Trading Day: S&P/ASX 200 ASX rebounds; Crown’s Poynton resigns, housing prices rocket, RBA doubles bonds purchase
Stocks rebounded from last week’s late smash, helped by the iron ore price and the Aussie dollar’s fall as RBA doubles bond purchase.
- Banducci, Woolworths launch PetCulture with Richard Enthoven
- Home prices rising at fastest rate in 17 years
- Back from the brink: Woolworths before its turnaround
- Crown Resorts director John Poynton resigns
Welcome to the Trading Day blog for Monday, March 1. Australian stocks finished higher, despite weak overseas leads, with the iron ore price expected to provide some support. The Australian dollar is sharply lower. The RBA confirmed it would double its typical bond purchase to buy $4bn of longer-dated bonds.
Glen Norris 7.20pm:Profits bounce back after COVID
orporate balance sheets are bouncing back from the COVID-19 shock faster than expected with almost nine out of 10 ASX 200 companies posting profits in the recent reporting season.
Retailers, banks and media companies are expected to benefit from an accelerating economic recovery driven by a housing market boom and increased infrastructure spending.
A CommSec survey found that 86 per cent of companies reported profit in the six months to the end of December, 79 per cent issued a dividend and 70 per cent lifted cash holdings.
CommSec chief economist Craig James said that while some companies had faced the toughest conditions in living memory, others were experiencing the best trading in a decade.
Mr James said the recovery had been helped by strong government action on lockdowns and stimulus measures such as JobKeeper.
“It’s not boom time yet, but you have retailers like Gerry Harvey saying profit is going gangbusters,” he said. “Retailers that either had a good online presence to begin with or were quick to put plans in place have been hugely successful.”
But Mr James cautioned it had been an uneven recovery with companies dependent on people’s mobility, most notably airlines and travel companies, continuing to struggle.
“Companies like Qantas and Flight Centre are facing significant challenges,” he said. “Local lockdowns and the closure of foreign borders have also buffeted services
Read more:Profits return as economy recovers from COVID-19 shock
5.38pm:Tokyo stocks rebound
Tokyo shares rebounded Monday following sharp losses in the previous session as US bond yields dipped.
The benchmark Nikkei 225 index added 2.41 percent or 697.49 points at 29,663.50, while the broader Topix index surged 2.04 percent or 37.99 points to 1,902.48.
AFP
Bridget Carter5.02pm:New interest in AMP as Ares doubts emerge
UniSuper, Victorian Funds Management Corporation and Treasury Corp are believed to hold the cards for the future of AMP’s $7 billion wholesale office fund that some suspect could soon be in play by Charter Hall, Dexus Property Group and Investa.
The three real estate groups are all believed to be circling AMP’s $7 billion wholesale office fund at a time of growing unease about whether Ares Management’s $2.25 billion joint venture proposal for AMP Capital proceeds in its current form.
Suggestions have surfaced that some real estate investors under AMP Capital’s overall $26.6bn property management platform are unsure about handing the US-based Ares the keys.
As earlier reported by The Australian, the $7bn AMP Capital Wholesale Office Fund has hired Jarden Australia to offer advice.
UniSuper, VFMC and Treasury are understood to be the largest investors behind AMP.
While it is not expected that AMP Capital’s fund investors will have the opportunity to vote on the Ares transaction, the understanding is that investors are able to vote with their feet and take their investments to another manager.
It was a similar situation when Westpac sold its Hastings Funds Management business more than three years ago when infrastructure investors opted to take their funds elsewhere.
So far, the understanding is that Charter Hall, Dexus and Investa are the most keen to gain control of AWOF.
AMP Capital’s $26.6bn worth of real estate under management includes assets worth about $7bn in the AWOF and about $5bn in the AMP Capital Diversified Property Fund.
The management rights for the ADPF fund are already set to be transferred to Dexus Property Group.
There is also a shopping centre fund worth about $3bn, while the remaining funds are linked to real estate investment mandates and investments with retail investors.
Of Ares global assets under management, 9 per cent is real estate.
It entered the sector in 2012 and most of the investments understood to be in opportunistic funds.
Investa is the largest office landlord in Australia, while Charter Hall counts former AMP Capital real estate boss Carmel Hourigan as its head of office.
AMP announced last week that it had agreed with Ares to create a $2.25bn joint venture and allow the group to take management control. While Ares would own 60 per cent of all the AMP Capital business, excluding its public markets operation, AMP would own the remainder.
The plan is for Ares to pay $1.35bn for the controlling interest after walking away from a proposal to buy all of AMP for at least $6bn.
It suggests AMP Capital, excluding public markets, is worth $3.15bn.
AMP and Ares have agreed to work toward a binding deal over a 30-day exclusivity period.
Lachlan Moffet Gray4.46pm:Commsec hit over compliance
The corporate regulator has commenced civil penalty proceedings in the Federal Court against CBA’s retail stock trading platform Commsec and its service provider AUSIEX for allegedly overcharging brokerage fees and other “systemic compliance failures”.
In a statement released on Monday ASIC alleged the pair violated the Corporations Act and contravened market integrity rules by overcharging brokerage fees on 120,933 occasions totalling more than $4.3m between August 2010 and February 2020.
It also alleged that failed to comply with client money reconciliation requirements, did not provide accurate confirmations to customers for certain market transactions, did not have appropriate system filters to detect possible trades where there would be no change of beneficial owner and failed to include the required intermediary identification in regulatory data submitted to relevant market operators, among other breaches.
ASIC said that “the number, breadth and duration of the conduct is significant and indicates the entities did not have adequate systems and processes in place to ensure compliance with their relevant obligations under their Australian Financial Services licence.”
The companies have entered into a compliance program requiring a review by an independent expert and have compensated the affected customers.
ASIC is seeking declarations of contraventions, pecuniary penalties and other orders against CommSec and AUSIEX.
Lachlan Moffet Gray4.28pm:Shares recover as RBA steps in
Swift action by Australia’s central bank in the bond market has stabilised the local sharemarket, which managed to regain almost ground lost last week when a steepening yield curve caused considerable market volatility.
At the same time incredibly strong national property price and lending indicator growth has lifted companies with exposure to construction and real estate.
The ASX 200 finished the day up 116.3 points, or 1.75 per cent at 6789.6 points - erasing more than half value wiped off the market on Friday as global bond yields spiked.
But a well-timed $4bn intervention from the RBA sent the benchmark 10 year Australian Government bond down by as much as 32 basis points before it settled at a yield of 1.672 per cent, down 24 basis points.
This, combined with the news that property prices had their biggest monthly gain in 17 years, boosted the real estate index by 3.16 per cent with Charter Hall and Stockland leading the pack at 5.56 per cent and 5.52 per cent gains.
The information technology index lifted 2.97 per cent as Afterpay regained some ground lost on Friday, lifting 5.14 per cent.
The materials index underperformed, lifting only 0.3 per cent as gold miners dragged it down. Construction facing companies outperformed: Bluescope Steel lifted 3.42 per cent while James Hardie Industries was up 3.10 per cent.
Austal was the best overall performing company, up 8.44 per cent after it announced it had secured a contract with the US Navy.
Fixtures business Reece followed closely behind, up 7.04 per cent as the housing price news caused the company’s trade volume to double.
Underperformers consisted almost exclusively of gold miners with the exception of AMP which fell 3.33 per cent.
Bridget Carter 3.16pm:Link REIT, EG Group eye Milstone Logistics: sources
Hong Kong-based Link REIT is understood to be partnering with the Australian real estate investor EG Group in its quest to buy the $3.5 billion-plus Milestone Logistics Group.
The Warburg Pincus-based ESR, meanwhile, is thought to be working with the Singapore sovereign wealth fund GIC.
Singaporean private equity firm GLP is no longer thought to be in the mix.
It comes as interested buyers are expected to find out Monday if they have made it through to the shortlist to buy the Blackstone-owned industrial property portfolio.
This was after first round bids were due last Wednesday.
Other bidders are believed to have been Dexus Property Group, the GPT Group, Charter Hall, Centuria, Logos property group, ISPT and Mapletree.
So far, indications are that the GPT Group has made it through to round two, while the Charter Hall group may not have made the cut.
Sources say that offers place a yield on the portfolio of somewhere between 4 and 4.5 per cent.
Estimates have always suggested that the portfolio of Australian industrial properties are worth about $3.5bn, although some expect that there are parties that have offered at least $4bn for the portfolio.
The 45 properties on offer are being sold through JLL and Eastdil Secured while Blackstone is also considering an initial public offering of Milestone Logistics Group through Morgan Stanley and JPMorgan.
Logos has hired Moelis, while Centuria is working with Highbury Partnership.
Final bids are due late March or early April.
Link REIT is listed in Hong Kong and is currently the largest real estate investment trust in Asia by market value with about 126 properties under its control.
The business was established by the Hong Kong government, which sold assets from the Hong Kong Housing Authority.
When it listed in 2005, it called on investment banks UBS, Goldman Sachs, HSBC and JPMorgan.
Last year, it purchased a Sydney-based office tower above the Westfield shopping centre from Blackstone that was worth about $700m.
Some say that the company may face challenges gaining approval from the Foreign Investment Review Board.
