Trading Day: Australian shares positive as gold hits record
Miners surged as the gold price posted a new high, helping to keep the ASX in positive territory.
That’s all from the Trading Day blog for Monday, July 27. Strength among the gold miners helped push the local market to finish firmly higher on Monday after the price of gold surged to a record high. At the close of trade, the S&P/ASX 200 was up 20.2 points, or 0.34 per cent, at 6044.2. The broader All Ordinaries lifted 21.6 points or 0.35 per cent to 6169.6. Australian shares had moved into positive territory as hope of more US fiscal stimulus offset rising tension with China and ongoing concerns over coronavirus case numbers. Perpetual said it bought US asset manager Barrow Hanley, and the Australian Foundation Investment Company, released its annual results.
Damon Kitney 9.08pm: $10m food supply chain initiative launching
Some of the nation’s top food brands have joined with key companies in the financial services sector to back a $10m food supply chain initiative, to be announced on Tuesday, to help the agribusiness industry reinvent its business models for the post COVID-19 world.
The likes of Kellogg’s, Mars, JBS, NAB and IAG are backing the new venture to be known as Mission Food for Life, which is being spearheaded by the federal government’s Food Agility Co-operative Research Centre (CRC) established three years ago to help primary producers with innovation and technology.
Food Agility chief executive Mike Briers said the recent series of shocks to agrifood supply chains during the COVID-19 pandemic had been a “wake-up call” for the sector.
“The last six months alone have brought drought, fire, pandemic and geopolitical barriers,” Dr Briers said. “Supply chains have been pulled and strained in ways we have never experienced before. Compounding shocks are creating a future where the ability to rebound, reinvent and be resilient are the keys to prosperity.
“Those with the capacity to respond quickly via digital solutions and build new data-driven business models have the upper hand.
“The agrifood industry has been in low gear when it comes to digital transformation. Now is the time to accelerate.”
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Nick Evans 8.19pm: Miners shift focus on climate change
Australia’s horror summer bushfires have put climate change at the forefront of risk factors for Australian mining companies, according to accounting and consulting major KPMG.
KPMG will release its 2021 Australian mining risk outlook on Tuesday. KPMG mining risk partner Caron Sugars said the bushfires, which swept across both sides of the country over summer, pushed business risks associated with climate change to the top of the thinking of Australian mining executives taking part in its annual survey.
The primary research for the KPMG study was conducted in January, as the impacts of the coronavirus pandemic were just beginning to emerge.
Eli Greenblat 7.43pm: Lockdown powers Electrolux growth
The boss of Electrolux, one of the world’s largest appliance makers, has highlighted Australia as a key growth market as consumers in lockdown increasingly turn to home cooking and cleaning, which have driven a lift in sales of ovens, cookers and vacuum cleaners.
Bolstering the sales of such items, including washing machines, has come from the federal government’s JobKeeper stimulus package as well as superannuation withdrawals, amounting to more than $25bn.
Electrolux president and chief executive Jonas Samuelson said its sales in Australia had strengthened in March and April and kept on improving into last month, with the manufacturer also able to push through better prices in the recent quarter.
The upbeat and bullish prognosis of the Australian market from the Swedish electrical giant mirrors similar comments from key whitegoods retailers in the local market such as JB Hi-Fi, The Good Guys and Harvey Norman, which recently provided trading updates that revealed a roaring trade in goods such as fridges, freezers, kitchen equipment and TVs.
In a briefing to US analysts, Mr Samuelson highlighted the company’s better sales performance in Australia during the coronavirus pandemic.
“In Australia, which had imposed fewer restrictions and kept doors open, market demand was strong throughout the quarter and improved further in June,’’ Mr Samuelson said.
James Kirby 6.33pm: AFIC lands a punch for active investors
In the active versus passive investing debate, the Australian Foundation Investment Company has landed a punch for active funds with an unchanged dividend for the year thanks to the ability of the manager to dip into reserves.
The Listed Investment Company earned 20c from its investments during the year but announced an unchanged 24c full-year payout (excluding special dividends) to its legion of mom and dad investors.
What’s more, managing director Mark Freeman, says AFIC can use reserves to do the same again in future years if markets continue to struggle.
With analysts estimating that wider dividend payouts this season could drop 20 per cent and the big banks disappointing retail investors with their “dividend deferrals”, the discretion of the better run active funds to smooth dividend payouts from accumulated capital gains might be a powerful differentiation in the months ahead.
“It’s some rainy day money and those days have come around,” says Mark Freeman, managing director of AFIC, which reported a 40 per cent profit drop in net profit to $240m.
Nonetheless, the fund’s portfolio performance in the year to June showed a total return including franking down 3.1 per cent compared to a 6.6 per cent drop on the ASX 200 accumulation index on the same basis.
The Melbourne fund, where strategy has evolved to focus on total returns as much as a previous concentration on dividend payments, has clearly captured many of the major thematic changes in the local market with an exit from shopping centres and steady loading up of technology related stocks.
Bridget Carter 5.41pm: Charter Hall selling $203m in Waypoint REIT
Property group Charter Hall is selling $203m worth of shares in Waypoint REIT through JPMorgan and UBS.
Shares are being sold at $2.61 each.
The price is a 4.4 per cent discount to the last traded share price of $2.73.
The sale by Charter Hall funds involves 77.9 million securities, equating to a 10 per cent stake.
Waypoint was previously called Viva Energy REIT and owns Australian service stations.
Charter Hall Group purchased shares in Viva Energy REIT earlier this year in a move some thought could be a precursor to a takeover for the group with a $2.7bn portfolio.
But it internalised its management, which put an end to the speculation.
Charter Hall funds that divested shares include Charter Hall and the Charter Hall Long WALE REIT.
