Local market pares gains after RBA rate hold

The benchmark trimmed its gains after the Reserve Bank’s decision to keep rates on hold.

David Rogers and Melissa Yeo

Markets recovered as analysts regarded Donald Trump’s tariffs warning as a bargaining strategy. Pic: AFP

31 min read

6:51AMMay 07, 2019.

Updated 4:36PMMay 07, 2019

ASX winds back on rate hold
Retail fall adds to rate cut case: NAB
Iron ore miners surge on Vale halt
Graincorp drops as suitor jumps ship

That’s it for the Trading Day blog for Tuesday, May 7. The Reserve Bank held rates steady for the 33rd month, prompting a sell off in the local stock market but a boost in the Aussie dollar.

4.31pm: China confirms trade talks with US

China’s ministry of commercee has confirmed Vice Premier Liu He will visit the US for the 11th round of trade talks on May 9 to 10.

#BREAKING: Chinese Vice Premier Liu He to visit the US on May 9-10 for the 11th round of trade talks at the invitation of US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin: MOC pic.twitter.com/dNcvaCsZjP
— People's Daily, China (@PDChina) May 7, 2019

Samantha Bailey 4.25pm: Market disappointed by lack of cut

After a strong start to the session, the Reserve Bank’s decision to leave rates on hold prompted the local sharemarket to pare early gains and finish the session slightly higher.

“The market was clearly pricing a rate cut already,” CMC Markets chief market strategist Michael McCarthy said.

“Trade remains the key issue for markets and the news that we get over the course of this week will be what drives the markets. If this drags on and this visit (from Chinese vice president Liu) doesn’t happen on Wednesday, things should get very ugly.”

The major iron ore miners made ground after a Brazilian court reversed its decision to allow Vale to restart operations at its Brucutu operation following the fatal dam disaster in January.

Rio Tinto made 2.3 per cent to $96.05 while BHP added 1.4 per cent to $37.30. Fortescue climbed 6.3 per cent to $7.60.

In financials, Westpac edged down 0.2 to $27.06 while ANZ slid 0.2 per cent to $27.50. NAB shed 0.3 per cent to $25.84 while Commonwealth Bank backtracked 0.4 per cent to $74.61.

The Aussie dollar jumped on the rate hold, last at 0.7039.

4.11pm: RBA hold weighs on market

The RBA’s move to hold rates steady has weighed on the local market in afternoon trade, pulling it from as much as 0.9 per cent gains to close just 0.19 per cent higher.

A recovery on the US market sparked a jump in local stocks at the open, pushing the benchmark to highs of 6341.9 in midday trading but the rate decision prompted a sharp sell-off in mid-afternoon trade.

At the close, the ASX200 was 12 points or 0.19 per cent higher at 6295.7 while the All Ords clocked a 14 point or 0.21 per cent gain to 6383.5.

Robyn Ironside 3.56pm: Virgin chief reshuffles ranks

Virgin Australia’s new chief executive Paul Scurrah has restructured his executive team in a move that will see group executive Rob Sharp depart the company this Friday.

The restructure follows a two-day strategy meeting held on the Gold Coast last week, at which Mr Scurrah discussed new ideas for success with his most senior managers.

Today The Australian has learned Mr Scurrah has created the positions of Chief Commercial Officer (CCO) and Chief Operations Officer (COO) within the Virgin Australia (VAH) business, in the place of Mr Sharp’s role.

While a global recruitment process is conducted, Tigerair chief executive Merren McArthur will act in the CCO role and director of group flight operations Stuart Aggs will act in the COO role.

Virgin Australia's new CEO Pual Scurrah. Picture: Jeremy Piper.

3.49pm: RBA forecasts still too optimistic: NAB

While the RBA cut its near-term growth and inflation forecasts the cuts don’t go far enough, according to NAB.

Chief economist Ivan Colhoun says today’s decision to hold rates steady is mainly due to the central bank’s forecasts, what he says are too optimistic.

“At this stage, the RBA’s central scenario is that the economy will grow reasonably over the next eight quarters and the unemployment rate will be stable for the next year, before dropping further,” Mr Colhoun says.

“And that as previously mentioned, they can’t fine-tune things that much. NAB continues to think these forecasts are on the optimistic side and that a rate reduction will likely be warranted in the next few months.”

The RBA continues to forecast a central scenario of trand or above-trend GDP growth of 2.75 per cent over 2019 and 2020 and some further improvement in the unemployment rate, though not until 2021.

Joyce Moullakis 3.38pm: UBS equities co-head to depart

UBS co-head of equities Chris WIlliams is departing the firm to take a break from the industry, sources told The Australian.

Staff were informed of Williams’ exit - a 15 year UBS operative - on Tuesday. It leaves Steven Boxall as the sole boss of UBS equities in Australia.

“Our equities business in Australia is a powerhouse, the envy of our competitors and has performed exceptionally well on a consistent basis, even in challenging market conditions, which reflects the strong leadership of the business and the dedication of our entire team to servicing our clients,” a UBS memo sent to staff by Australia boss Matthew Grounds and Asia Pacific boss Taichi Takahashi said.

“Chris has made a decision to spend time with his family after more than 20 years in the industry, before he embarks on his next adventure.”

Mr Williams started his career at the ASX as an investor relations manager before joining UBS in 2004 as an analyst.

