Trading Day: Banks, miners weigh on ASX
Banks and miners weighed on the ASX 200 and Westpac’s Bill Evans pushed his RBA easing prediction out to November from October.
That’s all from the Trading Day blog for Monday, September 28. Australia’s S&P/ASX 200 share index finished down 12.6 points, or 0.2pc, at 5952.3 in quiet trading after losing 12 points in the closing single price auction. Afterpay tracked the US tech bounce with a 5.1pc rise, while Qantas rose 6.4pc and Stockland gained 4pc as travel and property stocks benefited from improving domestic trends on the coronavirus and associated easing of restrictions.
Lilly Vitorovich 7.34pm: Mag sales pick up, not ad revenue
The boss of Australia’s biggest magazine company, which publishes Women’s Weekly and Woman’s Day, says magazine sales and subscriptions have picked-up as coronavirus restrictions ease.
Brendon Hill, who has run Bauer Media for about 16 months, said sales were “strong” for magazines and subscriptions after a sharp drop at the beginning of the health crisis.
The company has seen an 8 per cent rise in subscriptions since March from a year ago, however advertising revenue remains under pressure, he said.
James Kirby 6.35pm: Residential property: the house wins
As the residential property market shows clear signs of taking less of a hit than many expected, it’s houses — not units — that will be the first to recover, housing analysts suggest.
It turns out that in a “post COVID-19 market” the combination of low density and a selection of new government homebuyer initiatives have turned the residential sector inside out.
Not that long ago unit buyers led by investors drove residential prices, now it’s home buyers — particularly first home buyers — that rule the roost.
The unit market was already struggling with signs of oversupply, especially in capital cities, however the arrival of extended social distancing measures has served to further undermine the attraction of high-density dwellings.
The split picture in the residential market creates a real challenge for investors where the unit market has invariably been the “point of entry” into property. Houses are generally more expensive and carry higher maintenance costs.
As property commentator Pete Wargent of BuyersBuyers.com.au puts it: “Low maintenance units have often been popular with investors and non-resident buyers, but these buyer numbers are well down from their cyclical peaks. Most homebuyers are now looking at houses and in part this is a shift away from density at a time when many are seeking space.”
Bridget Carter 4.35pm: Booktopia launching early investor education meetings
Australia’s largest online retailer Booktopia is launching early investor education meetings this week for an initial public offering scheduled to occur in December.
Working on the float is Shaw and Partners and Morgans.
It comes after the company experienced a 28 per cent lift in its new book sales during the 2020 financial year, with total sales topping $165m for the first time.
Booktopia has a customer database of 4.5 million, with 1.4 million active customers.
The company has been operating for 16 years and is the country’s largest vertically integrated Australian-owned book retailer.
It sold more than 6.4 million books in the 2020 financial year.
The company is founded and run by Tony Nash and has already raised $20m in capital as part of its expansion plans.
It made efforts to list in 2016, seeking to raise $40m to float with a $100m market value, but those plans were later shelved.
The pricing equated to 0.8 times forecast sales on an enterprise value basis.
At that time, the company was forecasting $104.5m in revenue for financial year 2017 and earnings before interest, tax, depreciation and amortisation of $2.1m.
In recent years, Booktopia has acquired some of Australia’s leading book retailers including University Co-operative Bookshops in 2020 and major rival Angus & Robertson in 2015.
4.35pm: ASX 200 ends -0.2%; banks, miners down
Australia’s S&P/ASX 200 share index finished down 12.6 points, or 0.2pc, at 5952.3 in quiet trading after losing 12 points in the closing single price auction.
Westpac’s Bill Evans pushed his RBA easing prediction out to November from October, sparking a dip to 5941 in early trading, before US futures gains - amid hope of a US fiscal deal - caused a rise to an almost 3-week high of 5977.3.
Afterpay tracked the US tech bounce with a 5.1pc rise, while Qantas rose 6.4pc and Stockland gained 4pc as travel and property stocks benefited from improving domestic trends on the coronavirus and associated easing of restrictions.
But the Australian market couldn’t keep up with US futures as banks unwound some of Friday’s gains, with Morgan Stanley saying they rose more than any potential gain from deregulation of lending rules.
The four major banks fell 0.8pc-1.3pc and iron ore miners struggled with BHP down 1.3pc and Rio TInto down 1.5pc, though gold miners rose with Evolution up 1.9pc and Newcrest up 1.3pc.
A2 Milk dived 11pc after saying a downturn in its Daigou distribution channel in China has hurt its first half revenue.
The Australian dollar ws 0.3pc stronger against the US dollar trading around US70.52c by the close of the ASX session.
4.03pm: US futures extend gains
US stock index futures have extended their intraday gains with Dow Jones Industrial Average futures up 0.8pc, S&P 500 futures up 0.7pc and Nasdaq futures up 0.6pc near the Sydney close. The market seems to be betting on a last minute fiscal agreement, no matter how unlikely that seems this close to the US election.
After the close on Friday, Bloomberg reported that House speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed talks via a phone on a stalled fiscal stimulus package but there was no indication it provided any breakthroughs.
Hope of a US fiscal deal could help explain why the Australian share market is underperforming today with the S&P/ASX 200 still trading around the unchanged mark.
Te futures market has been unfazed by the NY Times report about Trump’s tax affairs.
Roger Montgomery 3.59pm: Buy now, pay later: that’s for sure
Just recently Tesla split its stock five-for-one and then rallied 12 per cent on the day the split shares recommenced trading. After this happened, I thought the market had reached a new and unsustainable level of nutty. But I was wrong.
Shortly after Tesla’s split, San Mateo, California-based data warehousing specialist Snowflake listed.
Last year most of the companies that IPO’d were relatively mature by the standards of Wall Street. Uber’s massive listing was after it had raised tens of billions in private markets, and six years after it first achieved unicorn status in 2013.
