Trading Day: ASX bounces but closes in the red
Australia’s share market posted a solid intraday bounce on the back of gains in US futures, but was still down 0.8pc on Friday.
- Westpac wants to settle with Austrac
- Retail Food Group sells dairy business
- Rio funding plan for Oyu Tolgoi
That’s all from the Trading Day blog for Friday, September 11. Australia’s share market lost 1.1 per cent this week with the index closing down 49.17 points, or 0.8 per cent, at a 2.5-month low close of 5859.39 on Friday. While it bounced off a 2.5-month intraday low of 5836.2 in early trading as S&P 500 futures turned up 0.7 per cent through the day, the local bourse was hit by some last minute selling.
Tech stocks led a sell-off on Wall Street overnight, where the Nasdaq dropped 2 per cent, the Dow fell 1.5 per cent and the S&P 500 shed 1.8 per cent. Rio Tinto’s CEO stepped down over the Juukan caves destruction. The bosses of Westpac and NAB faced questioning by a parliamentary committee, including over their policies relating to coal.
Joyce Moullakis 7.01pm: NAB takes $57.5m court hit
National Australia Bank and its entities have been slapped with a $57.5m penalty by the Federal Court, after admitting to wrongdoing including making “false or misleading” statements to customers on fees.
The Australian Securities and Investments Commission’s case against NAB, its wealth unit MLC and superannuation trustee NULIS, centred on fees charged to superannuation members for services that were not provided.
Judge David Yates on Friday ordered MLC Nominees pay a penalty of $49.5m for contravening the law, while NULIS was hit with an $8m penalty.
“I will grant the declarations and make the other orders that the parties, by agreement, propose,” he said in a judgment.
“The court puts a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene.
The penalty should make it clear to the contravener and others that the cost of courting risk cannot be regarded as an acceptable cost of doing business.”
Following a period of mediation the hearing was before the court to determine a penalty, after being delayed by the onset of COVID-19. The case appears to be a big win for the regulator, following revelations that were fleshed out in damning hearings during the 2018 Hayne royal commission.
NAB’s head of legal and commercial services Sharon Cook accepted the penalty on Friday.
4.31pm: Share market lost 1.1% this week
Australia’s share market lost 1.1 per cent this week with the index closing down 49.17 points or 0.8 per cent at a 2.5-month low close of 5859.39 on Friday.
While it bounced off a 2.5-month intraday low of 5836.2 in early trading as S&P 500 futures turned up 0.7 per cent through the day, the local bourse was hit by some last minute selling.
Rating downgrades from GS and RBC weighed on Nearmap with the stock down 15pc after its capital raising raised some eyebrow, though Macquarie said it was the right move as it will help it push ahead with North American growth plans.
Fortescue dived 3.1 per cent after Morgan Stanley downgraded to Underweight, while Rio Tinto fell just 0.6 per cent after its CEO stepped down following growing shareholder pressure over the destruction of ancient rock caves in the Pilbara.
Afterpay and Zip Co also lagged behind, falling 2.6 per and 6.7 per cent respectively after UBS analyst Tom Beadle warned that PayPal’s entrance to the US BNPL sector via its Pay in 4 product marked a “turning point” for the sector.
Banks underperformed for a second day running with CBA down 1.4pc.
It was the fourth consecutive weekly fall for the index, leaving it down 4.8 per cent from 5-month high of 6167 just over three weeks ago.
The Australian dollar was 0.32pc stronger against the US dollar at the close of the ASX session trading at US72.81c.
Gerard Cockburn 4.15pm: Banks admit to gag order agreements
Two of Australia’s major banks have admitted to issuing gag orders for sexual harassment complaints made by employees in at least the past three years.
In a House of Representatives economic hearing chaired by Liberal MP Tim Wilson on Friday, both Westpac and National Australia Bank confirmed nondisclosure agreements (NDAs) were in place for number staff members who had reported claims of sexual misconduct and harassment.
The revelation follows sexual misconduct scandals at both AMP and QBE, which led to two corporate executives being toppled last month.
Senator Deborah O’Neill told parliament in August that a former AMP employee was threatened with being sacked if she did not sign a NDA that stopped her from talking an alleged sexual harassment incident.
NAB chief executive Ross McEwan told the hearing, nine NDAs were signed by employees in the past three years relating to sexual misconduct, with five of the orders requested by the complainant.
The other four were either at the request of the bank or mutually agreed upon.
NCA Newswire
Don Stammer 3.56pm: What next after tech sell-off
In recent trading sessions we have seen increased volatility, largely due to a full 10 per cent correction in Nasdaq, the US technology index.
Is the current round of market jitters a sign that investors should allow for a lasting slump in share prices, or should we seize the opportunity to buy quality shares while they’re cheap?
Investors need to allow that two of the powerful influences on share price moves – expected profits and interest rates – are pulling in opposite directions.
My guess is the next year or two will have recurring times when market sentiment on the global economy turns negative and when shares will be sold down because of concerns of weak profits; nonetheless, the global recession will likely be milder and end sooner than investors generally are anticipating.
3.41pm: RBC maintains rating on BHP
RBC Capital markets has maintained an “outperform” rating on BHP but dropped its target price to $45 from $47 after the miner detailed what RBC described as a bold plan to reduce carbon emissions by 2030 by 30%, where it will buy carbon credits to offset if not.
“This target brings BHP’s climate action to be the most aggressive of the diversified majors. However its portfolio also is theoretically the most impacted in the long run by global de-carbonisation.
“We think BHP’s enhanced climate approach will be taken positively with its targets now the most stringent and most defined of the majors, in our view. The company will reduce its net Scope 1 and 2 emissions by 2030 by 30% or by ~4.5mt of CO2. This will be a strict limit with baselines adjusted for divestments and carbon credits will be purchased to make up any shortfall.
