Trading Day: ASX in stunning rebound, US futures recover
Australia’s sharemarket rose to its highest daily close in two days after a sharp intraday fall.
- Smith-Gander to chair Zip
- Link to prioritise PEXA sale
- AGL launches mobile phone arm
- FIRB clears Coke takeover
That’s all from the Trading Day blog for Monday, February 1. Australia’s sharemarket rose to its highest daily close in two days after a sharp intraday fall.
James Kirby 7.05pm: GameStoppers target silver
As GameStop traders turn their attention towards silver, Australia’s only specialist silver ETF popped on Monday racking up 25 times the usual daily turnover.
Needless to say the vast bulk of that money - $47m - rolled into the fund controlled by ETF Securities - was on buy orders, as retail investors try to surf on what they hope is a global push to force up the price of the precious metal.
The shift by day traders - inspired by the Reddit website - from single stocks such as GameStop to the considerably more ambitious target of a single commodity, might well mean more direct participation by Australians investors who have a better chance of participating in the silver market than in selected US stocks such as GameStop.
In fact, local online share trading sites with a strong representation among newer investors - such as Stake - reported difficulties in servicing demand for Reddit-driven US listed stocks in recent days. Similarly, IG was forced to halt trading in related stocks.
Local commodity analysts certainly find the move on silver extraordinary.
“This is unprecedented and I don’t think anybody has any idea where it is all going,” says Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank.
As the silver price opened the week more than 7 per cent higher at near $US29 an ounce, a string of silver small cap stocks also saw a spike in activity, including Manuka Resources, up almost 50 per cent, and Silver Miners up 36 per cent and Adriatic Minerals up 20 per cent.
But it is the arrival of GameStop traders into the ETF sector that is the big change for the local market.
Cliona O’Dowd 5.44pm: Link putting focus on PEXA stake sale
Link Group has walked away from its $322m acquisition of Pepper’s European loan servicing business, after a year-long deadline passed with the deal still not completed.
In an update to the market on Monday, Link also told shareholders that the trade sale process of its 44 per cent stake in online property exchange network PEXA was underway, “with good indicative interest received to date”.
ASX-listed Link, which was just weeks ago fielding takeover offers from two suitors, said it would prioritise the trade sale process over a demerger of its investment in PEXA.
The board was committed to maximising the value of its interest in PEXA for shareholders, Link chief executive Vivek Bhatia said.
“PEXA’s cash balance continues to strengthen month-on-month, highlighting the strong cashflow conversion of this investment,” he said.
The property transaction business had a strong first half as it benefited from the shift to online settlement through the coronavirus pandemic.
It delivered a record month of transaction volumes on the PEXA Exchange in December, while its operating pre-tax earnings for the first half of 2021, at $51m, were just shy of the $58m it reported for the 2020 full year, Link said last month.
Link shares ended the session up 1.67 per cent at $4.86.
Joyce Moullakis 5.28pm: Wisr going after traditional bank customers
Non-bank lender Wisr says it is going after traditional bank customers and is targeting a combined personal and auto loan book of $1bn, as it shrugs off the travails of other burgeoning local players.
Wisr chief executive Anthony Nantes said there were “plenty of examples” of so-called neo or digital lenders globally, that had lured meaningful market share from incumbent banks.
“We are very excited about the next few years,” he told investors and analysts of the listed company’s growth plans, adding there was a “clear path” to profitability and a $1bn loan book with a similar cost base.
Mr Nantes said Wisr had developed a “bank like relationship” with customers, without being a bank.
4.38pm: ASX ends +0.8% after impressive bounce
Australia’s sharemarket rose to its highest daily close in two days after a sharp intraday fall.
After falling as much as 1.4pc to a fresh 2-month low of 6517.2 the S&P/ASX 200 staged an impressive 2.4pc intraday rebound to a high of 6675.1.
It closed up 0.8pc at 6663 points - right on its 50-day moving average - after a “false break” of chart support from Dec-Jan lows around 6587.
The local bourse tracked the US futures market, as S&P 500 futures fell 1.1pc after Robinhood said it would reduce stock trading restrictions to 8 from 50 US stocks, before rebounding to be up 0.5pc.
The rebound in US futures came as Morgan Stanley showed that “de-grossing” of risk globally by hedge funds - in response to the Reddit-driven short squeeze - was, as of last Wednesday, fast approaching the extremes of the March meltdown.
The Health Care sector led the rebound with CSL up 2.3pc.
Materials and Financials also outperformed with BHP up 1.3pc and CBA up 1.4pc.
Technology lagged along with Energy, Industrials, Consumer Staples and Real Estate.
Bridget Carter 3.20pm: Coco Republic ‘on the market’
Upmarket furniture company Coco Republic is believed to be on the market, with advisory firm Allier Capital said to be working on a plan to find a buyer for the business.