By contrast Snowflake entered 2020 having raised $US920m ($1.3bn) and was ‘‘valued’’ at $US4bn. Then, more strikingly, in February this year, it raised $US478.8m at a $US12.4bn valuation. Shortly after, during the northern hemisphere summer, the company filed for an IPO. Private equity players were said to be optimistic about a $US20bn valuation.
Snowflake, a data company, is profitless. It generated revenue in FY20 (its year-end is January) of $US265m and lost it all as well as another $US349m.
Stories such as the Snowflake IPO have prompted many investors to variously describe the current market as a joke, a bubble, a Ponzi scheme, a casino and a lottery.
Australia has its own brand of nutty: Afterpay.
3.45pm: Piedmont jumps on tie-up with Tesla
ASX-listed lithium miner Piedmont has rocketed nearly 80 per cent after entering a supply agreement with car major Tesla for the supply of spodumene concentrate from the company’s North Carolina deposit.
The deal is for an initial five year term on a fixed price deal. It covers a fixed commitment representing one-third of Piedmont’s planned SC6 production of 160,000 tonnes. The sales are expected to generate between 10-20 per cent of Piedmont’s total revenue from its min-to-hydroxide project for the initial five-year term.
At 3.40PM Piedmont was trading at 26.7c, up 11.7c.
Elise Shaw 3.09pm: Petrol prices heading higher: CommSec
CommSec senior economist Ryan Felsman notes that the average Aussie unleaded petrol price hit four-month lows of 115.2c a litre last week, with East Coast pump prices hitting the cheapest phase of the fuel cycle.
“But motorists in Brisbane, Sydney and Melbourne should fill up their tanks as soon as possible. In fact, pump prices have already spiked in parts of Sydney. Today, unleaded petrol prices are as high as 148.9c a litre in Sydney’s northern, eastern, southern and inner western suburbs, according to real-time fuel app MotorMouth. Not ideal timing ahead of the October long weekend,” says Felsman.
“Motorists in Adelaide haven’t been spared. Unleaded petrol prices have surged 35c a litre - on average - to around 135.2c a litre today, after hitting four-month lows of 100.3c a litre on Friday. As always, motorists are encouraged to consult real-time fuel apps and shop around for the best fuel prices. As prices increase, drivers should top up rather than fill up their tanks as prices typically rise hard and fast at the end of discounting cycles,” he says.
2.32pm: Explaining bank share rises
Morgan Stanley’s Richard Wiles says Friday’s 6-7pc rise in the share prices of ANZ, NAB and Westpac was more than the potential valuation upside from the proposed deregulation of lending laws that prompted the rally.
He does acknowledge that given the challenging revenue outlook faced by the banks in a low-growth and low-interest rate environment, any measures which lead to stronger loan growth could improve their investment case.
“All else equal, our major bank valuations would be 4-6 per cent higher if we assumed an extra 2 per cent per annum Australian housing loan growth for 5 years,” he says.
But he also notes that Treasurer Frydenberg said the proposals will “reduce barriers to switching between credit providers, encouraging consumers to seek out a better deal”.
“We think this could accelerate the mortgage refinancing boom that is already underway, adding to the margin headwind from ‘front book versus back book pricing,” Mr Wiles says.
“All else equal, we estimate that the benefit of an extra 2 per cent per annum of Australian housing loan growth would be offset if there was an additional 7-10 basis points of margin contraction over the 5 year period.”
He says Friday’s jump in bank share prices reflected a combination of investors’ underweight positioning, the recent underperformance of bank shares and the 46 per cent discount of their average P/E valuation to that of the All Industrials ex Banks, and optimism about the potential economic benefits from a range of initiatives in the upcoming budget. The four major banks are down 0.7-1.2pc today after rising 3-7.4pc on Friday.
Bridget Carter 2.05pm: Dusk IPO priced at $2 a share
Candle retailer Dusk has priced its initial public offering at $2 per share and will raise $70 million.
The company has secured demand from cornerstone investors in recent days in a move that will see the business list with a $124.5m market value and a $119.5m enterprise value.
The price equates to 10 times the group’s net profit for the 2020 financial year, with the retailer paying a 7 per cent fully franked yield at the offer price.
Last financial year, Dusk generated like for like sales growth of 17.5 per cent, $15.8m of earnings before interest, tax, depreciation and amortisation and $100.9m of revenue.
The business is due to list on November 2.
It describes itself as an Australian omni-channel specialty retailer focused on home fragrance products.
The product range is developed in house and sold through the company’s 115 stores throughout Australia, including its online store.
Private equity firm Catalyst owns 64.5 per cent of Dusk and will hold 25.4 per cent once it is listed.
Retailer Brett Blundy currently owns 18.5 per cent and will own 7.3 per cent once listed, with new investors to own 56.2 per cent on the company’s listing.
Working on the float is Canaccord, Shaw and Partners and its adviser is Allier Capital.
Dusk was originally part of the homewares business Adairs, which is already listed, but was spun out as a separate retailer.
Chief executive of the business will be Peter King, while John Joyce will be chairman.
1.58pm: Ardent fined over Dreamworld tragedy
Ardent Leisure has been fined $3.6 million by a Queensland court for the 2016 deaths of four people on a ride at Dreamworld, in what is the largest fine for a workplace tragedy in the state’s history.
“Ardent accepts responsibility for this tragedy without qualification or reservation,” chairman Gary Weiss said in a statement.
Four people died in the accident on Dreamworld’s Thunder River Rapids ride in October 2016.
1.26pm: October rate cut ‘likely’
The RBA is now “likely” to cut rates at its October meeting, according to UBS Australia chief economist George Tharenou, who had for some time flagged it as a strong chance.
He says there have recently been signs that the recovery is slowing or stalling, mostly driven by a second wave of COVID resulting in tighter restrictions in Victoria, which have begun to ease, albeit “quite slowly”.
