Trading Day: ASX up as rate cut flagged, Virgin CEO to go
Stocks finished higher after a dovish speech from RBA boss Philip Lowe and jobs figures were better than expected.
That’s all from the Trading Day blog for Thursday, October 15. Australian stocks closed higher following a speech by the RBA’s Philip Lowe which flagged a November rate cut. September jobless figures were a little better than expected.
Adeshola Ore 8.21pm: Cash grab as Australians stash notes
Australians turned to hoarding cash under the mattress during the pandemic as the circulation of banknotes spiked throughout the COVID-19 outbreak.
The Reserve Bank of Australia said $7.7bn of high-denomination banknotes were purchased by commercial banks to meet the rise in public demand between mid-March and the end of June.
In its annual report, the RBA said the $50 and $100 dollar notes bought from the institution equated to over 8 per cent of the total value of banknotes in circulation. The $7.7bn of high-denomination notes also amounted to three-quarters of the increase in the value of circulating banknotes for the past financial year.
Eli Greenblat 7.40pm: Eagers jumps on trading update
Shares in the nation’s biggest vehicle retail group, Eagers Automotive, rallied more than 7 per cent on Thursday when it provided a trading update to the market that said it had recorded an underlying operating profit of $96.6m before tax for the nine months ending September 30.
This represented a 45.4 per cent increase on the previous corresponding period.
The company, previously known as AP Eagers, said that in the states and territories not currently locked down, sales had rebounded strongly from the historical lows experienced during April and May when nationwide restrictions were in place.
“While customer orders have been strong, supply constraints caused by global manufacturer factory closures during the June quarter resulted in lower vehicle deliveries to customers,” the company said.
Eagers Automotive said cost-cutting flowing from last year’s $2bn merger with AHG was bolstering its performance.
“The reduced inventory position combined with the company’s cost-reduction programs, initiated following the merger with AHG and in response to COVID-19, have led to a strong rebound in Eagers Automotive’s underlying trading performance,” the company said.
The results are still subject to an external audit review that will be conducted following the completion of the financial year ending December 31. Eagers Automotive shares have more than tripled since their lows in March when global sharemarkets were caught up in the COVID-19 pandemic and the company was forced to temporarily close some of its outlets and send thousands of workers home.
In August, the company reported an 80 per cent drop in statutory half-year profit to $8.32m and cancelled its interim dividend, as Holden’s exit from the Australian car market and restructured property valuations forced it to book impairments of $40.4m.
At the time, the Eagers Automotive also revealed it had relied on wage subsidies of $66m from the Australian and New Zealand governments in the six months to June after about 75 per cent of its more than 8200 workers were put on the JobKeeper scheme.
Shares closed up 68c, or 6.1 per cent, to $11.88 on Thursday.
Perry Williams 7.14pm: Santos cautions on sector intervention
Santos boss Kevin Gallagher has cautioned the Morrison government against threatened intervention in the gas sector, warning investment and new supply may be jeopardised by introducing new measures.
Canberra is preparing to “strengthen price commitments” as it looks to negotiate a new heads of agreement with Queensland gas exporters including Santos to ensure sufficient supplies at affordable prices are available to the market.
Andrew Liveris, an adviser to the Morrison government, has targeted $4 a gigajoule gas as an achievable target for the east coast market despite producers rejecting it as an unrealistic price, raising concern the government may look to set a price target for gas producers.
Intervention such as “breaking into LNG contracts and redirecting that gas to the domestic market” would have serious implications for sovereign risk and foreign trade agreements, Mr Gallagher said, meaning the government was unlikely to pursue that option.
Meddling on price settings “would kill supply and then you end up with the same situation you were in before,” Mr Gallagher told the Citi Annual Investment Conference on Thursday. “Say if you set the price at $6, you don’t only have the impact on developing new resource but you start to impact LNG import terminals and it becomes difficult when you try and make the price falsely low.”
Scott Morrison has positioned gas as the centrepiece of his economic recovery plan and producers like Santos, which has won planning approval for its controversial Narrabri project in NSW, argue policies must ensure more supplies can be delivered to users to head off a looming supply shortfall. Santos operates the GLNG export project in Queensland.
James Kirby, Alan Kohler 6.13pm: Listen to The Money Cafe podcast
Wealth editor James Kirby and InvestSMART’s Alan Kohler discuss:
- Their top three Australian companies.
- Searching for low-risk, short-term investments.
- The government’s tightening of fiscal spending next year.
- Altura Mining’s debt predicament.
- Cybersecurity as a long-term investment trend.
- Superannuation funds’ advertising spending.
- Should we have tax cuts or increase the pay of frontline workers?
- Thoughts on investment bonds.
Don’t forget to send your own questions to James Kirby and Alan Kohler via moneycafe@theaustralian.com.au
Perry Williams 5.05pm: Boral chair Fagg to step down
Boral chairman Kathryn Fagg will step down from the construction materials company in 2021 after pressure from shareholders and proxy advisers and Seven Group will only take one board seat role with Richard Richards withdrawing his nomination as a director.
Ms Fagg had faced a desperate battle for survival after all three influential proxy advisers recommended against her re-election ahead of next week’s annual general meeting due to concerns over the company’s poor business performance and corporate governance issues.
After declaring on Wednesday it was important for Ms Fagg to remain chairman to ensure business continuity, Boral said that she would now only remain in place until 2021.
“Boral’s Chairman, Kathryn Fagg, has indicated that she is willing to retire from the Board. The Board considers that in the context of Boral’s significant and ongoing Board renewal, leadership changes and portfolio review, that Chairman stability and continuity at this point in time is essential,” Boral said in an ASX statement.
“Kathryn has been requested by the Board and has agreed to stand for re-election at the 2020 AGM to support leadership stability during this period of renewal, on the basis that she will retire and there will be an orderly transition to a new Chairman in 2021.
Boral on Wednesday had also defended a decision to appoint Seven Group‘s Ryan Stokes and Richard Richards to its board following criticism from investors John Wylie and Perpetual and also proxy advisers who complained about the disproportionate nature of Seven‘s influence compared to its shareholding and lack of transparency over contractual arrangements between the two companies.
Seven. which owns 19.9 per cent of Boral, had agreed to only appoint one director in Mr Stokes with Mr Richards to withdraw his nomination to the board.
“Seven Group Holdings has also indicated that it will withdraw its nomination of Richard Richards for election by shareholders as a director,” Boral said.
“The Board continues to believe that proportionate representation on the Board for significant shareholders (subject always to calibre and experience) is appropriate and appreciates the willingness of Seven Group to reduce its representation on the Board at this time, recognising that the position can be reconsidered once further Board renewal is undertaken.”
4.45pm: ASX closes higher on dovish RBA comments
Australia’s share market unexpectedly surged on a dovish speech from RBA Governor Philip Lowe at the Citi conference.
The S&P/ASX 200 index closed up 31 points or 0.5 per cent - its highest daily close in seven months - after rising as much as 1 per cent to a fresh seven-month intraday basis high of 6233.4.
That followed Dr Lowes hints at rate cuts and possibly quantitative easing as the economic outlook improves.
In response to Dr Lowe’s speech, CBA and RBC economists joined those predicting November rate cuts, with CBA, JPM and GS also predicting QE will start either in November or February.
Also helping sentiment, Australia’s official employment data beat estimates for a second month running, with jobs down 29,000 vs a 40,000 fall expected and the unemployment rate rising to 6.9pc versus 7pc expected.
Materials stocks benefited most as AUD/USD fell as much as 0.5pc to a 5-day low of 0.7124 as bond yields dropped, the 3-year hitting a record low of 0.121pc and 10’s hitting a 6-month low of 0.744pc.
Among heavyweight standouts, BHP rose 2.1pc, Rio Tinto rose 1pc, Fortescue rose 1.4pc, James Hardie gained 3.4pc, South32 jumped 1.9c and Santos gained 4pc as crude oil stayed up after jumping 2.1pc overnight.
Whitehaven Coal suged 12pc after stressing that it isn’t affected by any ban on Australian coal imports by China.
Banks also recovered from Tuesday’s underperformance, with CBA up 0.9pc as the index broke to the upside.
IDP Education dived 6pc after 40pc stakeholder Education Australia mulls options to realize capital from IDP due to the impact of COVID.
Bridget Carter 3.49pm: Medical groups snap up CSL execs
Australian medical groups are raiding the ranks of CSL – one of the country’s heavyweights in the biotechnology field – with Medical Developments International picking up Brent MacGregor and Gordon Naylor and Polynovo hiring Robyn Elliott.
Mr MacGregor will become chief executive of Medical Developments International, while Robyn Elliott a Polynovo director.
Mr Naylor and Mr MacGregor worked closely together at CSL.
Mr MacGregor joined Seqirus in 2015 as Senior Vice President for Commercial Operations.
Seqirus was formed that year from CSL’s acquisition of the Novartis influenza vaccines business and combining it with their own bioCSL operation.
