US ‘oppressing Chinese companies’
China accuses the US of ‘oppressing Chinese companies’ after Huawei move, while rising gold prices help the ASX to kickstart the financial year.
- Worse to come for building approvals
- Fundies shift cash to defensives: JPM
- Lendlease warns of $340m loss
- Temple & Webster to raise $40m
Welcome to the Trading Day blog for Wednesday, July 1. The ASX shrugged off a weak open to finish up 0.6pc, following US markets higher after Wall Street capped its best quarter since 1998 with a 1.5pc jump on the S&P 500.
In local news, Lendlease warned of weak profits as a result of COVID-19, while AMP completed its life insurance sale and Temple & Webster and HomeCo launched equity raisings, joined during the evening by travel group Webjet, which revealed a plan to raise $163m in Singapore. meanwhile, US futures suggest a slip is to come on American markets overnight.
Lisa Allen 8.14pm: Webjet raising $163m in Singapore
Online travel group Webjet has revealed plans for a $163m convertible note issue on the Singapore stock exchange in a bid to pay down debt and provide “firepower” for potential mergers and acquisitions.
The raising is the second time Webjet has sought additional funding during the pandemic period, coming on the back of the $335 million it raised three month ago on April 1 in a bid to deal with the COVID-19 led slump in its domestic and international tourism business.
“As of May 3 we had in excess of $300m of liquidity,” Webjet managing director John Guscic told The Australian on Wednesday night, speaking from Tunisia, where he is in quarantine.
“In relation to our announcement today the capital raising on April 1 was to ensure our survival until the end of 2021, and all the assumptions we made then are still valid, we have capital to the end of 2021,” he said.
“This new convertible note we have launched provides an extension of that liquidity to give us the ability to survive well into 2022 and provides us with some firepower to fund future acquisitions.
“The pricing won’t be determined until Thursday morning, but this issue comes as the share price has more than doubled from the original capital raise on April 1.”
The net proceeds from the offering, after deduction of commissions, fees and other administrative expenses, are to be used to repay $50m of Webjet’s existing term debt while extending remaining term debt maturity into late 2022, Webjet told the ASX on Wednesday night.
Webjet said the additional funding was also needed for potential acquisitions and ongoing capital management, but it stressed there were no agreements or understandings with respect to any potential acquisitions or investments at this time.
In an update to the market last night Webjet said total revenues in April and May 2020 were “nominal” while it continued to incur about $15 million per month in costs, a reduction of approximately A$13 million from pre COVID-19 expenditure. “Such reductions are primarily the result of the cost reduction measures undertaken by the Company,” Webjet said. .
“While the Company has started to see some booking activity in its Australian online travel agency and WebBeds businesses, the Company anticipates that any revenue contribution in the near term will be modest only, until the situation improves and broad-based travel activity resumes,” Mr Guscic said.
Webjet has previously announced the suspension of Webjet Exclusives and the closure of the Online Republic Cruise business units which saw the write-off of goodwill worth at least $18 million, and incurred additional non-cash wind-up costs of at least $11 million.
7.41pm: US ‘oppressing Chinese companies’
China has demanded Washington stop “oppressing Chinese companies” after US regulators declared telecom equipment suppliers Huawei and ZTE to be national security threats.
The US Federal Communications Commission blocked the Chinese vendors from receiving subsidies from a government fund, stepping up efforts to limit their access to the US market.
A foreign ministry spokesman accused Washington of “abusing state power” to hurt Chinese companies “without any evidence”.
“We once again urge the United States to stop abusing the concept of national security, deliberately discrediting China and unreasonably oppressing Chinese companies,” said the spokesman, Zhao Lijian.
US regulators say Huawei Technologies, the biggest global maker of telecom switching equipment, and its smaller Chinese rival ZTE, are controlled by the ruling Communist Party and say they might facilitate Chinese spying.
Huawei and ZTE deny the US accusations.
The FCC said money from its $US8.3 billion-a-year Universal Service Fund, which subsidises equipment purchases for some carriers, may no longer be used to purchase Huawei or ZTE equipment.
AP
7.07pm: Big Volvo recall over seatbelts
Chinese-owned Swedish car maker Volvo is recalling nearly 2.2 million cars globally over an issue related to the effectiveness of the seat belts.
The issue with the cars relates to a steel cable connected to the front seat belts, which under certain conditions “over time suffer from fatigue,” eventually damaging the cable, “resulting in reduced seat belt restraint function”. Volvo Cars, which introduced the three-point seat belt in 1959, said it had not received any reports of injuries related to the issue.
The recall affects 2,183,701 cars globally, and the cars will be fitted with a new component in place of the faulty wire.
Among the affected cars were previous models of Volvo S60, V60, XC60, V70, XC70, and S80, produced between 2006 and 2019.
After Volvo Cars was bought by Geely from Ford in 2010, the iconic safety-focused Swedish brand has focused on improving its image and accounts.
In 2017, the carmaker announced that it would launch only electric or hybrid models from 2019 onwards, preparing for “an era beyond the internal combustion engine
AFP
James Kirby 6.02pm: ETFs still ‘safe’?
Just as mum and dad investors have become familiar with exchange traded funds, these
booming, index-based products are morphing into increasingly exotic investments: A new geared ETF based on the NASDAQ is now set to launch from ETF Securities.
With $1.75 being borrowed on every $1 put into the new fund, the NASDAQ 100 geared ETF – available in long and short version – is very far away from the plain vanilla “mirror” funds that have become hugely popular among retail investors.
With the flood of new money into the share market this year, the percentage of daily trading on the ASX accounted for by ETFs has surged from 4 per cent to 10 per cent.
Indeed financial advisers have steered a new generation of investors into ETFs on the basis they are a “safe” way into the market where mum and dad can’t do better or worse than the wider index.
But geared ETFs are an utterly different proposal and to be fair to ETF Securities CEO Kris Walesby, he is at pains to make the distinction very clear: “This will be a product for short term investors, a trading tool. There is a demand out there for this sort of leverage and we are meeting that demand,” he explains.
“This is by nature. in the hedge fund category”, says Walesby, who believes it attracts customers “who know what they are doing.”