Coco Republic sells upmarket furniture, homewares, lighting, rugs art and outdoor furniture and storage products and also offers interior design services.
The sale plans come after a year of surging sales in the furniture industry as consumers opted to spend money on their homes at a time travel has been restricted due to the global pandemic.
The company is owned by Saveba Pty and also owns and co-operates three hospitality venues under L’Americano Espresso Bar.
Coco Republic, run by Nicholas Foster, entered the US market in 2019 through Californian retailer HD Buttercup.
The company’s founder and chairman is Paul Spon-Smith, while Anthony Spon-Smith, a co-owner, is the executive director along with Jeremy Byrne.
It has eight showrooms in Australia and New Zealand, located in Melbourne, Brisbane, the Gold Coast and Auckland.
In the 2019 financial year, Coco Republic recorded $96m of sales, up 17 per cent for the previous year.
It comes after Steinhoff International subsidiary Greenlit Brands, made efforts to float industry rival Fantastic Furniture late last year.
However, the company pressed pause on the plans and is hoping for conditions to improve this year.
The hope was for Fantastic Furniture to list through Macquarie Capital and Credit Suisse with a market value of between $430m and $530m, equating to 11 times its annual net profit.
Sources say that fund managers were not prepared to meet its price expectations, preparing to pay about 9 times or ten times, with concerns about future earnings growth momentum.
The discount furniture retailer is forecast to generate $650.7m of sales for the 2021 financial year, up from $550.7m in the 2020 financial year to June.
Earnings before interest, tax, depreciation and amortisation is expected to be $76.7m, up from $61.7m in the 2020 financial year to June.
Net profit for fiscal 2021 is expected to be $47.6m, up from $38.5m for the 2020 financial year.
The retailer has 81 stores nationally and generated 29 per cent of its sales during the 2020 financial year from online, when shoppers stayed home since March due to the Covid-19 pandemic.
2.40pm: ASX back above 50-DMA
Australia’s S&P/ASX 200 share index is back above its 50-day moving average at 6663 after a truly remarkable intraday bounce.
The 2.4pc intraday reversal from a 2-month low of 6517.2 to an intraday high of 6670.30 is even bigger than Friday’s 2pc intraday pullback.
The “false break” of range support at 6587 today is a positive sign but it remains to be seen if the S&P/ASX 200 can close above its 50-day moving average at 6663 today.
The Australian dollar’s bounce off its 50-day moving average at 0.7593 is also encouraging.
They’re both tracking a bounce in S&P 500 futures, but they’re only up about 0.2pc after falling 1.1pc in early trading.
S&P/ASX 200 last up 1pc at 6670. AUD/USD last up 0.1pc at 0.7650.
Bridget Carter 1.26pm: Airtasker looks to raise $83m in float
Airtasker has priced shares for its initial public offering at 65c each as it looks to raise $83.7m from investors.
The Sydney-based business provides an online and mobile marketplace, enabling users to outsource everyday tasks and DataRoom revealed its plans to head to the boards in November.
Working on the float is Morgans and the raise will comprise a $15m primary issuance and a secondary sell down of $68.7m.
The pricing puts its market value at $255.1m and it represents 10 times enterprise value to forecast annual gross profit.
Airtasker, which counts Seven West Media as an investor, held its book build on Monday ahead of the lodgement of its prospectus on February 5.
The company is expected to list on March 22.
Founded in 2012 by Australian entrepreneurs Tim Fung and Jonathan Lui, the company counts former Vocus founder James Spenceley as its chairman.
1.27pm: China factory growth slows
China’s manufacturing activity eased in January, posting the slowest rate of expansion for seven months amid weak demand for exports and the domestic resurgence of Covid-19, according to a private survey of manufacturers.
The Caixin China purchasing managers’ index, which is weighted toward small, private manufacturers, dropped to 51.5 in January from 53.0 in December, Caixin Media Co. and researcher Markit said Monday.
Still, January’s reading was the ninth consecutive month that the Caixin PMI held above the 50 mark that separates expansion from contraction.
Both supply and demand continued to grow, albeit at a much slower pace. The subindexes for output and total new orders both slipped from the previous month but remained in expansionary territory for the 11th and eighth consecutive month, respectively.
Export orders dropped for the first time in six months, the data showed.
Employment at Chinese manufacturers also fell in January, while manufacturers recorded the slowest accumulation in backlogs for eight months.
Both the resurgence of coronavirus at home and the continuation of the pandemic abroad suppressed demand, Wang Zhe, a senior economist at Caixin Insight Group, said in a statement accompanying the data.
China’s official manufacturing PMI, which is focused more on large, state-owned companies, fell to 51.3 in January from 51.9 in December, according to data released by the National Bureau of Statistics on Sunday.
Dow Jones
1.05pm: PolyNovo gets a toehold in Italian market
Medical device company PolyNovo says it’s entering the Italian market through the appointment of Medival as the company’s distribution partner in Italy.