“This will be done largely by moving its electricity consumption to renewables (with Escondida PPAs a good example) and towards the later part of the decade, a move away from diesel in mining. A definitive technology is still yet to emerge but BHP is looking at fuel cell trucks (like AAL) or switching to a trolley and conveyor system for its open pit operations. The company will then work to reduce to zero net emissions in 2050.
BHP plans to spend ~$150m a year on the abatement however this will be lumpy (and is included in the current capex guidance). We argue that ESG enhancing investments would actually have a negative cost of capital, from the context that ESG perceptions determine multiples that investors are willing to grant, and therefore the implicit costs of capital. In BHP’s case, the near-term abatements appear to have positive returns, which is a bonus.
The key criticism of BHP from an ESG perpective will likely remain the carbon-intense products in the portfolio including oil and coking coal, RBC said in a note.
“We would argue that this portfolio will likely evolve overtime and today’s measures go a long way to show BHP’s commitment, but any potential acquisitions in these commodities will be challenging to message.”
Joyce Moullakis 3.29pm: Westpac not ruling out anything
Westpac chief executive Peter King has not ruled out selling the bank’s Pacific operations to a Chinese buyer, but said “all considerations” would be taken into account as part of a strategic review.
Mr King was answering questions from a parliamentary committee on Friday, which quizzed him over whether the bank would act in Australia’s national interest and refuse a sale to a Chinese group, if it chose to divest the Pacific division.
“That (strategic review) process is ongoing and we haven’t made any decisions about what we will do,” he said, noting the bank didn’t have a timeline it was working to for a potential sale.
“We’d consider that (nationality of potential buyers of the unit) at the point in time that we need to consider it.
“We would take into account all considerations … who are the potential owners and whether they meet the requirements.”
Westpac’s Pacific operations – across Papua New Guinea and Fiji – were identified as part of a group of businesses that formed part of bank’s strategic review, announced earlier this year.
Maureen Jordan 3.15pm: Couples and financial affairs
Health issues are top of mind during this COVID crisis, but as investors we also need to be on alert for another “virus” – it’s called sexually transmitted debt. It’s hardly new, but as financial affairs become ever more complex, it is becoming increasingly dangerous.
STD occurs when you take on your partner’s debt, either knowingly or unknowingly.
While financial literacy classes may offer some elementary lessons on the bare essentials of money and investing there are other issues that can be exceptionally costly if we don’t get them right.
I can understand why years ago women in particular got into messy situations with their partners. They were often less money aware, and trusted a partner to look after these things.
Often in court cases where couples owed money, the woman might be excused from the debt because she had signed papers unwittingly and may not have been fully aware of her spouse’s borrowings.
But there’s a lot of information now on the internet to make you aware of how infectious someone else’s debt problem can be. Financial institutions will invariably ensure that copies of loan contracts and statements are sent to all parties in any debt situation.
Rob Copeland 2.34pm: Bridgewater in pay inequality row
Karen Karniol-Tambour, the top-ranked woman at hedge fund Bridgewater Associates, is sparring with the firm over her pay after learning that she has earned less than some male counterparts, according to people familiar with the matter.
Ms Karniol-Tambour, 35, is director of investment research, a role that makes her essentially the fourth-most-senior investor at the world’s largest hedge fund. She made a formal complaint to top Bridgewater brass, including founder Ray Dalio and chief executive David McCormick, one of those people said. She asserted that men with similar or lesser responsibilities have been paid more.
The matter was unresolved as of this week, one of the people familiar said. Bridgewater was reviewing the pay history of some top male executives in light of complaints from Ms Karniol-Tambour and others at the firm.
The Wall Street Journal
Perry Williams 1.15pm: Ministers to meet on cultural heritage
Environment Minister Sussan Ley will convene a meeting on September 21 between federal and state environment ministers to improve the nation’s approach to cultural heritage issues, after Rio Tinto’s destruction of Juukan Gorge artefacts triggered the exit of top executives.
“The decisions were a matter for Rio,” Ms Ley said in a statement. “My focus is on finding a better way forward which is why the Minister for Indigenous Australians, Ken Wyatt, and I will host a meeting of federal, state and territory environment and indigenous ministers to try and identify the ways we can ensure a more coordinated approach.”
Rio’s biggest iron ore rivals have argued against the unnecessary duplication of federal and state regulations as the industry looks to improve traditional owner heritage laws.
WA’s Aboriginal Heritage Act is currently being rewritten by the state government while potential changes to the federal Environment Protection and Biodiversity Conservation Act are set to be debated by parliament in October.
12.55pm: ASX bounce led by US futures
Australia’s share market has seen a solid intraday bounce on the back of US futures gains.
After opening down 1.2pc at a 2.5-month low of 5836.2, the S&P/ASX 200 was down just 0.5pc in early afternoon trading.
The bound came as US Stock index futures rose 0.5-0.6pc after the technology and energy sectors led falls on Wall Street overnight.
CSL, Goodman, Sonic Healthcare and Brambles were making the biggest positive contributions with gains of between 0.6 and 2.1pc.
Banks, property trusts and miners continued to underperform with the major banks down 0.7-8pc.
Samantha Bailey 12.45pm: ASX in the red
The ASX 200 was down 0.6 per cent at lunch with all sectors in the red bar the healthcare and real estate sectors.
The materials sector is weighing on the market, with Fortescue down 3 per cent while BHP is trading down 1.1 per cent and Rio is 0.7 per cent lower.
Nearmap is one of the worst performers of the session on its return to trade after the stock was halted yesterday ahead of a $70m capital raise. The stock was last down 13.2 per cent at $2.15 on the back of numerous analyst downgrades this morning.
Among the healthcare stocks, CSL is up 0.7 per cent at $283.94 while Sonic Healthcare has risen 2.1 per cent to $32.67.
