ASX falls 0.9pc in broad losses as Pointsbet soars
Australian shares faded to close near daily lows, off by 0.9pc, to cement a second consecutive weekly loss, with only banks finishing in the green.
- Pointsbet deal a ‘game changer’
- Costa upbeat as drought breaks
- Harvey Norman lifts profit 19pc
- Fed unveils major policy shift
That’s all from the Trading Day blog for Friday, August 28. Australian stocks finished the week down 0.6pc after broad weakness through the session, despite strength on Wall Street fuelled by a major Fed policy speech.
Locally, earnings season is drifting to a close, with results released from Boral, Costa and Village Roadshow.
10.18pm: Pandemic shaves $7bn off dividends
The coronavirus pandemic has dealt a near-$7bn hammer blow to dividends across the nation’s most widely held companies, as the earnings season nears completion.
Australian shareholders are set to receive more than $21.45bn in dividends in the June 2020 period from the top 50 ASX-listed companies, down sharply on the $28bn paid out in the same period last year.
Many companies paid no dividend at all or slashed their distributions in the face of a viral pandemic not witnessed in more than 100 years.
The result looks set to be much worse when Westpac, NAB and ANZ report later in the year, given the hit to bank earnings from provisions made to cope with the expected rush of mortgage delinquencies and the cost of covering loan deferments.
The result also reflects record profits from the iron ore industry, which buoyed overall results from the big earners — BHP, Rio Tinto and Fortescue Metals.
John Stensholt 7.06pm: PointsBet on the ball
PointsBet will forge ahead with aspirations to capture 10 per cent of the potentially huge US online betting market after clinching a company-transforming deal with NBCUniversal.
The US media giant will take a 4.9 per cent stake in the ASX-listed PointsBet, which in return will have its branding and wagering offerings showcased in a huge variety of US sports broadcasts.
PointsBet will be integrated in NBC-broadcast sports ranging from American football, basketball and ice hockey, as well as golf and English Premier League soccer as part of a deal that makes it NBC’s betting partner.
Perry Williams 7.06pm: Vesey exits PG&E early
Andy Vesey, the combative former boss of power giant AGL Energy, has exited as chief executive of Californian utility Pacific Gas and Electric Company less than a year after taking the high-profile role.
The executive, best remembered in Australia for a long-running stoush with Malcolm Turnbull over coal, was culled by AGL’s board in August 2018, with the former prime minister coincidentally also out the door a few days later.
Mr Vesey moved back to his native US to take up a role in charge of the utility unit of the $US18bn ($24.6bn) New York-listed PG&E Corporation after the role had been vacant for a year.
PG&E disclosed in an SEC filing earlier in August that Mr Vesey will no longer serve as chief executive, president and director of the utility but was eligible to receive severance benefits subject to agreeing to a “customary release of claims”. Mr Vesey did not respond to a request for comment.
The announcement was made after PG&E crashed to a $US2bn loss in the second quarter due to bankruptcy and legal costs.
PG&E emerged from Chapter 11 bankruptcy in July following a restructuring after its equipment was linked to destructive wildfires that hit California in 2018. Mr Vesey’s former chief of staff at AGL, Regina Venzon, moved to San Francisco to take up the same position at PG&E and remains at the company in that role, according to her LinkedIn profile.
John Durie 6.45pm: Dollar on the rampage
The Australian dollar has rallied 31 per cent against the greenback since March, due mainly to weakness in the US dollar and a more risk-friendly market, but the good news is the impact on the local economy is relatively muted.
Key Australian imports like tourism and education are blocked due to COVID, so are not likely to be impacted and the recession means less trade overall.
The spurt in the dollar to a touch over US73c (before trading down slightly) from lows of US55c back in March was due to the latest musings from US Fed chief Jerome Powell.
The reasons for the rally (in any order you like) are US dollar weakness, commodity price strength (particularly iron ore now at $US122 a tonne spot price), and a risk-on approach to financial markets.
The March lows came at the start of the COVID-19 fears when the market was factoring in doomsday, which of course may yet play out.
4.59pm: Costa outlook boost shares
Results were again in focus as earnings season drifts to a close.
Retailer Harvey Norman posted 7.6 per cent sales growth to $8.2bn as consumers stocked up on appliances to work from home during the pandemic. Shares edged up early but fell to a loss of 1.6 per cent at $4.24 by the close.
Fruit grower Costa jumped 11.8 per cent to $3.31 on stronger earnings guidance, while theme park operator Village Roadshow slipped by 0.5 per cent to $2.11 as it detailed the COVID-19 hit to its operations.
Boral rose 2.3 per cent to $3.93 even as it posted a $1.14bn loss and scrapped its dividend.
Here’s the biggest movers at the close:
4.11pm: Shares slip 0.9pc
Shares finished the session near daily lows as drag from heavyweight miners and tech names dragged on the index.
By the close, the ASX200 was off by 52 points or 0.86 per cent to 6073.8.
Pointsbet finished the day with a 87pc lift after its deal with NCBUniversal, while Afterpay lost 2.8pc and CSL fell 1.2pc.
Banks provided key support – Commonwealth finishing flat while Westpac added 0.9pc, ANZ rose 0.4pc and NAB put on 0.7pc.
3.26pm: Shinzo Abe to resign: reports
Japanese prime minister Shinzo Abe is set to announce his resignation this afternoon, according to Japanese news service NHK.
Mr Abe has been prime minister since 2012, but is reporting leaving the job due to health concerns.
The Japanese Nikkei 225 is dropping by 1pc on the news.
3.18pm: Zip talks up US growth plans
Zip co-founder Peter Gray said the buy-now-pay-later industry is so undeveloped in the US that the Australian firm will be able to grow swiftly there without immediately focusing on differentiating itself from its larger peers.