Lilly Vitorovich 3.08pm:Jan ad spend drop hits Nine Entertainment: SMI
Advertising spending dropped in January following the Australian Open’s three-week delay, which hit TV broadcaster Nine and halted the market’s recovery in the fourth quarter of 2020.
Media agency ad spend dropped 7.3 per cent last month from a year earlier as the metropolitan TV market reported a 5.3 per cent fall in bookings due to the Australian Open delay, which hit Nine Network’s first-quarter TV schedule, according to Standard Media Index.
“The delay of the Australian Open broadcast was clearly a one-of factor but had a significant impact, and beyond that the market seemed to be pausing for breath after all the marketing activity in the last quarter of 2020,’’ SMI local boss Jane Ractliffe said.
“But we can see that February demand is already in line with that evident before the start of the COVID pandemic last year, while for March the total demand is running at four percentage points above the same time last year while for April demand is already seven percentage points higher.’’
SMI said digital media was the standout in January, reporting year-on-year growth of 1.8 per cent as social media, programmatic and video sites markets continued to report double digit percentage growth.
As a result, digital media has emerged as the largest media in national marketer ad spend for the first time, according to SMI.
“Given the likely return to television growth for the rest of Q1 it will be interesting to see if this trend lasts beyond a single month, but at least for now the lack of the Australian Open combined with continued digital gains has seen the Digital media emerge as Australia’s largest this month,’’ Ractliffe said.
Last year, ad spending dropped 15 per cent from the prior year following double digit falls across the majority of segments as companies slashed spending during the coronavirus crisis.
The cinema industry recorded the biggest drop in ad spending, down 67.9 per cent in December from a year earlier, followed by the magazine (-42.4 per cent) and outdoor (-38.4 per cent) markets.
Lachlan Moffet Gray 3.01pm:UBS keeps Sell on Afterpay, lifts price target
Noted Afterpay bear UBS has maintained its sell rating on the buy now pay later platform but has lifted its target price for the stock from $30 to $36 following a “very strong result operationally.”
Analysts said that Afterpay’s interim sales of $9.8bn exceeded estimates, as did its 13.1m active customer base, and said it supported the issuance of $1.25bn in convertible notes to expand its interest in its US business to up to 90 per cent.
“In our view, this is a good deal for APT’s shareholders given our view that the market is pricing in more for the US business,” they wrote.
Afterpay is currently trading at $125.12, up 5.65 per cent for the day.
UBS analysts said in order to justify such a valuation “it needs to achieve >$400bn sales by FY30.”
2.59pm:Senex completes Cooper Basin business sale to Beach Energy
Senex Energy (ASX:SXY) has completed the $87.5m sale of its Cooper Basin business to Beach Energy. The completion of the sale also satisfies the condition for payment of a special 0.5 cent per share dividend to shareholders, in addition to the 0.5 cent per share distribution for the FY21 half year.
The completion strengthens Senex’s balance sheet, now in a proforma net cash position of $33 million, and supports acceleration of the development of its low-cost, high-return and long-life natural gas assets in Queensland’s Surat Basin.
The completion comes just a week after Senex’s FY21 half-year results showed strong production growth and a material step change in earnings and cashflow from the Surat Basin.
Senex managing director and CEO Ian Davies said the sale marked an important milestone for Senex as it builds an exciting future in the Surat Basin as a material new entrant in a strong domestic natural gas market.
“We have successfully delivered our $400 million Surat Basin natural gas development projects, with new investments underway to accelerate production from our extensive 780 PJ 2P natural gas reserves.
“The $87.5m sale proceeds received from the sale reinforces our balance sheet and positions us strongly for the low-risk high-return growth opportunities within our portfolio.
“The sale proceeds and the cash flow resilience of our natural gas portfolio also support the commencement of dividends for our shareholders.
2.49pm:GLG Corp cops ASX speeding ticket
Shares in GLG Corp (GLE:ASX) gained more than 95 per cent on Monday to a high of 66c, prompting the ASX to ask for any reasons that might explain the lift that had not been revealed to the market.
GLG Corp, headquartered in Singapore, manufactures knitwear and casual clothing, as well as fabric facial masks.
In response to the ASX speeding ticket, the company said it was not aware of any matter that would have affected the recent trading in its securities.
“However, the company notes that the share price increase coincided with the release of its half-yearly financial results, which included the declaration of a dividend. The company has not paid a dividend for a number of years,” it said in a statement to the ASX.
2021 year to date, the company is up 250 per cent.
Eli Greenblat 2.46pm:DJs to scale back food halls after $12m loss
Upmarket department store David Jones launch of food stores and halls in Australia will be scaled back and restructured after the chain lost $12m last half, with a number of stores to be closed and others to be refitted and refurbished.
David Jones, which is owned by South African retailer Woolworths Holdings, said on Monday that it will streamline its food offering in the next phase of its strategy to create a future-fit store portfolio and enhanced online business.
The David Jones push into premium food stores was always viewed with some skepticism by the retail and investment community with a similar push decades ago ending in failure and ultimately shut down.
David Jones has opened a number of upmarket food halls in Sydney and Melbourne over the last few years but the business had been loss making with recent first-half accounts showing the food business racked up losses of $12m.
David Jones said on Monday the new-look food business will extend to both instore and online channels, with a continuing focus on quality and aspirational experience. David Jones’ iconic food halls at Elizabeth Street (NSW) and Bondi Junction (NSW) will be elevated to provide a world-class department store offering, featuring a bespoke selection of concession partners and experiential elements.
As a result of these changes, and following the significant impact on CBD footfall throughout the COVID-19 pandemic, the David Jones food hall in Melbourne’s Bourke Street Mall will close next month ahead of the brand’s exit from the building in April 2022. A new Food offering will be introduced next year as part of the refurbishment of the retailer’s Bourke Street Womenswear store. David Jones’ food stores at Capitol Grand (Vic) and Malvern Central (Vic) will also close in April and May this year respectively.
The retailer’s pilot convenience partnership with bp will continue across 35 locations in Victoria and NSW.
Lachlan Moffet Gray 2.32pm:Crown Resorts outlook revised to ‘negative’: Moody’s
Credit rating agency Moody’s has confirmed Crown Resorts’ Baa3 issuer rating and has revised outlook to negative, leaving the James Packer backed casino giant teetering on the edge of junk bond status.
In a statement Moody’s Investment Service analyst Maadhavi Barber said the “far-reaching and complex” path to suitability to operate its Sydney casino in NSW was behind the shift to negative watch, as well as a looming inquiry into the company in WA and a Royal Commission in Victoria.
Crown is also under an enforced investigation from AUSTRAC, which Moody’s believes could lead to a financial penalty.
But the credit rating agency also believes Crown’s financial metrics and earnings will gradually recover as the economy and its casinos in Melbourne and Perth reopen.
Eli Greenblat 2.23pm:Banducci launches pet project
Woolworths is launching a fresh assault on the nation’s fast-growing $10bn pet industry, which experienced boom conditions through COVID-19, and has inked a partnership with South African-born entrepreneur Richard Enthoven — whose global businesses include insurance and the Nando’s fast-food chain.
The deal struck late last year between Woolworths and Mr Enthoven has created a new joint venture called PetCulture that is 60 per cent owned by the supermarket retailer and is being groomed to be a one-stop shop for pet insurance, veterinary services, food and other pet-related products.
Woolworths chief executive Brad Banducci told The Australian the supermarket group was already one of the nation’s biggest pet insurers, with Mr Enthoven’s PetSure a longstanding underwriter of its insurance products for several years.
Over the past year, Woolworths has witnessed growth in the pet category in its supermarkets and Big W businesses, and PetCulture has been tasked with building a digital platform to provide dog and cat lovers in Australia with a personalised experience in how they explore, shop, learn and provide health and wellbeing for their pets.
Mr Banducci said there had been strong growth in the pet industry, insurance and pet food during the pandemic, with that also shown in the massive uptake in pet ownership through lockdowns that saw the price of purebred cats and dogs skyrocket and many pet stores sell out of animals.
“PetCulture is a stand-alone joint venture that is in the process of being launched in partnership with PetSure, which is the biggest pet insurance business in Australia, owned by the Enthoven family. And they are the underwriters for the Woolworths pet insurance product which is growing really strongly during COVID-19,” Mr Banducci said.
Bridget Carter 2.14pm:Lynch Group ‘worth $572m-$729m’: Jarden
Flower company Lynch Group is expected to be worth between $572m and $729m including debt, according to analysts from Jarden.
It comes as the company ramps up plans for its initial public offering through Jarden Australia, Citi and Stanton Road Partners with a roadshow for the float happening this month ahead of a listing in April.
Jarden’s valuation estimates equate to between 10.9 and 13.9 times a forecasted earnings before interest, tax, depreciation and amortisation on an enterprise value basis for the 2021 financial year.
The analysts say that the peers of Lynch in the agricultural space trade at about 11.5 times while listed fruit and vegetable Costa Group trades at about 10.6 times.
Owned by private equity firm Next Capital, Lynch Group describes itself as a vertically integrated floral wholesaler with operations in Australia and China.
The business expects to generate annual revenue of about $316m and net profit after tax and amortisation of $28.7m for the 2021 financial year, up 140 per cent from the previous corresponding period.
This follows the impact from the global pandemic and after China increased costs from the previous corresponding period.
