran’s capture of a British oil tanker last week sparked worries about supply disruptions in the Strait of Hormuz, through which about a fifth of the world’s oil flows.
US officials had said a navy ship “destroyed” a drone there after it threatened the vessel but the Iranian government said it had no information about losing a drone.
“We are confident we brought down one drone, we may have brought down a second,” General Kenneth McKenzie told CBS News in an interview.
The US warship Boxer may have brought down a second drone last week, a US official told Reuters on the condition of anonymity, though they are still working to confirm it.
Brent crude settled up 57 US cents, nearly one per cent, to $US63.35 a barrel. US West Texas Intermediate crude settled up 55 US cents, about one per cent, at $US56.43.
“The oil market gets nervous when there’s an event in the Persian Gulf that involves shooting down a piece of equipment,” said Andy Lipow, president of Lipow Oil Associates in Houston.
7.47am: Starbucks comes to you
Starbucks says it will offer delivery in most of the US by early next year. The company launched delivery last northern Autumn in Miami with its partner, Uber Eats. It has since expanded to 10 additional US cities, including Los Angeles, Chicago and New York.
Starbucks says Uber Eats will remain its preferred provider as it rolls out delivery more widely.
Customers in most areas where Starbucks and Uber Eats operate will be able to order drinks and other menu items. Uber Eats says it currently covers more than 70 per cent of the US population. Starbucks and Uber Eats will also work together to improve delivery packaging, in-store operations and delivery speed.
7.38am: US home sales slump
US home sales slumped in June as home prices for major West Coast cities declined for the first time since 2012, ending the spring selling season with a thud.
Real-estate agents said lower asking prices could eventually attract more buyers, but home values in the Bay Area, Los Angeles and Seattle have roughly doubled over the past seven years. That means prices may have to retreat further before buyers do more than look, economists said.
“Prices have dropped in Silicon Valley and sellers just aren’t used to the concept that [prices] can go down,” said Ken DeLeon, founder of DeLeon Realty in Palo Alto, Calif. “There’s just this malaise buyers had of, ‘I feel like it’s gonna drop further.’” Existing-home sales fell 1.7% to a seasonally adjusted annual pace of 5.27 million, the National Association of Realtors said Tuesday. Sales declined 2.2% compared with a year earlier, marking the 16th consecutive month of annual declines in sales.
The spring selling season is crucial because about 40% of the year’s sales take place in March through June. Falling sales during most of this period have puzzled economists. They struggle to explain why the housing market has remained soft while the rest of the economy has been booming.
Borrowing rates have fallen to their lowest levels in two years, wages are rising and unemployment is at a 50-year low.
“It doesn’t make economic sense,” said Lawrence Yun, the NAR’s chief economist. The lack of momentum during the spring could now mean a prolonged slowdown in the market, some economists said.
7.12am: ASX set to lift
The Australian sharemarket is expected to open higher following Wall Street’s gains overnight.
The SPI200 futures contract was up 33 points, or 0.50 per cent, at 6,691.0 at 7.am AEST, suggesting a bounce for the benchmark S&P/ASX200 on Wednesday. Wall Street was buoyed by positive quarterly results.
A Bloomberg report that US trade representative Robert Lighthizer would travel to Shanghai next week for face-to-face talks with Chinese officials also helped boost US stocks.
The Australian dollar is buying US70.04c cents from US70.21 cents on Tuesday.
AAP
Jacquelin Magnay 7.01am: Tories pick Boris
Britain’s new pro-Brexit prime minister Boris Johnson has promised to bring peace to his warring Conservatives, ignite a national spirit of can-do and defeat Labour’s Jeremy Corbyn in a rousing speech after winning the party leadership.
A tranche of bitter Remainer MPs from the Tory party is threatening to scupper Mr Johnson as soon as he is sworn in by the Queen tomorrow, demanding he row back from his Brexit ultimatum of taking the country out of the EU on October 31 even without a deal.
But moments after being announced as the new leader of the Conservative Party, Mr Johnson was defiant, saying:
“This pivotal moment in our history, we again have to reconcile two sets of instincts, two noble sets of instincts, between the deep desire for friendship and free trade and mutual support in security and defence between Britain and our European partners, and the simultaneous desire — equally deep and heartfelt — for democratic self-government in this country.’’
