ASX closes down 0.6pc, RBA says recovery is delayed
Rio shares closed down 3pc after the first round of its cave blast inquiry, while the RBA board says the recovery is slower than first thought.
- Rio cave blast worth $135m
- BGH buys Village Roadshow for $478m
- Ardent to reopen parks with $70m lifeline
- ‘Elevated’ grocery demand in Victoria
That’s all from the Trading Day blog for Friday, August 7. The ASX closed down 0.6pc with US President Trump’s executive order banning WeChat in the US and the weight of losses in Rio Tinto and BHP, even as iron ore prices gained.
Overnight, the Dow rose 0.7 per cent, the S&P 500 climbed 0.6 per cent and the Nasdaq added 1.0 per cent. Gold extended its record run.
Cliona O’Dowd 7.58pm: Perpetual launches two Trillium ESG funds
A month after completing its acquisition of Boston-based ESG fund manager Trillium, Perpetual has launched two of its funds in Australia as it looks to capture a greater portion of the sustainable investing market.
Speaking to The Australian ahead of the launch of the Trillium ESG Global Equity Fund and the Trillium Global Sustainable Opportunities Fund, Perpetual head of global distribution Adam Quaife said the COVID-19 crisis had triggered investor interest in the fast-growing segment of the market.
The pandemic had brought to light the need for good governance in companies, he said.
“The interest in ESG globally has accelerated in recent times as a consequence of the COVID-19 pandemic, as well as locally with the extreme climate events experienced in Australia in the recent past,” he said.
“We are proud to now offer Australian investors access to (Trillium’s) process whose objective of providing investors with long-term capital growth through investment in global companies driving the transition to a more sustainable economy fits comfortably with Perpetual’s focus on fundamental research and analysis of quality, value and risk.”
Perpetual has been fielding inquiries from institutional investors, asset consultants and private clients since it announced the acquisition of the fund manager at the start of the year, Mr Quaife said.
Perry Williams 6.44pm: Glencore NSW, QLD coal mines to temporarily shut
Mining giant Glencore will temporarily shut its NSW and Queensland coal mines due to tepid demand and a slump in prices and warned it was taking a hit from China’s ongoing moves to restrict Australian imports.
After axing its dividend and recording a net loss of $US2.6bn ($3.6bn) for the June half, Australia’s biggest coal producer said its 17 mines would close for several weeks in September amid a gloomy outlook for the fossil fuel.
Both thermal and metallurgical coal have suffered a slide in demand and price from the COVID-19 pandemic, with many producers suffering losses at current market prices.
“The COVID-19 pandemic continues to impact the global market environment including demand for Australian coal exports,” Glencore said in a statement on Friday. “In response Glencore is introducing measures to manage our coal production profile. This will include a combination of temporary site and equipment shutdowns at a number of operations.”
Glencore said the shutdown measures would allow it to “align our production levels with market demand while providing the flexibility to ramp back up as economies recover from the effects of COVID-19.”
Workers will be required to take leave, with shutdowns timed alongside the September school holidays.
Don Stammer 5.37pm: Volatility To Do List
Until a couple of weeks ago, the combination of huge increases in government spending and central banks doing “whatever it takes” to support liquidity seemed to be reducing the depth of the economic downturn, both globally and in Australia.
High-frequency data suggested the economic tracking indexes for US and Australia had begun a modest recovery, and two months of strong growth in retail sales were encouraging.
Then the numbers of COVID-19 cases surged. The reintroduction of lockdown requirements in many US states, and the severe regulations in Victoria, have interrupted the tentative recovery in economic conditions — and are likely to lead to further big increases in budget deficits and in the stock of bonds on issue.
Still, in my view bond yields will stay quite low for another year or two, and then start moving move higher.
CHECK OUT THIS LIST of what investors might add to their “to do” lists in these challenging times:
Damon Kitney, Robyn Ironside 5.00pm: Bondholders unveil Virgin plan
Virgin Australia’s bond holders who support a planned $800 capital injection will receive 50-67 cents in the dollar and the airline will be worth up to $2.8 billion under a proposal to get the airline flying again put on Friday afternoon to Virgin’s administrator.
The proposal to Deloitte’s Vaughan Strawbridge comes two days after Virgin management and Bain Capital outlined their strategy for the resurrected Virgin, which will see 3000 jobs lost.
But that plan had no detail on what returns would come to the bond holders and Mr Strawbridge reiterated on Wednesday he would not put their proposal to a meeting of creditors which is now taking place on September 4.
There is speculation Bain could impose a huge bondholder haircut of around 90%.
The new funding support from the bond holders, in the form of a convertible note, will be underwritten by Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management (BP&T), which together hold $300m in unsecured notes issued by Virgin Australia.
But it will also be offered on a pro-rata basis to all the compromised unsecured creditors.
Broad Peak and BP&T are among 30 institutional bondholders said to have about $11 trillion under management and 6000 mum and dad investors owed a total of $2bn. Virgin has $7.1bn in debt.
The bond holders plan involves retaining approximately two-thirds of the existing 9,000 employees to support the revitalised and right-sized airline. It also involves paying all employee entitlements in full.
“In our view, Virgin’s strengths lie in its domestic business, supplemented by a streamlined international business that is focussed on servicing nearby segments such as New Zealand and Bali. Our plan envisages retaining substantially all of the 737s and returning the remaining aircraft,’’ the document presented to Virgin’s administrator Vaughan Strawbridge says.
The bond holders expect FY2022 will be the first normalised year of Virgin’s operations following the devastating impact of the COVID-19 pandemic on the airline.
Samantha Bailey 4.50pm: ASX up 1.4pc for week
The ASX ended a two-week losing streak with a 1.4pc weekly gain, even after falling 0.6pc on Friday amid regional jitters sparked by US President Donald Trump’s bans on TikTok and WeChat.
At the close of trade, the ASX benchmark S&P/ASX200 had lost 37.39 points, or 0.62 per cent, to 6004.801 points. The broader All Ordinaries index had lowered 35.363 points, or 0.57 per cent, to 6144.898 points.
“Share markets generally rose over the last week helped by a combination of better than expected earnings in the US, good economic data and positive vaccine news,” said AMP Capital chief economist Shane Oliver.
“This saw the US share market push up to just 1pc below its February high.