3.04pm: Security tech Spectur bolsters guidance

Shares in solar-powered security camera maker Spectur have jumped by 42 per cent in afternoon trade after the company shared detail of its largest order to date.

In an update to the market, Spectur forecast a 81 per cent increase in full year revenue to within the range of $4.5 million and $4.7m thanks to an order for 39 of its HD systems from the WA goverment.

“This most recent order for thirty-nine HD systems is the largest order Spectur has received to date, with these units being deployed to monitor illegal land access, dumping and other activities,” the company said.

This order follows an earlier purchase by the state for shark warnings systems, and ahead of further trials for the technology in Kakadu National Park.

The company makes remote solar-powered security cameras with AI capabilities to detect movement using thermal imaging.

“This significant revenue growth off the back of larger clients and larger orders positions Spectur to become cashflow self-sufficient in the short term,” chairman Darren Cooper told the market.

“In addition, we continue to negotiate with one of Australia’s ‘big 4’ banks for a working capital debt facility, and we expect to be in a position to announce a finalised facility within a few months.”

SP3 shares last up 42 per cent to 17c.

2.35pm: Market sell-off as rates held steady

The local market has trimmed its gains substantially after the RBA’s move to keep rates unchanged for a 33rd month.

The decision to extend Australia’s longest period of steady monetary policy came despite significantly below-target inflation, a sharp slowdown in domestic and global economic growth since mid-2018 — worsened by US-China trade tensions that have flared up again this week — and Australia’s biggest housing market correction since the early 1980s.

And it seems as if the market is disappointed at the result.

The benchmark ASX200 is pulling back, down 47 points from its earlier highs to 6295.4.

#RBA keeps rates on hold at 1.50%. $AUD rallying moments after the release to 0.7030. #AGB yields climb â€“ 10Y up 3 points. #ASX dislikes the news, down 15 points. #ausbiz #auspol
— Kyle Rodda (@KyleR_IG) May 7, 2019

2.31pm: Aussie dollar jumps on rate hold

The Reserve Bank has kept the cash rate on hold at 1.5 per cent, saying it will pay close attention to the labour market changes.

The news has spurred a jump in the Aussie dollar, up to 0.7031 from earlier trade of 0.699 but seen a paring of gains on the local market.

ASX200 last up 0.47 per cent from earlier gains as much as 0.9pc.

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent - https://t.co/dZX9AdcnQQ
— RBA (@RBAInfo) May 7, 2019

2.23pm: Weak retail sales haunts Myer

The latest retail sales data has pointed to a slow down in department store trade, what has served a blow to Myer shares in Tuesday’s trading.

Department store sales were the worst segment for March, down 1.5 per cent versus a 0.3 per cent jump for all retail turnover.

Myer shares are 3.5 per cent lower to 63.7c.

2.06pm: TelstraSuper appoints Corboy as chair

TelstraSuper, Australia’s largest corporate superannuation fund, has announced the appointment of former HESTA boss Anne-Marie Corboy as its new chairman.

Ms Corboy will replace outgoing chair David Leggo, who has held the role since July 2010, from July 1.

She has previously held other directorships and roles with Utilities of Australia, Australian Council for Superannuation Investors and was the chief of HESTA for almost 17 years.

“I am very pleased to be joining TelstraSuper and contributing to the evolution of a fund of this calibre,” said Ms Corboy.

“I look forward to working with the Board and CEO Chris Davies to further enhance retirement outcomes for TelstraSuper members.”

1.59pm: $A on knife edge

The Australian dollar is poised on a knife edge as the market waits to see if interest rates will be cut for the first time in almost three years, a move that would likely see the currency test the floor of recent ranges. The Aussie dollar was holding up at about 70 US cents at 1315 AEST with investors split on whether the Reserve Bank of Australia would choose to ease now or wait a while.

The central bank holds it monthly policy meeting Tuesday and is under pressure to act given weak inflation and disappointing economic growth. Interbank futures imply a 36 per cent chance of a quarter-point cut, while of 42 analysts polled by Reuters 17 have tipped an easing with the rest on hold.

“Our view is that the RBA will cut rates over the next few months, but we narrowly favour rates remaining on hold this month with the Bank adopting a clear easing bias instead,” said Rodrigo Catril, senior FX strategist at NAB.

“We expect the RBA to downgrade its forecasts for growth, inflation and, to a lesser extent, unemployment.”

If the RBA does ease, markets will automatically assume it will go again, as the bank has never moved rates just once and stopped. It eased twice in 2016 and twice in 2015.

AAP

1.03pm: Upgrade pushes Afterpay to new highs

Analysts at Ord Minnett have boosted their target price on buy now, pay later darling afterpay by 40 per cent, prompting yet another jump in the stock in today’s trade.

APT shares have hit new all-time highs of $28.70 after Ords lauded the company’s US expansion.

Analyst Phillip Chippindale cites the company’s US growth to over 1 million customers, adding 350,000 customers in the 2 months to March 5, and setting it on a similar trajectory to its local success.

“Whilst the average spend per US customer is below the comparable metric for Australia and New Zealand currently, if we look back 2.5 years, we see that the numbers then were quite similar – which bodes well that the US consumer experience has tracked Afterpay’s early days A&NZ customer experience,” he says.

Ords set a target price of $32.20, from $23 based on a 15.5x sales multiple of FY20 with forecast earnings of $12.6 million this year.

