ASX clings to 2 point gain as Citi warns of market ‘comeuppance’
Shares closed flat after gaining as much as 0.5pc, while NAB’s chief reflected on his decision to raise capital during the pandemic.
- Balance sheet key in crisis: McEwan
- Policy should do ‘whatever it takes’: RBA
- SEEK warns of writedown as billings slide
- Citi warns of market ‘comeuppance’
That's all from the Trading Day blog for Monday, June 22. The local sharemarket fell as much as 1pc intraday but clawed back losses to finish flat, buoyed by a reversal in banking stocks.
Locally, RBA Governor Philip Lowe told a panel monetary and fiscal policy needed to do “whatever it takes” to support the economy, as he pushed for more ‘economic dynamism’. Elsewhere, James Hardie outperformed after raising its guidance, while Metcash mulled the purchase of Total Tools for $57m. US futures point to gains to come tonight.
8.36pm: CBA Colonial First State hit with proceedings
The corporate regulator has acted on a Hayne royal commission referral and hit Commonwealth Bank with civil proceedings against its Colonial First State unit.
In an ASX statement, CBA said the legal action alleged contraventions of conflicted pay provisions in the Corporations Act, in the arrangements between Colonial First State and CBA for the distribution of Commonwealth Essential Super.
The bank said it was reviewing the Australian Securities and Investments Commission’s claim and would “provide any further update as required”.
CBA entered an enforceable undertaking with ASIC over the issue in 2018, amid concerns that some customers may have incorrectly received personal advice in the sale of the superannuation product in branches.
The legal action comes after CBA last month agreed to sell a majority stake in Colonial First State to private equity giant KKR & Co, although the deal included an indemnity for legal or regulatory action.
At the time CBA chief executive Matt Comyn said the indemnity “was important” to KKR but wouldn’t provide any detail on whether it was set at a capped amount.
The divestment to KKR is yet to close as it requires regulatory and other approvals.
The ASIC action against CBA is the regulator’s latest post royal commission legal case after the bruising the banks took in 2018, around mis-selling and compliance failings across a range of areas including financial advice, life insurance and superannuation.
Last year, the regulator lobbed legal action against National Australia Bank surrounding fee disclosure failures and for charging customers where services were not provided.CBA is also facing a class action relating to superannuation customers being ploughed into the bank’s life insurance policies.
John Durie 8.32pm: Steinert Stockland repositioning
In his more than seven years leading Stockland, Mark Steinert attempted to reposition the $8.6bn company. But the reality is that in that time, its stock underperformed the market by 40 per cent.
Its share price of $3.54 at Monday’s close is broadly where it was when Steinert started in January 2013, although of course it’s been higher and was at $5.47 in March this year.
The questions asked of Steinert ignore the fact that he has done a lot, but the doubters rely on the fact Stockland is a diversified property company with an underperforming retirement portfolio, and still too big a weighting in retail.
When he started at the company it boasted of specialising in the three Rs — residential, retail and retirement.
Steinert stopped that and instead increased investment in the two areas slated for sale: logistics and office.
The logistics asset base has increased from $800m to $2.5bn with a $2.2bn pipeline and office is set to be even larger when a $2.4bn development is completed.
Property is obviously a cyclical game, but with the benefit of hindsight, two areas you would be in are retirement and retail, which were two-thirds of the previous strategy.
Attempts to sell retirement have failed and instead Steinert has attempted improvements.
Eli Greenblat 8.23pm: James Hardie defies downturn
An improving North American housing market despite the economic shocks caused by the coronavirus pandemic has enabled buildings materials business James Hardie Industries to pivot from a downbeat outlook in May to a profit upgrade on Monday that sent its shares up nearly 10 per cent.
James Hardie also signalled it had won market share in North America, where the materials business garners about 80 per cent of its group earnings, as volumes lifted and the company benefited from a leaner manufacturing operation that helped leverage stronger profitability.
The company on Monday said it had adjusted its previous first-quarter 2021 North America adjusted EBIT guide from a range of 22-27 per cent up to 27-29 per cent.
Eli Greenblat 8.03pm: Metcash banks on shopper enthusiasm
Metcash chief Jeff Adams is hoping that this year the grocery, liquor and hardware wholesaler will produce a clean set of financial accounts following another year disrupted by writedowns and impairments, which sank it to a full-year loss of $56.8m for 2020, with sales in the first months of the 2021 financial year booming.
Mr Adams said shoppers were now returning to his retail partners’ independent supermarket chains such as Ritchies and IGA, as well as the wholesaler’s networks of hardware stores, with many coming back to shop for the first time in years to discover refurbished and rejuvenated stores.
This shopper enthusiasm for local and less crowded supermarkets and hardware stores was showing up in Metcash’s latest sales performance, with its core supermarkets arm reporting sales growth (excluding tobacco) of 16.7 per cent for the first seven weeks of the 2021 fiscal year, and hardware sales up 9.4 per cent for the seven weeks from the beginning of May.
Jared Lynch 7.39pm: Uni degree cost changes a ‘recipe for inequality’
Slashing the cost of engineering degrees is only the first step in reviving Australia’s manufacturing capability and combating a significant talent drain as the majority of its ageing baby-boomer workforce retires during the next decade, say industry experts.
From next year newly enrolled engineering students will pay 20 per cent less for their degrees as the Morrison government moves to give students incentives to make “more job-relevant decisions” about their education.
But the initiative, which also will increase the price of law and economics degrees by 28 per cent and more than double the cost of some arts courses, has attracted criticism. Engineers Australia chief executive Bronwyn Evans said that while lowering the cost of engineering degrees might entice students to study its various fields, she warned that increasing the cost of other courses was “a recipe for inequality”.
