ASX finishes firmly lower after big consumer confidence boost
Consumer confidence hit a 3-month high, but the ASX finished firmly lower, snapping a 7-day winning streak.
- Confidence rise ‘extraordinary’
- Austrac clears Afterpay
- BoQ to sell St Andrew’s
- Michael Hill sales lift
That’s all from the Trading Day blog for October 14. Australian stocks snapped a 7-day winning streak to finish firmly lower. Bank of Queensland has released its full-year result and CSL and BHP hold AGMs. Meanwhile Australia’s consumer confidence surged in response to the federal budget, according to Westpac.
Eli Greenblat 8.10pm: Coles readies to feed Xmas million
Coles is gearing up for catering to the grocery needs of an extra million Australians stuck at home and unable to travel overseas this Christmas, and believes it can ramp up its volumes to ensure there are no shortages on the shelves following the disruptions caused by COVID-19.
Unveiling the supermarket’s Christmas food range and a new collectables range of MasterChef quality knives on Wednesday, chief executive Steven Cain said consumer shopping over Christmas and summer should be bolstered by the economic stimulus provided in the federal budget.
He said the investment should help the nation get out of its economic dip a lot faster.
Nick Evans 6.42pm: BHP AGM: Trade tensions hurting recovery
BHP boss Mike Henry says it will take “some time” for the global economy to stabilise from the global coronavirus crisis, telling shareholders listening to BHP’s annual meeting the pandemic’s impact will be exacerbated by ongoing international trade tensions.
Mr Henry’s comments come amid speculation that China is again targeting Australian coal exports as a result of tensions between Beijing and Canberra.
Speaking at his first annual shareholder meeting as BHP’s chief executive, Mr Henry said the outlook for commodity markets remained uncertain, but BHP diversified portfolio remained in good shape.
Richard Gluyas 5.30pm: RBNZ not bluffing on negative interest rates
Talk of negative interest rates in New Zealand policy circles is not a “game of bluff” designed to devalue the currency, according to the country’s central bank.
Assistant governor Christian Hawkesby told the Citi annual investment conference on Wednesday that the RBNZ was seriously reviewing available options to achieve its economic objectives.
“It’s not a game of bluff; it’s a game of thinking what are the principles by which we choose our alternative tools – effectiveness, efficiency, financial stability, operational readiness, and the implications for our balance sheet,” Mr Hawkesby said in a Q&A session.
Perry Williams 4.47pm: Boral defends Stokes board appointment
Building materials supplier Boral has defended its decision to appoint Seven Group’s Ryan Stokes and Richard Richards to its board after major shareholders slammed the move as an act of poor corporate governance.
The duo were handed Boral board seats on September 28 to reflect Seven’s 19.9 per cent stake in the company.
However, the move drew the ire of investors John Wylie and Perpetual who complained about the disproportionate nature of Seven’s influence compared to its shareholding and lack of transparency over contractual arrangements between Boral and Seven.
Boral released a six-page rebuttal on Wednesday of concerns raised by “a few” shareholders over the appointment of the Seven executives.
“When SGH’s share ownership moved to holding up to ~19.98 per cent of Boral’s issued share capital, SGH requested two Board seats. The Board gave it considerable thought, and given the quality of the individuals put forward as nominees by SGH, the Board was ultimately not uncomfortable with having two SGH nominees on the Board on the basis that it was reasonably proportionate with the size of SGH’s shareholding,” Boral said.
Boral plans to appoint extra independent directors including replacing current board member Paul Rayner and said it had put in place information sharing and conflict of interest protocols to protect shareholders.
The Seven executives can be excluded from decisions where a conflict of interest may arise and where directors think Seven’s interests might diverge from those of other shareholders, Boral noted.
“The Protocol is stronger than other market precedents given the right of the Chairman (in consultation with the independent directors) to call a conflict without legal challenge, which was a Boral non-negotiable and we ensured that it was understood and accepted by all directors and also by SGH before the nominee directors were appointed.”
Boral will hold its annual general meeting on October 27 with chairman Kathryn Fagg also under pressure to seal her own re-election amid investor discontent over the company’s stuttering performance under her watch.
“The Board believes it is critically important for Kathryn to continue in the role as Chairman to provide important leadership continuity, strength and corporate knowledge through this period of change and renewal,” Boral said on Wednesday.
Long-serving chief executive Mike Kane stepped down in August after a string of profit downgrades with new boss Zlatko Todorcevski to publish the results of a company-wide review by the end of October.
Boral’s finance and strategy officer Rosaline Ng, a 24-year veteran of the company, will also step down to be replaced by former Qantas executive Tino La Spina.
Ben Wilmot 4.42pm: Charter Hall in talks to buy David Jones flagship
In the most significant property deal since the coronavirus crisis struck David Jones parent company, Woolworths Holdings is in exclusive talks with property firm Charter Hall for its Sydney site.
The deal, which could be worth about $500m, comes as part of the retailer’s review of the capital structure of its Australasian entities, including conducting a full review of options relating to the property portfolio of David Jones.
This included the David Jones Elizabeth Street and David Jones Bourke Street Mall, which will likely be dealt with at a later date.
Following engagement with a number of high quality parties in relation to the acquisition of the David Jones Elizabeth Street property and detailed analysis of the pricing and funding certainty of the various bids, the SA company said it had been determined that the sale process will be optimised by entering into a period of exclusivity with a preferred partner.
The company said it had agreed to enter into a period of exclusivity with Charter Hall Group, on behalf of a Charter Hall managed partnership, in relation to the sale of the David Jones Elizabeth Street property.
Charter Hall is one of Australia’s leading fully integrated property groups with over $42 billion of funds under management.
The discussions with Charter Hall are ongoing and remain incomplete, with any potential transaction subject to completion of confirmatory due diligence, negotiation of definitive agreements and any requisite third party approvals.
David Jones had elected to focus on realizing an outcome on the Elizabeth Street property in the near term. Options in relation to the David Jones Bourke Street Mall property may be revisited in due course, it said.
4.28pm: ASX ends 7-day winning streak
Australia’s share market has ended a 7-day winning streak but only just.
The S&P/ASX 200 index finished down 17 points or 0.3 per cent at 6179.2, near an early low of 6174.7, despite a 0.2pc rise in S&P 500 futures in Asia.
Having almost met the target of a recent double bottom pattern with a 7-month high of 6214.7 on Wednesday, it could dip to support from former resistance near 6000.
Helped by an expansionary federal budget and expectations of a cleansweep by Democrats in the November election, the index had risen 7.1pc in the past 7 days, its best 7-day run since July 2009.
But after rising 11.4pc in the past 7 days, the major banks fell 1-1.4pc amid worsening local COVID and reopening trends, with NSW now saying it won’t reopen as fast as planned.
Travel stocks were also affected by that theme with Qantas down 2.1pc, as were property trusts, with Scentre down 3.4pc.
Coal miners and haulers dived on concern about China’s ban on Australian coal, with Coronado down 6.1pc, Whitehaven down 4pc and Aurizon down 4.5pc.
But analysts at UBS and CBA stressed that China’s ban on Aussie coal was most likely because they had already met import quotas for the year.
Bank of Queensland rose 5.2pc after its FY20 cash profit beat estimates by about that amount.
James Hardie rose 1.6pc (albeit well off intraday highs) after lifting its FY21 by about 11pc at the midpoints.
Adbri rose just 0.6pc after 3Q sales of aggregate rose 18pc on year.
CSL rose 1.4pc after lifting the low end of its profit guidance range.
Lachlan Moffet Gray 4.09pm: Halton admits risk management failure
Mr Bell has displayed an email sent by Michael Chen to Barry Felstead in March of 2013 where he notifies that the Crown staff in China “are living in constant fear of being tapped on the shoulder.”
Ms Halton agreed that the fact that the board was not notified of this email represented a failure in risk management, as did other subsequent instances of the board failing to become aware of growing Chinese government hostilities towards gambling promotion.
Mr Bell also raised an incident in 2015 when a Crown employee was questioned by police in China and requested a letter from Crown resorts.
Ms Halton said she was aware but had not made inquiries about the circumstances surrounding the incident.
She also agreed that the board should have been made aware of the incident, not just Michael Johnston, and that this was a corporate governance problem.
Mr Bell asked if Crown had conduct a root cause analysis of the circumstances that led to these failures.
“I think we go back to the earlier question about root cause analysis - again what I will say to you is there have been a number of changes made in respect of governance and processes, they are founded I believe, on an understanding on some of the failings of the past,” Ms Halton said.
“Are they founded on a specific root cause analysis? No, not that i’m aware of.”
However, Ms Halton said that there have been extended processes of review resulting in changes, giving the example of the splitting of the role chief executive and chairman.
“The concern about these governance matters were being discussed and acted upon by the board,” she said.
The process of review was somewhat frustrated by the interruption of the proposed Wynn takeover of Crown and the subsequent deal with Melco.
The inquiry then adjourned with Ms Halton to return at 10 tomorrow morning.
Ben Wilmot 4.01pm: Trilogy flags industrial ambitions
Investors chasing yield and long-term capital growth have strongly supported Trilogy Funds Management’s capital raising for a new industrial property trust.
The firm closed an $18m offer oversubscribed in less than a week to back the purchase of an industrial property at 37 Gravel Pit Road, in the Brisbane suburb of Darra.
