Trading Day: Stocks close lower amid tech selloff
The ASX closed lower on Friday and was down for the week as a tech selloff added to pressure after US jobless claims rose.
That’s all from the Trading Day blog for Friday, July 24. Australian stocks closed lower after falls on Wall Street, where tech shares were hit especially hard as a jump in jobless claims exacerbated worries about economic weakness. The Nasdaq lost 2.3 per cent, the Dow shed 1.3 per cent and the S&P 500 fell 1.2 per cent.
Locally today, insurance player IAG announced it won’t pay a final dividend after an “immensely challenging second half”, while BoQ announced a further provision of $61m.
David Rogers 9.07pm: Wave of profit-taking amid finger-pointing
Escalating US-China tensions, disappointing US economic data and a lack of progress by US politicians on the next round of fiscal stimulus sparked profit-taking in risk assets this week.
After the US told China to shut its Houston consulate on Wednesday, US secretary of state Mike Pompeo ramped up anti-China rhetoric and Beijing told the US to close its Chengdu consulate.
While there was no indication that this was about to spill into another tariff war, it added to a wave of profit-taking that began when US initial jobless claims rose more than expected.
The tensions came as lingering differences among Senate Republicans and the White House stalled the rollout of their proposal for another pandemic relief package, and Majority Leader Mitch McConnell said the $US1 trillion ($1.4 trillion) GOP plan would not be ready until Monday. The US supplemental unemployment insurance approved in the last relief bill was about to expire with no replacement in place.
Nick Evans 7.50pm: Iron ore rush in Pilbara
Pilbara iron ore exporters have applied for a combined 90 million-tonne increase in export capacity for the steelmaking commodity as they rake in the cash from high prices, with Gina Rinehart’s Roy Hill mine the latest to join the rush.
Thursday’s economic update by Josh Frydenberg underscored the importance of iron ore to Australia’s coronavirus-hit economy, forecasting the commodity could deliver a $9bn sweetener to GDP if prices remain high until the end of the year, and up to $2.2bn in tax receipts over the next two years.
And although most analysts — and the Treasurer’s department — forecast a sharp fall in the iron ore price by the end of the year, miners are positioning themselves to ramp up exports if prices allow.
Roy Hill is the latest to join the rush, submitting approval documents that could lift its Port Hedland exports by 10 million tonnes a year, to 70 million tonnes.
Its application comes on top of Fortescue Metals’ application to lift its export cap by 35 million tonnes to 210 million tonnes, and BHP’s application to raise its maximum throughput to 330 million tonnes, a 40 million-tonne increase.
The Pilbara Ports Authority has also flagged moves to lift the export cap at its Utah Point berth — used by smaller exporters including Mineral Resources and Gina Rinehart’s Atlas Iron — to 26.5 million tonnes.
Ticky Fullerton 7.08pm: Gorman’s lessons in beating virus
In March, James Gorman caught the virus. By mid-April he had kicked it. Few would understand the crisis better than the New York-based chairman and CEO of Morgan Stanley. One of 10 children, Gorman grew up in rural Victoria, rising to become Wall Street’s most admired banker and this year was awarded the Order of Australia for his work.
“I’ve got an apartment there that I lived and worked at for about 80 days straight, and that was pretty isolating,” Gorman describes living in downtown Manhattan through the grim peak of COVID-19, when New York had 10,000 new cases a day.
“I’d go for a little walk around the streets around 10 o’clock at night. There was nobody on the streets, so that was eerie, that was back to New York in the 80s. Then I got sick and was stuck in the apartment again, having to feed myself and get through that on my own which was a challenge at the time.
“New York is incredibly resilient, but this has hurt.
“We had all the protests from the racial unrest, so there’s been a whole series of things that have gone on, economic, socially, and health wise that have made the city tough to live in. I’ve watched what Australia’s going through with COVID and I’ve a little bit of envy. I know it’s been tough down there, but we were having 700 people dying a day in New York for weeks on end, it was pretty extraordinary.”
James Kirby 6.30pm: Analyse this: Investing in a crisis
Simon Russell is director of Behavioural Finance Australia and the author of Applying Behavioural Finance in Australia.
A former Goldman Sachs analyst and MLC executive, he has been studying how the COVID crisis changes the psychology of investing.
Read on for a question and answer session with Wealth editor James Kirby:
Q: Is it a valid assumption that we will invest in a different manner at a time of deep crisis?
A: During a crisis I would expect the same mix of psychological issues and biases, but with some taking greater prominence. For example, loss-aversion refers to the tendency for people to overweight the importance of losses in their decisions relative to gains. If you check your investments every day you will see them fall about 50 per cent of the time. If you check annually, because the market tends to rise most years, the chance of seeing a negative return diminishes. So in a crisis not only is volatility high, but because of the psychological forces related to loss-aversion and attention, the impact of that volatility on investors is likely to be higher still.
Tim Boreham 6.04pm: Which retail stock winners defy virus?
Shoppers are engaging in retail therapy despite the spectre of even more serious job losses and mounting evidence the virus is far from vanquished.
According to this week’s numbers from the Australian Bureau of Statistics, retail sales rose 2.4 per cent for the month of June, to $29.7bn. This was an 8 per cent rise on the previous June and backed up a 17 per cent surge in May.
Separately, the recent knockout numbers from the buy now, pay later providers add to the impression that consumers remain willing to shop till they drop — either from COVID-19 or foot blisters.
Grinding in reverse are the dinosaur department stores and certain other specialty retailers in empty shopping malls.
Online-only providers such as Kogan (KGN) and food deliverer Marley Spoon (MMM) are certified winners, along with Harvey Norman (HVN) and JB Hi-Fi (JBH).
In the sprawling ASX small cap retail sector, less prominent examples are enjoying the crisis for less than obvious reasons.