Perry Williams 12.05pm: Rio exposes systemic issues: super
Superannuation body Responsible Investment Association Australasia said the Rio Tinto scandal had uncovered systemic issues within the mining industry over their approach to cultural heritage.
The industry organisation - which counts AustralianSuper, HESTA and UniSuper as members - said investors had been shocked by the destruction of the Juukan Gorge site.
“This tragic event has uncovered systemic issues around how mining companies approach matters relating to cultural heritage, including how they engage with traditional owners,” RIAA chief executive Simon O’Connor said.
“Many responsible investors will be scrutinising much more closely the activities of all resources companies, to seek assurance that there are rigorous processes and practices in place which can prevent an event like this happening again in the future.”
Perry Williams 11.55am: Milne points at ministers over Juukan
Former Greens leader Christine Milne has admonished federal and state politicians “who sanctioned” the Juukan Gorge blast but will escape with no consequences.
“Rio Tinto sacks bosses over Juukan blast but Fed and State Ministers who sanctioned it sit happily in Parlt with no consequences,” Ms Milne, a Global Greens Ambassador, tweeted on Friday morning.
“When is #auspol going to pursue BHP, Morrison, McGowan and Ministers who ticked off blowing up another 40-80 Aboriginal sites post Juukan?”
High profile Maurice Blackburn lawyer Josh Bernstein tweeted it was “absolutely revolting that big mining companies have contracts with indigenous groups prohibiting them from public criticism. The private sector is completely out of control.”
Perry Williams 11.39am: ‘Review Rio deals with traditional owners’
Superannuation heavweight HESTA has strengthened calls for an independent review of Rio Tinto’s agreements with traditional owners in the wake of an executive clear-out following the destruction of Juukan Gorge in Western Australia.
HESTA, which manages $52bn of assets on behalf of 860,000 members, said systemic risks remained at the mining giant despite the management overhaul including the exit of chief executive Jean-Sebastien Jacques.
“Changes in senior leadership should not distract from the need for an independent and transparent review of all current agreements between the company and traditional owners,” HESTA chief executive Debby Blakey said.
“The nature of these agreements and how they are negotiated represents a systemic risk for investors that will not be mitigated by executive changes. HESTA is seeking the support of major global investors to strongly encourage the Rio Board to urgently consider this matter.”
Californian superannuation giant CalSTRS - the 11th largest pension giant in the world - has agreed to publicly support a review, HESTA said.
“The board has yet to adequately demonstrate to investors that they have appropriate governance and oversight arrangements in place to manage this risk,” Ms Blakey said.
“An independent, transparent review by a suitable expert such as Professor Allan Fels AO would be appropriate to give investors confidence that this systemic risk is being adequately assessed and that the board is committed to open and accountable improvement in their management of these issues.”
11.30am: Tokyo shares open lower
Tokyo shares opened lower Friday following slips on Wall Street as investors searched for fresh cues to return to buying.
The benchmark Nikkei 225 index fell 0.19 per cent, or 45.10 points, to 23,190.37, while the broader Topix index lost 0.16 per cent, or 2.59 points, to 1,622.27.
“Tokyo shares are expected to have a soft start in early trade after falls of US shares overnight,” Okasan Online Securities said in a note.
“Ahead of a weekend, we expect the market is unlikely to see lots of bargain hunters.” Investors dumped shares on disappointment after US lawmakers failed to pass a relief package while US jobless claims remained high.
“(US) tech shares, which were going through a brief breather, were hardest hit, with GAFAM and other major shares all falling,” Okasan said, referring to the leading tech giants such as Amazon, Apple, Google-parent Alphabet, Facebook and Microsoft.
Hong Kong stocks, however, opened with slight gains, although but investors remain nervous after another sharp drop on Wall Street led by the technology sector.
The Hang Sang Index added 0.16 percent, or 39.09 points, to 24,352.63. The benchmark Shanghai Composite Index slipped 0.28 percent, or 9.04 points, to 3,225.78, while the Shenzhen Composite Index on China’s second exchange shed 0.44 percent, or 9.45 points, to 2,119.79.
AFP
11.30am: Defer super rise: Carnell
Small business ombudsman Kate Carnell has called on the federal government to take pressure off small business by deferring superannuation guarantee increases and cutting taxes on super payments.
She had written to the Treasurer proposing a two-year deferral on legislated super guarantee increases, while also cutting the 15 per cent tax on compulsory employer superannuation guarantee contributions to 7.5 per cent during that time.
Ms Carnell says the combined measures offset each other, to ensure workers end up with a similar superannuation amount as they would have under the scheduled increase.
“We have to get the balance right by ensuring small businesses aren’t hit with rising costs and workers are no worse off,” Ms Carnell says.
“Many small businesses are already struggling to stay afloat as a result of the COVID-induced recession and cannot afford to pay higher costs. These increased costs would put small business owners under even more financial strain, placing jobs and businesses at risk.”
Perry Williams 11.20am: Super scrutiny on Rio exit packages
The Australian Council of Superannuation Investors backed the departure of Rio Tinto’s CEO and senior management and said it would be focusing closely on any exit payments to executives.
The super fund adviser had slammed Rio over its handling of the destruction of Juukan Gorge and said shareholders were now focused on how it would handle the transition while ensuring no windfall payments are made to executives.
“Investors will continue to engage with Rio Tinto to understand how the company will manage this transition period. We will also be looking closely at the separation arrangements, with the expectation that any exit won’t provide a windfall for executives on their departure,” ACSI chief executive Louise Davidson said.
Rio’s board must boost its connections with Australian operations which should be reflected in future director appointments, ACSI added.
“Rio Tinto now has the opportunity to address the necessary remediation, cultural heritage and risk processes with fresh eyes. Rio Tinto must prioritise working with traditional owners the Puutu Kunti Kurrama and Pinikura people to rebuild their relationship. It is critical that this is not delayed,” Ms Davidson said.
