ASX closes firmly higher after US markets’ election surge
Stocks closed firmly higher as Joe Biden inches towards victory, while James Packer is criticised at Crown inquiry and Treasury Wine pauses Penfolds demerger.
- Loyalty to Packer 'at expense of duty’
- Treasury Wine pauses Penfolds demerger
- NAB cash profit slumps 37pc
That’s all from the Trading Day blog for Thursday, November 5. Australian stocks closed higher after global markets surged, despite US election uncertainty. The Dow added 1.3 per cent, the S&P 500 gained 2.2 per cent and the Nasdaq jumped 3.9 per cent. Locally, National Australia Bank posted a big drop in full year profit and Treasury Wine Estates delayed its Penfolds demerger.
Jared Lynch 7.36pm: Estia counts Covid costs
Listed nursing home provider Estia has blamed Victoria’s second coronavirus outbreak for infecting 11 of its homes, killing 36 residents, while sending others to hospital.
On the day the Victorian government announced there were no more COVID-19 cases in the state’s aged-care sector, Estia confirmed Victoria’s second coronavirus had spiralled out of control with tragic consequences.
Chief executive Ian Thorley said the nursing home provider had managed to effectively control the spread of COVID-19 at the onset of the pandemic through measures such as staff quarantine leave, which it introduced in March.
The group’s infection control procedures to protect residents against coronavirus appeared to have worked — initially at least.
“By June the incidence of COVID-19 in the community was minimal and while restrictions had relaxed we continued to assess the measures we had put in place,” Mr Thorley said at the company’s annual meeting on Thursday.
“As we now know, COVID-19 came back with great speed.
6.13pm: Ord Minnett acquires EL & C Baillieu
Ord Minnett, a leading Australian wealth management group, and E.L. & C. Baillieu, a prominent Australian owned wealth management firm, specialising in stockbroking, private wealth management, corporate finance, institutional equities and in philanthropic services, announced today, that they have entered into an agreement for Ord Minnett to acquire 100% of E.L. & C. Baillieu.
The purchase of E.L. & C. Baillieu, with nine locations around Australia including Melbourne as its head office, is a highly welcomed strategic move, further strengthening Ord Minnett as one of Australia’s highly respected and largest independent private wealth firms.
“We felt this acquisition was a strong strategic and cultural fit with Ord Minnett. The combination of E.L. & C. Baillieu’s brand heritage and history, private stockbroking business, its adviser network, its client-base and operational synergies will cement Ords as a respected Australian wealth brand. The scale benefits and self-clearing of the two businesses will allow us to be leaders in financial advice. This new amalgamation can only serve to benefit Australian investors and our clients for many more generations to come. We look forward to working with the E.L. & C. Baillieu team.” said Karl Morris, CEO & Managing Director of Ords.
Jo Dawson, Chair of E.L. & C. Baillieu said, “After running an independent and very successful process which started in June this year, we are delighted to announce the shareholders of E.L. & C. Baillieu have overwhelmingly voted in favour of a transaction with Ord Minnett. The transaction will bring together two of Australia’s longest standing stockbroking firms, and provide many exciting opportunities for our clients and staff. Having received strong interest from the stockbroking community, Ord Minnett were determined to be the perfect fit for our business and I believe that the combination of the two firms will position E.L. & C. Baillieu well for the structural changes transforming our industry. Our advisers and staff are looking forward to what will be an exciting time ahead.”
”The integration of both firms will take place over the next 12 months. Our clients will continue to receive the same high-quality advice and wealth management services which they have come to expect,” stated George Deva, Head of Private Wealth.
E.L. & C. Baillieu will continue to operate under its name, although will now be a wholly owned subsidiary of Ord Minnett.
E.L. & C. Baillieu were advised by Deloitte Corporate Finance and King & Wood Mallesons and Ord Minnett were advised by InterFinancial Corporate Finance and McCullough Robertson.
Jessica Halloran 5.08pm: Nine to be new home of rugby
The Nine Network is set to become the new home of rugby with an announcement expected within days.
The Australian understands Foxtel’s 25-year association with rugby, which took it into the professional era, may come to a close with Rugby Australia leaning towards a deal with Nine.
That agreement is expected to see Super Rugby matches and Wallabies Tests live on the Nine Network and Stan for the first time next year.
4.40pm: ASX closes at 8-day high
Australia’s S&P/ASX 200 share index closed up 78 points or 1.3pc at an eight-day high of 6139.6.
The strong rise came as global markets embraced a likely US Presidential win by Democrats easing domestic and international tensions, albeit with gridlock in Congress preventing corporate and capital gains tax hikes and keeping interest rates low by capping the extent of fiscal stimulus.
Despite a 2pc fall in WTI crude oil prices as new US COVID-19 cases hit a record, US futures pointed to further gains on Wall Street, led by growth stocks, with Nasdaq futures up 1.5pc, S&P 500 futures up 0.8pc and Dow Jones futures up 0.5pc.
A switch from value to quality and growth was also evident in Australia, with Healthcare and Tech outperforming and Energy and Materials underperforming.
Among growth standouts, CSL rose 3.5pc and Afterpay rose 2.5pc, while among underperforming value stocks, Oil Search fell 1.4pc and Rio Tinto lost 0.8pc.
But some value sectors including Financials, Real Estate and Consumer Discretionary outperformed as vaccine deals by the government helped expectations of economic reopening in Australia.
NAB rose 3.3pc on encouraging revenue trends in its full-year results.
Treasury Wine Estates dived 8.2pc after pausing its demerger plan after confirming China will tariff wine imports.
The Australian dollar was 0.21pc weaker against the US dollar by the close of the ASX session trading around US71.67c.
Lachlan Moffet Gray 4pm: Crown inquiry highlights alleged organised crime links
Counsel assisting Naomi Sharp has tackled repeated assertions from Crown directors appearing at the inquiry that Crown did not “partner” with junkets.