“Worryingly however, the rest of Australia also softened”, with payrolls data indicating that the “true labour market is far weaker (than implied by labour force data), with implied unemployment greater than 10pc.
Mr Tharenou notes that there are also still another three million people on JobKeeper, who will need to be “directly paid” by their employer when the subsidy tapers, and retail and car sales dropped back sharply in August, after booming in prior months.
“Indeed, the 2nd wave of COVID globally raises the risk of renewed lockdowns, including keeping Australian borders shut for longer, with the Treasurer now expecting no migration in FY2021-22,” he says.
“Hence, we still expect Q3 GDP to recover only 0.6pc q/q, and Q4 just 1.0pc due to the fiscal cliff, seeing the unemployment rate lift sharply towards 9pc over coming months.
“Given this outlook, UBS believes more policy stimulus is likely, with little reason for the RBA to wait,” he says.
“Importantly, RBA Deputy Governor Debelle dovishly noted their ‘outlook for inflation and employment is not consistent with the Bank’s objectives’.
“Critically, Debelle noted ‘Fiscal policy is having the largest impact in shaping the outcomes in the economy. But....monetary policy actions are also having a material influence.’
“Indeed, very material regulatory support in recent weeks - responsible lending, loan deferrals, bankruptcy protection, etc - strongly suggests another ‘Team Australia’ moment as happened in March of coordinated policy easing is looming; putting upside risk on our housing outlook.”
But Mr Tharenou now sees outright QE as a less than 50-50 chance since Debelle reiterated that QE almost requires “market dysfunction”; and their “large” balance sheet expansion from $170bn pre-COVID, to $300bn now, reflecting 3-year yield target purchases and the TFF, is “as stimulatory as a quantitative easing program of the same size”.
12.45pm: Most active funds underperform again: S&P DJ
S&P Dow Jones Indices SPIVA Australia Scorecard for the first half of 2020 shows, the majority of active funds performed worse than their respective benchmark indices across most SPIVA categories in 1H 2020.
“The stock return dispersion in global equity indices rocketed to historic highs during this volatile period, providing a fertile ground for stock picking,” says Priscilla Luk, Head of Global Index Research and Design, APAC, S&P Dow Jones Indices. “However, data shows that the majority of active fund managers failed to capture this opportunity.”
While the S&P/ASX 200 lost 10.42pc in the first half, Australian Equity General funds recorded worse drawdowns of 11.66pc and 11.39pc on equal- and asset-weighted bases, respectively. Over the 6- and 12-month periods ending June 2020, 64.16pc and 57.14pc of active funds in this category underperformed the benchmark, respectively.
What’s shocking is that over the 10- and 15-year horizons, less than 20pc of funds in this category managed to survive and deliver higher returns than the benchmark.
For Australian Equity Mid- and Small-Cap Funds over the same periods, 55.64pc and 49.61pc of funds in this category underperformed their benchmark, respectively.
Over the longer-term, active funds still have an edge in this category in Australia, particularly in recent years.
The survey found that almost 74pc outperforming over 5-years, 54pc outperformed over 10-years and almost 52pc outperformed over 15 years.
Of International Equity General Funds surveyed, 60.37pc underperformed the benchmark in the first half, with an average loss of 3.88pc. Over over the 10- and 15-year periods, more than 90pc of funds underperformed the S&P Developed Ex-Australia LargeMidCap.
Of Australian Bonds funds on equal- and asset-weighted bases, 73.13pc underperformed the benchmark over 6-months and 68.12pc underperformed over 12 months.
Australian Equity A-REIT Funds were the only category of active funds where a majority (55.22pc) outperformed as the S&P/ASX 200 A-REIT suffered a severe loss of 21.29pc in the first half, though S&P DJ notes that a much higher portion of funds failed to beat the benchmark over longer periods.
12.20pm: China stocks open higher
Hong Kong stocks started Monday with small gains following a strong lead from Wall Street, while investors also cheered healthy data indicating China’s economy continues to improve.
The Hang Seng Index added 0.21 percent, or 48.67 points, to 23,284.09. The benchmark Shanghai Composite Index gained 0.17 percent, or 5.56 points, to 3,224.98, while the Shenzhen Composite Index on China’s second exchange edged up 0.31 percent, or 6.66 points, to 2,149.71.
AFP
11.59am: ASX turns higher at noon
Australia’s share market turned up just before noon as US index futures remained positive and travel companies benefited from improving domestic trends on the coronavirus and associated lockdowns.
The S&P/ASX 200 index rose 0.2 per cent to an almost three-week high of 5976.7, after falling 0.4pc to an intraday low of 5941 in a brief setback after Westpac chief economist Bill Evans said RBA stimulus will be delayed until November.
The technology sector was strongest following a jump in the Nasdaq on Friday with a 4.3pc rise in Afterpay giving the biggest positive contribution to the S&P/ASX 200.
CSL was also helping with a 0.5pc rise, while Qantas surged 4.9pc after NZ backed a possible trans-Tasman travel “bubble” by Christmas.
Other travel stocks were doing well with Flight Centre up 7pc and Webjet up 7.9pc while Corporate Travel Management was halted for a capital raising.
Other standouts in large caps include a 2.4pc rise in James Hardie and 2.4pc rise in Amcor.
But the major banks were down 0.3-0.8pc after surging Friday on an easing of lending restrictions.
A2 Milk fell 10pc after warning that revenue will suffer from a downturn in its Daigou distribution channel in China.
BHP was the biggest drag on the market with a 1.1pc fall.
11.48am: Travel stocks perform well
Travel companies are among the best performers this morning on positive coronavirus developments, including the possibility of a trans-Tasman travel bubble before Christmas.
At 11.40am Webjet had gained 8.5 per cent to $3.97 while Flight Centre had lifted 7.3 per cent to $14.16. Qantas was up 4.6 per cent at $4.06.