John Stensholt 5.03pm: Pandemic delivers for Hungry Jack’s billionaire
Billionaire Jack Cowin says COVID-19 has accelerated the trend towards more people getting their fast food delivered or picking up their meals via drive-through services by at least three years.
So quickly has the trend developed in the past few months, Cowin tells The Australian, that his Hungry Jack’s chain of fast food businesses, has actually experienced an overall increase in revenue since the global pandemic led to much of Australia first shutting down in mid-March.
“Our business has been very fortunate, as we’ve still had home delivery and drive-throughs. Those two factors means that those people who are concerned about coming into contact with the coronavirus have still been transacting, rather than using the dining room [at Hungry Jack’s outlets].
“So our business has been positive against the previous year. And what happens is that people usually spend more at the drive-through and with home delivery. So we are very fortunate and a bit lucky too, I guess. It is the cafes and restaurants where they’ve had their dining rooms shut that have had a more difficult time.”
Cowin, whose wealth was estimated at $3.34bn when The List - Australia’s Richest 250 was published by The Australian earlier this year, says he has only spent one day out of his office on the fringe of Sydney’s CBD since the pandemic hit Australia.
“I stayed home one day and my wife said all you do is spend your time on the telephone. So I went back to the office where I could spend my time on the telephone there instead.
“We have an office with only five people working in it, so as long as the five are okay I’ll continue to keep coming in.”
Cowin last year celebrated 50 years as the country’s fast food king.
Samantha Bailey 4.27pm: Stocks up for ASX close
Strength among the gold miners helped push the local market to finish firmly higher on Monday after the price of gold surged to an all time high.
At the close of trade, the S&P/ ASX 200 was up 20.2 points, or 0.34 per cent, at 6044.2, just off the day’s high of 6044.50. The broader All Ordinaries lifted 21.6 points or 0.35 per cent to 6169.6.
CMC Markets chief market analyst Michael McCarthy said the gains on the ASX were surprising, given a number of warning signals, with the World Health Organisation reporting the highest rate of COVID-19 infections over the weekend and escalating tensions between the US and China.
“Gold is flashing a warning signal to the world, it’s hit an all time high in trading today, that safe haven seeking behavior is at odds with markets here in Australia, as well as markets around the globe,” he said.
“Something’s got to give here, either stocks have to come off or gold prices have to come off.”
Trading volumes were light, which Mr McCarthy suggested could be a sign that institutional investors remain on the sidelines ahead of the reporting season which kicks off next week.
The major gold miners lifted on strength in the gold price, with Newcrest gaining 4.9 per cent to $36.31 while Resolute Mining added 5.9 per cent to $1.44.
In financials, NAB edged 0.2 per cent lower to $17.95 while Westpac backtracked 0.2 per cent to $17.72. ANZ lowered 0.3 per cent to $18.23 and Commonwealth Bank fell 0.5 per cent to $72.49.
Among the major miners, BHP added 0.9 per cent to $37.40 while Rio Tinto was unchanged at $102.89. Fortescue lost 0.5 per cent to $16.37.
Ben Wilmot 4.09pm: Stamp duty change ‘benefits developers’: Moody’s
The NSW government’s announcement of a temporary increase in the stamp duty concessions for first home buyers prompted credit agency Moody’s Investors Service to cite the benefits for developers.
Moody’s said the impact of the pausing of stamp duty in NSW for first home buyers of new homes under $800,000 was a “credit positive” for the construction sector and particularly for Stockland.
Moody’s vice president Saranga Ranasinghe called out the impact on Stockland that is the largest master planned communities builder in Australia and caters to the owner-occupier segment of the market, where about 49 per cent of sales are made to first home buyers.
“The temporary axing of stamp duty, along with the previously announced $25,000 HomeBuilder grant, will further support the first home buyer segment of the market,” she said.
Ms Ranasinghe said that residential construction had been soft since peaking in June 2018, and the agency expects the stimulus measures to partially mitigate weakness in the single dweller segment of the residential market.
“The Reserve Bank of Australia has also provided support through rate cuts, and banks through the extension of mortgage repayment holidays, although reduced migration continues to weigh on housing demand,” she added.
Ben Wilmot 3.52pm: Ingenia snaps up Sunnylake Shores
Property company Ingenia Communities Group has snapped up the Sunnylake Shores lifestyle community on the NSW Central Coast, expanding its rental base and development pipeline.
Ingenia’s tourism and budget housing model is holding up in the coronavirus pandemic and it closed fiscal 2020 with 325 new home settlements and 179 deposits and contracts on hand at the end of June.
Ingenia had flagged the acquisition in its May equity raising and the $16m purchase of the lifestyle community adds 90 permanent homes to a well-established cluster on the NSW Central Coast.
It has an additional 38 approved, build-ready development sites with additional vacant land. The development sites include premium waterfront sites where new homes are anticipated to sell for over $500,000 as home sales are delivered in fiscal 2021.
The 4.2-hectare community is on the shores of Lake Munmorah, near Bevington Shores lifestyle community that it bought last year and Lake Munmorah residential resort which was acquired in April.
Ingenia chief executive Simon Owen said he was pleased to announce the first of a number of anticipated acquisitions which contribute immediate rental income and additional sites for development in the short term.
“We retain significant capacity for future acquisitions and are reviewing multiple sites as we seek to continually enhance our scale and generate growing cash flows and investment returns,” Mr Owen said.
Bridget Carter 3.48pm: Ord Minnett appoints M&A head
Healthcare banker Steve Boggiano has been appointed to Ord Minnett as head of mergers and acquisitions.
The platform, which is backed by billionaire Bruce Mathieson, will see Mr Boggiano work on M&A transactions across the board.
