Trading Day: ASX surges in late rally as China rolls back US tariffs
The local market finished the session at daily highs after China halved tariffs on $US75bn of US imports, while CSL set new highs.
- Can the ASX set new records next week?
- Coles lifts earnings guidance
- China cuts tariffs on $US75bn US imports
- These stocks hitting records today
That’s it for the Trading Day blog for Thursday, February 6. A late rally after cuts to Chinese tariffs on $US75bn US goods sent the ASX to close at its daily highs. Record trade in CSL pushed it to within reach of being the market’s largest stock, while Coles lifted its earnings guidance and Nick Scali soared on better-than-expected results. Retail sales data showed a slip for December, but uptick for the last quarter.
4.32pm: CBA fights to keep biggest stock title
Heavyweight financial stocks did a lot of the heavy lifting in Thursday’s session, led by a 1.7 per cent lift in Westpac to $25.16, while Commonwealth Bank put on 1.1 per cent to $84.23 ahead of its results next week, to hold its title as the market’s largest stock.
NAB added 1.3 per cent to $25.95 and ANZ edged higher by 1.1 per cent to $26.11.
Pinnacle Investments was a top performer with a gain of 11.2 per cent to $5.57 after handing down a 37 per cent profit lift while fellow investment group Janus Henderson added 7.1 per cent to $41.16 on its positive results.
Strength in local shares was fuelled by record-breaking trade in a number of heavyweights. CSL put on 1.6 per cent to $320.62 after hitting $323.23 while Cochlear touched a high of $244.40 before closing up 0.5 per cent to $243.55 and Magellan Financial edged up 3.6 per cent to $70.15 after setting a record of $71.54.
The major miners shrugged off weakness in commodities overnight to continue their rebound after heavy selling early in the week. BHP added 1.7 per cent to $39.54, Rio Tinto edged up by 0.7 per cent to $99.14 and Fortescue held on to gains of 0.1 per cent to $11.22.
4.13pm: Late rally spurs ASX to daily high
The local market came close to paring its weekly losses on Thursday, as investors looked through a rising coronavirus case count to focus on strong US earnings and Chinese stimulus.
Record-breaking US trade overnight spurred a rally on the S&P/ASX 200 early but late breaking news out of China that it would halve tariffs on $US75bn of US imports pushed shares to close at daily highs.
By the close the ASX200 was higher by 73 points or 1.05 per cent at 7049.2 while the All Ordinaries was higher by 68 points or 0.96 per cent at 7148.7.
Supratim Adhikari 3.57pm: Telstra estimates cost of bushfires
Telstra boss Andrew Penn says the company faces millions in costs from the summer’s bushfires and called for urgent action on climate change, describing it as the biggest challenge of the 2020s.
“We need more urgent action on climate as changing weather patterns deliver more frequent bushfires, floods, droughts and storms,” Mr Penn said in his keynote speech at the American Chamber of Commerce lunch on Thursday.
“Climate change will be the defining challenge of the 2020s.”
Citing the recent bushfires as a wake-up call for Australia, Mr Penn said the effects of the catastrophic fires would cost Telstra $50m.
TLS shares last up 1.05 per cent to $3.84.
3.35pm: Can the ASX hit records next week?
If the S&P/ASX 200 has another three days like the last three, it will exceed its current record high of 7144 by Tuesday. Indeed it’s bouncing as fast as it fell on the coronavirus outbreak.
S&P 500 futures are up 0.4pc, suggesting the flagship S&P 500 will push on after a record daily close yesterday.
Perhaps China’s decision to halve its tariffs on $US75bn of imports from February 14 will trigger more buying, though they may be forced to delay US imports.
It may be hard to top this week’s massive liquidity adds from China, good news on coronavirus vaccine development and better US economic data, albeit non-farm payrolls are due Friday.
Australian shares could also struggle if the RBA continues to push back against further rate cuts tomorrow with Governor Lowe due to testify and the quarterly statement on monetary policy due.
JP Morgan for one is says investors should trim risk in financial markets as China reopens factories next week at the risk of accelerating the spread of the virus.
S&P/ASX 200 last up 1pc at 7041.
Gerard Cockburn 3.24pm: Investors poised for CBA buyback: Ords
Ord Minnett is tipping Commonwealth Bank to hand back more than $1.5bn to shareholders in the second half, as it forecast a cash profit lift at its upcoming results.
In a note to client, the brokerage wrote that CBA’s strong cash position was likely to result in a $1.5bn share buyback in the second half of the financial year, but warned failure to conduct a buyback could trigger a material share price fall.
Still, the bank is their least preferred in the industry, as they trim its 12-month target price to $74.80 per share, from $83.28.
Cost-out and capital management were flagged as likely tailwinds to earnings, despite lower remediation costs supporting headline growth in the first half.
Excluding one-off expense items, Ord Minnett expects CBA to post 4 per cent growth in half-year underlying earnings, on the back of 2.9 per cent growth in revenue.
“Despite an expected elevated cash payout ratio of 82 per cent in the first half of 2020, we do not forecast a dividend cut,” Ord Minnett analysts said. “CBA has a $1.2bn franking balance and we would consider it unusual to cut the dividend at the same time as launching capital management.”
CBA last up 0.91pc to $84.04.
3.14pm: UBS names best retail picks
Investors in discretionary retail stocks should be relieved by the breakdown of the December retail sales data, according to UBS analyst Ben Gilbert.
Despite a worse-than-expected 0.5pc fall month-on-month, he notes that discretionary retail sales growth saw a “notable improvement” to 2.9pc year-on-year from 2.7pc year-on-year in November.
“The key concern for the market was pull-forward of sales from Black Friday/Cyber Monday,” Mr Gilbert says. “This has not happened, with accelerating sales growth in electrical, furniture, and apparel in December.”