Italy is the fourth largest medical device market in Europe with a value of about $US10 billion.
Prior to appointing Medival, PolyNovo has been working at a major hospital to have its NovoSorb BTM product - used in the regeneration of skin lost through surgery or burns -
included in an important new national guideline.
PolyNovo managing director Paul Brennan said: “We are extremely excited to enter Italy through Medival. The Italian market is very sophisticated, and we think it will value innovative, quality medical technologies like ours. The country is important both geographically and commercially and is a major step forward in our European strategy. We will now be servicing surgeons who are a very influential throughout Europe.”
12.50pm: ASX up after ‘false break’ of support
Australia’s sharemarket turned up as US futures pared sharp intraday falls.
The S&P/ASX 200 rose 0.2pc to an intraday high of 6622 after falling as much as 1.4pc to a 2-month low of 6517.2.
The remarkable intraday bounce was the opposite of the failed bounce that was seen on Friday.
In the process, the S&P/ASX 200 regained important chart support from Dec-Jan lows at 6587.
As such, the fall this morning should be regarded as a “false break” of chart support.
It foreshadows a stronger move up, potentially to retest the 11-month high at 6832.6.
12.10pm: ASX rebounds from steep falls
Australia’s share market mostly recovered from a sharp intraday fall as US futures halved equally sharp intraday falls.
By 12.10pm the S&P/ASX 20 was flat at an intraday high of 6606.8.
That follows a 1.4pc intraday fall to a 2-month low of 6517.2 as S&P 500 futures fell as much as 1.1pc in early trading.
Major stocks have bounced sharply across the board, with BHP up 0.6pc, CBA down 0.2pc and Afterpay down 0.9pc after the initial selloff.
The exaggerated drop in sharemarkets followed disappointing China PMI data over the weekend.
However it had more to do with lingering jitters about the potential for social-media driven short squeezes to cause further “de-grossing” of risk (closing shorts and longs) in global markets by hedge funds.
It came after Robinhood said it will narrow its trading restrictions markedly today to eight US companies from 50, potentially causing a further short squeeze in heavily shorted stocks.
There was also a 7.5pc jump in spot silver this morning, driven by Redditors on wallstreetbets calling for “the biggest short squeeze in the world”
Bridget Carter 11.53am: Oaktree set to revive diamond drill float
Oaktree Capital Management is looking to revive its plans to float its DDH1 diamond drilling business, with the private equity firm said to have been in talks to sell a stake to a group of cornerstone investors since late last year.
It is understood that investor meetings have been scheduled for a consideration of a listing.
The meetings come after what has been described as “some back and forward” with a group of investors prepared to buy a cornerstone stake at a particular price.
Sources say they understand there the parties are coming to a position where there could be a “meeting of minds” with a deal that could appease both owners and investors.
Last year, the size of the initial public offering was dependent on price.
Oaktree pushed the pause button on a DDH1 listing in Australia last year after it was understood that it was unable to achieve a price equating to six times the company’s earnings before interest, tax, depreciation and amortisation, which in the 2020 financial year was $64m.
Institutional investors were prepared to cornerstone the float at 4.5-5 times the earnings of DDH1, sources said at the time.
DDH1 is Australia’s largest diamond core drilling contractor, serving the hard rock (non-bulks) minerals industry, and is a strong performer.
11.44am: JPM’s ‘Super 7’ Aussie stocks
JP Morgan equity strategists have unveiled their “Super 7” list of Aussie stocks for 2021.
These are the stocks their analysts think stand out from the pack.
The Super 7 are: Charter Hall Group, James Hardie, NAB, Rio Tinto, Santos, Super Retail Group and Transurban.
“The performance of our 2020 ‘Super 7’ was somewhat disappointing, with the majority of the stocks landing up as ‘COVID losers’,” says JPM’s chief equity strategist, APAC, Jason Steed.
Two of the largest underperformers were Worley and Woodside, which declined by 32pc and 35pc relative to the ASX 200.
The worst performer was Lendlease, which slid 40pc against the index.
Rio Tinto was the only one of the Super 7 from 2020 that outperformed the index.
Eli Greenblat 11.40am: Asahi names new Australia chair
Asahi Beverages, which in 2019 bought Carlton & United Breweries for $16 billion, says Roland van Bommel has been appointed as chairman of Asahi Holdings Australia.
Mr van Bommel joined the Asahi Holdings board in 2013 and has been acting chairman of since December 2020 following the retirement of Peter Margin from the role.
Mr van Bommel has significant international experience in senior executive roles in the brewing industry. He is a former CEO of William Grant & Sons and Maxxium Worldwide.
He becomes chairman of Asahi Holdings at a time when Asahi Beverages is now
the leading beverages company in Australia and New Zealand following the
successful integration of Carlton & United Breweries in June last year, with CUB
joining Asahi Lifestyle Beverages and Asahi Beverages New Zealand.