5.41pm: Europe, UK open steady
European stock markets steadied at the start of trading on Wednesday following an extremely strong quarter for global equities.
London’s benchmark FTSE 100 index opened flat at 6,171.20 points, having surged by almost 9.0% in the second quarter, or the April-June period that ended Tuesday.
In the eurozone Wednesday, Frankfurt’s DAX 30 index gained 0.6% to 12,310.93 points at the start and the Paris CAC 40 dipped 0.1% to 4,930.15.
World stock markets shot higher in the second quarter as investors bet on a quick economic recovery after the coronavirus pandemic caused indices to plunge in the first quarter.
Despite the strong second quarter, London’s FTSE 100 remains down around 20 per cent on the start of the year.
AFP
5.39pm: Sharp lift in Shanghai
Share rose sharply in Shanghai on Wednesday as investors welcomed the easing of recently reimposed lockdowns in Beijing, lifting hopes a fresh outbreak of coronavirus had been brought under control.
The benchmark Shanghai Composite Index rose 1.38%, or 41.31 points, to 3,025.98 while the Shenzhen Composite Index on China’s second exchange added 0.79%, or 15.59 points, to 1,991.11.
Hong Kong’s market was closed for a public holiday.
4.56pm: Energy lags as gold shines
Energy was one of few sectors to finish lower, following huge write downs for Shell, who largely blamed the downgrades on its Australian assets.
Local producers took a hit on the news – Woodside slipped 0.2 per cent to $21.60 as Santos gave up 0.4 per cent to $5.28 but Beach Energy added 0.7 per cent to $1.53.
Oil Search too bucked the negativity, adding 0.6 per cent to $3.19 as it flagged lower production costs and outlined plans to slash its workforce by a third.
BHP finished flat at $35.82 as Rio Tinto lost 0.8 per cent to $97.15 and Fortescue slipped 0.7 per cent to $13.76.
Gold outperformed as the commodity continues to push higher – Evolution jumped 6.2 per cent to $6.02 as Saracen added 4.1 per cent to $5.64, Resolute Mining added 7.1 per cent to $1.22 and Northern Star rose by 7 per cent to $14.30.
Here’s the biggest movers at the close:
4.12pm: Shares gain 0.6pc
Australian shares were positive to start the new month, quarter and financial year, buoyed by a strong US lead even as coronavirus restrictions were dialled up in Victoria.
A midday boost sent the benchmark up as much as 0.9 per cent, but gains were trimmed at the close to 37 points or 0.62 per cent at 5934.4.
Energy and health care stocks did most of the damage – as new records for Afterpay sent the tech sector higher by 1.6 per cent.
David Swan 3.50pm: New short attack dents WiseTech
Shares in logistics software maker WiseTech fell by 4 per cent on Wednesday after the company was hit by yet another attack by China short seller J Capital Research.
In a report titled ‘Taking out the Trash’, J Capital analyst Anne Stevenson-Yang declared WiseTech investors will “have an unpleasant surprise” when the company reports annual results for FY2020 in August, predicting write downs of between $200m and $300m.
“WiseTech frantically rid itself of 40 per cent of the earn-outs from 17 poor-performing acquisitions in May. In a series of scathing interviews with former executives, customers, and competitors of the company’s largest acquisition to date, Containerchain, we have learned that more bad news is about to come out,” Ms Stevenson-Yang wrote.
“Containerchain is bleeding accounts, and most of the $87m in associated goodwill will have to be written off.”
The report came just one day after WiseTech Global chief executive Richard White offloaded shares worth $41.3m. Mr White says he remains committed to the logistics software provider for the long term.
WiseTech suffered from twin short-seller attacks from J Capital in late 2019, which wiped off more than $2bn of value in just one week.
At 3.50pm AEST WiseTech shares were down 3.9 per cent to $18.60
Read more: WiseTech boss fires back at short seller
Perry Williams 3.34pm: Shell may look to sell Aussie assets
Energy giant Shell may look to sell some of its non-operated Australian assets after suffering a hefty $US8-9bn ($11.7bn-$13.2bn) writedown largely attributed to its QGC and Prelude projects, consultancy Wood Mackenzie said.
The energy major – one of Australia’s biggest gas producers and foreign investors – will take an impairment of up to $US22bn on its global assets.
The largest writedowns were sparked from its gas business with the $US8-9bn figure attributed primarily to Australia including a partial impairment of its Queensland QGC unit and troubled Prelude floating LNG project offshore Northern Australia.
While it operates both QGC and Prelude, it may look to sell non-operated stakes which in Australia could include its one-sixth share of the North West Shelf venture, a quarter stake in Chevron’s Gorgon LNG project and 27 per cent of the long delayed Browse gas development.
“The European super majors are setting out on a path towards more sustainable and resilient businesses, better equipped for a future of lower fossil fuel demand. This may be a signal that divestments could be on the cards, for some of Shell’s non-operated positions, adding to the recently announced Eni and Chevron packages that are expected to hit the market,” WoodMac senior analyst Daniel Toleman said.
“It’s no surprise to see Shell writing down the value of its assets … We’ve revised the value of oil and gas assets in Asia Pacific by $US200bn as a result of a lower oil price outlook. Shell’s writedown of QCLNG can be linked to the BG acquisition. A deal that is looking increasingly challenged by lower price assumptions,” Mr Toleman said.
3.20pm: Alterity resumes mammoth surge
Junior biotech Alterity Therapeutics continues its mammoth 1500pc surge in afternoon trade after brushing off a speeding ticket from the ASX.
The group said its share spike was in line with its Nasdaq listed shares which more than doubled in value overnight.
Each US-listed share represents 60 ASX-listed shares.
ATH last traded up 1547pc to 28c, after hitting 41c this morning.
Read more: Why this microcap jumped 23-fold
Worse-than-expected building approvals data for May will only deteriorate further, with rising unemployment and border closures set to reduce demand, according to economists.
May approvals fell by 16.4pc, marking a 11.6pc drop over the past year, thanks in large part to a 35 per cent collapse in apartment approvals.
Commonwealth Bank economist Belinda Allen notes that while approvals are a volatile series, “the outlook is weak and we expect approvals to deteriorate over the second half”.
“Border closures leading to lower net overseas migration and a general level of uncertainty is reducing the demand for housing. We expect new housing construction to fall 25pc in 2020.”