“We are pleased to see there is greater recognition that the board must increase its connection with Australian operations and communities. This work will be ongoing and must be a feature of future appointments to the board.”
Perry Williams 11.14am: Pitt on Rio: ‘We need to do better’
Australia’s Resources Minister Keith Pitt said “all parties” need to do better in the future to avoid a repeat of the Juukan Gorge destruction which saw the ousting of Rio Tinto’s CEO and top executives on Friday.
“These events occurred under the authority of Western Australian legislation, which is now under review. Decisions regarding executive positions in response are a matter for the company and individuals concerned,” Mr Pitt said.
“However, as I have stated since it occurred, all parties need to learn and do better in the future to avoid it happening again. I will continue to build a good working relationship with the mining sector, which is such a significant economic contributor and job provider for our country.”
Perry Williams 11.07am: Rio culture ‘needs more change’
The National Native Title Council said a clear-out of top Rio Tinto executives was only the first step for the iron ore giant with large scale cultural change was needed within the corporation following its destruction of the Juukan Gorge site.
The NNTC had written to Rio’s London-based chairman Simon Thompson on Wednesday calling for a bigger shake-up within the company ahead of its board meeting.
“Today we welcome the decision of the Rio Tinto board, who’ve shown they’re prepared to take the crucial first step towards accountability,” NNTC chief executive Jamie Lowe said.
“I think we are all in agreeance that the initial measures doled out by the Rio board in cutting executive bonuses did not go far enough. Several million dollars in lost income is a drop in the ocean for these individuals, whose governance failings and calculated decisions robbed Australia and traditional owners of a world heritage significant site,”
NNTC and Professor Marcia Langton had met with Rio in June as part of a board-led review of the catastrophe. However, the group exited talks and said it was not convinced Rio was committed to real change.
“To stop something like the Juukan destruction happening again, the NNTC is calling for an open, transparent and independent review of Rio’s processes and company culture, as it originally proposed. This will require more Indigenous staff in leadership roles. The NNTC is also calling for the legislation of best practice national standards for the management and protection of cultural heritage at the federal level. Australia is currently lacking strong federal cultural heritage laws, and laws in the states and territories, and federally, do not interact efficiently.”
Perry Williams 10.36am: Rio bosses ‘arrogant, ignorant’
Rio Tinto’s top executives have been described as arrogant and ignorant after a shareholder revolt led the mining giant to axe them from the company following its destruction of the ancient Juukan Gorge caves in Western Australia’s Pilbara.
“The behaviour of the board and senior management is reminiscent of the arrogant ignorance that led to Rio Tinto’s withdrawal from Bougainville in 1989,” the Australasian Centre for Corporate Responsibility’s legal counsel James Fitzgerald said on Friday.
“Investors have stepped up in this instance and demonstrated that they will not accept corporate misinformation and the absolute disrespect to cultural sites that has become Rio’s modus operandi.”
Shareholder pressure from investors including the Future Fund saw Rio push out three of its top executives with chief executive Jean Sebastien Jacques, iron ore boss Chris Salisbury and corporate affairs chief Simone Niven all to depart the company.
“Shareholder democracy and investor action is alive and well in Australia. Corporate captains may think twice before attempting to mislead investors, not to mention a parliamentary inquiry, in future,” Mr Fitzgerald said.
“This is just the first step on a long path towards restoring Rio Tinto’s good practice and reputation in its relationships with Indigenous peoples. The company’s conscientious but beleaguered communities staff deserve to be supported and encouraged in their important work. The removal of these three executives is just the first step.”
10.23am: ASX opens sharply lower
Australia’s share market opened sharply weaker, as expected, after US shares fell sharply for the fourth day in the last five.
The S&P/ASX 200 fell 1.2pc to a 2.5-month low of 5836.2 with the energy and tech sectors leading broad-based falls.
Nearmap dived 11.4pc after its capital raising sparked downgrades from some brokers, while Afterpay fell 3pc.
Fortescue dived 2.5pc after Morgan Stanley downgraded to Underweight, while Rio Tinto fell just 0.5pc after its CEO stepped down following growing shareholder pressure over the destruction of ancient rock caves in the Pilbara.
Joyce Moullakis 10.00am: Westpac CEO backs recovery
Westpac chief executive Peter King expects economic output should improve after growth contracted 7 per cent in the June quarter, spurring the first recession in almost three decades.
“From here it should improve,” Mr King told a parliamentary committee on Friday.
He said given the challenges the economy faced, unemployment would be more difficult to estimate as COVID-19 continued to significantly impact the jobs market.
Westpac expects the unemployment rate will peak at 8 per cent, but Mr King admitted it was a “complicated picture”. “That is pretty hard to pin down,” he said.
Mr King said the bank expects house prices will fall “slightly less” than 10 per cent against the backdrop of the COVID-19 crisis.
Westpac is also in the process of boosting the number of staff it has to deal with business customers seeking additional assistance during the pandemic’s fallout.
Mr King saig by the year’s end Westpac would have 2,500 staff in place in that area, up from 1,000 prior to COVID-19.
9.50am: Westpac wants to settle with Austrac
Westpac says its preference is to “settle” the allegations raised by Austrac in the financial crimes regulator’s monster money-laundering legal action last year.
“Personally, I am deeply sorry for our failings,” Westpac CEO Peter King said in opening comments to the House of Representatives Committee in Canberra. “We are committed to fixing the issues so they don’t happen again”
“We’ve completed our investigations into the matter and publicly released the outcomes. This included the causes of the compliance failings, the accountability actions taken, and remediation measures that are complete or in progress”.
“In terms of the court process, we have admitted to a substantial majority of the breaches. We continue to work with AUSTRAC, and it remains our preference to settle the matter,” Mr King said.
Westpac has so far put aside $900m for a settlement and Austrac said to be pushing for a fine of about $1.5bn. While Mr King will face questions this morning, National Australia Bank’s Ross McEwan will follow later today.