APT shares last up 3pc to $28.33.

An Afterpay sign is seen in a store window in a shopping centre in Sydney. Picture: AAP Image/Derek Rose.

Alan Kohler 12.51pm: Rate cut would be pointless: Kohler

The Reserve Bank of Australia and the US Federal Reserve are both faced with the same momentous and probably unprecedented decision this year.

The decision? Whether to cut interest rates purely because of low inflation rather than low growth and high unemployment.

Every easing cycle in living memory, possibly forever, has been triggered by concerns about growth, with low inflation as a brief by-product of that. This time, low inflation alone is the problem yet markets are priced for two rate cuts in Australia and one in the US.

What’s more, both the Australian and US decisions come in the midst of extreme politics — here because of the election and in the US because of Donald Trump and the pressure he’s putting on the Fed.

Many Australian economists, possibly most, now think the RBA will announce a rate cut today, between the Labor and Liberal Party campaign launches. As discussed here last week, I think that would be pointless and probably harmful: low inflation is not a product of tight money so looser money is unlikely to get it up.

For that reason, the RBA board should wait till June, at least. It’s hardly urgent, after all, and far better to avoid politicising monetary policy if possible.

A quick graphical reminder of how RBA's guidance on monetary policy contained within last sentence of "Monetary Policy Decision" has developed and evolved over time as the board has taken account of changing circumstances within the domestic and global economy over the last 2 yrs pic.twitter.com/qdqUQ1PQpu
— Robert Rennie (@Robert__Rennie) May 6, 2019

12.45pm: Dalian iron ore futures jump 4pc

China’s Dalian port iron ore futures rose 4 per cent to CNY661.5 after Vale cut lowered its iron ore sales guidance after a Brazilian court overturned its decision to allow a restart of the 30mtpa Brucutu mine

With futures back up near the April peak of CNY665, a similar move up in spot iron ore toward its April peak of $US95.90 a tonne is likely in the fixing tonight.

That’s underpinning solid gains in the Materials sector today, with Fortescue up 6.7pc, Rio Tinto up 2.5pc and BHP up 1.6pc.

12.28pm: Stocks positive ahead of RBA decision

The local market is pushing higher, with all sectors flashing green, ahead of the RBA decision and amid a rebound in regional markets thanks to reassurance that US-China trade talks will go ahead.

The benchmark ASX200 is trading 54 points or 0.86 per cent at lunch at 6337.5, after hitting intraday highs of 6338.1.

At these levels, the benchmark has made back yesterday’s sharp losses.

A pick up in the major miners is doing a lot of the heavy lifting, after a Brazilian court reversed its decision to allow the restart of Vale’s Brucutu mine.

BHP is adding 1.69pc, Rio Tinto by 2.65pc and Fortescue by 6.9pc.

China’s Shanghai Composite is trading 1 per cent higher after its biggset one day loss in three years, while the Hang Seng has put on 0.9 per cent.

ASX200 last at 6341.1.

12.15pm: Alzheimer’s drug developer tanks

Alzheimer’s drug developer Actinogen Medical has tanked in the market after sharing details of its failed Phase II trials.

The ASX-listed biotech said 10mg doses of its drug Xanamem had failed to achieve statistical differences against a placebo in its trial, but said it would test a higher dose.

“Whilst a 10mg daily dose of Xanamem appears safe and pharmacologically active, higher doses and longer treatment duration may be necessary to effectively demonstrate its potential to improve cognition in Alzheimer’s disease,” the company said.

ACW shares have dropped by 70 per cent - to all-time lows of 1.4c - on 122 million shares traded.

11.58am: Retail fall adds to rate cut case: NAB

A weak March quarter read on retail sales bolsters the case for a near-term rate cut, according to National Australia Bank economists.

Today’s 0.1 per cent slip was the first fall since 2012 and follow an unchanged otucome in the fourth quarter, what NAB’s Kaixin Owyong says will force the RBA to downgrade its outlook for growth given consumer spending makes up around 55pc of GDP.

“Unless spending on services provides an unexpectedly strong offset, these data point to another weak quarter of total consumption, most likely below the implied 0.6pc average quarterly increases needed to reach the RBA’s forecast of 2.5pc annual spending growth over 2019,” Ms Owyong wrote.

Household goods retailing led the decline for the quarter, with a 0.6 per cent drop and department stores by 1.2 per cent.

AUD/USD last at 0.7004.

Retail volumes growth per capita has turned negative, suggests the wealth effect (and income effect via weak wages growth) is impacting households, doesn't bode well for economic growth in Q1 #RBA #ausbiz pic.twitter.com/3J10gK4gr5
— Alex Joiner (@IFM_Economist) May 7, 2019

11.49am: Rio to buy driverless truck fleet

Rio Tinto has agreed to buy a fleet of autonomous trucks and other mining equipment from Caterpillar for its new Koodaideri iron ore mine in Western Australia.

Caterpillar will supply a fleet of 20 autonomous 793F trucks as well as four autonomous blast drills for the mine, which Rio is developing for $2.6 billion with first production expected to start by the end of 2021.

The mine is expected to underpin Rio’s production of its flagship Pilbara Blend iron ore, sustaining its current output of more than 330 million tonnes a year which it draws from 16 mines in the region.