He notes that department stores and footwear sales growth remained “solid” despite a slight fall, while hardware was the only consumer discretionary category that declined.
“Overall, the results are consistent with industry feedback of solid trading over Christmas with margins, in our view, okay,” Mr Gilbert adds.
“The risk however are 2H trading updates, with our industry feedback suggesting weakness across the board for January.”
His key picks into 1H20 results are: Adairs, Harvey Norman, Myer, Premier Investments and A2 Milk.
3.08pm: China cuts tariffs on US imports
China is set to halve some tariffs on $US75bn worth of US imports from February 14.
In the latest dial back of tensions between the two, China said it would cut tariffs on some US goods to 5 per cent from 10pc and others to 2.5pc from 5pc.
That’s lifting the Aussie dollar, last up 0.2pc to US67.60c while US futures are up by 0.44pc.
Eli Greenblat 2.56pm: Arnotts appoints new chief
Australian snack and biscuit maker, Arnott’s Biscuits this afternoon announced the appointment of international consumer packaged goods veteran and Brambles director George Zoghbi as its new chief executive, effective March 2020.
The appointment follows the completion of global investment firm KKR’s acquisition of the biscuits company from the Campbell Soup Company in December 2019 for $3.2bn.
Mr Zoghbi will assume the role from Brian Driscoll, KKR, senior adviser and chairman of the Arnott’s board, who has been serving as interim CEO.
Mr Zoghbi returns to Australia for the role from Chicago where he currently serves as special adviser and board director at Kraft Heinz. He also serves on the board of directors of Brambles, the ASX-listed global supply chain and logistics company.
Mr Zoghbi was Kraft Heinz’s chief operating officer of the US commercial business from 2015 to 2017. Prior to joining Kraft in 2007, he held a number of executive roles with Fonterra Cooperative and various managerial and sales roles with Associated British Foods.
Eli Greenblat 2.52pm: Booktopia plots 60k per day capacity
Online book retailer Booktopia has kicked off its 16th birthday with a $20m capital raising to improve capacity and efficiency at its Sydney distribution centre that could see it lift its outbound capacity to 60,000 books a day.
Booktopia said it posted revenues of $131m in fiscal 2019 and is currently on track to deliver revenues of $175m in the 2020 calendar year. The company’s market share by revenue is on track to edge ahead of the number one book retailer in Australia, Big W.
The equity was raised from a consortium of private investors led by Su-Ming Wong, co-founder and chief executive of Champ Ventures – who will join the board of Booktopia – and John Sampson, founder and CEO of JBS Investments.
The founding shareholders retain majority control and Booktopia will continue to be an independent Australian-owned business.
2.30pm: These stocks hitting records today
With the ASX200 up 1 per cent to a 4-day high of 7044.7, these stocks have hit record highs.
- Wesfarmers – $45.62
- Altium – $41.91
- Ansell – $32.84
- Steadfast – $3.94
- Credit Corp – $36.90
- Woolworths – $43.08
- CSL – $322.47
- Cochlear – $244.40
- Magellan – $71.54
After falling 3.5pc pullback from a record high of 7144 to a 3-week low of 6897, the ASX 200 has bounced 2.1pc from the low. It’s running into chart resistance around 7145.
2.08pm: CSL fast approaching CBA
Health heavyweight CSL is closing in on Commonwealth Bank as the local market’s largest company.
Shares in the company are higher by 2.3 per cent in midafternoon trade to hit a new high of $322.88 – giving it a market capitalisation of $US98.73bn.
That’s just shy of Commonwealth Bank’s $US100.38bn market cap.
2.04pm: Biotron rallies on coronavirus link
Shares in a small Sydney biotech company working on a cure for AIDS have surged 15 per cent after it said it was also evaluating its compounds for use against coronaviruses, including the new Wuhan strain that has killed hundreds. Biotron on Thursday said it has 30 compounds with good activity against a range of coronaviruses, “including human coronaviruses that cause mild cold-like symptoms as well as the SARS coronavirus that was responsible for the outbreak of that virus in 2003.
“Those compounds can reduce the levels of coranvirus by 90 per cent to 100 per cent in infected cell cultures.
“Importantly, several compounds have broad-spectrum activity against multiple strains of coronaviruses.” Biotron said it was testing a few select compounds against the Wuhan coranvirus, known as 20190-nCoV.
The work would be done under contract in specialist laboratories that have access to the new virus, which the company said has only recently been isolated and made available for study.
AAP
1.59pm: Shares soar to new highs
The local market is pushing higher to set new daily highs as US futures push higher.
At 2pm, the ASX200 is up by 65 points or 0.94 per cent at 7042.8.
It comes as heavyweight CSL hits new highs or $322.47.
1.53pm: China restrictions to hit higher ed: S&P
Restrictions on arrivals to Australia from China will likely weigh on revenues for the country’s universities, according to ratings agency S&P Global.
In a note analysts point out that students from mainland China account for 38 per cent of international enrolments at a tertiary level, putting many universities at risk of losing fees.
They estimate that the outbreak will have stabilised by April 2020, well after the start of the semester.
“Universities are at risk of losing fees, but cannot easily reduce costs in the short run. Several have announced that affected students will have the option to defer their studies without penalty or have their fees refunded,” S&P says.
“Most operating expenses, such as staff salaries and the costs of maintaining teaching facilities, are relatively inflexible.”
They say most have buffers in place to absorb “the pain that lies ahead” but that if the situation is prolonged credit profiles could come under increasing pressure.
