ASX closes at 12-year high as RBA, APRA spur bank rally while dollar slides

The chances of the RBA cutting in June fuelled another big day for banks and property.

The ASX turned positive in afternoon trade. Picture: AAP

That’s it for the Trading Day blog for Tuesday, May 21. Local stocks extended yesterday’s election-fuelled surge as a proposal from APRA and signals of a potential June rate cut gave bank investors another reason to cheer. Lynas ended the day in a halt after surging 14.5pc after unveiling new investment plans.

5.14pm: Tokyo stocks end down

Tokyo stocks closed lower on Tuesday, tracking losses in global markets as investors fret over the latest flare-up in the China-US trade war involving Chinese tech giant Huawei.

The benchmark Nikkei 225 index fell 0.14 percent, or 29.28 points, to 21,272.45, while the Topix index was down 0.30 percent, or 4.62 points, at 1,550.30.

“The Tokyo market was hit by aftershocks of the Huawei dispute,” Toshikazu Horiuchi, a broker at IwaiCosmo Securities Co. Ltd, told AFP.

Yutaka Masushima, market analyst at Monex, said in a note: “The US market continued its losses on worries over business stopping between US companies and China’s Huawei.” On Wall Street, shares of technology companies fell sharply after Google began to sever ties with Chinese telecoms giant Huawei amid the US-China trade war.

In Tokyo, tech firms were largely lower as electronic parts maker Rohm dropped 1.16 percent to 6,760 yen, with chip-making equipment manufacturer Tokyo Electron down 1.87 percent at 15,420 yen.

Automakers were mixed as Toyota was down 0.50 percent at 6,494 yen but Honda rose 0.10 percent to 2,832.5 yen.

SoftBank Group rallied 3.52 percent to 10,705 yen after the top official at the US communications regulator on Monday announced support for the proposed $26-billion merger between Sprint and T-Mobile.

SoftBank owns the majority of Sprint shares.

The dollar fetched 110.15 yen in Asian afternoon trade, against 110.04 yen in New York late Monday.

AFP

4.35pm: Barclays bets on June RBA cut

Barclays chief economist Rahul Bajoria has joined the rush to predict earlier interest rate cuts in Australia.

He now expects official interest rate cuts in June and August, whereas previously it expected rates to remain unchanged.

Mr Bajoria notes that markets are now pricing nearly 90 per cent probability of a rate cut at the 6 June meeting and a 20 per cent chance of a second cut in August.

4.20pm: Banks bouy ASX for another gain

The local sharemarket surged to a fresh 12-year high on Tuesday, rounding out the fifth straight day of gains.

At the close of trade, the ASX benchmark S&P/ASX200 had risen 24.001 points, or 0.37 per cent to 6500.102 points. The broader All Ordinaries index had gained 19.698 points, or 0.3 per cent, to 6584.398 points.

After a negative start, the local market turned positive in afternoon trade on increased likelihood of a near-term rate cut.

The gains came after the ASX 200 surged to a near-12-year high on Monday following the coalition’s victory at the federal election on the weekend.

The market has risen 15 per cent for the year so far in what has been the best start to the year since 1991.

“It’s been quite a volatile day, a lot of swings and roundabouts and there were good reasons for that.

“The market followed the US and European lead in early trading and the index tanked but it’s pretty clear there’s ongoing support for the banks and that’s where the rally back into positive territory started,” said CMC Markets chief market strategist Michael McCarthy.

“For the second day in a row, the banks are top performers… the adding to those extraordinary gains yesterday suggests the election result was still at play in our market.

It followed the release of minutes from the Reserve Bank’s May meeting, which appeared to set the scene for interest rate cuts next month.

The banks extended their gains from Monday, boosted by a proposal by the Australian Prudential Regulation Authority to loosen regulations on responsible lending laws.

Westpac lifted 2.7 per cent to $28.50 while ANZ rose 2.1 per cent to $28.43. Commonwealth Bank put on 2 per cent to $78.97 while NAB added 1.5 per cent to $26.20.

BHP slipped 0.7 per cent to $37.94 while Rio Tinto lowered 1.1 per cent to $101.27. Fortescue fell 2.4 per cent to $9.00.

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Bridget Carter 3.51pm: Credit Suisse hires Jenneke

Credit Suisse has hired Michael Jenneke as for its Australia Private Banking business where he will work as a director.

Mr Jenneke will work within the Discretionary Portfolio Management team based in Sydney, reporting to the Credit Suisse chief investment officer Andrew McAuley.

He joins Credit Suisse from Sigma Funds Management where he was Co-Founder and Investment Manager.

It comes after he had earlier worked with Credit Suisse Asset Management as an Investment Manager as well as Credit Suisse Equities Research where he was an equities analyst.

3.50pm: Nomura tips June, August cuts

Nomura now predicts the RBA will cut interest rates in June and August.

“Today’s minutes from the RBA and a speech from the RBA governor represent further, significant steps in the RBA’s dovish journey,” says Nomura interest rate strategist Andrew Ticehurst.

Previously he expected the RBA to move in August and November. Westpac, CBA, RBC, NAB, AMP, Nomura, HSBC and Market Economics now officially predict and RBA cut in June.

3.33pm: Westpac predicts earlier RBA cuts

Westpac now predicts RBA cuts in June and August.

Previously it predicted cuts in August and November.

“This change in forecast reflects the lift in the unemployment rate for April from 5.1 per cent to 5.2 per cent and the confirmation from the Governor that the Board would be closely following developments in the labour market with the primary focus on the unemployment rate,” says Westpac chief economist Bill Evans. “The Governor’s thinking has evolved over the year to accept that, as we have observed in other countries, upside inflation risks are consistent with a lower unemployment rate than had previously been assessed. For Australia the Bank had believed that the key unemployment rate was 5 per cent. He now accepts that he can drive the economy harder with an associated lower unemployment rate without risking any inflation overshoot.”