“Beyond the autonomous fleet, Caterpillar will also provide loaders, dozers, graders, water carts and diggers for the operation which will be Rio Tinto’s first Pilbara mine to be primarily operated using Caterpillar machinery,” Rio said.

AAP

Bridget Carter 11.45am: Risks if Graincorp goes it alone

Morgans believes risks lie ahead for GrainCorp’s earnings after the country’s largest grain handler last night announced that a $3.3 billion takeover bid by Long Term Asset Partners had collapsed.

GrainCorp told the market last night that it had been advised by LTAP that it had withdrawn its non-binding indicative proposal to buy all of the company for $10.42 per share.

Morgans said it expected the company to post a loss during its 2019 half year result this Thursday and expects risks to earnings during 2020 due to the lack of widespread rainfall.

This was due to the smallest east coast grain crop in over a decade, grain marketing being impacted by China’s anti-dumping investigation into Australian barley exports and weak oilseed crush margins impacting the Oils business.

“The next opportunity for GrainCorp to benefit from at least an average season and improved carryover grain stocks isn’t until the 2021 to 2022 financial year,” Morgans said.

11.32am: Retail sales stronger than expected

March retail sales have come in a touch stronger than expected after a solid February, up 0.3 per cent versus consensus of 0.2pc.

Meanwhile, March quarter ex-inflation sales down 0.1pc vs an expected 0.3pc rise.

The international trade balance has jumped to $4.949 billion vs $4.480bn expected, and February’s balance was revised up to $5.140bn vs $4.801bn first reported.

Despite the positive figures, the negative read for the quarter could be of concern for the RBA, the weakest quarter since September 2012.

The Australian dollar is steady after this mixed bag of data as it probably won’t change the near 50pc chance of an interest rate cut by the RBA after its meeting concludes at 2.30pm AEST this afternoon.

AUD/USD last at 0.6996.

11.20am: Iron ore miners surge on Vale halt

Iron ore miners are surging after a Brazilian court reversed its earlier decision to allow the restart of Vale’s key Brucutu operations.

Vale’s production levels have been a key driver of the iron ore market this year, after its fatal dam disaster in January, that spurred a number of mine suspensions.

The Brucutu mine was reopened just weeks ago, and today a court in Menias Gerais state has forced Vale to halt wet-processing at the 30 million tonne per annum mine,

The decision is being cheered by local miners, BHP is up by 1.57 per cent to $37.38, Rio Tinto by 2.66 per cent to $96.44 and Fortescue by 6.01 per cent to $7.58.

SGX Asiaclear iron ore futures rose 2.8pc to $US93.57 a tonne.

Those moves are buoying the local market, last up 0.8 per cent to 6333 and almost paring all of yesterday’s losses.

Crushed iron ore fills cargo train wagons aside a conveyor belt at Vale's iron ore Brucutu mine. Picture: Dado Galdieri.

11.15am: LaserBond doubles guidance, soars

Shares in LaserBond - a small-cap specialist engineering company - are surging more than 20 per cent after issuing a profit upgrade, suggesting strong underlying demand for infrastructure and industrial engineering.

LaserBond this morning says it expects full year earnings before interest and tax in the range of $4.3 million to $4.6 million, up between 95-109 per cent on the same time last year. Remember LaserBond applies coverings to increase the operating performance and wear life of capital-intensive machinery components.

LBL last traded at 41.5c, up 8c.

11.08am: Landmark White sinks on ASX return

Property valuations platform Landmark White has dropped by 40 per cent in their return of trade after it warned of a hit as much as $7 million in revenue for the full year after a series of cyber attacks that prompted the departure of its chief executive earlier this year.

Shares in Landmark which last traded at 25c, down 13c, recovering from early lows of 20c, its lowest level in 7 years.

The company told the market yesterday it estimated a loss of revenue of $5m to $6m due to the disruptions, and a further $1m likely lost before full reinstatement by financial institutions.

For the full year, Landmark forecast a loss of $2.3m, from earlier expectations of a $2.8m profit.

It said it had been reinstated as a panel valuer by three of the four major banks and expected to be reinstated by the final one soon, setting it back on the path to growth for the following year.

Its forward guidance was unveiled in tandem with its half-year results, where the company posted a 92.1 per cent drop in profit to $162,000 and pointed to the property downturn as a key contributor.

“The downturn in the residential property market, largely due to APRA tightening credit and the impact of the banking royal commission, has adversely impacted revenues and hence profits,” the company said.

10.57am: Weak retail sales could tip RBA to cut

Retail sales and International Trade data are due in half an hour at 11.30am AEST.

Economists expect a 0.2 per cent rise in March retail sales and a 0.3pc rise for the March quarter ex-inflation, according to Bloomberg.

The international trade balance for March is expected to fall to $4.48bn from $4.80bn previously.

Weaker than expected retail sales could well tip the balance toward an RBA interest rate cut today but it’s less clear that stronger-than-expected retail sales would necessarily prevent a rate cut if the RBA is inclined to do so because inflation is so far below target.

10.50am: Construction jobs fade for ninth month

Construction jobs dwindled in April as house building activity contracted for the ninth month in a row, according to an industry survey.

The Australian Industry Group/Housing Industry Association Performance of Construction Index (PCI) report also recorded a 13th month of shrinking apartment building activity.

