NewsBite

ASX slips 0.7% despite 5.7% surge in China

Shares in Shanghai surged 5.7% to hit a two-year high as losses on the local market accelerated at the close.

David Rogers and Melissa Yeo
27 min read
6:38AMJuly 06, 2020.
Updated 7:20PMJuly 06, 2020
Print
The ASX is tipped to open lower.
The ASX is tipped to open lower.

Welcome to the Trading Day blog for Monday, July 6. Shares gave up any intraday strength at the close, to cap a four-day win streak with a 0.7pc loss, even as China’s market soared by 5pc. The closure of the Victoria-NSW border has rattled sentiment somewhat, but the Aussie dollar remains higher by 0.5pc.

On the local market, UBS raised its target on Afterpay by 79pc, but kept its rating at Sell, while Morgan Stanley warned iron ore is poised for a correction.

David Ross 7.15pm: Coles drops buying restrictions

Coles will remove all purchasing restrictions on all products as of Tuesday morning.

The supermarket thanked customers for their patience and understanding while the limits were in place “to help us manage increased demand in stores and temporary delays in our Victorian supply chain.

“We ask that customers continue to buy only what they need and observe all safety and physical distancing measures in our stores,” a spokesman said.

The change comes after online orders from Woolworths were disrupted after a worker at its West Footscray customer fulfilment centre in Melbourne’s west tested positive to COVID-19 over the weekend.

As a result all deliveries out of the centre, which handles 20 per cent of Woolworths’ online orders for Melbourne, cancelled.

The news comes amid a worsening second-wave COVID-19 outbreak in Melbourne.

The centre has been deep cleaned on Saturday and Sunday, with normal operations resuming on Monday. The worker was reportedly last at work on Wednesday before they began showing symptoms on Thursday.

Workers at the site were being tested on Monday and some have been asked to self isolate.

6.45pm: UK takes action on audits

Britain’s the Financial Reporting Council said on Monday that it has prepared a pack of principles for operational separation of audit practices for the Big Four audit firms to make sure they are focused on delivering high-quality audits in the public interest.

The UK regulator said audit practice governance should prioritize, among other things, protecting auditors from influences from the rest of the firm, as well as distributing the total amount of profits in a way that doesn’t exceed the contribution to profits of the audit practice.

“The FRC is now asking the Big Four firms to agree to operational separation of their audit practices on this basis and to provide a transition timetable to complete implementation by June 30, 2024, at the latest,” the FRC added.

Dow Jones Newswires

James Kirby 6.25pm: What should you pay for Afterpay?

Nick Molnar, Ceo Afterpay
Nick Molnar, Ceo Afterpay

How much is Afterpay worth? The buy now, pay later stock has a spectrum of valuations but few have been as low as UBS. But UBS has suddenly had a change of heart, hiking its price target by 78 per cent.

As Afterpay continues to confound the market, naysayers have always been able to trot out the deeply sceptical UBS analysis on the stock — where a long-held price target of $14 had meant the bank thought Afterpay was worth less than a quarter of its current stock price.

Now UBS has bit the bullet, moving its estimate for the company from $14 to $25.

No doubt the Afterpay believers will point to this upward revision as proof their favourite stock is better than we thought. The naysayers will point out the Swiss bank now thinks Afterpay is still only worth around a third of its listed price.

Certainly the UBS research team has been seriously out of line with consensus and remains so: most brokers at the larger houses have a price target on Afterpay of about $43, against this week’s price of near $70.

Read more: Has the market got Afterpay right?

6.17pm: Shanghai surges to 2-year high

Shanghai stocks surged on Monday to a more than two-year high as investors piled in following a combination of rosy predictions for the market and strong economic data.

The benchmark Shanghai Composite Index gained 5.71 per cent, or 180.07 points, to 3,332.88, its best close since March 2018, while the Shenzhen Composite Index, which tracks shares on China’s second exchange, gained 3.90 per cent, or 79.70 points, to 2,121.59.

Mainland Chinese shares have languished for much of the year because of economic shutdowns caused by the coronavirus, but have been on a spurt lately, rising more than 12 per cent over the past week.

Investors have grown increasingly optimistic, helped by data last week showing that factory activity picked up pace in June

Samantha Bailey 6.10pm: China lift dies as outbreak hits ASX

he local sharemarket finished a choppy session firmly lower on COVID-19 uncertainty after the NSW and Victorian governments announced their state border would be closed.

At the close of trade, the benchmark S&P/ASX 200 had lost 43.3 points, or 0.7 per cent, to 6014.6 points. The broader All Ordinaries index had fallen 37.8 points, or 0.6 per cent, to 6125.9.

After a negative start to the session, the bourse lifted as much as 0.3 per cent as China’s Shanghai Composite surged to a five-year high, but it slumped back into the red in afternoon trading.