Mr Boggiano is well regarded in the investment banking community, previously working at Barclays Capital, ABN Amro, JPMorgan and most recently, Sydney botique Allier Capital.
He is also the former chief strategy officer at Estia Health.
Alex White has also been hired from Greenhill as an advisor for Ord Minnett.
3.39pm: AUD stronger against US dollar
The US dollar (USD) remains weak and is at its lowest level since September 2018, reports the Commonwealth Bank Global Markets Research team, with the Aussie dollar currently trading around US71.30c.
“The recovering global economy, and downward reassessment of the US economic outlook, is a recipe for further USD weakness. However, USD weakness can be temporarily offset amid escalating US‑China tensions. But, we expect it will take more for the global economic recovery to stall and for the USD to sustain gains.
“Also important for the US economic outlook is US government budget support. Congress is debating whether and how to extend extra unemployment assistance that expires on Friday. We expect the FOMC to leave the Fed Funds at the effective lower bound on Wednesday. We expect the FOMC to note the US economic outlook has deteriorated since June. The coronavirus is not contained and US high frequency data has stalled. There is a small risk the FOMC adopts conditions‑based forward guidance. But, our base case is the FOMC will wait for more clarity on the state of the US economy before switching to conditions‑based forward guidance.
“US Q2 20 GDP is released on Thursday. We estimate GDP contracted by 9.3pc/qtr in Q2, marking the trough of the US recession. AUD/USD lifted towards US71.35c because of the soft USD.
“There is a risk AUD can fall back into its recent US68c‑US70c trading range this week if US‑China tensions escalate. Intermittent spikes in US‑China tensions are likely to become the norm as the 3 November US Presidential election nears,” the Global Markets Research team said in a note.
“We estimate headline Australian CPI fell by a large 1.9pc/qtr (consensus: ‑1.8pc/qtr) in Q2 20 to be released on Wednesday. This would be the biggest quarterly fall on records dating back to 1948.“
Jared Lynch 3.23pm: Citi backs A2 Milk’s Peter Nathan
Citi analyst Sam Teeger has thrown his support behind A2 Milk’s Asia Pacific boss, Peter Nathan, becoming the next chief executive of the market darling.
A2 is currently searching, internally and externally, for its next chief executive after Jayne Hrdlicka stepped down last December, triggering the recall of her predecessor Geoff Babidge to serve in an interim capacity.
The Australian revealed earlier this month that A2 investors had put forward Mr Nathan, who has been at the company since 2008, as a potential candidate.
Mr Teeger also shares that view, further adding to speculation that Mr Nathan may be tapped to lead the company.
“While the CEO search has been both an internal and external process, we view ANZ CEO Peter Nathan as a natural candidate, given his known qualities and absence of cultural risk,” Mr Teeger wrote in a note to investors.
His note comes three weeks after Andrew Mitchell, director at A2 investor Ophir Asset Management, said Mr Nathan was a “first-rate corporate executive”.
“He should receive much of the kudos for managing the highly complex and multiple channels to market for the business,” Mr Mitchell said. “He clearly understands the Asia-Pac market well, having very successfully worked in the region for A2 Milk for over a decade.”
3.00pm: China steel production accelerates
JPMorgan notes that the latest global steel production data from World Steel shows China steel production continues to accelerate, up 4.5pc YoY, annualising a new record of 1114Mtpa. Chinese output is up 1.4pc YTD, according to WSA.
Rest of world production was down 21pc YoY (global production down 7pc YoY). RoW output is down 14pc YTD. However, June marks the second month of sequential gains from the April trough. RoW output is up almost 4pc MoM, with India (+13pc MoM) showing the strongest output since March.
JPMorgan says on raw materials, the strength in Chinese output is a key driver for iron ore price tension (along with low Vale output), while the acceleration in Indian production could help met coal prices recover (India’s steel industry is reliant on imported met coal, and typically consumes around 20pc of seaborne demand).
2.41pm: US stimulus hopes lift US futures
US fiscal stimulus hopes helped US stock index futures after White House aides said they had an agreement in principle with Senate Republicans on a $US1 trillion ($1.4tn) coronavirus relief package.
S&P 500 futures were up 0.5pc after falling 0.4pc in early trading while Nasdaq futures rose 0.7pc. Australia’s S&P/ASX 200 was up 0.3pc at 6040 after initially falling 0.3pc.
White House Chief of Staff Mark Meadows told reporters he expects the package to be unveiled Monday afternoon US time.
US Treasury Secretary Steve Mnuchin said the package will contain extended unemployment benefits to replace 70 per cent of a laid-off worker’s previous wages.
The $1 trillion Republican offer was expected to include another round of direct payments to individuals, a reduced federal supplement to unemployment benefits and liability protections against coronavirus-related lawsuits, according to Reuters.
An extra $600 per week in federal unemployment benefits, which economists say has propped up consumer spending and has allowed laid off workers to pay rent and mortgages, is due to expire on Friday.
This guidance for a $US1tn starting point for talks with Democrat lawmakers is really no more than the market had late last week but no doubt the idea is to “over-deliver” on expectations.
Perry Williams 2.31pm: AGL Energy downgraded by Morgan Stanley
AGL Energy has been downgraded to equal-weight by Morgan Stanley after the broker flagged a list of downside risks including exposure to re-contracting a power deal for Alcoa’s Portland aluminium smelter, lower electricity prices and re-pricing legacy gas contracts.
The power giant’s appeal “could lessen in the year ahead as AGL’s structural challenges re-emerge while the economy re-starts, revealing ‘recovery play’ stocks,” Morgan Stanley analyst Rob Koh said.
Retail competition will likely re-awaken in 2021 with AGL expected to be of several larger players pricing at the cheapest available price point.