David Swan 7.09pm: Altium shares plummet
Shares in circuit board software maker Altium plummeted by nearly 10 per cent on Monday, with the company warning its full-year result will miss market expectations after a rise in US coronavirus infections and fresh lockdowns in Beijing.
Altium on Monday said revenue for the 12 months to June 30 would rise but fall short of consensus predictions by analysts.
Monday’s downgrade was the fourth for Altium since COVID-19 hit and its share price was punished as a result, ending down 7.6 per cent at $33.60.
Perry Williams 6.56pm: Transurban traffic responds as restrictions ease
Transurban has seen suburban traffic on its sprawling toll road network rapidly bounce back as COVID-19 restrictions ease but city roads remain sluggish due to the staggered return of office workers.
The toll road giant said average daily traffic on its toll roads for the week of June 14 fell 9 per cent in Sydney, 31 per cent in Melbourne and 14 per cent in Brisbane. Meanwhile North America was still down 43 per cent for the same week.
Still, that marked a rapid recovery after the three main Australian cities saw traffic tumble between 50-65 per cent in the week starting April 12 when tougher lockdown measures were in place.
Within Sydney, Melbourne and Brisbane the recovery still hinges on the location of its toll roads.
Those sweeping through Sydney suburbs including the M5 West and the M7 connecting the north and western parts of the city fell 6 per cent and 8 per cent respectively for the month of June to date. Those crossing into the city including Melbourne’s CityLink remained off 32 per cent for the same period with Sydney’s Eastern Distributor down 26 per cent and Brisbane’s Clem7 lower by 29 per cent.
James Kirby 6.33pm: Morgan Stanley bullish on recovery
An unprecedented rush into investment markets this year by private investors has been given a major boost by global investment bank Morgan Stanley pushing a bullish call for the months ahead on a forecast of improving economic fundamentals and a stronger Australian dollar.
The New York investment bank has been among the most upbeat commentators on sharemarkets this year, with its chief US equity strategist Michael Wilson being one of the first major commentators to “call” the end of the rapid global sharemarket crash when he said markets had “bottomed” on March 16.
The bank has since upgraded its outlook for the Australian sharemarket suggesting the S&P/ASX 200 (currently below 6000) has a 12-month target of 6200.
Now its fixed income team has reiterated bullish sentiment in its mid-year outlook.
The investment bank says US and global markets can rebound despite the deep concerns over the pandemic and rising unemployment.
“The V-shaped recovery we expect should help investors transition into a mid-stage bull market mindset for risk assets by year-end,” says a note from the team led by managing director Matthew Hornbach.
Joyce Moullakis 5.45pm: Marianne Perkovic exits CBA
Commonwealth Bank’s private banking boss Marianne Perkovic, who fronted the Hayne royal commission, is parting ways with the bank after more than 10 years.
The Australian understands CBA staff were informed of the departure on Monday afternoon. She is set to leave CBA in October, and the change comes after the private bank has moved within the last few months to sit within the retail division from CBA’s business banking unit.
Ms Perkovic fronted the 2018 royal commission for CBA as she previously was executive manager of wealth management advice before taking the role as head of private bank in 2016. Prior to her wealth management role, she held various positions at Colonial First State and was chief executive of planning business Count financial.
Robyn Ironside 5.34pm: Toowoomba freight flights take off
A regional Queensland airport has become home to the world’s only new regular flight route since the COVID-19 outbreak began.
Toowoomba’s Wellcamp Airport, which was famously built in just 19-months by owners, the Wagner family, saw off its first freight-only flight to Singapore last week, in a major milestone for the agriculture-rich region.
The service, operated by a Singapore Airlines’ A350-900, followed a doubling of cargo flights to Hong Kong by Cathay Pacific 777-300s, from one to two a week.
Each flight carries an estimated $800,000 worth of fresh produce including red meat, chicken, eggs and dairy, making Wellcamp Australia’s largest regional export hub and on par with Perth and Adelaide.
Toowoomba and Surat Basin Enterprise Food Leaders Australia general manager Bruce McConnell said they were hopeful of adding a second weekly flight to Singapore by the end of the year, and also saw opportunities in the Middle East.
“As a result of COVID-19 and the loss of so many international flights from Queensland, we’re still well below the freight capacity needed by exporters. We’re still well below 50 per cent,” said Mr McConnell.
“There’s still significant supply that needs to be created in the market to get back to normal trading situations.”
Bridget Carter 5.09pm: Sybos selling down Ebos stake
Investment bank Citi and broker Forsyth Barr are selling NZ$323m shares out of Ebos for Sybos Holdings.
Shares are being sold at $NZ21.52 each, a 3.7 per cent discount to the last traded price of NZ$22.35.
On offer is 9.2 per cent of the company or 15 million securities.
It comes after investment bank UBS in November sold shares in Ebos Group on behalf of Sybos Holdings worth $NZ338m ($318m).
On offer at that time was 9.3 per cent of the company, or 15 million securities, with shares sold at $NZ22.50 each.
The company’s shares then were trading around $NZ24.97, and the offer was 9.9 per cent discount to the last close.
Ebos Group describes itself as the largest and most diversified Australasian marketer, wholesaler and distributor of healthcare, medical and pharmaceutical products.
It is also a leading marketer and distributor of recognised consumer products and animal care brands.
4.58pm: Gold miners boom, tech lags
Cautiousness in the market saw a shift to defensive names on Monday, led by a jump in local gold miners. Newcrest put on 3.7 per cent to $30.95 as Northern Star added 4.1 per cent to $13.56 and Saracen was the best performing in the sector with a 8.5 per cent gain to $5.12.
Elsewhere in the resources sector, BHP added 1 per cent to $35.36, Rio Tinto eked a gain of 0.4 per cent to $96.70 and Fortescue edged up by 0.3 per cent to $13.83.