1.30pm: OneVue updates on Madison group
Superannuation platform manager OneVue has moved to reassure investors in the wake of the collapse of Sargon Capital, saying Sargon subsidiary and key client Madison Financial Group was safe from any form of insolvency proceedings.
OneVue said the business continued to operate as usual, and that it was working alongside Sargon’s receivers to sell the business “such that the business can continue to operate on a stable footing without unnecessary distractions”.
Along with that, it said the rebranding of Madison to Sargon Financial, a process started in early December, would be scrapped.
“The Madison Group is an important client of OneVue. We have known most of the Madison advisers for many years and we care about them and their businesses,” OneVue said in an announcement to the market.
“The Group has been through quite an unsettling couple of years and our main aim is to enable the advisers to get on with the day to day servicing of their clients without interruption.”
1.08pm: Energy leads ASX jump
The local market is holding just shy of a 4-day high as all sectors bounce back on easing coronavirus jitters.
Shares surged to as much as 7036.9 early, before settling to a gain of 44 points or 0.6 per cent to 7020.2 at 1pm.
Energy stocks are leading the rebound, up 1.3 per cent after oil prices reversed their recent slip overnight.
Coles has reversed its momentum despite upgrading its earnings guidance. The supermarket giant is now trading lower to 0.36 per cent after hitting $16.97 in early trade.
Elsewhere, Janus and Pinnacle continue to outperform with gains of 7pc after positive results.
Here’s the biggest movers at 1pm:
Cliona O’Dowd 1.02pm: Bendigo Bank could slash dividend: Citi
Bendigo Bank could slash its dividend by a third if it embarks on a desperately needed capital raising to defend against intensifying cyclical and structural headwinds, according to a bleak assessment by investment bank Citi.
In fiscal 2019, Bendigo Bank paid out a full-year dividend of 70c per share, but Citi estimates the bank will take a knife to its “unsustainable” payout ratio and cut the annual payout to 50c per share if it raises capital to fund a restructure of the business. The investment bank predicts a capital raising could be announced in a matter of weeks – either when it hands down its half-year numbers on February 17, or shortly thereafter.
Announcing a restructure would be the catalyst to “revisit the appropriate setting for the dividend and capital adequacy”, the analysts led by Brendan Sproules said.
Assuming a restructuring and investment cost of $200m, Citi expects Bendigo would raise $350m to fund the program and restore its Common Equity Tier 1 ratio to be in line with its peers. If it fails to move ahead with a restructure Citi sees the bank’s ratio declining over time as it contends with declining earnings and an unsustainable dividend payout ratio of 90 per cent.
12.45pm: Virgin Australia drops HK route
Virgin Australia says it’s pulling out of the Hong Kong route.
Just 20 months after launching the route with much fanfare, it says “the Hong Kong market remains challenging and its “no longer commercially viable”.
It’s no big surprise after months of riots and the coronavirus outbreak this year.
VAH last up 3.6 to 14.5c.
12.15pm: Rainfall buoys ag names
Heavy rain has sparked flood warnings through much of Queensland, and also triggered a rally in agriculture-exposed stocks on the local market.
At midday, Elders is leading the market gainers with a jump of 8 per cent to $8.46.
Nufarm is adding 3.83pc, Costa Group up by 4pc and GrainCorp by 3.8pc.
So far more than 100mm of rain has fallen over the south east of Queensland, with forecasts that it will move down the east coast over the next few days.
12.06pm: RBA likely encouraged by retail: NAB
While retail sales reversed in December, the RBA will be encouraged by the strong quarterly result, according to NAB.
For the quarter, retail sales lifted by 0.5 per cent, beating market expectations of 0.3 per cent.
“Some of the unexpected strength in Q4 reflects discounting – household goods prices continued to edge lower, clothing prices were unchanged and department store prices fell at their fastest rate since Q1 2018 – and there could be some delayed impact from July’s tax refunds,” NAB’s Kaixin Owyong said.
“We expect that the RBA will be encouraged by today’s data given its reluctance to cut rates further, although we note that spending should be weaker in Q1 given the impact of bushfires and the coronavirus.”
Patrick Commins 12.05pm: Dec retail sales reverses
Retail sales dropped 0.5 per cent in December, suggesting a jump in sales in the prior month had been due to the Black Friday sales event rather than the start of a much-needed upswing in spending.
Economists had expected some payback in the latest seasonally adjusted numbers from the Australian Bureau of Statistics, which showed an upwardly revised 1 per cent lift in sales in November.
Bushfires and the associated smoke, particularly in New South Wales kept Australians away from the shops and cafes, ABS director of quarterly economy wide surveys Ben James said. Sales for the state fell 1.2 per cent, the data showed.
Department store sales fell 2.8 per cent, cafes, restaurants and takeaway food services dropped 0.9 per cent), clothing, footwear and personal accessory retailing was down -1.5 per cent, while food retailing and household goods retailing both fell 0.3 per cent. The “other retailing” was the only one to rise, up 0.2 per cent.
Over 2019 calendar year retail trade rose 0.3% in real terms - slowest growth in 36 years of records (up 2.7% in nominal terms)#ausbiz #ausecon #markets #auspol #commsec pic.twitter.com/NnHB3KGPEU
— CommSec (@CommSec) February 6, 2020
12.00pm: Tabcorp app downloads flat
Brokerage UBS estimates that Tabcorp’s mobile wagering app download share was 25 per cent in the December quarter which was broadly flat year on year.
It notes Sportsbet was also flat year on year but remains the most downloaded app with 30 per cent share. Others including Pointsbet and BetEasy were the largest share takers during the period, with both up 1 per cent year on year, UBS notes.
Within the lotteries segment, UBS notes strong download share for Tabcorp’s The Lott app which averaged around 70 per cent share for the quarter.
The downloads shows continued momentum in digital penetration.