The capital will enable the trust to bolster its property portfolio with the acquisition of its first industrial property in Brisbane taking the total value of its property portfolio to almost $70m.
The Australian industrial property sector continues to be one of the most sought-after property asset classes, supported by underlying fundamentals of robust demand and modest supply.
The property comprises a total of 15,300sq m including a high bay warehouse with crane rails and a commercial grade office over two levels.
Lachlan Moffet Gray 3.45pm: Halton sought ‘blanket assurances’ on Crown dealings
Returning to the board paper, Mr Bell asked Ms Halton if she ever asked to see the legal advice from which Crown constructed its justification of the legality of its Chinese operations.
Ms Halton said she didn’t, but she sought “blanket assurances” that Crown did in fact believe it was operating legally.
Mr Bell then produced an email from 2015 where former head of international head of marketing Michael Chen sought assurance from a Chinese lawyer as to whether it was a good idea to take employees out of China given the growing hostility of the Chinese government towards gambling promotion.
Ms Halton said she was never made aware of the email and agreered the board should have been informed of the circumstances leading up to the assurances they were asked to sign off on.
Mr Bell asked whether the Crown board ever challenged the Crown legal team on their failure to adequately convey the ultimate inadequacy of their legal justification for their operations.
“The board has challenged in respect in a number of matters to do with decision making of a similar kind,” Ms Halton said, but not “in respect of that historical set of affairs.”
Commissioner Patricia Bergin asked what Ms Halton looked at when she conducted her due diligence prior to becoming a director.
“I spoke with people who had particular expertise on matters Chinese, particular respect to issues surrounding organised crime and money laundering,” she said.
Mr Bell displayed an email between former director Geoff Dixon and company secretary Mary Manos on July 10 2019 where Mr Dixon said a number of board members were unhappy with “the level of risk of Crown operating in China” that had been portrayed to them by management.
Ms Halton said she was one of the board members who expressed concern.
“You want to know, and you have a responsibility to be managing these matters, and not to be informed is a matter of concern.
Commissioner Patricia Bergin noted that this email was sent before the media allegations about Crown was published but after the announcement of the Melco transaction, and asked whether the board had any hint that the press may be about to release a report on the company.
“No, there was no suggestion of that commissioner,” Ms Halton said.
“My concern was a process and governance concern because I hadn’t been there at the time.”
Lachlan Moffet Gray 3.15pm: Crown’s Jane Halton fronts inquiry
The inquiry has resumed with Crown board member since 2018 and current chair of the risk management committee, Jane Halton, in the witness box.
Counsel assisting Adam Bell will be questioning Ms Halton, who has had a distinguished career as a public servant prior to joining Crown.
Mr Bell began by showing Ms Halton Crown, ASIC and ASX materials which profess the importance of ethical conduct, the responsibility of boards in setting risk thresholds, and strong corporate governance.
He then asked Ms Halton if when she joined if she was aware of a service agreement between Crown and James Packer’s private company through which he held Crown shares, Consolidated Press Holdings.
“I was aware that there were a series of agreements Mr Bell,” Ms Halton replied, saying she knew of it but did not read it in particular.
Mr Bell then asked if she was aware at the time of her joining that fellow Crown colleagues, Guy Jalland and Mike Johnston, who also work for CPH, were providing services under the agreement.
Ms Halton said she was not aware originally, but she came to know about Mr Johnston “inside the first year” and Mr Jalland “much later.”
Mr Bell mentioned the controlling shareholder protocol with James Packer that allowed him to be supplied with company information ahead of other shareholders, and whether she was concerned Mr Johnston provided Mr Packer confidential financial forecasts while Mr Packer was assessing a share sale to Melco without disclosing a conflict of interest.
“Yes, it does concern me Mr Bell,” she said, although she said that if it had been disclosed she wouldn’t have had a particular issue with it.
Ms Halton confirmed that both the controlling shareholder agreement and information provided to CPH under the services agreement have been paused due to the inquiry.
Mr Bell showed Ms Halton an email from company secretary Mary Manos to John Alexander on May 31 2019, when the sale of 19.9 per cent of Mr Packer’s Crown shares to Melco was announced.
The email stated the independent directors wanted to meet to discuss this transaction, which ended up only being half completed, without the non-independent directors.
Ms Halton said she had no prior knowledge of the arrangement and said the meeting was necessary to work through the implications this would have for stakeholders in the company.
Mr Bell asked if this included how the regulator may react.
“Well, I certainly think the issue of regulatory certainty - and that means for the regulators as well as the regulated in this context - is important,” she said.
Mr Bell then displayed a board paper informing the board about several factors in relation to media assertions raised last year about Crown’s operations in China prior to the arrest of some Chinese staff in 2016.
The board paper stated that Crown had no offices on mainland China and understood it would be illegal to operate one without a license, which Ms Halton said she believed when it was put to her.
However, Crown had employees working in an office rented in the name of employees and the inquiry previously heard that this was done to conceal from Chinese authorities that there was an office there.
Ms Halton said she was never informed of these factors, and agreed that this increased the risk to staff operating in the office and should have been drawn to the risk management committee.
Mr Bell said as a number of executives serving at the time with knowledge of the secret office are still serving, would it be sensible to conduct a root cause analysis of the problem.
Ms Halton said she was not certain such a thing would work due to the passage of time.
“To do a root cause analysis at this point in time, I would be skeptical that it would advance things very materially,” she said.
Commissioner Patrica Bergin asked Ms Halton if she endorsed the notion of a review supposing it happened a few years ago.
“Yes, I do endorse that,” she said.
Paul Garvey 2.56pm: Rio overhauls Indigenous relations
Mining giant Rio Tinto has promised to increase the economic benefits flowing to traditional owner groups in the Pilbara as part of a sweeping overhaul of its agreements following the Juukan Gorge controversy.
A letter to a dozen Pilbara indigenous groups from Rio Tinto’s new interim iron ore chief Ivan Vella, obtained by The Australian, also details pledges from the mining giant to release Indigenous groups from gag orders as well as the potential public release all agreements.
The letter is the first written commitment made by Rio Tinto to the Pilbara indigenous groups since the company’s destruction of the Juukan Gorge rockshelters triggered a worldwide firestorm of condemnation and forced the resignations of chief executive JS Jacques and two of his most senior executives.
The company flagged that there would be an even greater focus on Indigenous businesses and employment under its revised agreements, pledging a “more impactful realisation of economic and social benefits”.
The revised agreements would aim “to maximise the full range of benefits of economic and social opportunities for the (Indigenous) group as a result of our operations on (their) country”.
The letter also said Rio Tinto would introduce new mechanisms into its agreements to ensure the company could better respond to any new information that may emerge about cultural heritage sites, including those affected by the contentious Section 18 approvals that gave Rio Tinto the legal rights to destroy the rockshelters.
“We will support a review of the cultural heritage management and protection measures for a cultural heritage site with the [traditional owners] when material new information is shared on the site,” the letter said.
Read more: Rio Tinto overhauls Indigenous relations with sweeping changes
Nick Evans 2.45pm: Import restrictions hit Aurizon volumes
Rail hauler Aurizon says it believes Chinese import restrictions hit its coal volumes in the last quarter, as analysts downplay to role of political tensions in import curbs.
The company said on Wednesday that September quarter coal volumes had softened 5 per cent compared to the same time last year, or 2.8 million tonnes, on the back of a drift in demand for coal as the coronavirus hit its customers major buyers overseas, and as China slowed imports of Australian coal.
“This is in line with expectations of a softer first half of the financial year with recessionary conditions from COVID-19 impacting coal demand in addition to China curtailing aggregate coal import volume to maintain a similar annual result to the prior calendar year,” the company said.
“Railings are expected to improve in the second half as steel capacity comes back online in key export markets.”
Aurizon last down 4 per cent at $4.09.
2pm: Mirabooka wary of bullishness, valuations
Mirabooka CEO Mark Freeman tells shareholders he’s “cautious” about the fact that retail investors are “bullish globally” and that high-growth stocks are trading on “substantial” valuations, particularly in Australia.
Charts from his outlook presentation in today’s AGM highlight a 409pc rise in new account openings by E*Trade in the year to the June quarter and Australia’s world-leading median PE multiple for high growth firms of 46.2 times.
He also flags six “common COVID related considerations” for companies that Mirrabooka invests in, the most significant being: “what is the true demand picture for the company’s goods or service as stimulus fades and we enter a new ‘covid normal’ environment?”
Lachlan Moffet Gray 1.26pm: Who should Crown do business with?
Crown director John Horvath has told a NSW inquiry into the gaming giant’s casino licence that the lack of a criminal record should not immediately clear someone as suitable to do business with.
Counsel assisting Naomi Sharp had raised the issue of Suncity junket’s head Alvin Trau, and noted his many alleged links to organised crime.
“This is not someone going forward we should be doing business with,” Professor Horvath agreed, when the question was put to him.
He also said he personally believed an associate of Crown need not have an actual criminal conviction to prevent them from doing business together.
“Unless we can disprove these allegations, then I don’t think we should be doing business with this individual,” he said.
Counsel assisting has finished questioning the witness.
Commissioner Patricia Bergin spent some time asking Professor Horvath about the regulatory regimes he encountered as a medical practitioner before adjourning for lunch.