Mr Evans does not expect the RBA cut keep cutting the cash rate below 1 per cent in 2020.

3.26pm: Lynas in trading halt

Rare earths producer Lynas Corp has entered a trading pause this afternoon pending its response to the ASX’s request for clarification of the information presented on a slide at its investor day today. Shares in the company (LYC) had earlier surged to a six-month high after it unveiled detailed plans to spend $500m to boost production and set up an initial processing facility in Western Australia.

3.24pm: Dollar dives on rate calls

The local currency has dived in afternoon trade as a number of prominent economists predict an RBA rate cut at next month’s board meeting following the release of today’s minutes and a speech from the central bank Governor Philip Lowe.

At 3.25pm (AEST), the local dollar was worth US68.77c, down almost 0.5 per cent on from the session peak of US69.29c.

Sarah-Jane Tasker 3.12pm: LBT shares soar 200pc

Junior Australian medical technology company LBT Innovations is up almost 200 per cent on the local market after revealing it has US regulatory clearance for its medical device.

The Adelaide-based company (LBT) lodged a statement with the ASX last night, after the market closed, to inform investors that its 50pc owned joint venture company, Clever Culture Systems, got clearance from the US Food and Drug Administration for its APAS Independence instrument. That means the device can now be sold in the US.

Shares in the company are 192.8 per cent higher at 20.5c on the news.

“The FDA clearance for the APAS Independence is a hugely exciting development as it secures LBT’s first mover advantage with the only FDA cleared Class II commercial product of its kind available for sale in the US,” LBT’s chief Brent Barnes said.

“The focus now is on ramping up commercialisation activities in the region to convert interest into early sales.”

LBT, which develops medical technology automation using artificial intelligence, said APAS is a fully automated instrument with the ability to process over 200 culture plates per hour, which is at least three times faster than manual culture plate reading.

The instrument is able to differentiate culture plates showing bacterial growth from those that are not, without the need for highly skilled microbiologist assistance.

“With over 5000 clinical laboratories, the US represents the single largest pathology market in the world,” the company said.

“The company estimates that there are more than 1500 laboratories that exceed the daily culture plate volume that would make the commercial return on investment for the purchase of an APAS Independence attractive.”

3.05pm: HSBC tips June RBA cut

HSBC chief economist Paul Bloxham predicts a June RBA rate cut.

He says RBA minutes and a speech by Governor Lowe have reinforced his prediction last week that the RBA will cut in June and August.

“Today’s RBA’s minutes and a speech from Governor, Phil Lowe, bolstered our view that the RBA is set to cut its cash rate in June,” Mr Bloxham says.

“The labour market has lost some momentum, unemployment has edged higher, and the RBA has stated that unless the unemployment rate falls, they are poised to cut.

Today’s loosening of prudential policy should be seen as a complement to an expected RBA cut, rather than a substitute.”

3.01pm: RBA to cut June, Aug — CBA

CBA now expects the RBA to cut in June and August. Previously, it expected the RBA to stay on hold this year.

CBA economist Gareth Aird says the RBA today moved to an explicit easing bias, with Governor Low saying: “at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

“We expect the RBA to cut the cash rate by 25 basis points to 1.25 per cent on 4 June 2019,” Mr Aird said.

“A further rate cut looks probable and we think that it will most likely arrive at the August Board meeting.

The risk is that a second rate cut arrives later than August. We believe that the probability of the cash rate going below 1.0 per cent is very low.”

2.56pm: RBC sees earlier rate cuts

RBC Capital Markets has brought forward its predictions of RBA interest rate cuts to June and August.

RBC previously expected the RBA to cut in August and November, says RBC’s Head of Australian and New Zealand FIC Strategy.

She points to RBA minutes reaffirming the need for a stronger labour market to achieve its medium term inflation target, and Governor Lowe’s comments that the RBA “will consider the case for lower interest rates” at its next board meeting.

“His discussion of a lower NAIRU (non-accelerating inflation rate of unemployment) adds to the case for easing,” she says.

“The minutes predate the recent April labour force data which largely, in our view, confirmed a moderating labour market in trend terms with an unemployment rate struggling to move sub 5 per cent.

It has begun to edge higher as has the underemployment rate confirming increasing slack. Coupled with likely persistent sub trend growth and increased risks to global activity, a further moderation in the labour market is likely in the second half in line with our long held base case.

Accordingly, the conditions for a rate cut have strengthened. Today’s APRA proposal is not enough on its own and does not take the place of rate cuts. Rather, it likely enhances their effectiveness.”

2.10pm: ASX turns positive on RBA speech

The S&P/ASX 200 rose 0.1pc to an intraday high of 6482.8 after Dr Lowe said the RBA will consider the case for lower interest rates at its June meeting.

Significantly, Dr Lowe told economists that APRA’s proposal to loosen its macroprudential policy would be “complimentary to monetary policy, not substitutive”.

That followed RBA minutes which introduced a clear “easing bias”.

The minutes said “the risks to consumption were tilted to the downside”, its forecast that the unemployment rate would remain around 5 per cent over 2019 and 2020 before declining a little to 4.75 per cent in 2021, “implied that spare capacity would remain in the economy for some time”, and interest rate cuts would be “appropriate” if unemployment doesn’t fall.

The sharemarket has also been helped by a pullback in the Australian dollar, a 0.4pc rise in S&P 500 futures, and confirmation that Prime Minister Scott Morrison will form a majority government.

After falling as much as 0.5pc to an intraday low of 6444.4 amid sharp falls in offshore markets overnight, the index now looks set for a positive close after surging 1.7 per cent yesterday on the unexpected Coalition victory.

1.15pm: RBA will consider June rate cut — Lowe

The Reserve Bank will “consider the case for lower interest rates” when it meets in June, says RBA Governor Philip Lowe. “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” he tells the Economics Society.

