Trading Day: ASX higher, News Corp stars

Australia’s sharemarket surged to an 11-month high after Wall Street hit records. News Corp up 13pc. RBA warns the economy’s performance is ‘middling’.

The ASX started strongly. Picture: AAP

• Coal mine ruling blow to South32
• Ford to speed up electric push
• RBA watching property closely
• REA profit jumps 13pc

That’s all from the Trading Day blog for Friday, February 5. Australia’s sharemarket surged to an 11-month high after Wall Street hit records. News Corp was up 13pc after profit surge and the RBA warned the economy’s performance is ‘middling’. On Wall Street, the Dow and S&P 500 both rose 1.1 per cent, while the Nasdaq climbed 1.2 per cent. Locally, RBA Governor Philip Lowe appeared before a parliamentary committee, and the central bank delivered its Statement on Monetary Policy. December retail trade figures were released.

6.06pm: Ord Minnett upgrades Star Entertainment

Ord Minnett has upgraded its recommendation on Star Entertainment to Accumulate from Hold and raised the target price to $4.10 from $3.50.

“We believe Star Entertainment’s share price represents an attractive buying opportunity given cost management, margin expansion and the likely suspension of the Barangaroo licence of rival Crown Resorts.

“We assume Crown’s licence will be with held temporarily, noting FY21 expectations appear optimistic for a Melbourne recovery and Sydney opening.

“We expect strength in the first half of FY21 for Star, supported by our regular observations of tables revenues and initiatives driving margin expansion with prudent cost management.

“Risks persist into FY22 for Crown – such as the outcome of appeals to the inquiry into its suitability to hold a licence, and the Australian Transaction Reports and Analysis Centre (AUSTRAC) investigation into its management of customers identified as high risk at Crown Melbourne – but we believe it will open Barangaroo in the medium term.

“We are held back from a more positive view on Crown given the valuation gap versus Star, low visibility of approvals in NSW, and Victorian and Western Australian reactions to those. We note Star and Crown merger discussions persist, although we rate the likelihood of this occurring as minimal given Crown’s environmental, social and governance (ESG) risk – unless its licence is revoked.

“We upgrade our recommendation on Star to Accumulate from Hold and raise our target price to $4.10 from $3.50. We maintain our Hold recommendation on Crown, while our target price increases to $8.80 from $8.10.”

Star and Crown are both due to report their first-half FY21 results on 18 February.

5.34pm: Ord Minnett backing financials sector

The S&P/ASX 200 financials sector has underperformed the broader market since 2017, and the size of the underperformance has accelerated as interest rates fell and

yield curves flattened, writes Sze Chuah, Ord Minnett senior investment analyst.

“However, we believe financials can perform better in 2021.”

The four reasons highlighted are: 1. Higher bond yields and a steepening yield curve; 2. Rising equity values and fund inflows; 3. Domestic institutions reducing underweights; and 4. An uplift in corporate activity.

Ord Minnett says: “Some of our preferred financials include – National Australia Bank, Macquarie Group, Perpetual, Magellan Financial, HUB24 and Praemium.”

5.28pm: Container freight rates up 100pc: Citi

Container freight rates are up over 100% in the past three months, Citi writes in its latest Price Watch report.

“Most food and beverage companies face a risk given they import raw materials and in some cases export goods.

“Investors should be mindful about the potential risk for 1%-8% downside to earnings. The companies with the greatest exposure in our view are Asaleo, CostaGroup and Treasury Wines.

“While higher AUD may be a partial offset, we are cautious that the higher freight rates are a precursor to more challenges in the supply chains, which could have secondary effects on inventory holdings.”

4.42pm: ASX ends +1.1% at 11-month high

Australia’s sharemarket surged to an 11-month high after Wall Street hit records.

The S&P/ASX 200 share index rose 1.1pc to 6840.5 points, setting a fresh 11-month high on a daily close basis.

A 0.2pc rise in S&P 500 futures and 0.8pc rise in WTI crude oil futures added to bullish leads from Wall Street after positive earnings reports and better-than-expected economic data.

The index rose 3.5pc for the week - its best week in two months - after bouncing as much 5.2pc from a 2-month low of 6517.2 to an 11-month high of 6852.9 in three days.

The preceding selloff was caused by global de-grossing by hedge funds after the Reddit-driven short-squeeze on GameStop and others.

The bounce came after a significant amount of degrossing as well as significant falls in most of the stocks that had been squeezed.

News Corp rose 13pc after 2Q adjusted EPS beat the consensus estimate by more than three fold and REA Group up 3.6pc after its results.

Afterpay rose 3.4pc after Bell Potter raised its target by 20pc and Zip Co jumped 8pc.

Magellan rose 5.8pc after reporting a strong inflow of funds in January.

Banks were strong with three of the majors up more than 2pc.

Industrials outperformed with Transurban up 3.2pc and Sydney Airport up 2.8pc.

Joyce Moullakis 2.34pm: Hartzer to join analytics firm Quantium

Former Westpac chief executive Brian Hartzer has become a senior adviser to Woolworths-backed data science and analytics firm Quantium, as he slowly re-emerges in business life.

Mr Hartzer took up the Quantium role in December, which adds to his chairmanship of the Australian Museum. Late last year, he also invested in carbon neutral firm Pathzero, which helps companies measure and manage emissions to reduce their carbon footprint.

Quantium – which was founded in 2002 – works with brands across more than 20 countries. Its website cites QBE Insurance, National Australia Bank, Walmart, Facebook, Qantas and Suncorp among brands it has worked with.

Woolworths acquired a 50 per cent stake in Quantium in 2013, as it sought a toehold in the data and analytics sector.

Mr Hartzer fell on his sword at Westpac in late 2019, after financial crimes regulator Austrac lodged explosive legal action against the bank for 23 million alleged breaches of the law.

Westpac, which admitted its technology wasn’t up to scratch and it needed to bolster its risk management systems, settled the case last year by agreeing to pay a record $1.3bn penalty.

Elise Shaw 2.30pm: Biggest lift in spending in 12 years

Finding it hard to keep up with the state of the economy given all the monthly and quarterly gyrations? CommSec’s chief economist Craig James says sometimes it pays to look at the big picture.

“That is the case with retail spending. Over the entire 2020 year, Aussies spent a record $350 billion at retail businesses. The 6.2 per cent lift in spending was the biggest calendar year gain in 12 years – that is, since the 2007 calendar year. The biggest increase in spending was at liquor retailers (up 26.5 per cent) from ‘other’ recreational goods, like toys, games, entertainment, (up 24.8 per cent), and hardware retailing (up 20 per cent).

“Overall, Australians spent more than ever before. But it clearly wasn’t one-way traffic. Lockdowns meant fewer visits to cafes and restaurants – spending was down 25.4 per cent. And we spent less on clothes (down 8 per cent); shoes (down 9.5 per cent) and newspapers/books (down 12.2 per cent).