Jumbo (Oz Lotteries) share was 19 per cent in the period which was flat year on year but down 3 per cent on a quarterly sequential basis.
Tabcorp last traded at $4.54 which is down 2 per cent.
UBS has a Buy rating on Tabcorp and a 12 month target of $5.80 (revised down from $5.90)
Bridget Carter 11.58am: Race for UDC Finance narrows
DataRoom | The competition for ANZ Bank’s equipment loans business UDC Finance is understood to have narrowed, with private equity firm Cerberus Capital Management dropping out of the competition.
Final bids for the business are due in March and earlier, other groups still said to be in the race were Apollo Global Management, TPG Capital and New Zealand’s Heartland Bank.
As first reported by DataRoom in December, the process to sell UDC Finance was recently relaunched by the Australian-listed ANZ, with advisers Morgan Stanley and Deutsche working with bidders.
Earlier, many believed that Cerberus was the most promising contender, given its strong experience and expertise in the space, in a process that has attracted predominantly private equity.
Operating in New Zealand, UDC is a major asset finance company, providing funding for plants, vehicles and equipment, along with secure term investments and call accounts. Its loan book is worth about $2.5bn.
ANZ has been trying to sell the business for three years but its initial attempts to divest the division hit a stumbling block.
Bridget Carter 11.57am: Cautious positivity for Ascender float
DataRoom | Fund managers this week paid a visit by those involved in the upcoming float of payroll software services provider Ascender are cautiously positive about a potential listing of the business.
Ascender is being advised by Macquarie Capital and Morgan Stanley and describes itself as a payroll and human resources solutions provider.
Prospective investors have been offered limited detail on the company that generates about $20m of annual earnings before interest, tax, depreciation and amortisation.
They believe that the devil will be in the detail for, given that about 75 per cent of the spending on research and development is capitalised rather than expensed, which results in limited cash earnings.
It is expected that earnings will likely grow by between 5 per cent and 10 per cent.
A point of focus will be on whether the company’s implementation and outsourcing revenues will be as high quality as the software revenues.
Gerard Cockburn 11.48am: Marketing microcap boasts turnaround
Shares in ASX-listed microcap Crowd Media have near doubled after the group boasted a turnaround and near-break-even position following two years of poor financial performance.
Investors rallied behind the Dutch-Australian media and marketing company, after its underlying earnings loss narrowed to $36,000, for the first half of the current financial year.
In the previous corresponding period, Crowd Media reported a loss of $1.3m in underlying EBITDA.
The operational turnaround has been fuelled by substantial restructuring to its cost overheads and discontinuation of businesses in unprofitable markets.
It came despite a fall in half-year revenue to $8.5m, from $14m in the previous corresponding half.
Crowd Media shares were trading up 50 per cent, at 3c per share.
11.12am: Building materials to outperform: UBS
The building materials sector has been tipped to outperform this earnings season as house price growth and a bounce in new loans creates a positive backdrop, according to UBS.
The broker upgrades Adelaide Brighton, Boral and CSR to Buy, while lifting their respective price targets by 28pc to $3.85, 22pc to $6.00, 46pc to $3.60.
James Hardie’s target price has been raised 20pc to $30.00 with a Buy rating retained and Reliance Worldwide’s target is up 14pc to $4.45, with an unchanged Neutral rating.
UBS analyst James Brennan-Chong says Australian housing approvals likely bottomed in late 2019 at 160,000, and this “sets up a trough for activity in 2H20”.
“While we think there remains a risk of near-term earnings disappointment, we focus on the improving outlook for housing,” he says.
Despite a 7pc rise in the sector so far this year, it trades at a 15pc one-year forward PE discount to the market, versus a historical average discount of 6 per cent.
He notes that during 2013-14, the sector traded at a premium to the market ahead of a run up in housing approvals from 160,000 to more than 200,000.
“We are likely near a similar position today,” Mr Chong says. “Over the next 12 months, ongoing momentum in house price growth and new loans will be key to our positive call.”
John Durie 11.00am: Countdown on for TPG merger decision
The landmark Federal Court ruling on the $15bn TPG-Vodafone merger will be handed down next Thursday and may potentially clear the merger to proceed.
The companies took the action after the ACCC knocked back the deal last year on the grounds that it would hurt competition in the $20bn mobile market.
TPG argues it was never really a player in the market given it was only 20 per cent rolled out and this was stopped when the Federal Government banned Huawei from entering the 5G mobile market.
The companies argue the combination of TPG’s fixed line broadband business and Vodafone’s mobile business would be a more potent competitor to the Government subsidised Telstra. The ACCC argues there is a real chance TPG could re-enter the mobile market. It noted TPG spent $1.3 billion on mobile spectrum which underlines its potential intent.
The ACCC has not won a big merger court case in over a decade and most lawyers expect it to lose this one.
10.53am: Pinnacle leads gains on results
Shares in investment manager Pinnacle are leading the market’s best performers early, after the group posted a 36.6 per cent profit lift for the first half.
It said earnings per share from continuing operations was up 32.8pc to 8.1 cents per share, up from 6.1c in the previous corresponding period.
It said that first half NPAT was historically lower than the second half as performance fees crystallised on an annual basis and were recognised in the second half results.
The board declared a 6.9c per share dividend, representing a payout ratio of 90pc of diluted EPS.
PNI shares are higher by 4.6 per cent to $5.24.
10.47am: IPO drop a concern for ASX
Monthly figures for stock market operator ASX for January show total cash market volume is up 21 per cent on the month and up 25 per cent in the financial year to date.
While turnover boost is good for ASX more concerning for investors is the number of IPO’s down sharply.
IPO’s raised $86m in January, but raisings at $9.16bn are down 71 per cent in financial year to date.