Ben Wilmot 11.32am: HomeCo Daily Needs REIT shoots for $3bn
The listed HomeCo Daily Needs REIT could grow to a $3bn portfolio as it expands by snapping up and developing new convenience-based shopping centres, according to broker Morgan.
The trust listed last November with an $844m portfolio after being successfully spun out of HomeCo, which manages the REIT and owns a 27 per cent stake.
Assets are at about $950m, however management is targeting the $3bn mark over the medium term via organic growth, development projects and acquisitions.
Morgans initiated coverage with an “add” rating and a target price of $1.44, citing the company’s attractive distribution yield and the fact it is trading below its net tangible asset backing.
“We also note that the portfolio’s site coverage ratio is around 30 per cent providing future opportunities given most assets are located in metro growth corridors across NSW, Queensland Victoria, SA and WA,” Morgans said.
The trust has a mandate to invest mainly in metro-located, convenience based assets across the sub-sectors of neighbourhood retail, large format retail and health and services.
Management is targeting for around half the portfolio to be focused on neighbourhood centres with the balance a mix of large format retail and health.
11.22am: Online traders fuel silver price rise
Silver prices rallied to start the trading week, fuelled by a wave of fresh enthusiasm from online traders.
Most actively traded silver futures rose as much 8pc from Friday’s close before paring gains slightly to recently trade up 7pc at $US28.80 a troy ounce. Sunday night’s rally comes after silver prices gained more than 5pc last week.
Silver has rallied in recent trading sessions after users on Reddit’s WallStreetBets forum posted about executing a “short squeeze” similar to ones credited with fueling recent gains in other stocks popular on the internet. Outsize attention from day traders has powered significant gains in stocks such as GameStop Corp. captivating Wall Street as individual investors take on hedge funds that are betting on prices to fall.
Attention from day traders is the latest driver for silver prices, which have traded in a range since notching a record performance in 2020, finishing the year up 47pc. Silver benefited from a booming rally in precious metals that sent prices on everything from gold to palladium to record highs. Investors tend to buy precious metals such as silver when they are nervous about holding riskier assets such as stocks or corporate bonds.
Even the physical metal, which is used in everything from electronics to jewellery, is starting to see a notable uptick in demand as a result of Redditors’ attention. Retail silver marketplaces including Money Metals and APMEX Inc., among others, had notices on their websites Sunday saying they were unable to process new orders until global markets opened because of unprecedented demand for the metal.
Dow Jones Newswires
Ben Wilmot 11.18pm: Andrew Roberts buys out Italian JV partner
Billionaire Andrew Roberts has taken full control of his local construction joint venture with Italian company Impresa Pizzarotti & C. S.p.A..
The terms of buying out the 50 per cent stake were not disclosed but the Italian construction and civil engineering firm wanted to exit the venture.
The ownership change effectively consolidates Roberts Co as a global business under one name with operations in Australia, the Middle East and Europe.
In Australia, Roberts Co has projects in Sydney including the Zurich Tower in North Sydney, North Shore Health Hub, the redevelopment of Concord Hospital, and upgrades to the Liverpool Hospital precinct and The Schools at Meadowbank Education and Employment Precinct.
10.53am: Worley shares drop to 200-day average
Worley shares dropped 13pc to an almost three-month low of $9.90 after a COVID-related profit warning.
The company noted that the acceleration of COVID-19 infection rates since October has further impacted demand in its end markets.
The intraday low is almost bang on the 200-day moving average at $9.95. It’s the first test of this rising support line since early November.
This may be a level from which to target a bounce to the former support level at $11.15, assuming vaccines will lower COVID-19 infection rates.
In recent weeks, the 7-day average number of new COVID-19 cases per day in the US has fallen from a peak of 244,707 to 148,501.
But one problem for Worley shares in the short-term is that the short interest last week was only 1.6pc versus the 3-year average of closer to 3pc.
WOR last down 13pc at $9.96.
10.50am: US futures slide as virus variant rattles investors
US stocks are set to begin the trading week sharply down. Dow Jones Industrial Average futures are off 241 points, or 0.8pc, and S&P 500 futures are also down 1pc with Nasdaq Composite futures slipping 1pc as investors worry that the slow US vaccine rollout and spread of new strains of Covid-19 could dent hopes for a strong economic recovery in 2021.
The drop off comes after US equities closed out last week down 2pc, their worst five-day trading spell since October as Covid-19 vaccine trial results and new strains of the virus pulled stocks down, while GameStop and a host of other shares targeted by Reddit users surged.
Concerns about a stock market bubble have increased as well. A rush of highflying tech IPOs, surging options prices and lofty, if volatile, Bitcoin prices have all contributed to those worries. While the S&P 500 fell last week, it remains up 66pc from its pandemic low last March.