Dr Lowe reiterates the RBA’s view that if the unemployment rate remains around 5 per cent, “inflation would likely remain low relative to the target and that a decrease in the cash rate would likely be appropriate (and) given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

AUD/USD fell from 0.6913 to 0.6891 and the S&P/ASX 200 index rose from 6465 to 6475.

12.53pm: Minutes confirm easing bias — Westpac

The minutes of the May RBA Board meeting confirm the RBA now has a “clear easing bias,” according to Westpac chief economist Bill Eavns.

He says this was “spelt out” with the technical assumption that the cash rate followed the path implied by market pricing was used in its forecasts.

“As the minutes note ‘financial market pricing implied that the cash rate was expected to be lowered by 25 bps within the next three months and again by the end of 2019’,” Mr Evans says.

“The Board notes that ‘without an easing in monetary policy over the next six months, growth and inflation outcomes would be expected to be less favourable than the central scenario’.

In his view that RBA’s projections of in its Statement on Monetary Policy on May 10 — GDP growth of 2.6pc and underlying inflation growth at 1.75pc in 2019, lifting to growth of 2.75pc and underlying inflation of 2pc in 2020 — are “barely acceptable forecasts with the 2019 forecasts being below trend for growth and below the bottom of the 2-3 eer cent target band for underlying inflation.”

He notes that RBA points out that international experience suggests inflation had remained low despite historically low rates of unemployment, and that there’s s spare capacity in the Australian labour market which would remain for some time.

“Consequently, there is ample scope for policy to drive down the unemployment rate without overshooting the RBA’s inflation target,” Mr Evans says.

He notes that due to the continued disruption to international trade, the Board has noted downside risks to the global economy.

Westpac continues to expected interest rate cuts in August and November.

12.43pm: Tech drags on ASX at noon

The Australian share market has dipped as the heavyweight financial and mining sectors moved in opposite directions and tech stocks tumbled. The benchmark S&P/ASX200 index was down 11.9 points, or 0.18 per cent, to 6,464.2 points at noon (AEST), while the broader All Ordinaries was down 14.8 points, or 0.23 per cent, to 6,549.9.

Tech shares had the heaviest losses, collectively tumbling 2.98 per cent. Afterpay was down 3.20 per cent to $25.14, Computershare was down 7.50 per cent to $16.65 and Appen was down 2.77 per cent to $24.045.

Shares in consumer staples fell 1.65 per cent as a whole, with Woolworths down 3.46 per cent to $33.615, although its supermarket rival Coles added 0.81 per cent to reach $13.025.

The heavyweight financial sector and property trusts were the only two segments of the ASX in positive territory at midday.

Both sectors appeared buoyed by indications banking regulator APRA could scrap the seven per cent floor in mortgage serviceability assessments and hints in the RBA’s minutes that the central bank may soon cut interest rates. ANZ was up 1.29 per cent to $28.22, Commonwealth Bank was up 1.34 per cent to $78.435, NAB was up 0.66 per cent to $25.98, and Westpac was up 1.69 per cent to $28.22.

Mining giant BHP was down 1.15 per cent to $37.77 while Rio Tinto fell 2.02 per cent to $100.33 and Fortescue Metals was down 2.55 per cent to $8.985. James Hardie was up 4.09 per cent to $18.56 after the construction materials company lifted full-year profit 57 per cent.

The Aussie dollar is buying US69.15c, from US69.26c on Monday.

AAP

Supratim Adhikari 12:29pm: NBN users go for speed

Homes connected to the National Broadband Network are increasingly signing up to higher speed plans, according to the Australian Competition and Consumer Commission, with over 3 million homes connected to a 50 megabits per second (mbps) plan.

According to the latest snapshot of the NBN market, almost 60 per cent of the 5.2 million premises connected to the NBN were on a high speed plan.

NBN residential broadband connections across Australia rose by 8.5 per cent in the March quarter, up from 4.8 million at the end of the previous three months, the ACCC’s wholesale market indicators report said.

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Ben Butler 12:23pm: AMP facing fine over advisers

Embattled financial services group AMP has exposed itself to a penalty of up to $1m by bowing to the corporate regulator in a lawsuit where it has admitted it failed to properly supervise financials advisers who ripped off their clients.

The Australian Securities and Investments Commission said AMP has abandoned its defence in a Federal Court case in which the regulator accused financial planners at the company of bilking their clients by moving them from their existing life insurance policies into ones that paid higher commissions.

However, AMP still faces possible further legal action from ASIC, which is continuing to investigate it over allegations it charged fees for services that were never provided and misled the regulator.

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Samantha Bailey 12.13pm: BHP revs electric car forecast

BHP has raised its forecast for the adoption of electric vehicles worldwide.

In a blog post, BHP market analysis and economics vice president Huw McKay said the company expects the proportion of electric cars on roads globally to be at least 7 per cent by 2035, up from 5 per cent previously. The proportion of electric cars on the road by 2050 was expected to be more than 27 per cent, up an earlier forecast of 21 per cent.

The highest penetration rate was expected to be 36 per cent in 2035 and as much as 75 per cent in 2050.

“The first 100 million electric vehicles on the road are expected to reduce global oil demand by 1.3 million barrels per day... while the mid-case electric vehicle fleet will consume around 5 per cent of the world’s electricity at mid-century,” Dr McKay said.

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12.01pm: RBA sets scene for easing

The minutes of the RBA’s May board meeting have clearly set the scene for interest rate cuts.

Members repeated that it would be “appropriate” to cut interest rates if the unemployment rate rises and inflation doesn’t rise.

But this month, they also said it would be appropriate to cut if unemployment doesn’t fall, since the international experience and recent domestic inflation data show a lower unemployment rate would still be consistent with the inflation target.

In other words, the RBA has admitted for the first time that Australia’s non-accelerating inflation rate of unemployment has fallen below the historical “NAIRU” of 5 per cent.

And the RBA’s assessment of the need to cut has clearly increased compared to a month ago.

This month, the minutes said “the risks to consumption were tilted to the downside”.

