ASX adds 1.9pc as RBA warns of Vic downside
Shares settled to a 1.9pc gain at the close as the RBA resumed bond buying and UBS warned of a looming dividend recession.
- June retail trade lifts 2.7pc
- Afterpay jumps 7pc, lifts tech
- UBS warns of looming ‘dividend recession’
- Melbourne spending halt flows to NSW: ANZ
That’s all from the Trading Day blog for Tuesday, August 4. Australian stocks added 1.9pc to follow strength on Wall Street overnight, even as companies such as Wesfarmers and Inghams detailed the hit to their operations from Victoria’s Stage Four lockdown.
Overnight, the Nasdaq surged 1.5 per cent, the Dow gained 0.9 per cent and the S&P 500 climbed 0.7 per cent.
Locally, the latest retail trade figures showed a 2.7pc lift in June, before Melbourne’s new wave of lockdowns, while the Reserve Bank kept rates steady and said it would resume bond buying from tomorrow.
James Kirby 8.34pm: Protect yourself from Ponzi planners
What’s this? A financial planner jailed for stealing money! Graeme Walter Miller got six years last week for a Ponzi scheme and you have to ask, after all the reforms, how do we trust anyone with our investments?
Miller’s case is exceptional even by the dismal standards of rogue advisers.
There was no intention of guiding clients towards building wealth. Instead, Miller’s scheme quite literally invested none of the money he received from nine key clients over four years.
More than $1.8m was misappropriated as Miller played a game — taking money in and paying some of it back out in dividends while pocketing large amounts — as first demonstrated by Charles Ponzi in Boston in the 1920s.
David Rogers 8.04pm: Sharemarket faces reality check
Australia’s rebounding sharemarket faces a reality check from record profit declines and a “dividend recession” in the August reporting season, even as the coronavirus crisis showed signs of stabilising.
After sharply underperforming global markets last month as Victoria’s worsening second wave culminated in a “state of disaster” and stage 4 restrictions this week, the S&P/ASX 200 surged 2 per cent on Tuesday and a number of Melbourne-exposed stocks were among the best performers.
But high-profile analysts are warning of a particularly challenging profit reporting season.
John Durie 7.40pm: Policy need for R&D revival
Manufacturing tsar Andrew Liveris rightly bangs the drum about government and industry co-ordinating manufacturing policy better, which hopefully will see wholesale changes to government plans on research and development.
R&D is like motherhood — something everyone wants to support — but in this case it’s not being done correctly.
While the policy is undergoing yet another review, now would be a good time for the federal government to actually start a debate on policies that can create jobs.
It has had the Liveris report on manufacturing industry for a few weeks now. Parts of it are already leaked and the relevant ministers have people looking at it, so why not place the full report on the table to focus on job creation rather than the Victorian lockdown.
That way debate could focus on the facts to help the government set the policy.
Liveris believes the basics for a manufacturing revival already exist in Australia — it’s just a matter of bringing jobs back home and co-ordinating them better to maximise the value.
Damon Kitney 6.53pm: Star sticks with junket operator
Star Entertainment, Australia’s second-largest casino operator, continues to have a relationship with a junket operator with alleged links to organised crime, one of its top executives has told a public inquiry.
A day after the James Packer-backed Crown Resorts group admitted it was still working with Alvin Chau and his Macau-based and Hong Kong Stock Exchange listed Suncity Group, Star’s chief casino operator Greg Hawkins - a former Crown executive - said no decision had been made by the group to cease its relationship with Mr Chau.
A series of media reports in July last year alleged Crown’s lax risk management practices allowed it to partner with junket operators with links to drug traffickers, money launderers, human traffickers and organised crime groups.
The reports also revealed Star had an exclusive fixed high-roller room or gaming salon for Suncity inside its flagship Sydney casino and claimed Mr Chau has been blocked by the Department of Home Affairs from entering Australia because of his alleged organised crime links.
Mr Hawkins confirmed Star had “introduced an ongoing review from an AML/CTF (anti money laundering/counter terrorism financing) perspective of the junkets that were referred to” following the media reports.
Paul Garvey 6.23pm: Rio: Caves ‘could have been saved’
Mining giant Rio Tinto had multiple mining options that could have avoided the destruction of the ancient Juukan Gorge caves in Western Australia’s Pilbara.
In a detailed submission to the parliamentary inquiry into the May incident, which saw Rio Tinto detonate caves showing traces of human habitation dating back 46,000 years, the company confirmed for the first time that it had three alternative mine plans for its Brockman 4 iron ore pit that all avoided the Juukan Gorge rock shelters.
“The fourth option impacted the rock-shelters in order to access higher volumes of high-grade ore, and was the option that was chosen by Rio Tinto,” the company said.
The revelation about the alternative options is part of the most detailed account to date from the company about the incident, which has damaged Rio Tinto’s corporate reputation, strained relations between Indigenous groups and miners, and accelerated an overhaul of WA’s Indigenous heritage protection laws.
Rio Tinto’s submission began with a frank acknowledgment that the caves should never have been damaged.