“It would seem the market ­really couldn’t make its mind up about today’s big spike in COVID-19 infections in Victoria, as well as the border lockdown between Victoria and NSW,” IG market analyst Kyle Rodda said.

“On the one hand it reflects terribly on the health crisis, and increases the threat that Australia’s economic recovery may not be as robust as hoped.

“On the other hand, it is a relatively isolated outbreak, and the fact policymakers are cracking down and taking steps to contain the outbreak just to Victoria is a welcomed development.”

The major miners lost ground after Morgan Stanley analysts said the price of iron ore was likely to suffer a downward price correction. BHP fell 1.7 per cent in Monday’s trade to $35.65, while Rio Tinto lost 1 per cent to $95.45. Fortescue fell 0.7 per cent to $13.92.

In financials, Westpac fell 0.5 per cent to $18.45, while ANZ shed 0.4 per cent to $19.12. NAB slipped 0.2 per cent to $18.45 and Commonwealth Bank fell 0.2 per cent to $71.42.

Mesoblast was the best performer in the ASX 200, lifting 11.3 per cent to $3.75. The gain came after the drug developer told the market that compassionate use of its Remestemcel-L medication had been expanded to children with multi-system inflammatory syndrome associated with COVID-19.

The stock has surged more than 250 per cent in the past three months as testing for Remestemcel-L continues on adults with coronavirus.

Travel stocks took a hit after authorities announced that the border between NSW and Victoria would be closed from Tuesday night amid another spike in cases in Melbourne.

Qantas shed 0.8 per cent to $3.79 while Sydney Airport lost 1.6 per cent to $5.65. Corporate Travel fell 1 per cent to $10.31.

Casino group Crown fell 3 per cent to $9.49 on the news.

Entertainment company Event slipped 2 per cent to $8.70 after announcing it would suspend dividends and slash the pay packets of its executives, amid fallout from the COVID-19 outbreak.

“Buy now, pay later” service provider Afterpay rose 0.7 per cent to $68 on the back of several analysts’ upgrades and after the company said it had signed a partnership deal with Qantas, ­allowing frequent-flyer members to earn points when making ­purchases using the payments platform.

Discount retailer The Reject Shop shot up 13.9 per cent to $8.12 after Morgan Stanley research revealed the company could prove to be recession-resilient as shoppers seek alternatives to online shopping and could become a $3bn stock over the next decade.

The dollar was trading 0.51 per cent higher at US69.73c in late trade.

David Ross 4.56pm: VIC lockdown to drag on Q3 recovery: NAB

NAB Chief economist Alan Oster said the impact of the further shutdowns in Victoria would be huge but much depended on how long the border lockdown lasted.

“The closure to NSW doesn’t help but it’s hard to tell in a fundamental sense what’s going to happen,” he said. “It’s clearly negative, it probably means the September quarter won’t be as strong in total GDP as we had previously expected but then again the June quarter was better than expected.”

He warned the impact of the renewed lockdown would be unevenly felt across industries and geographic areas.

“Retail trade is up 15pc over the last 12 months, online retail is up 50pc over the last 12 months,” he said.

“You had higher levels of hospitality in Melbourne and more exposure to international travel and students, I suspect this latest downturn would mainly impact Melbourne.”

Mr Oster said population growth had been a strong driver of Victorian economic performance in recent years, which he expected would be slashed further by this latest lockdown.

“That’s not good for the property market. As more people go into lockdown less people go into the CBD so commercial property is going to get a big hit,” he said.

4.33pm: ASX slip defies Asian strength

The local share market sell-off this afternoon was a stark contrast to the rest of Asia – where market were following China’s strong lead.

At the local close, China’s Shanghai Composite was higher by 5.3pc, while the Hang Seng traded higher by 3.4pc and Japan’s Nikkei by 1.8pc.

Strength was helping the Aussie dollar higher to US69.71c, its best level in two-weeks.

In equities, Adbri was the worst performer for a second day, shedding 6.4pc, while Mesoblast topped the list of improvers after expanding compassionate use for its lead drug candidate to children with COVID-19.

Here’s the biggest movers at the close:

4.12pm: Shares dive 0.7pc in late sell-off

The local share sell-off accelerated at the close on Monday, with the benchmark index closing at its worst levels of the day.

In a rocky day for shares, the benchmark gained as much as 0.3 per cent at lunch, but gave up all gains to close out the day down 43.3 points or 0.71 per cent at 6014.6.

All sectors bar tech closed lower, with health and industrials doing the most damage.

Bridget Carter 3.46pm: Fantastic Furniture to pick advisers

DataRoom | The beauty parade to find advisers to float Fantastic Furniture will get underway this week, with up to six global investment banks expected to be vying for two roles on offer.