Australia’s No. 2 buy-now-pay-later provider’s QuadPay brand lags the likes of Klarna, Afterpay and Affirm in terms of US customer numbers, but Mr Gray said total industry user numbers were still small in terms of the overall $5 trillion US retail market. That means there is space to grow without aggressively trying to take market share from other providers, he told Dow Jones Newswires in an interview.
“There’s not this market maturity that there is in a market like Australia, where both us and Afterpay might be present at the same checkout,” Mr. Gray said. “What you’ll see is most retailers have no solution, and those retailers that have one solution, you’ve got clear air in the way you market on their real estate.” The lack of head-to-head competition reduces the immediate need for brand differentiation, he said.
QuadPay had 1.8 million customers at the end of fiscal 2020, compared with 5.6 million US customers for Australian rival Afterpay. Zip acquired 14pc of QuadPay in 2019, partly through its purchase of New Zealand’s PartPay, and has agreed to buy the remainder in an all-scrip deal that values QuadPay at $US269m.
Z1P last traded down 2.9pc to $8.94.
Dow Jones Newswires
Read more: Local heroes Zip, Afterpay conquer the BNPL world
3.03pm: NZ calls in spies to investigate cyber attack
New Zealand’s spy agency has been brought in to help fight back against cyber attacks that crippled the country’s stock exchange for a fourth straight day on Friday.
Finance Minister Grant Robertson said the Government Communications Security Bureau (GCSB) intelligence agency had joined efforts to contain the threat, which market operator NZX claimed was foreign-sourced but provided no further details.
“There are limits to what I can say about what action the government is taking behind the scenes due to significant security considerations,” Roberts told reporters.
“But we are aware of the impact this is having on the market and officials have been working with the NZX.
“Ministers have asked the GCSB to assist, and the National Cyber Security Centre within the GCSB are assisting.” He added that the National Security System – which is intended to ensure a co-ordinated response between intelligence agencies and government during a crisis – had been activated.
AFP
Ben Horne 2.11pm: Seven threatens to dump cricket
Channel 7 has declared it will not support the upcoming summer cricket schedule and is considering terminating its $450 million contract.
Chief James Warburton has slammed Cricket Australia as a “train wreck” and labelled its administration “stumbling, bumbling” and the “most incompetent” he has ever worked with.
The Big Bash League is set to lose its biggest stars to international hubs this summer due to COVID and Cricket Australia is refusing to give Channel 7 a discount, adamant it can honour its contract by delivering a full schedule.
News Corp can reveal cricket is now on the verge of an ugly courtroom battle with Channel 7 threatening to walk away from its contract altogether with four years still to run.
“Eight of the top 10 all-time run scoring batsmen who have played in the BBL will be unavailable for the competition. Nine of the 10 all-time wicket-taking bowlers will be unavailable for the competition,” Warburton told News Corp.
“We didn’t purchase rights to the Marsh Cup and we can send cameras for free to telecast grade cricket.
SWM last traded up 4.4pc to 12c.
Read more: Seven’s threat to dump cricket
1.48pm: Former coal miner figures charged
Former directors and a company secretary of the Perth-based miner and explorer Continental Coal have been charged with breaches of directors’ duties and making false and misleading statements, says ASIC.
ASIC says those charged are former directors of the ASX-listed company Peter Landau and Dr Ashley D’Sylva, and company secretary Jane Flegg.
Each has been charged with breaching their duties as officers of the company, relating to the alleged transfer of funds from the company’s account.
Mr Landau and Ms Flegg have also been charged with four counts of giving false information to the ASX and two counts of lodging a false document with ASIC.
The three appeared on Friday in the Perth Magistrates Court on these charges, along with further charges laid earlier this year against Mr Landau and Ms Flegg.
Continental Coal, now in liquidation, was listed on the ASX with mining assets in South Africa.
Ben Wilmot 1.40pm: Centuria launches healthcare fund
Funds manager Centuria Capital has launched an unlisted, open-ended healthcare fund that it plans to grow from its $133m seed portfolio into a major investor in the sector.
The Centuria Healthcare Property Fund will start with six seed assets and spin off a distribution yield of 5.75 per cent. It will stand alongside health vehicles run by rivals Australian Unity and Barwon.
It will take a particular focus on short-stay hospitals, day hospitals and medical centres offering complementary tenancies that create healthcare ecosystems.
Centuria joint chief executive Jason Huljich said the company started the financial year in a strong position, having already acquired about $700m of real estate. “The launch of this healthcare fund adds to our momentum. We believe healthcare is an attractive asset class, characterised by long leases, high occupancy rates and growing demand for its services,” he said.
Centuria healthcare managing director Andrew Hemming said healthcare assets had remained resilient throughout the current COVID-19 period, underpinned by constant demand.
“More broadly, healthcare is a growing real estate sector due to Australia’s ageing population and rise of chronic diseases, such as diabetes,” he said. “The strong performance of this asset class, coupled with its relatively low volatility compared to other property asset classes, has driven significant investor demand.”
Centuria Healthcare will seek to raise about $97m to launch the fund.
Ben Wilmot 1.34pm: Lendlease ‘broken, should be fund manager’
A major broking house has called on global construction and development company Lendlease to fix its “broken” business model and become more like property sector stars Goodman Group and Charter Hall.
Writing ahead of the company’s strategy day on Monday, brokers at CLSA have called on the company to be revamped and become more like a fund manager rather than undertaking development on its balance sheet.
Such a change would mark a significant shift away from Lendlease’s traditional operations, and the broker said it could also sell off up to $4.6bn worth of non-core businesses around the world.
Lendlease will update the market on its strategy on Monday and analyst James Druce called out five “no-brainer” changes to fix the business that he says could drive a trebling in the share price trebling by fiscal 2025.