“It should be found that Crown Resorts partnered with junkets, in the sense that the term was used in media allegations,” Ms Sharp said, pointing out that James Packer accepted Crown “partnered” with junkets in the usual sense of the world.
Furthermore, Ms Sharp detailed occasions raised in the inquiry previously where junket operators allegedly linked to a triad company called “The Company” deposited large amounts of money at the casino and instructed it be transferred to offshore third parties.
One of these operators, Roy Moo, was later arrested on suspicion of money laundering. He told federal police that laundering money through the casino was “easier than using a bank”.
Ms Sharp submitted that Crown had the materials to identify these individuals and should not have dealt with them as junket operators.
Sun City, a junket that was once headed by a man named Alvin Chau, was also mentioned.
Sun City had a private room at Crown Melbourne and operated its own cash desk, falling outside of money-laundering regulations as the room was not considered a “reporting entity”.
Ms Sharp said Mr Chau’s alleged links to organised crime were documented in the media as far back as 2001, and Crown ought to have acted on them.
The inquiry has adjourned until tomorrow morning.
3.50pm: Hong Kong tech stocks rally on election hopes
Hong Kong technology stocks rose sharply in morning trade, buoyed by investors’ hopes for a potential easing in US-China tensions even though the outcome of the US presidential election isn’t clear yet.
The Hang Seng Tech Index tracked as much as 5.0pc higher to 8149.00 to hit a fresh all-time high by midday trade, in line with overnight gains of the technology sector in the US market.
“Overall the market thinks that the presidential election should be over soon, so that overhang is going to be removed,” said Jefferies analyst Edison Lee.
A potential Joe Biden presidency may de-escalate current conflicts over the tech industry between the world’s two largest economies. And even if President Trump is re-elected, the administration will likely shift policy attention away from China-related issues in the near term, Mr. Lee said.
“Previously, the focus on China was a campaign strategy,” he added. Nearly all subsectors within the industry are rising, with hardware companies leading gains. Cloud operator Kingsoft Corp. surged 8.7pc, chip maker Hua Hong Semiconductor Ltd. jumped 12pc, while smartphone-component supplier Sunny Optical Technology Group Co. was up 7.2pc.
Internet giant Tencent Holdings also rose 5.4pc while its peer Alibaba Group Holding rebounded 5.8pc from Wednesday’s losses due to the sudden IPO suspension of its financial arm Ant Group Co.
Delivery firm Meituan and e-commerce platform JD.com Inc. both hit all-time record highs, rising as much as 6.6pc and 7.9pc, respectively.
The industry’s upbeat momentum was supported by China’s recently unveiled new five-year plan, in which Beijing placed clear emphasis on technological development as one of the country’s top economic priorities.
Dow Jones Newswires
3.28pm: Gridlocked US government likely: CS
The US election outcome might be uncertain but investors already know what matters, says Credit Suisse Australia macro strategist, Damien Boey.
“Although we still do not know who has won the Presidential vote, we do already know that the Democrats have control of the House, albeit with a slimmer majority than they had previously,” he notes.
“Also, the Senate race, while tight, appears to be going in favour of the Republicans.
Therefore, the likelihood is that we will see a gridlocked government, between House and Senate.”
He notes that many have feared this outcome because it makes the passage of legislation and stimulus much more difficult.
Moreover, bulls have argued that a Democrat Sweep would be very supportive of larger fiscal deficit spending, higher bond yields and curve steepening.
But others feared corporate tax hikes, financial re-regulation and further rounds of coronavirus lockdowns from a Democrat clean sweep.
“On the flipside, while bears believe that a contested or gridlocked election outcomes will make it harder for large-scale fiscal stimulus to be passed, there are those who think that it could be the best possible compromise,” Mr Boey says.
“After all, under a Biden government with Republican Senate, we are likely to see some fiscal stimulus at some point, but with strings attached.”
Republicans might agree to a spending package of up to $US2 trillion on the proviso that corporate tax hikes and financial re-regulation do not happen.
And in the event that large-scale fiscal stimulus is not forthcoming, he feels the Fed might attempt more easing, supporting lower-for-longer rates, lower-for-longer volatility, and expanded equity valuation multiples.
“Less stimulus, with more strings attached, and a potentially more active Fed means that bonds should be well supported, and that the yield curve should flatten.”
“This takes the wind out of the sails of the value, reflation trade,” Mr Boey says.
“On the flipside, lower bond yields support longer-duration growth and quality exposures.”
But he cautions that the VIX volatility index is no longer above fair value.
“At some point, when post-election euphoria fades, we could well return to a regime where investors worry about the cyclical state of economic growth, COVID-19, fiscal uncertainties, and the diminishing returns from monetary stimulus, causing the market narrative to change again,” Boey says.
“In this environment, it is certainly not smooth sailing for equities as an asset class.”
3.23pm: Ingham’s cops first strike
Poultry producer Ingham’s has been hit with a first strike, after more than 50 per cent of shareholders voted against the company’s remuneration report at its annual general meeting.
According to the company’s annual report, chief executive Jim Leighton received a pay packet worth $1.73m for the 2020 financial year, up from $1m the previous year.
The company booked a net profit after tax of $40.1m for the full year, down sharply on $126.2m the prior year.
Lachlan Moffet Gray 3.20pm: Crown ‘unsuitable’ for casino licence, inquiry hears
The Crown inquiry has resumed after a short adjournment with counsel assisting Naomi Sharp taking the stand to provide an oral submission on Crown Resorts’ unsuitability to operate the Barangaroo casino in Sydney.
Ms Sharp said she would show how Crown’s use of junkets with alleged criminal links, the alleged money laundering that occured in Crown casinos and Crown private companies as well as the alleged lobbying of officials for faster visa approvals make Crown unsuitable.
Explaining the links of Macau-based junkets to organised crime, Ms Sharp displayed internal control orders of Crown Melbourne, which state the company must maintain a “robust process” for vetting junkets.