“The positive global lead offset the blow to the economic recovery from Melbourne’s stage 4 lockdown and saw Australian shares rise with strong gains in energy, material, IT, telco and consumer staple stocks offset weakness in financials.”
BHP lost 1.3 per cent to $39.30, while Fortescue slipped 2.4 per cent to $18.12.
Rio Tinto fell 2.9 per cent to $102.45 as its executives faced a parliamentary grilling over the decision to demolish heritage caves.
In financials, Westpac was unchanged at $16.76, while ANZ edged 0.2 per cent higher to $17.68. NAB lost 0.5 per cent to $16.96 while Commonwealth Bank stepped back 0.3 per cent to $71.52.
4.34pm: ASX closes down; Rio drops
The ASX 200 closed 0.6pc lower to just hold above the crucial 6000 level on Friday, down 37.4 points, at 6004.80. Rio shares dropped 3pc after the first round of its cave blast inquiry, while the RBA board says the recovery is slower than first thought.
The Australian dollar was 0.35pc weaker against the US dollar at US72.11c by the close of the Friday ASX session.
James Kirby 3.45pm: New property rules hit older investors
At the stroke of a pen it’s just become a lot harder for older Australians to get a property loan.
National Australia Bank has led a new change — expected to be repeated across the banking sector — that requires borrowers to nominate their retirement date and an “exit” strategy for their mortgage.
Since July 25 NAB has demanded applicants nominate a date of for their retirement and the bank also wants to see evidence of superannuation assets. The rules apply to anyone whose retirement age may occur during the life of the mortgage.
With standard mortgages running out to 30 years it means the bank can apply the criteria to a huge range of applicants, putting particular pressure on anyone over 50.
“The new rules are going to be a severe impediment to a lot of older people looking for finance in the property market, “ says financial adviser Bruce Brammall. “It’s a severe interpretation of responsible lending laws.”
The new lending policy also tightens the dependence of banks on salaries rather than investment income, which again makes it difficult for older borrowers.
Banks will include 100 per cent of salaries when assessing borrowing capability but have little regard for investment income, often assuming such income to be no more than 2 per cent on the assets declared.
3.13pm: RBA to cut again: AMP’s Oliver
AMP Capital chief economist, Shane Oliver, says that a second wave of coronavirus cases threatening the economic recovery in Australia, the RBA is “likely” to ease monetary policy further in the months ahead.
“Having all but ruled out negative interest rates, foreign exchange intervention - as the Australian dollar is in line with fundamentals - and direct monetary financing of government spending, further easing is likely to take the form of a rate cut to say 0.1 per cent and more aggressive quantitative easing,” Dr Oliver says. “The former may not be worth the effort, but the latter will likely see a specified monthly amount of bond purchases.”
Lachlan Moffet Gray 2.54pm: Chicken industry under review: ACCC
The ACCC is investigating the chicken meat industry with a particular focus on the commercial relationships between “growers and processors.”
The review will run until December of this year, with a report to be published at its conclusion that will outline “competition or consumer issues” in the industry, as well as a consideration of the options available to address the issues.
In a statement, the ACCC said the review is not an enforcement investigation into the “practices of any particular entities in the chicken meat industry,” nor is it a “Minister-directed price inquiry.
The ACCC likened the review to a recent ACCC examination of the agricultural machinery after-market, where it was found that farmers have limited access to independent machinery repair.
Doug Turek 2.41pm: Future proof your portfolio
Imagine it’s 2022 and news headlines thankfully are dominated by the phrase “post-COVID”. Infection and daily deaths are no longer counted. News instead is about the sluggish economy, weak employment and political tensions.
So what’s it like to be an investor in 2022? What might an investor in 2020 like to know about the future?
First of all, yields from deposits and bonds are still depressed and are depressing to self-funded retirees. Many hold cash to help them sleep and now fund living from capital. The phrase “past performance is no guarantee of future returns” proves true for most bonds earning a 1 per cent return.
At least central banks protect against capital losses snuffing out any rise in yields — fearful of slowing the recovery or making government debt repayments more costly.
Inflation hasn’t risen but worries about it do, especially after the new Plibersek/Chalmers government supersizes the already giant “EconomyKeeper” stimulus.
Tax receipts are woeful, so the many infrastructure and new “social rebalancing” initiatives are indirectly funded by central bank purchased debt.
2.00pm: Trump WeChat order hits in Asia
US President Trump’s executive order banning WeChat in the US has slammed shares of WeChat owner Tencent by 10 per cent, souring the mood in risk assets throughout the region.
The Australian dollar fell 0.5pc to 0.7199 and the S&P/ASX 200 share index fell 0.8pc to 6042.2.
S&P 500 futures fell 0.5pc and the Hang Seng index dived 2.4pc and the Shanghai Composite lost 1.5pc.
A 0.5pc rise in the US dollar index saw WTI crude oil futures fell 0.2pc and spot gold turned down after rising 0.6pc to a record high of $US2075.47. US Treasury bond yields fell 2 basis points to 0.5150.
Trump has also set an effective deadline for a US company to buy the US operations of TikTok.
Lachlan Moffet Gray 1.55pm: Centuria poised to seal Augusta buy
Centuria Capital Group has received acceptances for 90.8 per cent of shares in New Zealand REIT company Augusta Capital and will next Wednesday issue a notice to formally acquire the remainder of the company.
The acquisition will bring $NZ1.9 ($A1.76) billion in assets into Centuria’s tent, taking total assets under management to $9.4 billion once the acquisition is finalised in September.
The takeover bid valued Augusta at $122 million. Centuria made an initial bid in January that valued Augusta at $165.5 million, but reduced its offer due to the impact of coronavirus on the New Zealand market.
The company is offering $NZ0.22 (A$.20) a share combined with a scrip component of 0.392 stapled Centuria Securities per share.
Centuria joint CEOs John McBain and Jason Huljich said they anticipated a recovery to the New Zealand property market.
“We believe that with appropriate capital and underwriting support and, given the rapid COVID-19 recovery underway in New Zealand, Augusta’s return to profitability is anticipated to be ahead of schedule,” they said in a statement.
Centuria Capital was trading down 1.4 per cent, or $1.775 a share, on Friday afternoon.
Eli Greenblat 1.40pm: Lockdown no bar to beauty care
Melburnians stuck in stage 4 lockdowns are jumping online to buy skincare, makeup and fragrances, while toasters, coffee machines and bedding are also popular.