“The destruction of the Juukan rock-shelters should not have occurred. Rio Tinto has unreservedly apologised to the Puutu Kunti Kurrama and Pinikura people (PKKP), and we reaffirm that apology now,” the company said.
Eli Greenblat 5.56pm: Woolies boss knows COVID crisis personally
Brad Banducci, the chief executive of Australia’s biggest retailer, supermarket giant Woolworths, has described how the COVID-19 pandemic has personally touched his family with one of his daughters diagnosed with the coronavirus.
In an email newsletter to Woolworths customers Mr Banducci said he knew the challenges the Victorian community faced as COVID-19 cases spiked in the state.
“These are challenging times in Victoria, and as a father with two daughters currently studying and working in Melbourne, I feel it personally,’’ he said in a customer correspondence.
“In addition, one of my daughters (working in health care), has also just tested positive for COVID making it even more real for us as a family. Rest assured of Woolworths’ commitment to do whatever we can to support all of the Victorian communities we are part of.”
Woolworths is one of the biggest employers in Victoria through its supermarkets and general merchandise arm Big W is preparing to shut down its Big W business from midnight Wednesday to comply with new stage 4 restrictions.
5.47pm: Gaming boosts Sony profit, up 53pc
Sony said Tuesday its net profit surged 53.3pc in the first quarter, but warned annual profits were likely to see double-digit falls compared with the previous fiscal year.
The media-electronics conglomerate said its net profit for the April-June quarter reached 233.25 billion yen ($US2.2bn), reporting “significant increases” in its game and network services and financial services segments.
But the surge also came on strong gains in equity securities, which pushed up the firm’s pre-tax income.
Its operating profit, however, slipped 1.1pc to 228.39 billion yen on sales of 1.97 trillion yen, up 2.2pc.
And the company warned annual net profit for the year to March was forecast to drop 12.4 pc to 510 billion yen on an annual operating profit of 620 billion yen, down 26.7pc.
The PlayStation manufacturer said it expects annual sales to post a modest 0.5pc increase to 8.3 trillion yen.
While global demand for games downloads spiked this year as lockdowns forced people to stay at home, the pandemic has brought a string of negative factors for Sony, including a slump in manufacturing, music event cancellations and movie theatre shutdowns.
“Lockdowns have continued affecting Sony’s production lines while hitting hard sales of its electronics products and at theatre-release movies,” Hideki Yasuda, an analyst at Ace Research Institute in Tokyo, told AFP ahead of the results.
“It was quite a tough quarter for Sony, as negative factors outnumbered positive ones. Sony is still expected to recover gradually for the rest of the fiscal year but on the condition that a major second wave of the pandemic doesn’t emerge.” If there is a serious resurgence of the virus, “it will be a different story,” Yasuda warned.
The much-anticipated next version of the PlayStation is expected later this year, which analysts say has helped to sustain the firm’s share price.
AFP
5.32pm: Oil giant’s $US16.8bn quarterly loss
BP plunged into a net loss of $US16.8bn in the second quarter, the British oil giant announced on Tuesday, as the coronavirus pandemic ravaged demand for oil, sending prices tumbling.
“The ongoing severe impacts of the COVID-19 pandemic continue to create a volatile and challenging trading environment,” BP said in its earnings statement, adding that “the outlook for commodity prices and product demand remains challenging and uncertain”.
AFP
Robyn Ironside 4.56pm: Countdown on to Bain-led Virgin reveal
Virgin Australia will divulge more details of how the airline will look post-administration on Wednesday, with management expected to confirm the retention of business lounges, the eventual resumption of international routes and the demise of Tigerair.
CEO Paul Scurrah will deliver the update to the ASX and the media, following weeks of speculation about the airline’s future after its sale to US firm Bain Capital.
Virgin Australia went into administration on April 21 with debts of $6.8bn, triggering a race to find a suitable buyer.
After an accelerated process, administrators’ Deloitte named Bain as the successful bidder on June 26.
Read more: How will the new Virgin Australia shape up?
4.45pm: Gold reverses as market turns risk on
Gold miners were the key detractor in Tuesday’s trade, as the rest of the market flashed green.
The risk-on rally, fuelled by strong US tech earnings and reports of the next round of US stimulus, lifted tech shares most - led by a jump in Afterpay and WiseTech, while gambling outfit Aristocrat surged 7pc too.
But on the flip side, Evolution slipped 2.8pc, explorer Perseus lost 2.6pc and Saracen Minerals lost 2.3pc.
Here’s the biggest movers at the close:
4.35pm: Bond buying reinforces yield pledge: UBS
The restart of RBA bond purchases is a measure of its commitment to yield-curve control, not a more material move to outright QE, notes UBS economist George Tharenou.
After the RBA meeting this afternoon, which he noted was more negative than before, Mr Tharenou writes that the board’s move to purchase bonds again came as a surprise after Governor Lowe had previously argued yield curve control was working well.