The inquiry will resume this afternoon.
1.13pm: Westpac to shut China, Jakarta offices
Westpac is consolidating its international operations into three branches - Singapore, London and New York - and will exit operations in Beijing, Shanghai, HK and Jakarta.
“The changes are not expected to have significant impact on cash earnings and, over time, are planned to improve the Group’s capital efficiency, including by reducing risk-weighted assets by over $5 billion,” says acting Westpac Institutional Bank chief executive, Curt Zuber.
Mr Zuber adds that “We are fully committed to supporting our employees, customers and partners through these changes.”
Lachlan Moffet Gray 1.06pm: Horvath unaware of bank account closures
Counsel assisting Naomi Sharp is now taking Professor Horvath through all the red flags associated with the bank accounts of Southbank and Riverbank.
Professor Horvath said he was not made aware of the many instances banks shut down accounts linked to the companies over money laundering concerns, and only became aware of these facts through the inquiry.
Professor Horvath said he was concerned that Chief Legal Officer Joshua Preston knew about the account closures but did not say he was concerned about current CEO Ken Barton also knowing, only that he was concerned that perhaps Mr Barton did not realise the significance of the account closures.
He said he still had confidence in Mr Barton as CEO.
“I do, I think he erred in his judgement regarding some issues that you outlined, but other than that I have no reason to lose confidence in him,” Professor Horvath said, although he rejected that anyone at Crown turned a “blind eye” to the issue.
Commissioner Patricia Bergin interjected to say that whether it’s “turning a blind eye” or a different description, the fact that Crown did not assess the bank accounts until the inquiry was underway was a serious concern.
An email was displayed from April 8 of this year sent by Crown Melbourne manager Roland Theiler to Alan McGregor, current CFO, of Crown discussing the possibility of opening a new account for the payment of debts, potentially through an ANZ branch in Hong Kong.
“I don’t have a comment because I don’t know the context of it and I don’t know the legality of it,” Professor Horvath said.
Ms Sharp explained that it appeared as though Crown was looking to establish new ways by which customers could repay debts with ultimate concern for the profitability of the company over concerns that the account could become the subject of further money laundering controversy.
She also said CEO Ken Barton also called the email “inappropriate” in earlier testimony to the inquiry.
“If that is the advice - if this is the context in which Mr Barton has concerns about it, then I would have concerns.
Commissioner Patricia Bergin suggested that this indicated a further need for Crown to put compliance and legality first.
Professor Horvath agreed.
Lachlan Moffet Gray 12.31pm: Crown director’s ‘serious concerns’ about junkets
Professor Horvath said he accepted there were problems with how Crown handled junkets, anti money laundering compliance and corporate governance.
Counsel assisting Naomi Sharp asked him when he became aware of each of these issues.
“The serious issues around junkets, I would say with the unfolding of the evidence of this inquiry,” he said.
Professor Horvath said he gained the same knowledge about AML compliance through cumulative evidence given to the inquiry, but had concerns about governance earlier.
“The issue re governance, my first serious concern was when I read the draft board from the VCGLR on the China issue and realised there were substantive issues that did not meet the risk committee or the board,” he said.
Ms Sharp displayed an email from AUSTRAC to Crown in June of 2017 regarding Sun City junket head Mr Chau, where AUSTRAC requested justification from Crown about dealing with him and explanation as to how the business relationship was “consistent with its commitment to the AML act.”
Professor Horvath said he was not aware of the communication, but was not drawn into saying it should have been drawn to his attention.
“It depends on what the context of the entire exchange of emails - on just the bits you have highlighted, it looks as though there are issues, although I don’t know what the issues are, whether they are something management should have dealt with...”
“It is most likely a compliance issue, and in that circumstance it should have been brought to our (the board’s) attention,” he said.
Ms Naoimi then raised photos from the Suncity cash desk in their room at the Melbourne Crown casino in 2018 that show large amounts of cash being deposited.
A letter from Chief Legal Officer Mr Joshua Preston later that year to Suncity instructed them that all cash transactions had to occur at the central cage, and that no more than $100,000 could be held at their desk.
Two subsequent audits of the Suncity desk found millions of dollars behind the desk, but Professor Horvath said he was not made aware of that.
Ms Sharp asked why Suncity’s room wasn’t shut down, given these were all signs of money laundering activity.
“I can’t speculate on the reasons behind it, but a valid question,” he said, adding that it didn’t mean Crown was turning a blind eye to money laundering.
11.59am: ASX fights back to be flat at lunch
Australia’s share market was almost flat in mixed trading at midday.
The index was down about 1 point at 6194 after falling 21 points and briefly turning up 2 points.
A fall today would end a seven-day winning streak during which the index rose 7.1pc, its best 7-day run since July 2009.
Falls in the Energy, Financials, Industrials, Utilities, Real Estate, Materials and Communications sectors were slightly outweighing gains in Health Care, Tech, Consumer Staples and Consumer Discretionary stocks.
The four major banks were down 0.7pc - 1.4pc after surging 11.4pc in the past seven days, but Bank of Queensland rose 3.3pc after its FY20 cash profit beat estimates by about 5pc.
Worsening local trends in COVID and reopening may have dented the banks as well as property trusts, with Scentre down 3pc and Vicinity Centres down 2.5pc.
NSW reported 11 new locally-acquired COVID cases in the past 24 hours and Premier Berejiklian said the state will delay easing further COVID restrictions.
But James Hardie jumped 3.9pc after lifting its FY20 profit guidance by about 11pc and CSL surged 1.6pc after raising the low end of its FY21 earnings guidance.
Westpac’s consumer confidence index for October jumped to its highest point in 3-months with the budget cited as a positive factor.
Lachlan Moffet Gray 11.53am: Horvath questioned on Crown’s visa checks
Counsel assisting Naomi Sharp has now moved to display an email from DFAT to Crown in 2010 where it outlines an agreement by Crown to conduct background checks on all visa applicants and states Crown was lodging visas for “travel operators”.
“It appears that Crown has become a visa agent lodging for travel operators and junket agents. We continue to see significant levels of fraud in the case load,’’ the company was told by the official, noting 10 per cent of the applications lodged by Crown had been refused.
“This does not represent a low level of risk,” the official added.
Professor Horvath said he was not aware of the email, and maintained that he did not know whether Crown was endorsing visa applicants.
A short adjournment was called and when the inquiry resumed Ms Sharp displayed a Crown strategic review of the VIP business that was compiled in December of 2019, which Professor Horvath said he read.
At a subsequent director’s meeting the report was discussed by Australian resorts CEO Barry Felstead and then CFO Ken Barton, but Professor Horvath could not attend the meeting as he was overseas.
The document states that the impending opening of Barangaroo represents an opportunity for the company to acquire a greater share of the international VIP market, and Ms Sharp asked if that was a “full-steam ahead” tactic for Crown at the time.
“The view of the business at that stage Ms Sharp was following the China arrests, where the global VIP market had virtually collapsed, this was the time to re-look at it and restart and see where we can move forward,” the professor said.
The document made no need to consider the probity of junket operators, Ms Sharp said, and she asked whether that factor was “not a matter of interest to Crown resorts.”
“I can’t agree with you Ms Sharp because by then we had already put in train changes to our procedures,” Professor Horvath replied.
“It may not have been documented in that forward marketing plan, but it was certainly part of the discussion.”
The report also notes that a potential downside to the success of the VIP business was a difficulty in transferring funds into Australia.
Ms Sharp asked Professor Horvath if he thought this referred to anti money laundering efforts by the Australian government.
“I didn’t put that interpretation on it,” Professor Horvath said.
The report also listed the tightening of anti money laundering regulations as a “threat,” as well as the “closure of bank accounts.”
“What it looks like, Professor Horvath, is that management is telling the board in December of 2019 that tightening money laundering regulations was actually a threat to the VIP business,” Ms Sharp said.
“That is one interpretation,” Professor Horvath said.
“My interpretation is this is one of the issues that may or may not make the business more difficult.”
Commissioner Patrica Bergin noted that the report did in fact use the word “threat” while Ms Sharp asked Professor Horvath if he associated the “threat” of the closure of bank accounts with accounts linked to Southbank and Riverbank pty ltd.
Professor Horvath said he only “relatively recently” became aware of those accounts, despite media reports being published months prior noting the AFP suspected they had been used for money laundering.
“I am not sure at what time - I can’t give you a correct time as to when I knew about those accounts,” Professor Horvath said, although he now knows through the inquiry that the Commonwealth bank closed the accounts over money laundering concerns.
Professor Horvath said in hindsight, he could see that management was referring to that incident in the report, and that it was not good it was considered a “threat.”
“Yes, that concerns me that they regarded that as a threat rather than perhaps an opportunity,” he said.
Ms Sharp asked him what he thought that said about the culture of compliance at Crown.
“I believe that there were gaps that have become apparent then and subsequently which we as a board acknowledge and that is why we are undertaking a very complex root and branch review of how we manage threats of money laundering to the business,” he said.
Commissioner Patricia Bergin asked how the culture of compliance was changing.
“There has been a proggressive change in management with an independent chair, there has been the appointment of a CEO that is separate from the chair, the chair of the risk - Ms Holton - has certainly taken a very strong view of those matters, a number of resorts have assisted the board in highlighting the way forward...and perhaps our ears are a bit sharper, Commissioner,” Professor Horvath replied.