Department store owner Myer said there has been huge demand across metropolitan Melbourne in the last 10 days for beauty products, with online orders growing by 310 per cent. This included 430 per cent growth in skincare products and a 330 per cent rise in fragrances and makeup.
Myer said homewares was also popular onlne, with its orders spiking 530 per cent. The fastest growing categories were small kitchen appliances (coffee machines, kettles, toasters) tabletop products including dinner sets and glassware (up 490 per cent), and quilts, pillows and sheet sets (rising 450 per cent).
Myer has been forced to close down its Melbourne stores including its historic Bourke Street mall flagship store, forcing shoppers online.
Myer said toys were up 450 per cent, while women’s sleepwear and lingerie lifting online orders in Victoria, by 320 per cent.
A Myer spokesman said customers were embracing online shopping as they prepared for weeks of stage 3 or 4 restrictions in Victoria.
“The most popular products include home appliances such as coffee machines, kettles, toasters and table-top, no doubt as customers recreate or emulate their favourite cafés and restaurants at home, with a category uplift in homewares of over 530 per cent.
“Given the closure of beauty salons, self-care and beauty is also trending and we’ve seen a spike of 430 per cent on skincare.”
1.35pm: Rio dashes NZ smelter hopes
Rio Tinto said it isn’t planning to restart a fourth production line at the Tiwai Point aluminium smelter in New Zealand.
Reports in New Zealand media citing smelter staff have said Rio Tinto will restart the line in September, raising hopes the mining giant could delay plans to permanently shut the smelter by the second half of next year.
“We have no current plans to restart Line 4,” a Rio Tinto spokesperson told The Wall Street Journal on Friday.
The smelter consumes about 13pc of New Zealand’s electricity and its closure is expected to affect earnings of power-generating companies such as Meridian Energy, Contact Energy and Genesis Energy.
Dow Jones Newswires
1.11pm: Ampol takeover appeal remains: Macq
Ampol suitors may revisit a bid for the petrol station owner, as deal activity in the sector highlights it attractiveness, according to Macquarie.
Earlier this week 7-Eleven bought Marathon Speedway’s US service stations for $29bn, beating out Couche-Tard who had been a top contender.
Macquarie says another Couche-Tard bid for Ampol, formerly Caltex, or even an improved offer from EG Group is now possible, as the group’s assets “continue to have strong appeal”.
“Ampol’s fuels marketing, convenience retail & infrastructure/property assets remain attractive to potential suitors in our view, particularly in a low rate environment,” the broker says.
“Marathon’s recent sale of Speedway to 7-Eleven for $US21bn cash (~3x P/B, annual 29bL fuel sales across ~3,900 US sites) would tend to increase the possibility of Couche-Tard revisiting its bids for Ampol.”
They add that an improved offer from EG Group, which already owns Woolworths sites, should not be ruled out either.
Macquarie initiates Ampol at Outperform with a $32.25 price target.
ALD last traded up 0.1pc at $28.92.
Read more: Canadians may revive Ampol bid
1.06pm: Wesfarmers pledges Victorian staff support
Wesfarmers has pledged to support all of its permanent Melbourne staff affected by the Stage Four lockdown, saying they will remain “employed and fully paid for” for the six-week period.
The owner of Bunnings, Officeworks, Kmart and Target retail chains said permanent team members would be paid fully, while casual staff who work 12 hours a week or more will be paid the equivalent of their regular hours.
“We can’t eliminate the uncertainty for our team members, but we can reduce concerns about a sudden and unexpected loss of regular household income that may otherwise occur because of store closures during the restrictions,” managing director Rob Scott said.
“It would not have been possible to provide this support without the strong performance our teams and businesses have delivered through the early months of COVID-19.”
WES last traded down 0.7pc to $45.83.
1.01pm: Shares test 6000 level
Shares are trading near the worst levels of the day at lunch, albeit supported at the 6000 level.
At 1pm, the benchmark ASX200 is off by 39 points or 0.6 per cent to 6003.2, after hitting lows of 6000.7.
Mining stocks, yesterday’s best performer, are today leading the decline – Rio is down by 2.6pc as its chief executive earlier today faced a parliamentary grilling over the heritage caves blast, while BHP pulls back by 1pc.
Elsewhere, Cromwell is outperforming with a 4pc jump, alongside a recovery in travel names such as Flight Centre (up 6.1pc) and Corporate Travel Group (up 4.7pc).
Here’s the biggest movers at 1pm:
12.44pm: Room for $A upside: Evans
Westpac chief economist Bill Evans says “the RBA’s ‘pain threshold’ for the Australian dollar is some way off”.
He notes that the RBA raised its AUD/USD assumption to 0.7200 in its August statement on monetary policy, but did not materially change its growth forecasts, while RBA Governor Philip Lowe still made no comments on its level in his recent policy statement.
In the Statement on Monetary Policy the board said the Aussie dollar was “broadly consistent with its fundamental determinants”.
“That threshold is significantly affected by ‘fundamentals’,” he says.
“Our own fair value model for Australian dollar currently stands at around 0.77 allowing ample scope for further appreciation without unnerving the RBA.”
AUD/USD last 0.7212 after hitting an 18-month high of 0.7243 earlier today.
12.35pm: TPG’s premium on Telstra unjustified: UBS
TPG shares rallied after the merger with Vodafone, but shares seemingly are not fully adjusted for the special dividend to shareholders, trading at an “excessive” premium to rival Telstra, says UBS.
Analyst Tom Beadle cuts the telco to Sell, noting a valuation of $7.20 after the merger special dividend and Tuas spin-off.
TPG shares last traded down 1.1pc at $8.15.
Mr Beadle notes TPG appears to be trading at a premium to Telstra on earnings multiples and free cash flow yield, highlighting near term COVID-19 risk from roaming revenues and loss of inbound students and international travellers.
“The proposed merger leverages TPG’s fibre infrastructure & spectrum to VHA’s mobile network, and solves VHA’s balance sheet issues,” he says, noting that the ability to cross-sell is significant.
Still, at current levels, he says the market is ascribing a rough $500m in long-term synergies, while UBS estimates a more moderate $370m.