And its forecast that the unemployment rate would remain around 5 per cent over 2019 and 2020 before declining a little to 4.75 per cent in 2021, “implied that spare capacity would remain in the economy for some time”.

The crucial final paragraph of the minutes also introduced an explicit easing bias, after the RBA turned “neutral” in February, when it said the outlook was “more balanced”.

While saying that steady monetary policy had “enabled the Bank to be a source of stability and confidence over recent years”, the minutes made it stance has passed its expiry date.

“In view of the spare capacity that remained in the economy, however, members agreed that it was important to continue to pay close attention to developments in the labour market and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time,” the minutes said.

11.40am: RBA clears path to rate cuts

The Reserve Bank has cleared a path to an interest rate cut in June, saying in minutes of its May 7 policy meeting that deterioration in the job market would warrant the first reduction since 2016.

Data last week showed the unemployment rate has risen to 5.2 per cent in April, up from 4.9 per cent in February, while wages growth has also stalled at low levels.

“Members considered the scenario where there was no further improvement in the labour market in the period ahead, recognising that in those circumstances a decrease in the cash rate would likely be appropriate,” the minutes said.

The April job market data also pointed to rising labour market slack, while a monthly business survey by the National Australia Bank also showed hiring intentions in negative territory.

The RBA rammed home its easing bias by adding that recent downgrades the outlook for GDP growth and inflation would be worse without assumed interest rate cuts over the next six months.

The ASX200 pared losses on the release to be down 10.6 points, or 0.16 per cent, at 6465.5 at 11.40am (AEST) after earlier falling as much as 0.4 per cent. While the Australian dollar dropped to US69.11c from US69.23.

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11.29am: US ‘underestimates’ Huawei

Huawei founder Ren Zhengfei said Tuesday the US underestimates his company, and that the telecom giant’s 5G plans are not affected amid US moves to block its global ambitions.

“The current practice of US politicians underestimates our strength,” Ren said in an interview with Chinese state media, adding that the company has a stockpile of chips and “can’t be isolated” from the world.

AFP

11.24am: APRA soups up rate cuts — NAB

APRA’s proposal to ease the serviceability test for mortgages would “enhance the effectiveness of the transmission of Reserve Bank rate cuts through the new borrowing channel by removing the floor of at least 7 per cent,” according to NAB.

“Governor Lowe seems likely to discuss this planned change in his speech at lunchtime given that he chairs the Council of Financial Regulators, which oversees prudential policy,” NAB economists say.

11.18am: RBA cuts may still happen — ANZ

APRA’s proposal to loosen its requirement that banks assess mortgage serviceability by using a minimum rate of 7 per cent is a “material easing” in the credit constraint facing households, according to ANZ’s head of Australian economics, David Plank.

He estimates that household borrowing capacity has been reduced by about 30 per cent because of the various steps taken by the regulator, and APRA’s stress test was responsible for almost a third of this reduction.

“The use of a floor won’t disappear, but it seems reasonable to think it will come down some way from the current 7.25 per cent used by the major banks,” he said.

“Certainly to something with a 6 per cent handle on it. This is an effective easing in policy settings, in our view.”

But while the Australian dollar slightly rose and the market-implied chance of rate cuts slipped, Mr Plank says this move won’t necessarily stop rate cuts.

“It is possible that APRA’s policy change is seen as lessening the need for near-term interest rates (but) an alternative take is that the change will enhance the power of a rate cut and so make one more likely,” he says.

He expects RBA Governor Philip Lowe to clarify the issue when he speaks on The Economic Outlook and Monetary Policy at 0110pm AEDT.

“It seems reasonable to expect the change proposed by APRA will merit a comment in his speech,” Mr Plank says.

“In the meantime, the APRA release has boosted the Australian dollar a bit and reduced the prospect of a near-term rate cut somewhat.”

11.02am: US plans temporary Huawei exemptions

US officials said Monday they would grant a handful of temporary exceptions to an export blacklist against Huawei Technologies Co., giving some suppliers and customers of China’s telecom giant a 90-day reprieve from tough trade penalties.

In an order scheduled to be published on Wednesday, the Commerce Department said it would grant a temporary license for US exports to Huawei and dozens of its affiliates. The US announced the blacklist order last week on grounds that Huawei was a national security threat.

The reprieve comes hours after Alphabet Inc.’s Google unit signalled plans to cut access to some of its most-popular features on new Huawei smartphones. The move late Monday put a hold on those plans, according to a person familiar with the matter.

The reprieve for Huawei eases tensions between the U.S. and China as both countries seek to get trade talks back on track. Shutting off Huawei’s access to U.S. components without exceptions would be a devastating blow to the company.

The exceptions show the blacklist order has “always been for leverage in the trade talks,” said Derek Scissors, an American Enterprise Institute scholar.

The reprieve also could help the U.S. as it seeks to persuade allies around the world to ban Huawei gear from their networks, by limiting the immediate global disruptions from the U.S. blacklist.

Dow Jones — read more

Ben Wilmot 10.51am: Arena REIT inks $62m in deals

The listed Arena REIT Group is growing its empire of childcare centres and disability accommodation centres, striking deals to buy $62 million worth of the properties.

The deals, which will lift the trust’s portfolio to $805m, will see Arena acquire and develop the social infrastructure properties.

The new assets include three specialist disability accommodation properties for $24m, three Early Learning Centre properties for $13m, and five ELC developments worth about $25 million.

Arena’s managing director Rob de Vos said the improvement in the operating environment for its early learning tenants was “providing new opportunities for disciplined investment” and it is in due diligence on another $30m worth of assets.

Mr de Vos said the equity raising provided the capacity for additional investment in “appropriate social infrastructure properties, consistent with our investment strategy”.

Arena is undertaking a fully underwritten $50m institutional placement at an issue price of $2.67 per share via Morgan Stanley to fund the acquisitions and refresh its balance sheet.

Evans Dixon is acting as financial adviser.