Bridget Carter 11.26am: What’s Nine’s plan for Stan?
Nine Entertainment’s streaming service STAN has been a topic of conversation in media circles of late, and now it appears analysts at Morgan Stanley have become part of the discussion.
While no sale or initial public offerings plans for STAN are currently said to be on the table, one theory currently circling in the market is that its media owner Nine may look to sell down part of the business in the future.
This could be through a float or an IPO, where Nine capitalises on the current booming conditions for movie and television content streaming providers amid the COVID-19 pandemic.
A sell down would also limit its exposure to risks associated with disruption in the space by media production giants launching their own content streaming businesses, such as Viacom CBS and Disney.
Some suggest that investment banks have been pitching the idea to Nine and STAN, although sources close to the company say that no current plan is in the works.
Nine Entertainment counts Michael Stock from Jefferies Australia as its long-term adviser.
Should STAN be spun out of Nine Entertainment in a similar structure to Domain Group (of which Nine remains the largest shareholder), the market may ascribe more value to the business.
Morgan Stanley analysts Andrew McLeod and Raymond Tan estimate that the value of STAN to be around $1bn including debt and believe its earnings before interest, tax, depreciation and amortisation could grow to $80m annually by 2023.
The analysts say that revenue for streamed content has experienced strong growth.
Lachlan Moffet Gray 11.15am: Horvath quizzed on knowledge of junkets
Counsel assisting Naomi Sharp is asking Professor Horvath about his knowledge of Crown’s matters about a Crown rebuttal to the 60 minutes programme, which contained numerous errors - such as claiming the only junket reported on that still dealt with Crown was Sun City.
Professor Horvath said he had no knowledge at the time that the information was incorrect, and didn’t know that Crown was still dealing with other junkets mentioned in the media at the time of the rebuttal’s release.
Ms Sharp asked Professor Horvath if he considered Crown ever partnered with junkets, which the rebuttal denied occurred.
Professor Horvath said he would not use the term junkets, but he did say he was aware Sun City had a private room at Crown Melbourne until last year.
“I first became aware of the Sun City room via the fact there was signage outside the room...and at some stage asked an executive what that was,” he said.
“I never entered the room and didn’t have any knowledge of the operations of that room, until this inquiry.”
Professor Horvath said he didn’t know that Sun City had a cash desk in the room and a revenue sharing arrangement with Crown, and agreed that the arrangement could be “construed” as a partnership.
He also did not know that James Packer considered a similar arrangement with junket Meg Star as an “economic partnership.”
Professor Horvath also said the rebuttal’s assertion that Crown had robust junket vetting procedures was in hindsight not correct.
“At the time I believed it was correct, particularly as the majority of junket operators that were referred to in the media allegations had already ceased business with Crown as a result of compliance issues,” he said.
“In hindsight, commissioner, our processes were not adequate.”
Crown has paused its dealing with junkets until June of 2021.
11am: ‘Extraordinary’ rise in consumer confidence
Australia’s consumer confidence rose 11.9pc to a three-month high of 105 points in October due to the federal budget, according to Westpac.
“This is an extraordinary result,” says Westpac chief economist, Bill Evans.
“The index has now lifted by 32 per cent over the last two months to the highest level since July 2018.
The index is now 10 per cent above the average level in the six months prior to the pandemic.
Such a development must be attributable to the response to the October federal budget, ongoing success across the nation in containing the COVID-19 outbreak,and the expectation that the Reserve Bank Board is likely to further cut interest rates at its next meeting on November 3.”
Moreover, when asked if the budget would “improve their finances”, 9.5 per cent of people said “yes”.
This is the first time people have responded positively to the Budget since Westpac started asking that question in 2010.
“Over that period, the net balance of respondents who assessed that the budget would ‘improve their finances’ was minus 29 per cent, a clear majority expecting measures to adversely affect their finances,” Mr Evans said.
“We have never seen a budget response that showed a net positive balance - until now.”
Read more: Westpac consumer confidence index soars on federal budget boost
10.45am: AMP Capital offloads Axión
AMP Capital has agreed the sale of its Spanish broadcasting and telecommunications infrastructure provider Axión to Madrid-headquartered Asterion Industrial Partners.
AMP Capital has owned Axión since 2016. The company currently manages more than 5,000 service points distributed throughout Spain, across 635 towers.
“We secured a solid business in a rapidly growing sector for our clients, and through our active business development approach we have guided the business onto its growth trajectory,” said AMP Capital asset management principal Phil Pacey.
“In the last four years, Axión has delivered build to suit towers and created a strong development pipeline to build further towers.
“We wish Axión’s management team, employees and new owners continued success in the future.”
AMP last down 0.7 per cent at $1.41.
10.37am: Cleanaway upbeat on outlook
Waste management company Cleanaway says it expects to see improvement as COVID-19 restrictions ease, as it booked a first quarter earnings figure in line with fiscal year 2020 full-year run rate.
Conditions had continued to improve in September, and the company said earnings before interest, tax, depreciation and amortisation were expected to be moderately higher compared to fiscal year 2020, subject to a recovery in economic conditions in the second half.
“Our performance to date has been pleasing despite the challenges,” chief executive Vik Bansal said.
“Each of our business segments are performing well.
“We remain committed to keeping our people safe, keeping our business sustainable and keep providing essential services to our customers during the pandemic and after.
“We look forward to further easing of restrictions in Victoria and improving economic conditions.”
Cleanaway last up 0.2 per cent at $2.24.
Lachlan Moffet Gray 10.32am: ‘Things we have not attended to’
At the Crown inquiry, counsel assisting Naomi Sharp has pursued a line of questions about independent directors, clarifying that Professor Horvath is both an independent director of Crown and considers himself to meet the requisite requirements of being materially independent from company owners.
Ms Sharp is questioning whether Professor Horvath’s prior role as a Packer family doctor and 10 year tenure as a director means he is perhaps too close to the Packer family to be considered independent.
Professor Horvath said he attended to stand at Crown’s AGM next week for his director role due to his knowledge of OHS and his desire to see Crown through this current period.
“One of the reasons I am standing to stay on the board for a relatively short period is a major international review of responsible gaming has been undertaken and I would like to assist in its implementation,” he said.
Ms Sharp is also questioning whether Crown Melbourne’s compliance committee - of which Professor Horvath’s was once a member, has missed issues in respect to governance, junkets and anti money laundering issues.
“Certainly in hindsight Ms Sharp, some of the material that has come out of the inquiry suggests there have been things we have not attended to, that is correct,” Professor Horvath replied.
Displaying a document that notes the VCGLR’s awareness of the risk of money laundering through casinos, Ms Sharp asked Professor Horvath whether he was aware of the same risk.
“The very fact that we have received regular reports in the compliance committee in Melbourne on money laundering activities, I assume I was implicitly aware of it because actions were taken to comply with AUSTRAC regulations,” he said, although he later clarified he had no specific focus on the issue.
“No I can’t say I had a particular focus on the junkets, no.”
He later added that he was not aware that Macau junkets specifically, which Crown dealt with, had well reported links to crime.
“I’m sorry, it’s not something I read...I was not aware of independent junkets up until the time of the newspaper allegations in 2019, other than the Sun City junket,” he said.
Knowledge of junkets?
Counsel assisting Naomi Sharp drilled down on Professor Horvath’s knowledge of junkets.
Professor Horvath said he was made aware of them upon joining the board after a conversation with former CEO Rowen Craigie, but he had no specific knowledge of how they operated until “this year, or late last year.”
“The junkers were part of orientation. THe precise content of that, I can’t recall, except I did ask Mr Cragie - and I have a clear recollection - ‘what an odd term, why do we use the term junket’, and his reply was: ‘it’s in the VCGLR act and the terms of our license,’” Professor Horvath said.
“That was the extent of my understanding of junkets at that time.”
Ms Sharp asked Professor Horvath if he ever reflected on why casinos were outlawed in Australia until within the last few decades.
Professor Horvath said that gambling was a popular pastime for Australians - although he clarified “I don’t indulge in any form of gaming,” and said a regulated industry was better than having gambling operating underground illegally.
Ms Sharp said one of the concerns surrounding the legalisation of casinos was that it would attract organised crime, and asked whether Professor Horvath agreed that for that reason, it is important and in fact a legal requirement that casinos only deal with people of “good repute.”
Professor Horvath agreed, and said that consideration was both the front of his mind and the company’s mind.
“Yes, it’s one of the issues that’s front of mind of I think management and the directors,” he said, adding that he failed to appropriately consider junkets within that framework.
“In hindsight I believe that was something I should have paid more attention to, that I did not have sufficient visibility of the junket operation.”
Professor Horvath said that he completed anti-money-laundering training two weeks ago.
Fellow Crown director Harold Mitchell previously revealed that this training takes just half an hour to complete.
10.25am: Banks lead early ASX fall
Australia’s share market fell slightly in early trade, led by falls in major banks.
The S&P/ASX 200 fell 0.3pc to 6178.2, although that was less than a 0.6pc fall projected by overnight futures.
Financials, Energy, Utilities, Industrials and Real Estate stocks have weighed, with NAB down 1.7pc and Woodside down 1.7pc.
Offsetting that has been a 2.6pc rise in James Hardie on upgraded FY20 profit guidance and a 1.3pc rise in Woolworths after Morgan Stanley upgraded to Overweight.