This week, investors are in for another flurry of earnings reports, as 99 S&P 500 companies are set to announce quarterly results. Alphabet, Amazon.com, Alibaba Group Holding, Exxon Mobil, Ford Motor, Merck, Pfizer, Qualcomm, Snap, T-Mobile US and United Parcel Service all report this week. On Friday, the Bureau of Labor Statistics will release January’s jobs report. Economists expect 100,000 new jobs to be added after December month’s decline of 140,000 but for the unemployment rate to stay at 6.7pc.
Dow Jones Newswires
Perry Williams 10.39am: Worley cuts another 1500 jobs
Resources contractor Worley has slashed a further 1500 jobs due to the COVID-19 economic slowdown, with first half profit set to plummet amid slower demand and a raft of project deferrals.
Worley has cut 1500 jobs in the three months to December 31, taking total cuts near 10,000 people in the last year. It now employs 47,600 people globally, down from 49,100 at September 30.
The company’s interim profit is also set to nosedive by up to 45 per cent at its forthcoming results on February 23.
Underlying earnings before interest, tax and appreciation for the first half are estimated in a range of $200m-$210m compared with $366m for the same period in 2020.
Worley said the “global acceleration of COVID-19 infection rates since October 2020 has further impacted demand in our end markets.”
Projects have been deferred but not yet cancelled.
“Consistent with previous statements, we continue to see ongoing project deferrals but negligible project cancellations. We expect these deferred projects to return as global economic conditions improve,” Worley said.
Worley expects improved EBITA in the second half of 2021 as market conditions improve.
“Although the ongoing impacts of the pandemic are deferring some of our existing projects, we expect they will restart when economic circumstances improve,” Worley chief executive Chris Ashton said.
“We’re still winning new work and we’re actively engaged in supporting our customers on their sustainability journey. Cash continues to flow from our customers on previously agreed terms and we’ve improved our liquidity position.”
10.28am: Rotate to COVID losers: Macquarie
Macquarie has polled its analysts for their best ideas for the February reporting season.
They recommend rotating to “COVID losers”.
Telstra, Nine Entertainment, Star Entertainment, Ramsay Health Care, Healius and Healthscope and Downer are Covid losers that they like.
In their view, Suncorp could post a weak 1H21 result, but investors should buy any post-result dip.
“Suncorp may not be the only Covid loser where a weak result provides a buying opportunity for investors,” they say.
They still like BHP, Rio and Fortescue for their dividends.
James Hardie and Charter Hall Group are two quality growth names they like into the results season.
They also like three Covid winners: Harvey Norman, Woolworths and Domino’s Pizza.
And with the travel recovery delayed, they see near-term earnings risk for Qantas.
10.17am: ASX opens sharply lower as US futures dive
Sharp falls in US share index futures are magnifying a further selloff in Australia’s share market this morning.
The S&P/ASX 200 fell 1.4pc to a two-month low of 6517.20 as S&P 500 and NASDAQ futures dived 1pc.
The break of chart support from Dec/Jan lows at 6587 is adding to the selloff.
The Energy, Financials, Tech and Industrials sectors are leading broadbased falls.
Large cap falls include Santos down 3.2pc, NAB down 2.3pc, Afterpay down 2pc, Transurban down 1.5pc.
It comes amid a risk of further “de-grossing” of risk by hedge funds globally.
This morning Robbinhood said it narrowed trading restrictions to eight companies from 50.
And the Reddit crowd turned their attention to silver, where futures are up 8pc amid surging retail demand over the weekend.
10.16am: AMA names new boss after CEO quits
Crash repair business AMA has appointed a new CEO after Andrew Hopkins resigned amid allegations he misused his corporate expense account.
Carl Bizon, a non-executive director since February 2020, will take over as CEO immediately.
AMA says Mr Hopkins’ resignation follows an independent investigation into his conduct by McGrath Nicol. It says the company has begun a formal process to recover a sum approximating $1m.
9.42am: Ongoing RBA easing under-priced: UBS
Markets aren’t fully priced for ongoing easing from the RBA, according to UBS.
Ahead of key RBA events this week (board meeting, Lowe speech, SOMP), this creates trading opportunities in the Australian interest rate market, says UBS chief economist George Tharenou.
He recommends being long AU vs US 10-year government bonds and paying AU 10-year EFP (exchange of futures for physical) to position for an RBA QE extension, and long ACGB Nov-24 government bonds to position for an extension of yield curve control.
Mr Tharenou expects the RBA to “open the way to additional QE by signalling that they are not comfortable with the upward pressure on the Australian dollar, which at least partly reflects market shifting towards pricing in the RBA tapering.”
9.44am: Gold major says no impact from Perth lockdown
Australia’s second biggest gold miner says it does not expect its WA operations to be affected by lockdowns announced by state premier Mark McGowan on Sunday.