12.07pm: Banks draw $30bn of cheap funding
Australian banks have drawn on around $30bn – or a third of their allowance – of a cheap long term funding scheme introduced by the Reserve Bank at the height of the pandemic, new figures show.
In a breakdown, the major banks have tapped the RBA for 30 per cent of their allowance while regional, credit and small banks have used in excess of 40 per cent of their allowance. In addition foreign banks operating in Australia have drawn nearly 50 per cent of the scheme.
Drawdowns of the $150bn scheme have picked up more recently as banks and credit unions increasingly take up their initial allowance before the deadline of that part of the facility on 30 September.
The RBA says the interest rate on term funding drawdowns – fixed at 25 basis points per year for three years – is substantially lower than other sources of funding around the same term.
The RBA argues that while the direct effect of the term funding facility on funding costs is relatively modest, as total allowances account for a modest portion of ADIs’ non-equity funding. “However, the (term funding facility) also works through indirect channels to lower ADI’s funding costs and improve funding conditions”.
The Reserve Bank’s term funding facility was announced on March 19 as part of a package to support the Australian economy in the face of economic and financial disruptions resulting from the COVID-19 pandemic.
The term funding facility provides a guaranteed source of low-cost funding for the banking system, and so helps to support the supply of credit and lower interest rates for households and businesses.
Read more: ‘Several years’: Lockdown buries recovery hopes
11.45am: Room for RBA policy change
The RBA board says the rate cut and yield curve target introduced in March is doing its job, but doesn’t rule out any shift in the future.
It says it has reviewed global monetary policy measures in other countries, but “given the nature of the challenges posed by the pandemic, there was no need to adjust the mid-March package”.
“The Board has, however, not ruled out adjusting this package in the future if circumstances warranted.”
Negative rates are still a no go for the board, deemed as “extraordinarily unlikely”, while foreign exchange intervention was ruled out as the Aussie dollar was “broadly in line with its fundamentals”.
11.40am: Borders closed until mid-2021: RBA
Victoria’s second-wave of coronavirus appears to have led the RBA to expect Australia’s borders to stay closed for six months longer than its previous assumption.
“In particular, tourism exports (and imports) have collapsed to essentially zero and will remain there until Australia’s borders open to tourists again,” the RBA notes in the Statement on Monetary Policy.
“The forecast scenarios presented in this Statement assume that this will not occur until at least the middle of next year, and later if the global spread of the virus follows the course assumed in the downside scenario.”
Three months ago the RBA assumed the border would stay closed until the end of 2020, while the Federal Government’s recent economic statement assumed reopening some time in the first of 2021, albeit with 2 weeks quarantine.
Longer border closure is bad news for tourism-related industries albeit potentially factored in to share prices.
RBA economic forecasts#ausbiz #ausecon #markets #auspol #commsec @CommSec pic.twitter.com/bBoqqTZAs2
— CommSec (@CommSec) August 7, 2020
11.31am: Lockdown to trim 2ppts from Q3: RBA
The RBA has set out expectations for economic growth to contract by 6pc this year and unemployment to soar by 10c, while it reaffirmed negative rates were not on the table.
In the August statement of monetary policy, the RBA board said Australia had experienced a severe contraction, adding that the pace of recovery was expected to be slower than previously forecast.
“Generalised uncertainty and deficiency in demand have turned out to be more of a drag on growth than previously thought. The measures taken to address the current outbreak in Victoria will further delay the recovery,” it said.
“The most recently announced containment measures are expected to subtract at least 2 percentage points from national growth in the September quarter, relative to the counterfactual where the renewed outbreak had not occurred.”
The August 2020 issue of the Statement on Monetary Policy has been released - https://t.co/njGx7o7NaV pic.twitter.com/msD8Blncus
— RBA (@RBAInfo) August 7, 2020
11.13am: 4DMedical doubles on ASX debut
Respiratory imaging group 4DMedical has more than doubled its market value on its debut after its $56m IPO.
The group’s technology converts sequences of X-rays into four-dimensional data, allowing for better diagnosis and treatment.
4D joined the bourse this morning after raising $55.67m in its IPO at 73c apiece. Shares jumped to highs of $1.54 and were last at $1.49.
Funds raised in the IPO will be used to increase sales and marketing capability in the US, along with clinical trials to drive market penetration.
10.55am: ResMed extends decline on downgrades
ResMed shares fell as much as 6 per cent in early trade, adding to yesterday’s 7pc dive after its results fell short of expectations.
Goldman downgraded the stock in the wake of its results, saying that ventilator masks would not continue to provide tailwinds beyond the first quarter of 2021.
The strong top-line result of a 24pc jump in earnings beat consensus only slightly, the broker said, with consensus underestimating both the ventilator demand but also the challenges, resulting in just a 2pc revenue beat overall.
“The main challenge now is to weigh up what looks likely to be a sharp tapering of ventilator demand (10-15pc of Group) against a steady recovery in sleep apnoea (85-90pc) through the coming quarters, which is clearly subject to a wide degree of uncertainty,” Chris Cooper said.
He added that the recovery in patient sleep labs was lagging his previous expectations.
Citi analysts note the significant role the company has played in supplying ventilators during the pandemic, but highlight that demand is declining that growth in its sleep apnoea masks is much slower as the world emerges from the crisis.
RMD last traded down 3pc to $25.09.
Paul Garvey 10.37am: Rio cave blast worth $135m
Rio Tinto’s decision to destroy the ancient Juukan Gorge caves allowed it to access iron ore worth $135 million, the company’s chief executive JS Jacques has said.
Appearing before a parliamentary inquiry into the incident on Friday morning, Mr Jacques revealed that the mine plan option that involved the destruction of the caves – which had been identified as being of exceptional heritage importance – would allow it to mine another eight million tonnes of high grade iron ore.
The company revealed earlier this week that it had another three options for its Brockman mine, all of which would have avoided the caves, but decided in 2013 to pursue the fourth option that would involve the caves’ destruction. The additional ore had a net present value at the time of $135m, Mr Jacques said.
He also confirmed that when the mining giant informed the traditional owners of the caves, the Puutu Kunti Kurrama and Pinikurra people, it did not inform them of the other mine plan options.
Mr Jacques and his head of iron ore, Chris Salisbury, have been grilled this morning over the incident, with the chief executive saying the company was sorry for the incident and “fully acknowledge that better decisions should have been made”.
