ASX at 3-week low; Ares ‘interest’ in buying AMP
California-based private equity firm Ares Management said to be in talks to buy wealth manager AMP, as the ASX fell as much as 1.9pc to a fresh 3-week low.
- Seek shares hit by short-seller
- ASX fall may be good for buyers
- Fortescue ships record iron ore volumes
That’s all from the Trading Day blog for Thursday, October 29. California-based private equity firm Ares Management said to be in talks to buy wealth manager AMP, as the ASX fell as much as 1.9pc to a fresh 3-week low. Local highlights include ANZ’s full-year result, with cash profit down 42pc, and the shock decision by Myer chair Garry Hounsell to step down. JB Hi-Fi sales soared.
Perry Williams 8.55pm: Shell takes giant writedown on Prelude
Energy powerhouse Shell has taken a giant $US1.3bn ($1.88bn) pre-tax writedown in the third quarter on its troubled $US12bn Prelude floating LNG plant offshore northern Australia, raising concern over the long-term prospects for the plant.
The energy major — one of Australia’s biggest gas producers and foreign investors — made the impairment call after its decision to postpone bringing Prelude back to full production until 2021 as it battles to fix technical problems that have kept it offline since February.
A move by Shell and Kerry Stokes’ Seven Group to delay sanctioning the jointly owned Crux field this year, which had been lined up to supply gas to Prelude, also contributed amid a torrid year for producers reeling from volatile oil markets due to COVID-19.
Perry Williams 7.40pm: Origin warns on gas reservation scheme
Origin Energy has advised the Morrison government against fresh intervention in the east coast gas sector and warned a planned domestic gas reservation scheme was unnecessary and a move which could kill off investment and lift prices.
Energy producers are on edge the government’s approach, aimed at boosting supply and cutting prices, could backfire and dent future spending should suppliers be obligated to set aside a certain quantity of gas for local users.
The operator of Queensland’s $25bn APLNG gas export project is wary of any new measures given it already holds commitments to supply the east coast market through the Australian Domestic Gas Security Mechanism, which ensures exporters offer uncontracted gas to the domestic market.
6.40pm: Money Cafe podcast: Recession, AusPost and dividends
Wealth editor James Kirby and InvestSMART’s Alan Kohler discuss:
- Why the RBA is printing new $50 and $100 notes.
- The notion of property versus shares.
- If there are any stock tips from comparing now to the post-Spanish flu period.
- The takeover bid by 360 Capital for Evans Dixon.
- Will retirees relying on bank dividends be looking to downsize to fund their lifestyle?
- Whether the upcoming Ant Group IPO is overpriced.
Don’t forget to send your own questions to James Kirby and Alan Kohler via moneycafe@theaustralian.com.au
6.13pm: ING appoints CEO for Australia
ING Bank Australia chair Dr John Laker AO announced that Melanie Evans, the bank’s Head of Retail Bank, will become CEO of ING Bank Australia. She will replace the current CEO, Uday Sareen, who has been promoted to Head of Wholesale Banking for ING Europe, Middle East and Africa. Both appointments are effective from 16 November 2020.
Dr Laker praised Ms Evans’ impact on the bank since she joined in 2017 as head of the Retail Bank. Under Melanie’s leadership, ING has grown to be Australia’s 5th largest main financial institution with a 6pc customer market share and has launched multiple new retail products and services including personal lending, credit cards and insurance.
“Melanie is a very experienced banker with a proven track record who will continue to drive ING’s growth and diversification agenda.”
“Her appointment is testament to all that Melanie has achieved for the retail bank and its customers.”
Melanie has spent her career in financial services. Starting out with a St. George Bank cadetship in 1995, she later joined Westpac’s equities business in 2000. After a move to BT Financial Group in 2003, she spent a decade in product, brand, marketing, superannuation, platforms and investments leadership roles. Returning to banking within the Westpac Group as a Chief of Staff, she then went on to lead business units across mortgages, transformation and business banking.
Dr Laker congratulated Mr Sareen on accelerating the growth of ING in Australia over the past four years:
“Uday will be leaving a highly successful, customer focused bank with an excellent workplace culture. ING is now one of Australia’s most trusted brands.”
“Uday was always ambitious in his agenda for Australia and he delivered the results. We congratulate Uday on his new appointment and wish him continued success.”
“It’s been a privilege to have worked with Uday. He will be leaving behind a very different bank to the one he joined in 2016.”
Under Mr Sareen’s leadership, more than 1 million customers have joined ING Bank. Today the bank has 2.7 million customers and almost 1 million of them treat ING as their main bank. Mr Sareen has also overseen strong growth in ING’s wholesale banking activities in Australia.
Bridget Carter 5.48pm: Ares Management ‘in talks’ to buy wealth manager AMP
California-based private equity firm Ares Management is in talks to buy the $4.48 billion wealth manager AMP, according to sources.
Working for the buyout fund is understood to be investment bank Morgan Stanley.
Ares Management is a global alternative investment manager, operating across credit, private equity and real estate and has over $149bn in assets under management.
The company counts former Credit Suisse Australian head John Knox as its Australian and New Zealand chairman.
The interest by Ares comes after AMP has launched a review of its Australian business through investment banks Credit Suisse and Goldman Sachs.
The banks have been assessing options for the overall company, which could include a break-up of AMP.
The Australian-listed business comprises the AMP Capital real estate funds management division, its financial planning operation and its bank.
Earlier, talk emerged in the market that a buyout fund had been assessing an acquisition involving all of AMP.
Other buyout funds have been circling AMP but most have been eager to see the share price fall before making an approach.
Perry Williams 5.03pm: Cooper Investors dives into Ampol
Melbourne fund manager Cooper Investors has emerged as a substantial shareholder in fuel retail giant Ampol.
Cooper, which has $11bn in assets under management around the world, holds a 5.01 per cent stake in Ampol with control of 12.5m shares.
It built up its ownership in the last four months between June 29 and October 28.
Cooper paid between $23.52 and $29.60 for its shares.
Ampol closed at $25.41 on Thursday after trading as high as $35.96 in January.
Canada’s Alimentation Couche Tard walked away in April from its $35.25 takeover bid for Ampol, worth $8.8bn, blaming heightened economic uncertainty from Covid-19.
Bridget Carter 4.50pm: DDH1 Drilling prepares to IPO
Mining services provider DDH1 Drilling is believed to have carried out investor meetings this week for its initial public offering, which sources say is shaping up to secure support.
While it is yet to be finalised, expectations are mounting that the company will be looking to embark on a cornerstone process to lock in investor support up front.
So far, some investors are said to be interested in backing a potential cornerstone process.
The big question will be whether the company’s owner, Oaktree Capital Management, will be able to achieve the valuation of six times its earnings before interest, tax, depreciation and amortisation which it is said to be hoping to lock in or if it will have to lower its price to get a transaction away.
For the 2020 financial year, DDH1’s earnings before interest, tax, depreciation and amortisation was $64m which would take its market value to about $384m on a six times multiple.
However, the value is expected to depend on the size of the raising, with IPO raisings typically between 40 and 60 per cent.
The talk in the market on Thursday was that DDH1 was shaping up to win enough support to proceed with a transaction as the IPO market remains open for business for companies that are not impacted by the global pandemic.
Working on the float are investment banks Macquarie Capital, UBS and Bell Potter.
4.38pm: ASX down 1.6pc after global rout
Australia’s sharemarket succumbed to a global rout triggered by confirmation of new coronavirus lockdowns in France and Germany.
The S&P/ASX 200 share index closed down 1.6pc at 5960.3, its lowest close in 3 weeks, after falling as much as 1.9pc to a 3-week low of 5940 intraday.
Volume was light considering the volatility, suggesting there was a lack of conviction on the part of buyers, rather than heavy selling.
But there was obvious risk aversion in global markets as investors doubted the V-shaped recovery narrative and that spilled over to the Australian market despite its relatively better fundamentals.
S&P 500 futures rose more than 1 per cent in Asia-Pacfic trading, lending support, but all sectors closed in the red, with Energy, Tech, Consumer Discretionary, Materials, Industrials and Utilities underperforming.