9.35am: Rio CEO steps down over caves’ destruction
Rio Tinto CEO Jean-Sebastien Jacques will step down from the post following growing pressure over the mining giant's destruction of the Juukan rockshelters in WA.
Chris Salisbury will step down as chief executive, iron ore with immediate effect beforeleaving Rio in December 2020, and Simone Niven will step down as group executive, corporate elations, before leaving on December 31 after a transition period.
Rio said Mr Jacques will remain in his role until a permanent successor is appointed.
All three had escaped direct blame for the destruction of the 46,000-year-old heritage site in Rio’s internal review of the debacle, but the miner’s decision to allocate no blame and merely strip the trio of about $7m in short-term incentive entitlements has faced a rising tide of criticism from key institutional investors.
The federal government’s $160bn Future Fund yesterday added its muscle to the push to force Rio Tinto’s board to take stronger action against key executives over the destruction of heritage sites.
Rio said its board Tinto had engaged extensively with shareholders, traditional owners, indigenous leaders and other stakeholders over the issue.
“While there is general recognition of the transparency of the board review and support for the changes recommended, significant stakeholders have expressed concerns about executive accountability for the failings identified,” Rio said in a statement.
“By mutual agreement, J-S Jacques will step down from his role as an executive director and chief executive of the group.
“A process to identify his successor is underway. J-S will remain in his role until the appointment of his successor or 31 March 2021, whichever is earlier.
This will ensure business continuity to maintain the strong performance of the Group’s global operations during COVID-19.”
Ivan Vella, currently managing director for rail, port and core services in iron ore, will replace Mr Salisbury on an interim basis.
9.40am: What’s impressing analysts?
Adbri cut to Hold: Morningstar
Costa raised to Hold: Morningstar
Nearmap cut to Sector Perform: RBC
Nearmap cut to Neutral: GS
NextDC raised to Outperform: Macquarie
OceanaGold Cut to Underperform: BofA
Pro Medicus cut to Hold: Bell Potter
Sigma Healthcare raised to Outperform: Credit Suisse
NextDC raised to Overweight: Macquarie
Santos raised to Buy: UBS
Fortescue cut to Underweight: MS
Mineral Resources cut to Underweight: MS
9.30am: ASX expected -1.3% after US dive
Australia’s share market is expected to open sharply weaker after US tech giants drove Wall Street down for the fourth time in five days.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 1.3 per cent at 5832.5. A break of Wednesday’s low at 5849.4 would set a fresh 2.5-month low.
If it were to close below its 100-day moving average at 5860, it would be the first significant break of this chart support line in three months. But the local bourse may not fall quite as much as expected since the US share market didn’t make new lows and US futures are up about 0.3pc this morning. Still, the US stock averages didn’t bounce off their lows either. Also, the VIX volatility index rose to an historically-elevated 29.71 per cent and closed above its 200-day moving average for a fifth day running.
Institutional investors were obviously waiting for better levels to buy yesterday but they’re unlikely to step up to the plate in a big way before the weekend.
9.00am: Retail Food Group sells dairy business
Retail Food Group is selling the business and assets of its Dairy Country subsidiary to Fonterra Brands for $19.23m.
RFG executive chairman Peter George says the sale has a number of benefits for the franchisor, whose brands include Gloria Jean’s Coffees, Brumby’s Bakeries, Donut King and Michel’s Patisserie, and Fonterra was a “natural buyer”.
“Dairy Country has represented a reliable past contributor to group earnings, however, is no longer considered an appropriate fit with RFG’s strategic intent to focus its resources on the company’s core retail food franchising and coffee businesses,” Mr George said.
The deal means RFG’s exit from food service and manufacturing and a “less complex” business model.
“Net proceeds from the sale will be applied to the extinguishment of Dairy Country’s working capital facility and the further paydown of debt, freeing up future cash flows and providing RFG additional scope and capacity to respond to the unique set of challenges and evolving retail landscape attributable to COVID19 and its ongoing influence on trading conditions for the cmpany’s business and franchise network,” he said.
8.57am: Nearmap chair unloads shares
Mapping and imaging company Nearmap says it has finalised a $72.1m institutional placement, outlined earlier this week.
The placement was priced at $2.77 per share, which was at the top end of the bookbuild range of $2.69 to $2.77 a share, and represents a 4.2 per cent discount to the closing price of $2.89 on Wednesday.
As part of the sale, Nearmap’s founding chairman and current non-exec director Ross Norgard, sold 4.2m shares, representing around 15.1 per cent of his holding in Nearmap.
Nearmap says Norgard “remains committed to Nearmap and is expected to remain one of the company’s largest shareholders with a relevant interest in around 23.6m shares”.
Nearmap says proceeds from the placement will be used to drive growth opportunities in the Company’s core operations as well as fund the roll out of a high-tech camera system.
8.40am: IGO considers Tropicana stake sale
IGO said it is considering the sale of part or all of its 30 per cent stake in the Tropicana gold mine in Western Australia, a move that would see it rely more heavily on base metals as an engine for earnings growth.
IGO said it has launched a strategic review of its interest in the Tropicana mine that it owns in partnership with AngloGold Ashanti following several unsolicited approaches from parties interested in acquiring the minority holding.
IGO said the review, due to last between three and six months, would also involve detailed technical analysis of ways to boost the value of its stake in Tropicana through an underground development and more exploration.
“In the current gold price environment, we do not believe that IGO’s share price fully reflects the value of Tropicana,” said Peter Bradford, IGO’s managing director and chief executive.
IGO’s other assets include the Nova nickel mine, and it has signaled an interest in acquiring more base-metal assets, such as an aborted effort to acquire ASX-listed rival Panoramic Resources Ltd. this year.
Dow Jones Newswires
8.30am: JPMorgan orders some US staff back to office
One of Wall Street’s biggest employers is calling its US trading staff back to the office.