6.55am: Overnight business news wrap
Here’s a look at some of the major developments in world business news overnight, reported by The Wall Street Journal.
- The US Justice Department is opening a broad antitrust review into whether dominant technology firms are unlawfully stifling competition, according to department officials.
- Fast-casual chain Chipotle is selling more burritos even at higher prices, with Chipotle CEO Brian Niccol saying the results reflected better restaurant operations and marketing, along with a focus on digital sales.
- Visa Inc.’s financial performance in the latest period beat Wall Street projections, driven by continued higher spending on Visa-branded credit and debit cards.
- Snap reported its strongest user growth as a public company and accelerating revenue, signs that long-awaited Snapchat app improvements and a leadership overhaul are translating into gains for the business.
- American Express is terminating foreign-exchange employees and refunding money to nearly 200 customers after it found salespeople misrepresented pricing.
- Deutsche Bank played a key role in Jeffrey Epstein’s financial dealings in recent years, helping the accused sex-trafficker move millions of dollars in cash and securities through dozens of private accounts with the German bank, according to people familiar with the matter.
- Texas Instruments said its second-quarter profit fell from a year earlier amid a broader downturn in the semiconductor market, but the chipmaker posted results ahead of Wall Street estimates. Shares rallied 6 per cent in after-hours trading.
- Sales of Tesla’s high-end Model S sedan have taken a big hit in the company’s most important US market, California, as the electric automaker is leaning more heavily on selling the lower-priced Model 3 compact car.
- The UK government plans to intervene in the proposed $6 billion private equity-backed buyout of U.K. satellite communications company Inmarsat to examine its national security impact.
- An outside law firm will review reporting on German payments company Wirecard, which is suing the Financial Times, alleging it falsely represented confidential information.
The Wall Street Journal
6.45am: Earnings lift Wall Street
US stocks marched broadly higher on Wall Street Tuesday as several major companies reported solid second quarter gains. Investors pushed stocks closer to the record highs they reached just over a week ago.
Corporate earnings are now in full swing after last week’s relatively light load of mixed results. Nearly 150 companies in the S&P 500 will report their financial results by Friday. Analysts are expecting earnings to decline overall for the second quarter in a row.
“Interestingly, the market seems like it almost doesn’t care,” said Jason Pride, chief investment officer of private weal that Glenmede Trust Co. The earnings downturn has been modest so far and is being tempered by a still expanding economy and a Federal Reserve that has said it is willing to support growth.
The S&P 500 index rose 20.44 points, or 0.7 per cent, to 3,005.47. The Dow Jones Industrial Average rose 177.29 points, or 0.7 per cent, to 27,349.19. The Nasdaq composite rose 47.27 points, or 0.6 per cent, to 8,251.40.
Banks were the clear market leaders throughout the day. JPMorgan Chase, Bank of America and several others gained ground as bond yields rose. The yield on the 10-year Treasury rose to 2.07 per cent from 2.04 per cent late Monday. Higher bond yields allow banks to charge higher interest on loans.
Earnings were the clear focus of the day and the key drivers for much of the market.
Coca-Cola soared 6.1 per cent and reached a record high close after raising its revenue forecast for the year following a solid second quarter. The surprisingly good results helped lift other consumer product makers. Kraft Heinz rose 1.5 per cent and Kellogg rose 3.0 per cent.
Stanley Black & Decker surged 7.2 per cent after it reported second quarter profit well above analysts’ forecasts. The tool maker made one of the biggest gains in the industrial sector. General Electric rose 4.3 per cent and 3M rose 1.6 per cent. Biogen rose 4.9 per cent and Quest gained 5.4 per cent on solid earnings results and helped push the broader health care sector higher.
Other notable earnings results came from toy maker Hasbro, which rose 10 per cent after blowing away Wall Street’s second quart profit expectations. The company reported growth for many of its classic games and toys, including the board game Monopoly and Play-Doh. It also reported growth for its digital game “Magic: The Gathering” and got some help from its partnership with Marvel on Avengers and Spider-Man action figures.
AP
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