Shares add 0.3pc as economists note room for more stimulus

Shares held on to 0.3pc gains by the close as energy and real estate outperformed, while economists noted further scope for stimulus.

David Rogers and Melissa Yeo

31 min read

9:10PMJuly 23, 2020

Treasurer Josh Frydenberg hands down the budget update in Canberra. Picture: Sam Mooy/Getty Images.

More stimulus needed: AMP Capital
Australia can absorb growing deficit: S&P
Budget deficit lower than forecast
Tabcorp chief, chairman to depart

That’s all from the Trading Day blog for Thursday, July 23. Australian stocks regained ground in the afternoon session, closing just shy of daily highs after the Treasurer warned of a $185bn budget deficit, alongside forecasts the unemployment rate would balloon to 8.75pc.

The Aussie dollar pushed higher, holding above US71.50c at the local close, while US futures suggest gains to come overnight.

9.02pm: JCliona O’Dowd Super extension ‘costs billions’

Leading superannuation figures have warned the need to hold billions of dollars in additional cash to meet the demands of an extended early release scheme could hit investment strategies — including support for capital raisings — as well as dampen returns.

As early release super payout requests top $30bn, funds are bracing for the possibility of a third $10,000 tranche being made available to workers hit by the COVID-19 crisis, a prospect that would cause a substantial rethink of investments.

Super funds were caught off guard as Treasurer Josh Frydenberg on Thursday pushed out the closing date for access to the release of early super from September to end-December. While a $10,000 withdraw cap remains in place for this financial year, the extension would coincide with an expected peak in unemployment of 9.25 per cent which would see more members rush the scheme.

Hostplus chief executive David Elia warned of the impact of the super extension on member outcomes and investment in the economy, saying the need to hold more cash would limit the upside to returns.

“What it means from our perspective is that, yes, we will continue to support capital raisings, we will continue to invest in unlisted markets such as infrastructure investments, but our capacity to do more than what we would otherwise want to do will be limited.

“So we’ll still do it, but rather than putting $200m into a deal, we’ll probably put in $100m or $150m,” he told The Australian.

Sunsuper chief investment officer Ian Patrick also flagged that pushing out the scheme would, to an extent, weigh on the fund’s investment decisions, as he raised concerns about the possibility of a third tranche of early access.

“At the margin, it’s certainly going to make us weigh up any opportunity with a little bit more circumspection of what our liquidity demands might be, but there are far more meaningful policy issues that are an overhang to the deployment of liquidity than simply the extension (of the scheme) to the end of December,” Mr Patrick said.

“Personally, I think a bigger inhibitor to that (deployment of liquidity) is the prospect of further policy change that goes to a third tranche of early access.”

The possibility of options on super guarantee contributions for people under 25 was another issue of concern, he said.

8.09pm: JJoyce Moullakis Please explain: Add to ACCC cartel case

The competition regulator was unable on Thursday to explain the later addition of former Deutsche Bank executive Michael Richardson to a landmark criminal cartel action, lodged against six individuals and three banks in 2018.

Details of Mr Richardson’s formal addition to the list of those referred for criminal charges were fleshed out in pre-trial hearings in Penrith District Court, which only allowed the cross-examination of Australian Competition & Consumer Commission senior employees. The ACCC and Director of Public Prosecutions are pursuing criminal charges against ANZ, Citigroup and Deutsche Bank and six current and former executives over how they managed a 2015 sale of surplus shares not taken up in the $2.5bn raising.

The regulator alleges the banks acted as a cartel and is drawing on evidence supplied by JPMorgan, a fellow bank on the deal, which was granted conditional immunity.

But Mr Richardson’s counsel, Peter Wood, on Thursday wanted answers about why his client, Deutsche equity capital markets boss during the period in question, was not part of an initial list of defendants signed off by the ACCC enforcement committee in 2017 for referral to the DPP.

Mr Wood said a decision was not made until later that year, between August and mid-September 2017, to refer Mr Richardson to the DPP for charges. He questioned the ACCC’s Leah Won, a former enforcement director who is now financial services competition manager, on the matter.

Mr Wood asked why a later decision had been made by one of Ms Won’s colleagues and if she remembered what prompted it.

“Not with any great specificity but I do recall that he ran through Mr Richardson’s involvement in the conduct at a high level,” Ms Won said. “He was not talking about a new piece of evidence.”

7.57pm: JEli Greenblat Amazon, booze and Bunnings top searches

Consumers stuck at home are letting their internet search engines do the walking for them as searches for retailers and key shopping phrases spike and retailers react by pivoting their advertising outlay to search advertising.

Data collected by SEMrush shows massive increases in visits to leading websites such as liquor specialist Dan Murphy’s, up 76 per cent on certain days, and the most searched retail website in Australia belonging to hardware chain Bunnings.

Other retailers that featured in the top 10 visits since the coronavirus pandemic emerged in Australia include Amazon, followed by Woolworths, Kmart, JB Hi-Fi, Big W and Coles.

7.25pm: JEli Greenblat Domino’s strategy delivers in US

Domino’s Pizza is attracting a greater slice of consumers to its brand in the US, at the cost of corner stores and less established fast-food retailers, as shoppers turn to brands they trust especially around issues of hygiene and zero contact delivery amid the coronavirus pandemic.