Mr Naylor held a range of leadership roles at CSL, including chief financial officer, and this will be his first boardroom role after leaving the company.
A trained engineer, Mr Naylor also worked as president of influenza vaccine company Seqirus, leading a three-year turn-around of the business that became one of the most successful vaccine companies in the world.
Medical Developments International is an Australia-based healthcare company involved in the manufacture and distribution of a pharmaceutical drug, and medical and veterinary equipment.
Lachlan Moffet Gray 3.44pm: Crown should have been receptive to press coverage: inquiry
Ms Sharp is now enquiring about board papers from August and September 2020 that set out an agenda to address the issues raised through the course of the inquiry.
A subsequent note from CEO Ken Barton to members of the board in October of 2020 sets out the times by which he hopes the company will complete “various reforms.”
Ms Sharp highlighted a chart on the final page of the note that runs up to December 14 of this year, the proposed opening date of Barangaroo in Sydney.
The memo states that all the reforms outlined in the memo should be completed before the opening date.
Ms Sharp asked Ms Halton whether she considered this timetable to be “rushed.”
“Well I say to the proposition Ms Sharp that the joint programme has been in prospect and development for some considerable time,” Ms Halton replied, saying IT systems supporting the new changes have been rolled out and are running parallel alongside current systems to avoid risk of failure.
“This does not seem to me to be rushed.”
Ms Sharp stated she had no further questions for Ms Halton.
Commissioner Patricia Bergin spent some time asking Ms Halton about the concepts of suitability she encountered through her career as a public servant and when the ultimate opening date of the Barangaroo casino became a certainty.
“Has any thought been given to the proprietary or good sense, whichever you wish, in proceeding to open a casino at a time when there is an inquiry into the suitability of the licensee which is not due to conclude until the first of February?” Ms Bergin asked.
“Not that I’m aware of, commissioner,” Ms Halton replied.
Patricia Bergin finished by lecturing Ms Halton on how Crown should have been more receptive of press coverage of their junket problems and not hit back with an advertisement dismissing the reports.
“I have the impression that if you had your way, this advertisement would not have been published, with what you know now,” she said.
“Yes,” Ms Halton replied.
The inquiry was adjourned until tomorrow, where current Crown chairman Helen Coonan is due to give evidence.
Lachlan Moffet Gray 2.46pm: Crown currently has no ‘appetite for junkets’: Halton
Ms Halton has denied the email between Thieler and McGregor represented a broken culture at Crown regarding money laundering.
“I agree with you that the inquiry is tone deaf and not appropriate but in terms of explicitly being in respect of money laundering, I do not agree with that proposition,” she said.
Counsel assisting is now asking about Crown’s decision to suspend operations with junket operators until June next year and asked if it was due to past due diligence failures.
Crown did not operate the junket operators on suspension for months after the decision was made, but Ms Halton denied it made the suspension “ring hollow.”
Ms Sharp asked whether Ms Halton agreed that the board should decide which junket operators to partner with and decide the company’s risk appetite is, and what the board’s risk appetite towards junkets is.
“At the moment Ms Sharp, and, consistent I think with the terms of the risk appetite, we do not have an appetite for junkets - and that is represented by the fact we have suspended all those relationships,” Ms Halton said.
She said the board’s risk appetite for junkets was always clearly communicated towards management.
A copy of Crown’s current risk management strategy was shown that contains seven different risk categories - Ms Halton said she was attempting to, as head of the risk committee, redo the categories.
Ms Halton said going forward Crown’s risk appetite would be shaped by regulatory regimes.
“The risk appetite Ms Sharp is we do not have an appetite for dealing with junkets and we have an appetite for any regime going forward...and we would only consider dealing with any junket party if it could actually demonstrate it was consistent with the highest standards,” she said.
Ms Sharp is now attempting to establish what standard of proof Ms Halton thinks Crown requires to rule out dealing with a junket.
“It is not a criminal level of proof,” Ms Halton said, saying junket operators and regulators had to be engaged in the decision making process.
Fellow board member Andrew Demetriou earlier this week used lack of criminal conviction as a justification for Crown dealing with controversial junket identities.
Ms Halton said her conception of the standard of proof required came about in recent times, but it did not come about as a result of the inquiry.
She said she discussed the new standard of proof with current chairman Helen Coonan but not with the board.
Ms Sharp displayed a report on Suncity CEO Alvin Chau that Crown obtained in 2016.
The report states that Mr Chau “appears” to have been a member of the triad crime gangs and Ms Sharp asked if that was enough to rule him out.
Ms Halton said it was, and after being presented with further confidential reports with respect to his character Ms Halton was further insistent that Mr Chau was no longer someone Crown should be associated with.
She agreed with Ms Sharp that Crown’s risk statement should be summarised in: “When in doubt, rule it out,” or equivalent.
Commissioner Patrica Bergin said a “plain language” approach to risk management would be preferable to a jargon-heavy approach.
“I’m just wanting to understand why it is you can’t create a document that says one: we don’t break the law and two: if you do, you’re out?” she said.
Lachlan Moffet Gray 2.20pm: Halton ‘unaware’ of accounts review
The inquiry into Crown Resorts’ suitability to hold a casino licence in NSW has resumed with board member Jane Halton returning to give evidence.
Counsel assisting Naomi Sharp has also returned to question Ms Halton and began the afternoon’s session by displaying evidence given to the inquiry previously by Crown CEO Ken Barton where he states Crown should have undertaken a “comprehensive review” of bank accounts linked to Crown subsidiaries Southbank and Riverbank.
Mr Barton did say there was a comprehensive review to see if structuring occured in the accounts, but not in respect to money laundering activity.
Structuring is when cash transactions are split to avoid detection by regulators.
Ms Sharp has asked if a comprehensive review of the accounts had occurred since.
“I am not aware of that,” Ms Halton said, though she said Mr Barton told her about the structuring review in a general sense and did not know how comprehensive it actually was.
“He informed me he had looked back a number of years...and he informed me he had seen a number of cash transactions that he thought potentially represented structuring,” Ms Halton said.
Ms Sharp said that there were 102 examples of structuring identified, and asked Ms Halton if it was a “systemic” issue.
Ms Halton said it wasn’t systemic as Mr Barton informed her that the structuring was “concentrated in the earlier period” of the account’s life.
Ms Sharp then showed an email from Senior Vice President of International Business Rowland Thieler to CFO Alan McGregor from April of this year, after Commonwealth Bank closed the bank accounts linked to Southbank and Riverbank.
In the email, Mr Thieler proposes opening bank accounts with ANZ in Hong Kong to help the remittance processes.
Ms Sharp asked Ms Halton if this “rang any alarm bells.”
“Yes...Mr Thieler clearly hasn’t got the message,” Ms Halton said.
Ms Sharp asked Ms Halton if she was concerned Mr McGregor did not appear to express discomfort with the proposal.
Ms Halton said she would expect Mr McGregor to express discomfort, and agreed that Mr McGregor also did not get the message.
2.05pm: Dollar falls amid rate cut predictions
The Australian dollar hit a five-day low of 0.7124, down as much as 0.5pc since the NY close.
A dovish speech from RBA Governor Philip Lowe has reinforced expectations of further policy easing.
CBA joined the consensus, calling for November rate cuts, while also predicting QE.
RBC brought its rate cut expectation forward to November from February.
And JPM now predicts the RBA to start QE in February, targeting a $75bn-$100bn program over one year, focussed on the long end of the bond yield curve.
The increase in QE predictions is the biggest change, so while the 3-year bond yield fell 3bps to a record low of 0.121bp, the 10-year dropped 8.9bps to a 6-month low of 0.749bps.
The 3-10 year spread hit a 7-week low of 61.17bp.
1.50pm: J.P. Morgan expects RBA to hold rates
J.P. Morgan Australia senior economist Tom Kennedy has joined calls for more RBA easing.
“Today’s speech by RBA Governor Lowe marked another dovish shift by the central bank and expressed a growing preference to provide further support to the economy”, he says.
“Following these remarks, we now expect the RBA to embark on a quantity-based QE program focused on both Commonwealth and State Government debt commencing in February.
Our expectation is for a program size of $75 billion-$100 billion over one year, implying weekly average purchases of between $1.4 billion-$2 billion.”
Mr Kennedy also flags the risk of an earlier announcement in November, but says that “leaves limited time for the RBA to determine the appropriate modalities of any QE program.”
He also notes that the Governor’s speech deemphasized short-end rates, with the focus clearly on QE and how lower longer-dated bond yields would affect the economic recovery.
Thus he expects the RBA to maintain its current cash rate and 3-year bond and term funding facility rate targets at 25 basis points.
Mackenzie Scott 1.47pm: ‘Fiscal cliff’ unlikely to eventuate: REIA
Head of the Real Estate Institute of Australia, Adrian Kelly, says the fire sale of residential property as a result of mortgage deferrals looks increasingly unlikely as loan repayments resume.
Almost half of all deferred mortgages and small business loans are now being repaid, according to an announcement from the Australian Banking Association today.