It is understood that the pitches are taking place in Sydney ahead of what is expected to be an attempted initial public offering that will likely value the company somewhere between $250m and $500m.

Fantastic Furniture is owned by Greenlit Brands, which is the Australian subsidiary of Steinhoff International, a company that more than two years ago came close to collapse.

Greenlit Brands also owns Freedom Furniture and Plush, but Fantastic Furniture is thought to be the strongest performer, and based on the need of the South African-based parent company to find more cash, the thinking is that it will be a motivated seller.

The Australian subsidiary is now run by the former boss of The Good Guys, Michael Ford, who worked with Bank of America when that business was sold to JB Hi-Fi in 2016, along with UBS, Credit Suisse and Goldman Sachs that were appointed for a potential float that did not eventuate.

Read more: Greenlit brands posts $289m loss

3.41pm: ASX dives to intraday low

Australia’s share market has dived to an intraday low as its earlier underperformance versus global markets turned into outright weakness after the Victoria-NSW border was closed due to Melbourne’s COVID-19 outbreak.

The S&P/ASX 200 fell 0.5pc to 6026 after rising 0.3pc today, while global markets have continued to rise with S&P 500 futures up 1.1pc and the Shanghai Composite up 4.5pc.

Underperformers include a number of housing, travel and Melbourne-exposed stocks, with REA down 3.3pc, Crown down 3.1pc, Transurban down 2.5pc and Domain down 2.2pc.

Banks are also getting hit with the four majors flat to slightly down after rising 1-1.3pc earlier today but the biggest drags are CSL down 2pc and BHP down 1.5pc, followed by Transurban.

3.24pm: $A approaching two-week high

The Australian market may be coming under pressure but the Aussie dollar striding higher, embracing the strength of Asian stocks.

In afternoon trade AUDUSD, often seen as a proxy for China, is higher by 0.41pc to US69.66c, within an inch of its June 23 high of US69.67c.

3.06pm: China stocks surge 5pc

China’s Shanghai Composite is flying in afternoon trade, adding 5 per cent to hit its best levels since February 2018.

It comes after comments from the influential state media, that fostering a “healthy” bull market after the pandemic was more important to the economy than ever, and as China International Capital Corp, the country’s leading investment bank, predicted the stock market would double in value over the next 5-10 years.

Still, the ASX200 is trading down 30 points or 0.5pc to 6027.7 – its worst levels of the day.

Samantha Bailey 2.51pm: APRA warns of super withdrawal influx

More than $18bn has been withdrawn from Australia’s superannuation pool after in the federal government’s COVID-19 Early Release Scheme and Australia’s prudential regulator is warning of a second influx of applications after second round requested opened on July 1.

More than 2.4 million people have now hit up their super fund for extra cash amid widespread job losses as a result of the coronavirus pandemic, according to the latest APRA data.

In the week to June 28, super funds have paid out $1.2bn to 129,000 members, bringing the total funds paid out to $18.1bn since the inception of the scheme.

AustralianSuper, the nation’s biggest superannuation fund, has been the hardest hit by the scheme, with 346,267 members withdrawing more than $2.4bn to June 28.

Read more: Super fund bullish after surprise gain

2.01pm: Border closure may force more stimulus

The NSW-VIC border closure due to COVID-19 hasn’t stopped the Australian share market rising again today.

After falling 0.4pc to 6031.7 in early trading, the S&P/ASX 200 is rising 0.3pc to 6078.3, albeit on about half-normal volume.

The index is on track for its first five-day rise since early June when it hit a 3-month high of 6198.6.

Traders say the government may be forced to announce an extension of JobKeeper and JobSeeker payments in an economic update planned for July 23.

“There will be a forced extension and the RBA will be forced to continue its money market activities, both of which of course are good for equities,” a trader says.

So perhaps good news is bad news again because there are no limits on spending, for now.

But it could also be said that Australian shares are simply following offshore markets on light volume after the US holiday.

S&P 500 futures are up 0.9pc and China’s Shanghai Composite is up an amazing 4.2pc.

1.43pm: Risk of further Adbri contract losses: GS

After the loss of a key $70m lime supply contract last week, Adbri (formerly Adelaide Brighton), is at risk of further contract losses, so warns Goldman Sachs.

Analyst David Schwartz notes the group’s remaining contracts, including with South32, are a concern given structural change in the WA market dynamics – potentially leaving the supplier with an elevated fixed cost base.

“While significant, in our view, the outsized share price reaction (-25.4pc) vs earnings changes (vs. c-18pc EPS in FY22) reflects the risk of further contractual losses in WA and price pressure and has largely been priced in,” he writes.

The broker rates ABC at Neutral, with a price target of $2.61.

Shares last traded down 5.8pc to $2.15.