The US parent company also reinforced the crucial importance of its controversial “fortressing” strategy to future growth, which entails the opening of new stores in existing sales hubs to help shrink delivery times and be closer to pick-up customers, a strategy Domino’s Pizza chief executive Don Meij stressed was also key in Australia.

Addressing investors in the US for its second quarter trading update, Domino’s chief financial officer Jeff Lawrence said the brand was gaining strength as the health crisis and economic meltdown were severely denting the retail sector.

7.00pm: JEli Greenblat World craving clean, green food

TasFoods, the micro-cap premium food specialist whose portfolio of produce includes poultry, dairy and homegrown wasabi, believes there has never been a better time to be an agricultural company based in isolated Tasmania with the world craving clean and green food.

Addressing shareholders at its annual general meeting, TasFoods chief executive Jane Bennett also said the producer is positioning to benefit from an expected consumer shift to cheaper proteins like chicken as the economy worsens.

The new financial year had witnessed a growth in sales and earnings across its key food divisions, however the dairy arm had been pinched by the shutdown of restaurants and cafes with the company working with its retail partners to keep pace with switches in consumer demand.

6.02pm: JJames Kirby Brace for more pain

Spiralling unemployment and falling immigration outlined in the Treasurer’s economic update are likely to cast the greatest shadow over residential property in the months ahead.

If anything, industry predictions that house prices might fall 10 per cent further in the major cities are most likely optimistic.

As the continued extensions of support programs mask the reality of strained household finances, the update added yet another support extension with the deadline for the early superannuation release scheme moved out from September to December.

However, the sliding level of key support payments such as JobKeeper will now cut straight into the ability of borrowers to repay mortgages. Treasury expects unemployment to peak at 9.25 per cent by December.

Moreover, despite a range of first home buyer grants at federal and state level, Treasury estimates offered a very bleak forecast for dwelling commencements which are set to drop by minus 16 per cent over the next year.

Property investors who have been struggling with softer prices and lower rental yields have already been exiting the market, while one third of the mortgage deferrals in the banking system relate to investment mortgages.

4.40pm: No stopping Aussie dollar surge

A record budget deficit and ballooning unemployment did little to dent the Aussie dollar in Thursday’s session, holding past US71.50c at the local close.

The currency has been on a tear over the past couple of days, last up 0.2pc from the New York close after hitting its best levels in 15 months.

At the close of local trade, AUDUSD is at US71.53c.

On the stockmarket, CC Amatil was an outperformer despite warning of $190m in impairments, while Magellan took a hit after a downgrade from Citi.

Here’s the biggest movers at the close:

4.12pm: Shares close just shy of daily highs

Shares closed the session just shy of the best levels of the day, after swings as much as 0.8pc through the session, as investors weighed up the government’s budget update and the biggest budget deficit since WWII.

Shrugging off a strong offshore lead, the ASX fell early in the day, but lifted to daily highs in the wake of Treasurer Josh Frydenberg’s announcement of a $184.5bn deficit – under forecasts of as much as $230bn.

By the close, the ASX200 was up 19 points or 0.32 per cent to 6094.5.

Blue chips in the top 50 were the key detractors on the market, underperforming the broader index with just a 0.2pc lift.

3.05pm: Tokyo outbreak worsens

The second-wave of coronavirus in Tokyo is worsening by the day.

The city had more than 300 new cases on Thursday, its most ever, according to NHK.

Tokyo governor Koike told residents yesterday to stay home for the coming four-day weekend.

3.00pm: More stimulus needed: AMP Capital

The federal government is likely to announce substantial new fiscal stimulus in the October budget, according to AMP Capital’s head of investment strategy and chief economist, Shane Oliver.

He notes that the additional $22bn in stimulus announced over the last two weeks “will help turn the fiscal cliff in October into a fiscal slope” and takes Australia’s total level of coronavirus related fiscal stimulus excluding loans and guarantees this year up to 8.7pc of GDP, which is “well and truly at the high end of comparable countries”.

But whereas the government forecasts a FY20-21 budget deficit of $184.5bn, Dr Oliver sees a bigger deficit of around $220bn.

His forecast reflect both a bigger hit to revenue and additional stimulus of around $17bn to be announced in the October budget, including front loading of the 2022 tax cuts, more investment incentives and more industry support programs.

“Proposals to bring forward the tax cuts and provide additional investment incentives look to have been pushed out to the October budget and additional industry support packages are also likely,” he says.

“The Government may have delayed this extra stimulus to gauge how much additional help will be required with a lot riding on how quickly the latest outbreak of coronavirus is brought back under control.”

Bridget Carter 2.35pm: Kleijn quits Lazard

DataRoom | Australian-based banker Daniel Kleijn has left Lazard Australia.

Mr Kleijn is understood to have made a departure in recent months after being hired in 2014 by the advisory firm, which has its operations based in New York.

Before joining Lazard, where he was the head of mergers and acquisitions for Australia, Mr Kleijn was a UBS managing director, working as the co-head of utilities and infrastructure and the co-head of mergers and acquisitions in Australia.

He started in investment banking in 1999 at JPMorgan in the area of mergers and acquisitions, before joining UBS in 2004.

He then returned to JPMorgan in 2008, where he worked for almost two years before heading back to his former employer at UBS.