ASX last traded at $85.85, up 0.2 per cent.
Eli Greenblat 10.38am: Investors cheer Nick Scali profit
Investors were unworried by Nick Scali’s sales fall over the first half and concerns over coronavirus denting earnings this year.
Instead, they welcomed the underlying profit of $20.1m result which beat earlier guidance from the retailer of $17m to $19m.
Shares in Nick Scali this morning rose 41.5 cents, or 5.748 per cent, at $7.635.
10.18am: ASX rises to four-day high
Australian shares have jumped at the open with the S&P/ASX 200 index rising 0.8pc to a four-day high of 7036.6 as expected based on futures.
Fund managers Pinnacle Investment Management and Janus Henderson are strongest in the ASX200, adding more than 5pc after strong results.
Elsewhere it’s “risk-on” to some extent, with Energy, Financials and Materials outperforming, while Real Estate and Utilities are Underperforming.
Beach, Santos and Origin Energy are up around 2pc after crude oil bounced back along with other industrial commodities amid hopes of OPEC cutbacks and the possibility of rapid vaccine development for the virus.
Large cap standouts include CSL, BHP, RIO, Westpac, Woolworths, NAB and Wesfarmers with gains of more than 1 per cent.
10.01am: Lynas hits back at false reports
Rare earths miners Lynas has hit back at critical news reports in the Malaysian media, saying they were false statements and inflammatory accusations intended to mislead the public.
It stated two facts to clear the record, that its Bukit Ketam site had been cleared by the State Government of Pahang for a permanent deposit facility for residue from its water leach purification process, and that the site was not a water catchment area.
It said it was “deeply disappointed” in the behvaiour of activists:
“Lynas is committed to providing accurate and factual information to the people of Malaysia and to all of our stakeholders. We will not hesitate to take legal action against those who persist in defaming our people and our company,” the statement read.
“Four independent scientific reviews have found that Lynas Malaysia is low risk and
compliant with relevant regulation.”
LYC shares last at $2.17.
9.58am: Brambles ‘favourably positioned’: MS
Morgan Stanley’s Niraj Shah stays Equalweight on Brambles but lifts hits target price 9pc to $12.80 a share saying the group is “favourably positioned” into its first half results on February 17.
“The current Americas operating backdrop appears benign, the broader revenue profile is unique given current market uncertainty, and resumption of buybacks should provide added support,” Mr Shah says.
BXB last $12.39.
9.35am: Shares to jump after Wall St records
Australia’s share market is set to jump at the open after record breaking trade on Wall Street overnight.
Futures suggest the S&P/ASX 200 will open up 0.8pc at 7031 and may test chart resistance around 7045 in early trading. The S&P 500 rose 1.1pc to a record daily close of 3334.7 and the Nasdaq also set a record daily close and highest.
The rise followed China’s financial support measures early this week, reports of breakthroughs in coronavirus vaccine development, and stronger US and European economic data but there’s a risk of profit taking now that these positive developments are well known, and China’s coronavirus outbreak continues to worsen.
Hubei province has this morning reported 2987 more cases for a total of 19,665 cases, as well as 70 more deaths for a total of 560 deaths as of February 5.
In Australia, the RBA’s reluctance to cut interest rates further will potentially challenge stretched sharemarket valuations amid a what’s expected to be a tough earnings season.
Domestic retail sales data for December and the December quarter are due at 11.30am and China’s trade data are due later today.
The S&P/ASX rose 0.4pc to 6997.6 on Friday.
9.19am: Ansell buys into Malaysian glove maker
Ansell said Thursday it will pay 37 million ringgit ($US9m) for a 50pc stake in a Malaysian joint venture with local glove manufacturer Careplus Group.
The protective equipment maker said it will co-own Careplus, a Malaysian manufacturer of surgical, latex and nitrile powder-free examination gloves with annual sales of about $US38m. The company is an Ansell supplier and owns a manufacturing facility near Kuala Lumpur with unused capacity, Ansell said.
The acquisition, which is subject to approval by Careplus shareholders, is expected to complete in March. It will be EPS neutral in FY 2020 and slightly EPS accretive thereafter, Ansell said in a filing to the Australian Securities Exchange.
Dow Jones
9.14am: What’s impressing analysts, what’s not
- Adelaide Brighton rated new Hold – Morgans
- Aurizon raised to Buy – Jefferies
- CIMIC cut to Hold – Morningstar
- Genworth raised to Outperform – Macquarie
- GPT Group cut to Sell – Morningstar
- HT&E cut to Neutral – Credit Suisse
- Janus Henderson raised to Outperform – Macquarie
- New Hope cut to Hold – Morningstar
- Panoramic Resources cut to Sell – Baillieu
- Readcloud rated new Buy – Canaccord
- Reliance Worldwide price target raised 14pc to $4.45 – UBS
- Seek raised to Outperform – Credit Suisse
- Seven West Media raised to Neutral – Goldmans
9.08am: Nick Scali warns on virus hit
Nick Scali has reported a 15 per cent drop in first half profit to $21.6m and says the coronavirus outbreak has exacerbated an already fragile consumer environment.
The furniture retailer said revenue for the six months to December 31 fell by 2.5pc to $137.5m, weighed down by a horror first quarter when it experienced a “significant drop in store traffic” and negative comparable store sales growth of 8.3pc.
However, the company said sales picked up during the second quarter to help it beat underlying profit guidance and keep its interim dividend unchanged at 25 cents per share, fully franked.
AAP
8.58am: Profit jump adds to Dexus distributions
Dexus raised its distribution guidance after half-year net profit improved by 37 per cent driven by a higher valuation of its portfolio of office and industrial properties in Sydney and Melbourne.