“There was a bit more inflation in the system as well. Spending rose 6.2 per cent, volumes rose 2.5 per cent, and, as a result, prices rose 3.6 per cent in 2020 – the biggest lift in prices in 19 years. Those higher prices largely reflect the lockdown period in the first half of 2020. In the December quarter retail prices were unchanged with annual price growth easing from 3.8 per cent to 3.4 per cent.

“In 2020, prices rise most at ‘other retailing’ – largely online stores (up 7 per cent); supermarkets & grocery stores (6.6 per cent); and food outlets like bakers and butchers (up 5.6 per cent). But clothing prices actually fell by 0.8 per cent.”

While growth in total spending rose at the fastest rate in 12 years, the 2.5 per cent lift in the actual number of purchases was only the fastest in four years.

To get a more comprehensive picture of total retail spending we have to wait to early March when the national accounts is released, says James.

The current risk to the Reserve Bank forecasts is on the upside, James says.

“Just as the jobless rate didn’t reach 10 per cent, it is possible that jobs, inflation and wages could lift faster and higher than the Reserve Bank expects. At present it is a watching brief. And as the Reserve Bank Governor acknowledges, it is still a highly uncertain environment. But the success in suppressing the virus has yielded economic benefits.”

2.10pm: AUD hits 3-day low on USD strength

AUD/USD fell as much as 0.2pc to a 3-day low of 0.7584 on US dollar strength.

Stronger-than-expected US private sector data this week gives upside risk for US non-farm payrolls data tonight.

Stronger-than-expected US non-farm payrolls data may boost US bond yields above the recent high of 1.1855pc, pushing the US dollar through key resistance levels, and thereby weaken AUD/USD.

EUR/USD is testing support from its 100-DMA at EUR1.1967, USD/JPY is testing key resistance from its 200-DMA at JPY105.58, and the US dollar index (BBDXY) is testing its December swing high at 1138.55.

With AUD/USD closing Thursday below its 50-DMA for the first time since early November, a stronger US dollar could see AUD/USD test major support in the 0.7400 to 0.7462 area.

Patrick Commins 12.50pm: Rates policy can’t lift living standards: RBA

RBA Governor Phil Lowe has reiterated that when it comes to extraordinarily easy monetary policy, with interest rates at 0.1 per cent, “we are in this world for years”.

Dr Lowe emphasised that achieving the central bank’s 2-3 per cent inflation target depends on wage growth accelerating meaningfully. And to get there, we need a much tighter labour market.

“Drawing on the experience before the pandemic, I think we need a low unemployment rate, lower than we got to before the pandemic, to be sustained for a number of years,” he says.

For the record, we are at 6.6 per cent unemployment, against around 5.2 per cent before the health crisis.

Dr Lowe said that he is doing what he can, but businesses and governments need to take the lead.

“Lifting productivity, lifting the productive capital stock is a better solution because that will drive sustainable increases in living standards. Monetary policy cannot drive increases in our living standards.

“We can maybe get there a bit quicker with monetary policy, we can maybe avoid some of the downsides, but the Reserve Bank board can’t drive sustainable increases in living standards - that comes from businesses and governments investing in the things that make us more productive over time.”

12.06pm: Shares fade after opening surge

Australia’s sharemarket has faded after an opening surge driven by record highs on Wall Street.

The S&P/ASX 200 was up 0.8pc at 6817.5 after rising as much as 1.3pc to a 2-day high of 6846.7 near the open.

The index shied off the 11-month intraday-basis high of 6852.9.

A close today above 6824.6 would mark a new 11-month high on a daily close basis.

News Corp leads with a 13pc rise after its 2Q adjusted EPS beat the consensus estimate by more than three-fold.

Communications is the strongest sector with REA Group up 3.6pc after its results.

Transurban continues to drive the Industrials sector with a 2pc rise today.

The Technology, Financials and Energy sectors are also outperforming.

Afterpay is up 2.2pc after Bell Potter raised its target by 20pc.

Magellan is up 7pc after reporting a strong inflow of funds in January.

And Woodside is up 1.8pc after as WTI futures gain another 0.6pc in APAC trading.

Patrick Commins 12.01pm: Economy’s performance just middling: RBA

Australia’s economic performance is around the “middle of the pack” globally, the head of the RBA’s economics department, Luci Ellis, has told a parliamentary committee in Canberra.

The Morrison government has boasted of our world-beating economic performance, but, as this newspaper has written before, it’s more middling.

Ms Ellis says she groups the international performance rankings into three groups. At the head of the pack is China and other east Asian countries which have managed to suppress the virus and which, thanks to their industrial economies, have enjoyed the worldwide switch away from services to goods (that is, everyone is buying TVs, homewares, computers, a lot more cars of late, etc). You could probably include the likes of South Korea and Taiwan here.

The middle of the pack are countries like the US and Australia.

Assistant Governor of the RBA, Luci Ellis. Picture: AAP

Ms Ellis says that a “very common pattern”, regardless of how big the initial decline in output was during the height of the COVID-related restrictions in the first half of 2020, is that by the end of last year ”most economies bounced back to something around 3-4 per cent down” versus the end of 2019. Activity picked up sharply as restrictions eased, but lingering health risks and restrictions made the recovery incomplete.

On the upside, in Australia “we’re not seeing any backsliding in the December and March quarters” - such as in Europe and parts of the US, which have had major second waves during the northern winter.

For the record, Europe and the UK are in the third group of stragglers, and will take “longer to recover” than other countries, Ms Ellis said.

11.54am: RBA warns of a ‘key uncertainty’ for economy

The Reserve Bank has significantly boosted its economic forecasts in response to unprecedented fiscal and monetary policy support as well as the start of COVID-19 vaccinations.

But it warns that the evolution of the COVID-19 pandemic and the response of consumers and business to planned fiscal tapering by the federal government is a “key uncertainty”.

“Beyond the risks associated with the virus, a key uncertainty is how Australian households and businesses respond and adapt to the tapering of some fiscal and other temporary support measures in coming quarters following the extraordinary boost to cash flows they received last year,” the RBA says in its February Statement on Monetary Policy.

The RBA now sees GDP of -2pc for the year to December, up from a previous forecast of -4.5pc. Growth is expected to surge 8pc in the year to June from 6pc previously forecast but then slow to 3.5pc in the years to Dec ‘21 and June ‘22.

Unemployment is now expected to hit 6pc this year from 6.75pc previously forecast, and 5.25pc by the end of the forecast period in June 2023, still well above the RBA’s estimate of the non-accelerating inflation rate of unemployment, around 4.5pc.

Even its “upside scenario’ only sees the unemployment rate hitting 4.75pc by the end of ‘22.

And many employers have responded to the economic challenges of the pandemic by delaying wage increases, imposing wage freezes and, in some cases, applying temporary wage cuts,” the RBA says.

“Forward indicators suggest wages growth will remain soft this year.”

The RBA’s business suggests improved employment expectations, although the outlook is mixed across industries, the RBA says.

Almost all detached home builders in the bank’s liaison program reported that their construction pipelines are “full” well into 2021, with activity expected to peak in the middle of 2021.