CLSA has an outperform rating on the company and $12.90 target price, well above the current trading price of just over $11, as few major buyers are chasing the stock due to its risk profile.
“The current business model is broken. Lendlease is known colloquially as a “black box” with a reputation for blowing itself up each business cycle, as two deeply dilutive $1bn-plus raisings in the last ten years has shown,” Mr Druce said.
He argued the current business model had performed no better than an airline but the broker is still positive on Lendlease because it does not see it as hard to fix. “There is a proven business model in Goodman Group, which can be replicated, as Charter Hall has shown,” he said.
Mr Druce argued Lendlease should be a fund manager, not a developer, as the market pays a higher multiple for funds operations. Charter Hall and smaller rivals all flock to this banner and Lendlease already has a very substantial funds arm.
He called on Lendlease to further simplify its business by selling its telcos, retirement, military housing and Australian land development units and finalise its exit from engineering, all up generating about $4.6bn in proceeds.
The company could also shift to funds from operations-style reporting, making it easier for investors to understand, and limit balance sheet gearing to 10 per cent, with Mr Druce saying this would build confidence in the resilience of the model and attract long-term investors.
Lendlease should also drop its payout ratio to 20 per cent to help fund its much-lauded $100bn development pipeline that includes major work for Google in the US and series of mega projects in London and Milan.
If the Steve McCann-led company made these moves it could get the stock price to $30 by 2025, CLSA said.
1.18pm: ASX bounces back
Australia’s share market is recovering strongly intraday, amid a big rise in US share index futures.
Shortly after 1pm (AEST) the S&P/ASX 200 was down 0.5pc at 6095, recovering more than half of a 1.2c intraday fall to a three-week low of 6056.
It comes as S&P 500 futures surge as much as 0.7pc in Asian trading.
Traders say selling caused by a loss of investment mandates by value funds capped the S&P/ASX 200 this week.
Lachlan Moffet Gray 1.12pm: Lockdown drives revs up motorbike sales
Motorbike dealer conglomerate MotorCycle holdings has delivered its highest-ever profit and paid a special dividend after interest in motorcycles revved up among Australians bored by the COVID-19 lockdown.
The $111m company, which owns motorbike dealerships and wholesale equipment and accessory stores across Australia, recorded a net profit after tax of $15.2 million – an 81 per cent increase on the $8.4m recorded in 2019.
The result came on the back of a 10 per cent increase in revenue to $363.7 million and the company announced a special dividend of five cents per share, the first payout to shareholders in 18 months.
A non-cash impairment charge of $24.3m was also recognised on goodwill from the acquisition of the Cassons motorcycle accessory brand.
CEO and Managing director David Ahmet told The Australian that the result was driven by a surge in interest among Australians for motorcycles, with the sales of new bikes increasing by 16 per cent to 11,013 units over last year, ahead of the national new bike sales increase of 11 per cent.
David Ross 12.35pm: Insurance test case adjourned
The long-awaited kick off to a legal test over the wording of business interruption insurance policies has been pushed back at its opening directions hearing.
The high-stakes case appeared before Justice David Hammerschlag on Friday but was adjourned so lawyers for both sides could seek to ensure agreed facts and the matter heard by a higher court.
Ensuring an agreement of the facts would see the test case focus purely on questions of wording rather than a dispute over facts.
Clayton Utz and Clyde & Co sought to have the matter relisted for next week to give time for a motion to be filed for the matter to be heard by the NSW Court of Appeal, in effect leapfrogging having the case heard by just one judge.
The reason for this is the view that the outcome of the case would almost certainly be appealed by either side and a sitting of the NSW Court of Appeal would allow a judgment to be reached sooner.
The move to have the case heard by the Court of Appeal is unusual and points to just how high stakes the outcome of the case might be.
The outcome of the Court of Appeal judgment could possibly be appealed to the High Court of Australia, if permission is given.
The test case, initiated by the Insurance Council of Australia with approval from the Australian Financial Complaints Authority, is aimed at testing the wording of many business interruption insurance policies which reference the defunct Quarantine Act.
12.05pm: Share drop worst in three weeks
Australia’s share market is having its worst day in three weeks.
The S&P/ASX 200 share index fell 1.2pc to a 7-week low of 6056 on broadbased falls despite gains on Wall Street but the index has since recovered above the 6060 support level that has held since August 10.
The morning sell-off came after reports of multiple transition portfolios generating forced selling of Australian shares in recent days.
It also comes after the Australian dollar hit a 21-month high of 0.7290 and Australian 10-year bond yields jumped 10bps to an almost 3-month high of 1.02pc after the Fed’s shift to “flexible average inflation targeting” sparked a dip in the US dollar and a jump in long-term US bond yields.
The IT sector is weakest with Afterpay down 3pc after the NYFANG index fell 0.9pc.
BHP is the single-biggest drag with a 2pc fall and Fortescue reversed an early rise to fall 1.8pc after spot prices fell 1.7pc to $US121.20 a tonne.
Samantha Bailey 11.43am: RFG narrows loss despite disruption
Donut King and Gloria Jeans franchisor Retail Food Group has narrowed its full-year loss, unveiling an after tax loss of $4m for the 12 months through June, compared to a $142.5m loss a year ago.
Still, the company said its positive momentum in the first nine months of the financial year was “heavily disrupted” by the coronavirus crisis, with many franchises forced to close and foot traffic down substantially in shopping centres.
RFG said that despite the challenges presented by the COVID-19 outbreak, the group managed to solidify plans for future growth and profitability.
“While we are cognisant of the extremely challenging conditions in which the Group’s businesses operate, we are buoyed by the significant progress made in RFG’s turnaround journey to date, are steadfastly committed to driving positive outcomes for all stakeholders, and approach the future with confidence,” executive chairman Peter George said.
RFG shares last down 1.4pc to 7c.