Altium meanwhile took a 7.6 per cent hit to close at $33.60 after warning it wouldn’t reach its previous revenue targets. Elsewhere in the tech space, WiseTech lost 5.6 per cent to $22.08 and Afterpay slipped by 1.3 per cent to $57.94.
Here’s the biggest movers at 1pm:
4.11pm: Shares cling on to 2-point gain
Shares have finished a rocky session just 2 points higher, marking a comeback from losses of as much as 1pc intraday.
An afternoon lift in US futures helped the ASX to add as much as 0.5 per cent, but by the close, the benchmark was higher by just 2 points or 0.03 per cent to 5944.5.
Financials were the key driver, finishing up by 0.6 per cent after a weak start, while industrials dragged by 2.3pc and tech stocks by 1.7pc.
Gold miners and James Hardie outperformed, while Altium was among the worst with a 7.6pc slip after its profit warning.
4.01pm: Balance sheet key in crisis: McEwan
NAB chief Ross McEwan says looking after bank balance sheets was key in managing the coronavirus downturn, citing his own decision to tap the market early on.
“Very early on in this crisis I talked to the board about going for more capital to make sure that we were in a very strong position leading into this crisis, coming through this crisis for our customers and then also being very strong at the tail end, no matter what shape this crisis takes,” he said to Bloomberg’s online investment conference.
The bank boss said the COVID-19 crisis wasn’t over, but that co-operation from government, regulators and the central bank had been key in the recovery actions to date.
Mr McEwan added that Australian banks will be less profitable in the short term, in the wake of the coronavirus pandemic and amid very low interest rates, but will recover over time.
Further, he noted the shift to virtual banking tools during the lockdown, and said the trend could accelerate plans to use more financial technology.
Ross McEwan, Group CEO & MD, @NAB, who is known as the "turnaround king," shares some of the lessons he learned from the previous financial crisis with @YvonneManTV on #BloombergInvest. It's all about having a "very strong balance sheet." https://t.co/G1xdKlSscm pic.twitter.com/xRxIefh75k
— Bloomberg Live (@BloombergLive) June 22, 2020
3.27pm: Risk aversion to dent medium-term outlook
RBA governor Lowe was optimistic on the near-term outlook but notes that higher risk aversion and lower population growth could see the economy “meander” in the medium term.
After the central bank boss today appeared at an ANU leadership forum, NAB economist Kaixin Owyong notes Dr Lowe’s warning on the next few years of recovery.
“Lowe warned that prior to the crisis Australia’s economy has lost some of its dynamism, with, for example, a slower rates of formation of new businesses,” she summarises.
“This is likely to be exacerbated by risk aversion and weak population growth – or the “shadow” of the crisis – which would see subpar economic activity for years. Faced with these challenges, the governor highlighted the importance of structural reform and uptake of technological change to support growth.”
Further, she notes Dr Lowe is unfazed by the current level of the Australian dollar, and the effectiveness of monetary policy, but preferred a lower currency.
Read more: Shadow on our economy may last for years
3.18pm: Petrol prices rise to 12-week highs
National petrol prices rose to their highest levels in 12 weeks, as crude prices continue to rebound.
Figures from the Australian Institute of Petroleum show the average price of unleaded petrol rose by 0.6 cents last week to 121.3 cents per litre.
The metropolitan price fell by 1.5 cents to 122.1c but the regional price was up by 4.9c to 119.8c.
Read more: Cheaper gas not realistic
[REPORT] Petrol prices hit 12-week highs: The national average price of unleaded petrol rose by 0.6 cents to a 12-week high of 121.3 cents a litre last week https://t.co/CfQ0gPd0x7 #ausbiz #ausecon pic.twitter.com/CJCBuDYZOk
— CommSec (@CommSec) June 22, 2020
Cliona O’Dowd 3.17pm: Deloitte cuts 700 jobs
Professional services firm Deloitte has laid off 7 per cent of its 10,000-strong Australian workforce as it looks to protect the business amid plummeting revenue due to the COVID-19 crisis.
Deloitte partners learned of their fate at 12pm on Monday, while the rest of its staff were told at 2pm.
A Deloitte spokesman told The Australian the cut of 700 jobs had been made across most business units and internal client service departments, but that there were currently no staff reductions in its external audit practice.
While most business units lost 7 per cent headcount, the consulting and advisory parts of the business were harder hit. Deloitte would not provide further details, confirming only it was more than 7 per cent.
Bridget Carter 3.04pm: QBE eyes CBA, Westpac insurance
DataRoom | QBE is believed to be in pursuit of the Commonwealth Bank and Westpac general insurance operations, collectively worth about $1.7bn, according to sources.
Both Westpac and its larger rival Commonwealth Bank are yet to appoint a banking adviser to sell the units, but they are said to be earmarked for sale.
Some estimate that the CBA operation could be worth about $1bn, while the Westpac division may yield about $700m for the banking group. Also looking at the business is thought to be Australian listed insurer IAG and Allianz.
QBE is close to Goldman Sachs, Morgan Stanley and JPMorgan while IAG also counts Goldman Sachs as a close ally along with UBS.
IAG’s chief financial officer Nick Hawkins, who is one of the leading internal candidates to replace outgoing boss Peter Harmer, is understood to have flagged internally in a recent address to staff that merger and acquisition activity is on the agenda for the company.
2.27pm: Banks to receive further capital relief
Citi analyst Brendan Sproules sees bank shares rising further based on the “attractiveness of their dividend yield”, as he forecasts higher than consensus dividend growth out to FY22 on milder-than-expected loan loss outcomes.
Mr Sproules notes that anecdotal feedback from industry participants suggests regulators could be now exploring the possibility of providing further capital relief to loan deferrals that need extending beyond 6 months.