She submitted that, “casino operators must only have business relationships with persons or entities of good repute”, and said that NSW has a statutory requirement not to allow unsuitable operators to operate a casino.
“If the operator cannot be satisfied that the entity is of good repute it ought not deal with the entity, we say that is what the statutory framework must be taken as requiring,” Ms Sharp said.
“Crown Resorts has not acted in accordance with this very bright guideline notwithstanding that almost uniformly that the directors that gave evidence said Crown Resorts should only deal with junket operators of good repute.”
2.47pm: ASX nears 7-day high
Australia’s S&P/ASX 200 share index is near a seven-day high as US index futures surge.
Nasdaq futures rose 1.2pc, S&P 500 futures rose 0.8pc and Dow Jones futures rose 0.5pc.
It suggests Wall Street will extend its recent gains as investors become more confident of a Biden White House and a gridlocked Congress which may favour growth and quality over value stocks.
The S&P/ASX 200 was last up 1.2pc at 6134, near a seven-day high of 6139.9 reached early this afternoon.
The growth heavy healthcare and tech sectors are strongest and the value heavy energy and materials sectors are weakest.
2pm: Estia shares slip on update
Shares in aged care provider Estia Health have lost ground after the company said first quarter revneues were hit by a decline in occupancy rates in Victoria.
The company also stopped billing residents at a number of homes in Victoria, as some services could not be offered during the state-wide lockdown.
Outside of Victoria, occupancy averaged 93.7 during the first quarter of the new financial year. In Victoria, occupancy was at 86.8 per cent.
In a market update on Thursday, the company said its future financial performance would be “highly impacted” by any Government response to future funding and financing needs of the sector.
Estia said it was not able to quantify the impact of the pandemic on revenues, costs or funding support from the government.
Estia Health shares last down 1.5 per cent at $1.34.
Lachlan Moffet Gray 1.38pm: Crown could lose Barangaroo licence
Crown Resorts’ licence to operate the Barangaroo casino could be suspended or cancelled as its deemed ‘unsuitable’, a NSW Inquiry has heard.
Speaking to the NSW Independent Liquor and Gaming Authority’s inquiry into Crown, counsel assisting Adam Bell said that unless Crown engages in a consultative process of reform with the state regulator, its licence should be suspended or cancelled.
This is because the agreement between Crown and the state government that underpins the licence contains a number of so-called trigger events, that prevent the regulator from directly ordering material changes to the company.
He also said that James Packer’s influence over Crown should be expunged from the company.
“Should unsuitability be ongoing one option may be for the authority to suspend the licence, coupled with the conditions as to suitability that if satisfied would bring suspension to an end,” Mr Bell said.
“The option of suspending the licence would not engage any trigger event.
“Another option that is available to the authority having regard to the regulatory agreements is cancelling the licence.”
Mr Bell said that some measures that the government may ask Crown to take include reducing the influence of James Packer and his holding company, CPH, on the Crown.
“We submit that there is wisdom in the imposition of shareholding caps subject to the approval of the authority,” Mr Bell said in reference to the Sydney Star Casino’s shareholding caps.
“There are however measures which could address the influence of CPH whilst it retains its shareholding in Crown Resorts.”
Mr Bell said the regulator could restrict CPH from exercising more than 10 per cent of its voting power in Crown Resorts.
CPH is currently the largest sole shareholder, with 36.7 per cent.
Mr Bell also said that no more than one CPH executive be allowed to sit as a director on the Crown board.
Currently there are three CPH-aligned directors: Michael Johnston, Guy Jalland and John Poynton.
Mr Bell also said that any agreement allowing financial administration to be shared with CPH or James Packer should be suspended - something Crown Resorts already did last month.
Mr Bell said these measures would address the ongoing contribution of CPH executives and James Packer the “failures” at Crown.
Lachlan Moffet Gray 1.00pm: Directors ‘exposed Crown to harm’: inquiry
Counsel assisting Adam Bell has said that Crown directors Michael Johnston and Guy Jalland “exposed Crown to harm” by not informing fellow directors of the Melco transaction when they knew could have led to Crown violating the conditions of the Barangaroo casino licence.
Mr Johnston knew that Stanley Ho had some kind of interest in Melco at the time of the share sale agreement’s negotiation, and Mr Bell said it didn’t matter if he did not have all the facts of that interest at the time.
“The point is that when the share sale agreement was being negotiated, there must have been a red flag in Mr Johnston’s mind,” he said.
Turning to James Packer, Mr Bell said that although he was not a director at the time, he had a similar obligation to disclose the share sale agreement to the directors of Crown as he knew the deal may place the Barangaroo licence in jeopardy.
Mr Bell said that CPH/Crown director John Poynton did not have the same knowledge about Stanley Ho’s involvement in Melco and did not have the similar duty to inform other board members.
Mr Bell said that had the wider Crown board and management known about the share sale agreement, it could have taken steps to remove the risk of the breach of the NSW casino licence and likely would have ceased the flow of financial information to Mr Packer.
“We submit it’s clear from the evidence that Mr Johnston, Mr Jalland and Mr Packer failed to turn their minds for a moment to the adverse impacts the share sale agreement might have on Crown Resorts, an entity to which they own statutory and fiduciary duties,” he said.
Remy Varga 12.41pm: Victoria to build giant Telsa battery
A giant Tesla battery will be built in Moorabool, about 90km northwest of Melbourne, in a bid to transition Victoria towards renewable energy and create jobs amid the pandemic downturn.
Dubbed the “Victorian Big Battery”, Energy Minister Lily D’Ambrosio announced on Thursday she had directed the energy market regulator to sign a contract with renewable energy specialist Neoen.
“The big battery will help protect our network in summer, create jobs and drive down energy prices – as well as supporting our recovery from the coronavirus pandemic,” she said.