ANZ adds that job and income losses in industries such as hospitality and retail with high shares of renters are key factors in the weak outlook.
Read more: Apartment plunge drives building slump
High rates of youth #unemployment may lead to more ppl in their 20s exiting the #rentalmarket and moving back in with parents. Or downsizing / sharing rentals to save money. This reduces total housing demand and weakens the near term outlook. #ausecon https://t.co/XpuZNMSPzx
— Adelaide Timbrell (@Adelaide__T) July 1, 2020
Bridget Carter 2.42pm: Who’s Jarden’s next target?
DataRoom | Jarden’s move into the Australian investment banking market is continuing to attract plenty of attention, with some betting that a raid on a local firm could be next on its ‘To-Do’ list in an effort to secure a trading platform.
Brokers such as Shaw and Partners or Ord Minnett could be within its sights after it has so far selected UBS as its firm of choice from which to lure top talent.
Now the thinking is it will need so-called ‘foot soldiers’ to execute deals won, although it still has a strong team across the Tasman that can handle some of the heavy lifting.
Still, last year, US-based bank Jefferies raided the broking firm CLSA as part of its efforts to start an operation in Australia.
It comes as Jarden Australia marked its first move on the Australian equities scene Wednesday by emerging as an adviser to Home Consortium for its $140m placement and acquisition of three neighbourhood centres from Woolworths for $127.8m.
It also bought the Aurrum Erina residential aged care property for $32.59m on a sale and lease back.
1.51pm: Macro policy trumps market worries: Macq
Investors should “cut through the noise” about the coronavirus, US-China relations, US fiscal inertia and the potential for a rollback of US corporate tax cuts if Joe Biden wins the US election in November.
Neither COVID infections or US political news matter as much as macroeconomic policy investors should only “panic when policy makers relax”, according to Macquarie’s global head of strategy, Viktor Shvets.
“COVID-19 has already moved to the positive side of the ledger, with rapidly rising testing capabilities, improved health care spending and the likelihood of treatment options,” he says.
“Also, service industries that are most impacted by COVID-19 are exhibiting a growing flexibility – the one consistent lesson from history is that societies adjust … they always do and we are seeing it in action today.”
Inevitable second and third waves are unlikely to have anything like the same outcome as the first. And while US “political paralysis is setting in”, neither Republicans nor Democrats want to be blamed in November for destroying lives and wealth.
“The byzantine US system is capable of causing massive uncertainty, but it is fair to assume that the solution will be found, perhaps a few minutes to midnight (and) the same applies to rolling back Trump’s tax cuts,” Mr Shvets argues.
While Senate control matters, any rollback will be more than offset by more robust fiscal, health care and community spending that Democrats are likely to implement, if they sweep the Congress, Senate and the Presidency.
As for China, he says investors are already assuming that the Phase One deal either never really existed, or even if it did, is now unlikely to yield anything useful while there is now virtually no daylight between Republican and Democrat views of China as a strategic, commercial and political rival.
1.01pm: Tech, real estate buoy ASX
Shares are holding on to gains of 0.5 per cent at lunch, as strength in tech and real estate names buoys the benchmark.
At 1pm, the ASX200 is higher by 29 points or 0.48 per cent to 5926.6.
Gold miners are outperforming – Northern Star up by 6.1pc as Newcrest puts on 2.1pc and Evolution by 4.8pc.
Afterpay is leading tech names with a 3pc lift to $62.87 while Lendlease is making back is 7pc early drop to trade lower by just 2.4pc.
Here’s the biggest movers at 1pm:
12.42pm: Fundies shift cash to defensives: JPM
JP Morgan’s Jason Steed notes that the cash holdings of fund managers he tracks fell again in May, with average holdings now down a “remarkable” 120 basis points since the pandemic-induced peak of 476bp in March.
Levels are now down to a more than two-year low of just under 3.5 per cent.
But while such a rapid deployment of cash from such an elevated level might be read as bullish, particularly in light of the fact that the average cash balance has been as low as 290bps in the past, investors deployed the bulk of this capital into defensive sectors.
“Cash saw the largest down-weight in May, with over 50 per cent of the investors we track decreasing allocation,” Mr Steed says.
“While average holdings are now at the lowest level in over two years, cash levels are still some way off the trough reached in January 2018.”
But running counter to this seemingly bullish deployment of cash, holdings in defensive sectors rose 22bp through the month, cyclicals and commodity-driven sectors dropped 12bp and 8bp, respectively.
In fact, after a marked move into cyclicals in April, fund managers began to scale back these positions, and 14 funds reduced allocation to cyclicals. Healthcare, Communications and Utilities all saw inflows, while Staples saw another outflow.
Financials saw inflows for the first time since January, showing “the need to risk-manage the deep underweight that the majority of Australian institutions run on the sector,” Mr Steed says.
Discretionary stocks fell out of favour, with Aristocrat bearing the brunt of the sell-off. CSL dropped into “under-held” territory, with Sonic and Ansell gaining the most support in Healthcare.
12.37pm: Why this biotech jumped 23-fold
Microcap biotech Alterity has soared by a mammoth 1800 per cent in morning trade, after disclosing an agreement with the US FDA to develop its treatment for Multiple System Atrophy, a Parkinsonian disorder.
The group said this morning it had received guidance from the US regulator in relation to the development pathway of its ATH434 drug, following the successful completion of its Phase 1 clinical trial last year.
The stock soared from 1.7c to as much as 41c, a whopping 2311pc jump, prompting a speeding ticket from the ASX.
“As there are currently no approved treatments for MSA and, therefore, no regulatory precedent regarding accepted efficacy endpoints, the FDA and Alterity will work together to develop an endpoint that is best suited for the MSA patients to be studied,” the company said.
“The FDA has also encouraged Alterity to use data from a natural history study that Alterity has planned with clinical and neuroimaging experts at Vanderbilt University Medical Center in the US.”
Shares in the group are halted at 32c.
Gerard Cockburn 12.25pm: IAG invests in real-time risk assessor
Insurance Australia Group has invested millions of dollars into US location-based technology company Bluedot, which it says will allow the group to assess risk in real time.