Santos fell 5pc, Afterpay fell 3.3pc, JB Hi-Fi dived 6.2pc despite a strong sales report, BHP fell 2.2p, and Seek fell 5.9pc before a trading halt, after diving 11pc on a short selling report from Blue Orca Capital.
ANZ lost 2.4pc after its FY cash profit fell 42pc to $3.76bn as expected as bad debts surged and its second half dividend was slashed to 35 cents per share.
The Australian dollar was 0.26pc stronger against the US dollar by the close of the ASX session trading around US70.63c.
Jared Lynch 4.29pm: Holgate hits back at PM
Australia Post chief executive has fired back at Prime Minister Scott Morrison after she said he humiliated her in parliament and demanded she be stood down following revelations she spent almost $20,000 rewarding four senior executives with Cartier watches.
In a statement issued by her lawyer, Bryan Belling of Kingston Reid, Ms Holgate said she will “support a fair investigation” into Australia Post’s executive expenses but there was no legal reason for her to be stood down.
“It is now exactly seven days since Ms Holgate was the subject of a humiliating answer during Question Time,” Mr Belling said.
“In that time Ms Holgate has not had any proper notification that she has been stood down from her role, nor has she been informed as to why she should be stood down, nor has she had any communication regarding what the investigation into Australia Post from either the board or the government.”
The spending on the watches was revealed under question from Labor Senator Kimberley Kitching during Senate Estimates. Following the hearing, Mr Morrison said he was “appalled and shocked” by Cartier gifts, which were given to the executives who secured $66m a year from three of the big four banks to enable their customers to continue banking at post offices.
“We are the shareholders of Australia Post on behalf of the Australian people … she (Ms Holgate) has been instructed to stand aside. If she doesn’t wish to do that, she can go,” Mr Morrison said during Question Time last Thursday.
Perry Williams 3.26pm: Sth Korea’s carbon neutral pledge threatens coal, LNG demand
South Korea’s pledge to become carbon neutral by 2050 would require a dramatic cut in its use of fossil fuels although LNG is seen still playing a critical transition role in the nation’s move to renewable energy.
The Asian nation on Wednesday joined Japan and China in a major climate shift seen threatening demand for two of Australia’s biggest export earners. The three countries combined buy two-thirds of Australia’s coal and three-quarters of LNG exports.
Korea and Japan’s goals were described as “hugely aspirational and daunting” by consultancy Wood Mackenzie given both rely on hydrocarbons for 80 per cent of their primary energy supply. That will have to halve to a 40 per cent share by 2050 for the economies to meet their targets.
“Both countries have similar fuel mix with 80 per cent share of hydrocarbons in primary energy supply. Renewables, excluding hydro, is under 2 per cent while nuclear takes up 15 percent. The goals are hugely aspirational and daunting,” WoodMac Asia Pacific Head of Markets and Transitions Prakash Sharma said.
The move raises doubt over long-term demand for two of the nation’s key commodities although WoodMac said LNG would remain a critical commodity for Korea, which counts Australia as its second biggest market.
“South Korea also plans to phase out nuclear and shut down coal-fired power plants longer term. However, the timeline is not clear. This means a deep decarbonisation in South Korea will rely on faster adoption of new technologies. LNG will likely play a crucial role in South Korea’s transition.”
Eli Greenblat 3.24pm: First strike for Myer
At the Myer annual general meeting on Thursday the department store owner revealed it had received a 33.37 per cent vote against the adoption of its remuneration report and it will likely receive a first strike.
Veteran funds manager Geof Wilson did support the remuneration report but the retailer’s biggest shareholder, revel investor Solomon Lew, voted his 10.8 per cent against it.
According to proxy votes shown at the AGM, there were 211.54 million shares in favour of the remuneration report, or 65.84 per cent, but 107.23m shares against, representing 33.37 per cent against the adoption of the remuneration report.
Acting chairman JoAnne Stephenson said on these numbers it was likely Myer would earn a first strike.
Myer received a first strike against its remuneration report at the 2017 AGM and a second strike at the 2018 meeting but a spill of the board was unsuccessful.
At the AGM on Thursday there was also a 32.63 per cent vote against the granting of equity options to chief executive John King.
Ben Wilmot 3.16pm: Protest vote against AVJennings exec pay
Home builder AVJennings has copped a protest vote against its pay practices but is upbeat about the direction of the housing market so long as government stimulus packages are extended.
The company avoided a second strike but 18.37 per cent of votes at its AGM were cast against its remuneration report, down from last year when the listed developer copped a first strike when 38.9 per cent of votes were against.
AVJenning’s revenue fell by 11.5 per cent to $262.4m last year, largely due to a fall off in apartment revenues.
Despite the extraordinary challenges from the pandemic, revenue from land and traditional housing increased by 4.9 per cent to $246.4m. Margins increased for land and traditional housing in all states and NZ, with the exception in NSW, where they were hit by some price corrections, plus the relative impact of some projects that yield slightly lower margins.
The company has built up its land bank and now has l12,134 lots including land at Caboolture, Queensland of about 3,500 lots, under an option agreement.
Chairman Simon Cheong praised governments for ensuring the industry remains supported, most notably through the HomeBuilder scheme. “Without these schemes and support, current circumstances would be even more challenging,” he said.
Chief executive Peter Summers pointed to encouraging signs out of Victoria as lockdown restrictions are lifted. “Some easing has started in Melbourne after four months of lockdown,” he said.
He said the pandemic related lockdowns had quietened activity, but sales continued to be made even during lockdowns and inquiries ramped back up very quickly when they were eased. “This all indicates that there is real underlying demand,” Mr Summers said.
3pm: Myer acting chair calls out ‘damaging’ war of words
Myer’s acting chairman JoAnne Stephenson has told shareholders at the company’s annual general meeting today that the so-called war of words in the media is damaging to Myer’s brand.
“What Myer needs now, more than ever, is stability,” she said.
“A war of words in the media is damaging for customers, damaging for the Myer brand, and therefore damaging for you our shareholders.
“Through the challenging conditions presented in 2020 and looking to the future, each decision we make is in the interests of our customers, team members, and you, our valued shareholders.”
The comments follow a string of public attacks on Myer by retail billionaire and major shareholder Solomon Lew, who has previously criticised the department store’s board and executive team, amid what he called “disastrous and shameful” financial results.
Read more: Myer chair Garry Hounsell in shock exit
2.40pm: ASX hits new 3-week low
Australia’s share market remains fragile after an intraday bounce.
The S&P/ASX 200 fell 1.9pc to a new 3-week low of 5944.1 after bouncing from 5947.7 to 5989 intraday.
The renewed fall comes despite the bounce in US stock index futures - S&P 500 futures are up 1pc.
Technology remains weak, with Afterpay down 4.6pc, but Energy is now weakest with Santos down 4.5pc after WTI crude dived 5.5pc overnight.
Materials are also weighing as BHP falls 2.5pc to a 5-month low of $33.85 and Newcrest down 4.5pc after gold dived 1.6pc overnight.
Banks remain under pressure with ANZ down 2.9pc and Macquarie down 3.7pc to a 3-week low of $126.75 before its results next Friday week.
1.49pm: Number of Aussie businesses grows
The number of businesses in the Australian economy increased 0.7 per cent in the August quarter, after increasing 0.7 per cent in the May quarter, according to the latest ABS data.
Business entries were up 2.3 per cent and business exits were up 1.1 per cent.
“The last twelve months have been unprecedented in the scale and speed of changes impacting businesses, from the 2019-20 Australian bushfire season starting in late-2019, through to the COVID-19 pandemic impacting Australia from March 2020,” a statement released by the ABS said.
“These events have impacted businesses in different ways; some industries have been heavily restricted, for example the tourism industry resulting from bushfire evacuations and border closures due to COVID-19, yet for others this has been a period of growth or innovation.
“During this time there have been many policy announcements, particularly by the Commonwealth and State governments, aimed at supporting businesses.
“There have also been a variety of government restrictions implemented to help control the spread of COVID-19.”