The deal is expected to create an initial 85 jobs with Neoen paying for the construction of the lithium-ion battery as well as ongoing operation and maintenance.
Victorian consumers will be charged for the use of the battery through their power bills.
The state government said independent analysis shows every $1 invested in the battery will deliver more than $2 in benefits to Victorian households and businesses.
The Australian Energy Market Operator said the battery will unlock an additional 250MW of peak capacity.
“Under the contract, the battery will provide an automatic response in the event of an unexpected network outage, providing AEMO with an additional means of ensuring grid stability,” the AEMO said in a statement.
“Batteries are genuinely well suited to perform this service because they can respond in a fraction of a second.”
Perry Williams 12.35pm: Toll to sell off Global Express division
Toll Group plans to sell its Global Express division, marking the potential break-up of the 132 year-old logistics giant bought by Japan Post in 2015 in one of the worst deals in recent Australian corporate history.
The Melbourne-based Toll confirmed a report by The Australian’s DataRoom column that its Japanese owners would move to exit the Global Express unit which primarily moves parcels and documents around Australia and New Zealand.
Toll’s two other divisions, logistics and forwarding, will remain under Japan Post’s ownership.
“Following a strategic review of the global Toll business, the Toll Board today announces it intends to explore a potential sale of the Toll Global Express business. Toll’s Global Logistics and Global Forwarding businesses are not impacted by today’s announcement,” Toll said in a statement.
Toll confirmed Nomura and JP Morgan are running the sales process.
The Express division booked $57m of losses for the third quarter of the 2020 financial year then slid further into the red in the fourth quarter, with the loss increasing to $99m.
Japan Post bought Toll for $6.5bn in 2015 but the deal has proved disastrous.
The Japanese company booked a shock $4.8bn writedown two years later. It’s since invested $2bn in Toll but a goal for it to be cashflow positive by April was not met.
Lachlan Moffet Gray 12.17pm: Loyalty to Packer ‘at expense of Crown’
Crown Resorts director Michael Johnston has been accused of allowing his loyalty to James Packer to lead him to neglect his duty to Crown.
Counsel assisting Adam Bell began by discussing the “Melco transaction,” a decision by Mr Packer to sell 19.9 per cent Crown shares he controls to Hong Kong gaming company Melco.
Controlled by Lawrence Ho, the transaction landed Crown in hot water as its agreement with the NSW regulator prevented Mr Ho’s father, the late Stanley Ho, from coming into ownership of the licensee of Barangaroo.
It was revealed the senior Mr Ho had an interest in Melco through an offshore holding company. Only half the transaction was completed before it was aborted, with Melco selling its 9.9 per cent stake to private equity firm Blackstone.
Mr Bell turned to the issue of whether this link to Dr Ho constituted him having an “indirect interest” in Crown but Commissioner Bergin questioned whether this was a specific issue for the inquiry given Melco is no longer in the picture. Ultimately the inquiry continued down the line of discussion.
Mr Bell noted how Crown and CPH director Michael Johnston at this time had a number of roles, including preparing financial reports for Crown while being a director of CPH - the company that was going to sell a major tranche of Crown shares to Melco.
He said that this placed Mr Johnston in a situation of conflict of interest which he did not disclose due to his loyalty to James Packer and CPH.
“We submit that Mr Johnston placed himself into an obvious conflict of interest in the circumstances, which he failed to perceived at the time,” Mr Bell said.
“We submit that it’s clear that Mr Johnson looking only to the interests of CPH and CPH-Crown at this time and failed to consider the interests of Crown Resorts.
“At the outset of his evidence Mr Johnston agreed that for a long time he had shown complete loyalty to Mr Packer.
“This was a situation, we submit, where his complete loyalty to Mr Packer came at expense of his duty to Crown Resorts.”
Mr Bell said the entire situation “reflects adversely on his credit” and urged Patricia Bergin to treat his previous evidence to the inquiry with “caution.”
He also extended criticism to fellow dual CPH/Crown director Guy Jalland, saying he also failed to disclose a conflict of interest.
12.12pm: ASX follows Wall Street higher
Australia’s share market has reacted positively to strong gains on Wall Street.
But the shift from value to growth shares continues, as bond yields fall amid less hope of a clean sweep by Democrats, which has diminished expectations for full-scale US fiscal stimulus.
The S&P/ASX 200 jumped 1pc to a seven-day high of 6127.1 in morning trading, with a 0.3pc rise in S&P 500 futures adding to strength on Wall Street, after the US benchmark rose 2.2pc on Wednesday.
Major growth stocks including CSL and Afterpay are among the biggest contributors to strength with gains of 3.7pc and 3pc respectively.
NAB shares have helped with a 2pc rise after stronger-than-expected revenue and capital trends in its full-year results.
Goodman Group is another big points contributor, surging 2.9pc after reaffirming its FY21 earnings and dividend guidance.
But the Energy, Materials and Financials sectors are underperforming, with BHP down 0.6pc, Rio Tinto down 1.1pc and Macquarie down 0.7pc ahead of its results tomorrow.
Inghams is strongest in the ASX200, up 14pc after increasing its dividend payout range.
Treasury Wine shares dived 6.4pc after pausing its demerger plan amid confirmation of import tariffs on Australian wine.
Lilly Vitorovich 12.08pm: ViacomCBS appoints KordaMentha partner
ViacomCBS, owner of commercial television broadcaster Network Ten, has tapped Jarrod Villani from advisory and investment firm KordaMentha to help run its local operations.
Mr Villani, who has been at KordaMentha for nearly eight years, has been appointed chief operating and commercial officer of ViacomCBS in Australia and New Zealand.
He will be responsible for the company’s commercial activities and operations in both markets, alongside chief content officer and executive vice president Beverley McGarvey.
Maria Kyriacou, president of ViacomCBS Networks International’s operations in Australia, Israel and the UK, said Mr Villani is a “highly qualified commercial leader with extensive experience in organisational transformation and stakeholder management”.