The country’s largest underwriter said it has made a strategic investment in the San Francisco-based company through a $13.4m capital raising initiative, which also attracted equity investment from Transurban.
IAG said it intends to see if Bluedot’s technology can provide customers with real time information to minimise risks and potential damages to vehicles and property.
The group noted its motor insurance partners, NRMA Insurance and CGU could implement technology that could send alerts on road safety hazards or calculate the safest driving route.
IAG Firemark Ventures General Partner Scott Gunther said the mobile location data would enable the financial services provider to offer real-time risk mitigation product offerings.
“We recognise the potential of Bluedot’s location data capabilities and the enormous opportunity for the business to scale,” Mr Gunther said.
IAG last traded down 3.3pc to $5.58.
12.23pm: China domestic demand increasing
A private gauge of China’s manufacturing activity rose to a six-month high in June, boosted by increased domestic demand despite weakening new export orders.
The Caixin China manufacturing purchasing managers index, which is tilted toward small, private manufacturers, climbed to 51.2 in June from 50.7 in May, Caixin Media and research firm Markit said Wednesday.
June’s reading indicated a month-on-month expansion in activity, as it came in above the 50 mark separating contraction from expansion.
The improvement indicates that stronger domestic demand predominantly boosted sales, while the new export orders continued to fall, Caixin said, adding that employment also remained on a downward trend.
“Although the manufacturing sector as a whole recovered in terms of supply and demand in June, employment did not improve,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the data.
Dow Jones Newswires
Gerard Cockburn 12.14pm: First State, VicSuper complete merger
The merger between First State Super and VicSuper has been completed, with the new fund responsible for more than $120bn of assets under management on behalf of 1.1 million members.
First State and VicSuper flagged the merger back in 2019, which would create a larger industry fund dedicated predominantly to public sector workers.
First State Super chief executive Deanne Stewart will retain the top leadership position of the newly merged fund, while former VicSuper chief executive Michael Dundon will join the executive team in the capacity of overseeing the integration of the two funds.
Mr Dundon said the plan to bring both funds together by July 1 has been successful, despite the challenges caused by COVID-19.
“Our merger with First State Super is already delivering great outcomes for VicSuper members with a 20 per cent reduction in fees for accumulation members within the first year,” Mr Dundon said.
Ms Stewart noted the new scale of the fund will allow it to drive down administration and investments costs attributable to members.
Read more: VicSuper, First State merger to create $120bn fund
12.08pm: Amcor resilience continues: Macq
It speaks volumes of Amcor’s defensive qualities that it has slightly increased its earnings guidance since the pandemic and August results should see it continue to show its resilience in absolute and relative terms with solid key metrics, according to Macquarie’s John Purtell.
Indeed he thinks Amcor will be one of few companies that actually manage to put a number on its FY21 outlook in the August results season.
He notes that Amcor is trading at a 25pc PE discount to the ASX100 index, well below its 10-year average of 1.09 times and 2-year average of 0.96 times. It’s also trading at a 8pc PE discount versus global peers versus a long-term average premium of 6pc.
Plus it has a 4.8pc dividend yield versus its per average of 2pc.
No wonder he has an Outperform rating and $16.98 price target.
AMC last up 1.5pc at $14.70.
David Ross 11.31am: Building approvals beat estimates
The number of buildings approved in the month of May fell by 16.4 per cent in seasonally adjusted terms, driven by a collapse in new apartments according to data released by the Australian Bureau of Statistics.
That’s compared to Bloomberg consensus of a 7.8pc drop.
The fall in apartment approvals, down 34 per cent, takes them to an 11-year low, and not even private sector housing was immune from the downturn, down 4.4 per cent.
The latest figures reveal the extent of the economic damage dealt by the coronavirus lockdown that has devastated economic confidence across Australia.
Tasmania was the worst affected state, with a 23.3 per cent fall in new apartments. Victoria and New South Wales were also hammered down 14.3 and 11.3 per cent respectively.
Approvals for private sector houses were slashed across the country, with only South Australia bucking the trend where approvals rose 7.1 per cent.
11.20am: Brace for earnings updates: MS
Morgan Stanley’s Chris Nicol notes that the pandemic had “created a high degree of stale estimates” for corporate earnings.
With June 30 preliminary results now in he expects a deluge of company updates before August result season in the spirit of disclosure principles.
He has screened for “aged estimates” as a way of anticipating early disclosure candidates.
Stocks showing a high level of average age of estimate include Treasury Wine, A2 Milk, Dexus, TPG Telecom, WiseTech, oOh! Media and Netwealth.
While this doesn’t imply positive or negative outcomes, he says a higher mix of stale estimates could also lead to higher volatility as refreshed bottom-up earnings and opinion signals are digested, while consensus earnings dispersion remains elevated.
“Also companies when updating, versus a consensus lens, will need to consider what estimates should be considered live, how broker data lags are impacting averages and the level of detail regarding outlook to address out year forecasts,” Mr Nicol says.
Ben Wilmot 10.55am: Lendlease drops 7pc on profit warning
Lendlease shares have dropped by 7.4pc in morning trade after revealing the heavy toll coronavirus has taken on its global operations with the construction and development company saying its core profit after tax is expected to be in the range of $50m-$150m.
This includes a hit to investment valuations in this half of $130m-$160m after tax but the company stuck to its estimate of costs of $550m pre tax as it exits engineering. About $525m pre tax is expected to be accounted for in fiscal 2020.
Lendlease will fall to a statutory loss expected to be in the range of $230-$340m after tax but said it would enter fiscal 2021 in a strong financial position with gearing at June 30 expected to be below 10 per cent and total liquidity above $5bn after the company undertook a $1.4bn equity raising.
The company also has a development joint venture to deliver the first residential tower at One Sydney Harbour at Barangaroo that is anticipated to contribute about $100m to fiscal 2021 profit after tax.
Lendlease said its development unit had experienced delays in the conversion of a number of opportunities across urbanisation projects due to the impact of COVID-19, including at Melbourne Quarter, Barangaroo and International Quarter London.
It was also hit by delays in apartment settlements along with elevated cancellations across its local land estate business.
LLC last traded down 3.2pc at $11.98.