CSL and Afterpay are also doing well with gains with 1pc and 3.3pc respectively.
Bank of Queensland rose 3pc after its FY20 earnings beat estimates.
The index was last down 0.2pc at 6180.2.
Eli Greenblat 10.24am: Lion to close West End Brewery
Brewer Lion has announced a plan to close South Australia’s West End Brewery in June 2021, with the loss of just over 90 roles and bringing to an end West End’s 160 year brewing history.
Lion said West End had been operating well below its full production capacity for some time now and unfortunately is no longer viable.
“We have come to this proposal as the best way to ensure we have a sustainable brewing network for the future.”
Lion, owned by Japanese conglomerate Kirin and brewer of beers such as Tooheys, XXXX and Hahn, said the Australian beer market has been in long-term decline for the past decade as Australian drinkers choose other beverages, like wine, over beer. Per capita beer consumption has dropped around 20 per cent in this time.
“Our input costs have continued to rise against this backdrop of declining volume, and a further drop in draught beer sales as a result of the pandemic.
“Our priority right now is the wellbeing of our team here at the brewery.”
Those impacted by this proposal would have access to extensive outplacement support, and a West End re-skilling fund of up to $1 million, on top of any potential redundancy payments.
10.13am: Coal prices to recover after quotas reset: UBS
Metallurgical and thermal coal prices should recover on China demand and a resumption of buying by China after a “reset” of quotas, according to UBS.
After reports this week that the Chinese government has told several state-owned steelmakers and power plants to halt imports of Australian coal, UBS analyst Dim Ariyasinghe notes that the nation’s coal exports to China rose 5pc year to date in August versus 2019 and Australia’s share of China coal imports has averaged 32pc so far in 2020 versus 24pc in 2019, despite similar news-flow back in May, about a potential curb in coal exports as a result of increased diplomatic tensions.
“We concede that China imports have softened in August but see this as a result of China’s calendar year 2020 import quota being filled with imports year to date in August annualising at 330Mt versus a supposed quota target of 270-280Mt, rather than a shift in policy stance,” Mr Ariyasinghe says.
He notes that metallurgical coal sales to China make up around 23pc of total Australian exports, a recovery in Ex-China steel production should offset any demand shortfall as a result of quota exhaustion, with Australian coal exports to India totallingd 4.62Mt in August, its highest monthly total since June 2019.
“In addition, ex-Australia supply has also been impacted significantly as a result of COVID-19 restrictions and the low price environment for much of 2020, with US exports down 36pc year to date in August,” he says.
“While reports of the latest news will impact sentiment, we expect prices to recover for both met and thermal coal vs spot with the view that supply curtailments as a result of COVID-19 and the low price environment earlier in the year have overshot the decline in demand,” he adds.
“Our base case is for renewed export strength in 2021e as China quota is reset.”
He favours Whitehaven and Coronado for thermal coal and met coal exposure respectively.
Lachlan Moffet Gray 10.08am: Director questioned on Packer ties
The NSW inquiry into Crown’s casino licence with board member Professor John Horvath continuing to give evidence. The inquiry will not get to Jane Halton until this afternoon and Helen Coonan will continue tomorrow.
Counsel assisting today is Naomi Sharp, who has not made an appearance since she questioned James Packer last year.
Ms Sharp is inquiring into Professor Horvath’s relationship with the Packer family, and asked about his duties as Kerry Packer’s personal physician.
“I was closely involved in his care up until 2003 when I went to the Commonwealth as chief medical officer,” Professor Horvath said, denying that he was “friends” with the elder Packer.
“No, I don’t believe so, caring for someone is a complex situation - there are boundaries.”
Professor Horvath said he first met James Packer just over 20 years ago, but outside of attending his second wedding, did not attend social or business events with him.
“To be precise is difficult, it was either 1998 or ‘99 when Mr Packer was in hospital and Mr James Packer visited him, I presume we were introduced at that time,” he said.
“Moderately well I got to know him over a period of time.”
9.58am: CSL tightens guidance
Biopharma company CSL has raised the low end of its guidance for fiscal 2021, but said the coronavirus pandemic will continue to affect plasma collections and that research and development expenses could be elevated.
The company, which is holding its annual general meeting on Wednesday, said it expects net profit in fiscal 2021 to be between $US2.17 billion and $US2.265 billion on a constant currency basis. That implies growth of 3pc-8pc. The low end was 0pc growth in previous guidance given at its annual result in August.
CSL said that coronavirus-related restrictions will continue to make it difficult to collect blood plasma, which it needs to manufacture various therapies. Many of CSL’s plasma collection centers are in the U.S., where a patchwork of lockdowns has at times made it difficult or confusing for people to give plasma.
CSL said it has multiple initiatives underway to mitigate the coronavirus impact on plasma collections.
The company also said that its R&D response to coronavirus will put upward pressure on R&D spend, though it’s still within the previously provided range of 10pc-11pc of revenue.
Strong demand for plasma and recombinant therapies is expected to continue, it said.
Dow Jones Newswires
9.53am: What’s impressing analysts?
Afterpay raised to Outperform: RBC
Flight Centre cut to Neutral: CS
Star Entertainment cut to Hold: Morningstar
Treasury Wine raised to Neutral: JPM
Woolworths raised to Overweight: MS
Hub24 raised to Neutral: Macquarie
Patrick Commins 9.50am: Frydenberg fronts Citi conference
Josh Frydenberg was at the Citi conference in Sydney this morning, where he was selling last week’s budget.
The Treasurer said his big-spending budget was “consistent with our values as a party” - encouraging aspiration and rewarding effort.
“We see the role of government as a catalyst for recovery, not the solution. The solution will lie in every shop front. They are the decisions to invest or hire that will make a difference. The decisions in every farm, on every manufacturing floor, and around every kitchen table where people make the decision to spend, hire or invest.”
Asked what will bring confidence back to the economy, Mr Frydenberg pointed to six straight weeks of rising consumer sentiment, which has brought the (ANZ) measure almost back to pre-COVID levels.
Ultimately, though, it depended on the successful suppression of the virus.
“As long as that occurs then that confidence will come back.”
Asked about what he is most worried about when it came to the economic recovery, he said “health issues are first and foremost”.
His second biggest worry was the global economy, where he remained “hopeful”, but emphasised that Australia as a trading nation was exposed to a worsening world economy.
9.41am: Former Qantas CFO joins Boral
Boral has appointed former Qantas CFO Tino La Spina as its new chief finance and strategy officer.
Qantas announced in August that Mr La Spina, who was most recently chief executive of Qantas International, would leave the airline in light of what it said was likely to be an “extended grounding”. His responsibilities were transferred to CEO of Qantas Domestic, Andrew David.
Mr La Spina replaces Rosaline Ng, who has been with Boral for 24 years.
“We look forward to Tino joining the Boral team,” chief executive Zlatko Todorcevski.
“He brings a strong track record of financial and strategic business leadership.
“His time at Qantas has given him valuable experience and proven his ability to manage and contribute to the leadership of large scale, complex, listed businesses in challenging conditions.”
9.37am: ASX set to open firmly lower
Australia’s share market looks set to end a seven-day winning streak.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 0.6pc at 6159.
A lower close would end a seven-day winning streak in which the index gained 7.1pc, its best consecutive 7-days of gains since July 2009.
On the charts, the S&P/ASX 200 almost hit the target of a double-bottom pattern, reaching a seven-month intraday high of 6214.7 versus the target of around 6220.
A pullback toward the former double-bottom resistance and the convergence of moving averages near 6000 may ensue.
But Tuesday’s close above the top of the 5720-6199 range that prevailed since late May bodes well for a retest of the record high at 7197.20 in the coming months.
The S&P 500 fell 0.6pc to 3511.9 on COVID vaccine and antibody trial disappointments, stalled talks on fiscal stimulus and worries that US banks may need to increase provisions despite better than expected results from JPM and Citi.
While the US indexes fought back in the final “hour of power”, a late burst of selling left a sour tone.
US election betting odds narrowed to 33 per cent in favour of Joe Biden from a campaign high of 34.7 per cent a day earlier.
Trump’s rallies may help his re-election chances, rekindling past concern about an “ugly” contested election outcome that would be bad for equities.
Commodities were mixed with spot iron ore down 2pc at $US121.35, WTI crude up 2pc at $US40.20, spot gold down 1.6pc at $US1891.36, thermal coal down 3.8pc, LME copper down 0.7pc.
Thermal coal fell the most in 4-years amid reports of China’s ban on Australian coal imports. This ban may be less concerning if it’s due to quotas designed to protect China’s coal sector having been met.
But the fall in commodities including coal helped knock AUD/USD from 0.7209 to 0.7150. It may now test its 100-day moving average at 0.7089.
Bank of Queensland should outperform after its FY20 cash profit beat the consensus estimate by about 5pc.
James Hardie should jump after lifting its FY20 profit guidance by 11pc at the midpoints.
Adbri should also do well after 3Q sales of aggregate rose 18pc on year.
Focus turns to AGMs from BHP and CSL.
Westpac’s October consumer confidence is due at 1030 AEDT.
Lachlan Moffet Gray 9.30am: Crown inquiry continues
The NSW Independent Liquor and Gaming Authority’s inquiry into the suitability of Crown Resorts to hold a casino licence in NSW continues today, with distinguished public servant Jane Halton first to take the stand.