1.14pm: Westpac reaches US class action settlement
Westpac has reached an agreement to settle the US bank bill swap rate class action, which was filed in August 2016 in the US District Court for the Southern District of New York.
The bank said in a statement to the ASX that the settlement, which remains subject to court approval, is not material and resolves all claims against the defendants without any admission of liability.
Westpac shares last down 1.9 per cent at $17.97.
1pm: Jumbo Interactive boasts strong first quarter
Jumbo Interactive chief executive Mike Veverka has talked up the lottery ticket retailer’s strong underlying growth at its annual general meeting today.
Mr Veverka told shareholders that during the first quarter, while large jackpots were down 38 per cent on the prior period, revenue had dropped just 2 per cent and that the company had posted a “significant” improvement in underlying performance.
“I am proud of the commitment and performance of our whole team in this challenging environment,” he said.
“We look to the future with the confidence that we have a resilient business in strong financial shape, allowing us to sustainably grow our customer base as we continue to invest in our existing businesses and capitalise on our options for growth.”
Jumbo Interactive shares last down 2.3 per cent at $11.13 each.
12.45pm: Democratic sweep best for Aussie shares: UBS
A Democratic Party sweep of the White House and Congress would be the “most positive” scenario for Australian equities, although that scenario to be the “most negative” scenario for US equities, according to UBS.
Of the three most likely scenarios - Republicans winning the White House and retaining control of the Senate, a Democratic sweep of the White House and Congress, and Democrats getting the White House but Republicans retaining control of the Senate - betting markets currently imply a Democratic sweep is the most likely outcome.
And while historically, Australian equities have outperformed in the year after an incumbent US president was re-elected, a Democratic sweep would likely be most positive for Australian equities, according to UBS Australia equity strategist Pieter Stoltz.
“Australia could benefit from stronger US economic growth under a Democratic sweep, particularly given the higher weight to cyclicals,” he says.
“Furthermore, while higher tax rates in the United States could drag on S&P 500 EPS, it would make Australia a relatively more attractive place to invest with the corporate tax rate differential potentially narrowing from 9 per cent to as low as 2 per cent.”
ASX-listed companies with US operations that could be affected by a potential increase in the US corporate tax rate include ResMed, Aristocrat, United Malt, James Hardie, Boral, BlueScope, Sims Metal Management, QBE Insurance, CSL, Brambles, Ansell, Orora, Breville, Macquarie, Sonic Healthcare, Cochlear,
Incitec Pivot, Orica, Nufarm, Appen and Altium. But general Industrial stocks like Amcor, Orora and Ansell could benefit from higher US economic growth as a result of stimulus, while for infrastructure stimulus specifically, Incitec Pivot’s high margin US explosives business stands to benefit.
Sims Metal Management and BlueScope could benefit from an increase in steel prices on the back of construction stimulus, according to Mr Stoltz.
But UBS global equity strategists view a Biden win with a Republican Senate as a good outcome for US equities as it would likely see Biden’s trade policy effectively combined with Trump’s status quo on tax policy.
“The status quo would also be good for US equities because taxes not increasing outweighs trade policy risks,” they say.
They say a Democratic sweep would likely be “most negative for US equities” due to proposed tax increases with a 28 per cent corporate tax rate, doubling in GILTI tax, 15 per cent minimum tax on book income and higher social security taxes more than offsetting the positive effects of stimulus on EPS.
UBS’s bottom up analysis on a stock level suggests the full implementation of Vice President Biden’s tax plan could drag S&P 500 EPS by 7.8 per cent.
But they assume less of the tax and spending increases are legislated, even under a Democratic sweep.
Eli Greenblat 12.30pm: Lew now wants all Myer directors gone
Myer’s biggest shareholder, Solomon Lew’s Premier Investments, has welcomed the shock resignation of the department store chain’s chairman Garry Hounsell only hours before the annual general meeting, calling it the “green shoot” that Myer shareholders have long been waiting for.
Mr Lew has also called for all other Myer directors to step down, or face an extraordinary general meeting where it is likely Mr Lew will seek a clean sweep out of the board.
“Mr Hounsell’s ousting signals to the entire board that their time is up,’’ said Mr Lew, whose Premier Investments owns 10.8 per cent of Myer and together with veteran funds manager Geoff Wilson decided to vote against Mr Hounsell’s re-election at the AGM and which prodded him to resign.
“In the interests of all shareholders, we expect the remaining Myer directors will now indicate their intention to step aside in an orderly manner or face an extraordinary general meeting at which they will be certainly dismissed.
“In Premier’s view, a global search for a new chairman is a waste of shareholders’ time and money.”
Mr Lew said for the sake of all of “Myer’s dedicated employees, its many hard working suppliers, its loyal but frustrated customers, and of course its long-suffering shareholders” the company needs to be restored to health by installing a new, independent board.
“Premier intends to continue to consult with other major shareholders and together we will reconstitute the Myer board with a majority of independent directors led by an independent chairperson. Premier will seek to have representation on the new Myer Board in line with its holding.”
12.17pm: Seek paused ahead of announcement
Seek shares have entered a trading pause pending a response to the short selling recommendation from Blue Orca Capital. Last down 5.9pc at $21.51 after falling 11pc to a 6-week low of $20.40.
Read more: Seek shares hit by ‘fake’ post claims by short-seller Blue Orca
12.05pm: ASX recovers some ground to noon
Australia’s share market has pared much of a sharp intraday fall.
The S&P/ASX 200 was down 1.1pc at 6989.9 after falling as much as 1.8pc to a 3-week low of 5947.7.
A negative reaction to a slump in global markets - on planned COVID lockdowns in France and Germany - was magnified by a short seller report on Seek.
Blue Orca Capital said Seek was worth 69pc less than Wednesday’s closing price, driving its shares down as much as 10pc before traders took some profit while waiting for Seek to respond.
The Technology, Energy, Materials, Consumer Discretionary and Industrials sectors underperformed with Afterpay down 3.5pc, Santos down 3.7pc, BHP down 1.8pc, Aristocrat down 2pc and Qantas down 2.8pc.
ANZ was down 1.9pc after its FY results met expectations albeit with a sharply lower dividend, while Macquarie was down 2.2pc before its results next week.
S&P 500 futures surged 0.9pc in Asian trading, pointing to a bounce on Wall Sreet.
Patrick Commins 12.01pm: ‘Encouraging” signs in business survey
The intense pressure and pessimism felt by the country’s business community eased in the September quarter, but the shadow of the COVID-19 recession and an uncertain path ahead continued to hang over employers despite “encouraging” signs in NAB’s quarterly business survey that an economic recovery had begun.
The reading of corporate conditions and confidence in the September quarter underlined that while the economy may have grown over the three months, as highlighted by Reserve Bank governor Guy Debelle this week, firms remain under pressure.
The report showed the surveyed firms recorded a “large turnaround” in profitability, trading and employment conditions versus three months earlier, when the nation had only begun emerging from the national lockdown to prevent the spread of the virus.
But NAB chief economist Alan Oster warned that “despite the strong gains, both conditions and confidence remain very weak”.
In particular, the gauge of businesses’ employment conditions “remains deeply negative and well below pre-COVID levels, suggesting that while there had been some improvement in activity in the quarter as the economy opened up, the impact on the labour market will lag”.
Similarly, Mr Oster said firms’ forward orders activity “saw a large improvement but remain negative, suggesting that the pipeline of work continues to shrink and that it may be harder to see further gains in capacity utilisation in the near term”.
The quarterly survey, which was conducted over the month to mid-September and includes twice the number of firms than the monthly versions, showed the business conditions index (an average of sales, profitability and employment) jumped 22 points to -4pts. Employment conditions are the most depressed at -14 points, with firms maintaining a negative hiring outlook over the coming three months.
Business confidence improved by 5pts to -10pts – still “deeply negative” – with confidence improving in all industries except retail and recreation and personal services, NAB said.
Eli Greenblat 11.54am: Mosaic Brands to shut more stores
Fashion retailer Mosaic Brands has warned that it will push ahead with its plans to close as many as 250 stores, on top of the 73 stores it has already shut since August, after negotiations with landlords failed to win over beneficial leasing deals.