“Jarrod’s broad commercial knowledge coupled with Beverley’s experience as an Australian media and creative leader ensures the business remains a unique and powerful media group,” she said in a statement.
12.03pm: ME Bank passes rate cut onto variable rate borrowers
ME Bank has passed on the RBA’s 0.15 per cent rate cut in full to all variable rate home loan customers.
It comes as the big four banks made cuts to their fixed rates but all left their variable home loan rates unchanged, after the Reserve Bank slashed the official cash rate to a new record low of 0.1 per cent on Tuesday.
“We have been speaking to thousands of our home loan customers over the past six months, many of whom have shared their concerns about the financial impact COVID-19 is having on households,” chief executive Adam Crane said.
The non-bank lender said it on Thursday that it had paused the loan repayments of about 9,500 borrowers amid the coronavirus crisis.
11.55am: ‘Stronger revenue’ at NAB
NAB’s second half results saw “pleasingly stronger revenue trends excluding markets compared with ANZ and Westpac, according to JPM’s Andrew Triggs.
“Revenue was very slightly ahead of our forecast with markets/treasury income in line with our bullish forecast,” he says.
Costs were 2 per cent above his forecast, reflecting 2H20 strategy refresh costs taken above the line, while guidance for FY21 costs was broadly in line with his forecast while NAB is targeting absolute cost reduction from the FY20 ex-notables level over 3-5 years.
Impairment expenses were below his forecast but NAB added strongly to collective provisions, with its collective provision to collective risk weighted assets ratio now at the top end of the peer range.
Capital was 20bps softer than his forecast but is strong at 11.82 per cent pro-forma including MLC sale proceeds, and the dividend was 5 cents a share above his forecast at 30cps.
“Overall, we see continued evidence that NAB’s revenue outlook is more solid than peers with a relatively stable platform of businesses,” Mr Triggs says.
“Its small-medium enterprise footprint will continue to be an area of debate from a credit quality standpoint, in our view, but provision coverage is now best in class.”
NAB shares have surged 2.2pc to $19.11.
11.42am: Trade surplus beat on import slump
Australia’s monthly trade surplus for September has exceeded expectations, albeit mostly on a slump in imports.
The trade balance rose from $2.61bn to $5.63bn, well above Bloomberg’s consensus estimate of $3.7bn.
Imports fell 6pc versus an expected 1pc fall, while exports rose 4pc versus an expected 3pc rise.
It comes as Chinese state media confirmed a sweeping halt on exports from Australia worth more than $6bn a year from Friday.
11.38am: Baby Bunting centre closed for bug treatment
Baby goods retailer Baby Bunting said it had temporarily closed its Dandenong South distribution centre in Victoria for inspection and treatment, which has affected the distribution of stock to retail stores.
The move follows the Federal Department of Agriculture, Water and the Environment (DAWE) finding Khapra beetle insects in an imported shipping container which then affected the packaging of goods being imported.
“The Khapra beetle is common to many parts of the world,” Baby Bunting said in a statement.
“The beetle can travel in shipping containers and is attracted to cardboard packaging such as that used to transport the highchairs, not the product itself,” it said.
Normal operations at its warehouse are expected to progressively recommence from early next week, Baby Bunting said.
“While the product with affected packaging was also distributed to stores, it remained in the storerooms (not on the shop floor) and Baby Bunting has acted quickly to intercept and quarantine the items,” the company said.
“All retail stores remain open and continue to trade, although there may be some minor disruption at some stores over the coming weeks. Baby Bunting will incur some costs associated with the containment and treatment plans that are being put in place in respect of these products,” the retailer said, adding it is currently assessing its options for cost recovery”.
The company said that at this stage, it does not expect the incident to have a material impact on its performance.
Investors have so far shrugged off the statement, with Baby Bunting shares up 3c at $4.45.
11.33am: SportsBet pays out on Biden
SportsBet has called the US election for Biden and decided to pay out early on Joe Biden to be elected President.
After CNN projected the state of Michigan would go to the Democrats and holding the ascendancy in Nevada and Arizona, the online bookmaker has deemed the lead unassailable.
In total, $23m and over 100,000 bets were paid out to Sportsbet punters who backed Joe Biden to win the election.
“With postal votes and potential legal proceedings to play out, it could be weeks before an announcement is officially made,” SportsBet notes.
“However, we have supreme confidence that Biden will end up in the Oval Office,” says SportsBet’s Rich Hummerston.
This line of thinking seems to be helping financial risk assets in APAC trading.
Australia’s S&P/ASX 200 is up 0.9pc at a seven-day high of 6113.
AUD/USD bounced above opening levels.
And S&P 500 futures turned up 0.2pc
But Nasdaq futures are leading with a 0.4pc as the switch from value to growth stocks continues.
11.30am: Tokyo stocks open higher
Tokyo stocks opened higher on Thursday, tracking US gains, with traders shrugging off uncertainty over the still-unresolved US presidential election and embracing the likelihood of divided control of the US Congress.
The benchmark Nikkei 225 index was up 0.69 percent or 163.79 points at 23,859.02 in early trade, while the broader Topix index advanced 0.23 percent or 3.70 points to 1,630.95.
AFP
Adeshola Ore 11.15am: We need to adapt: Coles
Coles chairman James Graham says the retail group must invest in the uptake of digital information to innovate products and maximise revenue.
The retail giant, which has had sales boosted throughout the pandemic, holds its AGM on Thursday.
“Across all elements of what we do we recognise the need to adapt our operations by increasingly using digital information and advance technology to lower our costs of doing business and improve our product offerings,” he will the company’s AGM.
“As a large Australian company we recognise that we have a responsibility to demonstrate high standards of business practice and to measure and reduce our impact on the environment.”
He said Coles had since 2019 the group had worked to improve the effectiveness of ethical sourcing in its supply chain and reduce the business’ greenhouse gas emissions.