Lynch, which grows most of its flowers in China, is the country’s largest floral wholesaler in Australia, providing 88 per cent of the supplies to supermarkets.
It is also China’s number one premium flower grower in what is a fragmented market.
Drivers for earnings growth are expected to include supermarkets growing their market share of the floral retail market, currently with about 19 per cent of the market share.
Florists hold about 66 per cent.
Lachlan Moffet Gray 2.11pm:RBA bond buying keeps market ‘functional’: RBC
RBC Capital analyst Su-Lin Ong says the RBA’s expanded $4bn bond purchase today will help keep bond markets functional following global yield spikes at the end of last week, signalling a change in how the central bank institutes yield curve control (YCC.)
“Today’s actions suggests that the RBA is adopting a more flexible approach to unconventional policy which we would commend,” she said.
“Amid the global rise in yields, with AU a notable underperformer recently, adjusting its two key tools broadly within the existing framework makes sense – larger YCC operations including on non-QE days where necessary and the front-loading of QE while skewing its purchases accordingly to where there is most stress/bonds are the cheapest.
“It is bolder, more decisive action which is needed at a time when markets are testing the RBA’s resolve.”
Shortly after 2pm the 10-year Australian government bond’s yield was 1.639 per cent, down 0.279.
1.56pm:“Fit and proper person’ for the Crown board: Poynton
Crown’s departing director John Poynton has declared he remains a “fit and proper person” to remain on the board of the James Packer-based casino company, but says he resigned “in the best interests of the gaming company and its shareholders”.
After tendering his resignation to chairman Helen Coonan, Mr Poynton released a statement to The Australian on Monday afternoon, noting he wished Crown “the best at this challenging time for the company.
“The Bergin Inquiry made no findings against my integrity or performance on the Crown board or my status as a fit and proper person,’’ the statement said.
“But given the advice from The Independent Liquor and Gaming Authority about perceptions about my independence arising out of my past relationship with James Packer and CPH, I believe resigning is the right thing to do.. This is despite Ms Bergin specifically noting that my commitment and contribution would be ‘integral’ to Crown’s future success.”
In her report released earlier this month Ms Bergin noted “the commitment and contribution” of Mr Poynton would be “integral” to “Crown’s future success as a close associate of the Licensee” of its new Sydney casino.
It is understood Crown’s biggest institutional shareholder, Perpetual, had believed Mr Poynton could add value on the board as its sole Perth-based director, but shared the regulators’ concerns about his independence.
Chris Griffith 1.41pm:Don’t ‘overread’ last minute big tech-media changes: ACCC
The news bargaining code requiring Facebook and Google to negotiate with media companies is already having an effect. The code passed both Houses of the Australian parliament last week and is among the first attempts to seriously tackle big tech globally.
The achievement is likely to be replicated in other countries. It has succeeded in getting Facebook and Google to the negotiating table with many publications.
Australia’s competition regulator, the Australian Competition & Consumer Commission (ACCC) began actively pursuing the big tech firms after the Facebook Cambridge Analytica scandal on issues including privacy, transparency on how information is collected and used, digital advertising, general monopolistic behaviours, mergers, and tax.
12.52pm:Wages, salaries ‘continue to improve’: CBA
Company profits fell by 8.1% in Q4 20 (when adjusted for the valuation of inventories), notes Commonwealth Bank’s Global Markets Research team.
“We expected to see a large fall in company profits due to a reduction in government subsidies compared to the prior two quarters (the market however was expecting a small increase). JobKeeper payments were reduced at the end of September 2020 and again at the start of 2021 and will be phased out at the end of March 2021. This will continue to impact on company profits over the coming quarters and we expect a normalisation to occur.
The fall in Q4 20 was driven by non‑mining firms with profits down by 14.4%. Profits remain higher by 23.7% over the year. Mining profits were up by 11.5% in the quarter assisted by stronger commodity prices and are now up by 2.4% over the year.
Wages and salaries rose by 1.4% in Q4 20. This lift comes after a large 2.4% rise in the previous quarter. This measure captures the total wages bill so changes in both the rate of wages and salary payments as well as the changes in the types of jobs and hours worked impact the outcomes. It also captures the JobKeeper payment.
This quarter’s wage number was impacted by three main factors; 1. The lift in employment over Q4 20; 2. The reduction in the JobKeeper subsidy; 3. Stronger than expected wages growth due to the end of wage freezes and the second tranche of the lift in the minimum wage.
Over the past year the arts & recreation and accommodation sectors remain the hardest hit with the total wages bill down by 14.5% and 9.6% respectively.
“Our internal data is showing that wages and salary payments continue to improve and a transition is occurring from government subsidies. The Government last week indicated that the number of employees receiving JobKeeper continues to fall and has bettered their forecasts. There will be some jobs lost with the expiry of JobKeeper but overall we believe that momentum in the labour market is strong enough for an orderly transition away from the wage subsidy.
“Based on our calculations we expect inventories will make a small 0.1%pt contribution to Q4 20 GDP growth. We will firm up our estimate once the remainder of the partial GDP data is released tomorrow. At this stage we expect a solid 2.8% lift.”
Lachlan Moffet Gray 12.36pm:New loan commitments exceed expectations: ABS
New loan commitments vastly exceeded estimates in January, according to the ABS, providing some context to the 2.1 per cent increase in the national property prices reported this morning.
New owner-occupier housing loans lifted 10.5 per cent month on month to $28.75bn, against economist estimates of 1 per cent, according to Bloomberg.
Investor housing loans lifted 9.4 per cent to $6.64bn against a 3 per cent estimate.
The number of owner occupier first home buyers rose 9.6 per cent to 16,664, the highest amount since May 2009 “”when similar rapid growth was spurred by the temporary tripling of the first home owner grant in response to the global financial crisis,” the ABS said.
Lachlan Moffet Gray 12.31pm:Company profits drop in last quarter, wages rise: ABS
Company profits declined in the last quarter as some aspects of the COVID-19 stimulus response were pulled back by the government, but wages edged up, according to the australian Bureau of Statistics (ABS).
Gross company profits fell 6.6 per cent in the quarter, well below expectations of a 1.3 per cent increase, while wages lifted 1.4 per cent.
Inventories were flat over the quarter.
“Estimates of Company Gross Operating Profits have included the receipt of COVID-19 related government subsidies as income in the compilation of CGOP from the June quarter 2020,” the ABS said.
“For the December quarter 2020 release, there has been a reduction in these government subsidies compared to the previous two quarters as the government stimulus packages are gradually wound back.”
Lachlan Moffet Gray 12.19pm:ASX 200 +1.5pc; RBA bond buying boost
The local sharemarket has continued to power ahead, receiving another boost in the arm after the RBA announced it would double its longer dated bond purchase to $4bn, driving the 10-year Australian Government bond’s yield down.
As the ASX 200 lifted by 101.5 points, or 1.5 per cent, to hit 6774.8 shortly after midday the 10-year Australian government bond remained subdued at a 1.648 per cent yield, down 27 basis points for the day.
The announcement of additional bond-buying lifted bond proxy stocks, like construction-facing companies, which were also boosted by news that national housing prices lifted by more than 2 per cent in February.
GUD holdings lifted 5.01 per cent and Reece saw its trading volumes double, sending its price up by 5.19 per cent.
The Real Estate Index led the way, up 3.64 per cent, with Growthpoint Properties and Stockland up 6.07 per cent and 5.28 per cent respectively.
The information technology index rebounded as Afterpay and Zip Co clawed back ground last week in a broad based market decline, up 5.76 per cent and 5.14 per cent.
Austal was the market leader, up 6.75 per cent after it confirmed it had signed a deal with the US Navy worth in excess of $US200m.
Gold miners were the largest decliners on the bourse, with Westgold Resources down 4.90 per cent and Perseus Mining down 4.08 per cent.
Ben Wilmot 11.54am:EG swoops on Olympic Park assets
Real estate fund manager EG has snapped up two office buildings in Sydney Olympic Park from the listed Growthpoint Properties for $66.1m
The private funds group picked up 6 Parkview Drive, Quad 2, and 102 Bennelong Parkway, Quad 3, in the first deal for EG’s Urban Regeneration Joint Venture which has the initial capacity to buy up to $400m of commercial property.
The site spans 1.44ha offering 9,992sq m of office space and 283 car bays, and was acquired on a net passing yield of 7.2 per cent.
“The modern A-grade properties are well located within the Sydney Olympic Park precinct which is set to benefit from the construction of major infrastructure projects including the Sydney West Metro which will see the precinct directly connected to the Sydney and Parramatta CBD’s via a new station,” EG head of capital transactions Sean Fleming said.
“In addition, the recently opened West Connex Project has also seen improved vehicular connectivity to the precinct.”
The deal was negotiated by Tyler Talbot, Graeme Russell and Tim Holtsbaum of Knight Frank and Jason Wright and Chris Bailey of GJS Property for Growthpoint.
“The assets are in high demand as demonstrated by a number of recent leasing deals from tenants seeking quality space in Sydney Olympic Park,” Mr Talbot said.
Patrick Commins 11.41am:Job ads jump to highest since 2018 in hiring spree
Australian businesses advertised for more than 176,000 jobs in February - the most since October 2018 - buoying hopes a national hiring spree will help cushion job losses associated with the end of JobKeeper.