Extensions to deadlines for construction commencement for government grants has helped to extend the order book for builders, the RBA says.

But developers in the liaison program reported that sales of off-the-plan apartments remain weak, citing buyer preferences for established or recently completed properties, rental income uncertainty weighing on investor demand and an absence of foreign buyers.

Some developers reported that they had delayed commencements of planned projects, and they expect demand for higher-density apartments to remain low for the foreseeable future.

“This is consistent with the sharp reduction in net overseas migration, contributing to the slowest rate of population growth in a century, and a shift in buyer preferences towards detached housing,” the RBA says.

11.47am: 2021 could be as hard as 2020: APRA

Banking and financial regulator, the Australian Prudential Regulation Authority said while the nation’s financial system remains “fundamentally sound” after one of the most challenging and testing years many institutions have ever faced, the environment ahead into 2021 remains “highly uncertain”.

“The full financial impacts of the events of 2020 are still to be felt, and in some ways, 2021 could be just as difficult as 2020,” APRA chairman Wayne Byres said in the regulator’s annual review.

“Thankfully, Australia went into this crisis with a financial system in a strong, stable position, which has been a critical factor in allowing the financial sector to perform its role in absorbing risk and acting as a shock absorber for the rest of the economy,” Mr Byres said in the report, released Friday.

His comments come as the several of the banks are set to kick off their December half profit reporting season.

11.35am: Retail sales near estimates

Final monthly and real quarterly retail sales data were near expectations.

Final retail sales for December fell 4.1pc versus a preliminary estimate of -4.2pc.

December quarter ex-inflation retail sales slowed to 2.5pc from 6.5pc and were a little stronger than Bloomberg’s consensus estimate of 1.9pc.

The quarterly figure points to slightly stronger-than-expected quarterly economic growth, other things equal.

Nick Evans 11.32am: Coal ruling deals blow to South32

South32 has been left reeling by the decision of the NSW independent Planning Commission to reject an extension of its Illawarra metallurgical coal mine.

The IPC delivered its decision on Friday, finding the proposed mine design “risks long-term and irreversible damage to Greater Sydney and the Illawarra’s drinking water catchment”.

The decision is a major blow to South32, with the mine’s current life due to run our in 2024.

The PIC said of the proposed $956m Dendrobium expansion that “the risks of adverse impacts on the environment are high, and that those impacts are not appropriately manageable and are likely to be irreversible”.

In a statement to the market on Friday, South32 said it was reviewing the IPC’s findings and would consider its options.

“We will continue to engage with key stakeholders including the New South Wales government and the community in relation to the Dendrobium Mine Extension Project,” a spokesperson said.

“As outlined during the IPC public hearings, the Dendrobium Mine Extension Project would provide major economic and social benefits for Wollongong, the Illawarra region and for New South Wales. It would support the continued employment of 400 existing personnel and a further 100 personnel once the project is operational. An additional 200 jobs would be created during the construction and development phase. The project would ensure the continued supply of high-quality metallurgical coal for steelmaking.”

South32’s Illawarra metallurgical coal operation.

Perry Williams 11.28am: Citi downgrades Origin

Citi has downgraded Origin Energy to neutral and slashed its target price after Australia’s biggest electricity retailer issued a profit downgrade on Thursday.

The broker is concerned the worst is not yet over for either Origin or AGL Energy given its long-term price forecast of $60 per megawatt hour compared with $75MwH historically used by the power giants.

Citi downgraded Origin’s 2021 NPAT by 31 per cent to $322m, with Energy Markets EBITDA seen falling 15 per cent to $1,056m, and also cut FY22 NPAT by 32 per cent to $393m on higher gas procurement costs and lower C&I electricity margin.

Origin is now rated neutral with its target price chopped by 28 per cent to $4.76.

It will likely retain its credit rating but its balance sheet will be constrained for the payout ratio and capex through to the 2023 financial year.

AGL also faces a test over how it plots renewable growth given the same dynamic which led to a near $2bn hit from its historic wind farm investments may be replicated with its current big battery plans.

“Battery capex may fall ~80 per cent over the coming decade and price arbitrages will narrow as more storage (with newer technology) penetrates the NEM. We fear this will lead to similar adverse outcomes in the future,” Citi said.

Origin last off 0.8 per cent to $4.58 and AGL down 0.7 per cent to $11.34.

11.25am: Johnson & Johnson seeks vaccine tick

Johnson & Johnson has asked US regulators to authorise the emergency use of its Covid-19 vaccine, setting the stage for a potential third vaccine to become available in the U.S. within weeks.

J&J’s move follows last week’s release of results from an international clinical trial showing that a single shot of the vaccine was 66pc effective at preventing moderate and severe Covid-19 disease. In the U.S. portion of the trial, the vaccine was 72pc effective at preventing disease.

The addition of J&J’s vaccine could jump-start a U.S. mass-vaccination campaign that has been choppy since it began in December. There has been a limited supply of the first two vaccines, from Moderna Inc. and Pfizer, with its partner BioNTech SE, and distribution roadblocks have caused a slower-than-expected pace of vaccinations.

J&J’s shot wouldn’t only boost the overall supply of Covid-19 vaccine doses, but also could simplify vaccinations for many because it is given in one dose. The vaccines from Pfizer and Moderna are administered as two doses, three or four weeks apart. J&J’s vaccine also can be kept at higher refrigerated temperatures for a longer period than the first two vaccines.

Dow Jones

11.21am: Ford to speed up electric push

Ford has a dramatic acceleration of its investment push into electric autos and signalled deepening collaborations with technology giants on the increased digitisation of driving.

The US auto giant, released fourth-quarter and annual results, and said it plans $US22 billion in electric car investment through 2025, nearly twice the earlier plan.

The announcement is the latest big bet on electric autos by a legacy automaker in the wake of upstart Tesla’s growth and in anticipation of Biden administration initiatives to encourage emission-free vehicles.

Last week, Ford’s rival General Motors set a target of having most of its fleet emissions-free by 2035.

The revamped plan came as Ford reported a fourth-quarter loss of $US2.8 billion, compared with a loss of $US1.7 billion in the year-ago period. Revenues fell 9.3 per cent to $US36 billion.

Ford projected 2021 operating profits of $US8 to $US9 billion, much above $US2.8 billion in 2020, when the company suffered a big drop in auto sales amid the disruption from Covid-19.

Ford is accelerating its investment ramp-up in electric cars. Picture: AFP

AFP

11.19am: Retail sales data due

Final monthly retail sales data and quarterly real retail sales data are due at 11.30am (AEDT).

Preliminary retail sales fell 4.2pc in December month-on-month.

December quarter ex-inflation retail sales are expected to slow to 1.9pc from 6.5pc in the June quarter, according to Bloomberg’s consensus estimate.