“Given the RBA repeated ‘bond markets are functioning normally alongside a significant increase in issuance’, we view this move as more of a reinforcement of its commitment to YCC after drifting to a few bps above for the last month – rather than a more material move to outright QE any time soon, which would probably also include bond buying of longer maturities, as well as other securities including Semis (and even linkers),” he writes.
4.13pm: Shares jump to 3-day high
Australian shares jumped to a three-day high at the close on Tuesday, buoyed by US strength as investors looked past warnings from Melbourne-exposed companies.
Shares jumped as much as 2.2pc intraday, but finished the session up 106 points or 1.88 per cent at 6037.6.
Tech shares were the key driver, alongside a rebound in the major banks – while even consumer discretionary stocks, the most likely to take a hit from Victorian restrictions, added 2.2pc for the day.
Stock standouts include a 6.5pc jump in Afterpay, while CSL extended its recent rally by 2.2pc.
4.04pm: Woolies to shut 22 Big W stores
Woolworths Group has confirmed its 22 Big W stores in metropolitan Melbourne will be closed for six weeks from tomorrow evening under Stage Four restrictions implemented by the Victorian Government.
Nine Big W stores in regional Victoria will remain open for customers under Stage Three restrictions.
Outside of Victoria, the remaining 148 Big W stores continue to trade as normal.
WOW shares last traded up 2.5pc to $39.99.
Read more: Many losers but some winners in lockdown
3.46pm: UBS warns of looming ‘dividend recession’
UBS has warned of a ‘dividend recession’ to come at the upcoming results season, with more than 35 per cent of companies not expected to pay a dividend.
That compares to less than 10pc of companies which reported this time last year.
As companies hold on to cash to weather the coronavirus downturn, and the usually heavy handed bank payouts are restrained by regulators, UBS analyst Pieter Stoltz forecasts dividends per share to dive a record 39 per cent.
At the height of the GFC, DPS fell a more moderate 20pc.
While partly driven by a fall in earnings, he says the significant reduction in the estimated payout ration from 77pc last year to 64pc this year has been surprising.
“We think companies that can continue to pay, or even grow, their dividends are likely to outperform as investors seek stable sources of income,” he writes.
“More than 35pc of companies reporting in Aug-20 are not expected to pay a dividend (compared to less than 10pc of companies that reported in Aug-19). However, UBS analysts still expect 30 companies to maintain or grow their DPS in Aug-20.”
He notes Cleanaway may be able to deliver DPS ahead of expectations given defensive revenue, while Fortescue, ResMed and CSL are among those likely to dish out the largest dividends per share.
3.34pm: Victorian outbreak to hit GDP by $12bn
The combined economic impact from Melbourne’s coronavirus restrictions, both stage three and four, will wipe $12bn from third quarter GDP, according to the latest Commonwealth Bank estimates.
Economist Gareth Aird writes this afternoon that the blow from Victoria’s outbreak will pull national GDP into the red this quarter.
He tips a minor recovery of 1.2pc in the fourth quarter – marking a 4.2pc decline for the full year.
Victoria’s lockdown will further dent the nation’s job market recovery, he adds, tipping a 120,000 drop in jobs for the third quarter.
Read more: Andrews gets tough – heavy fines, no exercise
3.26pm: Bond buying restart a ‘mild’ surprise
The resumption of bond buying by the RBA was a mild surprise in the RBA’s statement today, notes Westpac head of rates strategy Damien McColough.
Bond futures were already trading higher ahead of the release, and ticked up slightly on the announcement the RBA would resume asset purchases from tomorrow.
“That was a mild surprise given that the Governor had seemed to focus on the smooth functioning aspect of the dual mandate, more than the target level, when recently questioned specifically about the 3yr being above the 0.25pc target,” Mr McColough says.
He adds that the statement supports Westpac’s view that the AU-US 10-year bond spread will move back toward the 20bp to 25bp region, along with a flattening of the 10-30yr curve.
Read more: Reserve Bank restarts QE
Bridget Carter 3.14pm: Taylor appointed Goldmans ECM head
DataRoom | Goldman Sachs has announced the appointment of Ian Taylor as its head of equity capital markets.
It comes after the appointment was first flagged by DataRoom.
Goldman Sachs also announced Aaron Lamshed would become Head of Syndicate.
Mr Taylor will be returning to Australia from North America where he held several ECM leadership roles within the firm including head of US Real Estate, Lodging and Gaming ECM in 2015 and later head of Canadian ECM.
Eli Greenblat 2.51pm: No collect service for DJs, Country Road
Up-market department store David Jones and its Country Road Group, taking in Country Road, Politix, Witchery and Trenery, are closing down all of their retail stores in Victoria, and are also ruling out click and collect services.
The chain will not offer click & collect, with customers coming in and out of stores possibly threatening social distancing and inadvertently spreading COVID-19.
A spokesman for David Jones and Country Road Group said stores in Victoria will close from the end of trade on Wednesday for at least six weeks.
Its online stores will continue to operate throughout this period.