ANZ jobs ads jumped 7 per cent in February, with 13 per cent - or around 20,000 - more roles advertised than a year earlier, according to the seasonally adjusted figures.
ANZ senior economist Catherine Birch said the “ongoing strength” in job ads “gives us confidence that we’ll see solid net employment gains continue over February and March at least, and that the impact of the end of JobKeeper in March will be mitigated to some extent”.
While more than 90 per cent of job losses at the height of the COVID-19 recession had been recouped by January, there remains a sizeable portion of the workforce out of work and reliant on government income support.
The unemployment rate has fallen to 6.4 per cent in January after climbing as high as 7.5pc in July, but is well above the 5.1 per cent recorded before the health crisis.
Preliminary government data have revealed there were 960,000 individuals on the wage subsidy in January, compared with 3.6 million workers at the height of the program. Treasury has estimated roughly 100,000 employees receiving JobKeeper and working zero hours may be vulnerable to losing their jobs come April.
Lachlan Moffet Gray 11.39am:Crown Resorts under fire for potential underpayments
Crown Resorts is the target of another investigation after the Fair Work Ombudsman confirmed it would examine issues of underpayments of staff self-reported by the James Packer backed casino giant.
“We expect any employers that identify non-compliance to report to the FWO and fully cooperate with our investigation to ensure that employees are quickly repaid any outstanding entitlements,” the ombudsman said.
“Any workers with concerns about their pay should contact us directly for assistance.”
The Australian understands that the number of employees affected by the underpayment is in the low triple digits across all properties - Crown Perth, Melbourne and Sydney - in all areas of the business.
“Crown self-initiated a comprehensive assessment of its workforce following media reporting of wide-spread underpayment issues, particularly in the hospitality industry,” a Crown spokeswoman told The Australian.
“This assessment is progressing and supported by external advisors.
“Our expectation is that only a small proportion of our employees are potentially impacted, and that the majority of employees impacted are not covered by an enterprise agreement.
“Crown’s priority is to engage with any impacted current and past employees immediately upon completing our assessment.
“Crown self-reported this review and continues to cooperate with the Fair Work Ombudsman.
“We do not intend to comment any further at this time.”
Lachlan Moffet Gray 11.32am:Aust 10-yr bond rate extends decline
The Australian 10-year bond rate has extended its decline as low as 32 basis points after the RBA confirmed it will double its typical bond purchase to buy $4bn of longer-dated bonds.
It comes after Australian and global bond yields shot up towards the end of last week, with the 10-year Australian government bond rate touching above 1.9 per cent.
That same bond yield slumped 22 basis points to 1.69 per cent at the open of trade on Monday.
As of 11.22am (AEDT) it was trading at 1.634 per cent, down 28 basis points.
The RBA made an unscheduled purchase of $3bn of bonds on Friday to defend its three-year bond yield target of 0.1 per cent.
The purchase will comprise of $4bn of November 2024 to May 2028 government securities, which falls under its $100 billion QE program.
The typical weekly QE target is $5bn. The RBA did not opt to buy bonds around its three year target.
Bridget Carter 11.22am:Genworth offload in drive for more funds
Genworth Financial’s move to offload a 52 per cent interest in local mortgage insurer Genworth Mortgage Insurance Australia is understood to have been driven by a need for more funds for the global insurer following the collapse of a takeover plan by China Oceanwide Holdings.
Genworth agreed to accept China Oceanwide’s US$2.7bn acquisition proposal in 2016, but the deadline has lapsed without a transaction being completed and has not been extended after 16 extensions earlier.
The deal was supposed to give Genworth a much-needed $US1.5 billion capital infusion, and was originally agreed to at a time when Chinese conglomerates were flush with cash and paying top dollar for assets all over the world.
The company had also considered an initial public offering of stock of its U.S. mortgage-insurance business.
However, the understanding is that a sell down of the stake in the Australian operation proved to be the best solution to secure cash at a time that Australian house prices increased at the fastest rate in 17 years in February.
It is understood that the sell down on Sunday through Goldman Sachs drew heavy demand from domestic institutional investors, with some new substantial shareholders to emerge from the trade.
Shares on Monday were trading at $2.42 before midday after they were sold at $2.28 as part of the trade, an 11.6 per cent discount to the last closing price of $2.58, with the divestment allowing Genworth Financial to reap $488.6m in proceeds.
With respect to the collapse of the China Oceanwide transaction, the Wall Street Journal reported that financing, which was to be partially supplied by Hony Capital, is understood to have been a stumbling block.
It passed numerous regulatory hurdles, getting approval from Chinese authorities, insurance regulators and the Committee on Foreign Investment in the U.S., which reviews cross-border deals for national-security concerns.
But also weighing on the prospects of a deal completing has been the Covid-19 pandemic, and Genworth Financial’s shares have fallen as a result, with its market value at about US$1.4bn at the start of this year.
Genworth Financial listed Genworth Mortgage Insurance Australia (now worth $1.1bn) in 2014 with shares sold at $2.65 each.
It is the largest mortgage insurer in the market along with QBE.
The company this month posted a $107.6m full-year loss, which came with an increase in reserving to reflect an anticipated rise in claims linked to the global pandemic.
Lachlan Moffet Gray 11.11am:ASX 200 climbs on housing price gains; up +1pc
The benchmark ASX 200 index has continued to climb following news of strong national house price gains and the biggest fall in the Australian 10-year bond rate since March of last year.
Real Estate stocks and other “bond proxies” also benefited from a massive 22bps fall in Australia’s 10-year bond to 1.635% after the RBA said on Monday it would buy $4bn of longer-dated bonds, double the usual size.
At 11am the market was up 68.13 points, or 1.01 per cent, at 6745 points - the largest gain in nearly a month.
Behind the stockmarket rise was the real estate sector, up 2.89 per cent, as CoreLogic data revealed the housing market lifted at its fastest pace in 17 years in February, up 2.1 per cent nationally.
Ingenia Communities was the strongest in the index, up 4.12 per cent, followed by Growthpoint Properties, up 3.51 per cent, and then Stockland, up 3.48 per cent.
The materials index remained slightly negative as gold miners continued to drag but construction-exposed stocks continued to outperform, with Boral and James Hardies Industries up 2.9 per cent and 2.66 per cent.
But overall Pointsbet was leading the way, up 7.57 per cent, followed by Service Stream 7.39 per cent.
Reece was up 3.89 per cent.
Flight Centre was up 5.24 per cent and Zip Co rebounded after a sharp decline last week by climbing 5 per cent.
IDP Education was the worst performer, down 3.65 per cent alongside gold miners and AMP, down 1.67 per cent.
The Australian dollar is up 0.5pc against the US dollar, trading around US77.46c.
Ben Wilmot 11.10am:Centuria Capital raises $162m for unlisted property funds
Centuria Capital Group has raised $162m in equity for three unlisted real estate funds this year, helping underpin its earnings upgrade to 10c per security.
Centuria’s New Zealand subsidiary, Augusta Capital, raised about.$NZ109m for the single asset Augusta Penrose Limited fund, which has settled the $NZ178m Visy Glass manufacturing industrial facility acquisition.
Locally, Centuria also closed the oversubscribed $40m equity raise for the new fixed-term unlisted Centuria Industrial Income Fund No.1, which comprises three industrial assets across Brisbane and Adelaide.
The open-ended unlisted Centuria Healthcare Property Fund, which will open for applications in mid-March for the third time and has already secured more than $20m in an advance bookbuild.
In total the equity raises underpin $286.8m worth of industrial and healthcare real estate.
Centuria joint chief executive Jason Huljich said it was exciting to confirm the significant funds the company had raised in the eight weeks of the 2021 calendar year across Australia and NZ, noting the unlisted single asset and multi-asset funds comprised hotly-contested assets across the industrial and healthcare sectors.
11.09am:Supercars zooming for Seven Network
The Seven Network’s multi-platform coverage of the Supercars Repco Mount Panorama 500 in Bathurst on the weekend was a big winner with sports fans around the country.
The return of Supercars to Channel 7 and 7mate reached 2.34 million Australians across Saturday and Sunday, according to Seven West Media.
Seven’s average TV audience was up 28% on the opening round of the Supercars Championship last year.
On Sunday, an average of 540,000 people nationally tuned in to watch Shane van Gisbergen complete a clean sweep of the weekend with a dominant victory in Race 2.
In the capital cities, yesterday’s race drew 290,000 viewers and was number one in its timeslot among 25 to 54s, men 25 to 54 and total people.
The Saturday race recorded 520,000 viewers nationally and 286,000 in the capital cities, ranking number one in its timeslot.
Eli Greenblat 11.00am:Back from the brink: Woolworths before its turnaround
Woolworths chairman Gordon Cairns has admitted that in 2015 the supermarket giant was led by an “emasculated” chief executive and a fractured board, with its stores lacking in investment and in disrepair, suppliers mistreated, staff unmotivated and grocery prices too high.
Addressing the Australian Institute of Company Directors’ Australian Governance Summit on Monday, Mr Cairns also said the recent discovery by Woolworths it had underpaid its workers by $500m triggered an investigation covering six years of wages that was so complex the accounts had to be sent to the CSIRO to decipher.