Patrick Commins 11.01am: RBA calls inflation rate fail ‘regrettable’

RBA governor Philip Lowe has told a parliamentary committee how it’s “important that Australians understand that over time inflation in Australia is going to have an average of 2 per cent”, despite, as he notes, the central bank hasn’t managed to achieve that level of inflation “in the last five or six years”.

“It’s regrettable and it’s a combination of a whole bunch of structural and other factors and you might argue we haven’t done a very good job, Dr Lowe told committee member Andrew Leigh.

“But Australians should have a reasonable degree of confidence that over time inflation will average two-point-something.” (Remembering that the RBA targets inflation of 2-3 per cent over time.)

Now, Dr Lowe earlier this week said he did not expect rates will need to be lifted until 2024 “at the earliest”. The governor goes on to say that it won’t be the case that inflation hits 2 per cent and, hey presto, rates go up.

Instead, he says he will “not be raising rates until inflation right gets up to 2 per cent for at least a couple quarters, and with reasonable prospects that it will stay there.”

Deputy governor Guy Debelle, who is also in the room, earlier noted that the RBA is expecting in six months’ time that inflation will go above 3 per cent, because the annual lift in consumer prices will be compared with the height of last year’s pandemic, when childcare was made free. But this will be temporary.

10.56am: WAM Leaders profit soars 147pc

Geoff Wilson-backed WAM Leaders fund has reported a 147.2pc rise in operating profit after tax to $107.1m in the six months ended December 2020

The board declared an interim dividend of 3.5 cents, representing a 7.7 per cent rise on its final dividend for FY20, after a strong investment performance since inception.

The strong investment portfolio performance drove significant growth in assets, which resulted in the increase in the WAM Leaders’ share price relative to NTA.

WAM Leaders’ investment portfolio increased 17.1pc in the period, outperforming the S&P/ASX 200 Accumulation Index by 3.9pc.

For the 2020 calendar year the portfolio increased 12.7pc, outperforming the Index by 11.3pc, with an average cash holding of 6.9pc.

Since inception in May 2016, the WAM Leaders investment portfolio has increased 12.8pc per annum, outperforming the index by 4.1pc per annum.

WAM Leaders’ active investment approach focuses on large-cap companies with compelling fundamentals, a robust macroeconomic theme and a catalyst to drive the share price higher.

WLE was last trading up 1.8pc at $1.42 versus its net asset value of $1.30.

Geoff Wilson. Picture: David Geraghty

10.55am: Peloton to tackle delivery woes

Peloton Interactive said it would delay the US launch of a much-anticipated new treadmill and start shipping exercise equipment by air in an effort to ease extreme delivery delays on its connected exercise gear.

The company has cut back marketing and doubled the size of its customer-service operation to address monthslong wait times and delivery cancellations that have legions of would-be customers railing against Peloton on social media. It said it expects delivery times to return to normal by the end of June.

“We are going to do everything we can to get back on the right side with our new customers,” Chief Executive John Foley said.

Since last year, Peloton has acknowledged logistics problems in keeping up with demand for its bikes, which start at $US1895 and are equipped with a screen that shows subscription workout classes. The nine-year-old company has cited surging demand, shipping logjams, particularly at ports as the bikes are transported to the U.S. from manufacturers overseas, and weather disruptions. The pressures haven’t let up as demand continues to surge from people wanting to exercise at home amid Covid-19.

Peloton’s rapid ascent continues despite the shipping woes.

The company said sales more than doubled in the most recent period, while subscriptions to its online workout classes grew by 134pc. Peloton turned a profit for the third straight quarter, reporting net income of $US63.6 million, compared with a loss of $US55.4 million a year ago.

A Peloton Interactive store in California. Picture: Bloomberg

Dow Jones

10.27am: ASX jumps 1.3pc after US gains

Australia’s sharemarket surged more than expected in early trading after strong offshore gains.

The S&P/ASX 200 index rose 1.3pc to a two-day high of 6846.7 points - just shy of an 11-month high of 6852.9 on Wednesday.

News Corp has led broadbased gains with a 12pc rise after its adjusted 2Q EPS was more than three times the consensus estimate.

The Technology sector is strongest with Afterpay up 2.5pc after Bell Potter raised its target price by 20pc.

The Consumer Discretionary sector is being pushed up by a 2pc rise in Wesfarmers after Macquarie upgraded to Outperform.

Industrials, Communications and Financials stocks are also outperforming with Transurban up 2.3pc, REA up 2.9pc on strong results today and Westpac and NAB are up 1.5pc.

ASX200 last up 1pc at 6835.

John Durie 10.24am: Pacific National boss to step down

Pacific National boss Dean Dalla Valle will step down on June 30 after three years running the logistics company, including its expansion via last year’s Aurizon deal.

He joined the company in March 2017 after 40 years as a BHP executive.

Pacific National chief executive Dean Dalla Valle, left. Picture: Supplied

Patrick Commins 10.13am: ‘No silver bullet’ for business recovery

RBA Governor says there is no “silver bullet” to get businesses spending again.

Still, in testimony to a parliamentary committee, he offered some ideas.

There’s the recovery: “Getting the economy moving again will encourage investment”.

Second, Australia should be focusing on three areas where “if we can get the policy settings right I see tremendous opportunities for Australia”.

The first is the digital economy, which is a focus of the Morrison government.

Second are investments in energy. “There is clearly a big transformation globally in the way energy is produced and distributed, and Australia has tremendous opportunities there,” Dr Lowe says.

Health and aged care will grow in importance as well, he says.

To get there we need to get the “underlying policies right”, create “a stable and predictable environment” for investment and make sure “regulation is no stricter than necessary”.

A lack of business investment bedevilled the Australian economy leading into the pandemic, and the sharpest downturn since the World War II has not helped.

Without investment today, Australia risks not having the productive capital to drive growth tomorrow, as DR Lowe mentioned earlier this week.

RBA Governor Philip Lowe at the National Press Club this week. Picture: Getty Images

Patrick Commins 9.59am: RBA watching property ‘closely’

Reserve Bank boss Philip Lowe says “there are few places in the world you would rather be” than Australia.

He made the comment as he appeared in front of a parliamentary economics committee this morning.

Delivering his opening statement, Dr Lowe touted the nation’s success in containing the virus and relative economic success, noting that European GDP went backwards again in the December quarter.

Dr Lowe says the COVID downturn wasn’t as severe as feared and the recovery started earlier and has been stronger than anticipated. He says the end of JobKeeper will lead to some job shedding when it ends on March 28, but that the recovery should be strong enough to continue to drive the jobless rate down towards 6pc by the end of this year.

The RBA and Treasury are hoping households will be prepared to spend the tens of billions in additional cash put aside through the pandemic as emergency support ends.

A “related issue” is how well the property market fares this year - an issue he is “watching closely”.

“The past year would have been even more complicated if there had been large and ongoing falls in housing prices,” Dr Lowe says.

There are “many moving parts” in the property market at the moment which he is “watching closely”: record low rates; a shift in preferences towards houses and regional locations; “very large” government incentives for first home buyers; the slowest population growth in a century; very high rates of building; and a “significant decline” in apartment rents in Sydney and Melbourne”.