“To assist with online fulfilment a number of our Victorian stores, while remaining closed to the public, will operate at a reduced capacity in line with the latest health and safety measures to help meet online demand,’’ the spokesman said.
“Our Click & Collect services will be suspended throughout Victoria at this time. In recent months we have continued to optimise our online offering and support services, and will maintain this focus throughout the store closure period to best support the needs of our customers.”
Read more: Many losers by some winners in lockdown
2.44pm: Jobless rate to rise to 10pc: RBA
The RBA board maintained the downturn in the economy was not as severe as earlier expected, but noted that the coronavirus outbreak in Victoria was having a “major effect on the Victorian economy”.
It said its baseline scenario was for output to fall by 6pc over 2020, then recovery by 5pc over the following year.
“In this scenario, the unemployment rate rises to around 10 per cent later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for jobs,” the board says.
“Over the following couple of years, the unemployment rate is expected to decline gradually to around 7 per cent.”
While noting that a stronger recovery is possible if progress is made in containing the virus in the near future, the RBA warns that “if Australia and other countries were to experience further widespread lockdowns, the recovery in both output and the labour market would be delayed”.
2.30pm: RBA keeps policy settings steady
The RBA has kept rates on hold at 0.25pc, along with its targets for the 3-year yield.
In a statement this afternoon, the board said bond markets were functioning normally alongside a significant increase in issuance, but with yields a little higher than the 25 basis point target, it would resume bond purchases from tomorrow.
“Further purchases will be undertaken as necessary,” says RBA Governor Lowe.
“The yield target will remain in place until progress is being made towards the goals for full employment and inflation.”
This comment pushed the 3-year yield down from 27 to 25 basis points.
AUDUSD has spiked to US71.34c on the release, a 13 point jump.
At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points - https://t.co/YnEMgjQzYX
— RBA (@RBAInfo) August 4, 2020
2.26pm: Tech, gold poised to join top ranks
Gold miners and tech stocks are set to storm the top ASX indices at the next quarterly rebalance in September, according to Morgan Stanley.
Analysts led by Antony Conte note that Afterpay will have its eyes on inclusion in the top 50 stocks, jostling for a spot alongside Xero and Northern Star after all three have rallied hard over the past few months.
Fisher and Paykel Health was a top contender to join the ASX100, with some competition from Appen, Mr Conte notes, but the buy now, pay later boom could bring Zip into the top 200 too.
1.42pm: Shares stretched vs bonds: JPM
The one-year forward PE valuation of the Australian share market is “looking stretched” versus the “risk-free rate” or 10-year government bond yield, according to JP Morgan.
At its current level near 20 times, the PE multiple remains near a record high near 21 times in June.
Moreover, a negative bond yield or a 20 per cent recovery in aggregate earnings is needed to restore the inverse relationship between bonds and equities to its “line of best fit”, based on data over the past decade, says Australian head of research, Jason Steed.
His regression analysis found a clear inverse correlation between the market PE multiple and bonds, with 0.56 per cent of variations in the PE multiple explained by change in the bond yield.
But the current combination is a “meaningful outlier” on a par with September 2011 and Mid-2012.
“Of course, the ‘E’ underpinning today’s multiple is not reflective of the market’s earnings,” Mr Steed notes.
“However, per the extrapolation of the relationship we show, there is the need for either a negative 10-year or a 20 per cent recovery in earnings.”
Patrick Commins 1.20pm: Iron ore boosts trade surplus
Iron ore exports drove another booming trade surplus of $8.2bn in June, with trade set to provide some cushion to the expected collapse in GDP over the June quarter.
The monthly surplus was up from a downwardly revised $7.3bn in May, according to the seasonally adjusted figures from the Australian Bureau of Statistics.
Exports lifted by $1.2bn, or 3 per cent, in the month, to $36.2bn, while imports rose by 1 per cent to under $28bn – a modest lift after a string of sharp declines.
International sales of non-rural goods was up 1 per cent to $23.8bn, with a $941m, or 9 per cent lift, in metal ores and minerals to $11.8bn. Coal exports fell 12 per cent, or $456m, to $3.4bn.
AU Trade balance - surplus improves in June on solid exports, a lot of uncertainty around the net exports contribution to growth given large swings in services . #ausbiz pic.twitter.com/Ph8qs594KU
— Alex Joiner (@IFM_Economist) August 4, 2020
1.01pm: Shares fade to 1.6pc gain
Shares are fading from daily highs in lunch trade, as banks pare some of their earlier gains.
Tech continues to outperform, as Afterpay holds higher by 6.5pc to be the best performing stock on the benchmark.
At 1pm, the ASX200 is higher by 93 points or 1.6 per cent to 6019.5.
The risk-on theme is dominating, despite warnings from some retailers on store closures in line with Victoria’s Stage Four lockdown.
As such, safe havens are pulling back – namely gold miners such as Saracen who is losing 3pc while Evolution slips 2.2pc and Gold Road Resources gives up 2.4pc.