Bridget Carter 11.35am: Church takes team in shift to Morgan Stanley
DataRoom | It appears it is not only the head of real estate investment banking in Australia that is leaving UBS, but other members of the team as well.
After about 11 years at UBS, its head of real estate Tim Church has departed to take the role of chairman of Australia at Morgan Stanley.
However, DataRoom has learned Mr Church will be taking other team members with him to the American bank.
It is understood that UBS director Sam Bates will join Morgan Stanley with Mr Church, who has been his supervisor at UBS, while well regarded real estate banker Ben Roberts has also staged a departure from the Swiss bank.
More to come
Ben Wilmot 11.31am: Shutdowns wipe Village Roadshow profit
Entertainment company Village Roadshow has crashed to a heavy loss as coronavirus hit its cinema and theme park operations as private equity firm BGH Capital tries to bring down the curtain on its life as a public company.
The company, which is subject to a takeover bid worth up to $487.5m, fell to a $117.4m net loss after tax and, even after taking out hefty write downs on key assets, lost $43.4m.
The results could be its last outing on the ASX as the founding Kirby family, that holds about 40 per cent of the register, is backing the cut price takeover by the private equity firm despite dissident shareholder Mittleman Brothers dubbing the bid opportunistic.
“After a strong start to the financial year, Village Roadshow has felt the full impact of COVID-19 shutdowns and restrictions,” Village chief executive Clark Kirby said.
“We are seeing light at the end of the tunnel as we reopen for business and look forward to a more normal domestic travel patterns and the pent up demand for seeing movies on the big screen.”
Village said COVID-19 had a significant adverse impact on the company’s theme parks and cinemas were closed from March although the parks and most cinemas, except theatres in Victoria, had since reopened.
VRL shares last traded down 1.9pc to $2.08.
11.24am: Twiggy lifts stake in Mincor Resources
Andrew “Twiggy” Forrest’s $1bn in Fortescue dividends has burnt a hole in his pocket.
A substantial shareholder notice reveals he has crept from a 3.78pc stake to 15pc in Mincor Resources.
While it looks like good news for Mincor shareholders, traders are wondering if it warns off other suitors, like Independence Group for example, which has half a billion to spend.
Read more: Fortescue ships record tonnes amid surging iron ore
Samantha Bailey 11.07am: Cash Converters class action weighs on profit
Shares in Cash Converters lifted in early trade after the pawn broker unveiled a 63.2 per cent lift in annual operating net profit to $19.6m.
On a statutory basis, the company booked a net loss of $10.5m after it was hit by a class action settlement, which cost the company $32.5m in the first half of the financial year. The company did not declare a final dividend, in line with last year.
Unveiling the full-year results, chief executive Sam Budiselik said that the underlying business remained strong, but that it continued to be impacted by an increase in early loan payouts and a reduction in credit demand due to the coronavirus crisis.
“Our priority as a business continues to be one of ensuring that we are there for our customers in these confronting and challenging times,” he said.
“With a robust balance sheet, a renewed securitisation facility in place until December 2022 and no other corporate debt, the management team remains focused on consolidating and leveraging our domestic store network, increasing awareness of our digital assets, rebuilding our loan books and capitalising on organic and adjacent growth opportunities as they emerge.”
Shares in Cash Converters last traded up 4.8 per cent at 22c.
Perry Williams 10.54am: Boral rules out equity raise
Boral has ruled out the need for an equity raising saying it won’t solve the company’s problems, conceded it overpaid for its $3.5bn US Headwaters deal and is reviewing the entire business with nothing “off the table” amid investor pressure to quit North America.
Analysts have suggested Boral would look to raise more money given challenges in the business, but Boral’s new chief executive Zlatko Todorcevski ruled the move out.
“We’re looking at options to de-lever the balance sheet and we’re confident we have a number of means to achieve this without requiring an equity raise. In fact, I feel raising equity may take the pressure off our business. I’m not in the business of just throwing more money at our problems. Instead we need to do some heavy lifting to get the balance sheet right,” Mr Todorcevski said.
A review of its capital structure is also underway with Boral stating it was determined to maintain an investment grade credit rating.
Mr Todorcevski took over the top role eight weeks ago from Mike Kane and admitted the business has underperformed.
“In recent times the company has not performed in line with expectations,” Mr Todorcevski said after slumping to a $1.1bn annual loss. “”In recent times we’ve let our shareholders down and in the process we’ve let our people down. I’m determined to rectify that.”
The Headwaters deal championed by Mr Kane had also disappointed, noting a $1.2bn writedown this week.
Ben Wilmot 10.37am: Omni Bridgeway details Westgem court loss
West Australian property developer Luke Saraceni has lost a mammoth legal case over the financial collapse of the $500m Raine Square development in Perth a decade ago.
The legal case was one of the largest in the Supreme Court of Western Australia and stemmed from the developer losing control of the project in the wake of the global financial crisis.
The developer’s Westgem Investments vehicle went into liquidation and he sought damages against Bankwest, arguing the project was thrown off course after the lender wrongly said it was over budget.
Litigation funder Omni Bridgeway, noted on Friday the judgment in the Westgem litigation had dismissed in full all of Mr Saraceni’s claims, and found in favour of the bank defendant.
Omni Bridgeway said its investment had a carrying value of approximately $55m and following a detailed review of the judgment it would consider the level of impairment which may be necessary on its books, if any.
The litigation funder said a determination would be made concerning the level of any adverse cost provision which may be raised. Taking into account insurance and co-funding arrangements, if such a provision is considered necessary, it is currently estimated to be between $7.5m and $10m.
“This is a highly disappointing result for all of Omni Bridgeway’s stakeholders and one that merits a very detailed review of a complex judgment which is reflective of the decade of litigation,” the litigation backer said.