“AGL’s wholesale price headwinds are well recognised by investors because pool prices are readily observable and the stock is now 40 per cent lower than its all-time high in April 2017,” the broker added.
AGL’s target price cut to $15.68 from $18.68 previously.
Rival Origin Energy was retained at equal-weight with its target price trimmed to $6.14 from $6.33.
Morgan Stanley noted its wholesale positioning - such as reducing output from Eraring when undercut by solar and flaring cheap gas via its Darling Downs gas plant in Queensland - provides a cushion to energy market price headwinds. Still, its valuation remains sensitive to the broker’s $US45 a barrel oil price view given its oil and gas exposure.
AGL last down 2.6 per cent to $16.79 and Origin 0.44 per cent softer at $5.68 at 2.30pm AEST on Monday.
Bridget Carter 2.06pm: Ausgrid taps bond market
NSW electricity distribution network company Ausgrid is the latest to tap the Australian bond market, with some expecting that it could be in search for as much as $1bn.
Working on the raise are banks MUFG, NAB and UBS, with investor roadshows currently underway to promote its six and half-year BBB-rated issue.
Ausgrid has $1.4bn worth of bank debt that is due to expire next year and the expectations is that the funds raised will be part of that refinancing.
Investors are to be offered a yield of about 2 per cent.
Ausgrid tapped the bond market two years ago to secure $1.2bn, so the thinking is that while the exact amount of funds that are being secured is yet to be determined, the raise will be sizeable.
The electricity distributor currently has 52 per cent of its funding structure with bank debt, with Australian bonds only comprising about 8 per cent, so it makes sense that the infrastructure owner would be interested in diversifying its funding structure further.
Ausgrid is owned by the New South Wales Government, AustralianSuper and IFM.
2.02pm: US futures rise ahead of earnings
US stock index futures rose ahead of a busy earnings week.
As of 2om (AEST) Dow Jones Industrial Average futures were up about 130 points, or 0.5 per cent, as were S&P 500 futures and Nasdaq-100 futures, with all three recovering from early-session lows.
US stocks sank Friday and for the week the Dow ended 0.8pc lower, the S&P 500 declined 0.3pc, and the Nasdaq lost 1.3pc.
About 180 of the S&P 500’s companies will report quarterly earnings this week including Alphabet, Amazon, Apple Facebook.
On Thursday, US time, the US Commerce Department will release second-quarter GDP data, with economists expecting an unprecedented 33pc contraction due to the coronavirus pandemic.
Dow Jones
1.58pm: Qantas lifts Helloworld stake
Qantas has quietly upped its stake in listed travel agency Helloworld Travel as a result of the travel company’s recent capital raising.
Qantas now has a 15.44 per cent stake in Helloworld worth $32m at current prices. Previous notice had Qantas at 12.8 per cent in Helloworld.
Bridget Carter 1.40pm: Arter to head Cbus Super
Industry super fund Cbus Super says new CEO Justin Arter brings a wealth of international executive leadership experience to the task of protecting and growing members’ retirement savings.
“Justin Arter is an executive with a global reputation,” said Cbus Super chair Steve Bracks.
“Given the growing sophistication of Cbus’s investments and leading position in providing products and services to improve the retirement outcomes of our members, Mr Arter is well placed to build on our strong foundations to guide the next period of Cbus’ journey.”
Mr Arter previously held senior roles at BlackRock including country head Australia and Head of Institutional Client Business for the UK, Middle East and Africa. Before that he led the Victorian Funds Management Corporation.
Mr Arter also spent nearly 20 years in a range of senior positions at Goldman Sachs JB Were.
Most recently Mr Arter has consulted for major financial institutions, including ANZ Bank where he is consulting to its institution arm. He will start in the role at Cbus in late August.
1.29pm: Gold hits high on haven demand
Gold prices rocketed to a record high on Monday with spooked investors rushed into the safe-haven as the coronavirus spreads across the globe, while the weaker US dollar also provided strong support.
The metal surged more than one per cent to $US1930.48 per ounce in Asian trade, with analysts predicting it could soon break $US2000.
With the disease showing no sign of letting up, traders have been flocking to gold, which is seen as a safe bet in times of crisis and uncertainty.
Vast monetary easing measures put in place by the Federal Reserve, pushing the dollar lower against most other currencies, have added to its attractiveness.
“Strong gains are inevitable as we enter a period much like the post-global financial crisis environment, where gold prices soared to record levels as a result of copious amounts of Fed money being pumped into the financial system,” said Gavin Wendt, senior resource analyst at MineLife.
Demand for the commodity has also helped silver more than double in value from its March lows, up four per cent Monday at $US24.10 an ounce.
AFP
12.40pm: ASX choppy, gold hits record
The Australian dollar and shares were choppy at lunchtime, with AUD/USD bouncing from 0.7087 to 0.7130 as the US dollar fell, and the S&P/ASX bouncing from 6013.1 to 6044.5 as S&P 500 futures rose 0.4pc, before paring its rise.
The ASX was up 0.1pc at 6032.2.
The materials sector supported the share market with gold miners surging as the spot rose 1.1pc to a record high of $US1922.88 per ounce, as spooked investors rushed into the safe-haven as the coronavirus spreads across the globe.
The gold price later reached $US1930.48 per ounce, with analysts predicting it could soon break $US2000.
Newcrest Mining rose 3.1pc and James Hardie rose 3.2pc after Citi raised its price target by 20pc.
But the share market has been restrained by falls in banks and other stocks exposed to domestic economic growth, given the worsening pandemic.
The major banks fell 0.7 to 1.5pc, Qantas fell 1.1pc and Tabcorp lost 1.8pc. Energy stocks also fell with Woodside down 1.4pc.