Here’s the biggest movers at 1pm:
12.51pm: Vic lockdown to trim 1pc from GDP
Victoria’s six-week lockdown is set to slice a further 1pc off national GDP for the third quarter, putting back any hope of economic recovery, according to RBC.
Chief economist Su-Lin Ong forecasts Q3 GDP growth at 1.5pc, a decrease of 1pc from her earlier expectations thanks to the reduction in the movement of people and business from Victoria’s restrictions.
As such, her forecast for the year is now a decline of 4.3pc, from earlier 3.7pc.
On employment, she predicts the extension of government stimulus to flatten the unemployment rate, which will be further tempered by lower participation in a soft labour market.
“These trends will intensify under this next stage of restrictions, but we also need to build in more permanent job losses as businesses close. A move in the unemployment rate to ~9pc by end 2020 now seems likely,” Ms Ong writes.
“As has been the case for much of this pandemic, we will continue to focus on the broader suite of labour market indicators, especially hours worked, underemployment, and participation. All are set to deteriorate in the coming months.”
12.30pm: JP Morgan more defensive on ASX
In response to worsening coronavirus trends, JP Morgan Australia head of research, Jason Steed, has gone more defensive on Australian equities in his model portfolio.
“With COVID-19 uncertainty still stalking NSW and VIC’s more aggressive restrictions only just implemented, we struggle to find grounds for optimism and thus have further scaled up the defensive allocations in our Model Portfolio,” Mr Steed says.
“Looking forward, the coming weeks will be subsumed with a results season that will be characterised by record profit declines, writedowns and management teams who are highly unlikely to commit to definitive guidance.”
His model portfolio is overweight Materials, Healthcare, Communications, Utilities and Staples, and its biggest underweight is the Consumer Discretionary sector.
Additions to the Model Portfolio include Sonic Healthcare, CSR and Independence Group, and disposals include Incitec Pivot and James Hardie.
12.12pm: Shares hit 3-day high
Australia’s S&P/ASX 200 share index surged 2.2pc to a 3-day high of 6059.5 in reaction to offshore gains and a slowing coronavirus case count in Melbourne.
A number of Melbourne-exposed stocks are acting as if the crisis has peaked, just as extended phase 4 restrictions get underway.
In the financial sector, Bendigo Bank rose 4.4pc, ANZ rose 3.4pc and NAB rose 2.6pc.
In the consumer discretionary sector, Crown Resorts rose 6.2pc, Star Entertainment surged 6.8pc and Tabcorp rose 3.5pc.
In the travel sector, Qantas rose 3.4pc but is now flat, while Flight Centre rose 3pc and Webjet gained 4.7pc.
Among property trusts, Scentre rose 4.5pc and Vicinity Centres gained 3.9pc.
11.49pm: Afterpay jumps 7pc, lifts tech
While the Australian market bounces back with a 2.1pc in morning trade, its Afterpay that is a standout, surging by 6.8 per cent to lead the tech sector higher.
It comes after strength on the Nasdaq overnight, where Apple soared to new records and Microsoft cheered Trump’s approval of its bid for TikTok owner ByteDance.
The local tech sector is higher by 4pc – by far the most improved so far today, while Afterpay adds 6.8pc and buy now, pay later peer Zip adds 6.8pc.
WiseTech is adding 6.2pc, Appen up by 3.4pc, Altium by 3pc and Xero by 2.5pc.
Patrick Commins 11.47am: Retail trade lifts 2.7pc
Retail spending lifted by 2.7 per cent in June as the easing of restrictions encouraged more Australians back into shops and cafes, even as Victorians began stockpiling late in the month as the numbers of new COVID-19 cases in Melbourne began to climb.
Retail trade continues to recover from a historic 18 per cent plunge in April, followed by an equally unprecedented 17 per cent bounce in May, but now faces a more uncertain outlook as a result of the deteriorating Victorian situation.
There was massive 28 per cent rise in spending in cafes, restaurants and takeaway foods as the nation began lifting social distancing restrictions through June, the seasonally adjusted figures from the Australian Bureau of Statistics showed.
Shoppers also flocked back to clothing, footwear and personal accessory shops, where spending gained 21 per cent.
Total spending in June reached $29.8bn and is now 8.5 per cent higher than a year earlier.
11.35am: Melbourne spending halt flows to NSW
The erosion of spending growth in Melbourne due to the second lockdown has flowed across the border, moderating activity in New South Wales too, according to ANZ.
In the latest release of the bank’s own internal spending data, Victorian spend declined by 11pc for the week to August 1, while spending in NSW grew just 3.5pc.
In comparison, the rest of the country experienced spending growth of 8.2pc.
Spending on dining and takeaway in Victoria collapsed by 51pc compared to the same time last year, as venues were closed to diners and allowed to provide takeaway only, while NSW fell 0.6pc.
“Stage 4 lockdowns in Melbourne and upcoming Stage 3 lockdowns in regional Victoria are likely to deteriorate spending further,” economist Adelaide Timbrell writes.
“The reductions in JobKeeper at the end of September, as well as the expiry of many mortgage deferral periods are looming. For some households, the stricter lockdown may trigger a move from JobKeeper payments down to JobSeeker.