“It has been suggested that loans that need further deferral would be characterised into four buckets, with three of the four eligible for further capital and provisioning relief in some form,” Mr Sproules says.
APRA announced last week that standardised banks will not need to revalue mortgages as part of satisfying APS 112.
“Every stress test undertaken since the GFC has witnessed falling house prices drive an accelerating decline in capital ratios at standardised banks (but) not anymore,” he says.
With recent scenario analysis undertaken by the banks showing they are well capitalised to withstand a number of scenarios, Mr Sproules notes that additional capital relief on deferred mortgages would further bolster this position, as well as insulate losses to the banks by supporting house prices.
And if the worst of losses are avoided, dividend yields should be restored as bad & doubtful debts diminish and excess capital becomes material.
1.51pm: Airport recovery hopes pushed out: JPM
Hopes of a recovery in Sydney Airport’s passenger numbers has been pushed out further into 2021, prompting a near 20pc cut to JP Morgan’s forecasts for the stock.
The broker revised lower its estimates for international passenger growth for 2020, “given the reduced likelihood of broader international travel until 2021”.
They tip passenger numbers to be at roughly half of pre-virus levels in 2021, down 20pc in the year following and approach 2019 levels in 2023/24.
“We assume a 95pc drop in 2Q, followed by a 90pc decline in 2H20. As a result, our FY20 net operating result forecast is lowered to 9.6c (-18pc on prior), we assume no distribution is paid in 2020 and forecast its cash flow coverage ratio to drop to ~1.6x,” the broker writes.
“We do not believe SYD will be forced to raise equity, but the risk is increasing as international PAX recovery is being pushed out.”
The broker has a Underweight rating on the stock with a $5.10 price target.
SYD last traded down 1.1pc to $5.99.
1.34pm: ASX, dollar rebound from daily lows
Australian financial markets have shrugged off news of the worsening coronavirus pandemic over the weekend, even as the WHO records the largest daily increase in cases.
The S&P/ASX 200 share index rose is rising 0.44pc to 5968.6 after falling 1pc to a four-day low of 5881.1.
Similarly, the Australian dollar is up 0.36pc to US68.56c after falling 0.5pc to US68.05c. Australian 10-year bond yields are little changed.
It comes amid a surprising improvement in some global risk assets. S&P 500 futures rose as much as 0.5pc after falling 1pc in early trading and LME copper futures rose 0.8pc after falling 0.6pc.
While there’s been no positive news of late, Bloomberg’s top US story is about a potential expansion of QE.
“A ‘buy everything’ rally beckons in a world of yield curve control”, with the Fed and BoE potentially following Australia with yield curve control, Bloomberg says.
Gerard Cockburn 1.16pm: Second wave of super withdrawals to come
Early release super claims are forecasted to surpass the $16bn mark, with a new wave of requests expected to hit the country’s superannuation sector in the coming 2021 financial year.
Weekly figures released by the Australian Prudential Regulation Authority show $15.9bn has been siphoned from the country’s near $3tn retirement pool so far, from workers claiming financial hardship due to the coronavirus pandemic.
As at June 14, 2.3 million fund members had applied for withdrawals through the federal government’s key COVID-19 support measure, requesting an average payment of $7,486 each.
Read more: ATO to crack down on people rorting early super scheme
1.01pm: Shares rising as banks lift
Local shares have recovered from an early 1pc slip to trade up by 0.3 per cent at lunch, led by gains in materials and financials.
At 1pm, the benchmark ASX200 is up by 20 points or 0.34pc to 5962.6.
Gains in the major banks are key to the market’s reversal – all four now trading in the green after earlier weakness – CBA is higher by 1.4pc, Westpac by 1.1pc, ANZ by 1.8pc and NAB by 0.7pc.
Elsewhere, travel stocks are under pressure as Victoria’s rising coronavirus tally threatens the reopening of state borders, while Altium is taking an 8pc hit after warning it wouldn’t reach its annual target.
Here’s the biggest movers at 1pm:
Patrick Commins 12.31pm: Citi warns of market ‘comeuppance’
Citi chief global economist Catherine Mann has warned of a “comeuppance” in financial markets as a result of the “striking disconnect” between rallying asset prices and the continued weakness in pandemic-struck real economies around the world.
Speaking on an ANU Crawford School panel alongside Reserve Bank boss Philip Lowe, Ms Mann said that Citi’s top analysts “are very concerned about this disconnect”.
“They are very worried there is going to be a comeuppance for financial markets,” she said.
The potential for an investor reckoning did not apply just to sharemarkets, Ms Mann said. It also applied to corporate bond prices, where yield spreads in investment and high yield credit have experienced “quite a lot of narrowing, based on expectation either that the economy is going to perform a lot better than we expect, or on the expectation that there is a permanent backstop from the (US Federal Reserve)”.
On the former, Ms Mann said the global economy would not recover to its pre-pandemic level of output until late 2021 and for many countries into 2022.
“Equity markets are looking forward to next year when everything will be better. Next year (will be) only as good as last year. That’s not good enough for an awful lot of people and shouldn’t be good enough for the equity market as well.”
While there was evidence of a “V-shaped” recovery in manufacturing sectors, businesses reliant on discretionary consumer spending would suffer a delayed “L-shaped” path as the sectors such as tourism, travel, hospitality and entertainment all deal with a more cautious consumer and the impact of living with some level of social distancing measures.
Read more: Shadow on economy may last for years: Lowe
12.04pm: Travel takes hit as border threat rises
Local travel names are taking a hit amid fear of a domestic second wave of coronavirus which could push back the reopening of state borders.
Positivity that Australia was on its way toward recovery last week prompted a lift in listed travel agents, but that optimism has been sapped in the morning session.