12.30pm: China markets open higher
Hong Kong stocks opened Monday’s session on the front foot, with investors picking up bargains following last week’s losses.
The Hang Seng Index rose 0.83 per cent, or 204.63 points, to 24,909.96. The benchmark Shanghai Composite Index added 0.43 per cent, or 13.62 points, to 3,210.39, while the Shenzhen Composite Index on China’s second exchange gained 0.48 per cent, or 10.32 points, to 2,148.68.
AFP
12.20pm: China’s industrial profits rise sharply
Earnings at China’s large industrial companies in June rose at the strongest pace for more than a year, as improving production and falling raw material prices boosted profitability amid China’s economic recovery.
China’s industrial profits surged 11.5pc from a year earlier in June, nearly doubling the 6.0pc increase in May, the National Bureau of Statistics said Monday.
June’s increase marks the strongest monthly profit gain since March 2019, when profits jumped 13.9pc, according to Wind, a financial information provider.
The profit surge last month was mainly boosted by the steel and non-ferrous metal sectors, which reported profit gains of 35.3pc and 24.1pd, respectively, reversing declines of 50.5pc and 49.3pc reported for May, The statistics bureau said.
Last month, large industrial companies reported the first drop in costs for the first time this year, reflecting a moderating cost burden on company operations, the statistics bureau said.
Dow Jones
Bridget Carter 11.45am: Seafolly preferred bidder named
Seafolly’s earlier owner, private equity firm L Catterton, appears set to take back control of the business, with KordaMentha announcing it as the preferred bidder following a sales process.
It comes after the swimwear brand, which was purchased by the Louis Vuitton-backed Asian private equity firm through a series of transactions between 2014 and 2018, fell into voluntary administration on June 29.
Administrators Scott Langdon and Rahul Goyal, of KordaMentha, said the private equity firm’s offer was preferred because it provided the best return to all creditors including its suppliers.
“I was overwhelmed by the level of interest and competition to own one of Australia’s most recognisable brands. With an optimised retail, online and wholesale network,” Mr Langdon said.
“Seafolly will continue to be the iconic Australian beachwear brand that customers know and love.”
Mr Langdon said that customer gift cards and reward points would be honoured.
11.29am: Healius issues profit forecast
Healius forecast an underlying net profit of between $54 million and $56m from continuing operations in the 2020 fiscal year as more COVID-19 tests are conducted.
Healius said pathology revenues have recovered strongly as clinics reopened in the wake of a loosening of coronavirus restrictions in many states and territories in Australia. Combined with cost control, Healius said underlying earnings before interest and tax in the year through June are expected to be between $102 million and $104 million.
“Underlying Ebit includes approximately $12 million in government support in pathology, for delivery of its essential services in return for certain availability, accessibility and employment undertakings, and in Montserrat and Healius Day Hospitals for JobKeeper and viability payments,” Healius said. “Without this support, additional cost reduction would have been undertaken.”
Healius said it is conducting up to 16,000 tests for COVID-19 each day, and is carrying out nearly half of all tests done by the private sector in Victoria state.
Other pathology testing has increased with the reopening of the economy nationally, Healius said, and it is currently 5-10pc below year ago levels.
Healius said its net debt totaled around $670 million at the end of June, with its bank gearing ratio at 2.7 times. Analysts say the sale of its medical centres, expected in the first half of the 2021 fiscal year, will likely bring gearing down more.
Dow Jones
Cliona O’Dowd 11.00am: AFIC keeps final dividend
The $7bn ASX-listed Australian Foundation Investment Company has maintained its final dividend for the year despite posting a 50 per cent plunge in net profit for the 12 months through June following a hit to its investment income
For the 2020 financial year, the nation’s largest listed investment company posted a net profit of $240.4m, down from $406.4m the year prior.
The reduced income was in part due to several companies slashing or deferring their dividends in the second half due to the coronavirus crisis, but the 2019 income was also boosted by one-off items that weren’t repeated this year, the company said.
Drawing on its reserves to pay out cash-hungry shareholders, the nation’s largest listed investment company kept its dividend at 14c per share, fully franked, as it warned of the uncertain outlook for the year ahead.
Bridget Carter 10.50am: Book closed on Laybuy IPO
Brokers Bell Potter and Canaccord are understood to have closed the book for the initial public offering of buy now, pay later provider Laybuy.
A management presentation has been received by investors on Monday and the bookbuild was to be finalised on Wednesday.
The New Zealand group, which is owned by its founders, has locked in cornerstone investors for a deal following an earlier pre-IPO raising.
Among the pre-IPO investors that injected $10m into the business are Bombora Investment Management, Perennial Value Management and Melbourne-based Saville Capital.
The understanding is that as part of that deal, they are required to inject three times their initial investment into the float.
Bell Potter and Canaccord are working on the transaction along with Venture Advisory, which has a role as the financial adviser.
Shares have been priced at $1.41 for the IPO and the group will raise $80m, with the company to have a market value of $246.1m, equating to 12.3 times its revenue.
Laybuy was founded in 2016 by managing director Gary Rohloff and his son Alex.
It generates most of its earnings from the New Zealand and British markets, but also has a presence in Australia.
The company is believed to be among a number of New Zealand-based technology groups targeting the Australian Securities Exchange for a listing, with many proving to be highly defensive during the COVID-19 pandemic.
The prospectus will be lodged with ASIC on Friday ahead of trading on a normal basis on September 14.
10.29am: ASX recovers from soft start
Australia’s share market turned up after an early dip amid risk aversion in global markets, while Victoria’s spiking COVID-19 case count may cause underperformance from local shares.
Victoria is set to report a record 532 cases in the past 24 hours, The Australian understands.