In August during the depths of the COVID-19 pandemic, Mosaic Brands chief executive Scott Evans said his retail group could close down as many as 500 stores in its network of 1400 stores as ghost town shopping centres and landlords refusing to budge on rents encouraged the retail chain to shift its focus to online.
At the company’s annual general meeting Mr Evans said the retailer would be pushing on to close more stores.
“We’re encouraged that a number of landlords have in recent weeks come to the table on rental reductions but not all have and we expect up to a further 250 store closures by June 2021,” said Mr Evans.
In August Mr Evans, who Mosaic retail brands include Katies, Millers, Rivers and Noni B,
announced plans to close hundreds of stores, as he sought to wake up landlords to the new realities of a ravaged economy where rents need to reflect turnover.
In a further trading update at the AGM he online sales for the first quarter are up 31 per cent on the previous corresponding period with the amount of SKUs or items available on its websites growing from 150,000 to over 250,000 in just eight weeks.
Mr Evans said the growth of online, reduced discounting and a 50 per cent drop in inventory holdings, had seen margins grow to 67 per cent compared to 61.8 per cent for the same time last year.
“We’ve found ourselves in an unfamiliar position, for any retailer, where our customers have wanted to visit our stores but couldn’t – and we’re saying by and large that’s been for the best. With most restrictions lockdowns now lifted we are confident those customers will stir from that hibernation and resume visiting our loyalty brands. Exactly when they will have the confidence to return in-store is still unknown,” he said.
11.48am: Morgan Stanley tips M&A lift
Morgan Stanley equity strategists see the potential for Australia’s inbound and outbound corporate takeover activity to rise as the global cycle starts to turn up from low levels.
The team led by Chris Nicol has ranked ASX200 constituents by in its “Strategic Score” which looks at overall levels of value, where a company is in the capex cycle, and how the ownership structure is placed, as well as the share of global deal count involving a public M&A transaction in each company’s industry.
Those scoring at least 5 out of 6 include, Mayne Pharma, Nufarm, Estia Health, Monash IVF, Southern Cross Media, Computershare, Bravura Solutions, Infomedia, IRESS, EML Payments, Orocobre, MACA, South32, Origin Energy, Whitehaven, Vicinity Centres, GPT Group, Dexus, Challenger, FlexiGroup, Navigator Global, Scentre, Mirvac, GDI Property, and Abacus Property.
Companies have also been ranked in terms of their “Strategic Capability” to conduct M&A, based on valuation strength, balance sheet room, cash flow, share price momentum, earnings momentum and industry activity.
Those scoring at least 5 out of 6 in that list include BlueScope Steel, Data#3, Afterpay, Xero and NEXTDC.
“Valuations remain high for the ASX 200, yet the combination of policy-sustained low funding costs and expected lumpiness of COVID recovery could increase appetite for acquisitive and non-organic growth options,” the strategists say.
“Indeed liquidity has been backstopped, with equity and debt markets open to the willing and able.”
Industries in which deal flow momentum globally has been increasing include Software, Biotech and Consumer, while Banks, Resources and Telcos have been slower than the historical average.
Private equity is closing in on Link Administration and Coca-Cola European looks to have snared Coca-Cola Amatil.
The strategists also note that the window provided by fiscal stimulus where any capex to augment M&A expansion will be tax assisted until June 2022.
“In Australia, M&A activity is also low relative to history and looks to be troughing, sitting at about 75bn of deals over the past 12 months,” they say.
And heightened corporate activity could add further impetus for a potential “contagion effect” for corporate strategies.
“Companies and boards have largely been rewarded in recent years for keeping their powder dry, returning cash to shareholders, and managing aggressive cost-out plans to support earnings,” they say.
“Should investors start to reward acquisitive activity via rerating, the peer effect could lead accommodative balance sheets to be put to work further.”
Adeshola Ore 11.36am: Price pressures remain: MS
Morgan Stanley analysts have warned underlying price pressures remain subdued despite a partial rebound in September quarter inflation – with Australia’s reinflation cycle likely to lag the US.
The comments came after ABS data revealed on Wednesday that headline CPI increased strongly in Q3, up 1.6 per cent for the quarter and 0.7 per cent annually, in line with expectations and partially reversing the record decline in Q2.
“The recovery almost entirely reflected a partial normalisation of specific factors in the Q2 decline,” analysts led by Chris Read wrote.
But property rental prices, which fell again in the past three months, were a key drag on core prices and would remain subdued in coming quarters, they said.
Meanwhile, while global reflation was likely to rear its head in coming quarters, particularly in the US, benefits to Australian exporters would be moderated by a high Aussie dollar.
Robyn Ironside 11.30am: Qantas launches ‘flights to somewhere’
Buoyed by the success of its seven-hour scenic “flight to nowhere” which sold out in 10 minutes, Qantas has announced a series of scenic “flights to somewhere”.
Designed to highlight key Australian holiday destinations as state borders reopen, the first flight will carry 110 passengers on a Boeing 737 from Sydney to Uluru for an overnight stay on December 5.
Details of other scenic flights are being kept under wraps but Qantas CEO Alan Joyce said they were intended to “get people thinking about where they might holiday”.
“Across Qantas and Jetstar, we’re currently operating at just under 30 per cent of our pre-COVID domestic capacity and if borders continue to be relaxed, we’re hoping that will reach about 50 per cent by Christmas,” Mr Joyce said.
“That will be great news for a lot of people in the travel and tourism industry as well.”
He said now more borders were opening, Qantas was partnering with tourism operators to offer “special flights to special destinations”.
Qantas shares last down 3 per cent at $4.30.
Read more: Qantas to launch scenic flights with trip to Uluru
10.46am: Seek shares hit by short-seller
Seek shares sank after a short-selling recommendation from Blue Orca Capital, Canada, which gives a valuation of $7.20 per share, implying 69pc downside from its last traded price.
Seek shares were down 9pc at $21.05 after hitting a five-week low of $20.40.
Blue Orca’s report says Seek’s legacy platform in Australia is “stagnating” but Seek trades at 404 times forward earnings because of the company’s claims that its most important business, Chinese online recruiting platform Zhaopin, is China’s number one player and growing rapidly.
“In FY 2020, Zhaopin accounted for 48pc of the company’s consolidated revenues, and was Seek’s only segment which reportedly grew revenues and profits,” the report says.
“However, our due diligence reveals that Zhaopin’s platform is inundated with fake postings by companies which were deregistered, in liquidation or flagged as ‘abnormal operations’ by Chinese authorities.
“Companies we called about their job postings on the website even stated directly that the posts were fraudulent. Our due diligence also uncovered a whistleblower claim by a Chinese college student alleging that Zhaopin pays people to submit fake resumes.”
Blue Orca says Zhaopin’s platform is “rotten”, which is “devastating for Seek’s prospects”.
It notes that Seek has historically paid a dividend, “giving the false impression that its business produces healthy profits and cash flows”, but notes these payments have been largely funded by debt.
“A serial acquirer, Seek has repeatedly tapped the capital markets to fund acquisitions, raising its net debt-to-reported EBITDA to 3.2x. By our calculation, Seek’s true leverage is much higher.
“Rather than valuing Seek as a fast-growing online recruiting platform, we value Seek for what it is—a slow or no-growth platform whose core business is shrinking and which carries a dangerous amount of debt.”
Lachlan Moffet Gray 10.40am: Prospa hails loan bounce
Online small business lender Prospa is seeing the number of loans it originates begin to recover following a COVID-19 downturn in business demand for debt.
In a trading update released to the market on Thursday the company said the amount of loans originated in the first quarter of the financial year increased by 265.3 per cent over the prior quarter.
However, the amount is still down by 38.5 per cent compared to the first quarter of the previous financial year and revenue remains 27 per cent lower than a year ago at $28.1m.
Excluding the loans originated under the government’s guarantee scheme - which ended on September 30 - loans originated were up 107 per cent quarter to quarter.
Prospa CEO Greg Moshal said this demonstrated a return of confidence to the economy.