It is a “promising sign” for the property industry, said REIA president Mr Kelly. He suggests the anticipated “fiscal cliff” is unlikely to eventuate - a good sign for the broader economy.
“The resumption of repayments in about half the cases is an encouraging sign that mortgagees will not be facing a cliff that some anticipated a few months ago,” Mr Kelly said.
“The banks’ commitment to working with customers is welcomed, and suggests fire sales will be an absolute last resort as the recovery commences.”
A number of factors are yet to play out in the Australian property market, with the industry head insisting support is still needed for homeowners and tenants to whether the crisis.
“In June 2020 in excess of 80 per cent of Australian real estate professionals had identified the need to extend JobKeeper, JobSeeker and rental support,” Mr Kelly said
“The continuance of support programs for property owners and tenants will be critically important as they will be relying on it for mortgage restarts.”
Lilly Vitorovich 1.23pm: HT&E no longer eligible for JobKeeper
HT&E shares have jumped 5.9 per cent to $1.52 after the owner of radio stations KIIS and Pure Gold says it won’t be eligible for ongoing financial support under the extended JobKeeper program following an improvement in trading conditions.
In a brief trading update, the company says its radio business ARN “experienced improved trading conditions relative to the previous quarter” with total revenue down 22.5 per cent for the three months to September from the same period a year earlier.
That’s ahead of the broader metropolitan radio market, which was down more than 28 per cent in the third quarter of 2020.
Chief executive Ciaran Davis says ARN’s trading is “encouraging” as it continues to gain commercial market share.
“The actions we have taken across the business this year have placed the company in a strong position to enhance our leadership as both the No 1 national radio network and podcast publisher in Australia,” he said.
The trading update is in contrast to that issued by rival Southern Cross Media, which owns Triple M and Hit radio stations, last week.
Southern Cross said it expects to receive around $12m in Jobkeeper 2.0 payments, taking its total federal government funding support to $28m during the coronavirus crisis.
“The eligibility test requiring revenues to be more than 30 per cent below the prior comparative period was met in the September quarter,” Southern Cross said last Thursday.
HT&E said early trading for the remainder of the 4Q is “encouraging” with the possibility of further improvement on the previous quarter’s result should current coronavirus restrictions in Melbourne continue to ease and other key metro markets remain unchanged.
Cliona O’Dowd 1.03pm: Perpetual moves to reassure shareholders
Wealth manager Perpetual has told shareholders it is committed to its active value investing approach and is not having a “Kodak moment”, as it sought to reassure investors on the outlook for the company and its dividend policy following a disappointing performance in the 2020 financial year.
Addressing shareholders at the company’s annual general meeting on Thursday, Perpetual chairman Tony D’Aloisio said the investment house was still focused on its Australian business despite seeking growth through overseas acquisitions.
“Our fundamental approach as a value manager for the investment business has not changed. We will always be true to label and remain consistent with our proven discipline and highly regarded approach to value investing, which has delivered value over the long term,” Mr D’Aloisio said.
“While growth stocks have had a sustained period of outperforming value stocks, we remain confident that our proven investment approach, which has added substantial value to our clients over the last 50 years, will return to a period of outperformance as the economic cycles evolve. And we do not think that we’re looking at any sort of Kodak moment.”
Perpetual last up 1.7pc at $30.10.
Lachlan Moffet Gray 12.57pm: $5.6m found behind desk at casino
Counsel assisting Naomi Sharp has raised a December 2019 board briefing on Crown’s VIP business, which outlines foreign capital controls and “bank account closures” as “threats” to the growth of the business.
This document was produced for Professor John Horvath yesterday, where Counsel grilled him on whether he thought the review considered anti-money laundering controls and the closure of Crown bank accounts by the Commonwealth Bank due to money laundering concerns, as “threats.”
The same was asked as Ms Halton, and she said at the time she did not interpret the document in that manner, but that she now agrees the document appears to be “infelicitous.”
Ms Sharp then raised evidence also displayed yesterday, showing that junket Suncity ignored orders from CLO Joshua Preston in 2018 to stop counting money at the Suncity desk.
On one audit of the Suncity room at the Melbourne casino, $5.6m was found behind the desk.
Ms Halton said she was concerned she was never informed about this, despite joining the board after the incident.
She also said she was not aware that Austrac sought justification from Crown about why they continued to associate with Suncity boss Alvin Chau despite his links to organised crime.
Commissioner Patricia Bergin asked Ms Halton if she thought Mr Preston’s position was too burdensome, and whether any future review conducted by Crown would look at the manageability of responsibilities demanded by his position.
Ms Halton agreed.
Counsel assisting Naomi Sharp has proceeded to ask Ms Halton about whether she was aware that hundreds of millions of dollars moved through the accounts of Crown subsidiaries, Southbank and Riverbank pty ltd.
Ms Halton said she came aware of this through the inquiry but denied the fact the accounts were not monitored constituted Crown “turning a blind eye” towards money laundering.
“I actually believe it was an absence of competence and oversight,” Ms Halton said.
Ms Halton said that she was not made aware by then-CFO Ken Barton that he attempted to prevent Commonwealth Bank from closing the accounts over money-laundering concerns, but said that she still had confidence in him.
“Yes, Ms Sharp, I believe there are a number of issues that need to be discussed in relation to appropriate reporting going forward and judgement about those matters, but yes, I do have confidence in Mr Barton,” she said.
The inquiry adjourned for lunch.
Perry Williams 12.42pm: Alcoa in talks to over future of Portland smelter
The owner of Victoria’s under pressure Portland aluminium smelter is in talks with the Morrison government over a deal to “repower” the facility amid ongoing uncertainty over its future.
Alcoa, which has already approached Australia’s biggest electricity suppliers to tender for the power contract, said it was locked in discussions as concern grows the smelter could be forced to shut its doors next year.
“We are in the midst of discussions with the Australian government repower the facility and we‘ll then be making decisions as we move forward on that, but I would just reassure you that we are hard at work,” Alcoa chief executive Roy Harvey said after delivering its third quarter earnings on Thursday.
Both Alcoa and Australian-listed Alumina — which jointly own 55 per cent of the smelter on Victoria’s southwest coast, with China’s Citic and Japan’s Marubeni owning the rest — have said a new power deal is the key to keeping Portland open ahead of the expiry of the AGL contract and rolling subsidy deals from the Victorian and federal government in 2021.
Portland’s future under Alcoa’s ownership rests on the negotiation of a new and cheaper power contract, complicated by the fact it takes most of its power from Victoria’s brown coal generators and Alcoa also wants to reduce its global carbon footprint.
The Alcoa boss said the company was focused on “how we can really drive our portfolio in particularly in the aluminum segment and to a certain extent also the alumina portfolio [to] make sure that they are both very low cost and also very green and very low carbon.”
Alcoa last year announced a global portfolio review aimed at shutting loss-making parts of its global operations. Market observers suggested Portland would be included in the review, although Alcoa has not named individual assets and on Thursday said that strategy was designed to allow facilities to remain open, close or be sold.
Lachlan Moffet Gray 12.36pm: Halton admits she felt ‘let down’ by Crown execs
Ms Sharp has pressed Ms Halton on the issue of Crown’s official rebuttal to media allegations and asked whether she understood it was not factual in several respects.
“I understand that there is an error in the release,” Ms Halton said.
“Just that one error?” Ms Sharp replied.
Ms Sharp pointed out that there were more than just one error in the release, such as the assertion Crown only maintained a business relationship with one junket featured in the reports and that Crown did not “partner” with junkets.
Despite James Packer telling the inquiry that Crown did have an “economic partnership” with junkets due to a revenue sharing relationship with Suncity, Ms Halton said she did not agree with that definition of “partner”.
After being shown internal Crown materials that refer to junkets as “partners”, Ms Halton still did not change her answer, saying a partner is an “equal” and that she considered junkets to be more of a tenant.
However, Ms Halton did say she accepted the assertion that Crown had a “robust” vetting procedure relating to junkets was broadly incorrect in hindsight.
“There was a process that was robust commissioner - it could have been better,” Ms Halton said.
Ms Sharp asked Ms Halton if she felt she was let down by management due to the quality of the information they provided her with prior to signing the advertisement.
“Yes,” Ms Halton said, singling out chief legal officer Joshua Preston and Australian Resorts CEO Barry Felstead.
“They’re the principle people,” Ms Halton said, saying she felt let down “because I think the number of assurances and facts as they were presented were proven not to be reliable.”
Ms Sharp asked if she had confidence in Mr Preston, Felstead and Barton going forward.
Ms Halton said she only had confidence in Mr Barton.
Ms Sharp then mentioned a September 2020 board paper where a proposition was put forward that Mr Preston and Mr Felstead’s positions be removed, but was not voted on.
She asked whether there had been any developments since that meeting.
“Yes, my understanding is that there are discussions about that matter,” she said.
“My understanding is the question is in relation to the position of those two individuals in the company going forward.”