2.26pm: Room for more stimulus: RBC

The Commonwealth balance sheet has “plenty of headroom” to expand further in case of “extra slippage”, says RBC.

After the economic and fiscal update today, head of fixed income Su-Lin Ong writes that the government’s headline forecasts were largely in line with her estimates, but more stimulus measures were likely.

“Given the sombre labour market picture depicted in the economic and fiscal update, we would be surprised if there are not more measures announced in the coming months and/or the October Budget,” she says.

“Accordingly, the Government’s budget forecasts look conservative in our view even despite reasonable macro assumptions.

“Indeed, their GDP forecasts are not dissimilar to our own and their UR forecasts are higher than our current base case. However, the bigger swing factor in the budget forecasts is on the expenditure side with new/extended policy measures.”

Eli Greenblat 2.16pm: Woolies pays back $110m

Woolworths Group said it has made payments totalling almost $110m, including interest, to its staff as part of its program to pay back underpaid wages to its employees following the discovery last year of underpayments.

The latest round of backpay has been made to current team members in the Woolworths supermarkets and Metro businesses for a period dating back to 2015. Payments will also be made to affected former team members over coming weeks, the retailer said.

These payments follow recent payments made to team members in BIG W and BWS, with further payments to Dan Murphy’s team members set to be made next month. Last month Woolworths also stated that payment shortfalls had been identified for salaried venue team members within ALH Hotels, employed under the Hospitality Industry General Award (HIGA). Payments, including interest to those team members, will be made once the issue is fully assessed.

To date, almost $230m has been paid to current and former team members of Woolworths since the review was announced in October with the total bill including interest likely to hit $500m.

“As of the end of this month we will have addressed four and half years worth of payments for affected Woolworths Supermarkets, Metro, BIG W and BWS salaried team members in accordance with the general retail industry award. This has seen more than 29 million shifts and almost 1.1 billion data points analysed to date.”

1.53pm: Moody’s retains Australia’s AAA rating

Moody’s Investors Service Vice President, Martin Petch, says he expects Australia’s credit rating to “remain resilient” after the economic and fiscal update from the federal government today.

“Today’s economic and fiscal update illustrates the substantial deterioration in Australia’s fiscal metrics that has resulted from measures to support economic growth in the wake of the coronavirus outbreak,” Mr Petch says.

“Notwithstanding the impact on the country’s fiscal metrics over the next two years outlined in the update, we expect Australia’s Aaa rating to remain resilient.

“In particular, we expect the process of fiscal repair will begin in 2021 as the economy recovers and financing costs remain low.”

Bridget Carter 1.48pm: Dexus circling AMP Capital empire

DataRoom | Dexus Property Group and other property managers are believed to be in talks with AMP Capital investors in a quest to take control of the funds within its $30 billion real estate empire.

Macquarie Group and Charter Hall may also have had some discussions with investors about the same move, say sources.

AMP Capital’s real estate funds count some of the country’s most powerful superannuation managers, such as UniSuper and Sunsuper, among its investors and it is understood that discontent has been growing for some time about performance.

AMP Capital’s assets include office assets such as Sydney’s Quay Quarter development at 50 Bridge Street, slated to be completed in 2022, and Bourke Place, Melbourne, while shopping centre assets within its portfolio include Sydney’s Macquarie Centre and Indooroopilly Shopping Centre in Brisbane.

Some investors are understood to have grown unhappy with their real estate returns at a time that shopping centre landlords face the prospect of lower income, what with retailers battling COVID-19-related trading restrictions and digital disruption from retailers online.

1.46pm: ‘Considerable uncertainty’ in forecasts: HSBC

HSBC Australia chief economist Paul Bloxham warns there’s “considerable uncertainty” about the federal government’s economic growth projections underpinning the budget forecasts.

“For example, these forecasts assume the lockdown in Melbourne lasts for six weeks as is current policy, but an extension is a clear risk,” Mr Bloxham says.

The latest forecasts that GDP will fall -3.75pc in 2020 then rise 2.5pc in 2021 are stronger than those published by the RBA in May, partly reflecting the fact that the economy has done better than officials had generally expected.

1.16pm: Weak USD could trigger value rally

The value rally of late May/June could be repeated amid sustained US dollar weakness, says Macquarie.

As the Aussie dollar soared to new 15-month highs of US71.77c overnight, the analysts updated their list of stocks to buy in a value rally, highlighting those where FY22 earnings have been cut since the pandemic, and the stock has de-rated.

Real estate, banks and industrials are the key areas of interest, says Macquarie – picking out Scentre, Lendlease, GPT Group, NAB, Worley, IDP Education and Genworth as key stocks to buy.

“We still think global fiscal stimulus will shift away from wage subsidies to infrastructure spending and construction, as the latter have higher employment multipliers,” they write.

“This spending is more commodity intensive, which should support resource stocks through EPS upgrades and reduce the large PE discount to industrials.”

AUDUSD last up 0.05pc to US71.41c.

1.01pm: Shares pare budget gains

Shares have given up gains as much as 0.5pc at lunch, pulling back into the red as markets absorb the detail of the Treasurer’s economic update.

At 1pm, the ASX200 is lower by 6.5 points or 0.1pc to 6068.6 – despite hitting 6102.7 at the release of the update this morning.