10.25am: Pointsbet deal a ‘game changer’
Pointsbet shares surged 70pc to a record high of $12.91 after Ord Minett described its 5-year deal with NBCUniversal as a “game changer”.
Pointsbet will get exclusive sports betting game day integrations across NBC Sports regional networks, and will be the exclusive partner for the NBC Sports Predictor app, premium placement and agreed pricing structure across NBC Sports television and digital assets.
“As part of this deal, NBCUniversal will be issued shares representing 4.9pc on issue, and 66.88m 5 year options at an exercise price $13.00 a share,” notes Ord Minnett’s Philip Chippindale.
“Importantly, the value of the shares and options will offset against the committed marketing spend and therefore significantly reduce the cash commitment over the 5 years.”
Read more: NBCUniversal takes Pointsbet stake
10.12am: Broad losses pull ASX down 0.6pc
Australia’s share market fell 0.6pc to 6084 in early trading as projected by overnight futures.
Falls were broadbased with all sectors down bar Financials, as banks and insurers benefited from a steeper yield curve with 10-year bond yields up 11bps at 1.02pc in reaction to a similar jump in long-term US bond yields after the Fed officially adopted average inflation targeting.
CSL was the biggest drag on the market with a 1.5pc fall while Westpac gave the biggest boost with a 1.6pc rise. The Materials sector was weakest with BHP down 1.6pc after a pullback in iron ore prices.
Among standouts, Costa Group surged 12pc on stronger FY21 earnings guidance and outside the ASX 200, Pointsbet surged 70pc on a deal with NBCUniversal
S&P 500 futures turned up 0.2pc helping the ASX recover to -0.5pc.
Bridget Carter 10.08am: Orocobre raising $126m
DataRoom | Lithium chemicals producer Orocobre is set to raise $126 million by way of an institutional placement through Canaccord and UBS.
The offer price of $2.52 per new share represents a 13.1 per cent discount to the company’s Thursday evening close price of $2.90.
Orocobre says the proceeds will be used to sure up its balance sheet and provide sufficient funding for stage 2 expansions at its Olaroz Lithium Complex in Argentina, which have been hampered by the COVID-19 pandemic.
The stage two expansions will bring production of Lithium carbonate at the facility to 42,500 tonnes per annum, up from current production capabilities of 25,000.
The mining company confirmed the capital raising as it reported a net loss of US$67.1m, driven by US$44.8m of impairment and foreign exchange losses.
9.47am: Banks, insurers may cheer Fed shift
Australia’s share market should be well supported on dips, with banks and insurers potentially outperforming after the US yield curve steepened significantly after Fed chair Jay Powell confirmed a formal shift to “a flexible form of average inflation targeting”.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 0.6pc at 6089 but it should bounce back strongly because Wall Street seems to have completed a “buy-the-rumour/sell-the-fact” reaction to Powell’s Jackson Hole speech.
After hitting a record high of 3501.38, the S&P 500 dipped to 3468.35 before closing up 0.2pc at 3484.55. The S&P 500 VIX index spiked from 23.27pc to 27.09pc before closing at 24.47pc and has perhaps completed a short-term rise in a longer-term downtrend.
US 10-year yields rose 6bps to an almost 3-month high close of 0.7522 and 30-year yields surged 10 bps to 1.51pc, pushing the KBW Bank index up 2.4pc and making Financials the strongest US share market sector.
The Australian dollar hit a 21-month high of 0.7290 as the US dollar initially dipped in response to the Fed’s regime change and Australia’s 10-year bond yield rose 6bps to an almost 3-month high of 0.973 in early trading.
Significantly Fed chair Powell also changed the description of the employment component of its dual mandate, a change that was not so well anticipated by the market as the change to average inflation targeting.
Both changes imply lower-for-longer interest rates, which will help share market valuations. While longer-term bond yields rose, the Fed would presumably increase asset purchases if yields rose too sharply.
Iron ore miners may underperform with BHP ADR’s pointing to a 1.4pc fall in BHP after spot iron ore fell 1.7pc to $US121.20 a tonne.
Jared Lynch 9.43am: Costa upbeat as drought breaks
Costa Group has declared it has recovered from severe weather and drought, labelling it a “historical” issue, as it records a 12 per cent rise in half-year profit to $43.4m.
The fruit and vegetable grower and wholesaler said drought, which broke earlier this year, had wiped about $15m off the earnings of its tomato and berry crops in the six months to June 28.
But since May, chief executive Harry Debney said the crops had recovered to a “full yield”, with new raspberry crops at Corindi in NSW coming on stream from mid August and a blackberry crop expected in mid October.
“The continued impact of calendar year 2019 adverse weather and drought conditions affected our first half CY20 results for our Australian operations. However, these historical conditions should have no material impact in 2HCY20 or beyond and there is broad based forward momentum in demand and pricing over our Australian portfolio leading into the second half of CY20,” Mr Debney said.
“We have been impressed with the relative performance of our citrus orchards in terms of fruit size and yield, especially given the circumstances where industry harvest volumes have been impacted due to previous heat events.
“Also, strong export and domestic demand, together with improved pricing levels are expected to continue to season end”.
9.38am: What’s impressing analysts, what’s not
- Afterpay price target raised to $105 from $76.70 – Ords
- Appen cut to Sector Perform – RBC
- Appen cut to Underperform – Credit Suisse
- Appen cut to Neutral – JP Morgan
- Atlas Arteria raised to Outperform – Credit Suisse
- Damstra Holdings raised to Buy – Moelis
- Flight Centre cut to Hold – Morgans
- IGO raised to Neutral – Credit Suisse
- Rural Funds cut to Neutral – UBS
- Whitehaven cut to Hold – Shaw and Partners
Eli Greenblat 9.26am: Harvey Norman lifts profit 19pc
Retailer Harvey Norman has reported a 19.4 per cent lift in full-year net profit to $480.54m as sales revenue for the period jumped 7.6 per cent to $8.23bn, with shoppers rushing to stores for fridges, freezers and other home appliances in the peak of the COVID-19 pandemic between March and June.