Ms Halton has been a board member with Crown for around three years and sits on the risk management and audit and corporate governance committees.
Consequently, she will certainly be questioned about Crown’s risk management procedures in recent years, and about issues surrounding the independence of the board.
Ms Halton is also chair of Crown’s Sydney subsidiary, which holds the licence to operate the Barangaroo Casino. Accordingly, she will also be questioned about her knowledge of the deal underpinning that licence, particularly her knowledge of the clause preventing Crown shares from falling into the hands of late gaming magnate Dr Stanley Ho.
James Packer potentially breached this condition when he last year sold around 10 per cent of his holdings in Crown to Melco, which is headed by Dr Ho’s son Lawrence.
Dr Ho was alive at the time and it was revealed he held an indirect benefit in Melco through a byzantine shell company arrangement.
Current chair Helen Coonan, who was appointed earlier this year, is also due to appear in the witness box, but the inquiry notes that they may not have the time to question her today.
9.25am: Shaver Shop boasts quarterly sales uptick
Shaver Shop has told the market that first quarter sales are up 19.8pc on the same period last year, despite the company’s Victorian stores being closed for nearly two months due to COVID-19 restrictions.
Online sales for the period had nearly tripled, up 192pc on the September quarter last year.
“Shaver Shop has delivered a very strong start to the financial year by remaining agile and executing well both in our stores and online,” chief executive Cameron Fox said.
“Our customer service metrics remain at or near all-time highs, and we are well placed to continue benefitting from the accelerating trends towards DIY personal grooming and online shopping.”
9.23am: Delays weigh on Orocobre sales
Lithium chemicals producer Orocobre has told the market that its September quarter had been impacted by the scheduled shut down and a weak pricing environment.
Sales for the September quarter were lower-than-expected due to shipping and logistics delays, while almost half of the expected quarterly volumes were sold in July into weaker Chinese conversion markets, as a part of necessary inventory management.
“Despite COVID-19 restrictions resulting in reduced volumes, Orocobre has been able to consistently reduce costs quarter on quarter,” the company said in an update ahead of the Citi Investor Conference.
“Total cost of sales significantly decreased quarter on quarter in June despite reduced sales and production volumes in March and June 2020, demonstrating discipline and successful reduction in fixed costs.
“The improvement in fixed costs is due to a reduction in contractors, lower contracted energy prices, improved commercial agreements and the elimination of all non-essential spend.”
David Swan 9.03am: Afterpay cleared of Austrac audit
Buy now, pay later market darling Afterpay says an Austrac audit into the company’s compliance with anti-money laundering and counter-terrorism regulation has completed, with the regulator declining to take further action.
“We are pleased to have received Austrac’s decision following the external audit as it provides the company and its stakeholders with certainty and acknowledges the work the Company has undertaken to strengthen its AML/CTF compliance,” Afterpay chair Elana Rubin said in a statement.
“The external audit provided Afterpay with the opportunity to better understand our obligations and to improve the way we manage our AML/CTF risks.”
“We will use these learnings and our ongoing engagement with AUSTRAC to continue enhancing our AML/CTF framework as the business continues to grow.”
Austrac said in June 2019 it had “reasonable grounds” to suspect Afterpay “had contravened and/or is contravening sections 32 and 81 of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act”.
Section 32 requires companies to verify customers using their name and either address or date of birth using “reliable and independent electronic data from at least two separate data sources”, while section 81 requires companies to have an anti-money laundering and counter-terrorism finance program in place.
Last month Austrac and Westpac reached a $1.3bn settlement over more than 23 million breaches of anti-money laundering legislation, the largest corporate fine in Australian history.
Read more: Afterpay waits on Austrac report
9am: Construction demand rebounding: Adbri
Construction materials and lime producer Adbri says that aggregate sales have been buoyant through its third quarter, with volumes up 18 per cent on the September quarter last year, with residential work driving demand.
In an update ahead of the Citi Investment Conference, the company said that outside of aggregates, concrete, cement and concrete products sales were within 5pc of the same period last year, despite the impact of Victorian stage 4 restrictions.
The company said that Queensland demand improved, with residential construction supporting volumes. Meanwhile New South Wales demand remained subdued, with residential stimulus measures in Sydney not as effective as other regions, though infrastructure demand was supporting the state’s outlook.
Victoria volumes have been impacted by stage 4 restrictions, but demand from the commercial sector was recovering.
8.50am: Challenger assets up 4pc
Annuities provider Challenger says its group assets under management grew 4pc for the September quarter to $89bn.
In an update to the ASX, Challenger reaffirmed its full year net profit guidance of between $390m and $440m, and said that earnings were expected to be weighted toward the second-half, due to the rental reductions supporting Life’s property tenants, recognised in the first-half.
“Challenger’s performance in the first quarter demonstrates the success of our strategy to diversify our business geographically and across customer segments,” chief executive Richard Howes said.
“Our record annuity sales reflect strong growth in the contribution from Japan as well as domestic institutional and retail annuity sales.
“Our funds management business further solidified its spot as the fastest growing asset manager in Australia.
“Overall Challenger is well positioned for continued growth with diversified revenue streams in its annuities business, a differentiated funds management offering generating leading flows and a strong capital position.”
8.42am: James Hardie lifts guidance
James Hardie has upgraded its full-year guidance, telling the market this morning that it continues to deliver strong returns as it progresses its “global transformation”.
The buildings supplies company said this morning that it expects to deliver an adjusted net operating profit after tax of between $US380m and $US420m for the full year, up from its previous guidance range of between $US330m and $US390m.
“We began our transformation over 18 months ago,” said chief executive Jack Truong.
“Delivering these consistent results is a testament to the foundational strength we are building within our company.
“This transformation, which is driven by a continuous improvement mindset, has enabled our ability to deliver consistently improving financial results.”
Joyce Moullakis 8.29am: BoQ resumes dividends, cash profit down 30pc
Bank of Queensland will resume paying dividends after a COVID-19 deferral, shrugging off a sharp decline in annual profit as it prepares for higher loan losses.
The bank declared a full-year dividend of 12c per share, reflecting 6c for each half, it said in an ASX statement on Wednesday. Cash net profit tumbled 30 per cent to $225m for the 12 months ended August 31, compared to the prior corresponding year.
“While the potential impacts of COVID-19 remain uncertain, Australia is well positioned given the government’s management of the health crisis and economic stimulus,” BoQ chief executive George Frazis said in the statement.
Net interest income increased to $986m for the year, up 3 per cent from prior period, buoyed by lending growth and the net interest margin.
Analysts were expecting BoQ’s annual profit to print at $213.5m.
BoQ was the first domestic bank to defer a first-half dividend decision on guidance from the banking regulator, which was revised in July to allow banks to pay up to half their earnings in distributions to shareholders.
BoQ also announced on Wednesday that it had agreed to sell its St Andrew’s Insurance unit to Farmcove Investment Holdings for $23m.
8.20am: Bank of Queensland to sell St Andrew’s
Bank of Queensland sais it’s entered into an agreement to sell St Andrew’s Insurance to Farmcove Investment Holdings for $23 million.
The bank says the sale is consistent with its strategy to simplify operations.
CEO George Frazis said: “The sale of St Andrew’s represents an important strategic milestone for BOQ. We are delighted to have secured a buyer that has a long term vision for the business which includes meeting the continued obligations of policyholders.
“The divestment enables us to focus on our niche customer segments while simplifying our business model.”
The transaction is expected to result in an indicative post‐tax statutory loss on sale of approximately $27 million to $30 million and be broadly neutral to BOQ’s Common Equity Tier 1 ratio.
8.00am: AMC ‘could run out of cash’
The world’s largest movie-theatre company may run out of cash by year’s end if it doesn’t raise additional funds or get more people back to theaters following pandemic shutdowns that have disrupted businesses dependent on consumers gathering in public spaces.
AMC Entertainment Holdings said that it has reopened 83 per cent of its US theatres, but that attendance is down about 85 per cent at those cinemas from the year before. At the company’s current cash-burn rate, its reserves would be depleted by the end of this year or early next year, Kansas-based AMC said.
Movie-theatre operators have been devastated this year as officials enforced restrictions against gatherings and people have avoided indoor crowds amid the pandemic. The sharp downturn in theatre attendance has caused Hollywood studios to delay major movie releases and focus more on providing streaming entertainment to reach consumers at home, giving them less incentive to go to theaters.
The pandemic and government restrictions on public gatherings also have hurt other industries, but some have been able to pivot more easily. For example, restaurants are focusing more on outdoor dining and delivery, while retailers are emphasizing online sales.
Dow Jones
7.33am: Michael Hill reports strong sales lift
Jeweller Michael Hill says first quarter same-store sales were up 7.3 per cent compared to the same quarter last year.
It reported margin growth of 100 to 200 bps for the quarter, with gross profit growth outpacing sales.
Digital sales were up 129 per cent, as many customers switched to online amid pandemic shutdowns.
CEO Daniel Bracken said: “I am particularly pleased with our first quarter results from both a sales and margin perspective. Although experiencing double digit foot traffic decline at a store level, we achieved a significant lift in same store sales.”
He said the business would continue to be impacted by the COVID-19 pandemic, with “uncontrollable” impacts on its store network.