Turning to COVID-19 Mr Cairns said last-year’s panic shopping in supermarkets as the pandemic emerged showed the “best and worst” of its customers, as fights broke out in the aisles and some Woolworths staff were assaulted.
He said the cost to Woolworths so far of measures to customers, staff, provide extra security and maintain safe workplaces was $681 million, or around 2 per cent of sales.
Limping on stage at the AICD conference because of an old rugby injury, Mr Cairns reflected on the last five years for the supermarket giant.
He said Woolworths was plagued by a series of operational and managerial problems in 2015, when he became chairman.
David Swan 10.56am:Bitcoin hits lowest in 20 days
Bitcoin fell 6.39 per cent to $US43,165.78 on Sunday, losing $US2,944.20 from its previous close, with the cryptocurrency falling by 20 per cent in just five days.
After hitting an all-time high of a $US58,000 valuation just a few days ago, bitcoin has now lost more than $US100bn in market value.
It had soared in mid-February amid increasing confidence that it will become a mainstream investment and payments vehicle, and an increasing number of countries who have now backed cryptocurrencies including Mastercard and assetmanager BlackRock.
One reason behind the sell-off may be comments from Tesla CEO Elon Misk, who tweeted recently that the price of cryptocurrency did “seem high”.
Meanwhile tech veteran Bill Gates has issued a warning, that anyone with less money than Musk “should probably watch out.”
“Elon has tons of money and he’s very sophisticated, so I don’t worry that his bitcoin will sort of randomly go up or down,” Mr Gates told Bloomberg in an interview.
“I do think people get bought into these manias who may not have as much money to spare. My general thought would be that if you have less money than Elon, you should probably watch out.”
10.21am:ASX 200 +0.4pc, rebounds from Friday’s sharp downturn
The S&P/ASX 200 is rebounding from Friday’s sharp downturn with the index rising 31 points, or 0.47pc, to 6704. Communications, consumer staples and IT are lifting the most while energy and materials decline.
Fortescue Metals Group is down $1.23 a share, or 5.1% as it trades ex-dividend, the main weight on the market, according to CommSec.
The Real Estate index was leading the charge, up by 1.37 per cent followed by communications at 1.19 per cent and then the consumer discretionary and staples sectors at just under 1 per cent.
The materials index was dragging, down 0.64 per cent as the gold miners cancelled out gains made by construction companies: Boral was up 2.51 per cent and James Hardie Industries lifted 1.23 per cent.
In real estate, Goodman Group lifted 2.53 per cent, Stockland lifted 1.44 per cent and Mirvac was up 1.35 per cent.
Plumbing company Reece lifted 3.77 per cent, one of the strongest performers overall - but the market leader was Kogan.com, regaining much of what it lost in the market decline last week by lifting more than 6 per cent.
Pointsbet Holdings also lifted by more than 6 per cent while Austal increased by 5 per cent after informing the market of a $US235m contract from the US Navy.
Nine Entertainment and News Corporation lifted 3.83 and 2.57 per cent respectively while goldminers broadly underperformed, with Resolute Mining falling 3.10 per cent.
READ MORE: Fortescue to stem pipeline cash flow
10.14am:Challenger appoints Rachel Grimes as CFO
Challenger has appointed Rachel Grimes as chief financial officer.
She leaves Westpac, where she is currently General Manager, Finance.
Grimes will start at Challenger on 3 May. She replaces Andrew Tobin, who is stepping down after 13 years at Challenger.
10.07am:RBA bond buying ‘failing’: RBC
The sell-off in AU fixed income last week was notable for several reasons, writes RBC.
1) the moves were largely independent of the generally weaker global fixed income backdrop and evident in the push wider in the benchmark 10y AU/US spread briefly to 48.5bp before ending the week at just over 30bp
2) a resumption in RBA YCC for the first time since early Dec 2020 including on a non QE operation day
3) front end steepening implying ~50bp of tightening by the end of 2023
4) emerging dysfunction with bid/offer on ACGBs widening and
5) exposure of still net long positioning with certain 3y basket related trades in conjunction with YCC exacerbating price action
“The combination of the above suggests a market that is increasingly testing the RBA’s commitment to its YCC and QE and is sceptical of the RBA’s promise to not lift the cash rate until 2024 at the earliest. The YCC target bond, April 2024s, remains well above 10bp and the wider cross market spread and higher TWI comes despite ongoing QE. By its own metrics, the RBA’s unconventional policy measures are failing with financial conditions tightening.
“This begs the question of what next with expectations rising ahead of this Tuesday’s board meeting. This needs to be viewed through the prism of the RBA’s key objectives – full employment and within target inflation. Tighter financial conditions and wider AU/US spreads are clear headwinds to these objectives and policy action will likely be focussed on addressing this. To our mind this suggests the need for greater policy action and flexibility from the RBA. This shift looks to have started last week with a large YCC operation on Thursday followed by a similar purchase on Friday.
Further follow through is needed, says RBC.
“There are several options ahead for the RBA’s actions to better align to its dovish rhetoric and send a stronger signal to markets to help unwind tighter financial conditions.
“We expect continued YCC of $4-7bn per week for several weeks including, if necessary, purchases on non QE operation days which we have argued can be more impactful with some element of surprise.
“YCC could be extended to all Nov-24s (which we had already expected, but with an announcement only in several months’ time) or to all 3y basket bonds, though this latter option could make any eventual exit from 3y YCC more difficult especially given current calendar 2024 FG.
“A step up in the pace of weekly QE purchases skewed more towards 3-5yr to keep key borrowing rates low may be a better option within the current framework. And, any further sustained dislocation will likely see the RBA step in and buy across the curve.
“We expect the RBA to add a firmer commitment in its post board meeting statement on Tuesday that it “will act to ensure its YCC target is met” and “key borrowing rates stay low”.”
Lachlan Moffet Gray 10.06am:AP Eagers directors raise their stakes
Two directors of AP Eagers have increased their stake in the car dealer group before the ex-dividend date on March 30.
The Australian reported on Friday that despite receiving more than $129m in Jobkeeper, the group was set to pay out $65m in dividends at 25 cents a share.
Nicholas Politis made an on-market purchase of 100,000 ordinary shares at $12.3766 per share last Wednesday at a cost of $1.23m.
That same day outgoing CEO and board member Martin Ward purchased 40,000 shares at $12.4831 each - a total cost just over $499,000.
Ben Wilmot 10.00am:Feb sees fastest rise in housing prices in 17 years
Housing prices jumped at the fastest rate in 17 years in February, as a combination of recovery from the coronavirus crisis and low interest rates kicked buyers into gear, prompting fears of a new affordability crisis.
Home values surged 2.1 per cent higher in February in the largest monthly change in the national home the value index by research house CoreLogic since August 2003.
Buyers were spurred by a heady mix of record low mortgage rates, improving economic conditions, government incentives and the low amount of stock available for sale, driving the country’s housing market is into a broad-based boom.
Housing values are rising in both capital cities and regional areas prompting comparisons to the housing boom in the wake of the global financial crisis.
CoreLogic’s research director Tim Lawless said a synchronised growth phase like this had not been seen in Australia for more than a decade.
“The last time we saw a sustained period where every capital city and rest of state region was rising in value was mid-2009 through to early 2010, as post-GFC stimulus fuelled buyer demand,” he said.
Sydney and Melbourne were among the strongest performing markets, recording a 2.5 per cent and 2.1 per cent lift in home values over the month respectively, as they caught up from a weaker performance last year.
9.54am:Reporting season results trend above expectations: Citi
Citi in its reporting season update says 1H21 results are trending above expectations.
“Almost 80% of the stocks in our coverage have reported their results to date. On balance, earnings across the market are above analyst expectations with 36% of results being EPS beats vs. 28% misses.”
“The resources sector has seen a dividend bonanza as a result of strong cash flow generation and low levels of debt. In other parts of the market, dividend growth has been strong in domestically focused parts of the economy. In aggregate however, dividends for the market ex resources ex banks have been in-line with analyst expectations.
“While some sectors of the market are benefitting from buoyant retail conditions, others are still negatively impacted by border closures. In addition, those companies that are incurring pandemic related costs may find offsets from government support schemes.”
Citi notes there was a lack of willingness to provide guidance.
“The pandemic continues to create low visibility for companies. However, trading updates have on balance signaled strong conditions in the December half, which have continued early in 2021. Concerns around FX headwinds have not been highlighted, but will present a risk in our view. Companies are mindful about lapping COVID-19 disrupted periods from the pcp and in many cases highlighting costs that will return as conditions become less restrictive.”
Citi has made several rating changes so far, including EVT (Sell to Buy); ALU, IAG, ORA, TAH (Neutral to Buy); ASX, TCL, WTC (Sell to Neutral); DOWN - AZJ, CCX, COL, CSL, MOC, RHC (Buy to Neutral); COH, FLT (Neutral to Sell).
It says market aggregate earnings are still robust.
“Citi FY21 earnings are forecast to grow by 24.3%, with expectations holding up well so far. Much of the revisions to our market numbers came from upgrades to Resources, driven by higher iron ore prices. For the market ex resources ex banks, earnings have been revised higher through reporting season and are expected to grow by 12.4% in FY21.