The S&P/ASX 200 fell 0.2pc to 6013.1 with the Energy and Utilities sectors weakest, before turning up 0.3pc to 6042 as S&P 500 futures turned up 0.3pc after an early fall.
IAG continues to drop with a 4pc fall after broker downgrades last week.
Star Entertainment fell 2.9pc as Victoria’s coronavirus pandemic worsened
Woodside Petroleum fell 1.6pc amid a broad pullback in the energy sector.
Gold miners are outperforming with Newcrest up 2.3pc on a soaring gold price
10.25am: Tokyo hit by US-China tensions
Tokyo stocks opened lower on Monday, playing catch-up after a four-day weekend, with global risk aversion on intensifying China-US tensions.
The benchmark Nikkei 225 index fell 1.12 per cent or 255.66 points to 22,495.95 in early trade while the broader Topix index lost 1.04 per cent or 16.29 points to 1,556.67.
AFP
10.15am: Citi warns on jobless rate
Analysts at brokerage Citi says assumptions of a six-week coronavirus lockdown in Victoria “appears brave in our view”.
This could see unemployment drift higher than forecast. “The first two weeks of the lockdown has seen cases surge, suggesting a lot of flattening and suppression to be done in the next four weeks if the lockdown isn’t to be extended.”
Citi says a longer lockdown also has implications for the unemployment rate, “which is anyone’s guess”.
“Nevertheless, the clear implication from the old 5.2 per cent unemployment at 66 per cent participation to the new 8.75 per cent unemployment at 64.75 per cent participation is a material reduction in household incomes with which to service current debt”.
Jared Lynch 9.55am: Bubs China sales soar
Chinese demand for products from infant nutrition company, Bubs, is continuing unabated, despite Beijing warning of potential sanctions on Australian goods amid fresh tensions between the two countries.
Bubs China direct sales soared 26 per cent in the three months ending June 30, representing 22 per cent of gross revenue for the quarter.
Overall revenue jumped 32 per cent to $62m, an increase of $15m compared with the previous corresponding period.
Founder and chief executive Kristy Carr said the results showed consumer demand for Bubs’ products remained strong.
On Monday, Ms Carr also announced Bubs has entered into the vitamins and mineral supplements category - worth about $2.3bn - via an agreement with Chemist Warehouse for its new Vita Bubs infant and children’s range.
“The move into the vitamin and mineral supplements category is consistent with our strategy to evolve into high margin adjacent categories where we know our end consumers and can leverage existing core competencies and brand reach across multiple children’s feeding and health settings.”
“We expect the launch into Chemist Warehouse will add materially to our domestic revenue.”
9.50am: What’s impressing analysts
AGL Energy cut to Underweight; Morgan Stanley
GUD Holdings raised to Hold:Morningstar
Insurance Australia raised to Buy: Morningstar
Premier Investments cut to Sell: Morningstar
Tabcorp cut to Hold: Morningstar
9.40am: ASX downside risk lingers
Australia’s share market may remain under pressure early this week before finding support ahead of the FOMC meeting which concludes early Thursday.
Friday night futures relative to fair value suggest the ASX200 will open up 0.2pc at 6036, but weekend developments have been negative for risk assets.
Reflecting a degree of risk aversion and safe-haven demand in global markets S&P 500 futures and AUD/USD fell as much as 0.3pc and spot gold rose as much as 0.6pc to $US1913.48, near a record high of $US1927.
US-China tensions remain high after tit-for-tat consulate closures and the US detention of a Chinese researcher who sheltered in the nation’s San Francisco consulate.
US lawmakers are yet to agree on another round of fiscal stimulus needed to extend expiring unemployment insurance and offset fading economic momentum after the coronavirus pandemic worsened in the US this month.
Coronavirus developments were positive in the US with less new cases and deaths in Florida, Arizona, California and New York, but the situation worsened in Australia with Victoria reporting its worst day yet and Premier Andrews not ruling out an extended lockdown.
QLD continued to add Sydney suburbs to his list of hotspots and Black-Lives-Matter protests are set to go ahead in Sydney on Tuesday despite a Supreme Court ban.
And valuations remain high with the 12-month forward PE ratio of the S&P/ASX 200 trading around 19.5 times as earnings season fires up this week with Rio Tinto reporting Wednesday.
If the S&P/ASX 200 ends below the 6000 points support level today the chart would point to a potential test of the next support at 5920, while last week’s high offers resistance at 6160.
But dovish Fed commentary on Thursday and a likely agreement on US fiscal stimulus in coming days could cause a new upleg in shares.
The ASX200 fell 1.2pc to 6024 on Friday.
David Swan 9.35am: Google misled consumers: ACCC
The competition watchdog has launched Federal Court proceedings against tech giant Google, alleging it misled Australian consumers to obtain their consent to expand the scope of personal information that Google could collect and combine about consumers’ internet activity.
The Australian Competition and Consumer Commission claims the data was used by Google, including for targeted advertising.
As the claim was filed on Monday, Google has not yet responded to the allegations.
The case, if it goes to trial is expected to be closely watched around the world from both regulators and technology companies.
In its filing the ACCC alleges Google misled consumers when it failed to properly inform consumers, and did not gain their explicit informed consent, about its move in 2016 to start combining personal information in consumers’ Google accounts with information about those individuals’ activities on non-Google sites that used Google technology to display ads.
This meant this data about users’ non-Google online activity became linked to their names and other identifying information held by Google. Previously, this information had been kept separately from users’ Google accounts, meaning the data was not linked to an individual user.
9.20am: NZ examines pumped hydro
New Zealand’s government is investigating the feasibility of a 1000-megawatt pumped hydro power plant that it says could remove the need for coal and gas in electricity generation.