Banks are largely driving the reversal, led by a 1pc slip in Commonwealth Bank while Westpac loses 0.6pc, NAB gives up 0.1pc and ANZ falls by 0.6pc.

QBE is higher for a second day after its update yesterday, while Evolution is falling backward despite reporting strong output for the June quarter.

Here’s the biggest movers at 1pm:

12.12pm: Australia can absorb growing deficit

Global ratings agency S&P says the Treasurer’s budget update today is consistent with its AAA rating for the Australian economy.

Even as the government extends its wage subsidy and unemployment benefits, S&P says they were “within the tolerances of our current rating”, noting the cumulative total is still less than the original estimate in March.

Risk to Australia’s rating was “tilted to the downside”, the agency said, given the effect of COVID-19, noting especially the Victorian lockdown.

“The lockdown will drag on the national economic recovery in the September quarter by an estimated 0.75pc, and potentially the general government budget,” S&P said.

“We could lower our rating on Australia if the COVID-19 outbreak causes economic damage that is more severe or prolonged than what we currently expect; for example, if the general government’s large deficit of about 10pc of GDP in fiscal 2021 does not revert to its medium-term structural level.

“Australia’s household indebtedness is at elevated levels, so cautious sentiment and spending could delay the process of repairing the government balance sheet beyond what we currently expect.”

11.50am: Debt will breach ceiling: Frydenberg

Answering questions from the media, Mr Frydenberg concedes that the government will likely break through its self-imposed debt ceiling.

“Clearly we are in a very difficult and different time so that requires a different approach,” he said.

Debt is forecast to hit $857.9bn for FY21, amounting to 35.7pc of GDP as at June 30, 2021, and the Treasurer noted it would take “a number of years” to pay back.

11.47am: Wage support roughly 14.6pc of GDP

Mr Frydenberg said the government has provided economic support for workers, households and businesses of around $289bn, or about 14.6pc of gross domestic product.

The big jump in spending was coupled with a decline in taxation receipts of $31.7bn in 2019-20 and an expected $63.9bn decline in 2020-21, he said.

Australia’s economy has slid into its first recession in 29 years with the outlook still clouded by a significant second wave of infections affecting Melbourne, with hot spots also breaking out in Sydney.

On a calendar-year basis, GDP is predicted to grow by 2.5pc in 2021 after a fall of 3.75pc in 2020.

Dow Jones Newswires

Clear message from the Government today is that we will have to wait for the October budget for the policy strategy to get the economy going again. Today tells us nothing we didnâ€™t already know other than the Treasury forecasts are based on optimistic assumptions about the virus.
— Warren Hogan (@_warrenhogan) July 23, 2020

11.27am: Budget assumes ‘prudent’ iron ore price

Australia’s economic update looks to be based on a fairly conservative iron ore price forecast.

Spot iron ore is assumed to be $US55 a tonne by the end of 2020 versus $US108.1 on Wednesday.

Finance Minister Matthias described the target as “prudent”.

“It is very well known that there can be volatility in the iron ore market so we have opted for stability in our forecasts,” he said

The government’s conservative forecasts on iron ore may explain a big part of the gap between its 2021 GDP forecast of 2.5pc and the private sector consensus forecast of 3.4pc.

Bridget Carter 11.24am: Oaktree buys up Bluewaters debt

DataRoom | Oaktree Capital Management has purchased $36m of debt from ANZ Bank in the Bluewaters Power Station for 71c in the dollar, say lending sources.

It comes as the partial owner of the power station, Sumitomo, is believed to be planning to buy out the debt from other lenders, with the $19bn Japanese financial group understood to be offering 64c in the dollar.

The other owner of the asset is Kansai Electric.

Meanwhile, debt is also expected to trade in the company MMA Offshore, with its lenders including ANZ, CBA and NAB.

As revealed by DataRoom Sumitomo is understood to have hired restructuring firm Houlihan Lokey for Bluewaters Power Station, as a debt repayment deadline approaches for the asset, which owes $400m.

11.21am: Shares push higher on budget update

Shares have reversed early losses and are headed higher in the second hour, as the government set out its expectations for a record budget deficit.

At 11.20am, the benchmark ASX200 is higher by 15.1 points or 0.25 per cent to 6069.2.

Banks are the key driver of the reversal, Commonwealth Bank lower by a more moderate 0.6pc, NAB higher by 0.3pc, Westpac adding 0.22pc and ANZ flat.

AUDUSD is unchanged at US71.37c.

11.10am: Deficit lower than anticipated

The Treasurer has announced a much smaller than expected 2020-21 budget deficit of $184.5bn.

That's much lower than the $230bn deficit forecast by NAB. A forecast $85.8bn budget deficit for 2019-20 is in line with estimates.

“These are harsh numbers … for a harsh reality,” Treasurer Josh Frydenberg said in Canberra.

‘The coronavirus has had a significant impact on the budget bottom line.”

Unemployment is now expected to peak at 9.25pc in the December quarter and economic growth is expected to be 2.5pc in calendar 2021, below Bloomberg’s consensus forecast of 3.4pc.

Financial markets aren’t reacting with the Australian dollar and shares little changed and bonds down 2 bps after offshore falls.

11.06am: Tabcorp cheers exec, board shake-up

Investors have cheered news of the departure of Tabcorp chair Paula Dwyer and CEO David Attenborough.