Ms Halton said she lost confidence in the pair throughout the course of the inquiry.
12.29pm: Bubs shares drop despite sales lift
Shares in Bubs have dropped 0.6 per cent despite the infant formula producer telling shareholders that even with a major decline from individual Daigou retail sales, its first quarter domestic sales for total infant formula lifted 29 per cent on the prior period.
In an investor presentation at the Citi Investor Conference today, the company said it managed to successfully lift its recommended retail price during the September to $38, up from $35 previously.
Bubs shares last down 0.6 per cent at 78c.
Robyn Ironside 12.18pm: Hrdlicka set to replace Scurrah at Virgin
Virgin Australia CEO Paul Scurrah will leave the airline once the sale to Bain Capital is complete, with former Jetstar CEO Jayne Hrdlicka to replace him.
An announcement to the ASX on Thursday followed days of intense speculation about Mr Scurrah’s future, after reports of a falling out with the new owners over the airline’s market position.
Ms Hrdlicka acted as an adviser to Bain Capital throughout the sale process.
She arrived in Brisbane just over a fortnight ago and completed her quarantine period on Monday.
In the later stages of the sale process Bain backed Mr Scurrah and his vision for Virgin Australia, committing to the retention of business class and lounges, as well as at least 6000 of the 9000 employees.
12.05pm: Surprise ASX surge as RBA flags rate cuts
Australia’s share market unexpectedly surged on a dovish speech from RBA Governor Philip Lowe which appeared to set the scene for a November rate cut.
The S&P/ASX 200 rose as much as 53 points or 0.9pc to a fresh seven-month high of 6231.5 as Dr Lowe hinted at rate cuts and possibly QE even as the economic outlook improves.
Australia’s official employment data beat estimates for a second month running, with jobs down 29,000 vs a 40,000 fall expected and the unemployment rate rising to 6.9pc vs 7pc expected.
In response to Dr Lowe’s speech, CBA and RBC economists joined those predicting November rate cuts, with CBA also predicting QE next month.
Materials stocks benefited most as AUD/USD fell as much as 0.4pc to a 5-day low of 0.7129 as bond yields dropped, the 3-year hitting a record low of 0.121pc and 10’s hitting a 6-month low of 0.749pc.
Among heavyweight standouts, BHP rose 2.8pc, Rio Tinto rose 1.6pc, Fortescue rose 1.9pc, James Hardie gained 2.4pc, South32 jumped 3.1pc and Santos gained 3pc as crude oil stayed up after jumping 2.1pc overnight.
Whitehaven Coal suged 9.5pc after stressing that it isn’t affected by any ban on Australian coal imports by China.
Banks also recovered from Tuesday’s underperformance, the four majors rising 0.5-1.3pc as the index broke to the upside.
IDP Education dived 8.3pc after 40pc stakeholder Education Australia mulls options to realize capital from IDP due to the impact of COVID.
The technical outlook for the local market is improving rapidly, with 6215 now potentially holding for a test of 6245 and record highs possible in the next few months.
12.01am: Virgin CEO Scurrah to step down
Virgin Australia says CEO Paul Scurrah is to step down, amid speculation about the form the rescued airline will take.
Virgin says he will step down at financial close of the sale transaction to new owner Bain Capital, expected early November, Virgin said in a statement.
Mr Scurrah will remain as CEO until the completion of the Deeds of Company Arrangements and handover of the business to Bain Capital, the statement said.
In addition to the exit of Mr Scurrah, the airline’s new owner Bain Captial confirmed former Qantas executive Jayne Hrdlicka will be appointed in the role once the transaction is complete, in early November.
Prior to doing a stint at A2 Milk, Hrdlicka was known for her role in overseeing Qantas’ Jetstar business.
“Jayne has strong aviation credentials. She is very focused on seeing the business succeed and I wish Virgin Australia well under her leadership.” Bain Capital Managing Director, Mike Murphy said in a statement.
Lachlan Moffet Gray 11.44am: Halton quizzed on knowledge of junkets
Returning to the AGM, Mr Bell asked Ms Halton whether it occurred to her that Mr Barton omitted telling the shareholders about the existence of the shareholder protocol with Mr Packer.
“At the time that did not enter my mind, Mr Bell,” Ms Halton said.
Mr Bell asked if she thought it was appropriate shareholders were not told the whole truth.
“On reflection Mr Bell, it occurs to me, yes, that answer could have been and should have been more complete,” Ms Halton replied.
A short adjournment was called so that Counsel assisting Naomi Sharp could replace Mr Bell.
Ms Sharp began by asking Ms Halton about the due diligence she went through prior to joining the board and whether she came aware of the existence of junkets and what she learnt about them.
“That junkets were an established part of the casino industry, and there were vulnerabilities in respect to junkets,” Ms Halton said, explaining that the vulnerabilities related to money-laundering and organised crimes.
However, she said she didn’t understand at the time that most of the junkets Crown were dealing with were in Macau specifically.
“I think I understood there to be a predominance of Chinese junkets,” she said.
Ms Sharp asked Ms Halton if she tried to further learn about anti money laundering practices when she joined the board.
“A number, firstly I took advice from a number of bodies I referred to in my answer to the commissioner yesterday, I talked also to the staff in relation to a number of things they were concerned about,” Ms Halton said, adding that she also read the regulation governing anti-money-laundering.
Ms Halton also completed the Crown AML course within the last few weeks.
Ms Sharp asked if the international VIP business had been an important segment of the business since she joined the board
Ms Halton said it was, but clarified: “It has been a diminishing component of the business”.
Counsel assisting Naomi Sharp asked Ms Halton if she ever received briefings on the VIP business.
“I received briefings on the operations of the VIP business from staff inside the business...It would be Mr Felstead, Mr Barton and Mr Preston, from memory,” Ms Halton replied.
Ms Sharp asked Ms Halton if she was aware of any of the money laundering concerns with the VIP business that were raised by the 60 Minutes programme on the issue.
“I was aware of, for example, the issues in relation to cash - I had been informed about those issues and I had also been informed about the steps that had been taken by the business to address (them),” Ms Halton replied.
“I was informed that the processes had been changed in two - I think it’s three respects - but again my memory has already been proven to be fragile, Ms Sharp.”
Ms Sharp then asked if it was right Ms Halton had concerns by the time of July 10 last year whether some senior executives had not conveyed to the board risks associated with the VIP business.
“I understood at that point that we were being provided with information, Ms Sharp,” Ms Halton replied, explaining that it was more of a historical problem.
Ms Sharp asked Ms Halton if she talked to other people at Crown following the 60 Minutes programme, which revealed that tens of thousands of internal documents had been leaked.
Ms Halton said she talked to chief legal officer Joshua Preston, CEO Ken Barton, board member John Horvath and potentially Company Secretary Mary Manos about the leaked documents.
“What I asked for from those executives was additional information in relation to our current processes, etcetera, I also asked what they believed was contained in those documents,” Ms Halton said.
Ms Sharp asked Ms Halton if she felt pressured to sign a board rebuttal to the allegations in the 60 Minutes programme that was later proved to be incorrect in many respects.
Ms Halton said she felt pressure from then executive chairman John Alexander and “some others” on the board, though she did not name them, and said pressure did not emanate specifically from the CPH board members.
“A couple of independent directors that were probably as strong on this issue as others,” Ms Halton said.
She also said that in hindsight, she wouldn’t have signed the rebuttal.
“I would have chosen a different mechanism for communication,” she said.
11.35am: Jobs figures beat forecasts again
Australia’s official jobs data have beaten expectations for the second month running.
Jobs fell “just” 29,500, which was much less than an expected 40,000 fall, after a surprising 111,000 gain in August.
With the participation rate staying at 64.8pc, the unemployment rate edged up to 6.9pc from 6.8pc but was lower than a 7pc rise expected.
Full time jobs fell 20,100, while part time jobs fell by 9,400.
11.31am: Jobless rate rises to 6.9pc
Australia’s unemployment rate in September rose to 6.9 per cent, the Australian Bureau of Statistics says, after a surprise fall to 6.8 per cent in August.
Jobs fell 29,500, beating expectations for a fall of 40,000. Analysts had predicted a rise in unemployment to 7pc.
It follows surprisingly strong August data where jobs rose 111,000 and the unemployment rate fell to 6.8pc.
11.28am: RBA to cut in November: CBA
CBA now predicts the RBA will cut rates and start QE in November.
“We expect the RBA to ease monetary policy further at the November 3 2020 meeting,” says CBA senior economist Kristina Clifton.
“Additional bond purchases to lower 5 to 10 year government bond yields also look to be likely from November too.
RBA Governor Lowe has “made it very clear that we can expect to see more monetary policy easing from the RBA”.
“We now think this easing will begin in November,” Ms Clifton says.
RBC chief economist Su-Lin Ong also now expects the RBA to cut rates in November.
“Further easing is likely sooner rather than later especially given market pricing,” she says.