“In the face of all these moving parts the housing market has been more resilient than expected,” he says.

Lachlan Moffet Gray 9.50am: Not yet time to lift economic support: RBA

Reserve Bank Governor Philip Lowe says it’s not yet appropriate to provide less support to the COVID-hit Australian economy.

Dr Lowe was testifying to the House Standing Committee on economics, in an appearance that will give MPs a chance to scrutinise the RBA’s recent monetary decisions.

Dr Lowe used his opening statement to reaffirm the bank’s updated outlook for the Australian economy, delivered on Wednesday, and stress the importance of monetary policy in assisting the economic recovery.

“The day will come when it will become appropriate to provide less support,” he said.

“But today is not that day.”

Dr Lowe said there were positive movements in the economy, influenced the rollout of the vaccine and a resurgent China presented benefits for Australia.

“There has been a strong rebound in global trading goods … this, together with the continuing strong recovery of the Chinese economy has boosted commodity prices and boosted Australia’s terms of trade,” he said.

Dr Lowe also said fiscal policy support and a successful containment of the virus in Australia had led to the economy recovering faster than the RBA’s initial upside scenarios in April.

“The recovery started earlier, and it has been stronger than we had been expecting,” he said, adding that GDP would recover to its end 2019 level halfway through this year, six to 12 months ahead of estimates.

However, Dr Lowe said the economy had “a long way to go,” highlighting an unemployment rate of 6.6 per cent, low wage growth and depressed inflation.

Monetary policy, including the current cash rate of 0.1 per cent, expanded government bond-buying and the term funding facility will play a crucial role in this, Dr Lowe said, but he pre-empted any suggestion the RBA would directly finance the government or households.

“We do not and will not provide direct finance,” he said.

Dr Lowe said other priorities for the central bank are monitoring the impact of the government’s fiscal policy on household budgets, and lending standards in the housing market.

Reserve Bank of Australia Governor Philip Lowe. Picture: Getty Images

Ben Wilmot 9.41am: Home auction volumes to jump this weekend

The auction market is picking up, with 1321 homes scheduled for auction across capital cities this week, up from 884 last week, as analysts watch clearance rates.

Research house CoreLogic said that with auction volumes set to increase by almost 50 per cent this week, it will be interesting to see how the clearance rates hold up across the combined capitals.

This week, just under half of capital city homes slated for auction are in Melbourne, with 615 homes set to go under the hammer, up from last week when 390 auctions were held across the city, according to CoreLogic.

There are now 456 homes set for auction in Sydney this week, increasing from 270 last week.

Across the smaller auction markets, Brisbane and Perth will see auction activity rise over the week, with 84 auctions scheduled in Brisbane, and 20 in Perth.

Canberra is expecting fewer auctions this week, while there is only one auction on the radar in Tasmania. Adelaide is not expecting a change in auction volumes week-on-week.

9.38am: Yellen meets regulators on GameStop

US Treasury Secretary Janet Yellen convened a meeting with top financial market regulators to discuss recent trading volatility that saw shares like GameStop soar last week.

Yellen said officials would be “looking carefully at these events,” although she did not commit to taking any action.

The volatility was created after a social-media-fuelled buying frenzy for stocks that were shorted by hedge funds, including of video game store GameStop, which surged over 400 per cent before falling sharply.

Yellen this week called for the meeting with the Securities and Exchange Commission (SEC), the New York Federal Reserve Bank and the Commodities Futures Trading Commission (CFTC) to review the volatility.

“We really need to make sure that our financial markets are functioning properly, efficiently and that investors are protected,” she said in her first television interview on ABC’s “Good Morning America”.

“We’re going to discuss these recent events and discuss whether or not the recent events warrant further action.”

Treasury secretary Janet Yellen. Picture: AFP

AFP

John Durie 9.22am: New fines in shipping cartel crackdown

Norwegian-based shipping company Wallenius Wilhelmsen Ocean has been fined $24m after being convicted in the Federal Court of criminal cartel conduct.

The ACCC said the conviction brought to an end its investigation into an international cartel involving several shipping companies in relation to the shipping of vehicles to Australia from Asia, Europe and the US on behalf of major car manufacturers.

Federal Court Judge Justice Andrew Wigney said the fine “was intended to send a powerful message to multinational corporations that conduct business in Australia: that anti-competitive conduct will not be tolerated in Australia and that they will be dealt with harshly by this court if found to have engaged in such conduct”.

In Australia, three international shipping companies have now been convicted and fined a total of $83.5m in relation to this cartel, the ACCC said.

In August 2017, Nippon Yusen Kabushiki Kaisha (NYK) was fined $25 million, while K-Line was fined $34.5 million in August 2019, which remains the largest criminal fine ordered under the Competition and Consumer Act.

A Wallenius Wilhelmsen Lines ship in Sydney. Pic. Bob Finlayson.

9.15am: Magellan has net $233m inflow

Magellan had a net $233m inflow of funds under management in January.

That was comprised of a net retail inflow of $85m and a net institutional inflow of $137m.

But total funds under management fell 1pc month-on-month to $100.41bn.

The Magellan Global Fund’s benchmark MSCI World Net Total Return index in Australian dollars fell 0.8 per cent in the month.

Magellan is due to report its 1H21 results on Feb 17.

MFG last $47.55.

8.59am: ASX to bounce; RBA in focus

Australia’s share market is set to bounce strongly after surprising gains on Wall Street.

The index should recover from Thursday’s fall with futures relative to fair value suggesting it will open up 0.9pc at 6826.

The S&P 500 finished up 1.1pc at a record high close of 3871.74 and the Nasdaq rose 1.2pc to a record high close of 13777.74.

The Russell 2000 index of small caps rose 2pc to a record high of 2202.4 and corporate earnings and economic data beat estimates.

While new highs on Wall Street were marginal, they give a positive backdrop for the Australian market ahead of US non-farm payrolls data later Friday.

In commodities, spot iron ore rose 3.5pc to $US158 a tonne and WTI crude rose 1.2pc to $US56.37 a barrel, but spot gold fell 2.3pc to $US1792.55 an ounce.

BHP ADR’s equivalent close at $44.00 suggests little change for BHP at the open.

A 20pc increase in Bell Potter’s target price for Afterpay may boost its share price.

Macquarie shares might underperform after Citi’s downgraded its rating to Sell.

RBA Governor Lowe has parliamentary testimony from 9.30am (AEDT) and the statement on monetary policy is due along with retail sales data at 11.30am (AEDT).

8.38am: What’s impressing analysts today?

Afterpay target price raised 20pc to $168.50: Bell Potter

Aventus Group started at Positive: Evans & Partners

Macquarie Group cut to Sell: Citi

Uniti Group cut to Accumulate: Ord Minnett

Wesfarmers raised to Outperform: Macquarie

Magellan raised to Outperform: Macquarie

Origin Energy cut to Neutral: Citi

8.21am: Afterpay target up 20pc, ‘CBA should be worried’

Bell Potter’s Lafitani Sotiriou has boosted his Afterpay target price by 20pc to a market-leading $168.50 a share.