JPMorgan Chase & Co. executives told senior employees of the bank’s giant sales and trading operation that they and their teams must return to the office by September 21, according to people familiar with the matter.
Trading chief Troy Rohrbaugh and Marc Badrichani, the bank’s global head of sales and research, delivered the message in conference calls Wednesday morning, the people said. The two executives said employees with child-care issues and medical conditions that make them more vulnerable to coronavirus complications can continue working from home, the people added.
The calls were addressed to managing directors and some executive directors, the unit’s most senior managers, the people said.
Companies that have allowed employees to work from home this year face a delicate task in calling them back. College towns that have reopened for in-person classes have been beset by coronavirus outbreaks. Employers have struggled with problems like how to enforce mask-wearing mandates, and they say they are navigating unprecedented circumstances with patchwork guidelines.
Dow Jones
8.20am: Peloton posts first ever profit
Peloton Interactive Inc. posted its first-ever quarterly profit as revenue nearly tripled, capitalizing on surging demand for at-home fitness gear during the coronavirus pandemic.
Peloton said the number of people subscribing to its remote fitness classes reached roughly 1.1 million in the quarter ended June 30, an indicator of demand for its stationary bicycles and treadmills. The tally stood at 886,100 at the end of March.
The company said it has increased production to improve wait times for its equipment, which had stretched out in the early days of the pandemic. But Peloton doesn’t expect to return to normal delivery times in the U.S. for several more months.
The company is moving to broaden its appeal by expanding its offerings and cutting the price of its base stationary bike by about $US350 to $US1,895. Peloton’s $US2,000-plus price tag for its exercise bikes has drawn the ire of critics who say its equipment is only accessible to rich people.
Peloton is hoping that by cutting prices, this could put more bikes in the homes of people willing to shell out $US39 a month for its growing menu of live content. The streaming fitness concept has benefited as some states have restrictions on gyms that have either kept them closed for months or limited their capacity.
Dow Jones
7.20am: NZ housing market buoyant
New Zealand’s residential property market remained buoyant in August as record-low mortgage rates stimulated demand for a tight supply of homes.
The median sale price rose 16.4pc from a year earlier to $NZ675,000, the Real Estate Institute of New Zealand said Friday.
The number of properties available for sale fell for a 14th consecutive month to the lowest level on record, the institute said.
Days to sell dropped to 34 from 39 in August the previous year, which was the fastest median time to sell for an August in four years.
Mortgage rates are at record lows after the Reserve Bank of New Zealand cut its cash rate to 0.25pc in March and eased restrictions on lending in response to the pandemic.
Dow Jones Newswires
7.00am: Bridgewater in women’s pay row
Karen Karniol-Tambour, the top-ranked woman at hedge fund Bridgewater Associates, is sparring with the firm over her pay after learning that she has earned less than some male counterparts, according to people familiar with the matter.
Ms Karniol-Tambour, 35 years old, is director of investor research, a role that makes her essentially the fourth-most-senior investor at the firm. She made a formal complaint to top Bridgewater brass, including founder Ray Dalio and Chief Executive David McCormick, one of those people said. She asserted that men with similar or lesser responsibilities have been paid more.
The matter was unresolved as of this week, one of the people familiar said. Bridgewater was reviewing the pay history of some top male executives in light of complaints from Ms. Karniol-Tambour and others at the firm.
A Bridgewater spokesman declined to comment on Ms. Karniol-Tambour but said the firm regularly examines pay equity. “As of our annual audit in December 2019, we can confirm there are no outstanding discrepancies in how men and women are paid at Bridgewater,” the spokesman said. Ms. Karniol-Tambour’s exact pay and that of her male counterparts couldn’t be learned.
Dow Jones
6.20am: ASX set for weaker open
Australian stocks are set to open lower after another tech sell-off sent Wall Street to a fourth loss in five days.
Around 6am (AEST) the SPI futures index was down 80 points, or 1.4 per cent.
On Thursday, shares gained as much as 1.3pc in opening trade but finished higher by 0.5pc thanks to lifts in BHP and Rio Tinto.
The Australian dollar was this morning lower at US72.55.
Brent oil was down 1.8 per cent to $US40.06 a barrel, whle spot iron ore shed 0.7 per cent to $US126.30 a tonne.
6.10am: US stocks close lower
US stocks retreated as technology stocks renewed their recent sell-off and weekly jobless claims held steady.
The S&P 500 fell 1.8 per cent as of the close of trading in New York, while the tech-heavy Nasdaq Composite Index dropped 2 per cent. The Dow Jones Industrial Average was down 1.5 per cent, or 406 points, while the pan-continental Stoxx Europe 600 fell 0.6 per cent.
Big technology stocks were lower after being mixed earlier in the day, with Amazon.com Inc. down 3 per cent, Apple lower 3.3 per cent and Netflix down 3.9 per cent. Volatility in tech stocks has dominated markets in recent days. Tech shares rose broadly Wednesday following a three-session sell-off that pushed the Nasdaq Composite into correction territory. Despite recent moves lower, the Nasdaq has gained 21.7 per cent this year.
“The market was ahead of itself in the technology sector and it still is, “ said David Bahnsen, investment chief for the $US2.5-billion-in-assets wealth-management firm Bahnsen Group. He noted the Nasdaq had soared more than 60 per cent from its March low. The recent reversal “doesn’t mean all the froth has come out,” he said.
The recent slide in tech stocks has raised worries that the market, which had risen so sharply over the summer, could be set for a more turbulent period.
“We could see volatility continue just because there are so many factors if you think about the lack of progress on fiscal stimulus in the US and the [COVID-19] case counts,” said Wei Li, head of iShares EMEA investment strategy at BlackRock. “It’s just hard to think we can put this to bed.”