Take Beacon Lighting (BLX), which last year pre-announced a glowing 38 per cent increase in reported profit for the year to June 30, of $22m. The group’s like-for-like (comparative) sales grew 7 per cent to $251m and notably were 17 per cent higher in the suspect June half.
Despite temporarily closing its showrooms, furniture purveyor Nick Scali (NCK) in June reported June quarter sales to date increased 20 per cent, with June half net earnings expected to be 15-20 per cent higher.
Lachlan Moffet Gray 5.37pm: How Qantas drew the Sky Roo
On Wednesday the last of Qantas’s Boeing 747 Jumbo Jets departed Sydney Airport amid much fanfare to make a final flight to its resting place in California’s Mojave Desert.
Flying over the Pacific Ocean after a victory lap of Sydney’s beaches, flight QF7474’s path was keenly followed by plane spotters on internet flight trackers.
However, elation quickly turned to alarm when eagle-eyed spectators noticed the jumbo had made a turn not far off the coast and was changing elevation.
“No, something’s not cool – she’s descending, wrote one observer on Twitter.
Read how Qantas drew the Sky roo
Samantha Bailey 4.26pm: ASX closes lower on global sell-off
The local sharemarket finished firmly lower on Friday amid a global tech selloff, which saw the ASX finish down 0.16 for the week.
At the close of trade, the benchmark S&P/ASX 200 had lost 70.5 points, or 1.16 per cent, at 6024.0. The broader All Ordinaries lowered 65.9 points, or 1.06 per cent, to 6148.0.
The ASX fell as much as 1.4 per cent to a three-day low of 6010.7 before rebounding somewhat in afternoon trade.
The losses came on the back of simmering US, China tensions and as support grows for democratic presidential nominee Joe Biden, who if elected, would unwind the tax cuts that have boosted the major tech stocks in the US.
“Last night’s weak US jobless claims data, combined with what looks like early signs of a pull back in the US tech sector, raised questions as to whether risk assets are a little overpriced, at least in the short-term,” said IG market analyst Kyle Rodda.
“The situation wasn’t helped by another increase in US, China tensions on Friday. A retaliation from China to the US moves to shut down the Chinese consulate was expected, with US and China diplomats at one another’s throats for weeks now.
“Few think right now the situation will devolve into another tit-for-tat trade-war.
“But on a day where markets are already edgy and concerned about market valuations and economic fundamentals, any bad news is going to be amplified.”
Joyce Moullakis 4.18pm: ACCC cops criticism in cartel case hearings
The competition regulator has confronted fierce criticism for pre-populating parts of key JPMorgan witness statements with potential responses, that would help its damning cartel case against three other banks.
ANZ’s senior counsel Simon Buchen told Penrith’s District Court on Friday the Australian Competition and Consumer Commission was tactically interviewing witnesses by making suggestions on draft statements about what they could say.
The witness statements are from JPMorgan staff that have been granted immunity from the regulator’s case. The ACCC and the Director of Public Prosecutions have laid damning criminal charges against ANZ, Deutsche Bank and Citigroup and six senior executives over how they managed a 2015 sale of surplus shares not taken up in the $2.5bn raising.
JPMorgan also worked on the raising but were not charged because of the assistance they provided the ACCC.
Mr Buchen said in some cases when final witness statements were being compiled by the ACCC three potential options for answers were provided to put to the person. That included to then JPMorgan Asia Pacific head of equities Mark Leung.
“This part of the statement deals with Mr Leung‘s state of mind, there is only one witness that can tell you about his state of mind and that’s Mr Leung,” Mr Buchen added.
“Before you had spoken to Mr Leung you, or one of your investigators, was pre-populating this draft statement with various possible concerns that he held after the relevant phone call... every single one of those states of mind just happens to assist the prosecution case.”
But the ACCC’s Leah Won, a former enforcement director now financial services competition manager, refuted those claims.
“These were propositions that were put to him, I’m not sure that is inconsistent with an open state of mind,” she said, noting she expected the pre-populated sections were likely “drawn from” documents and other material the ACCC held.
“We had a large volume of documents.”
Mr Buchen said the answers were concocted by the ACCC to attempt to get the answers it wanted the witness to give.
“Of course they are made up because this is …. Imagining what possible concerns Mr Leung had after a critical phone call, they have to be made up don’t they?
Ms Won responded: “I don’t know that I agree with that.”
This week’s pre-trail hearings which only allowed examination of ACCC witnesses came to a close on Friday.
The parties told Magistrate Jennifer Giles, who was presiding over the hearings, they wanted the next court date set for August 25.
The parties also heard in Friday’s hearings that ACCC chairman Rod Sims signed off on issuing a Section 155 notice, a statutory information gathering tool, to JPMorgan after received his staff’s assessment of why it was required.
Mr Buchen also took aim at why JPMorgan’s Mr Leung was not interviewed for two years after being granted conditional immunity. A week after taking of his statement the ACCC lodged a court attendance notice.
Ms Won said part of the issue was that Mr Leung lived in Hong Kong.
Earlier this week, it was revealed JPMorgan and its lawyers told the competition regulator as far back as 2015 they believed ANZ’s controversial capital raising did not reflect cartel behaviour by banks, at the same time as pressing for immunity if a landmark legal case emerged.
Eli Greenblat 4.04pm: DJs and Country Road sales smashed
Upmarket department store David Jones saw sales shredded by more than one-third at the peak of the coronavirus pandemic lockdowns, despite its stores staying open through the crisis, while its Country Road Group suffered a 50 per cent sales collapse as its stores were shuttered.
David Jones has also revealed in a full-year trading update issued on Friday afternoon that foot traffic at key CBD stores was well down, especially as tourism dried up and city workers set up home offices although as restrictions were eased there was an improvement for its chains from around May.