Arena confirmed its fiscal distribution of 13.5c per share for this year and said its fiscal 2020 distribution guidance of 14.3 cents per share was a 5.9 per cent lift on this year and represented a distribution yield of 5.4 per cent.

Arena said the “strategic rationale” for the deal was in keeping with its focus on well-located assets that had strategic importance to the operations of the tenant.

Both areas are also supported by fundamental demand drivers, including population growth and increasing female workforce participation.

The latest acquisitions have a 6.5 per cent weighted average net initial yield on total cost and an 18 year weighted average lease expiry.

Arena also likes the properties because of their secure defensive income streams, underpinned by long lease terms, triple-net lease structures and contracted rental growth.

10.44am: Tech stocks tank in early trade

The Australian share market has opened lower, giving up some of the mammoth gains of the previous day.

The benchmark S&P/ASX200 index was down 12.2 points, or 0.19 per cent, to 6,463.9 points at 10.30am AEST on Tuesday, while the broader All Ordinaries was down 14.8 points, or 0.23 per cent, to 6,549.9.

Tech shares were leading losses after the first half-hour of trade, collectively tumbling 3.03 per cent.

The heavyweight financial sector was the only segment of the ASX to advance substantially, up 0.68 per cent, amid indications banking regulator APRA could scrap the seven per cent floor in mortgage serviceability assessments. ANZ was up 1.65 per cent to $28.32, Commonwealth Bank was down 0.10 per cent to $77.32, NAB was up 1.39 per cent to $26.17, and Westpac was up 1.84 per cent to $28.26.

Mining giant BHP was down 0.79 per cent to $37.91 while Rio Tinto fell 1.27 per cent to $101.10 and Fortescue Metals was down 1.30 per cent to $9.10. James Hardie was up 0.22 per cent after the construction materials company lifted full-year profit 57 per cent but cut its final dividend. Wall Street finished lower overnight, with the Dow Jones Industrial Average down 0.33 per cent, the S&P 500 down 0.67 per cent and the tech-heavy Nasdaq Composite down 1.46 per cent.

The Reserve Bank of Australia will release the minutes of this month’s board meeting at 1130 AEST on Tuesday, potentially providing clues about the timing of any cut to interest rates.

The Aussie dollar is buying 69.22 US cents, from 69.26 US cents on Monday.

AAP

Joyce Moullakis 10.38am: APRA buckles to pressure

The banking regulator has buckled to pressure to loosen regulations on responsible lending laws, proposing to reduce the minimum interest rate hurdle borrowers need to clear before they can get approval for a loan.

The Australian Prudential Regulation Authority has flagged lowering the minimum interest rate serviceability buffer from 7 per cent to a level determined by banks and other lenders.

The buffer has been in place to ensure that any mortgage borrower is able to meet repayments on higher than current interest rates. Banks have typically added a further 25 basis points to the 7 per cent threshold taking it to 7.25 per cent.

The other measure APRA has previously urged banks to use is a 2 per cent buffer over the loan’s interest rate, which banks raised to 2.25 per cent.

However, with official interest rates at record lows, and with the Reserve Bank expected to cut rates even lower, parts of the banking sector have called for the buffer to be reviewed.

Lowering the hurdle would also provide support for the struggling housing market, following a 10 per cent slide in national house prices with steeper falls in Melbourne and Sydney.

Bank shares surged in early trade on the news, with ANZ up 5 per cent and the Commonwealth Bank up 3.1 per cent, while the Australian dollar jumped 22 points to an intraday high of US69.29c.

The move may be a positive “double-whammy” for banks, in that it helps credit growth and reduces pressure on margins by lessening the need for rate cuts.

APRA has set a four-week consultation period on the proposals, but they are expected to be confirmed.

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10.34am: Shares dip as banks jump

Australia’s S&P/ASX 200 share index is down 0.4pc at 6452 in early trading.

The index has fallen a bit less than the expected 0.6pc decline after the US sharemarket fell sharply on trade war fallout.

That’s because banks and real estate stocks have jumped after APRA proposed scrapping its mortgage stress test.

The major banks rose as much as 5pc in early trading after the S&P/ASX 200 Banks index surged 7.5pc yesterday after the election outcome lessened regulatory risk.

Computershare is down 6.1pc after saying the migration of UK Asset Resolution has been delayed 12 months with a “significant” cost impact in FY20.

Lynas is up 10pc after setting out a $500m expansion plan. There was also speculation that China may restrict rare earths exports as part of trade retaliation against the US.

Technology One is down 7pc on profit taking despite reaffirming its earnings guidance.

10.31am: ANZ taps Ken Adams for top lawyer

ANZ has appointed Ken Adams as its top lawyer to replace the retiring Bob Santamaria.

Mr Adams, who has been a senior partner at Herbert Smith Freehills since 1998, has already advised ANZ on major legal matters including last year’s financial services royal commission.

He will join ANZ in August ahead of Mr Santamaria’s retirement as group general counsel the following month.

Mr Adams will report to ANZ chief executive Shayne Elliott and will provide senior legal counsel to the board and executive committee.

“We are fortunate enough to have one of Australia’s leading commercial lawyers join ANZ to lead our legal function,” Mr Elliott said on Tuesday. “We thank Bob for his significant contribution and wish him and his family the very best in his well-earned retirement.”

AAP

10.30am: Local tech stocks tumble

The Australian share market has opened lower, giving up some of the mammoth gains of the previous day.

The benchmark S&P/ASX200 index was down 21.3 points, or 0.33 per cent, to 6454.8 points at 10.15am (AEST) on Tuesday, while the broader All Ordinaries was down 23.1 points, or 0.35 per cent, to 6541.6.

Tech shares were leading losses after the first 15 minutes of trade, collectively tumbling 3.15 per cent.

The heavyweight financial sector was the only segment of the ASX in positive territory, up 0.40 per cent, amid indications banking regulator APRA could scrap the 7.0 per cent floor in mortgage serviceability assessments. The big four banks — ANZ, Commonwealth, NAB and Westpac — were up between 0.12 per cent and 1.21 per cent.