10.49am: Qantas upgraded on management focus
Macquarie’s David Fabris has upgraded Qantas to Outperform from Neutral and raised his price target to $3.78 from $3.60 after backing management’s focus on “profitable flying” and the possibility of $1bn in annual cost out initiatives from FY23 onward.
“Despite cost initiatives and an improved revenue recovery, we continue to forecast Qantas to be loss-making until FY22 (but) we now assume revenues are nearly fully recovered in FY24 and include $700m of cost initiatives,” Mr Fabris says.
He expects cash flow to stay positive and predicts a return to profitability in FY22.
He views Qantas as “cheap” as it trades on a 3.1 times EV/EBITDA multiple – a 20pc discount to its three-year average of 3.9x.
10.44am: Shares turn up to buck US futures
Australia’s S&P/ASX 200 share index has pushed higher by 28 points or 0.47 per cent in the first hour, after initial flat trade, even as US futures fall 0.2pc.
The benchmark ASX200 is trading at 5924.6.
Technology and Real Estate have edged out Materials as the leading sectors with NextDC up 8pc and GPT up 3.1pc.
However gold miners are still driving the Materials sector with Newcrest up 2.2pc and Northern Star up 4.8pc.
The Industrials, Consumer Discretionary and Financials sectors have turned up after early falls.
In those sectors, Qantas is up 4pc after Macquarie upgraded, Westpac is up 0.8pc after Goldman Sachs upgraded and Harvey Norman is up 4pc
Bridget Carter 10.27am: HomeCo raising $170m
DataRoom | Home Consortium is raising $170m through Goldman Sachs and Jarden Australia.
Shares are being sold at $2.88 each, with $140m raised through a placement and the remainder raised through a share purchase plan.
The price represents a 4 per cent discount to the last close on June 30.
Proceeds are being used to fund acquisitions.
10.16am: Shares flat under energy drag
Shares are trading flat in opening trade, adding 2 points as energy and staples losses offset a boost in mining stocks.
The benchmark ASX200 is higher by 4 points or 0.08 per cent at 5902.
Qantas is higher by 2pc as CSL adds 0.2pc but Afterpay is taking a 1.1pc and Lendlease by 5.6pc after warning of a $340m loss.
NextDC is up 7pc after its NSW data centre won a material customer contracts.
Woolworths and Coles are hitting the Consumer Staples sector with falls of 1.7pc and 2.6pc respectively.
Northern Star is up 7.5pc and Newcrest is up 1.8pc after spot gold hit an 8-year high.
10.06am: Suncorp car claims drop, rent claims up
Suncorp, the nation’s second biggest general insurer, has provided an insight into insurance claims through the COVID-19 pandemic.
Claims across car insurance fell by 40 per cent in April, but have been increasing as lockdown restrictions have eased.
On landlord insurance, Suncorp still expects an increase in loss of rent claims, although it note that this is likely to be more evident in financial year 2021 due to ongoing unemployment.
Meanwhile Suncorp believes it is in a strong position on business interruption insurance. That is – Suncorp does not expect to pay for pandemics.
“Prior to COVID-19 we had updated the majority of our policy wordings to reflect the current legislation. While we do still have policies that refer to the Quarantine Act, we remain confident in the underwriting intention,” Suncorp chief financial officer Jeremy Robson tells an investor briefing.
9.54am: Lendlease warns of $340m loss
Lendlease has downgraded its profit guidance for the full year, warning of a $340m statutory loss as COVID-19 forces the company to slash second half valuations as much as $160m.
The property developer warned of a statutory loss in the range of $230m to $340m as its development segment experienced delays at its Melbourne Quarter, Barangaroo and International Quarter sites, along with elevated cancellations across its Communities business.
Core profit after tax was expected in the range of $50m and $150m, which includes a second half reduction in valuations of between $130m and $160m.
But the cost of exiting its engineering division is set to weigh by $550m, accounting for much of the company’s drag.
LLC last traded at $12.37.
9.46am: Upside risk for shares after US lift
Australia’s share market is expected to consolidate but may have upside risk after a strong rise on Wall Street, where the S&P 500 rose 1.5pc to 3100 points, its best close in 4 days.
US consumer confidence for June rose to 98.1 vs 91.5 expected, while Chicago PMI rose to 36.6 vs 45 expected.
“The Fear Of Missing Out along with the need to put cash to work against a stimulus deluge backdrop continues to be the overwhelming force, notwithstanding worrying virus infection rates and warnings from experts,” says NAB’s Rodrigo Catril.
He cautions that while US data have surprised to the upside in recent weeks amid economic reopening, the rise in COVID-19 infections is now triggering a reversal on the reopening strategy.
Still, such strong quarterly gains – 20pc in the US and 16pc in Australia in the June quarter – tend to be followed by another strong quarter, particularly in the US market.
Since 1950, the S&P 500 has risen 100pc of the time, by an average of 9.5pc, in the quarter following a quarterly gain of at least 15pc, according to Ryan Detrick at LPL Research.
Australia’s All Ordinaries index has risen 70pc of the time, by an average of 10.8pc, in the quarter following a quarterly gain of at least 15pc.
9.41am: Chant West settles Bidco sale
Chant West has settled with suitor Bidco for the sale of business assets, after the group tried to pull out of the deal citing “material adverse change in business” from COVID-19.
The super research and consultancy group said it had reached a settlement after taking Bidco, a wholly owned subsidiary of Zenith Investments, to the Supreme Court.
“While the terms of that settlement are confidential, the Company advises that the business sale agreement between Chant West and CW Bidco completed with effect from 11:59pm on 30 June 2020. The proceedings commenced by Chant West against CW Bidco will be dismissed,” it said in a statement.
Chant West said it would return surplus capital to shareholders in the near future.
Perry Williams 9.37am: Oil Search to slash a third of jobs
Oil Search will slash nearly 600 jobs, a third of its workforce, as part of a major cost cutting drive sparked by the oil price crash.
The Papua New Guinea-focused LNG producer has already cut 427 roles and will trim a further 137 positions by the end of 2020.
Its long-serving chief financial officer Stephen Gardiner will also leave the company as part of a restructure of the company’s leadership team under new boss Keiran Wulff.
Dedicated teams have been assigned to review all capital and development projects with the aim of reducing break-even costs.