However, David Jones as well as its stablemates Country Road, Politix, Trenery, Mimco and Witchery, are wearing the painful bruises of massive disruptions to its stores, CBD traffic and the state of mind of the consumer as the nation’s battles the economic and health crises triggered by COVID-19.
In a full-year trading update Woolworths Holdings, the South African retail conglomerate that bought David Jones and full ownership of Country Road Group for more than $2.2 billion in 2014, said the business had been dented by the pandemic.
“The extremely challenging trading conditions brought about by COVID-19 placed significant pressure on the performance of the group,’’ it said.
3.44pm: Stage set for cyclical rotation: Canaccord
Profit taking might be a risk in the US tech sector but economically-sensitive stocks would benefit if vaccine progress helps the economic outlook.
The prospect of a Democrat-led white house unwinding US corporate tax cuts could be worse for US mega-cap tech stocks as well.
This view might be behind the local selloff in the Tech sector after the Nasdaq fell 2.3pc overnight.
There are few signs of a rotation to cyclicals though, as Victoria’s outbreak is yet to be controlled.
But Canaccord’s chief US equity strategist, Tony Dwyer, says the stage is set for a rotation to cyclicals in the US market.
“We believe the combination of incredible monetary and fiscal stimulus, historic excess liquidity, a synchronised global economic recovery, and significant underperformance of the economically sensitive areas set the stage for a long-term rotation into the Industrial, Financial, Materials, and Consumer sectors,” he says.
“In our view, if the mega-cap ‘stay at home’ stocks are still leading over the next six to 12 months, it would mean the economy is still largely shut down, which would likely create a very negative backdrop for credit.”
Given the historic issuance of credit this year, a very negative outlook for credit from there would bring about significant market risk, he cautions.
And there are factors that could create increased near-term volatility, including profit taking in the mega-cap stay-at-home stocks, the coming election, talk of tax increases, and escalation in tension with China.
“But we believe our core thesis and the very different macro backdrop versus 1999 suggest any pullbacks should prove temporary,” Mr Dwyer says.
3.34pm: AUD risk to the downside: CBA
USD remains heavy near the lowest level since September 2018, a report from the CBA Global Markets Research team says. “The USD is weak despite solid falls in Asian equity markets and lower equity futures for the S&P 500 and FTSE. Market participants may be reassessing downwards the US economic outlook and pulling down the USD. Yesterday’s increase in initial jobless claims indicates the US labour market has weakened. US card spending (available up to 12 July) has levelled off too. The US preliminary PMIs for July are expected to increase above 50pts today (2.45pm London time). The risk is the PMIs are softer than expected, pushing the USD lower.
The CBA Global Markets Research team report says EUR, CHF and JPY have been the main beneficiary of USD weakness. “All these currencies are from economies with current account surpluses. Eurozone preliminary PMIs for July are expected to increase above 50pts today (9am London time). Infections are rising in France and Spain again. If lockdowns are reimposed in the near future, EUR may weaken. However, we do not expect widespread lockdowns in the Eurozone again.”
AUD/USD remains just under US71c. “In our view, the near‑term risks to AUD are skewed to the downside because of the rising US‑China tensions. The heightened tensions between the two countries can push AUD back inside its recent 0.68‑0.70 range.”
3.25pm: Lending up to small, medium, family businesses
New figures reveal early signs of economic confidence beginning to grow in Australia with lending to small, medium and family businesses increasing by more than $2.2bn last month, says the Australian Banking Association (ABA).
The new figures support Federal Treasurer Josh Frydenberg’s observation that there is early evidence of increased economic investment in Australia.
Continued lending to small business between May and June is a further demonstration of the key role Australia’s banks are playing in the recovery of the national economy by helping small and medium businesses get back on their feet.
In total, banks have provided more than $258bn in small business loans, helping to ensure the flow of new credit into the economy at a time it needs it most.
In a further sign that small, medium and family businesses are beginning to feel more confident about their financial future, they are starting to make their loan repayments again, with the value of SME loan repayments on deferral dropping by more than $686m in June.
ABA chief executive Anna Bligh said the new figures showed small businesses were growing in confidence about Australia’s economic future.
“These figures show there are some green shoots emerging in our economy and that’s a positive sign. There’s a very long road, and plenty of hurdles to clear, but it’s encouraging to see small, medium family businesses slowly regaining some confidence,’’ she said.
Ms Bligh said Australia’s banks continue to work in partnership with the government and regulators to provide business, and all customers, the confidence they need to see us through these challenging times.
“Banks are already showing they are prepared to lend to small and medium enterprises so they can get back on their feet. Our banks understand the key role they play in re-opening our economy.”
David Ross 3.12pm: Banking hardship responses slammed
Commonwealth Bank has slipped in the rankings to the worst of the big four banks for its hardship responses, according to a survey by the financial counselling industry.
State and territory financial counselling associations and the Financial Counselling Australia group on Friday released its biannual survey that ranks banks and other financial services providers for their responses for customers in financial hardship.
The survey had found in recent years that the big four banks had largely remained stable in their financial hardship provisions, but in the most recent report, CBA’s performance slid from 7.2 out of 10 in 2017 to 5.9.
The next lowest rated bank, Westpac, came in at 7.0, while NAB was the highest rated of the banks at 7.3.
A CBA spokesman said they had never been more committed to improving financial wellbeing for all Australians.
“Financial counsellors play an important role in helping many Australians through individual times of crises and we have been working closely with the FCA over the past few years to improve the services we offer our most vulnerable customers,” they said.
“We acknowledge and therefore greatly appreciate the feedback from the counsellors which will help us to address their concerns in areas where we need to do better. We are absolutely committed to doing the best thing to support our customers and the country through this challenging period.”
John Durie 2.47pm: Victoria tops fines over five years
Tasmania-based economist Saul Eslake has calculated in the five years ended June last year the Victorian government imposed traffic fines on its citizens averaging $121 per head per annum.