Victoria has today confirmed 16 new cases of coronavirus, including a fourth protester from the Black Lives Matter rally.
The Australian Health Protection Principal Committee, the federal government’s chief advisory body, was on Sunday briefed about the outbreak and noted a number of Melbourne local government areas were now a “focus of the current outbreak concern”.
“The AHPPC strongly discourages travel to and from those areas until control of community transmission has been confirmed,” it said.
Webjet is trading lower by 5.5pc as Corporate Travel slips 7.6pc and Flight Centre sheds 5.5pc.
Qantas is trading down by 3.9pc, while Sydney Airport is lower by 1pc.
Read more: Victoria risks border reopening
11.46am: Austal jumps on $73m US funding boost
Shipbuilder Austal has secured $US50m ($73m) in US government funding to expand its steel shipbuilding capability and capacity over the next 24 months.
In a notice to the market this morning, Austal said the US Department of Defense had pledged the money as part of its commitment to expand critical domestic shipbuilding and maintenance capacity.
“It is likely that Austal will match the DPA Agreement funding which would take the total investment to circa $US100m,” the ASX-listed company said.
ASB last traded up 9.2pc to $3.67.
Read more: Full steam ahead – Austal call to up export finance
11.39am: ASX climbs into positive
Australia’s share market has recovered from a sharp intraday fall in line with US futures.
The S&P/ASX 200 rose 4.6 points to an intraday high of 5947.2 points after falling 1pc to a 4-day low of 5881.1.
It came as S&P 500 futures rose 0.3pc after falling 1pc intraday.
Sarah Elks 11.34am: Final Virgin bids lodged
The final bids have been lodged today for the sale of troubled airline Virgin Australia.
The Queensland government ordered state-owned Queensland Investment Corporation to give “commercial advice” on the sale, with the view the government could piggyback on one of the final two bids to own a stake in the airline, which is based in Brisbane.
QIC chief executive Damien Frawley told a parliamentary committee the final bids were lodged this morning, and the process was subject to detailed confidentiality agreements.
“We’ve had strong engagement with (Virgin’s) administrators and all bidding parties, including the final two bidders,” Mr Frawley said.
“We have been pleased with the engagement so far and will continue to actively pursue the state’s objectives.”
The final two bidders are US-based private investment firm Bain Capital and global investor Cyrus Capital Partners.
Read more at our coronavirus live blog
11.22am: Shares trim early fall to 0.1pc
Shares are trimming their early 0.8pc fall, down by just 8 points or 0.1 per cent in the second hour of trade.
It comes as the major banks reverse early losses, and gold stocks push higher.
Commonwealth Bank is now up by 0.42pc as ANZ adds 0.27pc but Westpac and NAB are both still lower, by 0.3pc and 0.4pc respectively.
BHP is higher by 1.1pc after an early blip, while James Hardie adds 4.8pc.
ASX200 last at 5937.8.
Nick Evans 11.16am: Strandline wins Federal support
WA mineral sands developer Strandline has won a $150m vote of confidence from the Federal Government’s Northern Australia Infrastructure Facility for its Coburn mineral sands project in WA’s north.
Strandline said on Monday NAIF had would provide up to $130m in cheap debt towards construction of its “core mine infrastructure”, and another $20m to fund a potential access road linking the mine to Denham, near Shark Bay in WA.
Strandline still needs to land another $110m in debt an equity to get the project underway, but a cornerstone commitment from NAIF is likely to make that task far easier.
The company has said Coburg will produce 34,000 tonnes of “premium zircon” products a year, plus 54,000t of zircon concentrate and 110,000t of ilmenite and 24,000t of rutile – making the project worth about 5 per cent of the global zircon market.
Strandline has said it has already signed binding offtake deals worth about 66 per cent of the project’s revenue for the first five to seven years of its operation, with capital costs tipped at about $260m.
Strandline shares enjoyed a strong run ahead of the announcement, climbing from 13c a month ago to 22c on June 18.
Its shares were last up 2c to 23.5c.
11.06am: Australia needs ‘economic dynamism’: RBA
Australia doesn’t have a “zombie economy” but it needs more “economic dynamism”, according to the RBA.
“I’m not worried about a zombie economy and I don’t think we have that in Australia,” RBA Governor Lowe says in an ANU panel discussion.
“But there is a more important issue and that’s a lack of economic dynamism in Australia and I have been worried about that for a while.
“I don’t think you can blame zombie firms for that. It’s due to society’s attitudes to risk and entrepreneurship taking and (over) re-regulation.”
He adds that a comprehensive reform agenda the government would help the economy.
Max Maddison 11.04am: Beijing virus cases grow to 227
The resurgence of coronavirus cases in Beijing has continued to build, despite Chinese health authorities insisting that the outbreak of COVID-19 cases was under control.
Beijing reported 22 new domestically transmitted cases on Sunday, with three suspected cases and three asymptomatic cases. The fresh infections bring the number of cases to 227 since the outbreak began, with the source of infections linked to the wholesale Xinfadi food market.
The outbreak includes another hotspot at the PepsiCo food-processing plant, with production being halted after at least one employee tested positive for coronavirus. Authorities wouldn’t confirm the number of confirmed cases linked to the plant.
All the infectious cases are currently being treated in hospital.
Read more: ‘Everyone should be concerned about Victoria’
10.55am: Policy should do whatever it takes: RBA
RBA Governor Philip Lowe backs monetary and fiscal policy doing “whatever it takes” to support the economy, but says it will eventually need to switch to encouraging investment in productive capacity.
“We have been building a bridge to get to the other side …(but) … once we get to the other side, we will have the shadow from the virus … so we will have a lower growth rate,” he says.
“If we don’t address those areas (R&D and productivity) we will just meander along.”