Wall Street finished lower overnight, with the Dow Jones Industrial Average closing down 0.33 per cent, the S&P 500 down 0.67 per cent and the tech-heavy Nasdaq Composite down 1.46 per cent.

The Reserve Bank of Australia will release the minutes of this month’s board meeting at 1130 AEST on Tuesday, potentially providing clues about the timing of any cut to interest rates.

AAP

10.23am: Lynas to spend $500m on production

Rare earths producer Lynas Corp says it plans to spend $500 million by 2025 to boost production and set up an initial processing facility in WA. The plan also includes investing in its processing facility in Malaysia, where Lynas is facing problems in getting license renewals for its plant due to concerns over waste storage.

The world’s only major producer of rare earths outside China has been considering initial ore processing near its Australian mine. Malaysia’s prime minister said in April that companies would need to clean raw materials in order to operate.

Broker CLSA has pegged the cost of building a cracking and leaching plant at about $100 million over three years.

Lynas said on Tuesday it expected demand for rare earths, used in everything from consumer electronics to military equipment, is expected to outstrip new supply.

The company, which is also trying to fend off a takeover offer from Wesfarmers, plans to increase volume to 10,500 tonnes per annum of neodymium-praseodymium products to boost revenue.

On Monday, Lynas also said it would develop of a separation facility in the United States with Texas-based Blue Line Corp.

Last month, it reported record quarterly NdPr Production of 1,591 tonnes.

Reuters — read more

10.15am: Tokyo stocks open lower

Tokyo stocks opened lower on Tuesday, tracking losses in global markets as investors fret over the latest flare-up in the China-US trade war.

The benchmark Nikkei 225 index was down 0.42 per cent, or 88.50 points, at 21,213.23 in early trade, while the Topix index was down 0.44 per cent, or 6.84 points, at 1,548.08.

AFP

10.13am: ASX slips at open

Australia’s S&P/ASX 200 slid 28.6 points, or 0.44pc, at the open to 6447.5 points as it pared some of yesterday’s strong gains which saw $33bn added to the bourse in the wake of the Coalition’s surprise election victory.

The broader All Ordianaries was down28.4 points, or 0.43 per cent, at 6536.3 points.

A pre-open announcement from ASIC in relation to the potential easing of mortgage lending requirements has buoyed the banking sector, with all the big banks lifting in early trade.

The Aussie dollar is buying US69.22c, from US69.02c on Monday.

10.07am: Banks surge on APRA proposal

Banks are surging on APRA’s proposal to scrap its mortgage stress test.

ANZ bank shares have surged 5pc to a 9-month high of $29.30 and CBA rose 3.1pc to a 15-month high of $79.79 in early trading. NAB rose 1.8pc to a 7-month high of $26.28

It may be a positive “double-whammy” for banks in that it helps credit growth and reduces pressure on margins by lessening the need for rate cuts.

Lilly Vitorovich 10.06am: Seven slips on profit warning

Seven West Media has warned its annual underlying earnings may be down as much as 11 per cent, hurt by a weak advertising market and economic uncertainty around the federal election.

The free-to-air television broadcaster and publisher, controlled by billionaire Kerry Stokes, expects earnings before interest and tax to come in between $210 million to $220 million for the year ending June 30. That compares to $235.6m a year earlier.

Seven had forecast underlying EBIT growth of flat to 5 per cent in February in conjunction with its interim financial results.

Seven shares have dropped more than 3pc in early trade.

Read more

Eli Greenblat 10.05am: Myer appoints new director

Department store Myer has strengthened its retail experience in its boardroom with the appointment of retail veteran Jacquie Naylor as a non executive director effective from Monday.

Myer has long been criticised by its biggest shareholder, rebel investor Solomon Lew and his Premier Investments, who has attacked Myer for not having directors with strong retail credentials.

Last year Mr Lew Mr Lew described the Myer boardroom as a “clueless board” that he compared to a horse trainer who “wouldn’t know one end of a horse from the other”.

Myer Chairman Garry Hounsell said this morning Ms Naylor is one of the most respected retailers in Australia.

Read more

9.49am: What’s impressing analysts

Westpac raised to Buy — Bell Potter

Woolworths cut to Underweight — JPMorgan

Paradigm Biopharma started at Speculative Buy; $0.52 target price — Bell Potter

Praemium raised to Buy — Goldman Sachs

Qantas raised to Outperform — Credit Suisse

Virgin Australia raised to Neutral — Credit Suisse

Lilly Vitorovich 9.38am: Nine offloads events business

Nine Entertainment has sold its events business to The Ironman Group for $31 million, three weeks after offloading 160-plus regional mastheads for $125 million.

Around half of the staff within the events and entertainment division, formerly Fairfax Events and Entertainment, will move to the new owner’s Oceania division, which will consist of popular annual City2Surf running race in Sydney as well as Melbourne Corporate Triathlon and Spring Cycle.

Nine said its business and food operations, which include the Night Noodle Markets, Good Food Month, The Australian Financial Review Business Summit and Women of Influence Awards, will move into its publishing division “to better align with their respective editorial brands.”

Read more

David Rogers 9.34am Bank lending overhaul eyed

The Australian Prudential Regulation Authority (APRA) is considering allowing banks to assess mortgage serviceability rather than apply the regulator’s current “stress test” in place since December 2014.

In a statement today, APRA said it has started consulting with banks on “possible revisions to its guidance on the serviceability assessments” they perform on residential mortgage loan applications.

“In a letter to Authorised Deposit Taking Institutions issued today, APRA has proposed removing its guidance that ADI’s should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7 per cent,” the regulator said. “Instead, ADIs would be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.”

APRA also proposed that banks’ serviceability assessments incorporate an interest rate buffer of 2.5 per cent over prevailing mortgage rates.