On Thursday, the government said about 884,000 Americans applied for unemployment benefits in the week ended September 5, unchanged from the prior week. The labour market has gradually improved after the coronavirus pandemic struck this spring but new jobless claims remain at historically high levels.
Congress remains deadlocked over a fresh stimulus package.
US crude-oil futures edged down 0.6 per cent to $US37.83 a barrel. Prices have fallen lately with data indicating a slowdown in fuel demand at the end of summer and crude inventories rising.
Dow Jones Newswires
5.57am: Rio agrees to funding plan for Oyu Tolgoi
Rio Tinto said that it and Turquoise Hill Resources Ltd. have entered a memorandum of understanding to provide funding for its Mongolian copper project, and will seek up to $US500 million.
The mining giant said the memorandum will progress the completion of the Oyu Tolgoi Underground Project in Mongolia, set to be one of the largest copper mines in the world. It will re-profile principal debt repayments with lenders under existing project finance arrangements into ones that better match with the revised mine plans, and raise up to $US500 million in additional lending from certain international financiers, it said.
Turquoise Hill will continue to explore other options for additional funding, which Rio will consider, the company said. However, Rio said it doesn’t presently support or consent to any additional debt or other sources of funding, and both parties acknowledge any balance of funding will need to be met through a Turquoise Hill equity offering.
“We will continue working with Turquoise Hill and the government of Mongolia to progress the underground project, which has the potential to unlock the most valuable part of the mine for the benefit of all stakeholders,” Rio Tinto Chief Executive of Copper and Diamonds Arnaud Soirat said.
Dow Jones Newswires
5.52am: Investor report calls Nikola a fraud
Shares of Nikola tumbled following allegations the electric truck start-up was built on an “ocean of lies” that duped investors eager to match Tesla’s success -- claims the company vigorously denied.
The report comes just two days after General Motors announced a deal in which it took an 11 per cent stake in Nikola to form a manufacturing partnership.
A report from Hindenburg Research depicted Nikola founder Trevor Milton as a fraudster who has lied about the company’s technology and staged fake videos with an electric truck.
Hindenburg is a short-selling firm, which means it makes money by betting a company’s share price will fall.
“We have never seen this level of deception at a public company,” Hindenburg said.
Nikola quickly refuted the claims, saying the company “has been vetted by some of the world’s most credible companies and investors.” “We are on a path to success and will not waver based on a report filled with misleading information attempting to manipulate our stock,” Nikola said in a statement.
Shares of Nikola sank 10.2 per cent Thursday afternoon to $US38.06. The company’s stock price has been volatile since it went public in June.
AFP
5.50am: Maserati unveils new models
Sports car maker Maserati is firing up a major push to revive the iconic Italian brand’s flagging fortunes, this week unveiling a new supercar and new electric models aimed at pleasing Millennials.
With plunging sales over the last few years and the coronavirus pandemic hitting globally, Maserati is now pinning its hopes on 13 new models to be unleashed by 2024.
The crown jewel for the Modena-based manufacturer is its new supercar, the MC20 -- a sleek two-seater featuring doors that swivel upwards, a ultra-modern interior cockpit and a design styled on features that made the Trident-badged Maserati world-famous in the past.
The track-ready sportster also features a new homegrown 630 horsepower Nettuno twin-turbo V6 engine that propels it from 0-100 km/h in less than 2.9 seconds and to a top speed of over 325 km/h.
“We’re going back to the racetrack, where it all began for us,” Maserati boss Davide Grasso said Wednesday evening, as Maserati unveiled the MC20 to a music and special light effects spectacular.
“With the MC20, we’re laying the cornerstone to build Maserati’s future,” said Grasso, who pointed out that the sports car was the first to be completely designed in Modena.
AFP
5.45am: Euro rises as Brexit row batters pound
A punch drunk pound plunged on Brexit woes and a buoyant euro soared as ECB head Christine Lagarde forecast the eurozone’s coronavirus downturn would be less severe than feared.
As major stock markets marked time, Lagarde acknowledged a recent spike in coronavirus cases was causing “headwinds” for the recovery whose pace remained uncertain, but added data pointed to a “strong rebound” in the third quarter.
According to the European Central Bank’s latest forecasts, the eurozone economy is likely to shrink by 8.0 per cent this year, compared with an earlier projection of -8.7 per cent.
Lagarde told reporters the rise of the euro had been discussed -- though it was absent from the policy statement -- and was “something to be monitored carefully.” She said the ECB was not targeting a euro level.
But she added: “We are monitoring carefully the impact of our currency on our medium-term inflation level.” Her comments did not stop the single currency hitting $1.19 against the US dollar, close to the September 1 two-year high of $1.20.
It rose still further against drooping sterling, hitting 92.33 pence -- a six-month low for the British unit, which has lost more than three per cent in the past week against both the euro and the greenback after Britain decided to override elements of its EU withdrawal bill, prompting a furious response from an aghast Brussels.
“Sterling took a bit of a kicking as the mood music around this week’s Brexit talks took a decided turn for the worse,” was the verdict of Markets.com chief markets analyst Neil Wilson.
Regarding the euro, “the absence of any mention of the exchange rate in the policy statement confirms our view that the ECB is not too worried about the currency at present,” said Andrew Kenningham, Chief Europe Economist for Capital Economics.
“It is clear the ECB are not going to try and devalue the euro, probably because they don’t want to take on the Fed in an easing fight. Sterling remains under pressure due to uncertainty surrounding the UK-EU trade negotiations,” added David Madden of CMC Markets.
On European markets, London and Frankfurt both closed down 0.2 per cent, while Paris lost 0.4 per cent.
AFP
5.40am: ECB less pessimistic
European Central Bank chief Christine Lagarde said the eurozone’s pandemic-induced downturn was expected to be less severe than initially feared, but a recent spike in coronavirus cases was causing “headwinds” for the recovery.