Dexus reported a net profit of $994.2m in the six months through December, up from $726.4m a year earlier. That included a $656.0m on-year rise in the book value of its properties at the end of December, with strong demand from tenants supporting rental growth in major cities.
Funds from operations rose by 7pc to $378.2m, while gearing at the end of December stood at 25.5pc on a look through basis – below a target range of 30-40pc.
Dexus said it now expects distributions per security to grow by around 5.5pc this fiscal year, up from prior guidance for an uplift of around 5pc.
8.47am: Coles lifts earnings guidance
Supermarket giant Coles says its Christmas campaign was more successful than anticipated, as it guided to a lift in earnings.
In a trading update ahead of its results to be announced on February 18, Coles said it expected first half earnings between $710m to $730m, ahead of consensus forecasts of $658m.
The group said comparable supermarket sales were ahead of previous forecasts, up 3.6 per cent in the second quarter and 2 per cent for the first half, while its liquor and express sales were up 2.1 per cent and 5.1 per cent respectively for the second quarter.
“Supermarkets EBIT growth in the first half of FY20 benefited from incremental costs incurred in the first half of FY19 relating to the removal of plastic bags and increased flybuys promotions, which were not repeated in the first half of FY20. The cycling of these prior year incremental costs is not expected to reoccur in the second half of FY20,” it said.
8.35am: Mirvac profit falls 5pc
Mirvac Group said its half-year net profit fell by 5%, but other financial benchmarks improved as it settled more residential lots than in prior periods amid a brightening outlook for Australia’s housing market.
Sydney-based Mirvac reported a net profit of $613 million for the six months through December, down from $648 million a year earlier.
However, operating profit rose by 21pc to $352 million in the half-year period and earnings before interest and tax lifted 18pc to $460 million.
Mirvac reaffirmed guidance for operating earnings per security of between 17.6 cents and 17.8 cents in the 2020 fiscal year while forecasting an annual distribution of 12.2 cents per security.
Dow Jones
8.10am: Wall St records as virus fears recede
The S&P 500 and the Nasdaq surged to fresh records following strong US jobs data and as markets continued to bet the coronavirus will not significantly crimp global growth.
At the closing bell, the broadbased S&P 500 was up 1.1 per cent to 3,334.73, while the tech-rich Nasdaq Composite Index gained 0.4 per cent to 9,508.68.
The Dow Jones Industrial Average also had a good day, climbing 1.7 per cent to 29,291.43, but falling a bit short of a record.
AFP
8.00am: ASX set to rise again
Australian shares are poised for another climb after US and European markets rose on positive economic data and news of a possible coronavirus vaccine.
At 8am (AEDT) the SPI200 futures contract was up 56 points, or 0.81 per cent, at 6,964.
Markets rose overnight on positive economic data from the US and Europe and as some media reports suggested scientists were developing a vaccine for the coronavirus.
World health experts suggested caution with respect to any potential coronavirus vaccine breakthroughs but positive sentiment continued and China reported that most companies would recommence activity next week, Westpac says in a research note.
Australian retail sales figures and trade balance are due out on Wednesday.
The Australian benchmark S&P/ASX200 index closed Wednesday up 27.4 points, or 0.39 per cent, at 6,976.1, while the broader All Ordinaries index lifted 33.3 points, or 0.47 per cent, to 7,080.9.
The Australian dollar was buying US67.44 cents, up from US67.36 cents.
AAP
7.40am: Gold rebounds on bargain hunting
Gold rose on bargain hunting, reversing course from a two-week low touched earlier, as investors latched on to the metal’s overall uptrend on the back of a low interest rate environment globally and lingering uncertainties.
Spot gold rose 0.4 per cent to $US1,558.12 per ounce. US gold futures settled 0.5 per cent up at $US1,562.80.
“Overall the trend is up, people want to be in gold right now just because of the central banks and what they’re doing in the long term. So, people are looking at the dip as an opportunity to accumulate more gold,” said Bob Haberkorn, senior market strategist at RJO Futures.
Reuters
7.35am: CEOs blamed for vaping rise
US politicians chastised top executives of five vaping companies at a Washington hearing, blaming them for causing an epidemic of e-cigarette use among young people through targeted marketing.
The senior executives said they didn’t now market to young people, and some said they never have. But some congressmen rejected those claims.
“Saying you are responsible men, and have integrity, that is not true,” said Democrat Frank Pallone Jr, chairman of the House Energy and Commerce Committee. “I’m upset by hearing constant reference to your integrity.”
KC Crosthwaite, chief executive of Juul Labs Inc., acknowledged that “trust in our company and category has eroded.” But he vowed to regain that trust, and presented data that he said showed e-cigarettes can be effective in helping cigarette smokers quit.
Mr Crosthwaite cited a report by London’s Royal College of Physicians that said e-cigarettes’ long-term health risks “are unlikely to exceed 5pc of those associated with smoked tobacco products, and may well be substantially lower than this figure.”
He also said a company survey of 70,000 people showed that 50pc of adult smokers who responded had fully switched from combustible cigarettes to Juul products after six months.
Dow Jones
7.30am: Tesla stock sinks again
Tesla shares dived around 20 per cent in early afternoon trading, giving back some of the gains the electric-car maker racked up since October.
Shares stood at $US723.92, down 18.3 per cent, reversing a nearly unbroken trend over the last four months that accelerated this week when the stock jumped more than 36 per cent in a two-day surge.
Tesla’s rally has followed a period of solid performance that has seen it meet key benchmarks on production of its all-electric cars and the opening of a plant in China, a crucial market.
But Canaccord Genuity downgraded Tesla from “buy” to “hold,” while maintaining a $US750 target for the stock.