Guidance on one-off restructuring costs will be detailed in its first quarter report on July 21.
OSH last traded at $3.17.
Read more: Shell blames Australian gas projects for huge writedown
9.34am: What’s on the broker radar?
- Aurizon cut to Sell – Morningstar
- Calix rated new Buy – Canaccord
- Centaurus Metals rated new Buy – Sprott
- Collins Foods raised to Buy – Canaccord
- IOOF cut to Sell – Bell Potter
- OZ Minerals raised to Overweight – JP Morgan
- Ricegrowers rated new Buy – Canaccord
- Westpac raised to Buy – Goldmans
- Whitehaven Coal raised to Buy – Citi
9.22am: Temple & Webster to raise $40m
Online furniture retailer Temple & Webster says its June sales are up more than 130 per cent versus the same time last year, as it launches a $40m placement to further accelerate its new growth.
The group has been a key winner in the boom in online shopping, especially for home improvement and furniture, with full year earnings tipped to be greater than $8m.
It said the raise was “prudent” to give the group flexibility if any additional organic or inorganic growth opportunities arise.
Shares in the placement are being offered at $5.70 per share, a 9.7pc discount to its last closing price of $6.31.
“The Company has recently been presented with a number of potential opportunities for additional investment, including opportunities that would enhance Temple & Webster’s digital capabilities, product and service offering,” it said, adding it had made a small investment in an offshore AI interior design tool.
The raising will result in the issuance of 7 million fully paid ordinary shares, which equates to approximately 6.2 per cent of the company’s existing capital.
9.06am: HomeCo halted for acquisition, raise
Shares in big box retailer Home Co have been halted ahead of the open, pending detail of an acquisition and associated capital raise.
The group said it expected to return to trade by July 3.
Last week, The Australia’s DataRoom tipped the group as a potential buyer of aged care properties after it had previously signalled the potential establishment of a healthcare and wellness REIT.
HMC shares last traded at $3.
Read more: Equity raisings could rejuvenate aged care
9.02am: Chevron completes Puma purchase
Chevron has completed its $425m acquisition of Puma Energy, adding a network of more than 360 service stations and a commercial and industrial fuels business to its portfolio.
“This strategic acquisition further integrates our value chain in the Asia Pacific region by providing a well-developed infrastructure for products from our Asian refining joint ventures in an attractive market,” executive vice president Mark Nelson said.
“We are excited to welcome Puma Energy’s employees into the Chevron family. Once we satisfy current licensing commitments in Australia, we look forward to extending the Caltex family of brands across the continent.”
Read more: Chevron returns to servos with Puma deal
8.59am: Temple & Webster halted for raise
Online furniture retailer Temple & Webster has been halted ahead of the open, pending detail of a capital raising.
The group said it expected to make an announcement in relation to a placement to sophisticated and professional investors, with shares to return to trade by Friday.
TPW last traded at $6.31.
Read more: Raising craze not done yet
8.44am: Suncorp shakes up management
Suncorp has unveiled a broad-ranging management shake-up as it turns to a new operating model and organisational structure, spurred by the increasing natural hazard costs and the global pandemic.
After the sale of its life insurance business, Suncorp said its Insurance arm represented a larger proportion of the group’s profit, and required greater focus – prompting the appointment of two executives, one for underwriting and the other for claims management and operations.
As part of the shake-up, current insurance chief Gary Dransfield will exit the company, while former CBA exec Clive van Horen will take on the role of head of the banking and wealth division.
In addition to management moves, the group said its reinsurance program for FY21 was in line with previous years, though as a result of a lower level of P&L volatility, the FY21 natural hazard allowance is expected to increase by between $90m to $130m.
Suncorp said the COVID-19 impact on its fiscal 2020 balance sheet is expected to be “broadly neutral, excluding investment market movements and bank impairment losses”.
7.50am: AMP completes life insurance sale
AMP says it has completed the sale of its life insurance business, AMP Life, to Resolution Life for $3bn.
It says the sale delivers a key priority in AMP’s transformation strategy.
The sale proceeds comprise $2.5 billion cash and $500 million equity interest in Resolution Life Australia.
AMP expects the net proceeds to increase AMP’s capital in excess of target surplus by approximately $1.1bn.
“AMP anticipates that any capital in excess of target surplus post completion will first be used to fund delivery of the new AMP strategy. Beyond this, AMP will assess all capital management options with the intent of returning the excess above target surplus to shareholders, subject to unforeseen circumstances and current economic and business conditions.”
The wealth manager will provide an update on its future capital framework and strategy at its interim results on August 13.
Chief executive Francesco De Ferrari said: “The sale of the life business is a foundational step in our strategic transformation to become a simpler, client-led and growth-oriented organisation.
“The sale is a major milestone for AMP demonstrating our ability to execute complex projects including through the difficulties of COVID-19.”
Read more: Conditions imposed on AMP Life sale to Resolution
6.50am: Auckland Airport plans more cuts
Auckland International Airport said it will further reduce its workforce after cutting it by 25pc in recent months because of the collapse in international travel.
The operator of New Zealand’s main international gateway said on Wednesday that the new staff cuts would be in operations and infrastructure.
International passenger numbers at the airport now average about 800 a day, which is less than 5.0pc of pre-pandemic levels, the company said.
“This is a global shock to aviation the likes of which we’ve never seen, and our organisation continues to be materially impacted,” it said.
Auckland Airport said it expects a net adverse impact of between $NZ50 million and $NZ90 million from significant items in its full-year earnings due for release on August 20.
Dow Jones Newswires
6.25am: ASX to edge lower at open
Australian stocks are set to open slightly lower despite Wall Street rallying for a second day.
At 6am (AEST) the SPI futures index was down nine points, or 0.2 per cent.
The Australian dollar was at US68.98c, up from US68.82c at the 4pm close yesterday.
On Wall Street, the S&P 500 gained 1.5 per cent for the day, the Dow rose 0.9 per cent and the Nasdaq jumped 1.9 per cent as markets shrugged off a resurgence in coronavirus cases.
Yesterday, local shares powered higher to close out the financial year, but the surge did little to dent a 10.9 per cent annual drop – the market’s first negative return since FY15/16.