“It’s the right thing to borrow now but it will be the right thing in the future to invest in our productive capacity.”
10.46am: James Hardie jumps as outlook brightens
Building materials supplier James Hardie is outperforming in early trade, adding more than 5pc early after lifting its guidance for the year ahead.
The group said housing market activity in North America had steadily improved over the past seven weeks, despite the COVID-19 pandemic.
In the first hour of trade, JHX jumped to $28.90, and last traded up 3.6pc to $27.67.
10.44am: Rates to stay low for years: RBA
RBA Governor Philip Lowe argues against any change to the policy framework and says rates would be low in any case.
“I don’t think it’s the right time now to change the monetary policy framework,” Dr Lowe tells an ANU panel.
He says the objectives of the RBA set out in legislation have “withstood the test of time and a very high level they continue to guide our policy”.
Moreover, Dr Lowe says “at the moment it’s not clear there’s a better framework than the one we have”.
“Whatever framework we have I think it’s likely we would have interest rates at their current level for years. I think we will have low interest rates for years to come whatever the framework.”
10.27am: Monetary policy still independent: RBA
RBA Governor Philip Lowe pushes back on the notion that monetary policy easing offshore has reduced the RBA’s independence.
Speaking at an Australian National University forum he says “I don’t see any loss of monetary independence here … We can still choose the measures that are suitable for our own needs.”
But in terms of the exchange rate, Dr Lowe notes that if other countries ease policy and Australia doesn’t, the dollar can be expected to appreciate.
“At some point that could become a problem but we haven’t reached that point yet,” he says.
“At the moment it’s extremely hard to argue the dollar is overvalued. I would like a lower one (exchange rate), but I’m not worried about a loss of monetary policy independence.”
10.11am: ASX takes 0.8pc hit
Shares are taking a 0.8pc hit in early trade, as rising virus numbers rattle risk sentiment.
At the open, the benchmark ASX200 is off by 49 points or 0.82 per cent at 5894.1, after clinching a minor gain in Friday’s session.
All sectors bar materials are trading in the green, buoyed by strength in defensive gold stocks, while tech and industrials are worst hit.
The rising coronavirus threat is hitting Flight Centre, who is trading lower by 4.7pc, while Qantas trades off by 2.5pc.
10.07am: a2 Milk confirms acquisition talk
a2 Milk has confirmed speculation its in talks to buy NZ dairy Mataura Valley Milk.
The deal, as reported by The Australian’s DataRoom, is for the $375m dairy in New Zealand.
a2 confirmed “it has had, and continues to have, various discussions with a number of parties in relation to potential strategic options relating to participation in manufacturing capacity and capability”.
Read more: a2 Milk has NZ dairy in its sights
10.03am: Adairs chairman resigns
Adairs chairman Michael Butler has announced his intention to retire from the board at its October AGM.
Mr Butler has agreed to remain on the board until the meeting, or until a successor is chosen.
He had been on the retailers board since 2015, and helped to oversee the company’s listing on the ASX.
10.00am: CBA, Bendigo worst hit if rates go negative
Macquarie Equities says higher deposit-funded banks would be more adversely impacted if the RBA introduced negative rates, as they would lose their funding cost advantage, compared to those with a greater proportion of wholesale funding.
Because of that, it says negative rates in Australia would have relatively less impact on NAB and more impact on Commonwealth Bank and Bendigo Bank. And if NZ rates go negative, ANZ would be more disadvantaged because of its overweight exposure to NZ.
Macquarie notes that while the RBA has maintained its position of 25 bps being the lower bound, the RBNZ contacted banks on May 7, requesting operational capability to handle negative rates.
“In this context, we believe it is useful to understand the potential implications of negative rates on the banking sector,” Macquarie says.
“While the risk of negative rates appears to have diminished in recent weeks, should economic conditions deteriorate, we expect these considerations to remerge.”
Ben Wilmot 9.54am: Stockland exit the first post pandemic
Stockland chief executive Mark Steinert will step down in one of the first major changes in the property sector in the wake of the coronavirus crisis.
The former UBS funds and property chief ran the company for seven and a half years and broadened its strategy away from the previous focus on the 3Rs – residential, retirement living and retail property.
Stockland has been hit hard by the recent crisis with its shopping centre portfolio and residential projects coming under pressure, and its shares hit hard in March, although they have partially recovered on the back of optimism about the housing market.
The company’s focus has shifted towards logistics property and new office projects as well as its town centre style shopping centres. Before the crisis it also began securing more capital partners on major projects to lift returns.
Stockland says it is in a strong liquidity position but it has also faced reports that it would consider an equity raising in order to restore its balance sheet.
Bridget Carter 9.47am: Challenger raising $300m
DataRoom | Challenger is raising $300m through a placement and share purchase plan undertaken by Goldman Sachs and Macquarie Capital.
Shares are being sold at $4.89 each, an 8.1 per cent discount to their last closing price of $5.32.
The placement will see the company secure $270m.
Funds will be used to strengthen the company’s balance sheet.
More to come
Bridget Carter 9.44am: Stockland boss to retire
DataRoom | Stockland boss Mark Steinert will retire as managing director of the country’s largest residential developer which he has held for more than seven years.
In a notice to the market this morning, Stockland chairman Tom Pockett said the company had agreed to a “flexible period of transition” as the company searches for Mr Steinert’s replacement.
9.28am: SEEK warns of writedown as billings slide
SEEK says its June billings across Australia and Asia are down by as much as half of the previous year, as it warned of a $230m impairment to come at its upcoming results.
The employment classifieds group said the rate of billing had recovered somewhat from a heavy blow at the end of March and early April, but even as the trends were improving, June volumes were still down between 40pc and 50pc from the same time last year.