“Citi FY22 earnings forecasts had a similar boost from the Resources upgrades, with overall earnings forecast to grow by 6.9%. For the market ex resources ex banks, earnings have been marginally pared back and are now expected to grow by 8%.”
Lachlan Moffet Gray 9.36am:ANZ details AmBank 1MDB impact
ANZ says the impact of its 24 per cent investment in AmBank - one of the largest banking groups in Malaysia - due to the bank’s involvement with the 1MDB investment fund scandal will be the following:
- The impact on ANZ’s CET1 capital position will be neutral given its investments in associates are already a full deduction to capital.
- The financial impact on ANZ ($212m) will be recorded as part of the equity accounted earnings from AmBank at 1H21.
- This will reduce the carrying value of ANZ’s interest in AmBank from ~$1.050bn to ~$850m.
Lachlan Moffet Gray 9.31am:Freedom Foods narrows loss, revenue climbs
Freedom Foods has narrowed its first half loss to $23.9m compared to last year’s interim result of $63.5m.
EBITDA lifted 182 per cent to $21.7m as revenue climbed 15 per cent to $317.3m. No Interim dividend was declared.
The food and UHT manufacturer is currently facing two separate class actions over the alleged misrepresentation of the company’s financial position to investors.
CEO Michael Perich said the company was executing financial and operational turnaround.
“Most importantly, the results show the financial and operational turnaround strategy underway across the company is beginning to gain traction,” he said.
“By working hard to remove complexity across the business – as well as improving our culture, governance and accountability – we are able to focus our attention on the brands and products with the greatest potential.”
Lachlan Moffet Gray 9.28am:Bond market to stay volatile: NAB
The Australian 10-year bond rate declined 19 points to 1.73 per cent on Monday after US bond yields fell on Friday following a large run up in yields at the end of last week as investors rushed to purchase bonds amid the vaccine rollout.
Analysts at NAB market research said they still anticipated volatility in bond markets through the week.
“That said, the bond moves on Friday still feel like a pause for air, rather than the catalyst for a move towards calmer waters,” they said.
“Market participants remain nervous over the prospect of higher inflation as economies look to reopen aided by vaccine roll outs, high levels of savings along with solid fiscal and monetary support.”
9.19am:What’s impressing analysts today?
Afterpay Price Target Raised 34% to $150.00/Share by Ord Minnett
Afterpay Price Target Raised 40% to $160.20/Share by Wilsons
A2 Milk Price Target Cut 40% to $9.35/Share by Wilsons
A2 Milk Target Price Cut 24% to $7.15: Citi
AMP Target Price Raised 15cps to $1.60: Citi
Ardent Target Price Cut 20% to $0.82: Citi
Austal Target Price Cut 23% to $3.30: Citi
Austal lifted to outperform at Credit Suisse
Bubs Australia Price Target Cut 17% to $0.54/Share by Wilsons
Bubs Australia Price Target Cut 22% to $0.57/Share by Bell Potter
Cashrewards Price Target Cut 1.7% to $2.30/Share by Moelis Australia
Coronado Global Resources Price Target Cut 3.2% to $1.50/Share by Bell Potter
Coronado Global Resources Price Target Cut 6.7% to $1.40/Share by UBS
Coronado Global GDRs changed to add at Morgans Financial
Galaxy Resources Price Target Raised 9.1% to $3.60/Share by UBS
Harvey Norman Price Target Cut 4.3% to $5.60/Share by UBS
HT&E Price Target Raised 5% to $2.10/Share by UBS
IVE Group lifted to buy at Shaw and Partners
Kogan.com Price Target Cut 16% to $15.10/Share by UBS
Orica lifted to outperform at Credit Suisse
Orica cut to neutral at Macquarie
Orocobre Price Target Cut 4.6% to $6.20/Share by UBS
Orocobre lifted to neutral at Credit Suisse
Reece Price Target Raised 19% to $16.00/Share; Upgraded to Hold from Lighten by Ord Minnett
Resimac Price Target Raised 32% to $3.30/Share by Bell Potter
SeaLink Travel Target Price Raised 30% to $8.70/Share by Macquarie
Service Stream Price Target Cut 24% to $1.40/Share by Bell Potter
Select Harvests Price Target Cut 2.6% to $5.70/Share by Bell Potter
Sezzle Price Target Raised 4.5% to $11.50/Share by Ord Minnett
Sonic Healthcare cut to neutral at Goldman Sachs
Lachlan Moffet Gray; Dow Jones Newswires
9.15am:February’s bond rout rattles sharemarket foundations
February’s government-bond rout has rattled one of the foundations of the past year’s powerful stockmarket rally: investor certainty that ultralow long-term interest rates are here to stay.
A wave of selling during the past two weeks drove the yield on the benchmark 10-year Treasury note, which helps set borrowing costs on everything from corporate debt to mortgages, to above 1.5%, its highest level since the pandemic began and up from 0.7% in October.
A series of Federal Reserve officials have said the climb is a healthy one, reflecting investors’ improving expectations for a vaccine- and stimulus-fuelled economic recovery. Many portfolio managers say they believe rates are likely to flatten out in coming days as yields finally reach what they see as attractive levels. Those views will get a fresh test this week, with Fed Chairman Jerome Powell scheduled to make a public appearance Thursday and the release of February’s jobs report Friday.
But there are signs, such as unusually soft demand for recent Treasury debt auctions, that selling may not be over and yields may have further to rise. Some traders warn that bond markets are signalling a powerful economic recovery that could up-end the dynamics that have held borrowing costs low while powering stocks to records -- potentially a recipe for more of the topsy-turvy trading seen over the past week, when the Dow industrials swung more than 1,000 points over three days.
“There is a view that recovering from a pandemic looks different than from a normal recession,” said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities.
Traders said concerning dynamics were evident in a Treasury auction late last week. Demand for five- and seven-year Treasurys was weak Thursday heading into a $62 billion auction of seven-year notes and nearly evaporated in the minutes following the auction, which was one of the most poorly received that analysts could remember.
The seven-year note was sold at a 1.195% yield, or 0.043 percentage point higher than traders had expected -- a record gap for a seven-year note auction, according to Jefferies LLC analysts. Primary dealers, large financial firms that can trade directly with the Fed and are required to bid at auctions, were left with about 40% of the new notes, about twice the recent average.
The tepid demand concerned investors because the government is expected to sell a huge amount of debt in coming months to pay for the stimulus efforts that undergird the recovery. Further poor auction results could fuel additional selling in bond markets and undermine the tone in other markets, such as those for stocks, investors said.
Dow Jones Newswires
9.09am:US stocks closed mixed with rising bond yields
Here’s a snapshot of what happened: Stocks close mixed and ended the week lower. The 10-year Treasury note yield fell 5.4 basis points to 1.42%, but ended 11.5 basis points up this week and 36.9 basis points higher for February. The WSJ Dollar Index was up 0.78% to 85.93. Oil ended sharply lower ahead of an OPEC meeting. Gold prices booked their lowest close since June and steepest monthly drop in four years.
On the sharemarkets: US stocks ended a down week with mixed results as investors tried to digest the implications of a rapid rise in bond yields.
The Dow Jones Industrial Average fell 1.5% and the S&P 500 fell 0.5%. The Nasdaq Composite, despite gaining 0.6%, lost 4.7% for the week, its sharpest weekly drop since October.
The Nikkei Stock Average extended early losses to end 4.0% lower amid weaker investor sentiment due to a rout in global bond markets.
China’s major stock benchmarks were lower. Chinese stocks weakened in morning trade to further withdraw from a strong rally earlier this month. The benchmark Shanghai Composite Index lost 2.12%, reversing a brief recovery on Thursday to resume its recent downturn. The Shenzhen Composite Index shed 1.79% and the ChiNext Price Index was down 2.12%.
Elsewhere, New Zealand’s NZX-50 index closed 0.7% higher but lost 6.9% for the month, dented by the global spike in government bond yields and a2 Milk’s third profit downgrade in short succession. It was the index’s worst month since a 13% loss in March last year during the pandemic panic.
And Australia’s S&P/ASX 200 index closed 2.4% lower after a broad-based sell-off that pushed the benchmark to its worst day since early September. The ASX 200 lost 1.8% for the week.
In commodities: US benchmark oil prices tumbled at the end of the session to close 3.2% lower at $US61.50 a barrel. The decline was the biggest one-day fall since Nov. 6 and put a definitive end to four straight sessions of increases.
West Texas Intermediate crude for April delivery still ended with a 3.8% weekly gain, and analysts say market sentiment remains generally bullish, but looking ahead investors are starting to worry that prices have risen so fast -- nearly 30% since the start of the year to a 21-month-high on Thursday -- that more selling and price declines may be on the horizon.
Gold futures fell for a fourth-straight session to suffer the biggest monthly loss in more than four years, as a dramatic rise in government bond yields undercut demand for the precious metal, pulling prices down to their lowest finish since June.
Gold for April delivery on Comex was off $US46.60, or 2.6%, to settle at $US1730.90 an ounce, the lowest finish since June 2020, according to Dow Jones Market Data.
Dow Jones Newswires
9.01am:Citi lifts AMP target price
Citi analysts estimate AMP’s proposed JV with Ares Capital will add about 15cps to valuation and similarly lift its target price by 15cps from $1.45 to $1.60.