Tabcorp shares surged 7.7pc to a more than 4-month high of $3.72, adding as much as $562m in market capitalisation on the news while the broader market fell as much as 0.4pc.

TAH last up 4.9pc at $3.62.

Read more: Tabcorp to get new CEO, chair

10.56am: CBA, Bendigo payouts unlikely: Citi

Dividends from Commonwealth or Bendigo and Adelaide Bank are looking increasingly unlikely as APRA continues to stress the importance of capital management during the downturn.

Ahead of APRA’s updated guidance on payouts to be released next week, Citi analyst Brendan Sproules notes the regulator will likely be looking to reduce the level of loan deferrals.

“The recent strong relative performance of Commonwealth Bank and Bendigo Bank is likely to come under pressure if they are unable to declare a dividend in August, without a capital raising,” he says

“By highlighting ‘the strong case for prudence, for the time being’, APRA is likely to be

seeing the persistent portfolio of loan deferrals, as well as the developing COVID-19

outbreak in Victoria, as preventing a more imminent resumption of dividends.”

Still, Citi sees the better than expected impact of COVID-19 since March as likely to benefit a resumption in dividends by the fourth quarter.

Mr Sproules tips banks to resume dividends in the fourth quarter, at very low payout ratios, with normalised (~75pc) payout ratios to resume only in FY22.

CBA last down 0.7pc to $73.60, BEN flat at $7.07.

Read more: Dividend clamp set to be eased

10.13am: Shares post lacklustre open

Shares have undershot expectations of an early boost – slipping by a lacklustre 6 points in early trading.

At the open, the benchmark ASX200 is off by 0.1pc but holding above the key 6000 level at 6069.5.

Gains are being led by real estate and industrials, while financials and tech stocks pull lower.

Newcrest and Evolution are both up around 1.8pc after strong quarterly reports, while Tabcorp’s board and management reshuffle has prompted a 5pc share lift.

9.59am: Galaxy warns of ongoing lithium weakness

Weakness in the lithium market has served a heavy blow to miner Galaxy, the group today warning the outlook was uncertain for the sector as electric vehicle take up is dented by coronavirus.

Handing down its June quarter report, Galaxy said its local Mt Cattlin operations had improved through the quarter, with production volume of 30,942 dry metric tonnes (dmt) produced in the period, in line with annual guidance but just 26,030 dmt shipped, down from 35,512 in the previous quarter.

While demand for lithium was weaker, Galaxy said its development pathway had also taken a knock from the pandemic, with delays to its Argentinian piloting schedule and offtake negotiations.

“Market conditions in the lithium sector remain challenging due to the inventory overhang in the upstream section of the value chain and an uncertain near-term outlook for most end markets due to COVID-19,” the company said.

“However recently announced stimulus packages are expected to accelerate the pace at which electric vehicles (“EVs”) are adopted globally.”

9.40am: ASX to regain 6100

Australia’s S&P/ASX 200 share index is set to regain 6100 after diving 1.3pc to 6075.06 on Wednesday.

Overnight futures relative to fair value suggest the index will open up 0.6pc at 6111 points.

The main focus domestically will be the government’s economic update at 11.00am, with a record $230bn budget deficit expected for FY21.

The Materials sector may lead gains after spot gold rose 1.6pc to $US1,871.41 and spot silver rose 7.9pc to $US22.99 an ounce. But commodities elsewhere were flat to down with LME copper down 0.7pc and nickel down 2.4pc.

Global markets brushed off worsening US-China relations after the US told China to shut its Houston consulate.

The S&P 500 rose 0.6pc to a 5-month high close of 3276 points after an afternoon rally fuelled by reports US politicians are considering a temporary extension of unemployment benefits.

Meanwhile California’s coronavirus cases increased by a daily record, but cases slowed in Arizona and Florida

9.35am: Retail Food facility closed for COVID

Franchise owner Retail Food Group says its Dairy Country cheese processing facility in Melbourne has been temporarily closed, after three of its employees tested positive for COVID-19.

In a statement to the market this morning, the group said the facility in Tullamarine would be closed for a deep clean, and would reopen once the clean was complete and pending the availability of staff.

Its Campbellfield facility has not be impacted, and continues to operate as normal.

“At this juncture, the Company does not anticipate that the Tullamarine facility’s temporary closure will have a material financial or operational impact,” it said.

RFG is best known for its franchise businesses such as Gloria Jeans and Donut King but also owns the Dairy Country sites which produce Mozzarella, Parmesan and Tasty cheese for the chains among other customers.

RFG last traded at 6.5c.

9.28am: What’s on the broker radar?

AP Eagers started at Buy, price target $7.90 – UBS
Aurizon raised to Hold – Morningstar
De Grey raised to Accumulate – Hartleys
Geopacific rated new Buy – Sprott Capital Partners
Magellan cut to Underperform – Macquarie
Newcrest price target raised to $34 – CIBC
OZ Minerals cut to Hold – Morgans
QBE cut to Hold – Bell Potter
QBE cut to Underperform – Macquarie
QBE price target raised 10pc to $11.50 – UBS
Resolute raised to Outperform – Macquarie
Stockland raised to Neutral – Citi

Eli Greenblat 9.15am: Coke to book $190m impairment

Coca-Cola Amatil will be forced to book impairments as much as $190m in its first half results as it counts the cost of the coronavirus pandemic on its beverages business in Australia and New Zealand, along with weakness in Indonesia.