RIO last down 1.9pc to $103.55.
Read more: Rio eyed $135m in ore as caves destroyed
10.28am: IAG results show defensive shift
One of the take-outs from Insurance Australia Group’s $4.31bn investment portfolio is the sharp shift to cash and fixed interest over recent months following the extreme market volatility accompanying the onset of the COVID-19 pandemic.
The insurer has moved to a more conservative footing with holdings of cash and fixed interest at 74.5 per cent of its portfolio, while Australian shares cut to 3.7 per cent from 7 per cent previously.
International shares have also been cut to 4.7 per cent of portfolio from 15.6 per cent previously.
Earlier IAG reported a net profit of $435m for fiscal 2020, down sharply from $1.076bn a year earlier with earnings high by sharply higher payouts on natural disasters.
IAG’s core insurance business delivered a combined ratio of 91.8 per cent in the year (up from 87.5 per cent), which means that for every $1 of premium generated it paid out 91.8c.
Read more: IAG profit slumps to 8-year low
Samantha Bailey 10.22am: Spot iron ore rises past $US120
The spot price for iron ore rose 2.5 per cent to $US121.40 a tonne overnight as buyers looked to the seaborne market thanks to a limited supply of the steelmaking ingredient at Chinese ports.
“Supply concerns are developing because China’s iron ore and steel demand has been so impressive,” said Commonwealth Bank commodities research director Vivek Dhar.
“Most of China’s steel demand is stemming from China’s policy-supported infrastructure sector, but demand linked to manufacturing and property construction has been solid too.
“We don’t expect iron ore prices to moderate until we see a meaningful reduction in China’s steel mill margins.”
10.10am: Health, miners pull ASX lower
Shares are slipping early under the weight of health and mining losses, with only telcos in the green early.
At the open, the benchmark ASX200 is lower by 37 points or 0.6 per cent to 6005.5.
BHP is reversing by 1.3pc after its 5pc surge to six-month highs yesterday, while Rio is off by 1.8pc as its execs face a parliamentary grilling over its decision to demolish heritage caves.
ResMed is falling 5.6pc, adding to yesterday’s sell-off, while the major banks are all down between 0.6pc and 1pc.
Joyce Moullakis 10.01am: IAG profit drops 60pc
Insurance Australia Group chief Peter Harmer says the insurer is confident it can navigate earnings challenges, as volatile investment markets, higher natural disaster claims and COVID-19 saw the company report its lowest annual profits since 2012.
IAG – which counts brands including NRMA, CGU and Swann Insurance in its stable – said net profit tumbled 59.6 per cent to $435m in the 12 months ended June 30, compared to the year-earlier period. The result is the lowest since the insurance giant reported a $207m profit in 2012.
IAG last month scrapped its final dividend and declined to provide any guidance for 2021 after an “immensely challenging” June half-year. At the time IAG provided details on its preliminary full-year results, on an unaudited basis, saying annual net profit would slump to $435m.
Read more: IAG profits slump to eight-year low
David Ross 9.53am: Unilever shuts Tatura factory
Unilever has shut its food and ice cream manufacturing operations in the Victorian town of Tatura after a contractor at the site was diagnosed with COVID-19 on Thursday afternoon.
The site is shut on Friday for a deep clean and no date for reopening has yet been set.
“We can confirm that a colleague based at our Tatura factory has been diagnosed with the coronavirus,” a spokeswoman said.
“We are committed to supporting them and their family in any way we can. Based on contact tracing to date we have not verified any close contacts at this stage.”
Unilever employs 125 production staff at the site and produces over 200 products across 13 production line
9.45am: Who’s impressing analysts, who’s not
- Ampol started at Outperform, $32.35 price target – Macquarie
- Coca-Cola Amatil raised to Buy – Goldman
- HT&E raised to Buy – Canaccord
- Harvey Norman cut to Sell – Morningstar
- Incitec raised to Buy – Goldman
- Megaport raised to Buy – Canaccord
- ResMed GDRs cut to Neutral – Goldman
- ResMed GDRs cut to Equal-weight – Morgan Stanley
- Sydney Airport raised to Buy – Jefferies
- TPG cut to Sell – UBS
9.40am: Commodity surge to lift $A to US82c: CBA
Commonwealth Bank has upgraded their Aussie dollar forecasts to as much as US82c, as commodity demand surges.
The bank’s head of international economics Joseph Capurso estimates the fair value range for the dollar is between US71c to US82c, centred on US77c.
The new US77c fair value is 7 cents higher than its previous estimates, due to the recent surge in commodity prices – largely iron ore and gold.
He says current trading levels of the Aussie dollar are at the lower end of the fair value range and, absent of any further external shocks, he suggest “the risk is AUDUSD lifts to the centre of its fair value range sooner than our current forecasts”.
9.30am: Stimulus hopes could support shares
Australia’s share market has upside risk amid rising global markets and expectations of further fiscal stimulus in the US and Australia.
But the market should be fairly quiet before the weekend with US non-farm payrolls due.
Overnight futures translate to a flat open for the S&P/ASX 200 after it rose 0.7pc to 6042.2 points on Thursday.
But while the Euro Stoxx 50 fell 0.9pc, the S&P 500 rose 0.6pc to a 5-month high of 3349.16 and the VIX volatility index hit a 5-month low of 20.97pc.
The S&P 500 is just 1.3pc from its record high of 3393.5 in February. The Nasdaq rose 1pc to a record high of 11108.1, with Facebook up 6.5pc and Apple up 3.5pc.
US share market gains came as US initial jobless claims were much less than expected and as Democratic House leader Nancy Pelosi said “we will” have agreement on another US fiscal package.
Meanwhile President Trump said he would act unilaterally if politicians couldn’t agree, telling staff to work on an executive order covering a payroll tax cut, eviction protections, unemployment benefits and student loan repayments.
Australia’s Treasurer Josh Frydenberg said the government will increase the JobKeeper wages subsidy by $15.4bn by easing eligibility criteria.
In commodities, spot iron ore rose 2.5pc to a 12-month high of $US121.40.
Spot gold rose 1.4pc to a record high close of $US2060.59, while crude oil slipped 0.6pc to $US42.05.
Lachlan Moffet Gray 9.20am: BGH buys Village Roadshow for $478m
Long running negotiations have paid off for theme park operator Village Roadshow, with the group today inking a takeover deal with private equity group BGH Capital.