The momentum follows news that NZ Prime Minister Jacinda Ardern is considering opening up a trans-Tasman travel bubble this side of Christmas, and after Victoria recorded just five new COVID-19 cases while no new cases were recorded in New South Wales.
John Durie 11.41am: Good timing for a2 share sales
A2 Milk directors and executives sold big parcels of shares at the end of August, which now looks to be perfectly timed given the nine per cent fall in the stock Monday.
The stock fell after earnings were downgraded due to a collapse in daigou channel sales to China in the wake of Victoria’s COVID lockdown.
After its August earnings release, with the stock trading around the $17.47 to $18.02 mark, a slew of senior executives and directors used the available window to sell shares.
They included chair David Hearn who sold $250,000 or 20 per cent of his holding, raising $4.6 million, and chief Geoff Babidge, who sold 25 per cent of his holding or 100,000 shares to raise $1.9 million.
Asian boss Peter Nathan sold 88 per cent of his stock or 750,000 for $13.8 million and another executive, Susan Marrsasso, sold 46 per cent or 474,000 shares for $10.5 million .
The stock has fallen nine per cent on the downgrade today at $15.67 a share or around $2 below the price at which the insiders sold.
When asked about it by BAML’s David Errington at today’s analyst call, Babidge said the issues with the corporate daigou only became apparent last week, triggering today’s downgrade after a board meeting on Saturday
The share sales happened in the normal window after the August result and the downgrade is primarily in the first half, recovering in the second half.
Mr Babidge told The Australian “the company and management are well aware of our obligations under the continuous disclosure rules”.
11.20am: Treasury Wine worth it despite risk: MS
Morgan Stanley’s Niraj Shah has trimmed his Treasury Wine Estates price target 21pc to $11 citing risk of a wine tariff stemming from China’s anti-dumping investigation.
But he has kept his Overnight rating, based on his view that while China’s wine investigation and the risk of tariffs currently overhangs the company, the potential rewards are greater after the share price fall.
He cites industry expectations of a tariff ranging from 14pc (similar to pre-China Australia FTA and in line with current European tariffs) to up to 202pc as proposed by the China Alcoholic Drinks Association.
Within his unchanged $14 a share base-case valuation, he attributes $7 to China, as it represents 35pc of his group EBITS forecast for FY22.
Mr Shah argues that it’s unlikely that the full $7 will be lost as a result of tariffs, given tariffs are potentially manageable if imposed at the lower end of the range and mitigation initiatives such as reallocation to other regions if there is demand destruction albeit likely at a lower margin.
His bear case valuation is $7, reflecting a complete loss of the China business and his $11 price target is based on a 45cp weighting for the bear case, 50pc for the base case, and 5pc for the bull case of $17.
Mr Shah also notes that industry feedback on the outlook for the Americas is more constructive.
Feedback in January indicated the market would need 2-4 years to re-balance after proliferation of private label wines, discounting and increased promotional intensity which pushed Americas 1H margins declined down 360 basis points.
“Since then, planted acreage has been removed, and we’ve seen strong COVID-driven demand at certain price-points and the risk of significant smoke taint due to recent forest fires,” he says.
“Thus feedback indicates the v20 crush is likely to be meaningfully lower.
While channel normalisation remains key over the next 12 months, we believe a balanced wine market de-risks medium-term prospects.”
Lilly Vitorovich 11.11am: Bauer Media rebrands
Private equity firm Mercury Capital has renamed Bauer Media to Are Media, three months after buying the embattled magazine business from the German Bauer family.
Chief executive Brendon Hill, who has been tightlipped on the group’s rebranding for months, was upbeat about the outlook.
“With new ownership and a new identity comes a refreshed and reinvigorated focus, one which embraces our existing strengths while allowing us to innovate and move into new areas,” Mr Hill said in a statement.
“We will continue to deliver captivating, premium magazine content and experiences across print, digital, books, rewards, events and TV, connecting six in ten Australian women with commercial partners each and every day.”
Are Media consists of The Australian Women’s Weekly, Better Homes & Gardens, Woman’s Day, Marie Claire, TV WEEK, New Idea, Now to Love, Australian Gourmet Traveller, BEAUTYcrew and Wheels. It didn’t disclose any details around its business strategy.
Mercury bought Bauer Media, which included the newly acquired Pacific Magazines business from Seven West Media, for an undisclosed sum in June.
At the time, The Australian’s DataRoom reported that Mercury would pay $40m, plus redundancy costs, totaling less than $50m. That’s a fraction of the $500m that the Bauer family splashed out to secure the Packer family’s ACP mastheads in 2012.
Bridget Carter 10.56am: Distilling company Top Shelf to list
Ord Minnett has joined Wilsons on the mandate to list spirit distilling company Top Shelf.
The company, which is understood to have been experiencing rapid growth, will start its non-deal roadshow this week.
Top Shelf is owned by an entity called Allium.
The company has multiple spirit lines, with the largest being NED Whisky. It also has the Vodka and Agave brands. The company is expected to raise $25m and could be worth $100m once listed.
10.55am: COVID-19 has helped Australians manage their money: survey
Forty-two per cent of Australians believe that the coronavirus crisis has made them more proactive about managing their money, according to a survey by comparison website RateCity.
“Many Australians have used their time in lockdown to clear credit card bills, refinance their home loans and build up a savings buffer,” said RateCity research director Sally Tindall.
“For a lot of young Australians, their travel plans have gone up in smoke, their night life has been reigned in and, as a result, they’ve got spare cash to put towards their first car or home.”
Her comments come after RBA data revealed that credit card debt in Australia had fallen by 20 per cent or $5.5 billion since the start of COVID-19.
10.45am: Australian equities up to Overweight: MS
Morgan Stanley upgraded Australian equities to Overweight in its regional market allocation model.