“Many households are also likely to already be set up for work and play at home.”
As such, home-related spend is moderating too, albeit still up strongly from the same time last year, furniture is up 35pc, homewares by 24pc and electronics still tracking well with 44pc growth.
11.22am: BlackRock lifts cyclicals, quality
BlackRock Investment Institute strategists have closed an underweight view on cyclical equity exposures such as value, amid signs of a trough in corporate earnings globally, while also turning more positive on quality stocks.
“Corporate earnings estimates look to be troughing as economies reopen with fits and starts,” say BlackRock Investment strategists led by Mike Pyle.
“We have increased our overweight in the quality factor because we see it as most resilient to the dynamics of a choppy activity restart, given its focus on companies with strong balance sheets and profitability.”
While noting that coronavirus has been the biggest blow to corporate earnings since the 2008 financial crisis, they see signs of a trough in earnings revisions across major regions, including emerging markets.
They also note that economic activity has “started to normalise” in Europe and North Asia, albeit with localised lockdowns to contain virus clusters, while the pandemic is still spreading in the US and many emerging markets.
But they caution that while an unprecedented policy response has boosted risk assets and Europe has agreed on a historic recovery fund, they point out that US stimulus is now at risk of fading.
“Wrangling over the size and makeup of a new US fiscal package is intensifying as key benefits expire and states face huge budget shortfalls,” they say.
“We could see a $1tn to $1.5tn fiscal package that extends some but not all federal stimulus measures through late 2020.”
Samantha Bailey 11.10am: Adbri still operating in Victoria
Adbri, Australia’s biggest cement company, has told the market this morning that its sites can continue to operate during the six-week stage 4 lockdown period in Victoria.
“We understand the Victorian Government’s decision, and will play our part to protect our people and the community at large as our first priority,” chief executive Nick Miller said in a statement.
“We are committed to working through this period with our customers while co-operating with the Government and health authorities to fight COVID-19 and keep our community safe.
“To date, all of our sites have been fully operational and we have had no confirmed cases of COVID-19 within the employees of Adbri or its subsidiaries.”
ABC last traded up 1.8pc to $2.25.
Samantha Bailey 11.06am: Melbourne Kmart, Target stores shuttered
Wesfarmers will close its Kmart and Target stores in metropolitan Melbourne as the city faces strict Stage Four restrictions.
Bunnings and Officeworks will both be closed to in-store retail customers but will remain open to trade and business customers.
“Our businesses are well equipped to further adapt their operations to continue to safely support customers and suppliers through these restrictions, with a focus on supporting business, trades and home delivery as well as contactless click and collect in many of our Melbourne metropolitan stores,” Wesfarmers managing director Rob Scott said.
The restrictions will mean the closure of 53 Bunnings stores, 39 Kmart stores, 34 Target stores and 42 Officeworks stores for the next six weeks.
Wesfarmers said it derived about 17 per cent of retail sales from its Melbourne stores in the 2020 financial year.
The company said that any team member stood down would receive two weeks’ pay, in addition to any accrued leave entitlements for permanent staff.
The company’s industrial businesses, including Blackwoods, Workwear Group and Modwood are expected to continue to operate.
WES last traded up 1.4pc to $46.56.
Read more: Wesfarmers says Victoria should refine retail lockdown rules
Samantha Bailey 10.50am: Inghams workforce cut by a third
Poultry producer Inghams says its Melbourne workforce will be reduced by a third, in line with the stage 4 restrictions on meat processing plants in Victoria.
The company has two processing facilities in the state, in Somerville and Thomastown, where its workforce will be reduced by 33pc at any one time, and additional safety initiatives implemented.
Restrictions will not impact the company’s other assets or facilities in the Inghams supply chain, such as hatcheries, farms, feed mill or logistics operations.
“While we await the formal Victorian government directive to provide further certainty on the detail of the restrictions, Ingham’s management are working through the implications for the reduced workforce at both our Victorian processing sites, and looking to minimise the impact of the restrictions through use of other processing sites in the Ingham’s network and inventory that we have on hand,” the company said in a statement.
Inghams said that the financial impact of the Victorian restrictions will be better understood in the coming weeks.
The group’s Thomastown site only returned to operation yesterday, after a two-week shutdown when five of its employees tested positive for COVID-19.
Shares in the company last traded up 3.1 per cent at $3.35.
Read more: Victoria’s weak link in supply chain
Samantha Bailey 10.42am: Baby Bunting an ‘essential’ provider
Baby goods retailer Baby Bunting says its 12 metropolitan Melbourne stores will remain open, after the Victorian government yesterday announced the introduction of Stage 4 business restrictions, allowing on-site work for retailers of maternity supplies.
“We understand and support the need for the introduction of the Stage 4 restrictions,” chief executive Matt Spencer said in an ASX statement this morning.
“With over 9,000 new babies due in Victoria during the lockdown period, new and expectant parents face many critical and specialised needs and our Melbourne stores remain open to provide the essential products and services for them.”