The retailer, which holds a billion dollar property portfolio, has also emerged from fiscal 2020 with a positive cash position having paid down hundreds of millions of dollars in debt.
Profit before tax was $661.29m, an increase of 15.1 per cent from $574.56m in the previous year. Excluding the incremental higher expenses from the first-time adoption of AASB 16 Leases and net property revaluation adjustments, profit before tax would have been $635.6m, the company said, compared to $504.26m for the prior year, an increase of 26 per cent.
Harvey Norman chairman and co-founder Gerry Harvey said the 2020 financial year was a year of “unique challenges”.
“The drought and bushfires last summer, followed by COVID-19, had a significant impact in the eight countries where we, or our franchisees, trade. Pleasingly, customers continued to engage strongly with our brands.’’
Harvey Norman, which also owns a large property portfolio said the value of net assets increased 8.74 per cent to $3.48bn as at June 30 from $3.2bn in 2019.
Samantha Bailey 9.00am: Shine Lawyers boosts profit
Injury and compensation law firm Shine Justice has posted a lift in annual net profit and upped its final dividend payout.
Unveiling a net profit after tax up 53.6 per cent to $21.55m, Shine chief executive Simon Morrison said that the business had historically weathered economic shocks.
“The challenges posed for business and the entire community by the COVID-19 pandemic in the second half of the financial year were met by the team at Shine Justice with remarkable resilience and we delivered a financial result in accordance with our guidance,” he said.
On an underlying basis, net profit after tax lifted 13.2 per cent to $21.55m, stripping out the impact of a non-performing business in the prior year.
Earnings before interest, tax, depreciation, amortisation and impairment lifted 7.8 per cent to $51.15m.
The company said it expects to grow its EBITDAI in the order of a high single digit percentage.
“Despite prevailing economic uncertainty, Shine Justice is in a strong financial position, with a committed and talented team and the right strategy to deliver improved results, grow in new and existing markets and leverage opportunities with innovation and integration,” Mr Morrison said.
The company declared a final dividend of 2.75 cents per share unfranked, compared to 2.5c a share last year.
8.33am: Boral posts $1.14bn loss, scraps dividend
Building materials supplier Boral scrapped its dividend after reporting a deep net loss on a large impairment of North American and Australian assets, but offered a positive signal on profit margins in the new fiscal year.
Boral said its net loss totalled $1.14 billion in the 12 months through June, compared to a profit of $251.0 million a year earlier. The result was dragged down by a $1.35 billion writedown, mostly against North American assets including goodwill, intangibles and its investment in the Meridian Brick joint venture.
The loss was expected after Boral signalled the impairment charge last week.
Stripping out exceptional charges, Boral’s profit totalled $177.3 million compared to $418.7 million a year earlier.
“The board has determined not to pay a final dividend for the 2020 fiscal year given the significant uncertainty in the economic outlook and on the basis that Boral’s interim dividend of 9.5 cents per share paid on April 15 represents 63 per cent of full year earnings,” the company said.
The pandemic is the latest headwind to buffet Boral, with housing construction in key markets slowing as many major economies slide into recession. In Australia, the company has also said slower-than-expected infrastructure construction and the impact of bushfires on its timber business have also hurt its performance.
Chief Executive Zlatko Todorcevski, who succeeded Mike Kane on July 1, said Boral’s revenues in fiscal 2021 so far are below year ago levels, but earnings were only slightly down on year.
Earnings before interest, tax, depreciation and amortisation margins in July have recovered relative to the second half of fiscal 2020 and were broadly in line with the first half of that year, he said.
“We are experiencing less disruptions in most businesses, providing an opportunity for improved outcomes, however, there is potential for further disruptions and uncertainty remains,” Mr Todorcevski said.
Boral said it’s finalising a review of all its businesses, and expects to announce the outcome to shareholders in late October.
Dow Jones Newswires
Bridget Carter 8.26am: NBCUniversal takes Pointsbet stake
US media giant NBCUniversal has taken a 4.9 per cent stake in the listed $1.15 billion online bookmaker Pointsbet Holdings.
It has also reached a five-year marketing and content partnership deal.
NBCUniversal is a media and entertainment company based in New York and owned by Comcast.
NBCUniversal will have a betting partnership with Pointsbet which is understood to include an option agreement for NBCUniversal to take a 20-plus per cent stake in the bookmaker over the course of time, subject to shareholder approval.
Pointsbet was advised by Flagstaff Partners and law firm Baker McKenzie.
8.23am: Cyber attack disrupts NZ trading again
Trading on New Zealand’s stock market has been disrupted for a fourth day by a cyber attack despite the exchange’s assurances it has strengthened defences.
The exchange’s website was offline Friday and NZX Ltd, the company that operates the market, sent a notice to market participants that it had extended the pre-open session due to connectivity issues similar to those in previous days.
The exchange halted trading during the earlier attacks because they prevented company announcements from being released to the market.
NZX has said it is working with New Zealand’s spy agency, international security partners and its network provider to respond to the denial-of-service attacks from offshore.
Dow Jones Newswires
8.14am: Costa Group lifts profit 6pc
Fruit and vegetable grower Costa has posted a 6 per cent rise in half year net profit to $43.4m, as it looks to put the impact of the drought behind it.
Revenue was up 7 per cent to $612.4m.
Costa declared a dividend of 4c per share.
Costa CEO Harry Debney says while the continued impact of the drought affected first half Australian operations, those “historical conditions should have no material impact” on the second half, or beyond.