The deal had been disrupted by coronavirus and forced park closures, and the final bid is still contingent on whether Village’s theme park and movie theatre assets can safely reopen and whether Queensland opens its borders to NSW and Victoria in the coming months.
The takeover values Village Roadshow at $478m, with BGH offering a base offer price of $2.20 a share for structure A shares and $2.10 a share for structure B shares, with scheme consideration of up to $2.45.
An additional $0.12 a share will be offered in the event that Village’s Warner Brothers Movie World and Sea World parks are open to the public for 5 business days leading up to the day that is two days prior to the proxy cut-off date.
A further $0.08 a share will be offered “in the event a majority of the cinemas business locations” are opened within the same time period and an additional $0.05 cents a share will be offered if Queensland drops its border restrictions to NSW residents by October 15 and to Victorians by October 31.
The $2.45 offer price represents a 39 per cent premium on Village Roadshow’s share price prior to the parties publicly entering discussion on May 15.
“The BGH transaction provides the opportunity for all Village Roadshow shareholders to realise an attractive cash price for all of their Village Roadshow shares, in a very uncertain operating environment,” said Peter Tonagh, chairman of the independent committee of Village Roadshow’s board of directors.
A shareholder vote on the deal is scheduled for November.
Village Roadshow closed on Thursday at $2.10 a share.
9.10am: Ardent to reopen parks with $70m lifeline
Ardent Leisure will reopen its Dreamworld and WhiteWater World theme parks on the Gold Coast after receiving a $70m lifeline from the Queensland government.
Ardent said today its assistance package was a $66.9m loan over three years, and a grant of $3m to fund working capital and approved capital expenditure.
The group’s SkyPoint Observation deck and climb at Surfers Paradise reopened last month, but Ardent said the new funds meant it could now open its larger attractions by mid-September.
“The Queensland Government’s foresight in providing this financial assistance package will enable Ardent to reopen its iconic theme parks, continue to employ hundreds of people and, once the COVID-19 pandemic is behind us, continue to invest in future tourism infrastructure and create more local jobs,” chairman Gary Weiss said
9.01am: IOOF sells down stake in Aus Ethical
IOOF has trimmed its stake in ESG investor Australian Ethical to just 5pc, as part of the group’s simplification strategy.
The financial services group said it had sold 14.2 million shares in the listed Australian Ethical for $74.5m, reducing its holding to 5.5 million shares or 4.9pc of the fund’s listed capital.
Proceeds of the sale will be used to reduce debt and provide “strategic flexibility”.
“Our investment in Australian Ethical has realised significant returns for our shareholders. This sale aligns to our transformation strategy which includes simplification of our business,” chief Renato Mota told the market.
“We remain committed to providing access to ethical investment for the benefit of our clients as well as society generally.”
David Ross 8.58am: Local QBE chief jumps to Link
QBE Asia Pacific chief Vivek Bhatia will depart the insurer at the end of August after two and half years at the helm, to move to financial services provider Link Group.
Mr Bhatia joined QBE after serving as the first CEO and managing director at NSW government workcover provider icare from 2014 to 2018.
QBE Group CEO Pat Reagan thanked Mr Bhatia for his work.
“During his time with QBE, Vivek has continued to strengthen our operations in Australia Pacific and driven strong fiscal performance,” he said.
QBE chief customer officer Frank Costigan has been appointed interim managing director for Asia Pacific and together with CEO and chief customer officer New Zealand & Pacific Declan Moore will jointly serve in the role vacated by Mr Bhatia.
An internal and external recruitment process will seek to find a replacement for Mr Bhatia.
8.51am: Magellan records $769m inflows
Funds manager Magellan has posted net inflows of $769m over July, taking funds under management to $98.53bn.
In an update to the market this morning, Magellan said it had recorded $269m in retail inflows, and net institutional flows of $500m.
The fund paid distributions of $650m and a platform mandate paid distributions of $109m – excluded from the retail flows.
Eli Greenblat 8.12am: ‘Elevated’ grocery demand in Victoria
Coles says there has been an elevated level of demand at supermarkets in Victoria, with issues over the supply of meat, but it is not at the levels seen in March, when there was panic buying.
Chief operating officer Matthew Swindells reported surging demand for pantry staples such as flour and spices as more consumers cook at home during the tighter Victorian restrictions.
“We have seen panic buying in the past and at this stage the demand is still elevated across the supermarkets, people are coming now only once a day in Victoria, they are coming in well prepared … and it's a higher level of demand,’’ Mr Swindells told ABC Radio.
“The key issue at the moment is meat. So the uncertainty of what was going to happen with abattoirs and meat processors particularly across the weekend led to a spike in buying in the meat category that we are now working through to recover.
“Meat has probably the longest supply chain through processing, distribution … if there was one area that is of concern it is meat, we continue to work with the processors and work across the supply chain to recover that quickly.
“But I wouldn’t say this is toilet paper levels of panic buying we have seen in the past.’’
Mr Swindells told ABC Radio there had been a strong shift to home cooking, especially as restaurants and cafes were closed.
“I think people have gone back to scratch cooking, there is definitely elevated demand in pantry staples, if you look at categories like flour, sugar, eggs, they have definitely lifted, spices have lifted, I think people have got time at home are now sitting down and working out what to cook for dinner, there is a definite shift.
“And obviously with food service depleted, now certainly in Victoria there is only the takeaway option then that share of stomach definitely has to move back across to supermarkets.’’
He added that Coles, the nation’s second largest supermarket, was in a better position than in March when the first wave of panic buying occurred as COVID-19 swept through Australia. He said supermarkets had learned a lot from that experience and brought in new protocols and systems to support supplies.
8.00am: REA says Vic lockdowns to hit revenue
REA Group warned new pandemic restrictions in Victoria would hurt near-term revenue, even as its annual net profit lifted 7pc on lower impairment charges compared to a year earlier.
The online real estate classifieds company, which operates sites including realestate.com.au, reported a net profit of $112.6 million for the 12 months through June. That was up from $105.3 million a year earlier.
Annual underlying profit fell 9pc to $268.9 million, as REA battled headwinds including a drop in residential listings and new project starts in the first half after banks tightened lending criteria and later the impact of pandemic restrictions. The result was slightly lower than consensus expectations for an underlying profit of $270.6 million as compiled by Factset.