“We see a balanced risk reward for investors to lock in profits,” Cancaccord said in a note.
“Just as we observed a clear buy signal coming into 2020, we see the risk of China’s coronavirus as a clear headwind to the Shanghai facility, suggesting a more pragmatic position.” And J.J. Kinahan, chief market strategist at TD Ameritrade, warned of “incredible volatility.” “When I first started trading futures, an old guy said to me, “Be careful of chocolate covered hand-grenades,” Kinahan said. “That’s a little bit how I feel about Tesla at the moment.”
AFP
7.15am: Oil, copper prices rebound
Oil and copper prices rose, reversing course from their steady drop to start the year in a move that some traders attributed to unconfirmed media reports that a Chinese university found a treatment for the fast-spreading coronavirus.
Brent-crude futures, the global oil benchmark, gained 2.4pc to close at $US55.28 a barrel. West Texas Intermediate, the main US price, climbed 2.3pc to $US50.75. Both benchmarks had risen more than 4pc during the session and were poised for their best day of 2020 until retreating somewhat.
High-grade copper futures gained 1.24pc to $US2.579 a pound in New York.
Oil and copper — seen as proxies for economic growth — have been among the worst hit assets as investors reacted to the coronavirus outbreak in recent weeks. China is the world’s biggest importer of both commodities and many analysts expect a slowdown in its economy because of business disruptions resulting from widespread quarantines.
Late Tuesday, China Global Television Network, citing a report from China’s Changjiang Daily, said researchers at Zhejiang University had found two drugs that inhibit the coronavirus and its symptoms. There hasn’t been any independent scientific verification of the report.
Oil’s move was on the back of “a cheap headline about a university in China finding a drug,” said Edward Marshall, commodities trader at Global Risk Management. Mr. Marshall said the reaction to the reports suggested traders were looking for a reason to buy oil, but he remained sceptical that oil prices would rally further.
Concerns that the virus would curtail oil demand drove prices into bear-market territory on Monday. After Wednesday’s rally, Brent and WTI crude were both down more than 16pc so far in 2020.
Dow Jones
6.55am: Wall St rallies as virus concerns ease
US stocks rallied, nearly erasing the losses sparked by reaction to China’s coronavirus outbreak, while oil prices posted their biggest gain in more than a month.
In afternoon trade the Dow Jones Industrial Average was up increased 417 points, or 1.45pc. The S&P 500 advanced 1.0pc. Both indexes were within 1pc of their January records. The tech-heavy Nasdaq Composite Index moved 0.3pc higher, a day after it set another closing record.
After closing higher yesterday, Australian stocks are set for more solid early gains. At 6.45am (AEDT) the SPI futures index was up 56 points.
US investors have cheered quarterly earnings and growth projections from the world’s largest companies in recent days, as well as signs that the manufacturing sector in both the US and Europe may be stabilising.
Concerns about the deadly virus have faded in the absence of immediate signs that the disruption to businesses in China could affect other nations.
“The story in the market is the repricing of the virus fear,” said Peter Schaffrik, a global macro strategist at RBC Capital Markets. “What people are currently looking at is the rate of spread of the outbreak: the number of cases is still going up, but the growth rate is slowing down.”
New data released Wednesday showed the US non-farm private sector in the US added 291,000 jobs in January, beating expectations of economists polled by The Wall Street Journal, who anticipated a gain of 150,000 jobs. Most of the growth was at small- and medium-size businesses, according to the ADP National Employment Report.
A recent upsurge in volatility in US equity markets is also showing signs of abating, with the Cboe Volatility Index, a closely watched measure of stock swings, dropping for a third straight day.
Futures on Brent crude, the global benchmark for oil, rose 3.7pc to trade at $US55.95 a barrel. US oil futures climbed 3.9pc to $US51.55 a barrel.
Oil prices have sharply reversed course following a four-day losing streak. OPEC, Russia and their allies are considering deeper production cuts in meetings this week, The Wall Street Journal reported.
Airline stocks — which have been battered by virus-related travel disruptions — were among the big winners. United Airlines Holdings rose 3.6pc, while International Consolidated Airlines Group, which owns British Airways, gained 3.8pc.
Overseas, the Stoxx Europe 600 jumped 1.2pc, nearing its highest hit in mid-January before news of the virus began to hurt markets.
Dow Jones Newswires
6.45am: Iron ore slips
The spot price of iron ore fell 3.0pc to $US80.55, according to CommSec.
6.42am: US private hiring surges
American companies hired at a stunning pace in January, adding the most jobs in five years, according to data Wednesday from payrolls firm ADP.
Private companies added 291,000 new hires last month — surpassing the consensus forecast in spectacular fashion — to post the biggest gain since December 2014, according to ADP’s monthly report.
Nearly all the increase was in the services sector, but there was a relatively healthy gain in manufacturing as well.
While the report is watched for signals on the critical government employment data due out Friday, economists warned that they expected the figure to be exaggerated as the data is frequently revised.
Mild weather in much of the US is cited as one factor in the blockbuster number.
AFP
6.40am: US trade deficit narrows
The US trade deficit narrowed in 2019 for the first time in six years, as Americans imported less from overseas and exports fell amid trade tariffs and slower global growth.
The deficit in goods and services shrank 1.7pc last year to $US616.8 billion, the first decline since 2013, according to Commerce Department data.
Demand for American-made products waned last year amid U.S. trade disputes with trading partners such as China and a weak global economy. Exports declined last year for the first time since 2016, dropping by 0.1pc, but imports fell by a greater amount, 0.4pc, leading to the drop in the deficit.
Dow Jones
6.36am: GM turns full-year profit
Despite a 40-day strike by factory workers and slumping sales in the U.S. and China, General Motors still made money last year. The company posted a $US6.58 billion profit for the year, but that was down almost 17pc from 2018.