Read more: Dumped after 50 years, Adbri smashed

1.12pm: CBA app, eftpos services down

Commonwealth Bank says its working to fix outages for its Netbank and CommBank services as well as on its eftpos terminals.

In a tweet this afternoon, the bank said it was aware of the issues for customers viewing cards and loans, as well as merchants completing payments.

The bank said it was “looking into this as a priority”.

Follow the latest tech updates at our live blog – The Download

1.01pm: Shares hold on to 10 point gain

Shares are holding slight gains at lunch, helped in part by a surge in Asian markets and a lift in US futures.

At 1pm, the benchmark ASX200 is higher by 10 points or 0.17 per cent to 6068.1 – its best levels of the day.

Banks are higher by 0.2pc now, after negative trade this morning, while tech continues its strong run with a lift of 1pc – helped in large part by a 0.9 per cent lift in Afterpay.

Adbri is lower by 6pc after several broker downgrades, while Telstra is higher by 1.5pc.

12.50pm: Chinese shares surge 3.5pc

China’s Shanghai Composite is higher by 3.5pc in midday trading leading a surge in Asian stocks and supporting the Aussie dollar.

The Chinese benchmark is the best performing index, as the Hang Seng adds 2.3pc and Seoul adds 1.4pc.

As such, the Aussie dollar, seen as proxy for the region – is higher by 0.3pc to US69.57c.

A report from Reuters citing Nomura analysts could be adding to the positivity – the brokerage noting that “there is a case for raising tactical allocation on Asian equities”.

“We see a number of catalysts that could drive Asia ex-Japan (AeJ) equities’ outperformance over US equities in the near term.”

12.31pm: Mesoblast trials extended to children

Drug developer Mesoblast says compassionate use of its Remestemcel-L drug has been expanded to children with multi-system inflammatory syndrome (MIS-C) associated with COVID-19.

The same drug is being tested on adults with the virus who require a respirator, and has in part fuelled the stock’s more than 250pc surge in the past three months.

Mesoblast today said patients aged between two months and 17 years may receive one or two doses of the drug under compassionate access terms.

MIS-C is a complication of COVID-19 in otherwise healthy children that includes massive simultaneous inflammation of multiple critical organs and their vasculature and chief medical officer Fred Grossman said the company’s drug could provide and “important therapeutic benefit”.

MSB shares are up 8.3pc to $3.65.

Read more: Time is right for Mesoblast in fight against coronavirus

12.01pm: ASX ekes gain

Australia’s share market is turning up slightly, in choppy, low-volume trading thanks to a lift in US futures.

The S&P/ASX 200 is up 3 points at 6060.7 after falling as much as 0.4pc in early trading.

Financials are the driving force, up 0.4pc, as tech adds 0.8pc.

S&P 500 futures are up 0.8pc despite the worsening US pandemic.

11.56am: Melbourne a threat to jobs recovery: ANZ

ANZ’s survey of job ads rebounded by a record 42 per cent in June, but still remains 44.6pc lower from the same time last year after a wipe-out during the height of the coronavirus panic.

Head of Australian economics Catherine Birch said the monthly read of 89,252 ads, had “dwarfed” the previous growth record of 17.7pc in February 2010.

“After an initial bounce, we expect the recovery will be a lot slower. There have been a number of recent large-scale lay-offs announced across a wide range of sectors, including travel, retail, media, consulting, and education,” she said.

“And the rise in new COVID-19 cases in Melbourne and return to lockdowns in several postcodes also pose a risk to the pace and timing of the recovery.”

Ben Wilmot 11.41am: Reject Shop could become $3bn stock: MS

The Reject Shop could prove a recession-buster in the beaten down retail category if it makes the best of its dominant position in the dollar shop industry in Australia and could become a $3bn stock over the next decade, according to Morgan Stanley.

The stock could shine in an environment where clothing, fashion and footwear chains have collapsed and department stores are in crisis, as shoppers also seek alternatives to online shopping for some items.

The company’s new management team, led by Andre Reich, could adopt a simplified strategy as it looks to transform its position from its current $900 million of annual sales into more rapid earnings growth.

The call by Morgan Stanley’s retail analysts, which would amount to a ten fold lift in the value of the stock by 2030, led them to upgrade the stock to overweight in view of a large addressable market, change in strategic direction, and large prize on offer for success.

“The range of possible outcomes is wide, others have tried and failed, and the stock’s recent performance has been exceptional – yet we still find risk-reward compelling,” Morgan Stanley said.

The broker’s analysis said The Reject Shop was a leader in a fragmented market, and the budget retail niche had proven to be large and very profitable in other markets globally.

TRS shares are up 8pc to $7.70 – after hitting $8 early.