The national average was $90 a head which included, $93 in the ACT, $89 per head in Queensland, $80 in WA, $77 in NSW, $74 in South Australia, $67 in the Northern Territory and $38 in Tasmania.
COVID fines from March to the end of May this year in Victoria were $90 per 100,000 people compared with a national average of $38.
This included $40 in Queensland, $20 in the Northern Territory, $16 in NSW, $15 in South Australia, $4 in WA and Tasmania nil.
Victorians are now liable to $200 fines for not wearing masks, so its Covid total may sky rocket.
Eslake said it’s not a Premier Dan Andrews thing: Victoria has always imposed more fines than the rest of the country.
2.10pm: Hostplus super payouts top $2.42bn
As of 19 July 2020, Hostplus has processed 334,705 requests for the early release of superannuation (ERS) scheme, paying out a total of $2.42bn. The fund reported that 97pc of the ATO-approved requests have been processed within 5 business days.
“A number of our members are employed in industries that have been most impacted by the economic crisis caused by the COVID-19 pandemic. We are committed to doing our bit to support them through the early release of superannuation scheme and have put secure and efficient processes in place so that members can access their funds as soon as possible,” said Hostplus CEO, David Elia.
“We are pleased to report that 97pc of ATO-approved requests are being processed within the recommended five business day timeframe. A small percentage of payments are taking slightly longer than we would like; in many cases this is due to the need for applicants to update their contact information held in our records.”
1.55pm: ASX down 1.4pc amid tech selloff
Australia’s share market is being dragged down by a global tech sector selloff today.
The S&P/ASX 200 fell 1.4pc to a 3-day low of 6010.7 versus a 0.4pc fall projected by overnight futures, with IT, Real Estate, Health care, Industrials and Financials nderperforming.
Tech is by far the weakest sector with many stocks in the sector including Afterpay down more than 3pc. It comes as the selloff in Tech builds in Asia with Nasdaq futures down 0.8pc, and China’s ChiNext index down 4.3pc. This has pushed the Shanghai Composite down 2.3pc and S&P 500 futures have turned down 0.4pc.
1.45pm: COVID’s $3 trillion cost to super
COVID-19 will cost Australia’s superannuation industry $3 trillion in foregone growth by 2040, according to new analysis.
Researcher Rainmaker Information says before the pandemic, Australia’s superannuation savings were projected to climb to $10 trillion over the next two decades.
This figure had now been revised down to $7 trillion.
Rainmaker Information said its modelling factored in the recession, rising unemployment, lowering superannuation contribution levels, lower long-run super fund earnings expectations and reduced population growth.
Olivia Caisley 1.40pm: Treasurer defends IR moves
Josh Frydenberg has defended his proposal to extend emergency industrial relations changes for employers coming off JobKeeper from September, declaring the economic opportunities to respond to the coronavirus “will not be fully realised” unless the nation’s “inflexible IR system” is dealt with.
He says the temporary changes the government made in response to the crisis have been “absolutely critical” to keeping more people in work.
The extension, announced as part of the Morrison government’s special budget update on Thursday, ignited anger from unions and Labor, which accused the Coalition of using the pandemic to leave workers permanently worse off.
“We would like those temporary changes to continue. We are saying until the end of March because that is what we have announced,” he says. “The other key point I want to make is that there are lots of protections in there for the employees.
“You have to give notice, you have to consult, you have to have a reasonable request. It has to be a safe working environment, it has to be consistent with the business’s purpose and their usual operations.”
The Treasurer says these changes are “absolutely sensible” given the economic environment the nation is in.
12.01pm: ASX200 continues to slip
The Australian share market continues to slip in cautious trading before the weekend.
The ASX200 was down 1.1pc at 6030.4 in early afternoon trade after hitting a three-day low of 6027.8 just before noon, with the IT, Health Care and Real Estate sectors underperforming. The biggest drags include CSL, CBA, Westpac, IAG and Evolution, with IAG down 5.4pc after scrapping its final dividend and Evolution down 6.7pc after a number of brokers cut their ratings and price targets after its production guidance disappointed yesterday.
Michael McKenna 11.46am: Saputo axes Coon brand
The Coon cheese brand will be dumped by its Canadian owners after a complaint by an Aboriginal activist that it is racist.
In a letter to Aboriginal activist and businessman Stephen Hagan, multinational conglomerate Saputo said the company has “decided to retire the Coon brand name”.
Saputo CEO Lino Saputo Jr - the grandson of company founder Giuseppe – wrote to Dr Hagan on Friday informing him of the decision.
“We performed a careful and diligent review of this sensitive situation,’’ he said.
“We wanted to ensure we listened to all the concerns surrounding the Coon brand name, while also considering comments from consumers who cherish the brand and recognize the origin of its founder Edward William Coon, which they feel connected to.
“After thorough consideration, Saputo has decided to retire the Coon brand name. As part
of this process of transformation, we commit to keep our stakeholders informed as we
move forward.
“At this time, we are working to develop a new brand name that will honour
the brand-affinity felt by our valued consumers while aligning with current attitudes and
perspectives.”
11.44am: HK, Shanghai open lower
Hong Kong sank at the start of trade Friday morning on fresh concerns about the global recovery after data showed US jobless claims rose last week for the first time since March.
The Hang Seng Index fell 0.88 per cent, or 222.24 points, to 25,040.76.
The benchmark Shanghai Composite Index shed 0.62 per cent, or 20.75 points, to 3,304.36, while the Shenzhen Composite Index on China’s second exchange eased 0.81 per cent, or 18.33 points, to 2,232.59.
AFP
Samantha Bailey 11.14am: New limits at Star casino
Casino group The Star has confirmed it has been forced to limit the number of patrons in its Sydney casino as of midnight, after amendments were made to NSW public health orders yesterday.