7.26am: ASX poised to open lower
Australian stocks are set to open weaker as global markets were dragged down by the imposition of new coronavirus lockdowns, and mixed US earnings results.
Shortly after 5am (AEDT) the SPI futures index was down 55 points, or 0.9 per cent.
On Tuesday, Australia’s S&P/ASX 200 share index rose for a 7th consecutive day, ending up 1 per cent at a seven-week high of 6195.7.
The Australian dollar was lower at US71.51.
Brent oil is up 1.7 per cent at $US42.45 a barrel, and spot iron ore is down 2.0 per cent to $US121.35 a tonne.
7.22am: Cooper opens up fund to raise $300m
Funds management legend Peter Cooper is opening his Family and Founder global fund to new investors in a $300 million raising that will more than treble its size.
The fund invests in founder and family-led firms across the globe.
Mr Cooper’s Cooper Investors, which has $11bn in assets under management around the world, launched the Family and Founder fund in July last year with an initial $100m injection, funded by the firms’ staff and some key high-net-worth backers to prove up the investment strategy.
Since inception the portfolio, which is overseen by Cooper Investors’ global equities portfolio manager Allan Goldstein, has delivered a return before fees of 15.98 per cent.
This outperformed its benchmark, the MSCI ACWI Index - MSCI’s flagship global equity index - by 9.37 per cent.
For the past quarter the fund delivered a 7.5 per cent return versus the MSCI World ACWI’s 3.9 per cent.
7.05am: Wall Street ends lower
U.S. stocks closed lower, pressured by a string of mixed earnings reports from companies ranging from airlines to banks.
The Dow Jones Industrial Average and S&P 500 both fell 0.6 per cent. The Nasdaq Composite edged down 0.1 per cent.
Uncertainty about a second wave of coronavirus infections and the extent to which governments may have to renew restrictions to control the spread is weighing on investors’ minds as the third-quarter earnings season kicks off.
Investors say that while support from the Federal Reserve helped the market climb out of the lows it hit in the year, the economy’s recovery will likely be uneven and prolonged.
“Getting back to growth levels that we’re used to historically is going to take some time,” said Zach Abraham, chief investment officer of Bulwark Capital Management. He added that the tumult of the past few months has created some potential buying opportunities for the firm within beaten-down sectors like retail.
Earnings drove swings within the industrial sector Tuesday, with Delta Air Lines shares falling 2.6 per cent after it posted a steep drop in sales for the most recent quarter and warned that the coronavirus would likely cut into demand for travel for years. Other airline stocks fell in tandem, with American Airlines dropping 5.4 per cent and United Airlines Holdings slipping 3.1 per cent.
Financial stocks also came under pressure following a string of quarterly reports.
JPMorgan Chase shares fell 1.7 per cent after it posted earnings above expectations, but also said it would extend the suspension on stock repurchases at least through the end of the fourth quarter. Shares of Citigroup lost 4.9 per cent after the bank reported profit declined 34 per cent from the same period last year.
BlackRock bucked the trend, though, adding 3.8 per cent after it reported a third-quarter profit that was above expectations and revenue that rose above forecasts.
News about potential vaccines for the coronavirus also moved markets.
Johnson & Johnson shares slid 2.3 per cent after it halted its coronavirus vaccine trials due to a participant becoming unexpectedly sick, prompting fresh speculation about when immunization shots may become widely available. The company also raised its full-year expectations for adjusted operational sales in its earnings report.
Overseas, the pan-continental Stoxx Europe 600 fell 0.5 per cent.
Dow Jones Newswires
6.39am: Lilly pauses Covid antibody treatment trial
A US federally funded clinical trial testing an experimental Eli Lilly & Co COVID-19 treatment has been paused due to a potential safety concern, the company said.
The study, which started in August, was testing whether adding Lilly’s antibody-based drug, LY-CoV555, to Gilead Sciences remdesivir would benefit people hospitalized with Covid-19.
Indianapolis-based Lilly said an independent data safety monitoring board, known as a DSMB, for the trial recommended a pause in enrollment out of an abundance of caution.
“Lilly is supportive of the decision by the independent DSMB to cautiously ensure the safety of the patients participating in this study, “ the company said. The company didn’t release additional details about the nature of the safety concern.
Lilly’s drug is essentially a clone of immune-system agents known as antibodies, which fight infections. Testing of the antibody drug combined with remdesivir is being conducted at sites in the US, Denmark and Singapore.
The pause is the latest affecting COVID-19 pharmaceutical testing. J&J said late Monday it was suspending trials exploring a vaccine after a subject got sick.
Dow Jones
6.05am: Apple shares drop after unveiling 1st 5G iPhone
Apple shares tumbled despite the company’s unveiling of a new iPhone model that is the first to be used on ultra-fast 5G networks.
After a big rally Monday, Apple shares were already under pressure early Tuesday prior to the launch event in the afternoon. In afternoon trade, Apple was down 2.5 percent at $US121.27 after getting as low as $US119.65 moments earlier.
AFP
5.55am: Mesoblast treatment passes enrolment milestone
Mesoblast Limited said the randomized controlled Phase 3 trial of remestemcel-L on top of maximal care in ventilator-dependent patients with acute respiratory distress syndrome due to Covid-19 infection has surpassed 50 per cent enrolment.
The company said the trial’s primary endpoint is reduction in 30-day mortality relative to maximal care. ARDS continues to be a primary cause of death in Covid-19 patients.
Mesoblast said it expects to complete the enrolment target in this trial by the end of the year as the enrolment rate continues to increase in line with the surge in new infections across the U.S.
The trial is enrolling up to 300 ventilator-dependent patients with moderate to severe ARDS, and aims to confirm findings from a pilot study at New York’s Mt. Sinai Hospital in March and April this year. In that study, nine of 12 ventilator-dependent patients were successfully discharged from hospital a median of 10 days after receiving two intravenous doses of remestemcel-L within five days. The U.S. Food and Drug Administration cleared the Phase 3 trial to commence enrollment following a review of the trial design and clinical endpoints.
Remestemcel-L is being developed for the treatment of severe diseases associated with excessive cytokine storm, including Covid-19 ARDS and acute graft versus host disease.
The trial’s independent Data Safety Monitoring Board recently completed an interim analysis of safety and efficacy including primary endpoint of all-cause mortality within 30 days of randomization of the trial’s first 90 enrolled patients and recommended that the trial continue as planned. The DSMB will perform a second interim analysis in early November when 45% of the enrollment target has completed 30 days of follow-up.
Mesoblast shares were up 4pc to $US12.50 in US premarket trading.
Dow Jones Newswires
5.20am: US stocks waver as earnings season begins
US stocks wobbled, pressured by a string of mixed earnings reports from companies ranging from airlines to banks.
In afternoon trade the Dow Jones Industrial Average was down 0.4 per cent, the S&P 500 had lost 0.6 and Nasdaq Composite lost 0.2 per cent.
Uncertainty about a second wave of coronavirus infections and the extent to which governments may have to renew restrictions to control the spread is weighing on investors’ minds as the third-quarter earnings season kicks off.
“Earnings season will create a lot of volatility, especially ahead of the election,” said Ludovic Subran, chief economist at Allianz.
Delta Air Lines shares dropped 3.1 per cent after it posted a steep drop in sales for the most recent quarter and warned that the coronavirus would likely cut into demand for travel for years. Other airline stocks fell in tandem.
Financial stocks also came under pressure following a string of earnings reports.
JPMorgan Chase shares fell 1.5 per cent after it posted earnings above expectations, but also said it would extend the suspension on stock repurchases at least through the end of the fourth quarter. Shares of Citigroup lost 4 per cent after the bank reported profit declined 34% from the same period last year.
BlackRock bucked the trend, though, adding 4.6 per cent after it reported a third-quarter profit that was above expectations and revenue that rose above forecasts.
News about potential vaccines for the coronavirus also moved markets.
Johnson & Johnson shares slid 1.9 per cent after it halted its coronavirus vaccine trials due to a participant becoming unexpectedly sick, prompting fresh speculation about when immunisation shots may become widely available. The company also raised its full-year expectations for adjusted operational sales in its earnings report.
Overseas, the pan-continental Stoxx Europe 600 fell 0.6 per cent.
In Asia, most major benchmarks were mixed. The Shanghai Composite Index was flat after trade data showed that Chinese exports rose nearly 10 per cent in September, reflecting a continuing recovery. Markets in Hong Kong were closed due to Tropical Storm Nangka being slated to hit the city.
Dow Jones Newswires
5.14am: Longer wait for cruise return
Royal Caribbean Group said its Royal Caribbean International cruise line has decided to suspend all sailing departing from Australia and New Zealand through to December 31. Separately, the company’s Celebrity Cruises line will be suspending its full 2020/2021 winter program in Australia and Asia, while the Azamara line will be suspending its 2020/2021 winter sailings throughout Australia, New Zealand, South Africa and South America.
As a result, the company said it has repatriated over 44,000 employees to their home countries.
Dow Jones
5.20am: Apple unveils first iPhones with 5G
Apple announced it was launching new iPhones using 5G, the latest smartphone maker to adapt to the new-generation, high-speed wireless networks.
“We are going to introduce 5G across our entire line-up of iPhone models,” Apple chief executive Tim Cook said at a streamed launch event from the company’s headquarters in California.