He also reiterates his Buy rating after a “deep dive” into Afterpay’s collaboration to introduce Afterpay branded savings and transaction accounts, along with budgeting tools.

“We see this as a step change in Afterpay’s product offering, and as a deliberate strategy for Westpac to break CBA’s stranglehold on the millennial banking market,” Mr Sotiriou says.

“We believe CBA should be worried, and perhaps is, which is seen with comments from their CEO Matt Comyn at the Banking Summit in November last year, who noted Afterpay as a potential threat to the banking sector over time.”

He says this perhaps also explains CBA’s over $100m investment in Afterpay’s competitor, Klarna.

And if Afterpay is successful in launching white labelled Westpac banking products in Australia, it is likely the market will have confidence in Afterpay rolling out a similar offering in all its jurisdictions.

That would provide “meaningful valuation upside” for Afterpay, according to Mr Sotiriou.

APT last $146.31.

Ben Wilmot 8.32am: REA profit jumps 13 per cent

Online real estate classifieds company REA Group reported a 13 per cent jump in net profit to $172.1m and says it is well positioned as residential property markets recover.

Economists have revised forecasts upwards for home prices and listings are also expected to increase as vendors cash in.

REA Group said revenue slipped 2 per cent to $430.4m but earnings before interest, taxes, depreciation, and amortisation were up 9 per cent to $290.2m.

The company said that in January national residential listings were flat but noted a 12 per cent increase in Melbourne, while Sydney had a decline of 1 per cent.

REA Group said it was seeing strong levels of buyer inquiry, underpinned by low interest rates and healthy bank liquidity.

The company said that development revenues were being supported by growth in new projects although commercial revenues were expected to remain challenged.

The company said that based on the current market outlook it anticipated core operating cost would be in line with last year and said that the rebound in the property market meant it was well positioned for 2021.

James Madden 8.30am: News Corp more than doubles profit

News Corp more than doubled its December quarter net profit to $US261m ($198.4m), helped by a better-than-expected jump in revenue as the media major saw a surge in subscriptions and advertising across its digital platforms.

The company, which owns mastheads including The Australian and metropolitan titles including the Herald Sun, Daily Telegraph, Courier Mail and Adelaide Advertiser and has a majority stake in Foxtel, said the three months to end-December was its most profitable second quarter in more than seven years, reflecting the digital transformation of the business.

The rebound in second quarter profit from $US103m the same time a year earlier also sees News Corp benefit from a strengthening Australian economy as it emerges from the Covid downturn.

News Corp booked revenue of $US2.41bn for the second quarter to end-December, which was up from $US2.12bn in the September quarter and compares to consensus estimates of $US2.21bn.

8.13am: Macquarie cut to Sell: Citi

Citi’s Brendan Sproules has downgraded Macquarie Group to Sell and cut his target price to $120 a share.

“Macquarie remains an attractive story with structural longer-term opportunities and competitive advantages in real assets and green energy,” Mr Sproules says.

“However, the valuation and expectations appear stretched near-term given more obvious concerns in commodities, currency and risks around tax rates.”

He notes that Macquarie has rerated to a forward multiple of about 22 times and while consensus is factoring in an earnings rebound, “expectations look stretched” and Citi is about 10pc below consensus in outer years.

And a strengthening AUD and subsiding commodity volatility look to “challenge one of the key drivers of growth in recent years”.

“Acquisitions, green energy and infrastructure are the key strategic opportunities for Macquarie (but) potential acquisitions look insufficient to mitigate organic challenges,” he says. “Green energy and infrastructure are longer-dated opportunities, with more modest near-term prospects.”

Mr Sproules has trimmed his earnings forecasts by 3-4pc to reflect exchange rate moves.

MQG last $$134.70.

8.05am: Wall Street higher after jobless claims fall

US stocks closed higher after fresh data showed the number of people seeking unemployment benefits declined from the previous week but remained elevated.

The S&P 500 ticked up 1.1 per cent, extending its winning streak to four sessions. The Dow Jones Industrial Average also rose 1.1 per cent, or 332 points, to 31056. The Nasdaq Composite climbed 1.2 per cent, driven by a rise in technology stocks.

Investors are watching for signs that the economic recovery remains under way despite a high number of Covid-19 cases and new variants that existing inoculations may be less effective against. A handful of stocks that grew popular on online forums and posted big swings in recent days have also calmed. Meanwhile, vaccine rollouts are ramping up in the US, offering hope that there may be a sharp rebound later in the year.

“The move now is for cautious optimism: the market is turning back to fundamentals,” said Grace Peters, an investment strategist at JP Morgan Private Bank. “Volatility is here to stay, but markets will ultimately grind higher.”

The latest data on jobless claims showed that 779,000 people applied for initial benefits last week, a decline from the previous week, but still at a historically high level. Cold weather, a surge in Covid-19 case numbers and the threat of a new, highly contagious variant of the virus have contributed to a broader winter slowdown that has hindered the labour market’s recovery, economists say.

In corporate news, e-commerce giant eBay jumped 5.3 per cent after the company’s profit climbed, beating analysts’ projections. PayPal rose 7.4 per cent after reporting its earnings tripled from a year earlier. Chip maker Qualcomm slid 8.8 per cent after it posted revenue that came slightly below expectations and said its results were hit by supply constraints.

GameStop tumbled 42 per cent. The video game retailer has been among a handful of stocks that soared in popularity among day traders in recent days, and Thursday’s move reflects the dwindling frenzy. AMC Entertainment Holdings dropped 21 per cent.

Brent crude, a global benchmark for oil prices, ticked up 0.7 per cent.

Overseas, the pan-continental Stoxx Europe 600 advanced 0.6 per cent.

Dow Jones Newswires

7.00am: ASX to open firmly higher

Australian stocks are tipped for a strong start after a rally in US and European markets.

At about 7am (AEDT) the SPI futures index was up 65 points, or about one per cent.

Yesterday, the ASX closed lower, ending a three-day winning streak.

The Australian dollar is lower at US75.94.

Iron ore jumped 3.9 per cent overnight to $US158.05 a tonne after Brazil giant Vale’s output fell, missing expectations and opening up the promise of more demand for the steelmaking material.

Gold futures are down 2.4 per cent to $US1788.90 an ounce.

Brent crude, a global benchmark for oil prices, ticked up about 0.7 per cent.

6.20am: US stocks extend gains

US stocks rose after fresh data showed the number of people seeking unemployment benefits declined from the previous week but remained elevated.

The S&P 500 ticked up 0.9 per cent, looking to extend its winning streak to four sessions. The Dow Jones Industrial Average also rose 0.9 per cent. The Nasdaq Composite climbed 0.9 per cent, pointing to a rise in technology stocks.