“While this transaction realises some value and also allows AMP still to participate in what should be improved growth of its private markets business, the turnaround of the wealth business still looks a long and arduous road.
“We retain our Neutral/High risk call. We change EPS FY21E: -7%; FY22E: -5%; FY23E: -2%. Our assumptions include: a $1bn buyback split between 2H21 and 1H22, AMP retaining 100% of seed capital income and carry interest on funds in place at the commencement of the JV but sharing ongoing management/performance fees etc. on a 40:60 basis, as well as some modest reduction in corporate costs.
“A $1.2bn buyback would see a more neutral FY22E EPS outcome.”
8.53am:Morningstar names Hyperion Asset Management fund manager of the year
Hyperion Asset Management has been named Fund Manager of the Year in Morningstar’s Fund Manager of the Year Awards, with all three of its funds consistently outperforming peers in their respective categories.
Hyperion’s flagship fund, the Hyperion Global Growth Companies Fund, delivered a net 39.9 per cent return above the MSCI World Index.
The Hyperion Australian Growth Companies Fund topped the Morningstar Australian equity large cap category, maintaining its top position from the year prior by delivering a net 30.90 per cent return above the S&P/ASX 300 Accumulation Index.
The Hyperion Small Growth Companies Fund, which is gold rated by Morningstar, delivered 23.5 per cent above the S&P/ASX Small Ordinaries Accumulation Index, outperforming all competitors within the small/mid cap category.
Commenting on the award win, Hyperion’s Chief Investment Officer Mark Arnold said: “2020 was a very strong year for us, and we attribute this to our investment methodology which allows us to identify structural growth leaders – companies which can outperform their competition and grow their earnings in all sorts of economic environments, especially difficult ones.”
Deputy Chief Investment Officer, Jason Orthman said: “We invest with the mindset of long-term business owners and back new-world companies that are challenging the status-quo and shaking up industries. These companies thrive in the disrupted world we live in today and they will thrive in the disrupted world of tomorrow.
“Prior to COVID-19, the global economy faced various challenges to economic growth including technological disruption, globalisation, constraints on natural resources, high levels of debt, and an ageing population. These challenges still persist today, and we expect the majority of listed businesses, which rely on overall economic expansion to grow, to really struggle in the years ahead.
“For this reason, we believe an actively managed, high-conviction portfolio of quality listed businesses is the best way to deliver above-benchmark returns into the future.”
8.46am:Genworth Financial exits Genworth Mortgage Insurance Australia
Genworth Mortgage Insurance Australia Limited has been advised that Genworth Financial (through certain wholly owned subsidiaries) has sold its entire holding of shares in the company. Consequently, GFI no longer owns any shares in the issued capital of the company.
Genworth CEO Pauline Blight-Johnston, said “We are pleased with the strong investor interest in the sale of GFI’s shares and welcome the new institutional investors onto our register. We look forward to working with all our investors in supporting more Australians to achieve financial security through home ownership. We also thank GFI and those of its people who have worked with us during GFI’s period of investment in Genworth.”
As a result of the sale of GFI’s holding in the company, Rajinder Singh and Stuart Take will today resign from the board of the company, the company said in a statement to the ASX.
“All other current directors remain on the board and the board continues to meet all regulatory requirements. The board will consider whether it will appoint additional directors to fill these vacancies in due course.”
8.41am:Webjet appoints Denise McComish to the board; Korsanos steps down
Webjet announces that Denise McComish has been appointed as a Non Executive Director of the Company with effect from 1 March 2021, and that Toni Korsanos will step down as a Non Executive Director on 24 March 2021.
Ms Korsanos joined the board on 1 June 2018 and has chaired the Company’s Audit Committee since that date. She will be stepping down to focus on other commitments.
Ms McComish was a partner with KPMG for 30 years and a member of the Board of KPMG Australia for 6 years. She is currently a Non-Executive Director of Macmahon Holdings (effective 1 March 2021), Beyond Blue Limited and Chief Executive Women, and a member of the Takeovers Panel. Ms McComish has also chaired the Audit and Risk Committees for Edith Cowan University, KPMG Australia, Beyond Blue Limited and Chief Executive Women. She will chair Webjet’s Audit Committee from 24 March 2021.
8.37am:$A buy the dip: Westpac’s Rennie
We have been arguing to use dips in the $A as a buying opportunity for some time now – and we see the current dip as just such an opportunity,” notes Westpac’s head of financial market strategy, Robert Rennie.
“The sharp sell-off in global bond markets has checked optimism in global financial markets – especially growth/ tech equity markets where valuations have arguably become extremely stretched.
“However, the very modest tightening in financial conditions will not damage the sharp recovery in global economic activity that will continue through 2021 and beyond.
“Industrial commodities including iron ore, copper, aluminium etc remain well placed for continued gains through Q2 and thus we see the A$ as well supported below 0.78.
“The coming dividend conversion period can also be viewed as acting as an additional support factor for the A$ through end March and into April.
“Thus we have there used the current sharp dip (towards 0.7730) to buy $A (at 0.7750) with a target of $A rising to 0.8150 through April.
“The trade will be run with an initial stop at 0.7650, but this will be raised should $A start to rebound,” says Rennie.
Lachlan Moffet Gray 8.27am:Crown Resorts director John Poynton resigns
Crown Resorts director John Poynton has resigned as an independent director of the gaming giant.
Mr Poynton’s departure closes the book on company board members who were singled out by NSW Independent Liquor and Gaming Authority Chair Philip Crawford as needing to resign in order for the company to regain suitability to operate its Sydney casino.
He was formerly a nominee director of James Packer’s Consolidated Press Holdings, but cancelled a consultancy agreement he had with Mr Packer’s company following the findings of unsuitability by an ILGA inquiry.
Mr Poynton resisted calls for him to resign, with The Australian reporting last week that he had hired legal advisers to assist him on the issue.
Crown’s Executive Chairman, Helen Coonan, told the market on Monday:
“John has been a member of the Board of Crown since November 2018 and a director of Crown Perth since 2004. During that time, he has been enormously committed as a director, Chairman of Crown Perth and through his service on Board committees,” she said.
“The Independent Liquor and Gaming Authority (ILGA) has advised Crown that it considers it appropriate that John step down as a director of all companies within the Crown group, due to a perceived lack of independence arising out of his past relationship with Mr James Packer and CPH, notwithstanding the recent termination of John’s consultancy arrangement with CPH.
“As a result, John has agreed to resign in the best interests of Crown and our shareholders, despite no adverse findings by the Commissioner in the ILGA Inquiry in relation to his suitability, integrity or performance. “On behalf of the Board, I thank John for his contribution to Crown over many years.”
Mr Poynton did not make a statement in tandem with Ms Coonan.
Lachlan Moffet Gray 8.23am:GWA Group managing director and CEO Tim Salt to step down
GWA Group managing director and CEO Tim Salt has resigned citing personal reasons.
Darryl McDonough, the chairman of GWA, said: “Tim has led GWA with distinction over the last five years and under his leadership the Group has been restructured to what it is today - the leading provider of water solutions products and systems to households and commercial premises.”
Mr Salt said “I am proud of the relationships that have been built with both supply partners and customers and there will be further opportunities to strengthen and grow together in the future
Mr Salt said he would assist the newly appointed acting CEO Urs Meyerhans until the end of the financial year.
Mr Meyerhans was most recently President of Tetra Tech Asia Pacific and Chief Executive Officer of Coffey Consulting.
Spencer Stuart has been engaged to recruit a new CEO and MD.
8.11am:$A at US85c by year-end: AMP Capital’s Oliver
Although the $A is vulnerable to bouts of uncertainty and RBA bond buying will keep it lower than otherwise, a rising trend is likely to remain over the next 12 months helped by rising commodity prices and a cyclical decline in the US dollar, probably now taking the $A up to around $US0.85 by year end, says head of investment strategy and chief economist at AMP Capital, Shane Oliver.
Shares remain at risk of a further short-term correction after having run up so hard in recent months – with the back up in bond yields possibly being a trigger, he says.
“But looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines and still low interest rates augurs well for growth assets generally in 2021.
“We are likely to see a continuing shift in performance away from investments that benefited from the pandemic and lockdowns - like US shares, technology and health care stocks and bonds - to investments that will benefit from recovery - like resources, industrials, tourism stocks and financials.
“Global shares are expected to return around 8% this year but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries.
“Australian shares are likely to be relative outperformers helped by: better virus control enabling a stronger recovery in the near term; stronger stimulus; sectors like resources, industrials and financials benefiting from the rebound in growth; and as investors continue to drive a search for yield benefiting the share market as dividends are increased resulting in a 4.5% grossed up dividend yield.”
Oliver expects the ASX 200 to end 2021 at a record high of around 7200.
“Ultra-low yields and a capital loss from rising bond yields are likely to result in negative returns from bonds this year.
“Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield but the hit to space demand and hence rents from the virus will continue to weigh on near term returns.”
He says Australian home prices are likely to rise another 5% to 10% this year and next being boosted by record low mortgage rates, government homebuyer incentives and the recovery in the jobs market but the stop to immigration and weak rental markets will likely weigh on inner city areas and units in Melbourne and Sydney.
Outer suburbs, houses, smaller cities and regional areas will see relatively stronger gains in 2021, Oliver forecasts.
“Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%,” he says.