Both Northern Star Resources and Saracen Mineral Holdings, who are completing a merger that will unify the Kalgoorlie Super Pit and their other WA operations, put out separate statements to the market on Monday saying they did not expect to be affected by the five-day lockdown of Perth and WA’s south west region.
“All the company’s operations are located outside the lockdown boundaries set by the government.” Saracen said.
The WA state government late on Sunday backed away from including mining workers in strict lockdown measures that could have disrupted the state’s powerhouse industry, with Police Commissioner Chris Dawson deeming construction and fly-in fly-out mining staff “essential workers”.
The initial advice given to miners was that FIFO flights carrying workers from Perth to the Pilbara’s iron ore heartland were cancelled for the week after Mr McGowan declared the lockdown on Sunday afternoon, leaving mining companies scrambling to cope with disrupted rosters, and asking employees currently on site to extend their rosters until the end of the week.
But the orders published by the Police Commissioner late in the evening exempted the industry from travel restrictions preventing Perth residents from leaving their homes until Friday.
The exemptions also apply to essential infrastructure workers, such as those running WA power stations, factories and manufacturing plants that would take damage if they were turned of suddenly, freight and logistics workers and port workers.
9.35am: What’s impressing analysts today?
Audinate raised to Buy: Shaw & Partners
BlueScope Steel raised to Buy: Citi
Bub’s Australia target price cut 16pc to $0.51; Sell rating kept: Citi
Firstwave Cloud Tech cut to Hold: Morgans Financial
Nearmap raised to Buy: GS
Orecobre cut to Hold: Morgans Financial
United Malt raised to Neutral: CS
Western Areas cut to Hold: Shaw & Partners
9.30am: Crown in Perth hit by lockdown
Casino operator Crown Resorts says it will close gaming, food and beverage, banqueting and conference facilities, other than provision of takeaway meals at Crown Perth after the Western Australian government announced a lockdown of the Perth metropolitan area.
The restrictions will last until February 5, Crown said.
However Crown said hotel accommodation will continue to be provided in a reduced capacity.
The move comes at a critical time for Crown with the NSW Gaming Regulator set to release the outcome of an inquiry into its suitability to hold a gaming licence in NSW within the next two weeks.
9.20am: ASX to dip after Wall Street, China data
Australia’s share market is heading for a two-month low early today after Wall Street dived on Friday.
Disappointing China PMI data and the WA lockdown announced on Sunday have added to the negative leads over the weekend.
Unibail-Rodamco could reverse sharply after France announced mall closures, although the stock is heavily shorted.
Friday night futures suggested the S&P/ASX 200 would open down 0.5pc at 6574 - its lowest point since December 1.
But as an indication of added risk aversion from weekend developments, AUD/USD has fallen 0.2pc to 0.7622. AUD/USD could drop to 0.7500 or 0.7400 if it breaks its 50-day moving average at 0.7593 this week.
The S&P/ASX 200 faces stop-loss selling below range support at 6587 possibly leading to a test of its 100-DMA at 6360 on a purely technical basis.
But investors should watch for a “false break” of support today after rapid “de-grossing” (selling longs & covering shorts) globally by hedge funds last week on a scale similar to the March 2020 meltdown.
Potentially dovish RBA talk from the RBA meeting (Tuesday), Governor Lowe’s speech (Wednesday) and the SOMP (Friday) poses downside risk for AUD/USD but could help shares.
The S&P/ASX 200 fell 0.6pc to 6607.4 on Friday.
9.15am: Smith-Gander to chair Zip
Buy now, pay later firm Zip has announced the appointment of Diane Smith-Gander as its new chair.
Current chair Philip Crutchfield will step down after more than five years with the company.
“Ms Smith-Gander is a seasoned professional non-executive director with chair experience and is ideally placed to lead Zip as it forges ahead as with its global expansion,” Zip told the ASX.
“Importantly, Ms Smith-Gander will bring her extensive governance and international experience to Zip, with the ambition of guiding the business in the coming years, as well as bringing to millions of new customers a fairer and more transparent way of managing their money.”
Ms Smith-Gander is a director at AGL Energy and HBF Health, and is chair of the Committee for Economic Development of Australia (CEDA) and Safe Work Australia.
8.46am: Link to prioritise PEXA sale, scraps Pepper deal
Link Administration Holdings said it will prioritise the sale of its stake in digital property services unit PEXA over a potential spinoff, after receiving good indicative interest from potential buyers.
“The board is committed to maximising the value of its interest in PEXA for Link Group’s shareholders,” said Chief Executive Vivek Bhatia. “PEXA’s cash balance continues to strengthen month-on-month highlighting the strong cash-flow conversion of this investment.”
Link, which was recently a takeover target of SS&C Technology Holdings, said a previously announced external debt refinancing of PEXA won’t now proceed.