Mr Graham said the impact of COVID had continued into 2021 financial year, with the group’s first quarter sales increasing by 10.5 per cent compared to the past year. The retail giant’s September quarter figures showed a rise if almost 10 per cent in supermarket sales versus the time same period last year, while online sales rose by 57 per cent, contributing 6 per cent of overall supermarket sales. Under stage four restrictions in Victoria, online sales grew by more than 100 per cent - prompting the company to invest in more delivery vans. That was partly offset by lower sales to local businesses, with many closed.
Coles said liquor sales remained elevated across all states despite the relaxation of restrictions at licensed venues in some jurisdictions, with comparable in-store sales growth of 17.8 per cent and 80 per cent online.
“The trends in buying patterns experienced in the latter part of the prior financial year continued, with customers purchasing value-oriented larger pack sizes in beer and spirits,” the group said.
“The contribution from First Choice Liquor Market also increased as customers preferred shopping in larger format stores.”
Will Glasgow 11.08am: Chinese state media confirms $6bn trade ban
Chinese state media has confirmed a sweeping halt on exports from Australia worth more than $6b-a-year from Friday, days after Beijing dismissed the discriminatory ban as a “rumour”.
The Global Times, a state-controlled tabloid, made the extraordinary admission in a report called “Australia nervous at losing Chinese market”, part of a package of stories about the country’s biggest trade fair, which opened on Wednesday.
The Global Times reported that Australia’s ambassador to Graham Fletcher was in Shanghai to attend the China International Import Expo.
“[His] visit came after China halted seven categories of Australian goods from the market,” the state-controlled tabloid wrote, seemingly confirming a discriminatory trade ban Chinese officials have previously denied.
Australian companies who last year exported $149bn of goods to China have been rattled by reports this week of a ban on Australian wine, lobster, copper, sugar, timber and coal that arrives in China after Friday.
That anxiety was heightened as wine destined for the Shanghai trade show — a centrepiece event for Australia’s biggest trading partner — was halted at customs.
The trade show blockade came after more than $2m of live Australian rock lobster was spoiled after a four-day delay last week at Shanghai Pudong Airport.
Chinese authorities have not confirmed the ban to the Australian businesses that would be impacted, leaving them on edge as the deadline approaches.
The Morrison government has been unable to get clarity on the situation.
Read more: China spat puts $149bn trade at risk
11.06am: ASX trims intraday gain
Australia’s share market remains choppy amid US election uncertainty.
After a bigger-than-expected 0.9pc rise to a 7-day high of 6114.2, the S&P/ASX 200 rapidly pared that rise to 0.3pc.
The intraday retreat came as NAB shares more than halved a 1.8pc jump immediately following its results.
And investors have continued to favour growth over value stocks, with healthcare and tech outperforming and materials, energy and financials underperforming.
US stock index futures remain on the back foot after surprisingly strong gains on Wednesday.
Lachlan Moffet Gray 10.55am: Packer ‘unsuitable’ to be associated with Crown licence
Mr Bell has said that James Packer’s behaviour in an email concerning the privatisation of Crown in 2015 wherein he threatened private equity figure Ben Gray means his suitability as an associate of the licensee of the Barangaroo casino should be reconsidered.
The contents of the email are not known to the public, but Mr Packer last month told the inquiry that his conduct was “shameful” and was attributable to his ongoing struggle with bipolar disorder.
“We submit that you should recommend to the authority that it reconsiders its approval of Mr Packer as a close associate of the licensee having regard to his conduct as evidenced in these emails,” Mr Bell told Commissioner Patricia Bergin.
On the subject of the shareholder protocol that allowed Mr Packer to request confidential information about Crown after he retired from the board, Mr Bell has told the inquiry that Mr Packer used the protocol to provide “instructions to board members or senior executives”, despite being a mere shareholder.
At his appearance in front of the inquiry Mr Packer said he was just making “requests”.
“It’s the language of instruction, not requests,” Mr Bell said today while reading from emails where Mr Packer appeared to threaten executives including Ken Barton and Barry Felstead and imply their jobs were on the line if financial targets were not met.
Mr Bell asked, “whether Mr Packer should be characterised as a director of Crown Resorts” after he retired from the board in light of his continuing to give instructions through the shareholder protocol.
Explaining the differences between a “de-facto director” and a “shadow director,” Mr Bell said there was no one single legal test for either, but submitted that Mr Packer was a de-facto director due to the extent of his influence over key executives at Crown.
“We submit that this evidence...establishes that the senior executives and board members of Crown Resorts concede that the protocol was not merely a means of providing information to Mr Packer but also as a mechanism for Mr Packer to continue to express his instructions and wishes in relation to the business,” Mr Bell said.
“We submit that you should find that in the period from November 2018 to May 2019, at least, Mr Packer had at least the same amount of confidential information about Crown Resorts available to him as the executive chairman Mr (John) Alexander did.
“In fact, if anything, Mr Packer’s access information was even more extensive.”
In addition to receiving information, Mr Bell said Mr Packer played an “active and important role” in that time period and was a “driving force in the business”.
“Commissioner it is not apparent that a governing majority of Crown Resorts’ board of directors received and accepted Mr Packer’s instructions and wishes concerning Crown Resorts’ affairs over that period,” Mr Bell said.
“On that basis we don’t submit that Mr Packer was a shadow director of Crown Resorts
“However, we submit that the evidence demonstrates that he was a de-facto director of Crown Resorts in the period.”
Perry Williams 10.50am: Toll up for sale
Japan Post will sell Toll Group’s Global Espress division, newswire Nikkei has reported.
An announcement is expected to be made shortly.
Japan Post will keep Toll’s global delivery operations.
The Australian logistics giant has been up for sale through JPMorgan and Nomura with a potential break-up on the cards of the conglomerate which operates across 50 countries in 1200 locations and employs 44,000 people.