“We bring forward our Feb base case for a cut in the overnight rate, 3y yield target and term funding facility rate to 0.1 per cent from 0.25 per cent which was premised on a more challenging first half supporting further easing. The RBA looks prepared to get ahead of this.”
She also says a QE program of longer dated bonds will also be “discussed” at the Nov meeting.
“Governor Lowe’s pointed comments in the Q&A session suggest that it is only a matter of time before specific quantities of bonds are purchased under a QE program.”
11.15am: Jobless rate tipped to rise
Official employment data for September are due at 11.30am.
Bloomberg’s consensus estimates are for a 40,000 fall in jobs and 7pc unemployment rate.
That follows surprisingly strong August data where jobs rose 111,000 and the unemployment rate fell to 6.8pc.
11.09am: RBA makes case for November rate cut: ANZ
RBA governor Lowe has made the case for further easing in November, even as the economic outlook improves, according to ANZ’s head of Australian Economics, David Plank.
In his speech today, Dr Lowe said: “When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing.
“The solutions to the problems the country faced lay elsewhere. As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.”
Mr Plank says this answers the question of why the RBA has been signalling over recent communication that it is actively looking at additional policy steps even as the outlook improves.
“With the RBA Board seeing, ‘addressing the high rate of unemployment as an important national priority’, we think it points to a rate cut of 15bp to 0.1 per cent taking place in November,” he says.
And a move to ‘pure’ QE is “actively being considered”, according to ANZ’s Mr Plank.
“Our balance sheet has increased considerably since March, but larger increases have occurred in other countries,” Dr Lowe said.
“We are considering the implications of this as we work through our own options.”
In Q&A, Dr Lowe also said the RBA is trying to work out if the fact that Australian 10-year yields are among the highest in the world is due to the lack of RBA buying since March.
Mr Plank also says Dr Lowe gave important clarity on forward guidance today.
“Lowe has made it explicit that actual inflation will need to be sustainably within the 2-3 per cent target band before interest rates are increased,” he said.
“Given we are a long way from a ‘tight labour market’, this is not likely to be for some time.”
Lachlan Moffet Gray 10.43am: Halton denies ‘untruthful’ evidence
Crown director Jane Halton has rejected assertions she gave untruthful evidence to the inquiry examining the casino giant’s NSW licence.
Counsel assisting Adam Bell asked Ms Halton if she wanted to withdraw evidence she gave to the inquiry yesterday where she stated she wasn’t aware prior to approving the rebuttal by the Crown resorts board that the allegations made by the media included allegations Crown failed to heed warnings by the Chinese government.
Yesterday Ms Halton stated she was not aware but today she confirmed that she read and comprehended the media articles prior to approving the advertisement.
Ms Halton did not withdraw her earlier evidence.
“The language you used was in relation to warnings from the Chinese government,” she told Mr Bell.
“I didn’t apprehend in terms of what I understood from the media articles that there was a specific warning from the Chinese government to Crown.”
Mr Bell hit back strongly.
“You’re playing semantics, because you know you gave untruthful evidence to the commission yesterday, is that correct?” he said.
“No that is not correct,” Ms Halton replied.
Mr Bell then read sections of the media reports that showed Crown, prior to the arrest of their staff, attempted to make it appear that their staff in China were temporary visitors who worked offshore.
He then read Ms Halton evidence she gave yesterday stating that she did not become aware of this until the inquiry was underway and asked how that could be true when she watched the media report at the time of its release.
“Well - I think I have already indicated to you, I think in terms of my memory of every single detail here...is that I didn’t want to mislead you in what I remembered,” Ms Halton replied.
“To say that I was aware of this, I will be honest with you in this particular detail, I do not have a memory of it.
“It is plausible that when I read this, I should have remembered it...for that, I apologise.”
Mr Bell is now drawing Ms Halton to evidence she gave yesterday where she said she was not aware of any specific review of the risk management failures that led to the China arrests.
Yesterday Ms Halton said that such a review conducted in the present may not have utility due to the passage of time, even though at least three executives working at Crown at the time of the arrests are still with the company.
Mr Bell asked again whether she thought there was utility in such a review.
“There is utility, yes there is,” Ms Halton said.
Mr Bell then proceeded to play a recording of activist investor Stephen Mayne asking the independent directors at last year’s Crown AGM about what type of information James Packer is receiving.
Then-CFO Ken Barton replied that Mr Packer received information through the services agreement Crown has with Mr Packer’s private company CPH, but neglected to mention a separate shareholder protocol which allowed Mr Packer to ask for company information at leisure.
Mr Bell asked Ms Halton why she didn’t interject to answer the question in full, given she was an independent director and had knowledge of the shareholder protocol.
Ms Halton replied that she did not know about the shareholder protocol.
“In fact I said I did not know he was being given information, Mr Bell, I was very clear about it,” she said.
Mr Bell then read from yesterday’s transcript that demonstrated Ms Halton was aware of the protocol, but claimed specifically not to know that information was being shared under it - only that she could assume that was the case.
“You did expect, didn’t you, that Mr Packer would be given confidential information on a regular basis...didn’t you?” Mr Bell asked.
“No I did not,” Ms Halton replied before Commissioner Bergin interjected to say that she did communicate such an understanding yesterday.
Ms Halton maintained that she understood the question to mean something different - that she would have been expected to be “told” that information was being shared with Mr Packer, not that she merely expected that information was being provided.
Ms Bergin asked again that she would have expected information to be given and received, given she knew the protocol existed.
“I would have expected intermittent and not very frequent information Commissioner,” Ms Halton responded before Ms Begin, exasperated, asked the question again.
“Under the agreement, it provided for that commissioner, that is correct,” Ms Halton said.
10.41am: Big volumes behind ASX rise
There was obviously some large scale buying behind the renewed strength in Australian shares this morning because share trading value for this time of day is 18pc above the 20-day average.
The S&P/ASX 200 rose as much as 0.6pc to a fresh seven-month high of 6215.9 with offshore income earners surging as AUD/USD hit a 5-day low on a dovish speech from RBA governor Philip Lowe.
Miners are doing most of the heavy lifting with BHP up 3.5pc, Rio Tinto up 2.3pc, Fortescue up 1.8pc and South32 up2.6pc.
Ben Wilmot 10.36am: Lendlease nears Melbourne tunnel deal
Lendlease and its partners on the $11bn Metro Rail Tunnel could be close to putting the costly project behind them with reports that Victorian taxpayers will fork out between $1.5bn and $2bn for the Andrews Government’s signature rail project after a deal was struck to share the cost of blowouts.
The Herald Sun reported that the consortium building the tunnel, which will create a new underground link from South Yarra to Kensington via the CBD, has struck a deal with the government to cover the project’s issues.
Lendlease comprises one-third of the $6bn Cross Yarra Partnership, alongside John Holland, Bouygues Construction and Capella Capital.
Macquarie analysts Stuart McLean and Caleb Wheatley said the impact for Lendlease was not yet clear. Lendlease recognised $525m of exit costs on the sale of its engineering and services division, and the analysts anticipate the majority of these to be in relation to Melbourne Metro.
If the Victorian government’s additional cost was $1.5bn and the consortium’s share of total overruns was 20 per cent, Lendlease’s contribution would be $124m. A bear scenario could see the builder’s contribution soar to $660m.
But Macquarie said this bear scenario appears unlikely, with provisions recognised already “likely sufficient”.
“While a deal is yet to be announced, we believe the quantum of additional payments by the Victorian government is a positive indicator that Lendlease’s current provisions are likely to be sufficient and any downside [is] likely less than $150m,” Macquarie said.
Lachlan Moffet Gray 10.32am: Crown inquiry resumes
The NSW Independent Liquor and Gaming Authority’s inquiry into the suitability of Crown Resorts in holding a casino license has resumed with board member Jane Halton returning to the stand to give evidence.
The line of questioning fielded so far by Ms Halton has concerned her knowledge of material steps Crown is taking to rectify risk management process failures that led to events such as the 2016 arrest of 19 Crown employees in China in 2016, where they were accused of illegally promoting gambling.
Counsel assisting Adam Bell will be questioning Ms Halton again today, and has commenced by asking her whether she believes directors should be truthful at all times, before displaying a statement Ms Halton made following media reports on Crown last year.
Within the statement Ms Halton declares she watched the 60 Minutes programme reporting on Crown’s junket dealings and read associating media coverage.
Mr Bell pointed to sections of the media coverage that highlighted the fact Crown should have been well aware of the growing risk to their staff in China.
Earlier the inquiry heard that numerous crown executives were aware of the risks but apparently failed to communicate them to the board at large.
Ms Halton was not a board member at that time, but yesterday she told the inquiry that she investigated the issue as part of her due diligence before joining the board.
Mr Bell asked Ms Halton if she was concerned about the media revelations, to which Ms Halton replied she was.
Mr Bell then displayed a Crown board of directors an advertised rebuttal to the media allegations which Ms Halton authorised which described the media reports as a “deceitful campaign” and suggested that whistleblower and Crown China employee Jenny Jiang may have been paid for her testimony, potentially clouding her objectivity.