“Virus and Policy evolution start to offer a clearer recovery path whilst aggregate earnings are troughing,” says MS Australia’s head of research, Chris Nicol.
“The ASX 200 could again play a dependable and defensive role in the context of a more volatile regional backdrop.”
He notes that despite a better-than-feared initial COVID impact and best-in class economic trough, the ASX200 lagged Developed Markets peers when comparing recovery in equity market levels from crisis lows, but “catch-up catalysts” are now in focus from investors.
“The setup from here is interesting where Australia’s recovery outlook contrasts with DM economies entering winter and second-wave COVID risks rising amid fiscal debates and varying recovery impacts,” Mr Nicol says.
“In comparison, Australia presents an outlook where it is already emerging from its own second wave in Victoria, has established a longer duration for crisis support, plans to recalibrate the fiscal pulse and pursue outsized traditional growth stimulus, and aims to confront seasonal virus
scenarios next winter at a time when base case Vaccine availability is expected to be in play. This allows Australia to once again offer defensive growth appeal in a regional setting.”
10.36am: Technology One shares lift
Shares in enterprise software maker Technology One have lifted in early trade after Bell Potter analyst Chris Savage speculated that a lack of an update in the lead up to its results announcement meant that the company was on track to achieve its guidance.
“This is obviously positive given it suggests there is no downgrade coming but perhaps more importantly it also indicates the company is on track to hit or exceed its various key metrics when some of these did disappoint at the first half result,” Mr Savage said in a note to clients.
He expects Technology One to deliver a net profit after tax of $64.5m for the year ending September 30, compared to $58.5m in the prior period.
Bell Potter left its buy recommendation on the stock and $9.50 target price unchanged.
Technology One shares last up 1.9 per cent at $8.04.
10.30am: RBA to defer rate cut: Westpac’s Evans
Westpac chief economist Bill Evans has pushed his RBA rate cut and bond buying prediction out to November.
Last Tuesday Mr Evans predicted the RBA would cut rates and commit to further purchases of Australian government and semi-government bonds at its October 6 board meeting.
“The RBA is now likely to defer its policy changes to November 3 to give the government clear air to sell its budget,” Mr Evans says.
His revised prediction briefly pushed the Australian dollar up as much as 0.3pc to an intraday high of 0.7050.
The S&P/ASX 200 share index down as much as 0.4pc intraday.
10.22am: ASX shows weakness at open
Australia’s share market was mostly weaker in early trading.
The S&P/ASX 200 was almost flat at 5960 after an early dip to 5941 despite slight gains in US index futures.
Falls in the Industrials, Financials, Energy, Materials and Consumer Staples sectors have offset gains in the Tech, Health Care, Consumer Discretionary sectors
Banks are down 0.5-0.7pc on profit taking after surging Friday after the government said it will ease lending restrictions on banks relax responsible lending laws.
But some so- alled “economic reopening trades” are benefiting from improving domestic trends in coronavirus cases and lockdowns, along with NZ’s willingness to open a trans-Tasman travel “bubble” by Christmas.
Flight Centre is up 4.4pc, Webjet is up 3.8pc Qantas is up 2.3pc. Premier Investments jumped 6pc after brokers boosted their price targets.
A2 Milk dropped 10pc after saying that its 1H revenue has been hit by a fall in the “daigou” distribution channel to China.
Bridget Carter 10.18am: Corporate Travel to raise $400m
Australian listed travel company Corporate Travel will launch a $400 million equity raising on Tuesday to fund the acquisition of a similar business in North America.
Working on the raise is Morgan Stanley and Morgans.
It is understood details surrounding the transaction, including the price of the raise, are still being finalised.
Fund managers were understood to have been sounded out about the deal in recent days.
More to come
10.10am: A2 Milk shares sink
A2 Milk shares dived 10pc to a six-month low of $15.50 after the company saw its 1H revenue hurt by a contraction in its “daigou” distribution channel to China.
A2M was last down 8.4pc at $15.70
10.07am: Renos take place of holidays
Macquarie concludes that “renovations are the new holiday” in Australia.
The broker notes that Google searches for renovations spike in Australia suggesting increased spend on home improvements likely in the near term.
And third party spending data from illion/ALphaBeta and CBA are supportive of strength in home spending categories with furniture and office spend still 83pc above normal levels.
“Consumer durable retailers should benefit from redirected travel and services spending, despite a wind back of fiscal stimulus in coming months,” Macquarie says.
Macquarie also notes that industry feedback suggests renovation activity is supporting consumer durable retailers including JB Hi-Fi and Harvey Norman.
“In North America renovation activity accelerated over the northern hemisphere summer as consumers spent an increasing amount of time at home,” the broker says.
“We expect a similar trend to assist sales at Bunnings, JB Hi-Fi, The Good Guys.”
Bridget Carter 10.05am: Adore valued ahead of IPO
Analysts at Morgan Stanley have valued the online cosmetics retailer Adore Beauty at between $651 million and $870m ahead of its initial public offering in the coming weeks.
The company’s advisers, Morgan Stanley and UBS, are carrying out further meetings this week in a quest to lock in cornerstone investors.
It is expected that the cornerstone process will be finalised ahead of the company’s IPO book build on Thursday.
Expectations are that the group will raise about $200m, potentially as much as $250m, with the company’s market value to be up to $600m.
The $651m to $870m valuation range for the business is on an enterprise value basis.
The price equates to between 4.1 and 5.5 times its revenue for the 2020 calendar year, which was $158m.
Revenue is said to be growing at about 76 per cent a year.
Adore Beauty is scheduled to list in late October.
UBS analysts have also released research on the business, but it does not include a valuation range estimate.
9.42am: Corporate Travel to raise capital
Shares in Corporate Travel Management are halted ahead of an announcement on the outcome of the institutional component of its entitlement offer and an acquisition.