Each separate area of the casino will now be limited to 300 patrons, and patrons gathering in different areas will not be able to mingle, Star Entertainment Group said in a statement to the ASX on Friday.
Prior to the changes that have now come into force, the casino had been required to adhere to the 4 square metre rule with no cap on the number of patrons, meaning that the number of guests could have been considerably higher, since the casino floor area is around 20,000 square metres.
The changes mean the number of patrons will be limited to 900 across the entire venue.
The casino said it will adjust staffing levels to reflect the new operating environment.
Shares in Star Entertainment Group were down 2.5 per cent to $2.76 at 11.10am (AEST), while the broader ASX 200 was down 1 per cent.
Read more: Star Entertainment puts car park sale in gear
11.01am: NSW daily COVID-19 count falls
NSW has reported just 7 new cases of COVID-19 in the past 24 hours.
That’s a big fall from 19 cases reported for the state a day earlier.
It’s an encouraging sign for public health and economic activity in the state.
The ASX200 is down 0.9pc at 6041 after falling 1.1pc to 6028.7 a 3-day low of this morning.
S&P 500 futures are up about 0.2pc, helping support the local bourse after the early fall.
11.00am: These stocks screen “cheap”: UBS
UBS quantitative analyst Pieter Stoltz has compared the current PE of ASX200 stocks relative to their sector with their typical relative PE’s, adjusted for the effect of high PE’s in the Health Care and Tech sectors which have been pumped up by record low interest rates.
Based on FY22 earnings estimates, he finds that Aristocrat Leisure, Aurizon, Crown Resorts, Reliance Worldwide and Worley screen as relatively cheap among ASX200 stocks that are rated at Buy according to UBS. Afterpay, ASX, Cochlear, Evolution Mining and Sonic Healthcare screen as relatively expensive among Sell-rated stocks.
John Stensholt 10.20am: TAB stores costly for Tabcorp: UBS
Tabcorp’s share price would rise if the wagering giant decided to exit retail betting, including its TAB stores around the country, under a range of scenarios put forward by UBS.
In a note to clients, UBS analysts Matt Ryan and Suthesh Jeyakandan said Tabcorp was closing the gap to its digital competitors by offering better promotions to tempt punters, who have switched to gambling more online during COVID-19, over to the TAB app.
UBS said Tabcorp’s retail business was likely generating only about $40m in the year prior to COVID, or less than 5pc of Tabcorp’s group earnings, and running the outlets and paying for pubs and clubs to take cash bets was increasingly costly.
Meanwhile Tabcorp’s digital and retail turnover are roughly the same size now with retail
likely to decline in the mid-single digits each year from here, the note said.
UBS said Tabcorp therefore could increase its focus on digital betting and even choose not to bid on retail licences in Victoria or buy the WA TAB, or scale back its retail footprint and drastically reduce costs even though it would mean revenue would take a hit.
10.15am: ASX opens down 1pc
The ASX 200 opened down 1pc at 6036 versus a 0.4pc fall projected by overnight futures.
S&P 500 futures rose 0.2pc but traders sense downside risks from coronavirus, economic data and global markets before the weekend. Initial chart support at 6000 may be tested.
Tech, Real Estate, Consumer Discretionary, Health Care, Energy and Financials sectors are underperforming, with Afterpay down 3pc, Vicinity Centres down 2.5pc, Aristocrat down 2.3pc, CSL down 1.5pc, Oil Search down 2.8pc and IAG down 4.2pc after scrapping its final dividend.
Eli Greenblat 9.55am: City Chic raises for US foray
Women’s fashion chain City Chic will raise up to $90 million as it seeks to acquire the e-commerce and digital assets of collapsed US business Catherines from the Ascena Retail Group.
The announcement came as the retailer revealed its chains in Australia continue to accelerate sales and profitability coming out of coronavirus lockdowns.
City Chic has been circling the US market for some time and is now positioning itself with the bid for the US digital assets of Catherines to be a major player in the global plus-size women’s fashion market, which is valued at more than $50 billion.
City Chic announced to the ASX on Friday that it has been selected as the “stalking horse bidder” for the online assets of Catherines from the Ascena Retail Group, which has filed for Chapter 11 Bankruptcy.
In the US a distressed seller can select a stalking horse to make the initial bid for assets via a court approved sale process, if no other superior bid emerges that bid then wins the auction, which means City Chic is in the front position to take control of the retailer.
Catherines is a plus-sized women’s fashion chain which collapsed this week and has been forced to shutter its 320 bricks and mortar stores. Its large-size women’s fashion line fits neatly with the City Chic customer base.
9.40am: What’s impressing analysts
Charter Hall Group cut to Sell: Morningstar
Evolution cut to Neutral: Credit Suisse
Imdex raised to Buy: Hartleys
Northern Star cut to Hold: Baillieu
Northern Star cut to Neutral: Credit Suisse
OZ Minerals cut to Sell: Morningstar
Perpetual cut to Hold: Morningstar
Evolution cut to Underperform: Macquarie
Cooper Energy cut to Neutral: Macquarie
Cochlear cut to Market Weight: Wilsons
Galaxy Resources price target raised 22pc to $1.20: Citi
Northern Star cut to Underperform: Macquarie
Elders initiated at Outperform, $12.84 price target: Macquarie
Xero price target raised 18pc to $100: MS
9.30am: ASX downside risk before weekend
Australia’s share market is expected to fall slightly based on offshore leads.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 0.4pc at 6071 points. But traders should beware of coronavirus, economic and market risks over the weekend. Initial chart support lies at 6000 points, but if offshore markets fall again tonight, there may be scope for a more substantial dip to the 5820 or 5720 chart points.
The S&P 500 is teetering on key support from the June high at 3233 points after diving 1.2pc from a 4-month high on disappointing initial jobless claims data.