“Challenging COVID-19 operating conditions continued in 1Q21; however, it has been encouraging to see signs of a steady, yet modest increase in confidence amongst our small business customers,” he said.
Mr Moshal did not provide guidance and said he expected recovery to be overall slow despite “positive tailwinds.”
The company opened at 78 cents a share, up 6.12 per cent.
Ben Wilmot 10.38am: Jefferies analysts back Lendlease
Global developer and builder Lendlease’s placemaking abilities, updated strategy and attractive development pipeline make it an attractive investment, according to Jefferies analysts who have initiated coverage with a buy and a $14.69 price target.
Analysts Sholto Maconochie and Andrew Dodds said as governments seek to grow economies and fast track large-scale urbanisation projects post-COVID-19, Lendlease was well-positioned to benefit.
“Under its revised strategy, we expect Lendlease to deliver double-digit funds under management, assets under management, investment and earning per share growth over the medium-to-long term resulting in multiple and return on equity expansion,” they said.
“We are believers in an integrated model with Lendlease able to leverage its construction, development and investment segments to execute on its $113bn urbanisation development pipeline in global gateway cities to create more than $50bn of high quality institutional, investment-grade assets across its platform,” the analysts said.
“Whilst C-19 has pushed back developments and construction, we see this as temporary given low bond rates, demand from capital partners for yield, coupled with governments’ desire globally to grow economies post C-19 with trusted developers and partners with proven track records of execution.”
Eli Greenblat 10.34am: Myer chair Hounsell in shock move to stand down
Myer has announced only hours before its AGM that its chairman Garry Hounsell will retire as a director and will not seek re-election after the retailer’s two biggest shareholders, Wilson Asset Management and billionaire Solomon Lew, decided to vote against his tenure on the board.
It hands a major victory to the billionaire retailer Mr Lew who has been stalking the Myer board for more than three years to eject the directors, including Mr Hounsell, and slot in his own hand-picked candidates. Mr Lew has also been recently highly critical of chief executive John King and it is unclear whether his position is now at threat.
Mr Hounsell’s position became untenable when the company realised Geoff Wilson’s WAM would be voting its 7.8 per cent stake against Mr Hounsell’s re-election and that combined with Mr Lew’s 10.8 per cent stake he could face defeat.
Mr Wilson welcomed the decision and told The Australian on Thursday: “We believe Myer will benefit from clear air following a challenging period for the company. We expect that management can now stay focused and work towards delivering for shareholders during the Christmas season.”
10.26am: Stocks sink sharply at the open
Australia’s share market opened sharply weaker after offshore markets plunged.
The S&P/ASX 200 fell 100 points or 1.7c to a four-week low of 5954.9.
But S&P 500 futures rose 0.5pc, suggesting Wall Street might bounce after the US benchmark plunged 3.5pc amid worsening European and US trends in COVID and mobility restrictions.
Technology an
d Energy are the weakest sectors as they were in the US market, while the safe-haven Consumer Staples, Utilities, Health care and Communications sectors are outperforming.
Afterpay down 3.8pc despite a 13pc higher price target at Bell Potter today, while Woodside lost 2.5pc after WTI crude oil fell 5.5pc to $37.39 and BHP lost 2.3pc.
While the Financials sector is slightly outperforming, ANZ is down 2.8pc after slashing its dividend and Macquarie is down 2.9pc before its results next week.
10.24am: Helloworld revenue plunges 87pc
Travel company Helloworld has unveiled a 86.8 per cent drop in revenue as total transaction value slid 90.6 per cent for the September quarter, compared to the same period last year.
Still, underlying EBITDA loss for the quarter was $4.1m, well below the $6m the company had previously forecast.
Based on current expectations, the company said it would continue to incur underlying EBITDA losses of between $1.5m and $2m per month for the next six months, before moving to a break-even or better position in the fourth quarter of the 2021 financial year.
“This is conditional upon all domestic borders being open by Q421 and reasonable travel bubbles being open around the Pacific, Japan and Asia for Australians and New Zealanders.
“Helloworld has sufficient liquidity to maintain operations well into 2022 or longer based on current liquidity levels and cash burn rate.”
The company said that it remained optimistic that travel bubbles will be established with countries such as Japan, Singapore, South Korea, China and other relatively COVID-safe nations throughout 2021 with direct non-stop air services opening up.
It said long-haul international outbound travel was not expected to resume with any material volume to Europe or the US until late 2021 or early 2022, and that a full return to pre-COVID levels is conditional upon a vaccine or cure being developed and distributed.
Read more: Helloworld reports pent-up demand for travel, big hit to revenues
10.13am: ANZ looks for openings in times of crisis
ANZ chief executive Shayne Elloitt says there are opportunities emerging for banks through the COVID crisis.
He also talks about “great companies” emerging through times of crisis. He points out that tech companies like a Microsoft or an Apple or Airbnb, “all came about at a time of recession”. That’s when they started because they were meeting these unmet needs.
“What we do know that through history, in times of crisis – which is just extreme periods of change – customers have suddenly all these new needs, these unmet needs. So the banks that can prepare for that and meet some of those needs are going to be the banks that survive,”
Elliott said after handing down full year result marred by a three-fold increase in credit charges. This slashed ANZ Bank’s cash profit by 42 per cent and net profit by 40 per cent to $3.58bn, leading to sharply lower final dividend.
He notes: “More and more people are going to be remote working, more and more businesses are going to have to invest in different sort of logistics solutions for moving goods around.
“Because of a lot of the geopolitical issues that we have around the world, big companies are thinking increasingly about diversifying their supply chains. Where do I get my goods from, where do I sell them etc.? All of that opens up opportunities for us to be able to pivot our resources to help.
“And it’ll be in our core businesses – helping people buy and own a home, helping people start and run a small business, and helping… facilitating the movement of goods and capital around the region,” he says.
Shares in ANZ opened at $18.58, down 3 per cent.
10.00am: Fortescue ships record iron ore volumes
Fortescue Metals shipped a record 44.3 million tonnes of iron ore in its fiscal first quarter, as it capitalised on a sustained period of high prices for the steel-making commodity.
Fortescue said quarterly shipments were 5pc higher than a year ago, while C1 costs were 2pc lower at $U$12.74 per wet metric tonne.
The Australian miner said its average revenue in the quarter was $US106 per tonne, helping it to return to a net cash position of $US1.0 billion at the end of September from $US300 million in net debt on June 30.
“Fortescue has delivered a strong start to the 2021 fiscal year across all key measures of safety, production and cost,” chief executive Elizabeth Gaines said. “Robust demand from our customers contributed to an increase in revenue realization, 31 per cent higher than the June Quarter and above the 27 per cent increase in the average Platts 62 per cent CFR Index.”
On Thursday, Fortescue kept its guidance for shipments, C1 costs and capital expenditure in fiscal 2021 unchanged.
Dow Jones Newswires
Eli Greenblat 9.56am: JB Hi-Fi sales surge 27pc, but no guidance
Consumer electronics retailer JB Hi-Fi says strong consumer demand for its range of computers, tech devices, home appliances and TVs has continued into the first quarter, but given the uncertainty around the COVID-19 pandemic and the economy it has stopped short of providing sales guidance for 2021.
The company, which also owns The Good Guys chain of whitegoods stores, said following the lifting of tight restrictions in Victoria its stores in Melbourne would now open for in-store customers.
JB Hi-Fi chief executive Richard Murray provided a trading update in the lead up to the company’s annual general meeting on Thursday which showed the spike in sales experienced through the early months of the pandemic had pushed into the first three months of fiscal 2021.
Mr Murray said that for the period July 1 to September 30, JB HI-FI Australia total sales growth was 27.3 per cent, against 4.7 per cent for the same time last year, with comparable sales growth of 27.6 per cent, against 3.7 per cent in 2020.
JB HI-FI New Zealand total sales growth was down 2.5 per cent (previous corresponding period 3.8 per cent), with comparable sales growth of dow 2.5 per cent (pcp: 3.8 per cent); and The Good Guys total sales growth was 30.9 per cent against a fall of 0.5 per cent last year, with comparable sales growth of 30.9 per cent (pcp: -1.8 per cent).