Although there has been a recovery in volumes in some parts of Australia and New Zealand, sales have been pushed through less-profitable channels, such as supermarket chains, while Coca-Cola Amatil is still missing out on the ability to sell its range of carbonated drinks, alcoholic beverages and bottled water at sporting events and other outdoor social activities.

The beverage group was forced to scrap its earnings guidance in March as COVID-19 began to spread through its operating regions, while its margins were also pinched by the shift of volumes away from the more profitable ‘on-the-go’ channels.

In a statement to the ASX on Thursday Coca-Cola Amatil said it expected to incur non-cash impairments in the range of $160m-$190m in its first-half accounts, most predominantly related to its Indonesian business.

CCL last traded at $8.51.

Read more: CC Amatil braces for $190m hit

Samantha Bailey 9.09am: Oil rout dents Santos revenue

Santos has recorded a dip in first-half sales revenue on the back of significantly lower oil prices.

In a quarterly update on Thursday, the company said oil production lifted 15 per cent compared to the prior quarter, while quarterly sales revenue dropped 11 per cent.

That was partially offset by higher domestic gas and LNG sales revenue, with a strong onshore production result.

For the first half, sales revenue was dropped 16 per cent to $US1.7bn compared to the same period a year ago.

“As COVID-19 and the lower oil price continue to challenge us, we have remained resilient and kept production going, meaning our revenues have continued to flow,” chief executive Kevin Gallagher said.

“Our balance sheet is strong and we remain well positioned to leverage our growth opportunities when business conditions improve.”

8.55am: Tabcorp chief, chairman to depart

Wagering giant Tabcorp has this morning laid out plans to shake up its board and management, appointing Steven Gregg to succeed chairman Paula Dwyer at the end of the year.

Alongside that, Tabcorp said chief and managing director David Attenborough would retire in the first half of calendar year 2021, and a search was on to find his replacement.

Mr Gregg has been a director of Tabcorp since 2012, is also currently chairman at Ampol, and was touted for his ability “stewarding complex companies navigating change”.

“With the integration of Tatts nearing completion, the time is now right for a new Chairman to lead the Tabcorp Board into the future,” Ms Dwyer said.

“The appointment of Steven Gregg will provide continuity of leadership and an orderly transition as the Company identifies and transitions to a new Managing Director and CEO.”

TAH last traded at $3.45.

Incoming Tabcorp chairman Steven Gregg. Picture: Supplied.

Bridget Carter 8.53am: ANZ sells $36m Bluewaters debt

DataRoom | ANZ Bank has sold $36m debt in Bluewaters Power Station.

It comes after Sumitomo was understood to have hired restructuring firm Houlihan Lokey as a debt repayment deadline approaches for the asset, which owes $400m.

The power station based in Western Australia is coal-fired, which means securing bank debt is seen as a near impossible feat.

Debt is due to be paid in August

The asset, based 4.5km northeast of Collie, was built by Griffin Energy in 2009 and is owned by groups including 50 per cent shareholder Sumitomo of Japan.

The power station has a total electricity generation capacity of about 430 megawatts.

Attempts to secure hundreds of millions of dollars to refinance the asset have been made over the past six months.

8.40am: Evolution cash flow jumps

Evolution Mining reported record cash flow and unveiled a maiden reserve of underground ore at its Cowal mine in NSW.

Evolution said the maiden reserve of 804,000 troy ounces of gold could underpin the faster development of a first-phase underground mine at Cowal.

In the three months through June, Evolution dug up 218,104 ounces of gold at an all-in sustaining cost of $1088 per ounce. This included 27,428 ounces from its recently acquired Red Lake operation.

Across the year as a whole, Evolution said production totalled 746,463 ounces at an all-in sustaining cost of $1043 per ounce.

Mine operating cash flow increased 45pc year-on-year to a record $1.12 billion, while group free cash flow increased 86pc to a record $542 million.

Evolution boss Jake Klein and employee Cassie Schiller with the Melbourne Cup at the Cowal mine, in 2016.

Dow Jones Newswires

8.35am: Newcrest hits gold target

Newcrest Mining overcame challenges posed by the coronavirus pandemic to achieve annual guidance for gold production.

Newcrest said it dug up 573,175 troy ounces of gold in the three months through June, bringing its annual output to 2.17 million ounces. That was lower than the 2.49 million ounces achieved the year before, but was in line with guidance for between 2.10 million and 2.20 million ounces.

“Cadia exceeded the top end of its production guidance range and achieved record annualised mine and mill throughput rates in the quarter, further highlighting the strength of this world-class asset,” said Chief Executive Sandeep Biswas.

Group gold production in the June quarter was 7 per cent higher than the previous three months due to a strong performance from all operations and fewer planned shutdowns, Newcrest said.

Newcrest said its all-in sustaining cost was $US878 per ounce in the June quarter, and averaged $US862/oz across the year as a whole.

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If if you look far enough into the future, gold prices have already topped the 2011 all-time high. Check out the June 2021 contract. pic.twitter.com/hYgKegNaXZ
— David Ingles (@DavidInglesTV) July 22, 2020

7.35am: Westpac names new institutional boss

Westpac has announced the appointment of Anthony Miller as chief executive of Westpac Institutional Bank.