The company also said it has terminated an agreement to buy Pepper European Servicing from Pepper Group after several conditions weren’t satisfied. That deal had been announced a year ago.
“As a result of the termination of the PES transaction, we will preserve the capital for future growth opportunities,” Mr. Bhatia said.
Dow Jones Newswires
8.39am: AGL launches mobile phone arm
Australian power giant AGL Energy has launched a mobile phone division as it seeks to broaden revenue sources amid a crunch on its mainstay electricity business.
AGL will offer mobile sim plans with discounts for customers that combine services with their energy contracts.
The move into mobiles has come 18 months after AGL walked away from a $3bn takeover of telco Vocus.
However, chief executive Brett Redman remains focused on the industry against a backdrop of declining earnings from its power business.
“We want to transform how Australians connect to the essential services that power their lives,” said AGL chief customer officer Christine Corbett.
“We’re offering customers simplicity and ease by taking away the hassle of calling several providers and becoming the one provider who can offer it all.”
AGL reaches 4.2m services to homes and businesses and is targeting 4.5m by 2024.
8.30am: FIRB clears Coca-Cola Amatil takeover plan
Coca-Cola Amatil says the Foreign Investment Review Board has made no objection to its proposed $9.3bn takeover by Coca-Cola European Partners.
It says receipt of FIRB approval satisfies a condition for the implementation of the proposed scheme of arrangement which would see the Australian company taken over in full by Coca-Cola European Partners.
However the deal is still subject to a range of other conditions, including Amatil independent shareholder approval, Australian court approval and a tick from the New Zealand Overseas Investment Office.
8.12am: Northern Star ‘unaffected by lockdown’
Northern Star Resources says it doesn’t expect production and exploration at its West
Australian operations to be affected by the five-day coronavirus lockdown measures announced by WA Premier Mark McGowan.
“All the company’s operations are located outside the lockdown boundaries set by the government,” it told the ASX
7.50am: Exxon, Chevron CEOs discussed merger
The chief executives of Exxon Mobil and Chevron spoke last year about combining the oil giants, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.
Chevron chief executive Mike Wirth and Exxon CEO Darren Woods spoke shortly after the coronavirus pandemic took hold, decimating oil and gas demand and putting enormous financial strain on both companies, the people said. The discussions were described as preliminary and aren’t ongoing but could come back in the future, the people said.
Such a deal would reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken up by US regulators in 1911, and reshape the oil industry.
A combined company’s market value could top $US350 billion. Exxon has a market value of $US190 billion, while Chevron’s is $US164 billion. Together, they would likely form the world’s second largest oil company by market capitalisation and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.
Dow Jones Newswires
Cliona O’Dowd 6.00am: Stocks poised for weaker start
The Australian sharemarket is expected to open lower following steep declines on Wall Street at the end of last week amid frenzied retail trading activity.
ASX futures are pointing to a 0.5 per cent drop at the open as investors remain cautious even as the market gears up for a strong earnings season, particularly from the big retailers.
The Australian dollar is lower at US76.41c.
Uncertainty surrounding the trading activity in US stocks such as GameStop and AMC is adding to the negative sentiment, CommSec chief economist Craig James told The Australian.
“With GameStop and the short selling by hedge funds, there’s still a degree of concern for the market.
“There’s also a focus on the continued lockdowns in countries: the French have reimposed borders for non-EU personnel. Add to that the slow rollout of vaccines in a number of countries, and there’s a few issues of concern for investors at the moment,” Mr James said.
While some sectors come under pressure, gold miners are expected to see a degree of support early in the week after the gold price rose by $US9.40, or 0.5 per cent, to $US1,847.30 an ounce.
The iron ore price also rebounded 1.2 per cent in Friday’s session to $US158.05 a tonne, but over the week it fell by $US10.55 a tonne, or 6.3 per cent. The big iron ore miners were also hit in Friday’s trade, with Rio Tinto dropping 1.7 per cent and BHP declining 2.5 per cent.
Onlookers will also be closely watching ASX-listed commercial real estate company Unibail-Rodamco-Westfield, which is headquartered in Paris. Its shares could take a hit as a result of France closing its borders.
Both European and US sharemarkets ended Friday’s session deep in the red, with the focus in the US still very much on the retail trading frenzy that has delivered blistering gains for heavily shorted stocks, including GameStop and AMC Entertainment.
Ahead of earnings season kicking off, Mr James said all indications pointed to a strong season this time around.
“A number of companies have already come out and provided positive forward guidance. For companies to be providing such positivity in the current market is quite encouraging for investors,” he said.
Amcor, Temple & Webster, Janus Henderson and Nick Scali are among the companies scheduled to hand down their earnings results this week.
5.55am: US senators call for Wall Street reform
Progressive US senators Bernie Sanders and Elizabeth Warren called on Sunday for action against what they said were the Wall Street abuses by hedge funds revealed by the recent frenzy over GameStop shares.