Mr Murray said he was pleased to report very strong comparable sales growth in Australia, even with its metropolitan Melbourne stores temporarily closed to customers during this period.
9.50am: ASX fall may be good for buyers
An expected sharp fall in the Australian sharemarket may give a medium term buying opportunity.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 1.7pc at 5954.6.
That would mark a 4.7pc fall from the rebound high of 6248.3. A closing fall of that size would equal Tuesday’s fall which was the biggest in four weeks. A fall today would be the 5th in the past six days.
The S&P 500 fell 3.5pc to 3271 amid worsening coronavirus trends and restrictions with France announcing a nationwide lockdown, Germany flagging a partial lockdown and record COVID cases throughout Europe and the US.
The S&P 500 now looks set to test its September low at 3200 which is 1.9pc lower. A break there could test the 200-day moving average at 3130 which is 4.2pc lower.
With US fiscal stimulus on hold until after the election and no vaccine to prevent the need for mobility restrictions in Europe and the US, the concern now is that the expected V-shaped economic recovery will be W-shaped at best.
But with 10 COVID vaccines in phase 3 trials, major US fiscal stimulus expected after the election and central banks prepared to increase their asset buying, shares could quickly look through the latest lockdowns.
With the S&P 500 now 8.8pc off the record high, US financials conditions at the tightest since late June, central banks could easily increase their asset buying, with the BoJ and ECB meeting today.
By the time Australian markets reopen on Friday, the S&P 500 may well have bounced off its September low, causing a scramble to buy Australian shares.
The technical picture for the local market is bullish, with key moving averages recently crossing over positively and the 200-day moving average offering support at 5871.
Australia’s fundamentals also support outperformance, with minimal COVID and restrictions, less exposure to European markets, world-leading fiscal stimulus and the RBA expected to cut rates and start QE next month.
ANZ’s results and dividend met expectations, JB Hi-Fi and Reliance Worldwide have reported very strong sales, and Challenger expects to restart dividends this year.
9.30am: Good start, but Reliance cautious
Plumbing supplies business Reliance Worldwide has touted a strong start to the new financial year in a statement to the market ahead of its annual general meeting today.
Group net sales for the September quarter were up 14 per cent on the prior period.
Still, chief executive Heath Sharp said the company remained cautious on the remainder of the financial year, and said the company would not provide a full year earnings guidance.
“While we are pleased to have started the year so strongly, forward visibility remains limited in most markets due to the ongoing impacts of COVID-19,” Mr Sharp will tell shareholders at the company’s AGM today.
“The US has been boosted by the surge in DIY activity and the return of construction activity to pre-COVID levels, but without further government stimulus measures this growth may slow.
“We continue to expect some softening in the Australian market as the reduction in new housing construction approvals leads to lower building activity.
“In the UK we are uncertain as to where underlying demand levels will settle once the pent-up demand for products and plumbing services has been satisfied.”
8.46am: GPT welcomes office, mall reopenings
Commercial property giant GPT has lifted rent collections to 90 per cent of billings for the third quarter, up from 67 per cent in the second quarter.
Retail collections increased to 81 per cent of billings in the third quarter, up from 36 per cent in the second quarter. Meanwhile rent collections in the company’s office portfolio were at 96 per cent of billings while logistics collections were at 100 per cent.
“It is pleasing to see that outside of Victoria, activity has increased and we are seeing customers return to our office buildings and shopping centres,” chief executive Bob Johnston said.
“We have made steady progress with leasing transactions and rent collection has been strong during the quarter.
“Our logistics portfolio continues to deliver excellent results, benefitting from sustained demand from both existing and new customers, and our strong balance sheet positions us well for the post COVID-19 recovery.”
Still, the company said the business conditions remained subdued and that given the ongoing impact of the coronavirus crisis on its operations, its full year guidance and distribution remained withdrawn.
8.39am: Super release hits IOOF flows
Wealth manager IOOF says it paid out $619m in early release super for the September quarter, which has impacted net flows for the period.
Still, the company said funds under management, advice and administration had lifted $529 million to $202.8bn for the September quarter, compared to the same period a year ago.
“The broad ranging impacts of COVID-19 have continued to affect flows, particularly early release of super, however, our scale, economic diversity and business strength contributed to the maintenance of a steady FUMA position,” chief executive Renato Mota said in a statement to the ASX.
“It has been pleasing to see the business continue to make progress on key transformation deliverables as well as progress in the approvals of and preparation for the acquisition of MLC.”
8.35am: Newcrest output drops 12pc
Newcrest Mining said its first-quarter gold output fell 12pc due to planned shutdowns at key operations, while forecasting an improved performance in the three months through December.
Newcrest reported production of 503,089 troy ounces of gold in the three months through September, down from 573,175 ounces in the final quarter of the 2020 fiscal year.
Copper output was also weaker at 34,763 tonnes compared to 40,196 tonnes in the prior quarter.
All-in sustaining costs for the September quarter averaged $US980 an ounce, up 12 per cent on the previous quarter, due partly to the stronger Australian dollar and Canadian dollar pushing up operating costs of its Cadia, Telfer and Red Chris operations. Lower gold production and an increase in stripping activity at the Lihir mine in Papua New Guinea and lower copper sales volumes also had an impact.
“We expect production to be higher in the December quarter and the company is on track to meet its fiscal 2021 production guidance,” chief executive Sandeep Biswas said. “Our world-class Cadia asset continues to impress, reporting its lowest ever quarterly all-in sustaining cost of $US113 per ounce, equating to an AISC margin of $US1,724 per ounce for the quarter.”
Dow Jones Newswires
8.15am: REA takes control of India’s Elara
Online real estate ad company REA Group says it has taken a controlling interest in Indian
digital property business Elara Technologies for up to $US70m.
REA currently holds a 13.5pc shareholding in Elara but after completion of the deal it will hold five out of nine board seats and expects to have a shareholding of between 47.2 per cent and 61.1 per cent.
Total consideration for the transaction is expected to be in the range of $US50m –
$US70m, with $US34.5m payable out of existing cash reserves and the balance in newly
issued REA shares.
The transaction remains subject to confirmatory due diligence and the renegotiation of key management employment contracts, but is anticipated to be completed in Q2 FY21.
Elara operates India’s fastest growing digital real estate business in terms of audience,
with established brands Housing.com, PropTiger.com and Makaan.com operating in the
world’s fastest growing trillion-dollar economy.
“With over 700 million internet users and roughly half a billion yet to come online, our increased investment in Elara will allow REA to be at the forefront of the considerable long-term opportunities within India,” REA Group CEO Owen Wilson said.
REA Group is a subsidiary of News Corporaton, publisher of The Australian.
7.34am: ANZ full-year cash profit falls 42pc
ANZ says full-year cash profit has plunged 42 per cent to $3.76 billion, as it absorbed one-off items including impairment charges related to the impact of COVID-19.
Statutory net profit was down 40 per cent to $3.57bn.
“This decrease was primarily driven by full-year credit impairment charges of $2.74 billion, which increased from prior year due to the impact of COVID-19 and a first half impairment of Asian associates of $815 million, also related to the pandemic,” ANZ told the ASX.
The bank declared a final dividend of 35c per share, compared with 80c a year ago. Its full-year payout dropped to 60c from $1.60 in fiscal 2019, having paid a deferred interim dividend of 25 cents on September 30.
ANZ’s common equity tier 1 capital ratio “remained strong” at 11.3pc, while return on
equity decreased to 6.2pc.
It came after ANZ warned earlier this week that second-half 2020 cash profit would be dented by an after-tax charge of $528m due to large notable items, including costs to compensate and repay customers and accelerated software amortisation.
The bank warned statutory profit would also see a hit by a similar amount as cash earnings and noted the charge would have about a five-basis-point impact on common equity tier one capital.
ANZ’s update follows Westpac outlining new provisions and charges on Monday, while National Australia Bank aired its profit hit last week.
Both Westpac and NAB report earnings for the 12 months ended September 30 next week.