“Employment fell further in April and at a rate that was the steepest in almost six years,” Ai Group head of policy Peter Burn said.

“Falls in approvals, commencements and work in the pipeline is continuing to weigh on workloads for residential builders,” the report said, with businesses responding to lower demand by “exerting greater caution in their labour recruitment”.

“Residential building respondents to the Australian PCI cited reduced customer enquiries as well as the negative influences of tighter lending conditions, falling prices and generally weak home buyer sentiment,” the report said.

AAP

10.33am: Market positive on trade hopes

Australia’s S&P/ASX 200 rose 0.5pc to 6315.5 in early trading after Wall Street didn’t fall as much as expected overnight.

The markets are taking some solace in the fact that US-China trade talks are still due to go ahead Wednesday, even after the US threatened to more than double tariffs on $250 billion ($287bn) of Chinese imports this Friday.

S&P 500 futures are down 0.7pc after US trade negotiators said near the close of US trading that the tariff hikes will go ahead regardless of the talks because of “an erosion of commitments by China”.

Thus it’s doubtful whether the Australian sharemarket can stay positive today - barring a possible interest rate cut from the RBA - as global markets are likely to remain weak before the outcome of US-China trade talks.

The materials sector is leading relatively broad-based gains today with only utilities and consumer staples in the red.

Standouts include Fortescue up 6.6pc, Rio Tinto up 3.1pc, BHP up 1.7pc and South32 up 1.8pc.

ASX200 last at 6312.6.

10.19am: Graincorp drops as suitor jumps ship

Shares in Graincorp have dropped by as much as 12 per cent in opening trade after suitor LTAP abandoned plans for a $3.3 billion takeover last night.

The collapse of the deal, reported by DataRoom online yesterday, was due to a lack of clarity around the industry structure and model of the business. The offer for the country’s largest grain handler was announced by GrainCorp in December and came with a highly complex derivative structure derived by Chris Craddock, who has been working on the plan for some time.

LTAP had offered $10.42 per share for the company, a 43 per cent premium to its closing price at the time of the offer.

GNC shares last at $8.07, and as low as $7.71.

10.14am: Computershare’s a short: MS

Computershare has been flagged as a good short selling opportunity by Morgan Stanley.

“This is because the stock has traded up recently, making short term valuation much less compelling,” the broker says.

“Consensus estimates for investment income remain too high, in our view,and calendar year to date corporate activity is down year on year.

We believe current trading multiples are unlikely to sustain at this point in the cycle.”

The broker has an Underweight rating and $14.50 price target.

The CPU last $18.59.

10.05am: Competition serves blow to Ainsworth

Ainsworth Game Technology has revised lower its second half guidance, citing intense competitive market pressures and new product approval delays.

In a note to the market this morning, it said it expected profit before tax for the half to be around $4 million, down from its previous guidance of in line profit with the previous half at $14.7m.

It said the Australian business was lagging and expected to write down the carrying values of its Australian and digital assets with a non-cash impairment charge of $5 million.

“This result has been impacted by intense competitive market pressures and delays encountered in new product approvals which were not achieved in the expected timeframes,” Ainsworth said in a statement.

“These approvals are now being progressively secured and are expected to translate into improved product performance and domestic market share gains in FY20.”

9.56am: Confidence in ‘holding pattern’: ANZ

Consumer confidence dropped slightly last week but its “holding pattern” could be disrupted by the Reserve Bank’s decision on interest rates.

The ANZ-Roy Morgan Australian Consumer Confidence index remains above average despite a drop of 0.3 per cent from the previous week, with the dip linked to a lack of local economic news in the buildup to the federal election.

“It seems consumer sentiment is in a holding pattern for now,” ANZ head of Australian economics David Plank said on Tuesday.

“This pattern is likely to be disrupted on Tuesday afternoon, with the RBA expected to either cut the cash rate for the first time since August 2016 or clearly signal that a rate cut is on the cards.”

AAP

Consumer confidence dropped slightly last week. Picture : Ian Currie

9.47am: What’s impressing analysts, what’s not

GrainCorp cut to Reduce, price target cut 15pc to $7.90 - Morgans
Mineral Resources raised to Buy - Morningstar
HUB24 cut to Sell - Citi
Incitec Pivot price target cut 13pc to $4.10 - Deutsche
Aristocrat cut to Hold - Wilsons
NRW Holdings cut to Hold - Wilsons
Afterpay Touch price target raised 40pc to $32.20 - Ord Minnett

9.44am: Trade jitters to keep ASX restrained

An attempted rebound in regional sharemarkets is likely to be stymied by the ongoing jitters about the re-escalation of the US-China trade war after US comments this morning.

Australia’s S&P/ASX 200 share index is expected to open up 0.3pc at 6302 points based on futures relative to fair value, after Monday’s 0.8pc fall.

Our local moves follow a substantial recovery from intraday falls on Wall Street after reports that US-China trade talks will restart on Wednesday as planned.

But it might now track sideways at best ahead of retail sales data at 1130 AEST, which could tip the balance at the RBA meeting.

The RBA’s interest rate decision is due at 0230 AEST. With a 25 basis point interest rate cut substantially priced in, shares could react negatively if the RBA delays a cut, though it may shift to an easing bias.

The S&P 500 closed down 0.5pc at 2932.47 after falling as much as 1.6pc in early trading. The fall was nothing like that predicted by futures in Asian trading after Trump’s weekend tweets threatening tariff hikes on China this Friday.