REA pared its final dividend to 55 cents, from 63 cents a year ago. That brought the full-year payout to $1.10 which was 7pc lower than a year ago.
REA had initially anticipated more favourable listings conditions and improved revenue in the second half of FY 2020 compared with the previous six months, when underlying profit fell 13pc to $152.9 million on lower listing volumes amid what looked to be a bottoming Australian property market.
However, the company withdrew full-year guidance in March amid uncertainty caused by the spread of the coronavirus, delaying price rises and offering customers other incentives.
“The latest COVID-19 restrictions in Melbourne, which ban physical property inspections, are likely to cause significant short-term weakness in listing volumes for the duration of the lockdown,” REA said. “This, coupled with the projected reductions in new development project commencements and listing volume declines in the Commercial and Asia businesses, is likely to cause adverse impacts on revenue in the first quarter of fiscal 2021.”
REA Group is 62pc-owned by News Corp, which owns and publishes The Australian.
Dow Jones Newswires
7.15am: Crackdown on US-listed Chinese firms
Chinese companies with shares traded on US stock exchanges would be forced to give up their listings unless they comply with American accounting requirements under a plan recommended by the Trump administration.
The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the accounting quality of Chinese companies that sell shares here.
Under the plan, Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022 — or give up their listings on those exchanges.
To comply, Chinese auditors would have to share their work papers with U.S. audit regulators. Chinese firms that aren’t yet public — but plan an initial public offering here — would have to comply before they can go public on NYSE or Nasdaq, according to senior Treasury Department and Securities and Exchange Commission officials.
Dow Jones Newswires
6.20am: ASX to edge lower
Australian stocks are set for a slightly weaker open, despite solid rises on Wall Street.
At 6am (AEST), the SPI futures index was down nine points, or 0.2 per cent.
Yesterday, the ASX added 0.7pc thanks to a lift in mining stocks.
The Australian dollar was higher at US72.37c.
Spot iron ore rose again, adding 2.5 per cent to $US121.40.
6.10am: US stocks up after jobless news
US stocks rose as the number of Americans applying for unemployment benefits came in below expectations, but still held at historically high levels.
The S&P 500 rose 0.6 per cent to 3349.2 as of the 4pm close of trading in New York. The Dow Jones Industrial Average added 0.7 per cent, while the tech-heavy Nasdaq increased 1.0 per cent to finish above 11,000 for the first time.
Driving the trading, about 1.2 million filed new claims for unemployment benefits for the week ended August 1, fewer than the 1.4 million analysts expected.
Ram Lee, president of New York-based Seven Bridges Advisors, said the dip in weekly jobless claims--the lowest number since March--clearly illustrated how the pandemic has moved the goalposts for what constitutes positive developments.
“We’ve not seen prior to this year weekly jobless numbers over about 700,000” since the 1980s, Mr. Lee said. “We’ve gotten used to numbers that are so large any improvement is seen as good news. But you still have a pretty meaningful contraction of GDP and a huge amount of joblessness.”
The S&P 500 has risen over the last four trading sessions as investors bet that politicians will hammer out the terms of a new coronavirus-relief package. The White House on Wednesday moved to increase pressure on Democrats to get the deal done, saying they were prepared to walk away from negotiations and use executive actions by President Trump if an agreement isn’t within reach by the end of the week. White House chief of staff Mark Meadows said Thursday Mr Trump would take executive actions on jobless aid if talks didn’t advance.
Despite lingering differences on the elements of a new relief package, investors expect the government will come through with spending plans as economic data shows signs of a stalling recovery.
Overnight, the mood in markets dimmed after U.S. Secretary of State Mike Pompeo asked American companies to consider withholding their apps from phones made by China’s Huawei Technologies, according to analysts. Mr. Pompeo also urged the companies to halt using Chinese cloud providers such as Tencent, Alibaba and Baidu for storing sensitive data.
Those comments are stoking concern that the U.S. pushback on Chinese apps could go beyond TikTok, analysts said. The popular video-sharing service has been in the eye of a storm as Microsoft moves to buy its U.S. operations from its Chinese owner after President Trump raised security concerns about the app.
In Asia, major markets ended the day on a mixed note. The Shanghai Composite gained 0.3 per cent by the close of trading, while Hong Kong’s Hang Seng fell 0.7 per cent and Japan’s Nikkei 225 index dropped 0.4 per cent.
Gold gained 1pc to $US2069.10 a troy ounce, putting its advance this year at 35pc as the precious metal, considered a haven asset, continued to draw risk-averse investors.
Dow Jones Newswires
5.55am: Gold notches another record
Gold futures extended a record rally to a fifth straight day, with a muted US dollar and lacklustre moves in equities supporting bullion’s ascent to near $US2100.
“Gold price continues to skyrocket as demand for the precious metal surges,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades, in a daily note.
December gold traded $US20.10, or 1pc, higher to settle at $US2069.40 an oz. Appetite for precious metals, including silver, has been resurgent, with both gold and silver futures and securities pegged to the commodities on a tear in recent weeks as the COVID-19 pandemic has delivered a seismic blow to international economies.
On Thursday, gold rose amid indecision by US politicians over the path toward another coronavirus relief package, even as weekly jobless claims data fell by 249,000 in early August to 1.19 million and touched the lowest level since the coronavirus pandemic began more than four months ago.
Dow Jones
5.50am: AstraZeneca in China vaccine deal
AstraZeneca has agreed to have a Chinese drugmaker produce hundreds of millions of doses of its experimental COVID-19 vaccine for use in China if it is approved by regulators there, a deal that expands China’s access to potential vaccine options.
Shenzhen Kangtai Biological Products Co. will be able to manufacture at least 100 million doses of AstraZeneca’s vaccine by year’s end, and at least 200 million by the end of 2021, according to statements by both companies Thursday.
AstraZeneca, which has promised to provide more than two billion doses of its experimental vaccine for the world, has struck up deals to sell its vaccine to the U.S. and Europe. The British company is also working with the Serum Institute of India to provide one billion doses for low and middle-income countries.
It said the agreement with Kangtai was an exclusive one for the mainland Chinese market.
Dow Jones
5.45am: Fed unveils Libra alternative
Noting security concerns posed by Facebook’s digital currency Libra, the Federal Reserve revealed details of its own instant payments system.