The bank says Mr Miller has over 20 years’ experience in corporate and institutional banking and joins Westpac from Deutsche Bank in Sydney, where he has been chief executive officer, Australia and New Zealand and co-head of the Investment Bank in Asia Pacific.

Earlier, Mr Miller was at Goldman Sachs based in Hong Kong and a partner in the Financing Group for Asia Pacific.

Westpac CEO Peter King said: “Anthony has extensive global experience in institutional banking and, with his international background, will also bring broader risk management experience to the team.”

Mr Miller is due to commence his role later this year, subject to regulatory approvals.

6.45am: Tesla profit defies shutdowns

Tesla, for the first time in its 17-year history, reported a fourth-consecutive profitable quarter, a milestone that is sure to bolster chief executive Elon Musk’s pitch that he can usher in the age of fully electric cars.

Defying the global coronavirus pandemic, threat of extended economic recession and Wall Street analysts who expected a loss, the Silicon Valley automaker found a way, helped by the sale of regulatory tax credits, to eke out a $US104 million profit in the second quarter.

On an adjusted basis, excluding stock-based compensation, the company said Wednesday it made $US2.18 a share. Analysts surveyed by FactSet, on average, expected an adjusted loss of 2 cents a share earlier in the day, an estimate that narrowed from a loss of 14 cents on Monday and a much larger projected loss in May.

The company was mute on whether it believes Mr Musk’s pre-pandemic goal of increasing deliveries this year by more than 36pc remains on track, something it wasn’t willing to say in late April when he was railing against California authorities for keeping his lone U.S. assembly factory outside of San Francisco closed as part of an effort to stop the spread of COVID-19.

The achievement of four cumulative quarters of profitability means Tesla can now be considered for inclusion in the S&P 500 index. If included, large index funds would likely race to include the shares among their holdings.

Tesla boss Elon Musk Picture: AFP

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6.28am: Microsoft revenue surges

Microsoft Corp reported strong growth in quarterly sales driven by sustained strength in its cloud-computing segment that benefited from customers shifting more work online during the coronavirus pandemic.

The software giant on Wednesday said sales rose 13 per cent in the April-through-June period to $US38 billion, and that it generated a net profit of $US11.2 billion. Both measures for its fiscal fourth quarter topped Wall Street expectations.

Sales for Azure, Microsoft’s closely watched cloud-computing service, grew 47 per cent from a year earlier. The revenue growth rate was 64 per cent in the fourth quarter a year earlier and 59 per cent in Microsoft’s third quarter.

“The last five months have made it clear that tech intensity is the key to business resilience. Organisations that build their own digital capability will recover faster and emerge from this crisis stronger,” said Microsoft chief Satya Nadella in a statement.

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6.15am: ASX to open slightly higher

Australian stocks are tipped to edge higher at the open after gains on Wal Street but declines on other world markets amid growing US-China tensions.

At about 6am (AEST) the SPI futures index was up nine points, or 0.1 per cent.

Wall Street was lifted by Pfizer’s coronavirus vaccine deal with the US government.

After surging 2.6 per cent to a four-month high of 6156.3 points on Tuesday, Australia’s S&P/ASX 200 share index dived 1.3 per cent to 6075.1 on Wednesday, as Victoria reported a record 484 new cases of the coronavirus.

The Australian dollar was higher at US71.4c.

6.05am: Pfizer shares drive Dow higher

A climb in shares of Pfizer boosted the Dow Jones Industrial Average after the US. government agreed to pay the drugmaker and partner BioNTech to secure doses of their experimental COVID-19 vaccine.

The blue-chip index closed about 165 points, or 0.6 per cent, higher. The S&P 500 also added 0.6 per cent, while the Nasdaq Composite edged up 0.2 per cent.

Pfizer shares rose 5.1 per cent, leading the Dow. Under the $US1.95 billion agreement, the US will receive 100 million doses of the vaccine, after it is cleared by regulators, and can also acquire another 500 million doses. The vaccine is set to enter late-stage testing this month.

Investors have welcomed any signs of progress toward a vaccine that could allow economic activity to resume without a subsequent rise in infections. Drugmakers stand poised to benefit: The U.S. also has vaccine deals with other companies including AstraZeneca.

“The experts were telling us, back in February, March and April, it’s going to be five years before we see a vaccine, and here we are with some possible good news on vaccine that’s going to hit this year,” said Phil Orlando, chief equity market strategist at Federated Hermes. “I think the market is taking that very favourably.”

Corporate earnings remained a key focus for investors Wednesday, with some of the technology companies that have driven much of the stock market’s recovery since March due to report quarterly results.

Wednesday’s moves came after China’s Foreign Ministry said the US had instructed China to close its consulate in Houston. That raised the spectre of an escalation in tensions between the world’s two largest economies and prompted Beijing to condemn the move as outrageous and unprecedented.

The rising tension weighed on markets overseas. The regional Stoxx Europe 600 index fell 0.9 per cent. Hong Kong’s flagship Hang Seng index dropped 2.3 per cent.

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5.50am: Wirecard scandal embroils Merkel

German prosecutors arrested former Wirecard executives they say colluded to inflate the company’s results by booking fake income as early as 2015, as the scandal spilt further into German politics.