The fact that the S&P 500 bounced off initial chart support around 2900 was also encouraging but that was before Mr Lighthizer’s comments right on the US close. They pushed S&P 500 futures down 0.7pc in early trading.

While confirming that US-China trade talks will go ahead as planned, US trade negotiators Robert Lighthizer and Steven Mnuchin added that the tariffs will be hiked on Friday after Beijing of backpeddled on commitments it made during trade talks.

“We felt we were on track to get somewhere,” Lighthizer told reporters. “Over the course of last week we have seen an erosion of commitments by China. That in our view is unacceptable.”

ASX200 lst at 6283.7.

9.30am: Commodities recover from Trump threat

A recovery in commodity prices in the US session suggests markets are seeing Trump’s threats as a negotiating tactic, according to Commonwealth Bank resources analyst Vivek Dhar.

In a note this morning, he said the bounce in markets painted a positive picture, but reports of issues relating to the protection of intellectual property rights for US companies in China was key.

Shanghai copper and nickel hit their lowest levels in three months, as Chinese markets felt the brunt of the negativity while LME markets were closed due to a holiday.

Cameron Stewart 9.12am: US accuses China of reneging on deal

US Trade Representative Robert Lighthizer has directly accused China of retreating from its previous pledges on trade, dealing another blow to hopes of a deal to end the trade war between the economic superpowers.

Mr Lighthizer declared that China will be hit by increased tariffs on Friday as was threatened the previous day in tweets by the president.

“Over the course of the last week or so, we’ve seen an erosion in commitments by China, I would say retreating from commitments that have already been made, in our judgement,’ Mr Lighthizer said.

“That, in our view, is unacceptable.”

He accused the Chinese of seeking to make “substantial” changes in the agreed text of a nearly 150-page agreement.

“Really, I would use the word reneging on prior commitments,” he said.

China is understood to have tried to backtrack on a pledge to change its laws to prohibit the forced transfer of technology from US companies doing business in China - a key US demand.

Bridget Carter 9.06am: LTAP abandons $3.3bn Graincorp bid

DataRoom | Long Term Asset Partners has abandoned its $3.3 billion takeover bid for the country’s largest grain handler, GrainCorp.

But LTAP said in a letter to GrainCorp it had assembled a team of tier-one experts to assess GrainCorp from the outside and it was a serious bidder, acquiring 4.2 per cent of the business.

GrainCorp told the market last night it had been advised by LTAP it would not proceed with its proposal.

GNC last traded at $8.76.

GrainCorp Terminal, Corio. Picture: Yuri Kouzmin.

9.03am: Construction index at 6-year low

The AIG Performance of Construction index for April fell 3 points to 42.6 points, equalling the almost 6-year low it reached in December.

While economic data since the RBA’s April board meeting has mostly improved - with the notable exception of inflation - the AIG construction index adds marginally to the case for an interest rate cut at today’s board meeting.

Focus now turns to the 1130 release of retail sales for March and the March quarter, ahead of the RBA’s decision at 0230 AEST.

8.56am: Amcor, Bemis delay deal completion

The mega-merger of Amcor and Bemis was expected to close next week, but Amcor today told the market it was still waiting on US antitrust approval.

The deal between the two packaging giants is expected to go to a second court hearing in Australia today, where Amcor said it would request that formal orders be delayed until US Department of Justice (DOJ) approval is finalised.

“The companies continue to expect DOJ consent and filings to occur shortly, and the transaction to be completed in the next several weeks,” it said in a statement.

“A further announcement will be made regarding dates for the expected effective, record and closing dates after the DOJ consent has been finalised.”

8.47am: Hair removal boosts Shaver Shop

Grooming accessory retailer Shaver Shop has reported a boost in same store sales for the four months to April, buoyed by strength in their core hair removal categories.

In a trading update to the market this morning, Shaver Shop Group estimated sales growth of 8.7 per cent to April 30 and narrowed its earnings guidance to between $12.5 million and $14m, from earlier $12m to $14.5m.

For the financial year to date, the company reported same store sales gorwth of 2.6 per cent, up from 0.7 per cent in the prior corresponding period.

“Our ongoing omni retail initiatives are delivering solid online sales growth so far this half. This is before we launch our customer relationship management platform in the coming months which will significantly enhance our ability to engage with customers on a more personalised and timely basis across any retail channel,” chief Cameron Fox said.

The Shaver Shop CEO Cameron Fox in the Shaver Shop Melbourne Central Store. Picture:Ian Currie

Eli Greenblat 8.32am: Treasury Wines in short attack

A US hedge funds manager has savaged Australian winemaker Treasury Wine Estates at a conference in New York overnight, telling the 24th annual Sohn Investment Conference that Treasury Wine has been engaging in channel stuffing, its big wine in the US, 19 Crimes is facing stalling growth and that the share price has at least a 50 per cent downside.

Angela Aldrich of Bayberry Capital Partners was the only fund manager on stage at the conference in New York to talk about an Australian company, and in a series of slides and talking points she attacked the Melbourne-based winemaker and called out what she saw as major operational problems for the business in the US as well as in its big growth and earnings market of China.