8.05am: Hertz seeking $US1.5bn loan
Hertz Global Holdings is on the hunt for a bankruptcy loan totalling as much as $US1.5 billion after regulators blocked the rental car company from pursuing a sale of what likely would be worthless stock, according to people familiar with the matter.
Hertz this week reached out to existing creditors, as well as potential outside investors, for a debtor-in-possession loan sized at $US1.1 billion to $US1.5 billion, the people said. Hertz didn’t respond to requests for comment.
The car rental company sought chapter 11 in May without a deal with creditors and without a bankruptcy loan to fund its business, unusual for a company of Hertz’s size saddled with roughly $US19 billion in debt. At the time, the company’s finance chief said Hertz had enough cash on hand to fund its operations at least through the initial stage of the case.
But as the company’s bankruptcy case drags on amid the continuing coronavirus pandemic fallout on travel, the need for financing has become more acute.
Dow Jones
7.24am: Air NZ to resume Auckland flights
Air New Zealand said it will resume Auckland flights, starting Monday, when the city’s level of pandemic restrictions will be reduced.
Physical distancing will remain on all flights in New Zealand and travellers will also be required to wear a face mask, the airline said.
The company said its business is under “huge pressure” as the current physical-distancing requirements mean it can sell only 50 per cent of the seats on a turboprop aircraft and 65 per cent on A320 planes.
Dow Jones Newswires
6.20am: ASX to open lower
Australian stocks are poised for a weaker start even after Wall Street mostly rose, in the wake of a major policy shift by the US Federal Reserve.
Shortly before 6am (AEST) the SPI futures index was down 23 points, or 0.4 per cent.
On Thursday, Australian stocks finished higher by 0.2pc after choppy trade, as heavyweights Woolworths and BHP buoyed the market.
The Australian dollar is higher at US72.57.
Brent oil fell 1.2 per cent to $US45.09 a barrel, while spot iron ore shed 1.7 per cent to $US121.20 a tonne.
6.10am: US stocks rise after Fed policy shift
US stocks closed higher after Federal Reserve Chairman Jerome Powell said the central bank would abandon its policy of pre-emptively raising rates to head off inflation.
The Dow Jones Industrial Average rose 160 points, or 0.6 per cent, to 28492. The S&P 500 climbed 0.2 per cent, its fifth straight record close. The technology-heavy Nasdaq Composite Index wobbled between small gains and losses, ending the session 0.3 per cent lower.
Speaking remotely during the Federal Reserve’s annual symposium, Mr Powell unveiled a new strategy in which the central bank will tolerate periods when inflation runs higher than 2 per cent to even out periods when it has been below that mark, as it has mostly been since 2008.
“Basically, they’re telling you, ‘We’re not going to short-circuit this economy,’” said Keith Lerner, a strategist at SunTrust Advisory Services.
Markets swirled after the speech as investors tried to digest its ramifications. Gold rose, and then fell. Bond yields fell, and then rose. Stocks futures were largely negative, but the major indexes opened higher. They bounced around in the morning and climbed in the afternoon.
Ultimately, Mr Lerner said, the market will reposition for higher long-term inflation expectations.
The moves are also coming after an unusually strong summer for equities. The S&P 500 was on pace for its 15th positive day this month. That would put it up 79 per cent of the days this month, according to Dow Jones Market Data. That is the highest percentage since February 2017, and if the index were to close out the rest of the month higher, it would be the highest since May 1990.
Although investors expected the Fed’s shift in inflation targeting, the focus on the Fed’s other mandate — employment — was a bit surprising, said Merk Investments analyst Nick Reece.
The Fed’s goal isn’t necessarily to have the unemployment rate hit any specific target, but to have an economy that coaxes “marginal” workers back into the labour force.
“They’re trying to bring unemployment down, and the labour-force participation rate up,” Mr Reece said. One way the central bank can affect that is by not raising rates when inflation levels hit 2 per cent.
The yield on 10-year US Treasury note rose to 0.738 per cent from 0.686 per cent on Wednesday, extending this week’s multiday sell-off in US government bonds. Bond prices and yields move in opposite directions.
Additionally, while long-term bond yields rose, short-term bond yields fell. That kind of development is good for banks, which generally borrow short-term and lend long term.
For equities, the upshot of the Fed’s new policy is that the relative value of stocks should be higher than bonds, Mr Lerner said. “It will continue to push investors into riskier assets if they want to get any kind of return.”
In economic news, the number of Americans applying for jobless benefits fell modestly last week, in line with economists’ expectations for a small decline. About 1.006 million people applied for benefits in the week that ended Saturday, compared with 1.106 million in the previous week and economists’ forecasts of 1 million.
Negotiations between the Republicans and Democrats on another coronavirus aid package have stalled, which some analysts worry will eventually threaten the rally in stocks.
Overseas, the pan-continental Stoxx Europe 600 fell 0.6 per cent. In Asia, benchmark stock indexes were mixed. The Shanghai Composite Index advanced 0.6 per cent. South Korea’s Kospi index fell 1.1 per cent after its central bank cut its GDP growth forecast for 2020.
Dow Jones Newswires
6.00am: NZ market to resume after cyber attacks
The New Zealand securities exchange said it is working with the country’s spy agency and international security partners to address a cyber attack that halted trading for three days.
NZX Ltd said its markets would open as normal on Friday after putting in place additional measures to keep its systems operating.
The severe denial of service attacks originated from offshore, the exchange operator said in a statement.
NZX said it is continuing to work with its network service provider and national and international cyber security partners, including New Zealand’s Government Communications Security Bureau, to address the cyber attacks.
Dow Jones Newswires
5.45am: Walmart joins pursuit of TikTok
Walmart said it is joining Microsoft Corp.’s pursuit of TikTok’s U.S. operations, throwing a curveball into the chase for the popular short video-sharing app.