While it may bounce off that support level, the S&P 500 formed a bearish key reversal pattern on daily charts, warning of a potential top. The VIX volatility index formed a similar pattern off a 5-week low of 23.6pc to test resistance from its 200-day moving average at 26.76pc.
European and US PMI data for July are out tonight and while the market is expecting substantial improvement that’s already reflected in market valuations.
US fiscal stimulus could be this next driver of risk sentiment but Republicans are yet to reach agreement on their $US1tn plan. Lingering differences among Senate Republicans and the White House stalled the rollout of their proposal for another pandemic relief package, and Majority Leader Mitch McConnell said the $1 trillion GOP plan won’t be ready until Monday, Bloomberg reports. The US supplemental unemployment insurance approved in the last relief bill is about to expire with no replacement in place.
9.19am: BoQ takes further provision
Bank of Queensland has announced a further provision of $61m because of the impact of COVID-19.
The third quarter provisions takes the total COVID‐19 related collective provision to $71m, at the top of the forecast range.
“There remains considerable economic uncertainty and BoQ will continue to monitor the impacts of COVID‐19 on the portfolio and the collective provision prior to finalising our year end position,” it said in a statement. “A further update will be provided with the full year results.”
The bank also said its quarterly APRA Basel III Pillar 3 report included an increase of $112m relating to +90 days past due loans.
8.47am: Pacific Star offer falls short
Craig Hutchinson’s radio and publishing play Pacific Star Network (PNW) falls short in its $1.5m non-renounceable rights offer as part of its broader $3.5m capital raising. A little over $405,000 worth of shares were sold to investors in the offer which means the balance of $1.1m will be placed with the underwriter Viburnum Funds. The fully underwritten raising is to help fund the expansion of the business including the acquisition of Sydney’s 2CH.
Samantha Bailey 8.35am: IAG scraps final dividend
Insurer IAG has told the market it won’t pay a final dividend after what chief executive Peter Harmer called an “immensely challenging second half”, due to the COVID-19 pandemic, market volatility and natural disasters.
The insurance major behind brands such as NRMA and RACV says it expects to deliver a profit of $435m for the year to the end of June, down sharply from last year’s $1.07bn.
In an update ahead of the company’s results announcement, IAG also said it expected to deliver a 1 per cent uptick in gross written premiums but a pre-tax loss from fee-based business of $23m, compared to a previous loss of $9m.
The insurer said it would book a pre-tax loss on shareholders’ funds income of $181m, compared to a profit of $227m the prior year.
“We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results,” Mr Harmer said.
“We have seen some softening in our underlying margin in the second half.
“This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian commercial long tail loss ratios.”
IAG will unveil its full-year results on August 7.
8.30am: Vicinity portfolio value falls
Vicinity Centres said the valuation of its property portfolio fell by 11.3pc over the six months through June as it grappled with the impact of the coronavirus pandemic on shoppers’ willingness to visit malls.
Vicinity said its portfolio, which includes flagship malls at Chadstone in Victoria, was worth $14.14 billion at the end of June, down $1.79 billion compared to the previous six months.
Shopping center owners have grappled with lower foot traffic, store closures and requests for rent deferrals during a period when consumers were encouraged to stay at home. Vicinity said customer visitation is currently at 68pc of year ago levels, weighed by restrictions introduced in Victoria to counter a second wave of coronavirus outbreaks.
“Excluding Victoria, portfolio customer visitation increases to 80pc, with 95pc of stores trading,” said chief executive Grant Kelley.
Vicinity said “lower sales and market rent growth, and consequently market rental reversions for a period of up to three years to allow for the full impact of Covid-19” had fed into the drop in its property portfolio valuation.
Dow Jones
7.45am: Twitter revenue, profit fall
Twitter reported strong user growth but experienced lingering impacts from the coronavirus pandemic in its latest quarter, as the company navigates a rocky advertising climate and the fallout from a major security breach.
The San Francisco social media company said its daily user base rose 12pc to 186 million in the three months ended June 30 from the quarter before, a stronger increase than analysts polled by FactSet had expected.
Twitter’s revenue fell 19pc in the second quarter from a year earlier to $US683 million, missing the consensus estimate from analysts of $US702 million, according to FactSet. In the previous quarter, Twitter declined to provide forecasts for revenue or operating income, citing virus-related economic uncertainty and rapidly shifting market conditions. For the same reasons, the company didn’t provide guidance for those metrics in its latest earnings report.
The company swung to a loss of $US1.23 billion, noting that its results were impacted by a reversal of a more than $US1 billion tax benefit recorded in 2019. Excluding the tax item, Twitter’s loss was steeper than analysts had forecast.
Dow Jones
7.40am: Apple delays iPhone 12 event
Fans of iPhone will probably have to wait at least another month before shiny new models are unveiled.
Apple is delaying its annual event until the latter half of October instead of early September, according to a tech blog. The company was forced to push back the event for the 5G-compatible iPhone 12 line because of production delays caused by the pandemic, the Japanese Apple blog Mac Otakara reported.
Apple is expected to announce four new iPhones, with the 5G models available in November.
7.28am: Disney delays Mulan indefinitely
Walt Disney Co. is making massive changes to its movie-release schedule, including canceling the planned August release of “Mulan,” as the coronavirus pandemic continues to roil Hollywood.
Disney said it is not only forgoing its planned August. 21 premiere of the live-action remake of the animated classic, but is also delaying the release of future installments in the “Avatar” and “Star Wars” series by a year. While “Mulan” doesn’t yet have a new date, Disney said it was moving its next “Avatar” and “Star Wars” movies by around a year each, to 2022 and 2023, respectively.
Hollywood studios have been forced in recent months into a game of wait and see as the effects of the coronavirus upend plans to reopen the economy. This is the third time Disney has had to change its release plans for “Mulan.” However, this is the first time Disney canceled one date without providing a new one.