Shares in the company are up 2.3 per cent at $3.55 each in early trade, while the broader ASX 200 rises 2.12 per cent.
Read more: Andrews to explain limits as 429 cases recorded
Bridget Carter 10.31am: Strandline raising $18.5m
DataRoom | Heavy mineral sands developer Strandline Resources is raising $18.5m through Shaw and Partners and Morgans at 21.5c per security.
The funds will be used to fund its Coburn development in Western Australia and for general working capital.
The group’s market value after the offer will be $125.6m.
The price of shares being sold is at a 12.2 per cent discount to the last traded share price of 24.5c.
Bridget Carter 10.27am: O’Connor promoted to AMP real estate head
DataRoom | AMP Capital has promoted Kylie O’Connor to the role of head of real estate.
She is currently AMP Capital Real Estate’s Chief Operating Officer and Managing Director of Separate Accounts.
Ms O’Connor will replace Carmel Hourigan who is leaving the business to take on the role heading the office property operations at Charter Hall.
Read more: AMP hit with top level exodus
10.19am: 67 JB Hi-Fi stores to shut
JB Hi-Fi says 46 of its namesake stores, and 21 The Good Guys stores in metropolitan Melbourne will be temporarily closed to customers, in line with the Victorian government’s latest directives.
The retailer said online and commercial operations will continue to trade and be available with fulfilment by home delivery and contactless click and collect.
“The Group’s warehouses and metropolitan Melbourne store network will be operational, with strict safety measures in place, to fulfil online and commercial orders,” it said in a statement to the ASX.
“The Group is working to support Victorian team members and customers through this difficult time.”
JBH shares last down 0.11pc to $44.57.
10.11am: ASX jumps 1.8pc
Shares have jumped 1.8pc at the open, in line with overnight futures, tracking a surge on Wall Street overnight.
At the open, the ASX200 added as much as 106 points to 6032.7 – settling to a 1.7pc lift at 6028.4.
Tech is leading the charge after Nasdaq records overnight, led by a 5.1pc surge in Afterpay while Xero jumped 3.4pc and WiseTech rose 4.1pc.
Banks have made back most of yesterday’s weakness with gains between 2.1pc and 2.6pc in the big four.
9.58am: Confidence lower before Stage Four: ANZ
Consumer confidence declined 0.4 per cent last week as Melbourne restrictions were raised, even before the onset of the Stage Four lockdown.
The latest survey from ANZ shows confidence fell to 88.6, the sixth week of declines – now matching the length of the confidence downturn from the first wave, albeit less severe this time around.
The slip was driven by sharp weakness in economic conditions – perceptions of current conditions down 5.1pc while the outlook for future conditions was down 5.3pc.
“Despite the decline seen since the onset of the second wave in Victoria, the severity of the fall has been less than in March (at least so far), suggesting Australians have become somewhat accustomed to the ‘new normal’,” ANZ head of Australian economics David Plank said.
“Fiscal support is also critical, with sentiment toward personal financial conditions holding up much better than expectations about the economy as a whole. The plan to reduce this support may test this relative resilience.”
The ‘time to buy a household item’ subindex gained 4.9pc, capping five weeks of falls, while inflation expectations slipped 0.1ppt to 3.3pc.
ANZ Roy-Morgan Australian Consumer Confidence: fell again, though only modestly. This survey does not capture the effect of the Melbourne's stage 4 lockdown, as that announcement came late in the weekend. #ausecon #ausretail @DavidPlank12 @roymorganonline pic.twitter.com/0vdZCIh58B
— ANZ_Research (@ANZ_Research) August 3, 2020
9.48am: Shares to jump ahead of RBA
Australia’s share market is set to jump after strong offshore gains.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open up 1.8pc at 6033.7.
But it may continue to underperform barring improvement in domestic coronavirus trends and greater fiscal stimulus.
Overnight, the Euro Stoxx 50 rose 2.3pc and the S&P 500 gained 0.7pc – hitting a 5-month high – after better-than-expected European and US manufacturing PMI data for July.
US small caps led gains with the Russell 2000 up 1.8pc, while the Nasdaq rose 1.5pc to a record high close of 10902.8.
Apple rose 2.5pc after surging 10.5pc on Friday, hitting a record high again, and Microsoft surged 5.6pc on White House approval to buy TikTok operations in the US, Canada, Australia and NZ.
The VIX volatility index hit a 5-month low of 22.17pc, but bounced off that point to close just 0.18pts lower at 24.28pc.
Meanwhile US COVID-19 trends improved and the Wall Street Journal said the White House had talked about taking unilateral action if congressional talks on the next coronavirus relief package collapse.
International trade and retail trade data for June at 11.30am but the RBA’s monetary policy decision at 2.30pm AEST is the main focus, particularly its assessment of the economic impact of Melbourne lockdowns.
9.32am: No disruption for Blackmores production
Vitamin maker Blackmores has reassured investors it will be face little disruption from Victoria’s Stage 4 restrictions, noting that its Braeside manufacturing facility will continue to operate.