SEEK set out estimates for full year revenue of $1.575bn, and earnings of $410m, noting also that it would write down the value of its Brazilian and Mexican businesses by as much as $170m, and a further $60 write down of its minority stake in four early stage investments.
“While our near-term profitability has been impacted by the Virus, our largest businesses remain highly defensible and well placed to capitalise on our large opportunity set,” chief Andrew Bassast said.
“Job creation will be at the core of any economic recovery and SEEK is well placed to play a meaningful role in connecting the most relevant candidates to hirers across our major markets.”
9.26am: Challenger halted for raise
Shares in annuities provider Challenger have been halted ahead of the open, pending further detail of a capital raising.
The group this morning requested the half until the open of trade tomorrow, “in relation to an institutional placement and share purchase plan”.
CGF last traded at $5.32.
9.19am: What’s impressing analysts, what’s not
- Damstra Holdings started at Buy: Shaw & Partners
- Eclipx raised to Overweight: Morgan Stanley
- Evolution cut to Neutral: Macquarie
- McMillan Shakespeare started at Overweight: MS
- Nick Scali target price raised 39pc to $8.20: Citi
- oOh!media cut to Hold: Morningstar
- Orora raised to Buy: Morningstar
- Ramelius started at Buy: Shaw & Partners
- Sigma Healthcare raised to Neutral: UBS
- Sydney Airport cut to Underweight: JP Morgan
9.15am: Oz Minerals to buy Cassini Resources
Oz Minerals said it has agreed to buy Cassini Resources for $68m to gain full ownership of the West Musgrave copper-nickel project.
Oz Minerals said it’s offering $0.15 of its own stock for every 68.5 shares held in Cassini Resources, supplemented by a $0.01/share cash return.
As part of the deal terms, Cassini will spin off its Yarawindah Brook and Mount Squires assets into a new company called Caspin Resources that is targeting a listing on the ASX.
“Caspin may also receive additional cash payment(s) of up to $20m in total in the event of a potential future sale of all or a portion of Oz Minerals’ interest in West Musgrave (if such future sale is above the implied value of this Transaction),” Oz Minerals said.
Dow Jones Newswires
9.06am: Virus resurgence to trim ASX
Australia’s share market is set to fall alongside regional markets amid coronavirus jitters.
Friday night S&P/ASX 200 futures relative to fair value pointed to a 0.3pc rise even as the S&P 500 fell 0.6pc on worsening infection rates in several US states.
But with the virus accelerating globally over the weekend, S&P 500 futures fell as much as 1pc this morning, and the Australian dollar dipped 0.5pc.
S&P 500 futures have pared their fall to 0.2pc and AUD/UD is just 0.1pc below Friday’s NY closing level now.
The US reported the most cases since June 8 with a rapid increase in Florida, Texas and Arizona, and California reported its highest daily infection rate to date.
Victoria re-entered a state of emergency and a global increase in coronavirus cases hit a single-day record according to the WHO, with a 183,000 rise led by Brazil and the US.
Focus turns to RBA Governor Lowe’s panel participation on the Global Economy and COVID-19 from 9am AEST.
8.58am: Altium warns results will fall short
Altium has warned its full-year result will miss market expectations after fresh lockdowns in Beijing and a rise in US coronavirus infections crimped already below-par sales.
The circuit board software company on Monday said revenue for the 12 months to June 30 would rise by a solid amount, but fall short of consensus predictions by analysts. Citi this month forecast $US193 million in revenue, which it said was in line with market consensus.
Altium last month warned it was unlikely to hit an aspirational fiscal 2020 target of $US200 million because customers were preserving cash. On Monday, the company said its sales run-rate was falling behind analyst consensus before the Beijing lockdown and increased infection rates in the US.
Altium said it had closed its Beijing office and staff were closing sales remotely. Historically, Altium closes a significant amount of business in the last two weeks of June.
“Our strategy to support our customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth and will get us close to or just surpass our key target of 50,000 subscribers,” Chief Executive Aram Mirkazemi said in a filing to the Australian Securities Exchange.
“However, we are feeling the revenue impact of this strategy.”
Dow Jones Newswires
8.49am: Transurban to pay 16c 2H dividend
Transurban will pay out an interim dividend of 16 cents per share for the past six months, as traffic on its toll roads recovers in line with easing government restrictions.
The newly declared dividend takes the total FY20 distribution to 47 cents per share.
Transurban said Australian markets were improving significantly from the collapse in traffic in April, while its US toll road in Washington was recovering slower and tolls at its Canadian A25 road had been reinstated after suspension during the worst of the virus.
“While restrictions are progressively easing across each of our markets, social distancing measures prevail which have the potential to influence traffic through the recovery,” Transurban said.
“Mobility trends will be impacted by capacity on roads (supporting on road experience), personal preferences, and government public transport capacity restrictions.”
The utility group said it anticipated FY21 distribution in line with free cash, excluding capital releases.
8.20am: Metcash mulls $57m tools buy
Retail conglomerate Metcash says it’s in negotiations to buy 70 per cent of professional tool company Total Tools Holdings for about $57m.
It says the proposed acquisition is subject to the negotiation of a final binding transaction documentation, which will be undertaken under a period of exclusivity.
The move comes as Metcash consolidates its hardware business, and would pave the way for buying the remaining 30 per cent.
Metcash says Total Tools is the franchisor to the largest tool retail network in Australia with 81 bannered retail stores nationwide. It targets professional tradespeople who require high quality tools for commercial use and its store network generated sales of $555m for the 12 months to December 2019.
Metcash says it can’t give an assurance that talks will lead to a binding transaction and says the deal is subject to approval by the ACCC.
7.55am: James Hardie lifts forecasts
Building products giant James Hardie has raised its guidance for the first quarter of fiscal year 2021, ending on June 30.