“Currently, APRA expects ADIs to assess loan serviceability using the higher of either an interest rate floor of at least 7 per cent, or a 2 per cent buffer over the loan’s interest rate,” the regulator said.

It said its current guidance also indicates that a prudent ADI should use rates comfortably above these minimum requirements, with most ADIs use 7.25 per cent and 2.25 per cent respectively.

The potential for such a policy change may significantly reduce the tightening of housing credit availability since the Banking Royal Commission forced banks to properly assess mortgage applications.

It may also in part ameliorate the need for official interest rate cuts that are currently expected by the money market.

Read more

David Rogers 9.28am ASX to open down

Australia’s S&P/ASX 200 is expected to open down 0.6pc at 6437, based on overnight futures, after the US-China trade war continues to hit offshore markets.

Focus will turn to RBA minutes at 11.30am (AEST) and RBA Governor Philip Lowe’s speech at 1.10pm (AEST), for guidance on the outlook for interest rates.

The S&P 500 fell 0.7pc and the Nasdaq lost 1.5pc on concern over supply chain disruption after Google, Broadcom, Qualcom Intel and Xilinx said they will stop supplying Huawei and ZTE Corp as a result of the US decisions to restrict Huawei and ZTE Corp from selling their equipment in the US.

China’s envoy to the EU said “Chinese companies’ legitimate rights and interests are being undermined” adding that there would be a “necessary response”.

Considering that the S&P/ASX 200 rose 1.7pc to an almost 12-year high of 6476.1 — well above Bloomberg’s “Best Target Price” of 6390.8 — it will probably fall more than the expected 0.6pc today.

After a 2.2pc rise the day after the 24th November 2007 election, the index fell as much as 1.9pc the next day, before ending down 0.6pc.

Two days after the March 5, 1983 election, the All Ordinaries index rose 2.6pc then fell 1.9pc the next day.

The day after the 18th October 1980 election it rose 6.9pc then fell 1.8pc the next day.

9.26am: US business debt a risk: Powell

The American private sector’s mounting debts pose a “moderate” risk to the world’s largest economy, Federal Reserve Chairman Jerome Powell said.

With corporate debts reaching historic highs relative to the size of the economy, public comment has run the gamut, according to Mr Powell, either warning of grave danger or waiving off such threats as “nothing to worry about.”

But the truth, he said, according to a copy of remarks prepared for a speech in Florida, was “likely somewhere in the middle.”

“As of now, business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm tohouseholds and businesses should conditions deteriorate,” Mr Powell said.

“At the same time, the level of debt certainly could stress borrowers if the economy weakens.”

Economists warn that after years of economic recovery and low interest rates, companies across the spectrum of US industries now frequently have debtsthat are several times greater than their earnings, with debt growing faster than the economy for the last decade.

AFP

8.25am: NAB launches Apple Pay

NAB says its customers can now access Apple Pay, with the service going live today.

By doing so, it joins ANZ and Commonwealth Bank in offering the service.

The bank said: “Apple Pay provides customers with an easy, secure and private way to pay via their iPhone, Apple Watch, iPad or Mac and is available for NAB personal and business customers with an eligible NAB Visa debit or credit card.”

Using Apple Pay.

8.05am: ANZ names new general counsel

ANZ says it’s appointed Ken Adams as group general counsel to replace the retiring Bob Santamaria.

Mr Adams, a long-term adviser to ANZ, joins from Herbert Smith Freehills, where he has been a senior partner since 1998.

Mr Adams will be responsible for the bank’s global legal function, as well as providing senior legal counsel to the board and executive committee.

7.55am: Oil up on OPEC signals

Oil prices rose to multi-week highs overnight before easing later in the session as OPEC indicated it was likely to maintain production cuts that have helped boost prices this year.

US West Texas Intermediate crude futures rose 34 US cents to settle at $US63.10 a barrel after hitting $US63.81, the highest price since May 1.

Brent crude futures fell 24 US cents to settle at $US71.97 a barrel having earlier touched $US73.40, their highest since April 26.

Saudi Energy Minister Khalid al-Falih said on Sunday there was consensus among the Organisation of the Petroleum ExportingCountries (OPEC) and allied oil producers to drive down crude inventories “gently” but he would remain responsive to the needs of what he called a fragile market.

Reuters

7.40am: James Hardie lifts profit

Construction materials company James Hardie has cut its final dividend despite lifting full-year profit 57 per cent to $US228.8 million.

Revenue for the 12 months to March 31 rose 22 per cent to $US2.51 billion despite the softening housing market in Australia, with the company’s acquisition of Fermacell in Europe and higher net sales in its North America Fiber Cement segment lifting income.

However, James Hardie said it would pay a final unfranked dividend of US26 cents, down from US30 cents a year ago.

AAP

7.35am: ASX expected to open lower

The Australian share market is set to open lower following a post-election surge in stocks yesterday.

At 7am (AEST) the SPI200 futures contract was down 41 points, or 0.63 per cent, at 6,444.0, suggesting a fall for the benchmark S&P/ASX200.

It was a negative session for Wall Street overnight, with the Dow Jones Industrial Average finishing down 0.33 per cent, the S&P 500 down 0.67 per cent and the tech-heavy Nasdaq Composite down 1.46 per cent.

The Aussie dollar is buying US69.06 cents from US69.26 cents yesterday.

AAP

6.40am: Huawei ban fallout hits Nasdaq

Shares of technology companies fell sharply in a down session for Wall Street after Google began to sever ties with Chinese telecom giant Huawei amid the US-China trade war.

The tech-rich Nasdaq Composite Index tumbled 1.5 per cent to 7,702.38, with chip companies that do business with Huawei among the hardest hit.

The Dow Jones Industrial Average declined 0.3 per cent to 25,679.90, while the broadbased S&P 500 fell 0.7 per cent to 2,840.23.

After yesterday’s election-fuelled surge, Australian stocks are set to fall at the open. At 6.35am (AEST) the SPI futures index was down 40 points.