GM couldn’t avoid red ink the fourth quarter, though. The automaker lost $US232 million, or 16 cents per share, largely because most of the strike by the United Auto Workers union happened during the quarter.
Excluding one-time items for employee separations and the sale of a Chinese joint venture, GM made 5 cents per share, soundly beating Wall Street estimates. Analysts polled by FactSet expected a profit of 1 cent per share. Revenue for the quarter was $US30.8 billion, down almost 20 per cent from a year ago. That fell short of Wall Street estimates of $US31.2 billion.
AP
6.35am: ECB laments virus ‘uncertainty’
The spread of the novel coronavirus in China and beyond presents “a new layer of uncertainty” for the European economy, European Central Bank chief Christine Lagarde said.
“While the threat of a trade war between the United States and China appears to have receded, the coronavirus adds a new layer of uncertainty,” Lagarde said at a speech in Paris, putting the disease on the same level as “global risks” such as trade tensions and geopolitical flashpoints.
AFP
6.32am: Spotify loss widens
Music streaming service Spotify reported a bigger net loss in 2019, driven by aggressive investing, but said it had more active users and paying subscribers.
At the end of 2019 Spotify’s number of monthly active users had grown to 271 million, a 31 per cent increase from a year earlier.
The number of premium subscribers rose by 29 per cent to 124 million. Spotify also said it had seen exponential growth when it came to podcasts and the hours streamed had increased by around 200 per cent year-on-year.
But with aggressive investments in both research and marketing the company also reported a net loss of 186 million euros ($US205 million) for 2019, more than double that of the year before when the company posted a loss of 78 million.
AFP
6.30am: Merck in spins-off
Merck is posting a 29pc jump in fourth-quarter profit and it’s spinning off its women’s health division and other operations that churn out $US6.5 billion in annual revenues.
The drugmaker reported net income of $US2.36 billion, or 92 cents per share, up from $US1.83 billion, or 69 cents per share, a year earlier. Adjusted earnings came to $US2.98 billion, or $1.16 per share, edging out by a penny the projections from Wall Street analysts, according to a survey by FactSet.
The maker of Januvia Type 2 diabetes pills reported revenue of $US11.87 billion, up 8pc from a year ago. Surging sales of its cancer blockbuster Keytruda drove a big jump in sales.
The company, based in Kenilworth, New Jersey, forecast annual net income of $5.62 to $5.77 per share, for all of 2020, and revenue ranging from $US48.8 billion to $US50.3 billion.
AP
6.25am: German car sales plunge
German car sales fell sharply in January, official data showed, hit by the coming into force of new EU pollution rules which had triggered a buying frenzy in the final months of 2019.
A total of 246,300 new cars hit the road last month, down 7.3 per cent year-on-year, the KBA transport authority said, the first decline in five months.
It comes after the later part of 2019 was marked by a flurry of sales as dealerships offered discounts to push more polluting models out the door before January 1, 2020.
After the fireworks of the fourth quarter of 2019, comes the hangover,” said EY analyst Peter Fuss.
He expected the slump to drag on for months, “especially with vehicles that have a high CO2 output” such as SUVs.
AFP
6.23am: Virus shuts Airbus plant
Airbus has closed its aircraft production facility in Tianjin outside the Chinese capital Beijing due to the latest coronavirus outbreak, the aviation giant said Wednesday.
“China domestic and worldwide travel restrictions are posing some logistical challenges. The Tianjin Final Assembly Line facility is currently closed,” Airbus said in a statement.
The Tianjin facility, the first of its kind for Airbus outside Europe, is a completion centre for single aisle A320 aircraft and can also handle the larger A330.
AFP
6.20am: Vodafone takes Huawei hit
British telecoms giant Vodafone said it would take cost 200 million euros ($US221 million) over five years to remove Chinese group Huawei’s equipment from core 5G European activities.
“We have now decided as a result of the EU (recommendations) and the UK government’s decision to take out Huawei equipment from the core, it will take around five years to implement at a cost of approximately 200 million euros,” Vodafone CEO Nick Read said in a conference call on its third quarter trading.
“It will take around five years to implement at a cost of approximately 200 million euros,” he added, stressing that the cost would mostly apply to European activities outside of Britain.
Read added that Vodafone had a “very limited amount” of Huawei in its core European infrastructure — but warned it would take time to remove and swap equipment without disrupting customers.
The company had already decided last year to pause Huawei usage in core networks in Europe, he added.
AFP
6.15am: Siemens on track for 2020
German industrial conglomerate Siemens reported Wednesday a tentative start to its 2019-20 financial year with falling profits but said it was on track to spin off its energy businesses in September.
Net earnings at the Munich-based group, whose products range from trains to factory equipment and wind turbines, fell three per cent year-on-year in its October-December first quarter, to just under 1.1 billion euros ($us1.2 billion).
Weighing on the result were a slump into the red at wind power division Siemens Gamesa, driven by delays to major projects, as well as severance costs related to the first among more than 8,000 job cuts planned across the group over coming years.
“The first quarter started slowly as expected,” chief executive Joe Kaeser said in a statement.
Siemens has suffered both from the general global economic slowdown driven by trade conflicts in recent years, as well as a longer-term downward trend in demand for some of its big-ticket items such as turbines for gas power plants.
AFP
ASX 200 falls on China update; BHP leads mining reversal
Iron ore, copper down after China's economic update. RBA's 'step down' in hawkishness evident in September minutes. West African Resources gets reassurance on Burkina Faso permits. Super Retail down as whistleblowers front court.
ASX 200 rises on banks; Arcadium top gainer
Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.