Mr Bell put to Ms Halton that the advertisement did not capture Ms Halton’s true concern over the reports.
“Mr Bell - that is correct, Mr Bell,” she replied.
Mr Bell then stated this shows the advertisement was, “neither completely truthful or completely accurate”.
“No I don’t Mr Bell, I actually think that is a step too far,” Ms Halton said.
Commissioner Patricia Bergin noted that it was perhaps not practical for the board to expect Ms Jiang, who had been arrested in China in 2016, to be objective.
“It’s a little rich to expect objectivity isn’t it from a young woman who has been jailed,” she said.
Ms Haton agreed and said the original draft of the advertisement was even harsher towards Ms Jiang.
“The original draft of this announcement had a language that I considered to be completely inflammatory...towards Ms Jiang,” she said.
Ms Halton said that Guy Jalland pushed for the original language to be used while Ms Halton was against it.
Bridget Carter 10.28am: Uniti Group makes bid for Opticomm
Uniti Group has lobbed a rival proposal to buy Opticomm, matching Aware Super’s $6.50 per share bid for the company on Monday.
The move was highly anticipated, as flagged by DataRoom on Thursday.
Uniti had three days to match an earlier offer by Aware Super, which expired on Thursday.
Aware Super, formerly First State Super, launched a $6.50-a-share bid for Opticomm on Monday, valuing the company at $645m and trumping a $5.85-a-share bid by Uniti.
The latest Uniti offer will amount to about $6.67 per share and will involve cash and scrip.
Opticomm shareholders will be offered $5.20 cash, less a 10c dividend if declared, and 1.07 Uniti shares for each OptiComm share.
The additional costs to buying Opticomm will be funded through a $40m increase in Uniti’s committed debt facilities and an additional 26 million Uniti shares to be issued to OptiComm shareholders.
The upsized $290m debt facility is with Westpac and CBA.
Uniti’s takeover via a scheme of arrangement will also be funded through existing cash on the balance sheet.
Uniti shareholders will own about 82.5 per cent of the combined group following the proposed deal.
The company already owns a 6 per cent interest in Opticomm shares and has entered into call option agreements to buy an additional 13.5 per cent of OptiComm .
10.19am: ASX rises early, dollar falls
Australia’s share market has surprised investors with an early rise.
The S&P/ASX 200 rose 0.5pc to 6207 despite a 0.2pc fall indicated by overnight futures relative to fair value.
It came as rate cut speculation picked up with RBA Governor Lowe’s speech and Q&A at the Citi conference.
The Australian dollar fell 0.5pc to a five-day low of 0.7129 and Australia’s 3-year bond yield fell almost 3 basis points to a record low of 0.12pc after a dovish speech from Dr Lowe.
Offshore income earners seem to be benefiting from consequent downward pressure on the currency, with BHP up 2pc, CSL up 1pc, James Hardie up 1.9pc, Newcrest up 1pc and Bluescope up 2pc.
Tech, Financials, Real Estate, Consumer Discretionary and Communications are the main laggards, with Afterpay down 1.7pc, Magellan down 0.9pc, and Goodman down 0.9pc
IDP Education fell 6.7pc as 40pc stakeholder Education Australia mulls options to realize capital from IDP due to the impact of COVID.
10.11am: Macquarie downgrades Bank of Queensland
Macquarie analysts have downgraded their recommendation on Bank of Queensland, saying that following its recent re-rating, they no long see relative value in the stock.
The analysts said that while the bank delivered a small full-year earnings beat this week, the volume growth required to meet its guidance appears unlikely.
They also said that the impact of lower rates continues to impact Bank of Queensland’s margins, which Macquarie estimated could cost the bank $50m in revenue over the next three years.
“BOQ continued to lose market share in the second-half of 2020 and in order to arrest weaker revenue performance will need to turn around ongoing underperformance in the core franchise, which is likely to come at expense of margins,” the analysts said.
10.03am: No decision on rate cuts: RBA
The Reserve Bank of Australia may cut interest rates further and deploy a bigger bond buying program over time, but Governor Philip Lowe has indicated there’s no rush, highlighting the role that government spending is now doing to drive the economic recovery.
“We are committed to do what we reasonably can, with the tools we have, to support the recovery of the Australian economy,” Mr. Lowe told an investment conference.
Dr Lowe welcomed the government’s big spending 2020-21 federal budget published earlier this month , saying it contained what’s needed to lift employment and support economic recovery over time. He also welcomed structural reforms contained in the budget.
The board has taken no decision to cut interest rates yet, he added.
Dow Jones Newswires
Nick Evans 9.55am: Whitehaven touts strong demand
Whitehaven Coal says it is negotiating relief from lending covenants with its bankers to give it additional “headroom” amid a market slump and tough times for Australian coal producers.
Whitehaven released its quarterly production report on Thursday, saying demand from its Asian customers had remained strong despite a slump in the price of both its metallurgical and thermal coal products.
The coal miner is not heavily exposed to Chinese markets, and sells no thermal to China’s power stations. The company said it had no confirmation of reports China could have put in place bans on Australian coal products.
“There has not been any official confirmation by the Chinese authorities on these newly reported coal import restrictions nor have there been any announcements of changes to the annual coal import quotas. Chinese steel production and steel pricing has risen strongly since the end of Golden Week,” Whitehaven said.
“Despite the ongoing Chinese coal import uncertainties, coal demand from India is strong and hot metal production in the country is higher year on year which is expected to support metallurgical coal demand, industrial activity and coal prices across Asia.”
But the coal price slump still hit the company hard in the September quarter, with average prices for both its energy coal and metallurgical coal products well down on the previous period.
Whitehaven received an average $US52/t for its thermal coal sales for the period, down from $US59/t in the June quarter, with metallurgical coal prices down an average $US3/t to $US73/t.
The company said it is seeking relief from financial covenants in its lending arrangements to ensure it has the headroom to get through the worst of the coal price slump.
9.51am: RBA ‘trying to understand’ bond yields
Answering a question on what the shape of any “proper” QE program in Australia might look like, RBA governor Philiip Lowe told a conference the RBA is trying to understand why Australia’s 10-year bond yield is “higher than almost every other country.”
He said the RBA is trying to work out if this is due to the fact that it hasn’t bought any 10 year AGCS since March whereas other countries have.
The implication is that if the RBA were to come to that conclusion, it might be more inclined to start its own full-blown QE program.
AUD/USD fell on this, hitting a 5-day low of 0.7129, to be down as much as 0.4pc since the NY close.
A retest of the 100-day moving average - now at 0.7094 - beckons.
Patrick Commins 9.35am: Rate hike prospects fade
The prospect of rate hikes have dwindled even further into the future, after Reserve Bank governor Philip Lowe announced the central bank will only move rates higher when the bank’s inflation and unemployment goals are met now, rather than within its forecast 2-3 year time horizon.
“The board will not be increasing the cash rate until actual inflation is sustainably within the target range,” Dr Lowe said. “It is not enough for inflation to be forecast to be in the target range.”
Dr Lowe said he had largely given up trying to set monetary policy according to where he believed inflation will be in the future, abandoning a multi-decade approach to managing the rate cycle that only made sense when “the inflation dynamics were relatively stable and well understood”.
In a speech in Sydney at the Citi Investment conference, Dr Lowe also said “we want to see more than just ‘progress towards full employment”.
The announcement represents a significant change from changing policy based on the expected achievement of those goals within its 2-3 year horizon.
9.32am: Health situation key to spending: RBA
RBA Governor Philip Lowe tells the Citi Australia & NZ investment conference that the health situation in regard to coronavirus will be key to whether people use their savings buffers to boost their spending in the December quarter, even as household income is likely to fall.
“It’s entirely possible that as restrictions ease further people draw on their cash buffers to increase their spending,” he says.
“The better outcome for the economy is for businesses and households to keep spending.
“The key is the health situation. If people are nervous about the health situation and jobs, they will tend to sit on their savings (and vice versa).
“There are likely to be large returns on first class testing and contact tracing.”
He also notes that various measures in the budget will help aggregate demand and reinforce what he expects to be an improving health situation.
AUD/USD continues to drift lower on his dovish signals on monetary policy.
AUD/USD is currently at 0.7155, near the recent low of 0.7150.
9.28am: The Australian’s Walkley business finalists
The Australian’s Jared Lynch and Nick Evans have been named as finalists in this year’s Walkley Award for Business Journalism for their story “ACCC probes Rio Tinto’s supplier rort”, published in January this year.
The exclusive story revealed that Rio Tinto was pushing thousands of its suppliers to discount their bills if they wanted to be paid on time, sparking an investigation by the competition watchdog.
The pair are up against the AFR’s Michael Roddan, formerly of The Australian, who has been named a finalist for his story uncovering a sexual harassment scandal at AMP; and Adele Ferguson, Lesley Robinson and Lauren Day, for their ABC Four Corners and Nine newspaper investigation into Australia’s worker compensation schemes, and insurance companies avoiding payouts.