“We need an SEC investigation,” Warren told CNN, referring to the federal Securities and Exchange Commission.
“What’s happening with GameStop is just a reminder of what’s been going on Wall Street now for years,” the Democratic senator said.
“It’s a rigged game, and it’s been a set of players who come in and manipulate the market.” Amateur investors who organised over Reddit and other online forums have in recent days targeted shares of companies including GameStop that had been “short-sold” by hedge funds in a bet that the price of the shares would fall.
The Reddit group’s tactics caused massive spikes in share prices. The SEC said Friday that it was “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices” and would “act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited” by federal law.
AFP
5.50am: Britain to apply to join Asia-Pacific free trade bloc
Britain said it is to apply to join a massive 11-nation free-trade bloc of Asia-Pacific countries this week, not long after quitting the European Union’s single market.
International Trade Secretary Liz Truss will formally request Monday for Britain to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a market representing half a billion people and roughly 13.5 per cent of the global economy.
The move comes a year after Britain left the European Union, ending more than forty years of membership, and after five years of complex trade discussions with the bloc.
British Prime Minister Boris Johnson said the potential new partnership would “bring enormous economic benefits for the people of Britain”.
“Applying to be the first new country to join the CPTPP demonstrates our ambition to do business on the best terms with our friends and partners all over the world and be an enthusiastic champion of global free trade,” he said.
Negotiations between the UK and the partnership -- which represents 11 Pacific Rim nations including Australia, Canada, Chile, Japan, Mexico and Vietnam -- are expected to start this year, the trade department said.
AFP
5.45am: China factory activity slows slightly
Factory activity in China slowed slightly in January, official data showed Sunday, as the country rushed to stamp out a recent coronavirus wave in northern China.
The purchasing managers’ index (PMI), a key gauge of manufacturing activity, came in at 51.3 this month, as the world’s second-largest economy tightened COVID-19 precautions ahead of the Lunar New Year.
The figure was slightly below December’s reading of 51.9, although still above the 50-point mark separating growth from contraction.
“Recently, local clusters of the epidemic emerged successively in many places across the country, and the production and operations of some enterprises were temporarily affected,” said National Bureau of Statistics (NBS) senior statistician Zhao Qinghe.
The latest data indicated that the business climate remains weak for small firms, although domestic consumption picked up ahead of the festive period.
Export demand slowed after Christmas as the pandemic continued spreading worldwide, the NBS added.
China’s non-manufacturing PMI saw a larger drop to 52.4, from 55.7 last month, taking a bigger hit from the domestic virus resurgence.
AFP
5.40am: Wall Street recap
Wall Street stocks concluded a bad week with another volatile session Friday as the buying frenzy over GameStop and some other equities resumed amid stepped-up scrutiny from regulators.
The Dow Jones Industrial Average ended down 2.0 per cent at 29,982.62. The broadbased S&P 500 fell 1.9 per cent to 3,714.24, while the tech-rich Nasdaq Composite Index tumbled 2.0 per cent to 13,070.69.
Analysts said there were factors besides the drama around GameStop in the pullback Friday and earlier in the week.
These include concerns over lofty equity valuations given the economic weakness caused by COVID-19. Investors are also worried US fiscal stimulus may lag market expectations after President Joe Biden’s $US1.9 trillion package garnered a sceptical reception in Congress.
But much of the focus landed on questions over GameStop, which soared nearly 70 per cent after Robinhood and other trading platforms lifted restrictions on trading the equities.
Shares of GameStop, AMC Entertainment and others have been on a tear much of the week as investors organised over Reddit targeted the equities to combat hedge fund short-sellers who were betting on lower prices.
“This is all a de-risking event by hedge funds, because of the loss that they have taken from the stocks like GameStop,” said Karl Haeling of LBBW.
“These hedge funds are facing billions of dollars of losses and they had to go and sell stocks where they had profits and long positions. They have to sell them off to cover their losses.” Among other companies, Johnson & Johnson fell 3.6 per cent after announcing its COVID-19 vaccine has an overall efficacy of 66 per cent, with 85 per cent effectiveness in preventing severe COVID-19 across all geographical regions, but only 57 per cent success rate in combating a variant discovered in South Africa.
The J&J vaccine has been eagerly anticipated because it requires only one shot, in contrast to other options now on the market.
Chevron fell 4.3 per cent after reporting a $US665 million fourth-quarter loss, taking its annual loss to $US5.5 billion amid a big drop in oil prices.
AFP
ASX 200 rises on banks; Arcadium top gainer
Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.
Miners drag on ASX 200; Woodside, Mesoblast up
US President Joe Biden triggers oil price jump. Mesoblast top gainer. Sinopec wants price review on APLNG deal. Platinum grants Regal access for higher offer. Ratings upgrade for Cochlear. Optimism underpinning latest Bendigo Bank, UBS forecasts.