The Sohn conferences are held all over the world, including one held in Melbourne last year, where high profile fund managers and investors talk about their big pick in equities, focusing on just one stock that they are investing in on behalf of their own investors. Typically a stock primed for super premium returns is chosen, but in this case Ms Aldrich, a hedge fund manager, chose to attack Treasury Wine and its model.

In a scathing presentation to hundreds of investors, media and guests in the audience she said that after a recent run that has seen Treasury Wine shares rally by more than 350 per cent she is now ‘’short’’ the Australian winemaker and believes it has at least 50 per cent downside.

7.50am: Oil prices rise

Oil futures edged higher in volatile trade overnight as rising tensions between the United States and Iran buoyed prices after they touched a one-month low following US President Donald Trump’s threat that he may raise tariffs on Chinese goods.

Brent crude futures rose 39 US cents to settle at $US71.24 a barrel. The global benchmark earlier sank to $US68.79 a barrel, its lowest since April 2.

US West Texas Intermediate (WTI) crude futures rose 31 US cents to settle at $US62.25 a barrel.

Reuters

7.30am: China ‘reneged’ on trade commitments

Top US officials accused Chinese officials of backtracking in high-stakes trade talks and said $US200 billion in Chinese goods will face higher tariffs starting Friday.

“Over the course of the last week or so, we’ve seen an erosion in commitments by China, I would say retreating from commitments that have already been made, in our judgment,” US Trade Representative Robert Lighthizer told reporters in Washington.

Mr Lighthizer said the administration would formalize a long-delayed increase in tariffs on $US200 billion of goods to 25 per cent from 10 per cent, effective Friday. The comments from Mr. Lighthizer, who was joined by Treasury Secretary Steven Mnuchin, echoed a tweet from President Donald Trump accusing China of trying to “renegotiate” and warning of raising the tariffs.

Mr. Lighthizer said he expected to continue with talks with Chinese counterparts in Washington on Thursday and Friday. That would mark a delay from previous expectations of a round set to start Wednesday -- one that many observers hoped would yield a deal.

Dow Jones

7.25am: Malaysia extradites ex-Goldman banker

A former Goldman Sachs executive accused in the alleged multibillion-dollar ransacking of a Malaysian state investment fund was extradited to the US and had his initial court appearance in New York.

Roger Ng, who was arrested in Malaysia in November, pleaded not guilty was ordered released on $US1 million cash bail. The court ordered him placed on home detention and electronic monitoring while he awaits trial.

Malaysian and US prosecutors allege that bond sales organized by Goldman Sachs for the 1MDB investment fund provided a way for associates of Malaysian ex- leader Najib Razak to steal and launder billions over several years.

Malaysia’s current government has also filed criminal charges against Goldman Sachs, Ng and another former executive, Tim Leissner, and is seeking $US7.5 billion in compensation from the bank.

Former Goldman Sachs executive Roger Ng, centre, leaves a court in New York. Pic: AP

7.20am: ASX set to open higher

Australian shares are expected to open higher ahead of the central bank’s decision oninterest rates.

At 7am (AEST) the SPI200 futures contract was up 25 points, or 0.40 per cent, at 6,275.0, suggesting a positive start for the benchmark S&P/ASX200.

On Wall Street overnight, the Dow Jones Industrial Average was down 0.25 per cent, the S&P500 was down 0.45 per cent and the tech-heavy Nasdaq Composite was down 0.50 per cent to a record high close.

The Reserve Bank of Australia will announce at 2.30pm (AEST) whether it has cut the cash rate from the record low of 1.5 per cent.

The Aussie dollar is buying US69.90 cents from US69.91 cents yesterday.

AAP

6.40am: US stocks recover after Trump hit

Wall Street stocks finished somewhat lower after staging a partial recovery from steep losses spurred by President Donald Trump’s latest tariff threats against China.

The Dow Jones Industrial Average shed 0.3 per cent, closing at 26,438.48 after having been down nearly 1.8 per cent earlier in the session.

The broadbased S&P 500 dropped 0.5 per cent to 2,932.47, while the tech-rich Nasdaq Composite Index also fell 0.5 per cent to 8,123.29.

Australian stocks are set to open firmly higher after falling yesterday in the wake of Mr Trump’s tariffs threat. At 6.35am (AEST) the SPI futures index was up 39 points.

Trump had vowed that on Friday he would raise tariffs to 25 per cent from the current 10 per cent on $US200 billion in Chinese merchandise, expressing frustration at the pace of US-China negotiations and throwing into doubt the chances of success inreaching a trade deal with Beijing.

Global stocks immediately sold off on the remarks, which suddenly seemed to put at risk months of negotiations.

But US stocks began edging higher soon after trading began on New York exchanges.

Analysts said stocks probably would have stayed down if investors believed the deal really was falling apart in a worst-case scenario of a wider trade war.

“Investors are looking at it as just posturing because these tweets run in stark contrast to what the White House has been saying in the last week,” said Jack Ablin of Cresset Wealth Advisors.

Tom Cahill of Ventura Wealth Management also attributed the market’s partial recovery to viewing Trump’s stance as a bargaining tactic, but “I’m a little more concerned than that,” he said.

“The stock market was anticipating there would be some good news by Friday of this week, not necessarily a trade agreement,but something that really would solidify how close they are to a trade agreement,” Cahill said.

“It is disappointing that we would have this kind of dialogue this late in the game.”