Morgan Stanley says The Reject Shop has potential to be a $3bn stock by 2030. Picture: AAP/ Matthew Vasilescu.
Morgan Stanley says The Reject Shop has potential to be a $3bn stock by 2030. Picture: AAP/ Matthew Vasilescu.

11.18am: Travel takes hit from border closure

Australia’s share market rapidly recovered after an early fall, even as travel stocks take a hit from the closure of the Victorian-NSW border.

The S&P/ASX 200 went from -0.4 to -0.1pc within a few minutes, as S&P 500 futures rose 0.6pc intraday.

Qantas shares are down 1.7pc to $3.76, after initially opening higher, while Sydney Airport is lower by 1.2pc, Corporate Travel is lower by 1.6pc and Crown – a benefactor of cross-border travel – is lower by 2.3pc to $9.56.

Volume remains about 50pc below normal after the US holiday.

S&P/ASX 200 last -0.2pc at 6048.8.

Read more: Victoria to close NSW border with 127 new cases

Nick Evans 11.06am: Vale strength to push iron ore lower: MS

Iron ore is on a path back to $US80 a tonne, according to Morgan Stanley analysts, who say rising exports from Brazil seem on track to push the price of the steelmaking commodity back down in the September quarter.

Iron ore prices are still hovering around the $US100/t mark, but Morgan Stanley analyst Marius van Straaten said in a client note a “downward price correction seems highly likely”.

“We forecast the seaborne market to be back in surplus by 4Q20, but a continuation of Vale’s strong recent shipping trend could accelerate the loosening of the market. As a result, China’s port ore inventories could replenish faster than we anticipated, creating downside risk to our 3Q price forecast,” he said.

Mr van Straaten said rising shipments from Vale’s Brazilian operations remain the key swing factor in the iron ore market, with the iron ore major’s supply recovering from low levels early in the year.

“Our shipment tracker shows that Vale’s annualised shipping rate increased to 315Mtpa late June vs levels below 200Mtpa back in early May, mainly driven by improving performance in the northern system,” he said.

“The lower range of Vale’s 2020 guidance of 310-330Mt, accounts for a 15Mt production loss due to COVID-19-restrictions, but so far the quantifiable impact has remained limited to 1Mt due to the 2-week closure of the 36Mtpa Itabira complex”.

BHP last down 1.2pc, Rio Tinto by 0.9pc.

Iron ore is loaded onto a freighter at the Ponta da Madeira Maritime Terminal in Brazil. Picture: Marcos Issa/Bloomberg News.
Iron ore is loaded onto a freighter at the Ponta da Madeira Maritime Terminal in Brazil. Picture: Marcos Issa/Bloomberg News.

10.49am: June capital raisings rise to $26bn

The rush of companies raising capital on the ASX continued in June, with $26bn raised over the month, a 256pc increase versus the same time last year.

With notable raisings including Qantas’ $1.9bn raise, Super Retail’s $203m raise and Challenger’s $300m, its no surprise that ASX data shows secondary capital raisings were up by 72pc to $9.4bn, while initial capital raised was up 815pc to $16.54bn.

Ten companies were delisted over the period, and only 3 joined – TPG and its spin-off Tuas as well as Magellan’s Airlie Australian share fund.

The ASX also said the average daily number of trades was higher by 5pc than the previous year, with average daily value traded of $7.7bn up 40pc.

10.38am: Border closure not shaking stocks … yet

Australia’s share market has fallen slightly to start the session, with little impact from the border closure between NSW and Victoria so far.

The S&P/ASX 200 fell 0.3pc to 6037.3 after hitting a 3-week high of 6101.4 on Friday, with volume more than 50pc below.

Coronavirus crisis talks are said to have resulted in the closure of the Victorian-NSW border from Tuesday, after 127 new cases were diagnosed in Victoria.

On the market, consumer discretionary, Energy, communications, IT, financials and utilities are outperforming and health care, materials, industrials and real estate underperforming.

Adbri is the biggest loser, down 4.7pc as brokers slashed their valuations on the stock after it lost the Cockburn lime supply contract with Alcoa on Friday.

Afterpay rose as much as 1.9pc after UBS boosted its price target and Qantas frequent flyer partnered with Afterpay.

Follow the latest coronavirus updates at our live blog

10.30am: Government buy a boost for EOS

Defence tech developer Electro Optic Systems has surged as much as 37pc early after revealing it is in talks with the government for the sale of 251 of its remote weapon stations, part of a $270bn capability upgrade.

EOS said the formal agreement with the Commonwealth was subject to negotiation and may be subject to certain conditions.

In a statement, Defence Industry Minister Melissa Price said the investment would provide job stability for over 200 of Electro Optic Systems’ workforce directly involved in engineering and support.

“This investment not only secures local jobs but it also provides certainty for over 100 supply chain businesses across Australia,” Minister Price said.