It says guidance for North America exteriors volume will be in a range of flat to 2pc growth compared to the prior corresponding period, while it has increased and narrowed its previously guided range for its North America adjusted EBIT margin, from 22pc to 27pc, to 27pc to 29pc.
James Hardie has also increased liquidity guidance from greater than $US600m at June 30 to greater than $US640m, and puts guidance for Australia volumes at flat compared to the previous corresponding period.
CEO Jack Truong said housing market activity in North America had steadily improved during the past seven weeks, despite the COVID-19 pandemic.
“The better than expected underlying housing market during our Q1 FY21 combined with our continued focus on customer engagement to drive market share gains, resulted in volume growth in the second half of the first quarter.
“This improved volume result and our continued execution of lean manufacturing led to the increase of our adjusted EBIT margin guidance range.
“In addition, the quick and decisive capital management and working capital actions that we took beginning in mid-March continue to drive an improved liquidity and leverage position.”
7.30am: Dollar dips
The Australian dollar was buying US68.10 cents at 7am (AEST), down from US68.59 cents at the close of trade on Friday.
Cliona O’Dowd 5.50am: ASX tipped to open lower
The Australian sharemarket is expected to start the week in negative territory, following weak leads from US markets amid a global surge in COVID-19 infections.
Futures are pointing to a 1.3 per cent drop at the open on Monday after Wall Street swung into the red late on Friday as record COVID-19 cases were tallied in Florida and Arizona and tech giant Apple moved to temporarily shut 11 of its US stores.
“It’s not going to be a positive start for Australia and, of course, the big issue at the moment now is the concern around the second wave of infections, especially in the US,” CommSec senior economist Ryan Felsman said.
“In Australia, attention is also now being directed towards Victoria, with potential tightening of restrictions on the back of a pick-up in new cases.”
US sharemarkets rose early on Friday after reports circulated that China was planning on increasing purchases of US farm goods following recent talks in Hawaii, but the positive sentiment quickly turned negative as COVID-19 took centrestage.
By the close, the Dow had swung a total of 500 points, closing 208 points, or 0.8 per cent, lower at 25871.46. The S&P500 slipped 0.6 per cent to 3097.74, while the Nasdaq finished up just 3 points at 9946.12. The S&P 500 quarterly rebalance contributed to the volatility, Mr Felsman said.
In a data-light week, comments from Reserve Bank governor Philip Lowe, who is due to take part in a panel discussion on the global economy and COVID-19 at the ANU Crawford Leadership Forum on Monday, will be closely watched.
Concerns about the growing virus numbers in Victoria, which on Saturday recorded its biggest jump in daily cases in two months, will also be watched for in sentiment ratings from ANZ and Roy Morgan on Tuesday.
5.40am: More stocks driving US rally
High-flying technology companies have helped the US stock market claw back most of its losses for the year. Now, other stocks are helping to carry the load.
Some market-breadth indicators have hit new highs this month, a sign that the stock market’s comeback is widening after weeks of concentrated outperformance this spring from large-cap technology stocks. Finally, after brief periods of rotating leadership, a wider-ranging group of stocks is rising in lock-step.
Stocks from Clorox Co. to Eli Lilly & Co. to Danaher Corp. set new highs last week, pulling the S&P 500 up 1.9pc and trimming its losses for the year to 4.1pc. For investors who found themselves caught in the midst of the choppy trading days, it was a respectable outcome in the face of looming coronavirus uncertainties.
Yet for those who parse the internals of the market, things looked much more optimistic: Technical measures are suggesting that stocks have more room to run in the months ahead.
Signs of market breadth have been expanding lately, and earlier this month, indicators flashed their most bullish sign yet: More than 97pc of the stocks in the S&P 500 traded above their 50-day moving averages, a measure that analysts use to track momentum and breadth. That marked a high since at least June 2010, according to Dow Jones Market Data, and almost doubled the percentage of stocks that were trading at such levels in early May.
“It’s staggering,” Brian Levitt, global market strategist at Invesco, said of the indicator’s recent high. “Sentiment shifted so significantly in a very short period of time.”
This week, investors will be watching consumer-spending and new-home -sales data to gauge the pace of the recovery. Earnings reports from companies including Nike Inc. and Darden Restaurants Inc., which operates brands including Olive Garden, will offer further insight.
Dow Jones
5.30am: Wall St recap
The Dow and S&P 500 finished lower on Friday, giving up early gains after Apple announced that due to rising coronavirus cases, it would close some stores that had reopened.
All three major Wall Street indices still finished up for the week, but the broadbased Dow Jones Industrial Average ended the session down 0.8 per cent at 25,871.46, while the S&P 500 shed 0.6 per cent to 3,097.74.
The tech-rich Nasdaq Composite Index finished narrowly positive, rising less than 0.1 per cent to 9,946.12.
Stocks enjoyed a strong morning, but lost ground after Apple said it was re-closing 11 stores in Arizona, North Carolina, South Carolina and Florida, states where COVID-19 cases are rising.
Maris Ogg of Tower Bridge Advisors said Apple’s move reflects “the way this virus cycles geographically” and shouldn’t meaningfully affect the outlook for the US.
“We have some major things that can be working toward improvement,” Ogg said, pointing to the bounce from reopening the economy and rising strength in the housing market.
Among individual companies, AMC Entertainment fell 2.1 as it reversed course on its safety policy, saying it would require face masks of all customers after its planned July reopening. The company previously said it would defer to local government policy.
Cruise companies Carnival, Royal Caribbean and Norwegian Cruise Line all lost more than five per cent following an announcement from the Cruise Line International Association trade group saying it was voluntarily extending a suspension of operations through September 15, beyond the July 24 restriction from the US Centers for Disease Control and Prevention.
AFP
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