7.15am: ASX set for steep fall at open
Australian stocks are poised to sink at the open amid a global market rout, as rising coronavirus infections shake investors’ confidence in the global economic recovery.
At about 7.00am, the SPI futures index was down 103 points, or about 1.7 per cent.
Yesterday, Australian stocks recovered from a weak morning to enter positive territory despite further pressure on global markets, snapping a losing streak.
The Australian dollar was down at US70.57.
Brent oil pluned 5.0pc to $US39.12 a barrel.
7.10am: Wall Street sharply lower on rising infections
US stocks sold off as rising coronavirus infections shook investors’ confidence in the global economic recovery and sent them toward the safety of Treasurys and the dollar.
All three major indexes were on pace for their worst week since the week ending March 20. The Dow industrials lost 942 points, or 3.4 per cent, its fourth losing session in a row.
The S&P 500 fell even more, 3.5 per cent, its third consecutive retreat. The benchmark has slipped more than 7 per cent from its record closing level in early September and its gains for the year now stand around 1.3 per cent.
The Nasdaq Composite dropped 3.7 per cent.
The stock prices of Facebook, Google parent Alphabet and Twitter dropped roughly 5 per cent each after their chief executives squared off against US senators in a congressional hearing over their companies’ roles moderating public discourse.
Stocks have slid lower this week on a raft of uncertainties, sparking discussion from investors about whether the sell-off marked a buying opportunity or a turn in the market.
Worsening coronavirus case numbers may make more stringent restrictions imperative across the U.S. and Europe, potentially dealing a setback to a fragile economic recovery. New U.S. cases climbed back above 70,000 as states across the country continued to report high levels of fresh infections.
“A month ago, the narrative in the market was very much that lockdowns would be limited and targeted, and so would have a smaller impact on the economy,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. “But now, what we are seeing is broader concerns that lockdowns might be wider and have a much wider impact.”
The U.S. reported more than 73,200 new cases Tuesday, the second daily increase in a row, according to data compiled by Johns Hopkins University.
Susan Webb, founder and chief investment officer of outsourced investment firm Appomattox, said the market was factoring in fears that shutdowns would stall 20 per cent of the domestic economy -- that related to sectors such as travel, entertainment and restaurants -- and hit the economies of tourism-dependent countries such as Spain and Italy.
She also attributed some of the sell-off to investors rebalancing their portfolios as they assess the virus’s hold in different geographies.
Investors also remain leery about the U.S. election, and whether delays in counting mail-in ballots may lead to uncertainty in the days after the November 3 election. The S&P 500 as of midday was on pace for its worst week before the presidential election on record.
Hopes have also faded that talks between the White House and Democrats would produce agreement over a fresh package of stimulus measures before the election, propping up the economic recovery.
Commodity markets were also under pressure with Brent crude, the international benchmark for oil, falling 5 per cent to $US39.12 a barrel.
As risk appetite waned, investors sought the safety of US government bonds. The yield on the 10-year Treasury slipped to 0.764pc, from 0.778pc on Tuesday.
European markets have been particularly hard hit as the Continent grapples with a surge of new cases and governments in France and Germany consider stricter lockdowns. The pan-continental Stoxx Europe 600 fell 2.95pc to its lowest level since May.
Dow Jones Newswires
6.50am: France announces new virus lockdown
French President Emmanuel Macron announced a new lockdown aimed at halting an alarming acceleration of Covid-19 cases, to take effect from Thursday night until “at least December 1”.
Bars, restaurants and non-essential businesses will be forced to close, but unlike during the two-month lockdown imposed last spring, students will continue to go to school, Macron said during a televised address.
AFP
6.45am: LVMH, Tiffany near merger deal
Tiffany has agreed to accept a lower price from LVMH in order to seal a merger that had been close to collapsing, two sources involved in the talks said.
French luxury giant LVMH will pay $US131 or $US131.50 a share for the high-end jeweller instead of the $US135 in the original takeover proposal, according to a preliminary agreement, said one of the sources.
The other source said the final price would be $US131.50, the amount proposed by Tiffany.
At $US131.50, the price of the merger deal would fall to $US15.96 billion, a drop of about $US425 million based on Tiffany’s share count in US securities documents.
The two parties are now happy with the agreement, said one of the sources, who added that the tie-up could close in January.
An announcement is expected later today from Paris-based LVMH. Neither company responded immediately to requests for comment. The parent to luxury brands such as Louis Vuitton, Dior and Moet & Chandon, LVMH announced its plan to acquire Tiffany and it’s iconic robin’s egg blue gift boxes at the end of 2019.
But the French company walked away from its proposal last month after claiming a series of poor decisions by Tiffany’s board since the deal was unveiled late last year.
Tiffany has said there was no valid basis to call off the deal and lodged a complaint in a Delaware court, while LVMH responded with a counter-claim.
The US court has set a trial date of January 5, 2021, while a judge in Delaware has urged talks between the parties to avoid litigation.
AFP
5.30am: US stocks sell-off deepens on Covid concerns
US stocks sold off as rising coronavirus infections shook investors’ confidence in the global economic recovery and sent them toward the safety of Treasurys and the dollar.
In afternoon trade the S&P 500 dropped 3.1 per cent, suggesting the broad index will retreat for its third consecutive session. The benchmark has slipped more than 7 per cent from its record closing level in early September and its gains for the year now stand around 2 per cent.
The Dow industrials lost 872 points, or 3.2 per cent. The Nasdaq Composite also retreated 3.4 per cent.
The selling was broad based and appeared to favour the safest assets, especially short-term government bonds and the US dollar. Along with stocks, oil and emerging market currencies tumbled. Even gold, considered a haven in stormy markets, was nearly 2 per cent lower.
Worsening coronavirus case numbers may make more stringent restrictions imperative across the US and Europe, potentially dealing a setback to a fragile economic recovery. New US cases climbed back above 70,000 as states across the country continued to report high levels of fresh infections.
“A month ago, the narrative in the market was very much that lockdowns would be limited and targeted, and so would have a smaller impact on the economy,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. “But now, what we are seeing is broader concerns that lockdowns might be wider and have a much wider impact.”
Investors also remain leery about the US election, and whether delays in counting mail-in ballots may lead to uncertainty in the days after the November 3 election.
Hopes have also faded that talks between the White House and Democrats would produce agreement over a fresh package of stimulus measures before the election, propping up the economic recovery.
Commodity markets were also under pressure with Brent crude, the international benchmark for oil, falling 5.4 per cent to $US39.38 a barrel.
European markets have been particularly hard hit as the Continent grapples with a surge of new cases and governments in France and Germany consider stricter lockdowns. The pan-continental Stoxx Europe 600 fell 2.95 per cent to its lowest level since May.
In Asia, major stock benchmarks ended the day on a mixed note. Japan’s Nikkei 225 dropped 0.3 per cent while China’s Shanghai Composite Index closed up 0.5 per cent.
Dow Jones
5.10am: Tech CEOs grilled over online speech
Chiefs of the largest social-media companies tangled with US senators over their role in public discourse six days before the end of an election that has made them the target of criticism across the political spectrum.
Facebook. Chief Executive Mark Zuckerberg, Twitter CEO Jack Dorsey and Sundar Pichai, CEO of Google and YouTube owner Alphabet. have spent the years since the 2016 election rewriting their policies and taking a more active role in moderating online speech -- in part to avoid a spotlight like the one placed on them Wednesday.
Instead, the hearing reflected deep discontent with social-media platforms’ power -- and equally deep divisions about how to address it. The session featured partisan charges and countercharges as well as frequent testy exchanges between senators and the CEOs.
Mr. Dorsey faced perhaps the harshest questions, including queries about Twitter’s decisions to label President Trumps’ tweets and to temporarily block users from linking to recent New York Post articles that made allegations about Democratic presidential nominee Joe Biden, which his campaign has denied.
The hearing’s nominal topic was Section 230 of the 1996 Communications Decency Act, which gives online companies broad immunity from legal liability for user-generated content and wide latitude to control what appears on their platforms.