Investors are watching for signs that the economic recovery remains under way despite a high number of Covid-19 cases and new variants that existing inoculations may be less effective against. A handful of stocks that grew popular on online forums and posted big swings in recent days have also calmed. Meanwhile, vaccine rollouts are ramping up in the U.S., offering hope that there may be a sharp rebound later in the year.

“The move now is for cautious optimism: the market is turning back to fundamentals,” said Grace Peters, an investment strategist at J.P. Morgan Private Bank. “Volatility is here to stay, but markets will ultimately grind higher.”

The latest data on jobless claims showed that 779,000 people applied for initial benefits last week, a decline from the previous week, but still at a historically high level. Cold weather, a surge in Covid-19 case numbers and the threat of a new, highly contagious variant of the virus have contributed to a broader winter slowdown that has hindered the labour market’s recovery, economists say.

Dow Jones

5.20am: Credit Suisse overlooked misconduct warnings

Credit Suisse Group AG overlooked red flags for years while a rogue private banker stole from billionaire clients, according to a report by a law firm for Switzerland’s financial regulator.

The private banker, Patrice Lescaudron, was sentenced to five years in prison in 2018 for fraud and forgery. He admitted cutting and pasting client signatures to divert money and make stock bets without their knowledge, causing more than $US150 million in losses, according to the Geneva criminal court.

The regulator, Finma, publicly censured Credit Suisse in 2018 for inadequately supervising and disciplining Mr. Lescaudron as a top earner, and said he had repeatedly broken internal rules, but it revealed little else about the bank’s actions in the matter. Credit Suisse said it discovered Mr. Lescaudron’s fraud in September 2015 when a stock he had bought for clients crashed.

However, the report, commissioned by Finma in 2016 and reviewed by The Wall Street Journal, found Mr. Lescaudron’s activities triggered hundreds of alerts in the bank that weren’t fully probed in the 2009-15 period studied. In addition, around a dozen executives or managers in Credit Suisse’s private bank knew Mr. Lescaudron was repeatedly breaking rules but turned a blind eye, proposed lenient punishment for his misconduct or otherwise glossed over the issues because he brought in around $US25 million in revenue a year, the report found.

Credit Suisse’s headquarters in Milan.

Dow Jones

5.15am: Vale iron ore output falls 4.7pc

Brazilian mining giant Vale SA said output of iron ore fell in the fourth quarter from the third quarter as rainy weather and restrictions on waste disposal at some mines slowed operations.

Iron ore output fell 4.7pc in the fourth quarter from the third to 84.5 million metric tons and rose 7.9pc from the fourth quarter of 2019, Vale said in its quarterly production report. Production of iron ore pellets, a premium product, fell 16.9pc in the fourth quarter to 7.1 million metric tons, and fell 24.4pc from a year earlier, Vale said.

Pellet production was hit by reduced availability of feed from the company’s Brucutu and Itabira mines and maintenance at one of its pellet plants, according to Vale.

Sales of iron ore rose 25.9pc in the fourth quarter from the previous three months to 82.8 million tons and rose 6.3pc from a year earlier. Sales of pellets rose 0.3pc from the previous quarter to 8.5 million tons and fell 22.6pc from the final quarter of 2019.

Iron ore is loaded onto a freighter in Brazil. Picture: Bloomberg.

Dow Jones Newswires

5.10am: Wall Street edges higher

US stocks edged higher after fresh data showed the number of people seeking unemployment benefits declined from the previous week but remained elevated.

In early afternoon trade the S&P 500 ticked up 0.8 per cent, looking to extend its winning streak to four sessions. The Dow Jones Industrial Average rose 0.8 per cent. The Nasdaq Composite also climbed 0.8 per cent, pointing to a rise in technology stocks.

Investors are watching for signs that the economic recovery remains under way despite a high number of COVID-19 cases and new variants that existing inoculations may be less effective against. A handful of stocks that grew popular on online forums and posted big swings in recent days have also calmed. Meanwhile, vaccine rollouts are ramping up in the U.S., offering hope that there may be a sharp rebound later in the year.

“The move now is for cautious optimism: the market is turning back to fundamentals,” said Grace Peters, an investment strategist at J.P. Morgan Private Bank. “Volatility is here to stay, but markets will ultimately grind higher.”

The latest data on jobless claims showed that 779,000 people applied for initial benefits last week, a decline from the previous week, but still at a historically high level. Cold weather, a surge in COVID-19 case numbers and the threat of a new, highly contagious variant of the virus have contributed to a broader winter slowdown that has hindered the labour market’s recovery, economists say.

Investors are awaiting next steps on a new fiscal stimulus package in the U.S. In a Wednesday evening call with House Democrats, President Biden said he’s willing to send the next round of cheques to a smaller, more targeted group of people.

E-commerce giant eBay jumped 5.5 per cent after the company’s fourth-quarter profit climbed, beating analysts’ projections. PayPal rose 5.6 per cent after it reported late Wednesday that fourth-quarter profit tripled from a year earlier.

GameStop fell 25 per cent. The video game retailer has been among a handful of stocks that soared in popularity among day traders in recent days, and Thursday’s move reflects the dwindling frenzy. AMC Entertainment Holdings dropped 14 per cent.

In commodities, silver declined 2.5 per cent following a bout of volatility earlier in the week. “What you’re seeing today is much more just silver moving in lock-step with the other precious metals and responding to this sort of up in real yields and the dollar. This is just a very typical thing,” said Mr. Rhind.

Brent crude, a global benchmark for oil prices, ticked up about 0.5 per cent. Oil prices have been buoyed by OPEC’s statement Wednesday asking countries to stick with production cuts given the uncertain market conditions, said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB Group. “What they are doing is driving down inventories and driving prices higher,” Mr. Schieldrop said.

Overseas, the pan-continental Stoxx Europe 600 advanced 0.6 per cent.

In Asia, most major benchmarks declined. Japan’s Nikkei 225 fell 1.1 per cent, while the Shanghai Composite Index slipped 0.4 per cent.

Dow Jones Newswires

5.05am: Bank of England foresees vaccine-driven recovery

The Bank of England projected Britain’s economic recovery on the back of the nation’s successful vaccines rollout, as it froze interest rates and stimulus.

The central bank slashed this year’s economic growth forecast to 5.0 per cent from 7.25 per cent -- but also lifted the guidance for next year to 7.25 per cent from 6.25 per cent.

Policymakers meanwhile voted unanimously to keep its key interest rate at a record-low 0.1 per cent, the BoE said in a statement after the first meeting since Britain’s divorce from the European Union at the start of January.

And although the economy is set to tank by 4.0 per cent in the first three months of this year, a recovery should then take root as the rapid vaccines rollout boosts consumer spending, according to the bank’s latest outlook.

AFP

5.00am: European stocks rise, while oil comes off the boil

European equities mostly climbed, boosted by US stimulus hopes, vaccine rollouts and upbeat news from Italy.

Frankfurt stocks won 0.9 per cent and Paris climbed 0.8 per cent after investors shrugged off earlier losses in Asia.