The winners of the 65th annual Walkley Awards will be announced on November 20.
9.17am: CSL earnings downgraded
Macquarie analysts have reduced their fiscal year 2022 earnings forecasts on CSL, saying foot traffic at its US-based plasma collection centres is yet to recover, after remaining flat in recent weeks and largely unchanged since August.
The analysts now expect a 2 per cent lift in earnings per share for fiscal year 2021 but -3 per cent EPS growth the following year, reflecting higher influenza volumes in 2021 and growth in competitor flu vaccine manufacturers.
“Looking ahead, we see trends in new COVID-19 cases in the US as well as stimulus measures as key considerations for plasma collections growth over coming months,” Macquarie analysts said.
“While our forecasts assume a recovery in last litre product growth and earnings for CSL Behring in FY22, we continue to see plasma collection as presenting risks in relation to the near-term outlook.
“Further, we note several catalysts for competitor pipeline products expected over the balance of calendar year 2020 and into 2021.”
9.13am: Very real challenges ahead: RBA’s Lowe
RBA Governor Philip Lowe sounds a little aggressive on his aims for monetary policy, telling the Citi conference that the RBA “wants more than just progress toward full employment”.
This headline gives a dovish tone to his speech.
Dr Lowe says the RBA’s business liaison in Perth is hearing of labour shortages in some areas, but that some parts of the country face very real challenges.
The Australian dollar has drifted down from 0.7168 to 0.7159 since he began talking.
9.10am: Suncorp names new NZ boss
Suncorp says it’s appointed Jimmy Higgins as CEO of Suncorp New Zealand.
He has been acting in the role since July.
Prior to that he held roles in the New Zealand business as CFO and executive general manager, claims.
8.53am: What’s impressing analysts?
Bank of Queensland cut to Underperform: Macquarie
Bank of Queensland raised to Outperform: CS
CSL cut to Sell: Morningstar
Challenger raised to Buy: Bell Potter
Incitec raised to Buy: Jefferies
Nitro Software started at Positive: Evans & Partners
Northern Star raised to Neutral: JPMorgan
Warrego Energy started at Outperform: RBC
Bank of Queensland cut to Neutral: Citi
8.50am: Redbubble more than doubles revenue
Creative marketplace provider Redbubble has delivered a first quarter revenue figure more than double the same period a year ago, up 116pc on the prior period to $147.5m, after experiencing strong demand across its products.
Meanwhile gross profit lifted 149 per cent on the same quarter a year ago to $64.5m.
“The strategic priority for the group now is to ensure we extend the market leadership we have established,” chief executive Martin Hosking said in a statement.
“We intend to invest in the customer experience to improve loyalty and retention and ensure long-term higher levels of growth.
“The company has the resources to undertake the anticipated investments and the margin structure to ensure it can do so while remaining profitable.”
Redbubble said it remains “mindful” of the external uncertainties that lie ahead.
8.40am: ASX set to dip at the open
Australian shares are expected to fall slightly for a second day running on offshore weakness.
The S&P/ASX 200 ended a seven-day winning streak on Wednesday with a 0.3pc fall to 6179.17.
On the charts, it may soon test support from former resistance around 6000 points.
But the recent break above the 5720-6200 trading band to a seven-month high of 6214.7 is good for the medium-term outlook.
That follows Australia’s world-leading fiscal stimulus in the budget, expectations of RBA easing next month and US gains on hopes of post-election fiscal stimulus.
Overnight futures relative to fair value suggest the index will open down 0.3pc at 6160.
That follows a 0.7pc fall in the S&P 500 to a 3-day low close of 3488.67 and a 0.8pc fall in the Nasdaq to 117697.
The consumer discretionary sector led falls on Wall Street with Amazon down 2.3pc.
Financials were also weak with Wells Fargo down 6pc after warning of lower interest income and Bank of America down 5.3pc on disappointing trading revenue.
The Energy, Materials and Industrials sectors rose, with WTI crude up 2.1pc to $US41.03, spot gold up 0.5pc to $US1903.4 and Conocho Resources up 10pc amid takeover from ConocoPhillips.
Wall Street fell as US Treasury Secretary Steven Mnuchin said “a deal before the election and executing on that would be difficult” after repeated talks on fiscal stimulus with House Speaker Nancy Pelosi.
Coronavirus trends continued to worsen, particularly in Europe, where France imposed curfews on major cities, Ireland banned household visits and Switzerland increased mask-wearing rules, while Italy and Portugal had record new case numbers.
Locally the focus is on a 9am speech by RBA Governor Philip Lowe on “the recovery from a very uneven recession” at the Citi Australia annual investment conference.
Official employment data for September are due at 11.30am with economists expecting a 40,000 fall in jobs and a 7pc unemployment rate.
8.08am: Transurban looking for new CFO
Transurban says Tom McKay has been appointed interim chief financial officer while it conducts a global search for a replacement for Adam Watson, who leaves on November 13.
Mr McKay is a senior finance executive with over 30 years’ experience in capital markets.
Currently general manager treasury and capital markets, he joined Transurban in 2016.
7.52am: United Airlines posts $US1.8bn loss
United Airlines’ revenues plunged nearly 80 per cent in the third quarter compared to last year’s levels, but it signaled preparations for a potential rebound in air travel in its earnings report .
The Chicago-based carrier reported a loss of $US1.8 billion on revenues of $US2.5 billion, a drop of 78 per cent from last year amid the severe hit to air travel from the global Covid-19 pandemic.
But United said it was ready for a rebound, and had been cutting costs and building up cash reserves, raising some $US22 billion through debt and stock issuance and government relief programs.
AFP
7.46am: Alcoa sees headwinds for aluminium
Alcoa warned that its aluminum business is expected to face challenges on the cost side during the fourth quarter.
The producer of the metal said results in the aluminum unit are expected to decline, on a quarter-over-quarter basis, due to its anticipation of higher power costs in Europe, higher maintenance expenses and labor costs, as well due to tariffs. Its curtailment of a facility will partially offset those challenges, Alcoa said.
Alcoa also said it believes its alumina business will record lower results sequentially, in part due to higher energy costs, while the bauxite business is expected to be flat.
Dow Jones Newswires
7.20am: ASX set to slip at the open
Australian stocks are poised to open lower after Wall Street fell amid a stalemate on US stimulus talks and mixed earnings results.
Around 7am, the SPI futures index was down 15 points, or 0.2 per cent.
Yesterday, the ASX 200 snapped a seven-day winning streak to close down 0.3 per cent.
The Australian dollar is lower at US71.62c.
Brent oil is up 2.0 per cent, gold is 0.7 per cent higher and spot iron ore is down 1.3 per cent.
7.14am: Fonterra raises milk price forecast
Dairy exporter Fonterra Cooperative Group. raised its farm-gate milk price forecast for the current production season on improved demand in China.
The New Zealand company, which accounts for about a third of world dairy exports, on Thursday said its forecast payment to farmers is now $NZ6.8 per kilogram of milk solids, up from $NZ6.40.
“Despite the initial impact of COVID-19, we have seen demand for dairy in China recover quickly,” the company said.
“In particular, demand for whole milk powder, which is a big driver of milk price, has been stronger than expected,” it said.
A farmgate price of $NZ6.80 for the 2020-21 production season would inject about $NZ10 billion into the economy, Fonterra said.
Dow Jones Newswires
7.05am: US stocks slip after bank earnings
Wall Street fell again, giving up earlier gains, as investors parsed earnings reports and the latest developments on lawmakers haggling on coronavirus aid.
All three major stock indexes fell from their session highs after trading turned choppy, sending the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite to a second consecutive day of losses.
The Dow Jones Industrial Average fell 165 points, or 0.5 per cent, as of the close of trading in New York, while the S&P 500 declined 0.6 per cent. The tech-heavy Nasdaq Composite slid 0.8 per cent.
Analysts say investors are complacent as they face the start of the third-quarter earnings season. There are also questions over whether Congress and the White House can reach a middle ground on further stimulus to prop up an economy struggling to recover from the coronavirus pandemic.
With few fresh reasons to push stocks higher ahead of the November election, the continuing rally appears to be on pause. Earnings have been a mixed bag, with investors punishing companies that missed estimates more severely than they rewarded those that beat projections.
Talks between Congress and the White House are continuing, but hopes for a deal ahead of the election are fading. Besides that, investors who had been hoping for a coronavirus vaccine got a dose of bad news Tuesday after Johnson & Johnson and Eli Lilly halted coronavirus vaccine trials.
“It’s possible the election becomes the clearing event and people will have more clarity on the nearer term and on fiscal stimulus prospects,” said David Lefkowitz, head of equities Americas at UBS Financial Services. Until then, trading is likely to be choppy as it has been in recent sessions, he added.
Still, some investors remain focused on the market’s prospects past the election, pointing to an expected rebound in corporate profits and the likelihood that at least one of the health-care companies still vying to create a vaccine or therapeutic to treat the coronavirus will succeed.