Dow Jones
7.15am: Ghosn’s son ‘paid for escape’
Carlos Ghosn’s son sent about $US500,000 in cryptocurrency payments to one of the American accused of aiding the former Nissan Motor chief’s dramatic escape from Japan, prosecutors said in a new court filing.
The payments were made from January to May of this year, after Mr Ghosn fled from Japan to Lebanon, prosecutors said.
The former auto executive, who had been living in a court-monitored home in Tokyo while facing financial-crime allegations, was spirited out of Japan in late December hidden inside a musical-equipment box onto a waiting private jet.
A father-and-son duo, Michael and Peter Taylor, have been accused by Japanese authorities of taking part in the escape plot and are being held in a county jail outside Boston while facing extradition under a Japanese statute that makes it illegal to harbor a criminal.
The Taylors have argued they didn’t commit a crime in Japan and are seeking release on bail as they fight the extradition charges. Their lawyers have cited, among other things, the risks of catching Covid-19 while in jail.
In the court filing, federal prosecutors introduced a document from Coinbase Inc., a San Francisco cryptocurrency firm, showing the alleged transfers from Anthony Ghosn to Peter Taylor.
Dow Jones
6.20am: ASX set to open lower
Australian stocks are tipped to fall at the open after a rise in jobless claims took a toll on Wall Street.
After yesterday’s local gains, the SPI futures index at 6am (AEST) down 54 points, or 0.9 per cent.
The Australian dollar was back down at US70.97c, from US71.47c at 4pm yesterday.
The spot price of iron ore was up 0.7 per cent at $US111.20.
6.10am: Wall Street hit by jobless rise
US stocks fell after the first weekly increase in new unemployment claims since March raised concerns that mounting coronavirus infections and a renewed wave of mandated lockdowns could slow the economic recovery.
The Dow Jones Industrial Average fell 354 points, or 1.3 per cent. The S&P 500 dropped 1.2 per cent, while the technology-heavy Nasdaq Composite slid 2.3 per cent, weighed down by a sudden slump in high-flying tech stocks like Microsoft and Tesla.
Initial unemployment claims rose to 1.4 million for the week ended July 18, the Labor Department said, halting what had been a steady descent from a peak of 6.9 million in late March. Claims had recently settled to around 1.3 million a week.
The uptick in jobless claims came as a resurgence of COVID-19 has led some states to halt or roll back plans to reopen business activity. Stocks have staged a significant rebound since March but have stagnated more recently as many states have reported coronavirus increases and investors have grown jittery about the state of the economy.
“The job market is going sideways,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers. The stock market’s reaction to the jobless-claims news was dampened, though, because of an expectation that Washington will deliver further fiscal stimulus to prop up the economy, he added.
“The bottom line is, they’ve got to get more support out there,” Mr Janasiewicz said.
Senate Republicans and the White House resolved outstanding issues over a fifth coronavirus relief package on Wednesday. That sets the ground for negotiations with Democrats over the proposed $US1 trillion spending package as politicians race to reach an agreement ahead of the expiration of enhanced unemployment benefits at the end of the month.
Gold prices neared record highs as rattled investors bought the precious metal, seen as a haven in times of financial distress. The most actively traded gold futures contract rose 1.3 per cent to $US1,890 per troy ounce, nearing its all-time high from 2011.
Shares of Microsoft, which have recently been trading at record highs, slumped 4.4pc after the tech giant reported earnings that beat analysts’ expectations but also showed weakness in some areas, such as cloud computing.
Airline stocks were volatile after two big carriers reported earnings. Southwest Airlines shares dropped 0.8pc after the carrier offered a downbeat outlook for air-travel demand amid the resurgence in COVID-19 cases. American Airlines shares initially slipped after the carrier reported a loss of $US2.1 billion in the second quarter, but then swung to a gain of 4.5pc.
Among the day’s stronger performers, Twitter shares rallied 3.8pc after the social-media company reported strong user growth. Shares in Tesla opened higher but later swung to a loss of 5pc. The Silicon Valley automaker reported late Wednesday that it had eked out a profit for the fourth consecutive quarter, defying Wall Street’s expectations that it would report a loss.
Overseas markets were mixed. The pan-continental Stoxx Europe 600 ticked up less than 0.1pc. In Asia, the Shanghai Composite Index closed 0.2pc lower.
Dow Jones Newswires
5.50am: Two US airlines post big losses
Two major airlines reported huge second-quarter losses Thursday and warned that the recovery in air travel seen in April has stalled as coronavirus cases surge in the U.S.
American posted a loss of more than $US2 billion, and Southwest lost $US915 million. That pushed the combined loss of the nation’s four biggest airlines to more than $US10 billion in just three months.
Between them, American and Southwest carried 15.4 million passengers from April through June. A year earlier, more than 98 million people jammed on to their planes.
With all those lost ticket sales, airlines have turned to cutting costs and hoarding cash in a desperate bid to hang on until the shadow of COVID-19 passes.
Southwest CEO Gary Kelly said he was encouraged by a pick-up in leisure travel during May and June after the dark days of March and April.
AP
5.45am: P&O cruise cancellations extended
Carnival Corp’s P&O Cruises has extended its sailing pause by 42 days in Australia and New Zealand to October 29, it said, as travel restrictions remain in place in various countries due to the coronavirus pandemic.
The sailings affected by the cancellations are on the Pacific Explorer, Pacific Dawn and Pacific Aria ships, the company said. It said it will also cancel Pacific Adventure’s inaugural 18-night cruise from Singapore to Sydney.
“The path to society reopening fully is continuing to evolve, and cruising will return when science and public health align and people again feel comfortable to meet,” P&O Cruises President Sture Myrmell said. “We will continue to use this time to liaise with authorities, public health experts and others in the industry to develop enhanced public health measures for when the time is right to resume sailing.”