Japan Post is listed, but the Japanese government remains its major shareholder. The company has placed Toll Holdings up for sale after writing off more than $4.8bn of the value.
The plan at the time for the company when it outlaid $6.5bn to buy the business in 2015 was to increase the price-earnings ratio of the listed Japan Post, which had a low PE, by acquiring a company with a high PE.
Japan Post has since invested $2bn in Toll Holdings over the past three years. But its objective for it to be cashflow positive by April was not met.
The problematic part of Toll’s business is express freight forwarding, which some believe may not find a buyer.
Toll sunk $99m into the red last financial year, and while it is highly challenged, many expect that Japan Post will be reluctant to place it into voluntary administration or liquidation because it would be liable for about $700m worth of redundancy costs.
10.41am: Treasury slump after demerger pause
Shares in Treasury Wine Estates have slumped more than 7 per cent in early trade after the winemaker told the market that China may be poised to impose retrospective tarrifs on Australian wines.
The company also told investors at its annual general meeting this morning the possible demerger of wine label Penfolds had been paused.
Treasury Wine shares last down 7.2 per cent at $8.05.
Read more: Treasury Wine Estates hits pause on Penfolds demerger plan
10.39am: NAB result backed
UBS analyst Jon Mott gives NAB’s full-year result his vote of approval amid relatively better revenue and capital than peers.
NAB announced a 36.6 per cent slide in cash earnings to $3.7bn
“Mixed result with a number of moving parts, but we think the market is likely to give NAB the benefit of the doubt, especially given its better NIM performance than peers and solid
CET1 position,” he says.
NAB shares were last up 0.4pc at $18.77 after rising 1.8pc to $19.04 in early trading.
10.26am: ASX jumps to seven-day high
Australia’s share market has opened more strongly than expected, after global markets surged despite US election uncertainty.
The S&P/ASX 200 index rose 0.9pc to a 7-day high of 6114.9 in early trading, exceeding a 0.5pc rise projected by overnight futures.
It came despite falls in the resources sector and a 0.2pc fall in S&P 500 futures in early APAC trading.
Growth stocks in the Health Care and Tech sectors led gains after a shift from value to growth stocks in the US market after the chance of a Democrat sweep declined.
CSL was the biggest contributor to strength with a 2.3pc gain and Afterpay jumped 2.5pc.
Banks were mixed with NAB up 1.6pc after its full-year results and CBA up 0.6pc, but ANZ down 0.1pc .
Ingham’s was strongest with a 10pc gain after a strong 1Q trading update and IRESS rose 5pc after its trading update yesterday.
Treasury Wine Estates was weakest with a 7pc fall after putting its demerger on hold amid looming tariffs from China.
Lachlan Moffet Gray 10.21am: Case builds against Crown licence
Counsel assisting the inquiry into Crown Resorts’ suitability for a NSW casino licence is continuing to make the case for Crown being deemed “unsuitable” to operate the Barangaroo casino.
Yesterday commissioner Patricia Bergin heard how major shareholder and former director James Packer’s influence compromised risk reporting lines in the company, leading to the 2016 arrest of 19 Crown staff in China for illegally promoting gambling.
Today Adam Bell is continuing to lay out how Mr Packer’s and his private company CPH’s “influence over Crown Resorts has a bearing on the suitability of the licensee,” particularly through the use of a controversial “controlling shareholder protocol” that allowed Mr Packer to request confidential information about the company after resigning from it.
In particular, Mr Bell is focusing on how CPH executive and Crown director Michael Johnston used the protocol to share financial information to Mr Packer at a time when CPH was working on a deal with Melco to buy just under 20 per cent of CPH’s shareholding.
Mr Bell said Mr Johnston never disclosed this glaring conflict of interest.
“We submit that it should be found that Mr Johnston on a number of occasions failed to appreciate the conflict of interests which arose by virtue of his various roles as a director of Crown Resorts and an executive of CPH providing services under the services agreement,” Mr Bell said, adding that this reflects poorly on Mr Johnston.
Mr Bell went on to mention how Crown sought to keep the shareholder protocol secret, referring to an incident at the 2019 AGM when current CEO Ken Barton was asked by a shareholder whether Mr Packer received information.
Mr Barton mentioned Crown’s service agreement with CPH, but not the protocol with Mr Packer.
“In that event, we submit that the only conclusion that could be drawn is that Mr Barton, not accidentally but deliberately, misled crown resort shareholders in providing his answer or chose not to tell them the truth,” Mr Bell said.
“It’s also remarkable according to the evidence given to this inquiry that every single member of the board of Crown Resorts present at the AGM apparently failed to appreciate that Mr Barton hadn’t answered the question correctly or accurately and did nothing to correct what Mr Barton had said.”
Ben Wilmot 10.12am: Scentre says 92pc of retailers open
The owner of the local Westfield mall empire, the Scentre Group, has reported a pick up in rental collections as more retailers open and lockdown restrictions are lifted.
Scentre said 92 per cent of retail stores are now open amid trading across Australia and NZ and more stores in Victoria are expected to reopen over the coming weeks.
During the ten months to the end of October, the group has collected $1.62bn of rent, an increase of $746m since June 30. Scentre said it had collected $187m and $203m of gross rental billings in September and October.
In September, Scentre bolstered its balance sheet by issuing $4.1bn of subordinated hybrid notes, which bolstered its balance sheet even as shopping centre values drop.
Scentre reaffirmed that it intended, subject to unforeseen circumstances, to pay a distribution in early 2021 from surplus net operating cash flows received during the 2020 year.
The company said customer visits during the September quarter were 90 per cent of the same time last year across the portfolio, excluding Victoria. Portfolio occupancy was 98.4 per cent at the end of September.
This year the company completed 1,395 lease deals spanning about 167,000sq m of gross lettable area. The landlord has also reached agreement regarding COVID arrangements with a total of 3,187 retailers, representing 89 per cent of the 3,600 retail brands in its portfolio.