Details of the acquisition are set to be unveiled as the offer is announced.
“The trading halt is requested as the company is considering, planning for, and expecting to announce, a capital raising comprising an underwritten pro rata accelerated entitlement offer of fully paid ordinary shares in the company and an acquisition,” the company said in a statement to the market this morning.
9.40am: What's impressing analysts?
Suncorp raised to Outperform: Macquarie
Northern Star raised to Neutral: UBS
SSR Mining resumed at Buy: UBS
Iress raised to buy: Morningstar
Medibank Private raised to Neutral: GS
Nearmap started at Buy: Jefferies
Webcentral raised to Speculative Hold: Bell Potter
Australian equities raised to Overweight in model: MS
Treasury Wine target price cut 21pc to $11: MS
9.30am: ASX rebound to continue
Australia’s share market rebound from a 3-month low last week looks set to continue Monday amid expectations of further gains on Wall Street.
Friday night’s futures close relative to fair value was flat but US futures were trading up about 0.3pc this morning after the S&P 500 rose 1.6pc and the Nasdaq gained 2.3pc on Friday amid hopes of a US fiscal deal.
After the close on Friday, Bloomberg reported that House speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed talks via a phone on a stalled fiscal stimulus package but there was no indication it provided any breakthroughs.
The major US indexes are basically trading in bullish pennant patterns which should fill out more to the downside before a sustained break higher, though the Nasdaq has made what may be a “false break” higher.
The progress or otherwise on US fiscal talks early this week could drive risk assets either way with the risk being a lack of progress this close to the US election, particularly after Amy Coney Barrett’s Supreme court nomination.
Markets could also swing around on Tuesday’s US Presidential TV debate, as well as month end rebalancing (less of an issue after the pullback), and economic data including China’s official and Caixin PMI’s on Wednesday, US ISM PMI on Thursday and non-farm payrolls on Friday.
Australia’s economic calendar is light but Australian shares should extend their recent outperformance on heightened expectations of domestic fiscal and monetary policy stimulus on RBA meeting and budget day next Tuesday.
Improving domestic coronavirus and economic reopening trends should also help the local market outperform with VIC easing restrictions faster than planned and new cases plunging to five this morning.
The S&P/ASX 200 should have support at 5930 and resistance at the 50-day moving average at 6016. A test of the 200-day moving average at 6058 may be possible this week while the US market stays positive.
Commodities were mostly flat on Friday apart from a 0.7pc fall in spot gold to $US1857. BHP ADR’s equivalent close at $37.25 suggests the resources-sector heavyweight will open down 0.9pc.
9.25am: Financial planning firms join Aberdeen Standard
Fund manager Aberdeen Standard Investments has added two financial planning firms to its separately managed account service.
The service, which manages 18 multi-asset, Australian equities and ETF managed portfolios, has added Queensland-based financial planning licensee Futuro Financial Services as well as WA-based firm Profusion Planning its business.
“We’re expecting very strong growth in both the number of SMA portfolios we offer and our SMA funds under management because of our ability to provide wholesale advice firms with institutional-grade resources, risk management frameworks, and capabilities at institutional prices,” said Aberdeen Standard’s Australia managing director Brett Jollie.
9.16am: PointsBet announces US tie-ups
Online bookmaker PointsBet has launched retail sports betting operations in Illinois, after the company launched online operations there earlier this month.
PointsBet told the market this morning that it had signed a deal which make it the official sports betting partner of the Chicago Bears NFL franchise, and a separate agreement making it the sportsbook partner of the Indianapolis Colts NFL franchise.
“Since launching our fast and differentiated mobile sports betting app in Indiana and Illinois, we’ve been thrilled by the reception of local sports bettors in both states,” Johnny Aitken, PointsBet USA CEO.
“We’ve always viewed Indiana and Illinois to be significant markets for the PointsBet brand, and we look forward to increasing our presence alongside famed partners in the Indianapolis Colts and the Chicago Bears.”
9.12am: AVJennings hails stimulus support
Property developer AVJennings has told investors that contract signings have strengthened partly due to government support and stimulus measures, such as HomeBuilder and state government stamp duty measures.
A total of 385 contracts were carried over 30 June 2020, with a further 76 contracts signed in July.
“There is short term uncertainty and volatility, but we are encouraged by recent contract signings and schemes such as HomeBuilder,” the company said in its annual report.
“From a structural and financial strength aspect, AVJennings remains in a sound financial position, with moderate gearing and adequate undrawn banking facilities.”
The company paid chief executive Peter Summers a total pay packet of $957,179 for the 2020 financial year, compared to more than $1m the prior year, after he forewent a short term bonus.
Perry Williams 9.09am: Warner quits Ampol
Ampol’s chief commercial officer, Louise Warner, has quit the fuel retailer to join Canada’s Couche-Tarde, which lobbed an $8.8bn takeover bid for the company last year.
Ms Warner will take six months of gardening leave before joining the Ampol suitor in a North American role next year.
Ampol’s trading and shipping boss, Brent Merrick, will relocate from Singapore to Sydney as executive general manager commercial while Andrew Brewer will rejoin Ampol in December as executive general manager for infrastructure.
Ms Warner was considered among the top executives in line to replace long serving chief executive Julian Segal.
However, former Rio Tinto executive Matt Halliday was confirmed as permanent chief executive in June.
Couche-Tarde has kept the door open to reviving a takeover tilt for Ampol depending on economic volatility and trading amid the pandemic.
9.00am: NZ seeks delay to Rio smelter closure
New Zealand Prime Minister Jacinda Ardern has promised her government will negotiate a three- to five-year delay in the closure of Rio Tinto’s Tiwai Point aluminum smelter, as she campaigns for reelection.
Rio Tinto has said New Zealand’s sole aluminum smelter is not economically viable and plans to close it in August 2021, jeopardizing several thousand jobs in the Southland region where it is located. The smelter consumes about 13 per cent of New Zealand’s electricity.