“European markets have continued to gain ground... as confidence returns after the turbulence of last week,” commented CMC Markets UK analyst Michael Hewson.

Milan rose by 1.6 per cent after former European Central Bank chief Mario Draghi got to work on trying to form a new Italian government to lift his country out of coronavirus-induced turmoil.

“Draghi has been asked to form a government of national unity in Italy. He’s a highly skilled operator, a consummate politician and we know he’ll do ‘whatever it takes’ to steer Italy out of its worst economic and health crisis since the war,” said Markets.com analyst Neil Wilson.

However London stocks were essentially unchanged after the Bank of England held its key interest rate at a record-low 0.1 per cent and stimulus levels steady, causing the pound to rise.

The BoE also cut its 2021 gross domestic product growth forecast to 5.0 per cent from 7.25 per cent although Britain has moved faster than most countries in its vaccination campaign.

The central bank also hinted at the possibility of negative interest rates later this year.

In commodities meanwhile, world oil prices eased up on their run towards the key $US60 dollar level.

An upbeat global outlook has been pushing oil higher, with producers hoping for demand to pick up as lockdowns are eased and activities slowly resume.

But while the European and US benchmarks are roughly back to where they were before the pandemic hit, spot prices were flat or slightly lower on Thursday.

AFP

4.59am: McKinsey to pay $US573m over opioid crisis

Global consulting firm McKinsey will pay $US573 million to US states to settle claims that the company’s advice to pharmaceutical giants contributed to the deadly opioid crisis, the New York attorney general said on Thursday.

“Under the terms of today’s agreement, the company will finally end its illegal conduct, deliver more than half a billion dollars into communities across the nation and will never be able to help perpetrate this type of fraud and deception again,” Attorney-General Letitia James said.

The settlement, which was reached with 47 states, five territories and the District of Columbia, requires McKinsey to stop advising companies on certain narcotics and implement a strict ethics code.

However, the company does not admit guilt in the settlement, which will allow it to avoid the possibility of civil suits.

Almost half a million Americans died in overdoses from both prescription and illegal opioids between 1999 and 2018, according to the Centers for Disease Control and Prevention.

AFP

4.57am: Vale to pay $US7bn in damages for dam collapse

Brazilian mining giant Vale said it has agreed to pay more than $US7 billion in damages over the 2019 collapse of a dam at its Brumadinho mine, which killed 270 people.

It is the largest ever damages agreement in Latin America, according to the government of Minas Gerais, the southeastern state where the disaster sent millions of tons of toxic waste gushing into the surrounding area.

Vale said it would pay both “socio-economic” and “socio-environmental” reparations, compensating families hit by the disaster and funding projects to repair the surrounding environment, including a massive clean-up of the Paraopeba river.

“This agreement seals Vale’s commitment to fully compensate for Brumadinho and support the development of Minas Gerais,” the company said in a statement.

The state government said the amount negotiated via mediation -- 37.7 billion reais -- was an initial estimate and that the company would have to pay more if necessary.

“The agreement requires Vale to fully repair all environmental damage. The abovementioned amount... could be increased if necessary,” it said in a statement.

The January 2019 disaster was one of the worst industrial accidents in Brazilian history. It obliterated a huge swath of territory around the mine in Brumadinho, a municipality home to around 40,000 people.

The deal does not cover the criminal charges stemming from the disaster.

Rescuers search for victims after the dam collapse. Picture: AFP

AFP

4.55am: Bank of England cuts outlook, holds rate

The Bank of England left its key interest rate and stimulus unchanged, but slashed its 2021 growth forecast despite vaccines rollouts.

BoE policymakers voted to keep its main borrowing cost at a record-low 0.1 per cent following their first rates meeting since Britain’s divorce from the European Union at the start of January, The central bank also cut its 2021 growth forecast to 5.0 per cent from 7.25 per cent.

It said COVID-19 vaccination programs around the world “has improved the economic outlook”.

“Nevertheless, recent UK and global activity has been affected by an increase in Covid cases, including from newly identified strains of the virus, and the associated reimposition of restrictions,” the BoE added in a statement.

It meanwhile signalled that Britain would likely avoid a so-called double-dip recession with marginal growth expected in the final three months of last year.

And again it hinted at the possibility of negative interest rates, saying it was “appropriate” to start preparations for adding such action to its monetary policy toolkit.

The BoE added that the economy was about 8.0 per cent smaller in the fourth quarter than prior to the start of the pandemic in early 2020. It expects gross domestic product to shrink by about four per cent in the first quarter of this year, reversing a forecast for growth.

The Bank of England in the City of London. Picture: AFP

AFP

4.50am: Volvo optimistic after rebound in late 2020

Swedish car maker Volvo Cars, owned by China’s Geely, reported a drop in 2020 earnings but said it was optimistic for 2021 after a strong rebound in the second half last year.

China and the United States were the drivers of the turnaround, with both recording growth in sales for the year, despite the impact of the coronavirus pandemic.

“For 2021, we anticipate continued growth in sales volume and revenue, as we benefit from a strong product offering and further increases in online sales,” CEO Hakan Samuelsson said, noting in particular the progress made with their line of electric cars.

“Assuming market conditions continue to normalise, this growth, as well as continued cost management are anticipated to improve profitability to pre-pandemic levels,” Samuelsson said.

In 2020, revenue fell 4.0 per cent to 262 billion Swedish kronor ($31 billion, 25.9 billion euros), and net profit dropped 19 per cent to 9.6 billion kronor.

Volvo Cars sold 661,713 vehicles, down 6.0 per cent, but in the second half of 2020 the company had a sales performance which was the “best in the company’s history.” Then second half saw a 44 per cent increase in sales, compared to the same period a year before, producing revenue of 151 billion kronor and a net profit of nine billion.

AFP

4.45am: Unilever posts annual profit of 5.6bn euros

Consumer goods group Unilever announced a dip in annual net profit to 5.6 billion euros ($US6.7 billion) in what it said was a volatile year.

“In a volatile and unpredictable year, we have demonstrated Unilever’s resilience and agility through the COVID-19 pandemic,” chief executive Alan Jope said as Unilever’s 2020 net profit slipped 0.8 per cent from 2019.

The maker of brands including Magnum ice-cream, Cif surface cleaner and Dove soap, last year enjoyed strong demand for hand cleaners and household cleaning products in the pandemic, as well as an increased food purchases.

However sales of beauty products were hit by the coronavirus lockdowns, the group noted.

AFP

4.40am: Shell dives to $US21.7bn loss

Royal Dutch Shell dived into a net loss of $US21.7 billion in 2020, the oil giant announced Thursday, as the coronavirus pandemic slashed global energy demand.

The Anglo-Dutch group’s net loss compared with a net profit of $US15.8 billion in 2019, the company said in a statement.

Shell’s result is similar to British rival BP, which on Tuesday reported a 2020 net loss of $US20.3 billion.

Both companies are axing thousands of jobs in response to the economic fallout from the pandemic.

Royal Dutch Shell has posted a massive loss. Picture: AFP

AFP