Lagarde also addressed concerns about the recent appreciation of the euro, which can have a slowing effect on inflation and complicates the bank’s efforts to push price growth higher.
The rise of the euro was “extensively discussed” when ECB governors held their meeting, Lagarde told reporters in Frankfurt in an online press conference.
The “appreciation of the euro is something to be monitored carefully”, she added.
The governing council made no changes to its ultra-loose monetary policy, keeping interest rates at historic lows and leaving its 1.35-trillion-euro ($US1.6-trillion) pandemic emergency bond-buying scheme in place.
Lagarde said the central bank would continue to provide an “ample degree” of monetary accommodation to support the 19-nation currency club through the COVID-19 crisis.
“The strength of the recovery remains surrounded by significant uncertainty as it continues to be highly dependent on the future evolution of the pandemic and the success of containment policies” to curb the outbreak, Lagarde said.
Incoming data suggested “a strong rebound” in the third quarter of 2020, Lagarde said, after global coronavirus lockdowns contributed to a record second-quarter slump in the eurozone.
But fears are growing that a recent uptick in coronavirus cases across Europe could trigger renewed restrictions on public life, hampering the rebound.
The jump “in coronavirus infection rates during the summer months constitutes headwinds to the short-term outlook”, Lagarde warned.
She added that it was “very likely” that the ECB would use up the full 1.35-trillion-euro envelope of its pandemic bond-buying scheme.
Unveiling the ECB’s latest forecasts, Lagarde said the eurozone economy is likely to shrink by 8.0 per cent this year, compared with an earlier projection of -8.7 per cent.
Growth will return in 2021 and 2022, at 5.0 per cent and 3.2 per cent respectively, slightly below the predictions in June.
The ECB’s 2020 inflation outlook remained unchanged at 0.3 per cent, and is expected to climb to a slightly higher than expected 1.0 per cent next year. For 2022, the bank kept its inflation projection at 1.3 per cent.
AFP
5.34am: Citigroup names Jane Fraser as first woman CEO
Citigroup named Jane Fraser as its next chief executive on Thursday, tapping a woman to lead a giant Wall Street bank for the first time.
She currently serves as president and CEO of global consumer banking, and will take over the top job in February, replacing Michael Corbat who will retire.
Fraser, who has held prior roles in Latin America and investment banking, will join the board of directors immediately, the bank said.
The Scottish-born Fraser joined Citi in 2004 after earlier roles at Goldman Sachs and McKinsey & Company. She has spoken openly about being a working mother in finance, recounting in 2016 how she worked part-time at McKinsey.
Having children “humanised me,” Fraser said in the 2016 appearance at the Americas Society. “There is nothing like having children to help you understand where your priorities are.”
AFP
5.32am: Singapore Airlines to shed 4300 jobs
Singapore Airlines said it was cutting about 4300 jobs -- about 20 per cent of the workforce -- due to the devastating impact of the coronavirus, and warned any recovery would be “long and fraught with uncertainty”.
SIA is the latest airline to announce massive lay-offs as the global aviation industry faces its greatest-ever crisis due to travel restrictions to fight the spread of coronavirus.
The city-state’s flag carrier said about 1900 positions had already been eliminated in recent months due to a recruitment freeze, natural attrition and voluntary departures, reducing further expected job cuts to around 2400.
Positions are being cut across full-service Singapore Airlines, regional carrier SilkAir and budget airline Scoot in Singapore and overseas.
AFP
5.30am: New US jobless claims flat
Another 884,000 US workers filed new applications for jobless benefits in the most recent week, unchanged from the prior week, the Labor Department said.
New claims have generally decreased since surging in March at the start of the COVID-19 crisis, however the data for the week ended September 5 was still worse than the global financial crisis and included a notable increase in people making claims under a pandemic program for workers not normally eligible for benefits.
AFP
5.25am: LVMH to countersue Tiffany
French luxury giant LVMH said it would countersue US jeweller Tiffany, accusing it of “dishonesty” as their plans for a sparkling tie-up descended into bitter recrimination.
“LVMH was surprised by the lawsuit filed by Tiffany,” the French owner of brands such as Louis Vuitton, Dior and Moet & Chandon said in a statement.
“LVMH considers that this action is totally unfounded. It has clearly been prepared by Tiffany a long time ago and communicated in a misleading way to shareholders and is defamatory. The long preparation of this assignment demonstrates the dishonesty of Tiffany in its relations with LVMH,” the statement said.
The French firm vowed to “defend itself vigorously” against Tiffany’s accusation that it had failed to take steps to obtain the various regulatory approvals for the planned $US16.2 billion acquisition in a timely manner.
LVMH also said it had had the opportunity to examine Tiffany’s current economic situation and its management of the crisis.
And it “noted that the first-half results and its perspectives for 2020 are very disappointing, and significantly inferior to those of comparable brands of the LVMH group during this period.” It would therefore challenge the handling of the crisis by Tiffany’s management and its board of directors and “confirms that the necessary conditions for the conclusion of the acquisition of Tiffany are not fulfilled.” On Thursday, LVMH called off the acquisition and Tiffany responded by saying it would take legal action to push the deal through.
AFP
5.20am: Airline group IAG cuts flights
Airline giant IAG, the owner of British Airways and Spanish carrier Iberia, announced it was cutting more flights because of coronavirus restrictions and quarantine rules.
It comes as IAG said it had raised 2.74 billion euros ($US3.23 billion) to help the company navigate through the COVID-19 crisis that has decimated travel demand.
IAG expects to operate 60 per cent less capacity in the three months to the end of December from a year earlier. That compared with a previously planned capacity reduction of 46 per cent.
The conglomerate blamed the deeper cutbacks on “the impact of current travel restrictions and quarantine requirements on booking activity”.
Total 2020 capacity is expected to be 63 per cent lower than in 2019 -- down from previous guidance of minus 59 per cent.
AFP
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