The Trump administration has pushed TikTok’s owner, Chinese technology giant ByteDance Ltd., to sell its American operations after targeting the app over national-security concerns.
Microsoft’s bid is considered the frontrunner, according to people familiar with the matter, while a second consortium including Oracle Corp. also remains in the running.
Google parent Alphabet Inc. was also involved in talks as recently as earlier this week, according to people familiar with the matter. Those talks are now dead. Another bid involving Twitter Inc. has also lost momentum, according to some of the people.
Dow Jones
5.35am: French telco pulls Huawei antennae
French operator Bouygues Telecom said Thursday it will withdraw 3000 mobile phone antennae by 2028 in “very dense population areas” at the government’s behest over purported 5G security issues.
“We shall no longer have any Huawei antennae in very dense areas by 2028,” said president Olivier Roussat in a conference call to accompany half-yearly results, saying that meant dismantling 3000 of some 21,500 across the country.
“The government has chosen pragmatic management” of the issue “which gives operators time to adapt,” said Sylvain Chevallier, telecoms specialist and associate at Bearing Point consultancy.
“But ultimately it is clear — there will no longer be any Huawei” in the French 5G network.
The move comes as the United States piles pressure on allies to cut Huawei, world number two in mobile phones and market leader for 5G equipment, from their latest internet infrastructure.
Washington alleges Chinese firms are used to spy for Beijing, allegations which China denies.
AFP
5.30am: European markets fade as US rallies
US stocks extended a recent rally after US Federal Reserve chief Jerome Powell took a major step to stimulate the economy by saying he would not rush to raise interest rates and could allow inflation to stay above his two-percent target “for some time.”
Allowing inflation to overshoot is expected to boost job creation as the Fed pursues its goal of “maximum employment”, while also recognising that greater employment has not been driving prices significantly higher in recent years.
“This change reflects our appreciation for the benefits of a strong labour market, particularly for many in low- and moderate-income communities,” said Powell, adding that the Fed is prepared to use “our full range of tools to support the economy.”
Earlier, global equities were subdued as traders weighed geopolitical concerns which resurfaced after Beijing reportedly fired missiles during exercises around the South China Sea and the US sanctioned several Chinese firms linked to the disputed region.
The Dow had added almost 1 per cent two hours into the session although European markets closed having lost ground, London notably sagging on record net first half losses for Rolls Royce as the coronavirus outbreak grounded aircraft worldwide and sparked a crisis in air transport.
London closed down 0.8 per cent, Frankfurt lost 0.7 per cent and Paris ended down 0.6 per cent.
As Wall Street revved up its engines on the back of a clutch of record-breaking rallies, Asian trade was grounded by a fresh flare-up in coronavirus cases in the region.
The mood was also downbeat after Bloomberg News reported that China had fired four ballistic missiles into the South China Sea as part of a military exercise, a day after Beijing said a US spy plane had entered a no-fly zone in northern China.
The region is one of a number of issues over which China-US tensions have spiked in recent months.
Oil traders are meanwhile keeping tabs on Hurricane Laura in the Gulf of Mexico, which made landfall in Louisiana.
Crude prices slid back after testing five month highs earlier in the weeks.
AFP
5.28am: US unemployment ‘could stay high for years’
underlying US economy remains solid, but high unemployment could persist for years in the sectors most impacted by the coronavirus pandemic, Federal Reserve Chair Jerome Powell said.
“There’s is still a healthy economy under here, except for this area that’s been directly affected by COVID,” Powell said in a discussion as part of the Jackson Hole central banking conference.
But millions of workers in travel, hotels and restaurants have been directly impacted, which means “a couple of years of … relatively high unemployment.” People in those industries are “really going to struggle to find work … We need to support them.”
AFP
5.25am: Fed unveils major policy shift
The US central bank rolled out a major policy change that gives greater weight to its mission of maximising employment to benefit lower income families, while ratcheting back its emphasis on fighting inflation.
Federal Reserve Chair Jerome Powell said the aim is to correct the “shortfalls” in achieving the Fed’s goal of maximum employment and to recognise that, with changes in the global economy, a tight job market does not necessarily drive prices higher.
In practice, the change will keep borrowing rates low for much longer than in prior economic expansions — something President Donald Trump has loudly demanded, though for more political reasons.
“This change reflects our appreciation for the benefits of a strong labour market, particularly for many in low- and moderate-income communities,” Powell said in a speech unveiling the policy.
The new policy makes it clear the central bank will allow inflation to stay above its 2.0 per cent target “for some time” before officials will need to take action by raising interest rates.
The policy shift, though telegraphed in recent statements, is a significant change for the Fed and central banking in general, as inflation for decades has been the economic villain to be stamped out at every turn. It also represented a defeat for inflation hawks, though the change was approved unanimously.
Powell, in his speech to the annual Jackson Hole monetary policy conference, said the past 10 years since the 2008 global financial crisis has shown that warnings about low unemployment causing price hikes were exaggerated.
“This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation,” he told the virtual conference.
Prior to the coronavirus pandemic, the US unemployment rate had hovered near 50-year lows at 3.5 per cent, which brought many people back into the workforce as firms struggled to fill open positions.
Inflation for years has stayed below the 2.0 per cent target, and Powell said the goal now is “to achieve inflation that averages two per cent over time,” although he stressed that would not be tied “to a particular mathematical formula.” Advocates of the new regime have argued the central bank needed to let the inflation rate drift higher to average 2.0 per cent over the long run.
AFP
5.20am: New US jobless benefit claims drop
One million people made new claims for jobless benefits in the week ended August 22, the US Labor Department said, a slight improvement from the week prior.
The result was in line with expectations and a decrease of about 100,000 claims from the prior week, however the number of people filing under a special program providing benefits to workers normally ineligible increased by about 82,000 to 607,806 in the latest week.
AFP
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