“Today is the beginning of a new era for iPhone.”
The new models include the redesigned iPhone 12 -- successor to the top-selling iPhone 11 launched last year -- which will start at $US799.
A smaller iPhone 12 mini with a 5.4 inch display will start at $US699. The new line-up of iPhones was expected to ignite a surge in interest in smartphone upgrades to take advantage of the faster networks.
Apple joins other handset makers including Samsung and Huawei in introducing smartphones taking advantage of the growing 5G footprint around the world, which could open up new markets and technologies.
5G networks are touted as promising an exponential leap in the amount and speed of wireless data, enabling advances in self-driving vehicles, virtual reality, connected health and more as sensors and servers communicate instantly.
The growth of 5G could also be a catalyst to revive a sluggish smartphone market.
Total smartphone sales were down 16 per cent year-on-year in the second quarter, according to research firm IDC.
Apple also introduced a new version of its HomePod smart speaker standing just eight centimetres. The HomePod mini, which responds to voice commands and plays music, will start at $US99.
AFP
5.15am: Global oil demand to recover by 2022: Aramco
Global demand for crude could recover to pre-coronavirus levels by 2022, Saudi Aramco said, as the International Energy Agency projected it could take at least a year longer.
“The worst is definitely behind us” in the oil market, Aramco’s chief executive Amin Nasser told the Energy Intelligence group.
“My prediction is hopefully we will recover by 2022.”
Nasser’s comment came as the Paris-based IEA on Tuesday predicted the recovery could take longer.
After an unprecedented eight per cent drop this year, global consumption was set to return to pre-crisis levels in 2023 provided the pandemic was brought under control, the IEA said.
AFP
5.10am: Markets down on coronavirus woes
Stock markets mostly dipped, with traders kept in check by spiking coronavirus infections and the reimposition of some lockdowns around the world, dealers said.
Wall Street traded mixed heading towards midday, with the Dow shedding 0.3 per cent, as investors reacted also to news that a vaccine trial had been halted after a volunteer fell ill.
However Nasdaq was 0.5 per cent higher ahead of Apple’s launch of its latest iPhone and as traders looked for tech stocks that will resist the coronavirus recession.
Across the Atlantic, the major indices finished lower, with London slipping 0.5 per cent one day after revamping COVID-19 restrictions, and as official data showed Britain’s unemployment rate had jumped to 4.5 per cent. Frankfurt lost 0.9 per cent and Paris slipped 0.6 per cent.
Asian stock markets mostly closed lower, while oil prices rebounded from recent losses on news of rising crude imports in key global consumer China.
AFP
5.06am: Ikea to buy back used furniture
Ikea, the world’s largest furniture chain, said it would begin buying back used furniture from customers to resell -- and pay up to 50 per cent of the original price.
The “Buy Back Friday” scheme, timed to coincide with the “Black Friday” pre-Christmas retail frenzy, will run from November 24 and until December 3 in 27 countries.
“Rather than buy things you don’t need this Black Friday, we want to help customers give their furniture a second life instead of making an impulse buy,” said Stefan Vanoverbeke, deputy retail operations manager at Ingka Group, Ikea’s parent company.
To address concerns its affordable, flatpack products encourage overconsumption and waste, the Swedish company had previously said it would start renting and recycling furniture as part of an eco-drive.
Under its buyback scheme, the group said that “anything that can’t be resold will be recycled or donated to community projects to help those most affected by the COVID-19 pandemic.” “Some countries like Australia and Canada for example are currently testing different buyback services, but Buyback Friday will be the first time that 27 countries do this together,” the statement added.
AFP
5.04am: EU to slap tariffs on $US4bn in US goods
The World Trade Organisation authorised the EU to impose steep retaliatory tariffs over US aid for Boeing, a year after permitting Washington to sanction Brussels for its support of Airbus.
In the latest development in the 16-year saga between Washington and Brussels over support for their aircraft manufacturers, the EU received the green light to impose $US3.99 billion in tariffs on US goods and services.
The WTO determined that that amount was “commensurate with the degree and nature of the adverse effects determined to exist” from US support for Boeing considered to be in violation of international trade rules, according to the 121-page arbitrator’s report.
AFP
5.00am: US banks report good earnings
Large US banks reported better-than-expected results on an improving economy, but cautioned that the recovery could falter if Washington fails to enact new stimulus measures.
“It’s important and it needs to happen as quickly as possible,” said Citi Chief Financial Officer Mark Mason, who added that massive spending from Washington has helped avert a tidal wave of delinquencies so far.
JPMorgan Chase executives warned of “double-dip” recession if there is not another package. That takes place when a second period of economic contraction follows an initial recovery.
“The people we need to help the most are small businesses and the unemployed,” said JPMorgan Chief Executive Jamie Dimon, who said Washington’s actions will determine whether it needs to take much higher reserves for bad loans.
“If the better outcomes happen” with a good a stimulus package, “we are over reserved by $10 billion,” he said. But if there is a double-dip recession, the bank could be “unreserved by $20 billion,” Dimon added.
The comments came as both JPMorgan Chase and Citigroup released earnings that showed a big improvement from the last two quarters, when both companies set aside billions of dollars in reserves for bad loans in the wake of coronavirus shutdowns.
JPMorgan Chase, kicking off a deluge of results from large financial companies, reported $US9.4 billion in profits, up four per cent from the year-ago period as revenues were down slightly at $US29.9 billion.
Citigroup reported a 34 per cent drop in quarterly earnings to $US3.2 billion behind a seven per cent decline in revenues to $US17.3 billion.
The results featured the same basic trends as at JPMorgan, boosted by strong trading results and lower reserves for bad loans.
AFP
4.59am: US sees slowing September inflation
The United States saw only a small rise in inflation in September, government data said, as consumer preferences shifted amid the ongoing pandemic.
The Department of Labor’s consumer price index rose 0.2 per cent seasonally adjusted last month, in line with consensus and a decrease from the 0.4 per cent gain seen in August.
The data’s release comes as Washington lawmakers remain deadlocked over new spending measures to support consumption after key parts of the CARES Act stimulus package expired.
It also shows how consumers’ priorities and spending habits have changed as the US grapples with the world’s worst outbreak of COVID-19.
AFP
4.57am: China 2020 growth forecast almost doubled to 1.9pc
China’s economy is expected to grow 1.9 per cent this year, almost twice as much as previously forecast, the International Monetary Fund said Tuesday, tagging the superpower as the only major nation likely to expand in the face of the coronavirus.
However, it warned that with other countries and crucial markets still struggling to overcome the pandemic, the road ahead remained bumpy, while a standoff with the US on various issues posed a threat to the global recovery.
After a record contraction in the first three months because of unprecedented lockdowns and factory closures, the world’s number-two economy surged back to life in the second quarter.
Officials essentially shut down the economy soon after the disease began spreading at the start of the year -- forcing millions to stay at home and closing businesses.
But the moves, and strict containment measures to clamp down on later outbreaks, have helped spark a bounce back in the second half of the year.
The economy expanded 3.2 per cent in April-June, having shrunk 6.8 per cent in the previous quarter.
AFP
Patrick Commins 4.55am: IMF shoots down Australia forecasts
The International Monetary Fund has revised down Australia’s growth in 2021 from 4 per cent to 3 per cent in its latest World Economic Outlook, providing a more pessimistic assessment than the Morrison government, which is counting on a 4.25 per cent boost to the economy next year.
The updated forecasts came as the IMF warned of a “long, uneven and uncertain ascent” out of the global COVID-19 recession, a “calamity” which it says will blow a $US28 trillion ($39 trillion) hole in the world economy by the middle of the decade and plunge more than 90 million people into extreme poverty.
The new update was seized on by Labor over its call for wage subsidies, enhanced unemployment benefits and credit guarantees for small and medium businesses to be wound back only after economic activity had picked up, with the IMF warning that “premature scaling back of such lifelines … risks pushing the economy back into recession”.
The IMF forecast that Australia would also lag the economic recovery next year among advanced economies, which are expected as a group to rebound by 3.9 per cent in 2021.
Australia’s more sedate pace of growth next year, however, is partly explained by a shallower downturn this year. The IMF predicted national output would shrink by 4.2 per cent this year — an improvement on its -4.5 per cent forecast in June — while other advanced nations would suffer a more severe contraction in 2020 of -5.8 per cent.
4.50am: IMF sees less severe recession
The global economic crisis will not be quite as grim as feared this year, but GDP will still contract 4.4 per cent and the pandemic means the outlook remains uncertain, the IMF said.
Massive injections of government aid kept economies from plunging further, but growth in 2021 is expected to be slightly slower than forecast in June and even weaker in the next few years due to the lasting damage inflicted by COVID-19, the IMF said in its latest World Economic Outlook.
“We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” IMF chief economist Gita Gopinath said in the report released ahead of the annual meetings of the IMF and World Bank.
The result “would have been much weaker if it weren’t for sizeable, swift and unprecedented” response from governments and central banks, she said, again warning of the dangers of removing support too quickly.
The IMF upgraded the global GDP forecast for this year by 0.8 percentage points, but trimmed the 2021 growth outlook to 5.2 per cent.
AFP
ASX ends up 0.5pc; Brookfield enters Insignia battle; former Star CEO cops ban
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