Some $NZ30 million has been earmarked for a study of a dual-reservoir hydro project on Lake Onslow in the country’s South Island, according to a government statement.
Nearly 60pc of New Zealand’s electricity is generated by conventional hydro dams, which provide so-called clean energy but are more expensive and less productive in drought years. A pumped-hydro dam uses two reservoirs, with water pumped back to the upper reservoir during off-peak electricity periods.
A 2019 report on renewable energy options for New Zealand said a pumped-hydro project on Lake Onslow and the Clutha River would have storage capacity of about 5,000 gigawatts and generation capacity of 1,000 megawatts. It noted it would be “very difficult” for such a project to get consent under New Zealand’s resource management law.
Dow Jones
Samantha Bailey 8.55am: Perpetual to buy Barrow Hanley
Perpetual has confirmed it will undertake an equity raising and acquire a 75 per cent stake in US asset manager Barrow Hanley for $US319 million ($A465m).
The move is expected to more than triple Perpetual’s funds under management from $28.4 billion to $92.3b, the company said in a statement to the ASX.
The move, which was foreshadowed in The Australian’s DataRoom column, includes a $225m fully underwritten institutional placement plan as well as a non-underwritten share purchase plan targeting to raise up to $40m.
The proceeds from the equity raising will be used to fund the acquisition, as well as provide Perpetual with provide greater financial flexibility and purse other identified growth opportunities.
The deal is expected to be completed by the end of the first half this financial year.
Perpetual also said it expected to report a statutory net profit of $82m when it unveils its full year results next month, down from $115.9m the prior year.
Underlying profit after tax was expected to be $93.5m.
8.53am: Lynas in US facility contract
Rare earths producer Lynas says it has signed a contract with the US Department of Defence for phase one of a US-based heavy rare earth separation facility.
Lynas said in April that department funding would allow Lynas and its US partner Blue Line to complete a detailed market and strategy study for the facility - a “key initiative” of the company’s growth plan.
The move is the latest step in Lynas’s quest to expand its processing business into the US, and comes as the US military tries to ease its reliance on China for supply of the critical metals — key ingredients in the manufacture of high-performance magnets, missile systems and other hi-tech equipment.
8.40am: Metcash finalises Total Tools deal
Australian grocery and hardware supplier Metcash says it has finalised a deal to acquire 70 per cent of Total Tools Holdings $57m.
Metcash said the deal includes Total Tools franchisor operations and one company-owned store. Metcash also has an option to acquire the remaining 30 per cent within the next four years through put and call arrangements.
“The acquisition of Total Tools enhances Metcash’s position in the hardware market which will benefit independent retailers,” Metcash chief executive Jeff Adams said.
Total Tools is the franchisor to the largest tool retail network in Australia, with 81 bannered retail stores and a history spanning more than 30 years, according to Metcash.
Metcash previously said in June that it was in talks for the Total Tools stake.
Dow Jones Newswires
8.32am: Perpetual halts for raising
Perpetual has requested a trading halt pending an announcement of an acquisition in
connection with an equity raising, via institutional placement.
According to DataRoom, Perpetual is positioning itself to tap the market for about $225m as early as Monday.
It is understood that a raising is on the cards to fund an acquisition based in the United States, with shares to be priced at around $30 each through a placement structure.
7.35am: Tasmania ‘best performing economy’
Victoria has slipped to second position in the CommSec State of the States report as Tasmania is ranked the nation’s best performing economy for the first time since October 2009.
The CommSec report provides a snapshot of the early stages of the coronavirus crisis.
Tasmania leads the rankings primarily due to above-”normal” growth in population, strong demand for new homes and an improved performance of the job market and consumer spending.
Victoria slips to second position, after leading in the last eight quarterly surveys.
The ACT remains in third position, leading the way on housing finance and dwelling starts. NSW remains in fourth place, with Queensland overtaking South Australia into fifth position. Western Australia remains in seventh position, ahead of Northern Territory.
David Ross 5.50am: ASX set to fall at open
Australian shares are expected to continue their downward drift on opening as rising tensions with China and ongoing concern over coronavirus case numbers weigh on investors.
Investors remain on a cautious footing ahead of earnings season, with a clutch of major companies to deliver interim or full financial year results in coming days.
ASX SPI 200 futures were last trading down 27 points, or 0.5 per cent, indicating a weaker Monday opening for the benchmark S&P/ASX 200 index.
“After a strong rally from March lows shares remain vulnerable to short-term setbacks given uncertainties around coronavirus, economic recovery and US-China tensions,” AMP Capital chief economist Shane Oliver said.
Adding to concerns is Australia’s decision to raise the stakes in its worsening relationship with China after late last week formally declaring disputed Chinese claims in the South China Sea had “no legal basis”.
Australian shares finished lower on Friday amid a global technology sell-off, leaving the benchmark index slightly lower for the week.
At the close of trade, the S&P/ASX 200 was down 70.5 points, or 1.16 per cent, at 6024 points.
On Friday night the Wall Street benchmark, the S&P 500, lost 0.6 per cent to 3215.63. The Dow Jones Industrial Average shed 0.7 per cent. The tech-heavy Nasdaq Composite dropped 0.9 per cent, finishing its second consecutive week of declines.
On Monday, the Australian Foundation Investment Company, releases its annual results. On Wednesday, Rio Tinto is set to release first half results. while AACo and auto dealer AP Eagers are expected to deliver earnings update.
June quarter inflation figures are scheduled for Wednesday, with the figures expected to report a record drop in prices across the board as Australia falls into a period of deflation.
Other figures this week include ABS building approvals for June and private sector credit figures also for June.