Delaying the smelter’s closure would allow more time for the region to develop new industries, Ms Ardern said Monday.
Negotiations with Rio Tinto would focus on maintaining the smelter’s workforce, eventual remediation of the smelter site and lowering the price it pays for transmission of electricity from the nearby Manapouri hydro dam, Ms. Ardern said.
Rio Tinto has argued it is paying too much for electricity transmission and subsidizing other industrial users given its proximity to Manapouri, which is operated by Meridian Energy.
Ms Ardern said the government could provide support to state-owned electricity grid operator Transpower Ltd., which would allow it reduce the smelter’s bill without passing the cost to other power consumers.
Dow Jones Newswires
8.55am: Unibail-Rodamco-Westfield posts loss
International shopping centre giant Unibail-Rodamco-Westfield has delivered a first-half net loss attributable to shareholders €1.18bn ($1.96m), compared to a €140.3m profit in the same period a year ago.
Comparable net operating income fell 14.9 per cent for the first half as mandatory coronavirus shutdowns hit its US operations. Occupancy reduced to 91.8 per cent due to bankruptcies, additional store closures, and slower lease up, all of which were significantly exacerbated by the COVID-19 pandemic, the company said.
The company bought the international Westfield business in 2018, which included its US and European shopping malls.
8.40am: Iress lifts OneVue offer
OneVue Holdings says Iress has lifted its all-cash takeover bid from 40 cents per share to 43c.
It comes after Thorney Investments moved to increase its stake in OneVue in what some saw as an attempt to block the Iress takeover.
The move which values managed fund administrator OneVue at $115.2m follows feedbackfrom OneVue’s shareholders, said Iress chief executive Andrew Walsh. OneVue had already recommended shareholders accept the 40c a share offer under a scheme of arrangement. The scheme will be adjusted to reflect the new price.
“The original offer price of 40 cents per share was unanimously recommended by the OneVue Board. It was towards the upper end of the independent expert’s valuation range and represented a 67 per cent premium to OneVue’s closing share price on 28 May 2020, the last trading day prior to the announcement of the scheme,” said Iress’ Walsh.
OneVue’s managing director Connie Mckeage said Iress has indicated that the 43c offer “represents Iress’ best and final offer, in the absence of a competing proposal and”.
OneVue shareholders will vote on the proposal on October 9.
8.27am: Boral announces board shakeup
Boral has appointed two new independent non-executive directors to its board, and agreed to add two nominees of Seven Group Holdings as directors.
Former CSR chief Rob Sindel and Deborah O’Toole are appointed as new independent directors, while Seven Group CEO Ryan Stokes and CFO Richard Richards are appointed as nominees of Seven.
Anne Barrowclough 7.50am: Trans-Tasman bubble ‘possible before Christmas’
Travel between New Zealand and some Australian states might be possible before Christmas, NZ Prime Minister Jacinda Ardern has said.
A trans-Tasman bubble has been under discussion for some months but hopes that it would be open in time for the September school holidays were dashed by Victoria’s second wave of cases.
However Ms Ardern told NZ radio on Monday morning that she would consider a state by state bubble, using Australia’s ‘hot spot’ approach under which Australians could travel interstate if a region was not deemed a hot spot.
“We did suggest it would be up to them, but if they did move state by state, that might free things up a little sooner,” Ms Ardern said.
Asked if state bubbles could be open before Christmas, Ms Ardern replied: “It is possible, what we’d need to be assured of is when Australia is saying they have a hotspot [in one state] that the border around that hotspot means that people aren’t able to travel into the states where we are engaging with, with trans-Tasman travel.
She added: “We’ve got a strategy of having a Covid-free country, that’s our ongoing goal and way of operating, and other states have actually operated like that too, like Queensland.”
Australia’s Minister of Trade and Tourism, Simon Birmingham, said at the weekend a trans-Tasman bubblE was possible, but would be initially limited to travel to and from the South Island because of the recent Auckland cluster.
7.35am: Synlait profit slips 9pc
Synlait Milk says its annual net profit fell 9 per cent to $75.2m, as it warned of significant global instability ahead.
Revenue rose 27 per cent to $1.3bn and EBITDA was up 13 per cent to $171.4 million
“Synlait’s financial performance was resilient when viewed against the backdrop of COVID-19,” said chair Graeme Milne. “The company remains solid and highly profitable with EBITDA growing strongly demonstrating the strength of our core infant and lactoferrin businesses.”
He said net profit reflected investments in new facilities and recent acquisitions.
“We are however well positioned to grow earnings off our current asset base.”
6.13am: A2 sales disrupted by Victoria restrictions
Infant formula marketing company a2 Milk said the pandemic lockdown in Victoria has disrupted surrogate-shopping sales of its products to mainland Chinese consumers.
The ASX-listed New Zealand company said a contraction in so-called “daigou” sales was larger than it had expected. That would result in “materially below plan” sales for New Zealand and Australia in the first half, it said.
The company expects a significant improvement in overall performance in the second half, helped by growth in China, and continues to see an operating profit margin of about 31 per cent.
It forecast full-year revenue of $NZ1.8 billion to $NZ1.9 billion. First-half revenue was forecast at $NZ725 million to $NZ775 million.
Dow Jones Newswires
Cliona O’Dowd 5.35am: ASX set for positive start
The Australian sharemarket is tipped to open higher following upbeat overseas leads, with easing restrictions in Melbourne adding to positive sentiment.
After notching up its best week in six on the back of a bank rally sparked by the federal government rolling back responsible lending obligations, the local sharemarket is expected to start the week 21 points, or 0.4 per cent higher, building on Friday’s gains.
Investors will take their cues from the strong performance in the US, where shares ended the week higher amid progress on a more-than $US2 trillion ($2.85 trillion) stimulus package that could be voted on this week.