A late afternoon surge sent the ASX200 higher by as much as 2.4pc but by the close the index was higher by a more moderate 83 points or 1.43 per cent at 5897.9.
On the All Ords, shares added 86 points or 1.45 per cent to 6001.3.
6.15am: Gold caps strong quarter
Gold prices extended a recent rally, closing out their best quarter in four years with uncertainty about the economic recovery and ultralow interest rates lifting demand for the haven metal.
Most actively traded gold futures for August delivery added 1.1pc to $US1,800.50 a troy ounce on the Comex division of the New York Mercantile Exchange.
Prices ended the second quarter up 13pc, their biggest quarterly advance since early in 2016. Tuesday’s close marked gold’s first close above $US1,800 since September 2011, and prices are within about 5pc of their highest of $US1,891.90 from August of that year.
Stocks and other areas of the market are rallying as the world economy reopens, but many investors remain bullish on gold because of the unknown direction of the coronavirus pandemic. Low and negative bond yields around the globe are also making bullion, which doesn’t pay a yield simply for holding it, more attractive for investors who seek investments that do.
“There is undoubtedly risk hedging going on in gold and other precious metals right now, helped by the negligible opportunity cost of holding non-yielding precious metals in a world of negative real interest rates,” said Jonathan Butler, precious metals strategist at Mitsubishi, in a note.
Dow Jones
6.10am: Wall Street’s best quarter since 1998
US stocks wrapped up their best quarter in more than 20 years, a remarkable rally after the coronavirus pandemic brought business around the world to a virtual standstill.
Just three months ago, investors were lamenting the end of the bull market – and the longest economic expansion on record – after major US stock indexes lost about 35 per cent of their value in less than six weeks. The subsequent rebound has been nearly as brisk.
Partly thanks to an unprecedented $US1.6 trillion stimulus package from the Federal Reserve and Congress and a surge in trading among individual investors, the rally has lifted everything from beaten-down energy stocks to apparel retailers to big technology firms.
“Massive stimulus by the Fed and on the fiscal side has propelled the stock market’s recovery at a speed unlike we’ve ever seen,” said Liz Ann Sonders, a chief investment strategist at Charles Schwab & Co. “But there’s a perceived disconnect between what the market has done and the economic recovery. The reality is, the second half of the year may see a lot of choppiness.”
The S&P 500 finished the quarter up 20 per cent at 3100, its biggest percentage gain since the fourth quarter of 1998. The Dow Jones Industrial Average rose 18 per cent to 25812, its best quarter since 1987.
The rally has cut the indexes’ losses for the year to 4 per cent and 10 per cent, respectively. The Nasdaq Composite, which is heavily weighted toward big tech stocks including Apple and Microsoft, has fared even better, up 31 per cent in the past three months and 12 per cent for this year.
Overnight, stocks rallied for a second straight session. the Dow added 0.9 per cent, the S&P 500 gained 1.5 per cent and the Nasdaq added 1.9 per cent.
The path ahead for the stock market is less clear, especially with the November presidential election now coming into view. The economic picture also remains bleak. Nearly 20 million jobs have been shed since February, and retail sales are far below pre-pandemic levels. Manufacturing activity in the US has also contracted, albeit at a more gradual rate.
Predicting how the stock market will fare in the months ahead has never been simple, but the economic crisis wrought by coronavirus has rewritten the traditional investing playbook.
“You have traders trying to figure out a medical problem,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Because people will make assumptions or because there’s a lack of knowledge, the one thing we can all expect is more volatility.”
Michael Scanlon, a portfolio manager at Manulife Investment Management, said he expects stocks to be stuck in a relatively narrow trading range through the end of the year unless there is a breakthrough on a coronavirus treatment. But that hasn’t damped his enthusiasm for US stocks relative to equities in other parts of the world.
Dow Jones Newswires
5.55am: Oil down but posts quarterly gain
Oil futures settled with a loss on Tuesday, down nearly 36pc in the first half of the year, according to FactSet data, as the spread of COVID-19 continued to feed expectations for weaker energy demand.
US benchmark prices, however, ended the second quarter up by almost 92pc, rebounding from a record dip to a negative settlement in April as a group of major oil producers moved to reduce oil production and amid signs of some recovery in demand for oil.
August West Texas Intermediate oil fell 43 cents, or 1.1pc, to settle at $US39.27 a barrel on the New York Mercantile Exchange.
Dow Jones
5.50am: Airbus cuts 15,000 jobs
European aircraft maker Airbus said it is planning to cut around 15,000 jobs worldwide, 11 per cent of its total workforce, in response to the coronavirus which it described as the “gravest crisis” the industry has seen.
The cuts are to be implemented by the summer of 2021, Airbus said in a statement, and follow a drop of nearly 40 per cent of the commercial aviation business in recent months.
“With air traffic not expected to recover to pre-COVID levels before 2023 and potentially as late as 2025, Airbus now needs to take additional measures to reflect the post COVID-19 industry outlook,” it said in a statement.
The company said 5,000 positions would be cut France, 5,100 in Germany, 900 in Spain, 1,700 positions in Britain and 1,300 positions at Airbus’ other worldwide sites.
AFP
5.45am: Officials cheer signs of US rebound
The world’s largest economy is showing signs it is rebounding faster than expected from the damage inflicted by the coronavirus pandemic, but US officials signalled more aid may be needed to solidify the comeback.
On top of the unexpected job gains in May, credited to the massive support programs provided by the CARES Act, new data released Tuesday show consumer confidence jumped in June.
“We have entered an important new phase and have done so sooner than expected,” Fed chief Jerome Powell said in testimony prepared for delivery at a House Financial Services Committee hearing.
But the April-June quarter is likely to see the largest decline in GDP on record after authorities shut down businesses nationwide, he said, adding a warning that unless COVID-19 is kept in check the economy cannot fully recover.
“A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
AFP
5.38am: European markets mixed
Stock markets on both sides of the Atlantic traded within narrow bands as lingering fears of resurging numbers of coronavirus cases undermined investor confidence, dealers said.
At the European close, London and Paris were down, while Frankfurt’s Dax boasted a small gain.
“The stock market recovery continues to send flagging signals on the back of numerous reopening setbacks,” said Craig Erlam, a senior market analyst at OANDA.