5.40am: HSBC denies setting trap for Huawei
HSBC Holdings has issued a statement defending its co-operation with U.S. prosecutors in a case against China’s Huawei Technologies Co. after Chinese state media said the bank had set Huawei up.
HSBC said the U.S. Justice Department made formal requests for information about Huawei, a former HSBC client, and that it didn’t “set a trap” for Huawei to break U.S. sanctions, as Chinese newspaper People’s Daily wrote in an article Friday. The statement comes amid intensifying U.S.-China tensions over trade, Hong Kong and Huawei that have put HSBC in the crosshairs as an Asia-focused trade bank with a large U.S. operation.
Huawei and People’s Daily didn’t immediately respond to requests for comment.
In the statement, first released on Chinese social media and geared toward a local audience, HSBC said it wasn’t involved in the DOJ’s decision to investigate Huawei or to arrest Huawei finance chief Meng Wanzhou and doesn’t have any hostility to the company. It said it relies on communities understanding that international banks must follow international rules, and that they should consider “the values and contributions of their services provided to international customers and local markets.”
Dow Jones
5.37am: Russian oil grab in Libya
Military contractors linked to the Kremlin have seized control of two of Libya’s largest oil facilities in recent weeks, heightening tensions between Russia and the US over Moscow’s growing footprint in the turbulent North African nation.
Since June, armed fighters from the Wagner Group, a Russian firm with ties to the Russian government, have moved in to secure Libya’s largest oilfield and its most important oil-exporting port, Es Sider. The advance has helped Libyan war lord Khalifa Haftar maintain a blockade of the country’s petroleum exports in defiance of U.S. pressure to restart them, according to Libyan and Western officials.
Moscow’s moves show how Libya has become a key front in a struggle between the US and Russia for influence in the Middle East and access to strategic assets. The two nations have also locked horns in Syria, where Russian and American troops patrolling near oilfields in eastern Deir Ezzor province have engaged in roadside confrontations.
“The Russians are doing things that are bolder and bolder,” said Jason Pack, president of US-based consulting firm Libya-Analysis LLC.
The recent Russian oil grab in Libya triggered a stern reaction by the U.S. The Treasury Department cited Russian involvement in Libya in a new round of sanctions applied in July to a Russian businessman with ties to President Vladimir Putin. The U.S. is also seeking to counter the Kremlin’s influence by threatening sanctions against their local Libyan ally, Mr. Haftar.
Dow Jones
5.30am: US 20pc second half growth predicted
The US economy will grow on the order of 20 per cent in the third and fourth quarters, a top White House economic Adviser predicted, despite reopening setbacks linked to a coronavirus resurgence.
“I don’t deny that some of these hotspot states moderate that recovery, but on the whole the picture is very positive,” Larry Kudlow said on CNN’s “State of the Union.” “And I still think the V-shaped recovery is in place, and I still think there’s going to be a 20 per cent growth rate in the third and fourth quarters,” he said.
The administration on Thursday is due to make public its first estimate of GDP in the second quarter, a period that saw the economy shut down in an attempt to stop the spread of COVID-19.
The International Monetary Fund has estimated that during the April through June period, US GDP contracted 37 per cent compared to the same period last year.
AFP
5.22am; Fed to meet with recovery on edge
The Federal Reserve meets next week amid mixed signals on the health of the US economy, with some sectors bouncing back from the coronavirus-caused downturn and others struggling.
Retail and new home sales were among those showing growth over the last two months but the Labor Department said last week new claims for unemployment benefits had increased week-on-week after months of declines.
Analysts say the mixed indicators won’t be enough to get the rate-setting Federal Open Market Committee (FOMC) to change course, particularly not after it cut the benchmark lending rate to 0-0.25 per cent in March as the pandemic hit.
“We don’t expect much to come out of this particular meeting,” said Jonathan Millar, deputy chief US economist at Barclays Investment Bank.
The two-day meeting beginning Tuesday (US time) comes as cases of coronavirus surge again, particularly in the southern and western United States, raising fears that the world’s largest economy is set for a prolonged downturn.
The Fed has offered trillions of dollars of liquidity to keep markets moving amid surging unemployment and sharp drops in activity, while warning in its “beige book” survey released earlier this month of a “highly uncertain” outlook.
AFP
5.20am: Wall Street recap
Wall Street stocks fell for a second session in a row Friday on rising US-China tensions and worries that equities have gotten overvalued.
Beijing ordered the US consulate in Chengdu to shut in retaliation for the closure of its own Houston mission. The move comes amid escalating tensions between the two countries over the coronavirus and China’s crackdown on Hong Kong.
Analysts also cited unease over the hefty gains by equities since March despite a highly uncertain US economic outlook due to the coronavirus that has led to many companies refraining from forecasting earnings.
“It’s natural that people are starting to re-evaluate their expectations for forward earnings,” said FHN Financial Chris Low. “That gets people thinking about valuation.”
The Dow Jones Industrial Average dropped 0.7 per cent to 26,469.89. The broadbased S&P 500 shed 0.6 per cent to 3,215.63, while the tech-rich Nasdaq Composite Index lost 0.9 per cent at 10,363.18.
Among individual companies, Dow member Intel plunged 16.2 per cent after it announced that its next-generation chips would be delayed by manufacturing problems.
American Express shed 1.4 per cent as it reported an 85 per cent drop in second-quarter profits to $US257 million. The credit card company set aside $US1.6 billion for bad loans, reflecting “the deterioration of the global macroeconomic outlook.”
AFP
ASX 200 falls on China update; BHP leads mining reversal
Iron ore, copper futures, AUD down after China's underwhelming economic update. RBA's 'step down' in hawkishness evident in September minutes, but deputy governor Andrew Hauser says inflation job's not done yet.
ASX 200 rises on banks; Arcadium top gainer
Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.