FedNow will provide households and businesses with instant access to payments, for wages, government benefits or sales, without waiting days for checks to clear, the Fed said.
The system, which is not due to launch for two to three years, “will be designed to maintain uninterrupted 24x7x365 processing with security features to support payment integrity and data security,” the central bank said.
Facebook’s announcement last year of plans to design the Libra cryptocurrency and payments system raised immediate red flags for global finance officials who expressed a barrage of withering criticism about the security and reliability of a private network.
Facebook’s Libra project has “raised other fundamental questions about legal and regulatory safeguards, financial stability, and the appropriate role of private money,” Fed Governor Lael Brainard said in a speech Thursday.
But the US central bank already has experience providing reliable clearing of private payments.
AFP
5.40am: Stocks pause, awaiting US stimulus
Stock markets took a breather after several stronger sessions as nervous investors kept an eye on stimulus talks in Washington and China-US tensions.
In key European markets, London did worst as the pound rallied on the back of a less pessimistic outlook by the Bank of England, hurting the earnings prospects of exporters in the FTSE 100 index. British interest rates were left unchanged.
“The FTSE 100 gave up a good portion of its recent gains … as investors weighed the latest decision on interest rates from the Bank of England,” said AJ Bell investment director Russ Mould.
London ended down 1.3 per cent, Frankfurt lost 0.5 per cent and Paris fell 1.0 per cent.
On Wall Street, the Dow was steady in the late morning in New York, having booked four straight sessions of gains fuelled by bets that US politicians will eventually reach a deal on more stimulus for the world’s top economy.
While the two parties remain far apart on their proposals — with Democrats’ $3.5 trillion plan more than three times bigger than the Republicans’ offer — there was hope for a deal.
A smaller number of US weekly jobless claims than analysts had expected was welcomed, and prepared the ground for Friday’s key employment report for July, analysts said.
5.35am: Lufthansa warns of forced lay-offs
German airline giant Lufthansa said demand for air travel will return to pre-crisis levels only in 2024 or even later as it announced forced lay-offs on the back of a significant loss.
Net loss hit 1.5 billion euros ($US1.7 billion) in the second quarter as the coronavirus pandemic slammed the brakes on travel.
The airline carried around 1.7 million travellers during the three months to the end of June — a 96 per cent drop from the same period last year as lockdowns to slow the spread of the coronavirus curtailed air travel worldwide.
The results are “the worst quarterly results in Lufthansa’s 65-year history,” said the flag carrier’s chief executive Carsten Spohr, as the airline warned of a “clearly negative” operating loss in the second half of 2020.
Quarterly revenue nosedived 80 per cent to 1.9 billion euros for Lufthansa Group, which also includes Austrian Airlines and Swiss. In the second quarter of last year, Lufthansa reported revenue of more than 9.5 billion euros.
AFP
5.30am: BoE sees less severe UK downturn
Britain’s economic downturn fuelled by the coronavirus pandemic will be less severe than thought — but the nation’s surge in unemployment will delay any recovery, the Bank of England forecast.
The pound rallied on the update, which included news that the BoE held its main interest rate at a record-low 0.1 per cent.
The BoE added that its cash stimulus program used to prop up the economy before and during the coronavirus pandemic would remain at £745 billion ($US967 billion, 813 billion euros).
The amount includes £300 billion added to its so-called quantitative easing program since March when COVID-19 prompted a UK lockdown.
The economy was now expected to contract by 9.5 per cent this year, the BoE said, altering its prior guidance of a 14-percent contraction.
“Nonetheless, the recovery in demand takes time as health concerns drag on activity,” the BoE said in minutes of its latest regular meeting that took place Tuesday.
AFP
5.25am: Munich Re takes big hit
German reinsurance giant Munich Re said it took huge charges related to the coronavirus pandemic which cut deeply into its second-quarter profits.
COVID-19 related losses totalled around 700 million euros ($US830 million) during the quarter, Munich Re said, and around 1.5 billion euros for the six months to the end of June.
Of that amount, 1.4 billion euros were attributed to “property-casualty reinsurance” and around 100 million euros to health and life insurance.
The German reinsurer said consolidated profit was 579 million euros for the quarter, a fall of 42 per cent compared with the same period of 2019, when profit was 993 million euros.
The Bavaria-based company did not issue profit guidance for 2020 due to a “high level of uncertainty regarding the further economic and financial consequences of COVID-19”.
AFP
5.22am: Adidas posts quarterly loss
German sports manufacturer Adidas posted a significant second-quarter loss, but said it expected a rebound in the summer as coronavirus restrictions are lifted and online sales boom.
Adidas reported a net loss of 295 million euros ($US349 million) in the three months to the end of June, compared with a profit of 531 million euros in the same period the previous year.
Revenue plummeted 35 per cent to 3.6 billion euros, from 5.5 billion euros the same period of the previous year.
But the Bavaria-based company boasted of almost doubling its e-commerce sales, as direct-to-consumer revenue increased slightly.
At its most severe point, the pandemic closed 70 per cent of Adidas stores worldwide. As of its earnings announcement, 92 per cent of stores are operational, it said.
AFP
5.20am: South32 deaths reporting questioned
South32’s social and governance reputation may be questioned by ESG investors following the publication of its annual report.
The mining company reported no casualties during the financial year, enabling a bigger executive bonus award to its CEO Graham Kerr for a “zero-fatality” year.
Nevertheless, according to South32, three workers died during transport activities for the company.
South32, just like its peers Anglo American, Barrick Gold and Glencore, doesn’t count fatalities that take place when it has no control of the activity, a determination that goes against guidelines from the industry’s main trade body, the International Council on Mining and Metals. South32 says it is now modifying this policy.
Dow Jones
ASX 200 lifts as CBA, Macquarie test new peaks
CBA hits all-time intraday high. Macquarie up 2.3pc on the day. First Super's CFMEU-linked co-chair steps down after APRA action. Pacific Smiles CEO Andrew Vidler resigns.
ASX ends higher on tech, property, banks as energy stocks hit
RBA governor says higher rates not off the table. Data centre operator NextDC's top gainer after AirTrunk sale. Coronado dives on guidance. Downgrades add to oil price woes for ex-div Woodside and Santos. Apollo selldown hit for Challenger.