The tech executives defended Section 230, with Messrs. Zuckerberg and Dorsey saying they strive to balance users’ right to free expression with the need to protect public safety. They argued Section 230 gives them the tools to strike that balance, though they appeared to signal openness to moderate changes.
Dow Jones Newswires
5.05am: Insurer exits Adani mine
Apollo Syndicate Management, which is part of the Lloyd’s of London insurance market, doesn’t plan to keep underwriting the construction of Adani Mining’s Carmichael coal mine in Australia, joining other insurers that have backed away from one of the world’s biggest coal projects amid pressure from environmentalists and dim long-term prospects for coal.
Julian Cusack, chair of the board of directors at Apollo Syndicate, told non-profit Market Forces that Apollo Syndicate was underwriting “one construction liability policy” for Adani’s mine but that policy terminates September 2021 and the firm won’t provide anymore insurance, including for the project’s port and rail extension, according to emails reviewed by The Wall Street Journal.
“We will not participate in any further insurance policies for risks associated with this project,” he said. Mr Cusack confirmed to the Journal that he wrote the email, but didn’t provide additional comment.
The Stop Adani environmentalist campaign said that Apollo Syndicate is the 27th insurer and 17th Lloyd’s of London insurer to rule out the mine. Lloyd’s of London, the world’s oldest insurance market, said in 2018 that it would divest from coal but doesn’t have a coal policy for underwriters like Apollo Syndicate that are part of its market.
Many big European insurers, including Swiss Re AG and Zurich Insurance Group AG, have said they would stop backing coal projects.
Dow Jones
5.00am: Virus surge, restrictions batter markets
European and US stock markets tanked while oil prices plunged over 5 per cent as investors braced for the apparently imminent introduction of tighter lockdown measures to combat soaring coronavirus infection rates, dealers said.
Frankfurt ended the day down 4.2 per cent, Paris fell by 3.4 per cent and London lost 2.6 per cent, with sentiment plagued by an alarming surge in COVID-19 cases in Europe and the United States -- and a spike in deaths.
More than 500,000 new coronavirus cases were reported worldwide on Tuesday in a new record, according to a tally compiled by AFP.
Wall Street’s main indices also slumped, with the Dow down 2.7 per cent in midday trading, having earlier been down over 3 per cent.
French President Emmanuel Macron will address the nation this evening to present tougher restrictions as doctors warned many hospitals are just days away from being overrun with patients.
Media speculation is rife that Macron will announce a second lockdown, one day after officials announced 523 coronavirus deaths in 24 hours -- the highest daily toll since April.
German Chancellor Angela Merkel also unveiled drastic new curbs, including fresh shutdowns hitting leisure, sports and the food and drink sectors, just after trading ended.
“Grim. That’s the only word that can describe the markets on Wednesday,” said Spreadex analyst Connor Campbell.
“Investors’ COVID-19 fears (are) attacking stock prices in ways not seen since the start of the Western phase of the pandemic back in March.
With US lawmakers unlikely to agree any new rescue package before Tuesday’s presidential election, analysts said the new wave of virus infections and lingering uncertainty over the vote mean equities will face a wobbly few days.
Meanwhile, the prospects of a double-dip recession as new restrictions choke off the recovery seen in the third quarter of the year.
Shutdowns also dampen demand for oil, which saw prices tumble more than 5 per cent.
“Dealers were dumping oil as they took the view that demand is likely to decline on the back of the growing health crisis,” said market analyst David Madden at CMC Markets UK,
AFP
4.58am: LVMH, Tiffany near merger deal
Tiffany has agreed to accept a lower price from LVMH in order to seal a merger that had been close to collapsing, a source involved in the talks told AFP.
French luxury giant LVMH will pay $US131 or $US131.50 per-share for the jeweller instead of the $US135 in the original takeover proposal, according to a preliminary agreement, the person said.
AFP
4.55am: Nigerian WTO pick opposed by US
Key WTO ambassadors tapped Nigeria’s Ngozi Okonjo-Iweala as the best pick to lead the organisation, but she was opposed by Washington, who said it supported South Korean Trade Minister Yoo Myung-hee instead.
The so-called troika of ambassadors heading the World Trade Organization’s three main branches determined after four months of consultations with member states that Okonjo-Iweala was the most likely to obtain the consensus needed to take the top job, paving the way for her to become the first woman and the first African at its helm.
But the US opposition cast doubt on whether she could obtain the necessary full backing from member states.
AFP
4.50am: Amazon’s Sweden launch marred by errors
Amazon launched its e-commerce site in Sweden but the online retailer’s debut was marred by spelling mistakes and translation errors.
The Amazon.se site is Amazon’s first move into the Nordic countries although Swedes have long been able to order goods from British and German Amazon sites.
Early shoppers were quick to point out a slew of spelling mistakes on the Swedish site and translation errors, such as a greeting card with a rooster being described with a rude reference to male genitalia.
Some speculated the mistakes may have been part of the company’s marketing strategy.
But Nicklas Storakers, CEO of price comparison site Pricerunner, called the launch “the worst botched work I have ever seen,” in comments to the website Breakit.
He also noted an apparent lack of launch day discounts.
AFP
4.45am: Oil sinks more than 5pc
Oil prices slumped, shedding more than five per cent as traders fretted that the worsening coronavirus crisis would further slash the world’s appetite for crude.
West Texas Intermediate crude for delivery in December, was down 5.4 per cent to $US37.44 per barrel. London’s Brent North Sea crude for the same month lost 4.6 per cent at $US39.32.
“The second wave of Covid has hit and (there is) probably another one to come, with restrictions curtailing movement of people and the shutting down of businesses, impacting rapidly on demand for oil,” Alfa Energy chairman John Hall said.
“We also have higher-than-expected stockpile in the US following the recent storms so, overall the industry is not going to get up and running just yet.” Rising inventories in the United States indicate weaker demand in the key crude consuming nation, and therefore tend to push prices lower.
Oil’s latest losses meanwhile mirrored a broader sell-off on global stock markets.
AFP
4.40am: Boeing to cut 7000 more jobs, posts another loss
Pressured by another quarterly loss, Boeing announced Wednesday additional job cuts as it adapts to a prolonged downturn in the aviation industry.
The plane maker, which has been in belt-tightening mode throughout 2020, plans to eliminate about 7000 more jobs through the end of 2021. The headcount at that time will be around 130,000, down from 160,000 in January of this year.
Boeing reported a third-quarter loss of $US449 million, compared with profits of $US1.2 billion in the year-ago period.
Revenues fell 29.2 per cent to $US14.1 billion.
A sharp drop in commercial plane travel has prompted airlines to cancel plane orders or defer deliveries, crimping Boeing’s revenues.
On top of that, the company’s finances have been under pressure due to the grounding since March 2019 of the Boeing 737 MAX, which is nearing regulatory approval to resume service after a lengthy oversight process with air travel authorities.
AFP
4.35am: GE reports smaller loss
General Electric reported a smaller quarterly loss on lower revenues and a continued slump in aviation, but said it would be cashflow positive in 2021 following cost-cutting moves.
Shares of the industrial giant pushed higher in pre-market trading despite some negative points in the earnings report, including a third-quarter drop in orders in all four of its business segments.
GE Chief Executive Larry Culp said the company had boosted profit margins in every segment except aviation when currency effects were stripped out.
GE reported a loss of $US1.2 billion in the quarter, compared with a loss in the year-ago period of $US9.5 billion that was inflated by a one-time non-cash loss.
Revenues fell 17 per cent to $US19.4 billion.
AFP
4.30am: VW’s Traton, Toyota’s Hino in electric truck JV
Volkswagen truck unit Traton and Toyota’s commercial vehicles arm Hino Motors said they would create a joint venture to develop electric trucks as manufacturers pivot to the growing e-vehicle market.
Traton and Hino will develop battery-electric and fuel-cell trucks, alongside components and common software and interfaces, the companies said in a joint statement.
Like the entire Volkswagen group, Traton has made electrification one of its strategic priorities, as it races to comply with EU carbon emissions goals.
The Munich-based group, including its brands MAN and Scania, is targeting one billion euros in investments to 2025 in electric vehicles.
AFP
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