The arrests came after government officials said German Chancellor Angela Merkel had promoted Wirecard to Chinese officials in September even though her top aides were aware of probes into possible irregularities at the German company.

Hours later on Wednesday, the Munich prosecutor’s office said it had rearrested former Chief Executive Markus Braun based on new evidence suggesting that several executives, including former finance chief Burkhard Ley, had made up income from third-party providers starting in 2015 to make the company’s loss-making businesses appear profitable.

Former Wirecard CEO Markus Braun. Picture: AFP

The inflated balance sheet allowed Wirecard to raise EUR3.2 billion ($US3.7 billion) in loans that are now likely lost because Wirecard is now insolvent, said Anne Leiding, spokeswoman for the prosecutor’s office.

Wirecard, once Germany’s star technology firm, collapsed into insolvency after admitting last month that more than $US2 billion in funds supposedly held on its behalf was missing and probably never existed.

Dow Jones

5.45am: US oil little changed

U.S. oil futures ended little changed, down slightly as US-China tensions fed demand concerns and data revealed a weekly climb of 4.9 million barrels in U.S. crude inventories.

Prices, however, finished off the session’s lows, finding some support from weakness in the US dollar and progress toward a COVID-19 vaccine, analysts said. September West Texas Intermediate oil fell 2 cents, or 0.05pc, to settle at $US41.90 a barrel on the New York Mercantile Exchange on its first full trading day as a front-month contract.

The Brent crude price fell US3 cents or 0.1pc to $US44.29 a barrel.

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5.40am: Stocks slide on US-China tensions

Stock markets fell back in Europe and Asia as rising tensions between the United States and China overshadowed previous gains from hopes for a coronavirus vaccine.

The atmosphere was also heavy owing to comments by US President Donald Trump that the coronavirus crisis in the US was likely to “get worse before it gets better”.

His decision to close a Chinese consulate in Houston set the tone for tense trades outside the US.

European equities slid lower after Beijing said it had been ordered to close its consulate, escalating a standoff between the superpowers.

The move comes with the two at loggerheads on a laundry list of issues, from trade to Beijing’s handling of the coronavirus pandemic and its policies in Hong Kong, Xinjiang and the South China Sea.

Trump had already issued the gloomy virus warning in his first formal White House briefing since the end of April. “It will probably, unfortunately get worse before it gets better,” Trump told reporters as the US toll from COVID-19 rose above 141,000 people.

“European markets (are) scared by Donald Trump’s claim,” Spreadex analyst Connor Campbell noted.

“After all, if Trump has now dropped his long-held stance that everything is okay, then it is probably time to really be concerned.”

As European markets closed, London stocks had given up 1.0 per cent, Paris had lost 1.3 per cent and Frankfurt had shed 0.5 per cent.

In Asia, Hong Kong led losses, tumbling 2.3 per cent also after figures showed another record rise in new virus infections in the city — which has fanned fears of tighter restrictions.

Tokyo shed 0.6 per cent and Sydney lost 1.3 per cent, but Shanghai rose 0.4 per cent.

The spike in China-US tensions, expectations that interest rates will remain low for some time, and ongoing COVID-19 uncertainty have also led traders into gold.

The precious metal — which is considered a safe bet in times of economic and geopolitical turmoil — sat just above $US1,864 an ounce on Wednesday and is approaching its record high above $US1900.

The rally in gold, which is up almost a quarter this year, also helped drive silver briefly to a seven-year pinnacle at $US22.84 per ounce.

AFP

5.30am: Slack takes on Microsoft

The workplace messaging platform Slack said Wednesday it has filed an antitrust complaint with the European Commission alleging that Microsoft is illegally tying its own product to its dominant Office software suite.

San Francisco-based Slack said the tech giant is abusing its market dominance and harming competition by promoting its own messaging service, Teams, as part of Microsoft Office.

The integration of Teams with Office hides its true cost to business customers, according to the complaint.

“Slack simply wants fair competition and a level playing field,” said David Schellhase, general counsel at Slack.

Schellhase said the move is similar to Microsoft’s efforts in the 1990s to tie its browser to the Windows operating system which led to a massive antitrust case.

Microsoft’s French HQ. Picture: AFP

AFP

5.25am: US home sales jump

Sales of existing homes jumped a record 20.7 per cent in June, ending three months of coronavirus-driven declines as buyers returned to the market, the National Association of Realtors said.

Sales were at an annualised rate of 4.72 million last month, slightly better than expected, though were down 11.3 per cent from June 2019.

AFP

5.20am: Qatar Airways seeks closure compo

Qatar Airways said it will seek $US5 billion in compensation from Saudi Arabia, the UAE, Bahrain and Egypt for closing their airspace to the flag carrier as part of a regional feud.

“The arbitrations seek redress for the blockading states’ actions to remove Qatar Airways from their markets and to forbid the airline from flying over their airspace,” the airline said in a statement, adding that at least $US5 billion would be sought.

The International Court of Justice last week ruled Qatar could challenge the airspace restrictions imposed by the four countries before the UN’s International Civil Aviation Organisation (ICAO).

The overflight restrictions are part of a raft of measures taken by the Saudi-led nations since June 2017 as part of their co-ordinated effort to pressure Qatar over its alleged support for radical Islamist movements and Iran.

Qatar repeatedly denied the allegations and sued the four countries before the ICAO.

AFP