“More than 80 per cent of the parts that Electro Optic Systems use for these weapons are sourced through the Australian supply chain and that’s good for jobs and small businesses.”

EOS shares are up 21pc on the news to $6.44 – after hitting $7.30 – giving it a market capitalisation of $790m.

10.17am: Qantas Frequent Flyers adds Afterpay

In a further boost for Afterpay, the payments company has this morning signed a partnership with Qantas Frequent Flyer allowing frequent flyer members to earn points with the buy now pay later platform.

Under the deal, Qantas Frequent Flyers can earn up to 5,000 Qantas Points when they link their membership number to their Afterpay account.

The latest deal comes as Afterpay shares have been pushing record highs.

Afterpay last traded up 1pc to $68.18, giving it a market capitalisation of just over $18bn.

Read more: Afterpay founder Australia’s youngest self-made billionaire

10.10am: US futures support ASX

Local shares are edging lower only slightly in early trade, capping a four-day win streak with a 7 point or 0.11 per cent loss.

At the open, the benchmark is trading at 6051.2, any loss trimmed by an uptick in US futures.

The major banks are dragging, along with materials and health care, while energy and tech stocks are supporting the index.

Afterpay is adding 0.9pc after an upgrade from UBS, while Electro Optic Systems is surging by 27pc on news its negotiating with the government for the acquisition of 251 remote weapon stations.

AUDUSD last up 0.23pc to US69.53c after spiking to US69.59c earlier this morning.

10.01am: UBS ups Afterpay target by 79pc

The scramble to upgrade Afterpay price targets continues, after Citi more than doubled its target on the stock last week.

UBS analyst Tom Beadle raised his target from $14 to $25 – a 79 per cent increase.

He says the key drivers of an increase in his discounted cash flow valuation include a lower cost of equity assumption, a higher terminal growth rate, additional international expansion options and higher operational assumptions.

Mr Beadle says Afterpay continues to benefit from a shift to online due to COVID-19 restrictions, with stimulus also helping boost consumption, so he’s more positive on sales.

He keeps his Sell rating, warning that the market is failing to appreciate the capital intensity required to fund APT’s growth.

“But in the absence of a catalyst, we acknowledge the market may continue to view valuation through a different lens,” Mr Beadle says.

It comes after Citi raised is price target by 137pc on Thursday and RBC raised its target 106pc on Friday.

After surging 10pc to $68.62 on Thursday, Afterpay shares hit a record high of $70 on Friday (making co-founder Nick Molnar the youngest self-made billionaire) before ending down 1pc at $67.50.

Read more: Higher and higher for Afterpay as Citi doubles target

9.42am: Kerr-Smith to lead Aus Unity wealth

Australian Unity has appointed Esther Kerr-Smith as its new chief of wealth and capital markets, effective next week.

Ms Kerr-Smith was previously group executive of finance and strategy, and replaces David Bryant who left to join Mercer’s Australian office.

“We look forward to Esther moving to the Wealth & Capital Markets CEO role. She has already demonstrated that she is a passionate leader with a deep capacity for value creation and impact,” managing director Rohan Mead said.

“Esther will be a great asset to Australian Unity as we move into our next phase of growth, especially as we continue to pursue our social infrastructure agenda.”

9.35am: ASX to slip in quiet trade

Australia’s share market is expected to fall slightly in quiet trading based on offshore leads.

Friday night futures fell 0.6pc, the FTSE fell 1.3pc and the Euro Stoxx 50 slipped 0.8pc while the US was closed for Independence Day.

S&P 500 futures are little changed this morning, while the Australian dollar has recovered from an early dip.

Short-term risk may be to the downside after the VIX bounced off its 200-day moving average again and Citi’s US economic surprise index hit a record high. Recent gains in line with a bullish pennant pattern on daily charts may resume after a two-day pullback, perhaps to the apex of the pattern, around 5820.

With COVID-19 cases accelerating in the US, the share market may need another supportive signal from the Fed before any further gains.

Also, while it hasn’t affected risk assets so far, the US navy is sending two aircraft carriers to the South China Sea for exercises to coincide with China’s plans to hold drills in the area.

And the Australian government expects further retaliatory tariff increases from China after PM Morrison’s offer of a safe haven to Hong Kong citizens.

The S&P/ASX 200 rose 0.4pc to 6057.9 on Friday after hitting a 3-week high of 6101.4.

9.17am: City Chic keeping mum on acquisitions

Womenswear retailer City Chic says it is exploring a potential acquisition and may need to raise equity but has yet to come to an agreement on key terms.

Responding to speculation, the plus-size womenswear group said it “continues to explore various potential acquisition opportunities globally”.

“There has been no agreement on the terms of any possible acquisition nor is there any certainty that any such agreement will be reached or that any acquisition will be made.”