AFP

6.35am: Fed warns on shares, debt

The US central bank warned of persistent risks to the financial system posed by elevated stock prices and historically high corporate debt loads as well as the impact of President Donald Trump’s trade wars.

But major banks and insurance companies appear healthy and there is a low risk they would face a crash crunch during a run by panicked investors, the Federal Reserve said in its latest report on financial stability.

The Fed said conditions had changed little since the assessment made in November, noting the large appetite for risk has kept stock prices relative to expected earnings above their average of the last 30 years, although the situation has eased somewhat.

After a rout in December, the S&P 500, a broad market index comprising the largest US corporations, has now risen more than 15 per cent since the start of the year, touching new record heights.

Corporate debt also has grown faster than the economy for the past decade -- with the fastest growth “concentrated among theriskiest firms,” the Fed report said.

Meanwhile, outreach to market players and experts showed persistent worries about trade and slowing global growth, particularly in China and Europe -- with a possible “no-deal” Brexit and Italian fiscal woes among the key concerns.

AFP

6.30am: World stocks dive

President Donald Trump sent global stock markets plunging by threatening to hike tariffs on $US200 billion of Chinese goods to force the pace in stuttering trade talks between the economic superpowers.

Equities in Asia, Europe and the US were a sea of red as Trump’s remarks rekindled fears of a trade war with potentially devastating consequences for world growth.

Many markets, however, pared early steep losses as analysts suggested that Trump was playing a game of brinkmanship and would ultimately save ongoing trade talks.

Eurozone stocks were in better shape at the end of the European trading day than at the start, but both Frankfurt and Paris were still over one per cent down at the close.

The London market was shut for a public holiday.

Earlier, Asian investors took no chances, inflicting some of the worst falls on the region’s exchanges, with Shanghai plunging more than five per cent, and the Chinese yuan also taking a battering after the president threw a spanner into the high-level negotiations.

AFP

6.25am: Will RBA cut rates?

The Reserve Bank’s monthly board meeting today will be the most closely followed in nearly three years, with the chance of a cash rate cut suddenly looking very realistic.

Nearly all observers are agreed the central bank will act soon after last month’s official data showed inflation slowed to zero in the March quarter. The inflation slowdown made the RBA’s already optimistic inflation target near impossible, and increased the number of economists and analysts who believe the central bank could cut today for the first time in 33 months. But while the market has priced in a near 100 per cent chance of a rate cut by July, futures suggest the RBA may not move this month.

AAP

6.20am: Microsoft offers election tool

Microsoft has announced an ambitious effort it says will make voting secure, verifiable and more transparent with open-source software. Two of the three top USelections vendors have expressed interest in potentially incorporating the software into their voting systems.

The software kit is being developed with Galois, an Oregon-based company separately creating a secure voting system prototype under contract with the Pentagon’s advanced research agency, DARPA.

Dubbed “ElectionGuard,” the Microsoft kit will be available this year, the company says, with early prototypes ready to pilot for next year’s general elections. CEO Satya Nadella announced the initiative at a developer’s conference inSeattle.

Nadella said the program’s software would help “modernise all of the election infrastructure everywhere in the world.”

ElectionGuard is designed to work as a stand-alone product or alongside existing election systems, said Josh Benaloh, a senior cryptographer at Microsoft Research and key contributor to the ElectionGuard project. “It can be used with a ballot-markingdevice. It can be used with an optical scanner, on hand-marked paper ballots.”

ElectionGuard aims to provide “end-to-end” verification of voting in two ways, Benaloh said. First, it lets voters confirm that their votes are accurately recorded. Second, the unique coded tracker it produces registers an encrypted version of the vote that keeps the ballot choice itself secret while ensuring votes are accurately counted. Outsiders such as election watchdog groups, political parties, journalists and voters themselves can verify online that votes were properly counted without being altered.

Microsoft CEO Satya Nadella speaks in Seattle. Pic: AP

6.15am: China negotiators still eye US trip

China says it still plans to send negotiators to the United States for trade talks even after President Donald Trump vowed to raise tariffs later this week, a threat that sent stock markets into a tailspin.

Trump upped the ante as negotiators prepared to meet in Washington on Wednesday for what has been billed as a last-ditch round of negotiations to reach a deal or revive the trade war.

“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump wrote on Twitter on Sunday.

He picked up the issue again on Monday, tweeting: “With China we lose 500 Billion Dollars. Sorry, we’re not going to be doingthat anymore!”

The US leader said tariffs on $US200 billion in Chinese goods would increase from 10 per cent to 25 per cent on Friday. The United States is already applying custom duties of 25 per cent on $US50 billion in Chinese hi-tech products. Trump also renewed a threat to impose tariffs on all Chinese imports to the US -- worth $US539.5 billion last year.

Despite Trump’s tweetstorm, Chinese foreign ministry spokesman Geng Shuang said a Chinese team was “currently preparing to go to the US for negotiations” -- but he did not say when or whether top negotiator Liu He would lead the delegation.

Geng said “positive progress” has been made in 10 rounds of high-level negotiations and that the whole world was watching.

“We still hope that the US can work together with China, walk shoulder to shoulder and strive for a mutually beneficial win-winagreement on the basis of mutual respect,” he said at a regular press briefing.

“This is not only in line with the interests of the Chinese side but also the interests of the US and the international community.”

AFP