7.50am:Companies holding more cash: CommSec
Each ‘earnings season’ or ‘profit-reporting season’ CommSec tracks all the earnings results of S&P/ASX 200 companies to obtain a comprehensive picture of the aggregate health of Corporate Australia.
In total, 141 companies of the ASX 200 index group reported half-year (interim) results for the 2020/21 year. A further 31 companies with a December 31 reporting date have issued full-year or final results. The other ASX 200 companies have different balance dates.
Despite the turbulent times, 86 per cent of companies reported statutory profits for the six months to December. But aggregate interim earnings fell by 17 per cent, says CommSec.
Dividends are returning. Just under 79 per cent of companies issued a dividend (long-term average 86 per cent). Aggregate dividends are actually up by 5 per cent on a year ago.
“The big trend has been the lift in cash holdings. Aggregate cash holdings are up by over 50 per cent to $124bn. And 70 per cent of companies have lifted cash holdings over the past year. Add in the companies reporting full year results and cash holdings stand at $166bn,” says CommSec chief economist Craig James.
“For some companies it has been the toughest year in living memory. Notably companies most negatively affected have been those dependent on people mobility. Especially global mobility – companies dependent on foreign travel such as airlines and booking companies. Local lockdowns and the closure of foreign borders have buffeted services like hospitality, accommodation, arts & recreation and gaming operators as well as commercial and retail property businesses and toll road operators.
“Energy companies were hit over 2020 by lower - often government administered - prices and demand although 2021 is looking to be a better year.
“For others like retailers, conditions have been arguably the best since the recovery period of the previous economic ‘emergency’ – the global financial crisis.
“And then there are the miners, supported by favourable commodity prices and demand, although experiencing the headwinds of a firmer Australian dollar. It is worth pointing out those Aussie dollar headwinds for companies with a significant foreign presence,” says James
Cliona O’Dowd 5.20am:ASX poised to open higher
The Australian sharemarket is tipped to open firmly higher despite lacklustre overseas leads, with the iron ore price expected to provide a degree of support as local players look ahead to the Reserve Bank’s policy meeting on Tuesday.
SPI futures are pointing to a rise of 29 points, or 0.44 per cent, at the market open, bucking the declines seen in Europe and the US at the end of last week.
“What will help our market on Monday is that the iron ore price was up by $US2.35, or 1.3 per cent, to $US176.65 a tonne, so certainly that’ll help parts of the market,” CommSec chief economist Craig James said.
“The other aspect that will help is the Aussie dollar has come down, and that will support some parts of the market, particularly the exporters and the miners.”
The Australian dollar pushed through US80c on Thursday on an improving global economic outlook but tumbled to US77c a day later as a spike in US bond yields hit US equity markets.
On Monday dollar was lower again, at US76.94c.
Heading into the weekend, Wall Street’s benchmark S&P 500 fell 0.48 per cent, while the broader Dow Jones Industrial Average dropped 1.5 per cent. Only the tech-heavy Nasdaq bucked the trend, ending up 0.6 per cent.
Risk aversion ruled European markets too, with the Stoxx 600 Index falling 1.64 per cent and the FTSE 100 Index shedding 2.53 per cent.
Local investors were also spooked in the last trading day of the week, pushing the S&P/ASX 200 index down 160.73 points, or 2.35 per cent, to 6673.3 points. Earlier in the session the index hit a near four-week low of 6658.9.
In the week ahead, all eyes will be on the Reserve Bank’s monetary policy meeting on Tuesday, where the central bank is widely expected to keep rates on hold. Onlookers will be watching for any update on its guidance for the cash rate to sit unchanged until 2024, as well as any movement on its bond-buying program.
The market will also be sensitive to Wednesday’s GDP data. Ahead of the fourth-quarter print, consensus expectations among economists surveyed by Bloomberg pointed to a quarterly rise of 2.4 per cent, from 3.3 per cent in the September quarter. It would bring annual growth to minus 2 per cent, up sharply from the prior quarter’s minus 3.8 per cent.
Also due from the Australian Bureau of Statistics this week are business and lending indicators on Monday, building approvals data on Tuesday, and international trade and retail trade prints on Friday.
5.05am:China’s factory activity weakest in nine months
China’s official gauge of factory activity fell more than expected in February and retreated to its weakest level in nine months, as manufacturers suspended production during the Lunar New Year holiday.
China’s official manufacturing purchasing managers index dropped to 50.6 from 51.3 in January, according to data released Sunday by the National Bureau of Statistics.
The reading was lower than the 51.0 median forecast expected by economists polled by The Wall Street Journal but remains above the 50 mark that separates activity expansion from contraction.
The statistics bureau said the expansion of factory production and demand slowed in February because of the Lunar New Year holiday, which fell in February this year. China’s industrial sector has led its economic recovery from the coronavirus shocks last year, thanks to Beijing’s policy to restart business quickly and strong export demand while other parts of the world were derailed by the pandemic.
The subindex measuring production fell to 51.9 from January’s 53.5. Total new orders also dropped to 51.5 from 52.3 in January, according to the official data. The subindex of new export orders also fell from January’s 50.2 to 48.8, sliding into contraction territory after expanding for five months straight.
Analysts have predicted that global demand for Chinese goods, mainly protective gear and electronic products, would wane with the rollout of COVID-19 vaccines and resumption of production and businesses.
The falling export-order subindex could bode ill for China’s export sector, which had defied market expectations by reporting strong year-over-year growth each month since the second half of 2020.
China’s non-manufacturing PMI, which includes services and construction activity, was also released on Sunday and fell to 51.4 from January’s 52.4, according to the statistics bureau.
Dow Jones
5.00am:Goldman consumer head joining Walmart
A Goldman Sachs Group executive who helped build its consumer-banking business from scratch is leaving to take on a similar task at Walmart Inc.
Omer Ismail, a Goldman partner and the head of its Marcus consumer unit, is leaving the bank to run a recently announced Walmart financial-technology start-up, according to people familiar with the matter.
Mr. Ismail, who first joined Goldman nearly 20 years ago, was among a group of executives who came up with a strategy to expand into digital banking services in 2014. By the end of last year, that business generated $US1.2 billion in annual revenue, had amassed $97 billion in deposits and held $8 billion in consumer-loan balances.
Walmart said in January that it was creating a majority-owned fintech subsidiary in a partnership with venture-capital firm Ribbit Capital, a backer of Credit Karma Inc., Affirm Holdings Inc. and other fast-growing start-ups.
Dow Jones
4.50am:EU to clear Johnson and Johnson vaccine in March: France
A single-shot COVID-19 vaccine by US drugmaker Johnson and Johnson is likely to be approved for use in the European Union in early March, a French minister said.
The vaccine was cleared for emergency use in the United States on Saturday, becoming the third available vaccine there.
The single-shot vaccine is highly effective in preventing severe COVID-19, including against newer variants, the Food and Drug Administration (FDA) said before giving it the green light.
French Industry Minister Agnes Pannier-Runacher told France 3 television that the European Medicines Agency (EMA) was also evaluating information transmitted by the US pharmaceuticals company.
An EU approval in early March would allow the vaccine to be rolled out in late March or early April, she said, adding this was “good news” because it offers protection with a single shot in contrast to other vaccines requiring two.
AFP
4.45am:Recap: Wall Street mostly falls
Wall Street stocks finished a volatile week mostly lower on Friday as markets weighed inflation worries against expected progress on a US spending package and coronavirus vaccines.
The yield on the 10-year US Treasury note retreated below 1.5 per cent, but a rise in yields in recent sessions remained a worry point for investors.
The Dow Jones Industrial Average dropped 1.5 per cent, or around 470 points, to finish the week at 30,932.37.
The broadbased S&P 500 shed 0.5 per cent to close at 3,811.15, while the tech-rich Nasdaq Composite Index gained 0.6 per cent to 13,192.34.
Despite Friday’s gain by the Nasdaq, the technology-heavy index was the biggest loser for the week, shedding around five per cent. The Dow and S&P 500 were also negative for the week.
The downturn in stocks reflects fears runaway inflation in a fast-recovering US economy in the second half of 2021 will spur the Federal Reserve to suddenly lift interest rates, raising borrowing costs.
Some leading experts reject this fear, with Oxford Economics ruing a “misreading the Fed’s reaction function.” “While inflation will undoubtedly warm up in 2021, it’s unlikely to spiral out of control amid a lingering demand gap in some sectors of the economy and anchored inflation expectations,” Oxford Economics said in an analysis.
The House of Representatives was expected to vote later Friday on Biden’s $US1.9 trillion rescue package to provide additional relief to the coronavirus-ravaged economy. The package would then have to go to the Senate.
Investors also have been cheered by regulatory progress on Johnson & Johnson’s single-dose coronavirus vaccine, which could be approved for emergency use later Friday.
Among individual companies, Beyond Meat gained 1.2 per cent after sealing partnerships with fast-food giants McDonald’s and Yum! Brands, which owns Taco Bell and Pizza Hut among other chains.
Twitter gained 3.3 per cent, moving to an all-time high, as it announced plans to offer a subscription service in which users would pay for special content from high-profile accounts, part of an economic model to diversify its revenue.
Salesforce fell 6.3 per cent on disappointment with the cloud computing company’s outlook.
AFP
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