Google, which makes the Android system used on many smartphones, said it was complying with a US order last week that barred US companies from engaging in telecommunications trade with foreign companies said to threaten American national security, a move targeting Chinese giant Huawei.

Shares of Google parent Alphabet shed two per cent, while chip companies like Micron Technology, Skyworks Solutions and Qualcomm all fell.

The losses added to a dismal stretch for semiconductors, which have lagged the S&P 500 over the last two weeks as the US-China trade war has worsened.

The Huawei ban “led to selling in the Chinese giant’s suppliers and partners, since the likes of Intel, Alphabet, Broadcom, and Qualcomm would all register lower revenues should the ban remain in effect,” said a note from Gorilla Trades strategist Ken Berman.

Among other companies, Sprint jumped 18.8 per cent and T-Mobile 3.9 per cent following an announcement that the Federal Communications Commission endorsed a merger of the companies.

Shares of both companies pulled back somewhat from peak levels after Bloomberg reported that the Justice Department was likely to oppose the deal. But both companies still ended significantly higher.

Ford slipped 0.1 per cent after announcing it would cut 7000 jobs, or 10 per cent of its global salaried workforce, as part of a reorganisation.

AFP

6.35am: Tesla stock sinks

Tesla shares touched their lowest level in more than two years and prices on its bonds also slumped, a sign of investors’ growing doubts about the car maker’s outlook.

The California company’s stock fell about 2.7 per cent Monday to $US205.36 after Wedbush Securities analysts slashed their price target on its shares to $US230 from $US275. It earlier traded as low as $US195.25, a 7 per cent decline that brought the stock to its lowest intraday level since December 2016.

The latest moves show how Tesla’s outsize ambitions have been obscured by near-term financial challenges. The company’s unsecured bonds due in 2025 fell as low as 82.375 cents Monday, according to MarketAxess, around their lowest level since being issued in August 2017.

Wedbush analysts cited concerns around Tesla’s growth prospects and underlying demand for its Model 3 sedans in the US over the coming quarters. That is a key test for the company, which is trying to become the first mass producer of electric cars even as more established auto companies increase their presence in that market.

The Tesla model S. Pic: AP

Dow Jones

6.30am: Trade row knocks markets

Equity markets on both sides of the Atlantic slid as investors fretted over the latest flare-up in the China-US trade war.

Eurozone heavyweights Frankfurt and Paris were each down around 1.5 per cent at the close, while London held up better.

“US stocks are lower, along with European markets, with chip-related companies pressuring the technology sector on concernsabout the fallout from escalated trade tensions, exacerbated by the ripple effect of US actions taken against Chinese telecom giant Huawei,” the Charles Schwab brokerage said in a note.

In the midst of a trade war with Beijing, President Donald Trump has barred US companies from doing business with foreign companies said to threaten American national security.

US internet giant Google, whose Android mobile operating system powers most of the world’s smartphones, then announced that it was beginning to cut ties with China’s Huawei, which Washington considers a national security threat.

“Equity markets are in the red... as dealers are still worried about the trade standoff between the US and China,” said analyst David Madden at trading firm CMC Markets UK.

“The fact that Washington has effectively blocked Huawei from the US market is likely to drag out the trade dispute, and the prospect of a quick solution seems slim.”

Reports also emerged that several US chipmakers providing vital hardware for Huawei’s smartphones have stopped supplying the Chinese firm.

SEB emerging markets strategist Per Hammarlund said that the latest development made it unlikely that Beijing and Washington would end their dispute in the run-up to next month’s G20 summit in Japan.

AFP

6.25am: Ford to cut 7000 jobs

Ford is cutting about 7000 white-collar jobs, about 10 per cent of its global workforce.

The company has said it was undertaking a major restructuring, and on Monday said that it will have trimmed thousands of jobs by August.

The company said that the plan will save about $US600 million per year by eliminating bureaucracy and increasing the number of workers reporting to each manager.

In the US about 2300 jobs will be cut through buyouts and lay-offs. About 1500 already have happened. About 500 workers will be let go this week. In a memo to employees, CEO Jim Hackett said the fourth wave of the restructuring will start on Tuesday, with the majority of cuts being finished by May 24.

AP

6.20am: Huawei damage widens

Google says its basic services on Huawei smartphones still will function following US sales curbs, but the Chinese tech giant faces the possible loss of other features and support.

The announcement highlighted the growing damage to Huawei from Washington’s order. The company has said until now US accusations it is a security threat have had little impact on sales outside the United States.

Huawei Technologies, which uses Google’s Android operating system in its smartphones, said it would continue to provide security updates and service. It gave no indication which map, photo or other services they might lose. The Trump administration’s order targets China’s first global tech brand and ratchets up disputes with Beijing over technology, trade and cybersecurity.

Google, a unit of Alphabet Inc, said it is complying with and “reviewing the implications” of the requirement for export licenses for technology sales to Huawei, which took effect Thursday.

“We assure you while we are complying with all US gov’t requirements, services like Google Play & security from Google Play Protect will keep functioning on your existing Huawei device,” said Google on Twitter.

Google allows smartphone manufacturers to use Android and its basic services for free. But transfer of hardware, software or services to Huawei or technical interaction would be restricted by the US order.

That would strip Huawei phones of Google maps and other services that require direct support. That might hurt Huawei where consumers can pick other brands that carry the full suite of Google features.

AP

A Huawei user in China. Pic: AFP

6.15am: Google hit to Huawei

Hundreds of millions of smartphone users will be affected by Google’s decision to sever its Android operating system ties with Chinese handset maker Huawei.

The decision, in the midst of a US trade war with China, means that Huawei users will start losing access to Google’s proprietary services such as Gmail and Maps, and be shut out of future upgrades to Android on their phones.

The move by the California internet giant on the software front was compounded by news that US chipmakers have stopped supplying Huawei, hitting the hardware of its phones.