Comparable like-for-like specialty in-store sales, excluding Victoria, were down 1.9 per cent for the September quarter, while comparable majors in-store sales were up 1 per cent for the quarter.
The New Zealand portfolio, which suffered a decline of 9.6 per cent for specialties for the quarter, was impacted by the government imposed restrictions for 19 days during the month of August.
The restrictions effectively removed about 20 per cent of available trading days during the September quarter relative to prior periods.
10.07am: Citi still prefers value stocks
US Senate numbers so far indicate that higher US corporate taxes are unlikely, giving more conviction in 2021 EPS estimates which is bullish for equities, notes Citi’s chief US equity strategist, Tobias Levkovich.
The risk to as much as $US8-$US9 of our $US160 earnings forecast for next year from a corporate tax hike has “dissipated.”
And fear of more severe treatment on capital gains was another hurdle that “looks to have faded as a result, giving investors some positive feelings.”
Thus, Mr Levkovich argues that if Joe Biden ends up winning the election after all the votes are counted - which is becoming more likely - areas of concern for market participants including major tax increases are “no longer as worrisome given the probable Senate composition.”
He says the Health Care sector is less threatened by major changes to current structure, though he sees continued populist pressures around drug prices.
“While pharmaceuticals represent only 10 per cent of US medical costs, there is significant political capital to be won by beating up on the industry,” he notes.
“Nevertheless, the lower possibility of rising regulatory zeal and unwelcome legislation plus pre-election positioning leaves Managed Care and Hospital stocks in better shape.”
Citi’s Levkovich also argues that while the bad news may be more linked to less fiscal stimulus than might have been, a number of areas like airlines will still need help and he expects financials support for those still suffering from the consequences of COVID-19.
“Vulnerable citizens that have lost jobs, face evictions and need to feed their families probably will get some assistance, in our opinion, though the size of the package will be smaller,” he says.
“On timing, we may see the Congressional lame duck session move now since there is not much to gain in waiting until January.”
But he still favours the “value trade” in equities over growth stocks, with vVaccine developments potentially coming soon, valuation differentials “intriguing” and Financials, cyclicals and companies hurt by the virus over the past nine months face easy comparisons by the end of the March quarter.
And he suspects deficit financing could push up Treasury yields, especially if the dollar weakens, with negative implications for the sustainability of super high valuations for growth stocks.
10.05am: Bank earnings under pressure: EY
An analysis of the full year results of Australia’s big four banks show significant pressure on earnings in a low interest-rate environment, according to audit firm Ernst & Young.
The EY analysis of the Australian major banks’ 2020 full year results found their combined cash earnings decreased to $17.38 billion – down 36.5 per cent from the same time last year – with this dip largely due to increased collective provisioning, as the banks prepare for anticipated credit losses as a result of the downturn.
The comments follow NAB this morning posting a 36.6 per cent fall in cash earnings to $3.7bn.
Total impairment charges across ANZ, Commonwealth Bank, NAB and Westpac rose to $11.9 billion before tax, up $7.48 billion from the 2019 full year.
Earnings were also impacted by revenue pressures associated with muted credit demand, record low interest rates and heightened mortgage competition, EY said.
“The major banks continue to face earnings headwinds but, currently, their financial position remains sound due to strong capital and liquidity levels – with resilience further supported by the policy measures put in place to address COVID-19 stresses,” said EY Oceania banking and capital markets leader, Tim Dring.
However he said it was a waiting game “and the banks are bracing for impact, with the full effects of the economic downturn on asset quality yet to play out”. The true scale won’t be revealed until loan repayment delay programs and income support measures draw to a planned close in the first quarter of the 2021 calendar year, Mr Dring said.
9.59am: Flight Centre defers guidance
Travel company Flight Centre has told the market that sales are gradually increasing and are tracking at 12 per cent of pre-COVID levels globally.
“While the recovery timeframe is unclear, I am optimistic that travel’s medium term outlook is fairly bright, particularly if there’s an effective vaccine late this calendar year or early in 2021,” said managing director Graham Turner said in a market update ahead of the company’s annual general meeting.
The company said that overseas travel was not expected to fully rebound for several years, but some opportunities remain in the near term.
Still, Flight Centre said there was still too much uncertainty to provide a market guidance.
Eli Greenblat 9.50am: Treasury pauses Penfolds demerger
Treasury Wine Estates chief executive Tim Ford has provided an upbeat assessment of the winemaker’s trading performance in the new year, including promising signs of recoveries in the US and Australia, despite the looming threat of its business in China being crunched by a trade war.
He also revealed that work on a possible demerger of its valuable Penfolds brand has been paused with the winemaker focusing on trading through the COVID-19 crisis, restructuring its US business and dealing with the investigation into anti-dumping by Chinese authorities.
Earlier this year Mr Ford led a review of its high-priced, luxury Penfolds wine brand to structurally separate the business from the rest of its bulging wine portfolio with that the first step in a possible demerger.
Addressing his first annual general meeting since being appointed the CEO of the wine company earlier this year, Mr Ford along with chairman Paul Rayner also updated investors about the latest twists and turns for its business in China, with the government there embarking on an anti-dumping investigation into Australian wine that could see the industry hit with damaging tariffs.
Mr Ford said that despite travel restrictions, licensed venues being shut down and populations stuck at home in lockdowns because of COVID-19 the company was seeing an upturn in demand.
This was also evident in China, the first market hit by the coronavirus earlier. Even banquets, were were up and running again, he said, and Treasury Wine’s brands such as Penfolds and Wolf Blass were making an appearance on the banquet table.
“Across Asia we have seen progressive and consistent recovery of demand month on month, with depletions for the total Treasury Wine Estates brand portfolio growing 14 per cent in the first quarter versus the prior year,’’ Mr Ford said.
Mr Ford said in the US the wine category is still seeing strong growth in retail channels with 12 per cent value growth in the first quarter.
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