The group added that it would “consider the appropriate funding options available to the company” if an agreement is reached, which could include cash, debt, and/or an equity capital raising.

City Chic says its exploring acquisition targets.
City Chic says its exploring acquisition targets.

9.11am: What’s on the broker radar?

  • Adbri cut to Neutral – JP Morgan
  • Adbri cut to Sell, price target cut 29pc – UBS
  • Abri price target cut 20pc to $1.85 – Macquarie
  • Afterpay price target raised 79pc to $25- UBS
  • Domino’s Pizza cut to Neutral – JP Morgan
  • Macquarie Telecom rated new Buy – Bell Potter
  • Pinnacle reinstated Overweight – Wilsons
  • Reject Shop raised to Overweight – Morgan Stanley
  • Sims Metal Management cut to Neutral – Credit Suisse

8.51am: Event refinances, suspends dividends

Event Hospitality and Entertainment says it has refinanced its debt facilities and cut any dividends to the end of the year as its accelerates the rollout of its transformation strategy.

The group, whose cinemas are now mostly open across Australia and New Zealand, said it had increased debt facilities by $205m to $750m, giving it cash and undrawn debt of $320m and had ruled out any dividends to December 2020.

Chief Jane Hastings, who in March took a pay cut of $200,000, described the recent turnaround as “three years of transformation in three months”.

Chairman Alan Rydge has agreed to waive his fee, while lead independent director Peter Coastes is taking a 50pc reduction and the other directors a cut of 20pc.

The group said its sale of German cinema exhibition operation CineStar was progressing, after being conditionally approved by German regulators. Completion of the sale remains subject to the divestment of six sites within a six-month period.

John Durie 7.50am: AustralianSuper hails positive result

Australia’s biggest super fund, AustralianSuper, has posted a 0.52 per cent gain for its balanced option in the 2020 financial year after a big rebound in the final quarter.

The surprise positive result follows the hammering Australian markets and the global economy suffered at the coronavirus crisis unfolded.

AustralianSuper investment chief Mark Delaney said: “We have been through an extraordinary health and economic crisis that severely affected domestic and global markets.

“To arrive at the end of the financial year with a positive result given the turmoil we have seen is a very good outcome for members,” he added.

“Returns were strong in the first half of the year, and financial markets have been buoyed by the enormous amount of monetary and fiscal stimulus from governments in the past three months,” Mr Delaney said.

Read more: Super gain defies coronavirus hit

6.20am: ASX set for weaker start

Australian stocks are set to open weaker on Monday, pointing to an end to the S&P/ASX200’s four-day winning streak.

At 6am (AEST) the SPI futures index was down 35 points, or 0.6 per cent.

It comes after the local market gained 2.6 per cent last week, amid a surge among tech stocks. On Friday, local shares clawed back ground in afternoon trade to put on 0.42 per cent, following gains on Wall Street, which had a shortened week.

However European stock markets retreated on Friday night (AEST), with concerned investors locking in gains made recently on solid US jobs data.

The highlight of the week will be Tuesday’s Reserve Bank of Australia board meeting. While there will be no change in interest rates, markets will be looking to the RBA’s latest assessment of the economy.

ANZ job ads for June are due out on Monday, while mortgage lending data for May will be released on Thursday, and are set to show a further deterioration.

US futures were on Monday down 0.5 per cent after US stocks shrugged off surging coronavirus cases to end a shortened trading week with gains, fuelled by an unexpectedly healthy US jobs report. The Dow Jones Industrial Average gained 0.4 per cent to close at 25,828.45, and the S&P 500 climbed 0.5 per cent to end the week at 3,130.05. The tech-rich Nasdaq posted another record after climbing 0.5 per cent to close at 10,207.

The Australian dollar is higher at US69.40c.

5.50am: Buffett in $US10bn gas buy

Warren Buffett’s Berkshire Hathaway is buying Dominion Energy’s natural gas storage and transmission assets in a deal worth a total of $US9.7 billion, the company said in a release.

Once the deal closes in the fourth quarter of 2020, Berkshire Hathaway’s energy subsidiary will gain ownership of 7,700 miles of natural gas pipelines, vast storage facilities, and a 25pc stake in a liquefied natural gas export, import, and storage site in Maryland.

“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Berkshire chairman Buffett said in a statement. “This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner, “ Berkshire Hathaway Energy’s president and CEO Bill Fehman said.

Buffett is usually a bargain hunter during significant market downturns, placing big bets on Goldman Sachs and General Electric during the financial crisis when both firms welcomed an injection of cash and a mark of confidence during a time when both were scarce. But until this purchase, Buffett hasn’t made similarly large acquisitions during the coronavirus pandemic.