“With various states in the US halting lockdown easing or even reversing them in some cases, investors may be becoming a little concerned about what they’re seeing.”
London underperformed its peers after a worse-than-expected UK growth contraction, gloomy corporate news from energy major Royal Dutch Shell and renewed lockdown measures in the central English city of Leicester. London shed 0.9pc, Frankfurt rose 0.6pc and Paris slipped 0.2pc.
“The FTSE 100 (has been) particularly hard-hit thanks to a warning from Shell which has driven that heavily-weighted stock and its peer BP firmly into the red,” said IG analyst Chris Beauchamp.
Earlier, Asian stock markets had mostly gained, backed by strong Chinese and US economic data.
Oil prices dipped on virus-linked demand concerns and the prospect of a return to Libyan production, dealers said.
AFP
5.38am: Shell takes $US22bn hit
Energy producer Royal Dutch Shell warned it will slash the value of its assets by $US22 billion to account for lower oil and gas prices amid the COVID-19 pandemic.
With the virus outbreak hurting the long-term prospects of the global economy, the company said it continues “to adapt to ensure the business remains resilient” in challenging times. Earlier this month, its competitor BP, also cut the value of its own assets by up to $US17.5 billion.
The pandemic has hit the wider energy industry hard because it has placed onerous limits on business, travel and public life. There is little need in aviation for fuel, for example, since most planes are grounded.
Supply of oil and gas was particularly high when the outbreak began, creating a perfect storm for the industry. With storage facilities filling up, the U.S. price of oil went below zero in April for the first time ever.
Shell predicted prices for Brent crude, the international oil benchmark, would be at $US50 dollars a barrel in 2022, having earlier predicted a price of $US60 a barrel. On Tuesday, it was trading near $US41 a barrel.
AP
Read more: Australia carries can for huge Shell writedown
5.37am: Debt restructuring warning
The coronavirus crisis will test the sturdiness of small and medium-sized enterprises in the coming months, the Bank for International Settlements said, predicting a wave of debt restructuring.
“The shock of the COVID-19 pandemic has turned out to be a defining moment,” said BIS general manager Agustin Carstens, as the central banks institution presented its annual economic report.
“The containment measures are inflicting an enormous economic blow, and the long-term effects will be profound.” The BIS is often described as the central bank of central banks.
“In the next phase of the crisis the focus will move from liquidity – making sure firms have enough cash to operate – to solvency, where the long-term viability of many companies will be tested,” it said.
“The strength of the recovery will depend on how the pandemic evolves and how much economic damage it leaves in its wake.
“Debt restructuring will be required as resources shift from shrinking to growing sectors.”
AFP
5.35am: VW ends shorter hours
German car giant Volkswagen said its German factories would end in July a shorter hours scheme used to cushion the impact of the coronavirus pandemic as production ramps back up.
After around 80,000 workers’ hours were slashed from March, a remaining cohort of around 20,000 at VW’s own-brand passenger cars, utility vehicles and components works will also return to normal schedules at sites across Europe’s top economy, the sprawling 12-brand group said in a statement.
At present, production levels in the German factories stand at between 75 and 95 per cent of pre-coronavirus levels, VW said.
AFP
5.30am: EU reopens borders to 15 countries
The EU agreed to open its borders to 15 countries from July 1, but the United States, where the coronavirus is still spreading, will remain excluded.
China made it to the list, which will be updated every two weeks, but on the condition that Beijing do the same for Europeans, a statement said.
US neighbour Canada as well as Japan, Australia, New Zealand and Uruguay were included without conditions on the list which was drawn up by diplomats on Friday, but required final approval.
Algeria, Georgia, Japan, Montenegro, Morocco, Rwanda, Serbia, South Korea, Thailand and Tunisia rounded out the countries, which was agreed to by vote among the EU’s 27 member states.
AFP
5.28am: US pondering more aid
US President Donald Trump’s administration is considering further steps to provide aid to businesses and workers harmed by efforts to contain the coronavirus, Treasury Secretary Steven Mnuchin said.
Mnuchin said the “tremendous amount of funding” already approved by Congress is helping to shore up the economy, which should improve in the latter half of the year.
But any additional relief “would be targeted to certain industries that have been especially hard-hit by the pandemic, with a focus on jobs and putting all American workers who lost their jobs, through no fault of their own, back to work,” he said in testimony prepared for delivery to the House Financial Services Committee.
AFP
5.25am: Coal at ‘tipping point’
Renewable energy such as wind and solar projects are already cheaper to build than it is to continue operating 40 per cent of the world’s existing coal fleet, according to new analysis.
In a report outlining how the world can phase out the most polluting fuel while powering an economic recovery from the coronavirus pandemic, a group of experts said coal had reached a financial “tipping point” making it uncompetitive in most markets.
The authors estimate that a third of the global coal fleet is already more costly to run than it is to build new renewable power solutions, including battery storage.
That figure is set to rise to 73 per cent of the fleet by 2025, said the analysis, which also found that replacing the entire coal fleet with clean energy could be done at a net saving to the global economy as soon as 2022.
“A faster transition from coal to clean energy is within our grasp, and we show how to engineer that transition in ways that will save money for electricity customers around the world while aiding a just transition for workers and communities,” said Paul Bodnar, managing director of the Rocky Mountain think tank which co-produced the research.
AFP
5.20am: Portugal threatens to nationalise airline
The Portuguese government threatened to nationalise TAP airline if the company’s main private investor refuses the conditions attached to a public rescue of the airline.
Like most airlines, TAP has been hit hard by the coronavirus lockdowns that saw most air travel halted, and the government has proposed a loan of up to 1.2 billion euros ($US1.3 billion) to help the company survive.
“We are ready to intervene and save the company,” Infrastructure Minister Pedro Nuno Santos told a parliamentary committee.
“We will make a more forceful intervention if the private shareholder continues to refuse the state’s conditions.” The European Commission approved on June 10 a plan by the Portuguese government to rescue the airline, in which it already owns a 50 per cent stake, with a loan. The airline would also have to restructure and the state would get more operational control.
Santos announced however that the airline’s board had rejected the state’s plan, without providing any details.
AFP
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