In Friday’s trade, the Dow Jones index gained 1.3 per cent to 27,173.96, the S&P500 rose 1.6 per cent to 3298.46, and the Nasdaq index lifted 2.3 per cent to 10,913.56. Over the week, the Dow slipped 1.7 per cent and the S&P 500 lost 0.6 per cent, while the Nasdaq rose 1.1 per cent.
“What we could see on Monday, with the Nasdaq up firmly 2.3 per cent on Friday, that positive momentum could flow into the IT shares on the ASX 200,” CommSec senior economist Ryan Felsman told The Australian.
“Certainly...companies like Appen — the WAAAX companies, as they’re called — they could benefit from the recovery on Friday. So that’s something to look out for.”
In the US, tech giant Apple rose 3.8 per cent on Friday, while Amazon gained 2.5 per cent.
“Then, of course, on a sentiment perspective we have seen the lifting of the curfew in Melbourne, some easing in some of Melbourne’s restrictions, so that also may lead to a bit more positivity and better sentiment as well, especially with consumer confidence,” Mr Felsman said.
Mining stocks are not expected to offer much support at the start of the week, with the iron ore price declining last week and both Rio Tinto and BHP down in London trade on Friday.
Further ahead, ASX Ltd kicks off AGM season on Wednesday, while mining services firm NRW Holdings and property group Cromwell are due to trade ex-dividend in coming days. Dividend payments are expected this week from ANZ, CBA, Coles and Fortescue, with market watchers keenly awaiting to see if investors reinvest or bank the payouts.
Biotech firm Mesoblast will be in the spotlight this week, with the US Food and Drug Administration expected to rule on its cell treatment by Wednesday.
5.40am: China’s export machine looks inward
Chinese makers of goods for export are seeking to turn inwards and sell domestically, a pivot considered key to making the world’s second-largest economy more self-sufficient.
In recent weeks, Chinese President Xi Jinping has called for the country to embrace what he calls domestic circulation -- a policy designed to bolster local supply chains and encourage domestic consumption to make China more resilient to future commercial or geopolitical disruption, such as the coronavirus pandemic and the U.S.-China trade war.
While China’s exports have bounced back after the pandemic, the benefits have yet to wash through places such as this eastern China export hub, where struggling merchants say foreign orders remain depleted by the coronavirus.
Reorienting China’s formidable export machine to sell more domestically is easier said than done, say merchants in Yiwu, a city of 1.2 million people whose Yiwu International Trade City, a vast emporium of more than 75,000 wholesale stores, contributed about 2pc of China’s $US2.5 trillion in exports last year.
Many of the products made here, such as Christmas decorations and other low-cost, labour-intensive commodities, simply aren’t needed domestically in significant quantities. Only a small percentage of China’s 1.4 billion people are openly Christian, according to the U.S. human-rights group Freedom House.
5.35am: US blow to China chip maker
The US Commerce Department has told US computer-chip companies that they must obtain licenses before exporting certain technology to China’s largest manufacturer of semiconductors, a blow to China’s efforts to compete in advanced technology.
The department laid out the requirement in a letter to the computer-chip industry Friday. The letter, a copy of which was reviewed by The Wall Street Journal, says exports to Semiconductor Manufacturing International Corp. or its subsidiaries risk being used for Chinese military activities.
The U.S. action threatens to cut off SMIC from equipment used to manufacture chips. American companies are major suppliers of such equipment. SMIC is backed by several state-owned entities and is at the heart of Beijing’s push to become self-reliant on advanced technologies like chips.
Dow Jones
5.30am: Qatar Airways gets $US2bn state aid
Qatar Airways said it received $US2.0 billion in state aid to weather the coronavirus crisis, as it posted huge annual losses after enduring one of its “most difficult years”.
The firm said that the combination of the coronavirus pandemic, a boycott by Gulf neighbours and the liquidation of 49 per cent-owned Air Italy -- which announced its bankruptcy in February -- had resulted in a near doubling of losses.
This brought the carrier’s net loss for the year to end-March to 7.0 billion riyals ($US1.92 billion).
“Qatar Airways is familiar with facing exceptional challenges; however, 2019-20 has been one of the most difficult years in the airline’s history,” the carrier said in a statement.
AFP
5.20am: Wall Street recap
Despite lacklustre economic data, Wall Street stocks posted their best session of the week Friday, with tech shares leading the market higher.
The Nasdaq Composite Index jumped 2.3 per cent to 10,913.56, as indices shook off early weakness.
The Dow Jones Industrial Average finished up 1.3 per cent at 27,173.96, while the broadbased S&P 500 gained 1.6 per cent to 3,298.46.
“The market has been under pressure for a while and is just catching a bit of a bargain-hunting Friday,” said Art Hogan, chief market strategist at National Securities.
Despite Friday’s session, both the Dow and S&P 500 closed the week with losses. US durable goods orders grew by 0.4 per cent in August, below estimates and a much slower level of growth than July’s upwardly revised 11.7 per cent increase.
The tepid data add to worries that consumer spending is weakening as progress on another coronavirus stimulus package remains stalled.
Analysts said the market is also becoming more worried about a protracted US presidential election after Donald Trump repeatedly declined this week to commit to a peaceful transition of power if he loses in November.
Still, large tech shares such as Amazon, Apple and Facebook all gained more than two per cent.
Another big winner was Boeing, which surged 6.9 per cent after Europe’s aviation regulator said the long-grounded 737 MAX could be cleared to resume service by the end of the year.
The MAX has been out of service since March 2019 following two deadly crashes.
AFP
ASX 200 rises on record day for CBA; Block down
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ACCC gives nod for Sigma's multibillion dollar union with Chemist Warehouse. Regis launches legal action against Plibersek mine decision. Kerry Stokes starts swinging at AGM. Business leaders warn of Trump trade implications.