Losses accumulated Wednesday after technology stocks reversed their earlier gains, undercutting a crucial leg of the stock market.
Financial stocks broadly fell after some mixed earnings reports. Shares of Goldman Sachs rose just 0.7 per cent after the bank reported sharply higher profits for the third quarter. Bank of America and Wells Fargo both reported profit declines, sending shares of those banks down 4.1 per cent and 5.2 per cent, respectively.
Overseas, the pan-continental Stoxx Europe 600 edged lower by 0.1 per cent.
Dow Jones Newswires
6.13am: Deferred loans being repaid again: ABA
The Australian Banking Association says almost half of deferred loans are now being repaid again as the nation recover from the pandemic.
It says the number of loans deferred by Australian homeowners and businesses peaked in late June. Repayments were paused on around 500,000 mortgages, and more than 200,000 small business loans.
The ABA says data from seven of Australia’s largest banks shows the number of deferred mortgages had dropped to 270,000, meaning repayments had resumed on at least 224,000 loans.
Almost half (45 per cent) of deferred mortgages are back to making regular loan repayments.
Repayments have resumed on at least 82,000 small and medium business loans. This means two in five (41 per cent) small and medium business loans that had been deferred are now being repaid again.
“This is a good sign for the economy. It shows that more Australians are getting back on their feet and resuming their loan repayments”, said Australian Banking Association chief executive Anna Bligh.
5.15am: Zoom opens platform for paid events
The fast-growing online video app Zoom said it would open its platform to paid events to help performers, teachers and others monetise their activity.
The announcement of the new service called OnZoom comes after a similar initiative by Facebook to help people and groups unable to hold in-person events because of pandemic restrictions.
“The difficult period we are going through has taught us that it’s possible to work remotely,” said Zoom founder and chief executive Eric Yuan, who announced the new service at the company’s Zoomtopia conference.
“The future of communications will be a hybrid of the best physical and virtual practices.” OnZoom will allow users to host and monetise events like yoga classes, concerts, comedy shows and music lessons, according to the company which has seen a surge in usage since the start of the pandemic.
AFP
5.10am: US stocks slip after bank earnings reports
US stocks fell again, giving up earlier gains, as investors parsed earnings reports and the latest developments on lawmakers haggling on coronavirus aid.
All three major stock indexes fell from their session highs after trading turned choppy, putting the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite on track for a second consecutive day of losses.
In US afternoon trade the Dow Jones Industrial Average was down 0.4 per cent, the S&P 500 had declined 0.6 per cent and the Nasdaq Composite slid 0.7 per cent.
Analysts say investors are complacent as they face the start of the third-quarter earnings season. There are also questions over whether Congress and the White House can reach a middle ground on further stimulus to prop up an economy struggling to recover from the coronavirus pandemic.
With few fresh reasons to push stocks up higher ahead of the November election, the continuing rally appears to be on pause. Earnings, including those overnight, have been a mixed bag, with investors punishing companies that missed estimates more severely than they rewarded those that beat projections.
Talks between Congress and the White House are ongoing, but hopes for a deal ahead of the election are fading. Besides that, investors who had been hoping for a coronavirus vaccine got a dose of bad news Tuesday after Johnson & Johnson and Eli Lilly halted coronavirus vaccine trials.
Overseas, the pan-continental Stoxx Europe 600 edged lower by 0.1 per cent.
In Asia, major benchmarks were mixed. The Shanghai Composite Index closed down 0.6 per cent. Japan’s Nikkei 225 edged up 0.1 per cent.
Dow Jones Newswires
5.00am: Starbucks ties executive pay to diversity
Starbucks said it would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce, becoming the latest company to set fresh diversity goals in the midst of a national conversation over race.
The coffee chain said it would aim for at least 30 per cent of its US corporate employees -- and 40 per cent of its US retail and manufacturing employees -- to be people of colour by 2025. Company figures show it currently falls short of those goals at nine of the 14 job levels it said it would track. The company has roughly 200,000 US employees and nearly 8900 company-owned stores in the US.
“They aren’t slam dunks,” Starbucks Chief Operating Officer Roz Brewer said of the new targets in an interview. “They are going to take some work.”
Starbucks is implementing the diversity goals and training at a time of intense discussion about race and representation in American corporations. Unrest during the summer after George Floyd was killed in police custody in Minneapolis rekindled a national conversation over race during which some companies pledged to make their workforces more diverse.
Dow Jones
4.56am: Equities mired on virus, Brexit worries
Global markets stock markets were uninspired on fading US stimulus hopes, stubborn coronavirus worries and growing uncertainty over Britain’s post-Brexit trade with the European Union, dealers said.
“Politicians in the United States do not appear to be close to striking a deal with respect to the COVID-19 relief package,” observed CMC Markets analyst David Madden.
“A couple of potential vaccines for the coronavirus have encountered setbacks, and to top it all off, uncertainty still persists in relation to the future relationship between the UK and the EU.”
Sterling recovered a little ground against the dollar after faltering, as a deadline set by the British to reach a post-Brexit trade deal approaches on Thursday with no sign of a breakthrough in talks amid UK media reports the deadline will have to be stretched into Brexit ‘injury time’.
Noting new virus restrictions in Europe and beyond, ThinkMarkets analyst Fawad Razaqzada cautioned that “at this rate, there is a good chance economic recovery will stall in Europe and investors are evidently responding by reducing their exposure on the euro and European stock.”
After a cautious start Wall Street saw the Dow slide 0.6 per cent while the tech heavy Nasdaq was off 0.8 per cent.
London and Paris also sagged while Frankfurt closed just 0.1 per cent ahead after Tuesday had brought falls all round on the back of the worsening coronavirus crisis.
Virus concerns have returned to the fore amid a surge in new infections and the halting of two trials denting hopes for a vaccine or treatment being developed anytime soon.
Fears for the economic recovery have mounted in recent weeks because of the COVID-19 resurgence, particularly in Europe where governments are resorting to new controls while trying to avoid the devastating nationwide lockdowns of March and April.
AFP
4.53am: IMF, World Bank push for aid for poorest
The world’s two dominant emergency lenders opened their annual meetings with a renewed call for the wealthy to help the poorest deal with the ravages of the coronavirus pandemic, within national borders and globally.
The leaders of the IMF and World Bank have been banging the drum about the need to for governments to continue to spend amid the crisis to help support businesses and jobless workers, to keep the emergency from growing far worse.
But with national and corporate debt levels soaring amid record low interest rates, the crisis presents a puzzle for the Washington-based institutions that have always called for caution in spending.
So far the calls to spend have been heeded but IMF chief Kristalina Georgieva and World Bank President David Malpass are sounding the alarm against becoming too complacent with the early success and urging creditors -- notably China and private lenders -- to do more to ease the debt burden on the most vulnerable countries.
“Nine months into the pandemic, we are still struggling with the darkness of a crisis that has taken more than a million lives, and driven the economy into reverse, causing sharply higher unemployment, rising poverty, and the risk of ‘a lost generation’ in low-income countries,” Georgieva told reporters.
“I worry most about withdrawing support to workers and firms prematurely, because it could cause a wave of bankruptcies and massive increase in unemployment,” she warned.
The fund projects a 4.4 per cent drop in global GDP this year, a smaller decline than forecast in June due to the stunning $US12 trillion in resources that governments pumped into their economies worldwide.
But despite a 5.2 per cent recovery forecast for 2021, the world economy is expected to lose $US28 trillion in output in the next five years.
AFP
4.45am: Goldman Sachs profits surge despite pandemic
Goldman Sachs reported strong third-quarter results, nearly doubling profits and reflecting little of the vulnerability that has plagued corners of the real economy during the pandemic.
Key strengths to the money machine at Wall Street’s iconic investment bank included a “significant” increase in initial public offerings and a surge in revenues from its markets division.
Trading has generally been a strength for large banks during the pandemic, boosting commission fees as markets have swerved. Volatility “declined modestly” in the third quarter, Goldman said.
Net income came in at $US3.5 billion, up 94 per cent from the year-ago period and topping analyst estimates by a wide margin. Revenues rose 30 per cent to $US10.8 billion.
Goldman set aside $US278 million for credit losses, well below the $US1.6 billion it allotted for bad loans in the prior quarter that encompassed the most severe COVID-19 restrictions.
Reports from large banks in the third quarter have shown much lower reserves for bad loans compared with the last two quarters, when large financial companies set aside huge piles of cash in case of defaults.
Goldman’s revenue rose in all four divisions compared with the year-ago period. Revenues from equity investments soared 139 per cent from the year-ago period, reflecting an ascendant stock market during the period.
“Our ability to service clients who are navigating a very uncertain environment drove strong performance across the franchise,” said Goldman Chief Executive David Solomon. “As our clients begin to emerge from the tough economy brought on by the pandemic, we’re well positioned to help them recover and grow.”
AFP
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