The move comes as some countries have levelled up their restrictions on cruising. The US Centers for Disease Control and Prevention last week extended its no-sail order for cruise ships to the end of September. Canada has banned overnight cruise ships capable of carrying more than 100 passengers from sailing through October, and the UK government has recently discouraged cruise travel.
The extended cancellations further adds to Carnival’s financial strain after it posted a record quarterly loss of more than $US4 billion. It is already missing the usually lucrative summer months and has cancelled sailings as far as 2022. The company also plans to reassign some of its ships due to ship-delivery delays and take 13 ships off its fleet.
Dow Jones
5.40am: European stocks fade
European stocks gave up most of their early gains and US equities traded lower after US initial jobless claims pointed to renewed lockdowns taking a heavy toll on a stuttering economy.
New claims came in at 1.42 million, the Labor department said, compared to a market consensus of 1.3 million.
“The recovery appears to be stalling as jobless claims rose for the first time since March and as continuing claims remain elevated,” said Edward Moya at OANDA, calling the US numbers “downbeat”.
But on the upside, Moya said, a less than solid US economy made further government stimulus more likely just as another relief package was being negotiated between the White House and the Senate.
The US dollar fell following the numbers.
Key European stock markets closed broadly unchanged, while on Wall Street the Dow posted mild losses of under 100 points by the late New York morning.
London closed up 0.1 per cent, Frankfurt ended flat and Paris lost 0.1 per cent.
AFP
5.30am: US jobless claims rise
The US got another dose of bad economic news as the number of laid-off workers seeking jobless benefits rose last week for the first time since late March, intensifying concerns the resurgent coronavirus is stalling or even reversing the economic recovery.
More than 1.4 million people applied for jobless benefits last week, the Labor Department said Thursday, up from 1.3 million the previous week. That is the first increase since March and 18th straight week that it has topped 1 million. Before the pandemic, applications had never exceeded 700,000. An additional 975,000 people applied for aid under a separate program that has made self-employed and gig workers eligible for the first time.
And an extra $US600 in weekly unemployment benefits, provided by the federal government on top of whatever assistance states provide, is set to expire at the end of the week. It is the last major source of economic help from the $US2 trillion relief package that Congress approved in March. A small business lending program and one-time $US1200 payment have largely run their course.
With the count of U.S. infections nearing 4 million and the aid ending, nearly 30 million unemployed people could struggle to pay rent, utilities, or other bills and economists worry that overall consumer spending will drop, adding another economic blow.
AP
5.28am: Daimler posts $US2.2bn loss
Daimler, the maker of Mercedes-Benz luxury cars and Freightliner trucks, lost 1.91 billion euros ($US2.21 billion) in the second quarter as the coronavirus outbreak slashed sales of the company’s cars, vans, buses and trucks by about a third.
CEO Ola Kallenius said Thursday it had worked to preserve cash reserves during a difficult time and was seeing “the first signs of a sales recovery.” He said there would be more efforts to cut costs because the lost sales would not be made up this year even as the economy returns to “a certain normality.”
The profit figure compared to a loss of 1.24 billion euros in the April-June quarter last year when the company had large one-time deductions to earnings.
AP
5.25am: Energy majors’ climate pledges fail
Energy giants Shell and Total continue to invest 90 per cent of their capital on planet-warming fossil fuels despite promises to slash their greenhouse gas emissions, according to an industry analysis seen exclusively by AFP.
With combined emissions equivalent to that of Germany -- the world’s fourth largest economy -- both companies are likely to fall “well short” of their own sustainable investment targets, the Institute for Energy Economics and Financial Analysis (IEEFA) said.
The report comes after a string of industry behemoths have committed to reducing their carbon pollution in line with the 2015 Paris climate accord, which calls for capping global warming below two degrees Celsius above pre-industrial levels.
It finds that even two of the energy giants most aligned with the agreement’s goals are still spending only a fraction of their revenue on reducing their emissions.
Shell, which plans to shrink its net carbon footprint by 65 per cent by 2050, is spending just 3-5 per cent of its capital in renewables and is certain to miss its target of $US4-6 billion annually devoted to green energy projects by 2020, the IEEFA said.
Likewise, Total will be hard put to meet its own aim of installing 25 gigawatts of renewable capacity by 2025, the analysis found.
AFP
5.20am: American Airlines reports big loss
American Airlines became the latest US carrier to report a hefty second-quarter loss, but said it made progress in reducing cash burn, according to results.
The company suffered a $US2.1 billion loss in the quarter ending June 30, compared with profits of $US662 million in the year-ago period.
Revenues plunged 86.4 per cent to $US1.6 billion behind a steep drop in customer traffic.
“This was one of the most challenging quarters in American’s history,” said Chief Executive Doug Parker. “We have moved swiftly to improve our liquidity, conserve cash and ensure customers are safe when they travel.” Following cost-saving moves such as retiring four aircraft types and voluntary leave for thousands of employees, American reduced its daily cash burn rate from nearly $US100 million in April to around $US30 million in June.
American warned last week that up to 25,000 workers could be laid off beginning October 1. Like other carriers, it is encouraging employees to take early retirement or another voluntary exit in an effort to reduce lay-offs.
The company said that while passenger demand has improved somewhat since April, “demand has weakened somewhat during July as COVID-19 cases have increased and new travel restrictions have been put into place.” American said it expects third-quarter capacity to be down around 60 per cent from the year-ago level.
AFP
ASX 200 falls on China update; BHP leads mining reversal
Iron ore, copper futures, AUD down after China's underwhelming economic update. RBA's 'step down' in hawkishness evident in September minutes, but deputy governor Andrew Hauser says inflation job's not done yet.
ASX 200 rises on banks; Arcadium top gainer
Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.