Dow Jones

5.40am: Tech giants to face EU legal push

Big tech companies including Google parent Alphabet, Amazon.com and Facebook face a swath of proposed European regulations aimed at curbing their alleged anti-competitive behaviour, making them pay more taxes and compelling them to shoulder more responsibility for illegal content on their platforms, said a top European Union official.

Margrethe Vestager, the EU’s digital-policy and antitrust tsar, detailed for the first time a comprehensive plan of how she aims to rein in US tech giants, using a package of initiatives that the EU has begun to outline individually in recent weeks. The aim is to clearly delineate new legal boundaries for tech companies, rather than just apply existing laws covering fields such as antitrust regulation.

“It’s a full complex of things, it’s not done with just one piece of legislation,” Ms Vestager said in an interview with a small group of reporters. Ms Vestager – who in her prior term as European competition commissioner levelled record fines on Google and ordered Apple to pay Ireland $US14.5 billion in allegedly unpaid taxes – last year was promoted to vice-president of the European Commission, the EU’s executive arm, in charge of competition and new legislation for the digital sector.

“After the first mandate and the first specific competition cases, what I have seen very clearly is that we need rigorous competition-law enforcement, but we also need regulation,” she said.

Tech companies have said that they want to work with the commission to craft the new laws, but several have raised concerns about elements of the proposals.

European Commissioner Executive Vice-President Margrethe Vestager. Picture: AP
European Commissioner Executive Vice-President Margrethe Vestager. Picture: AP

Dow Jones Newswires

5.25am: Germany to beef-up finance watchdog

German Finance Minister Olaf Scholz said Sunday he wanted to overhaul the country’s finance watchdog Bafin and give it more powers after a massive fraud scandal involving digital payments firm Wirecard.

Wirecard filed for bankruptcy late last month after admitting that 1.9 billion euros ($US2.1 billion) was missing from its accounts, a case that has triggered criticism of the auditors and regulators meant to be overseeing the firm.

Scholz told the Frankfurter Allgemeine Sonntagszeitung newspaper he wanted to ditch the current two-stage procedure whereby Bafin is only called in when red flags are raised in a first vetting of accounts by a private monitoring body.

“We need far-reaching reforms,” Scholz said, adding that Bafin needed to step in earlier and have the right to launch “special audits on a large scale”.

“I want to give Bafin more control rights over financial reports, regardless of whether the company has a banking division,” he went on.

German Finance Minister Olaf Scholz. Picture: AFP
German Finance Minister Olaf Scholz. Picture: AFP

AFP

5.20am: Big Oil confronts demand decline

Although crude prices have rebounded from coronavirus crisis lows, oil execs and experts are starting to ask if the industry has crossed the Rubicon of peak demand.

The plunge in the price of crude oil during the first wave of coronavirus lockdowns – futures prices briefly turned negative – was due to the drop in global demand as planes were parked on tarmacs and cars in garages.

The International Energy Agency (IEA) forecast that average daily oil demand will drop by eight million barrels per day this year, a decline of around eight per cent from last year.

While the agency expects an unprecedented rebound of 5.7 million barrels per day next year, it still forecasts overall demand will be lower than in 2019 owing to ongoing uncertainty in the airline sector.

Some are questioning whether demand will ever get back to 2019 levels. “I don’t think we know how this is going to play out. I certainly don’t know,” BP’s new chief executive Bernard Looney said in May.

The COVID-19 pandemic was in full swing then with most planes grounded and white-collar workers giving up the commute to work from home.

“Could it be peak oil? Possibly. I would not write that off,” Looney told the Financial Times.

– Summited? –

The concept of peak oil has long generated speculation.

Mostly, it has been focused on peak production, with experts forecasting that prices would reach astronomical levels as recoverable oil in the ground runs out.

But in recent months, the concept of peak demand has come into vogue, with the coronavirus landing an uppercut into fuel demand for the transportation sector followed by a knockout punch from the transition to cleaner fuels.

AFP

5.15am: Wall Street recap

Wall Street shrugged off surging coronavirus cases to end a shortened trading week with gains, fuelled by an unexpectedly healthy US jobs report that bolstered hopes the economy is recovering.

The Dow Jones Industrial Average gained 0.4 per cent to close at 25,828.45, and the S&P 500 climbed 0.5 per cent to end the week at 3,130.05.

The tech-rich Nasdaq posted another record after climbing 0.5 per cent to close at 10,207.

AFP

Add your comment to this story

To join the conversation, please Don't have an account? Register

Join the conversation, you are commenting as Logout

More related stories

Original URL: https://www.theaustralian.com.au/business/trading-day/trading-day-asx-tipped-for-a-weaker-start-ahead-of-latest-rba-assessment-of-economy/news-story/b54514c9fda8ce622f5ac7684a7899b3