As Victorians come to grips with shutdowns across retail and manufacturing, among other industries, Blackmores said its Victorian factory produced pharmaceutical products and would continue to operate, while all packing, warehousing and distribution was located in Sydney and unaffected by any restrictions.
“Our top priority is the health and safety of our employees and we will continue to implement and adhere to our comprehensive COVID-19 safe plans which are already in place and are aligned to Government requirements. We will continue to monitor for any changes to these protocols,” it said.
Read more: Heartbreak descends as city falls silent
John Durie 9.27am: Pact approves $45m recycling centre
Amid the gloom of the Victorian shutdown, Pact Group holdings has formally approved the $45m construction of a new plastic bottle recycling centre just north of the border at Albury as part of its joint venture with Asahi and Cleanaway Waste Management.
The packaging company said in a statement “the facility will recycle the equivalent of around one billion 600ml PET plastic bottles each year”.
“The bottles will be used as a raw material to produce new bottles plus food and beverage packaging in Australia to help close the loop on recycling.
“This will see the amount of locally sourced and recycled PET produced in Australia increase by two thirds – from around 30,000 tonnes currently to over 50,000 tonnes per annum.”
Pact said the project was expected to create over 300 direct and indirect jobs, including
tradespeople, engineers and technicians.
Construction will start towards the end of the year, pending approval from Albury Council, and is expected to be fully operational by December 2021.
Read more: Morrison pledges $190m to turbocharge recycling
Eli Greenblat 9.18am: kikki. K rescued by US partnership
Collapsed stationery retailer kikki. K has formally secured its future after going into voluntary administration in March.
A partnership with US-based EC Design will see kikki. K continue to trade and grow its global e-commerce business already serving kikki. K customers in over 150 countries, in addition to a selective retail footprint of 30 stores, preserving close to 250 jobs.
kikki. K closed its bricks and mortar stores amid the COVID-19 pandemic, but has since opened and is currently trading select stores outside of Victoria.
The investment partnership will see at least 25 stores continue to trade across NSW, VIC, ACT, QLD, WA and SA, and two in New Zealand. One store continues to operate in Singapore and two in Hong Kong.
Read more: Perfect storm sends kikki. K into receivership
9.06am: Incitec sets out cost cutting plan
Fertilisers and explosives maker Incitec Pivot says its targeting a $60m earning uplift per year as part of its cost savings plan in the wake of COVID-19, set to be implemented by FY22.
In notes of a presentation to be delivered at 10am, the company said mining demand was resilient amid the pandemic, while agriculture demand was recovering.
Still, the company was cutting costs, with a goal of $60m in cost savings by FY22, with short term non-essential operational spend paused for the current year, and $40m in capex deferred into FY21.
In the six months to June 2020, Incitec said its fertiliser distribution volumes were up 16pc on the previous corresponding period, underpinned by above average rainfall for much of southeastern Australia, while mining volumes locally continued to be strong also.
Across the rest of the world. disruptions from COVID-19 weighed on volumes, especially in Indonesia and the Americas.
9.04am: What’s on the broker radar?
- ANZ raised to Neutral – Macquarie
- Bendigo and Adelaide Bank cut to Underperform – Macquarie
- BWX raised to Buy – Canaccord
- Corporate Travel raised to Add – Morgans
- JB Hi-Fi cut to Neutral – JP Morgan
- Panoramic Resources raised to Neutral – Macquarie
- Premier Investments raised to Hold – Morningstar
- Qube reinstated Overweight – JP Morgan
- ResMed cut to Underperform – BofA
- United Malt raised to Buy – Morningstar
8.53am: Afterpay raises $136m in retail offer
Afterpay has closed its share purchase plan, raising $137m from retail holders after a $650m raise to institutional investors last month.
The buy now, pay later leader said it had received 10,110 valid applications, representing a participation rate of 19pc, with an average application of $13,300.
Eligible holders could apply for up to $20,000 worth of new shares under the offer at $66 apiece, but the raise fell short of the company’s $150m cap on the offer.
As a result, 2,070,776 shares will be issued on Thursday.
APT last traded at $66.50.
Bridget Carter 8.51am: Ai-Media seeking $67m in IPO
DataRoom | Ai-Media is raising $66.8m through Bell Potter and Morgans as part of its initial public offering.
It comes as the company launches its management roadshow for its float ahead of a book build on Friday and a listing of shares on a normal basis on September 15.
Shares for the float have been priced at $1.23 each and the company’s market value will be $177.3m.
Its enterprise value will be $157.5m.
The company was co-founded by Alex Jones and chief executive Tony Abrahams and creates captions, transcripts and subtitles.
Read more: Caption group plots US expansion
7.45am: Hyatt swings to a loss
Hyatt Hotels swung to a loss in the fiscal second quarter and revenue declined more than 80pc as the company continues to grapple with the effects of the COVID-19 pandemic on travel and hotel demand.
Comparable system-wide revenue per available room (RevPAR), a key industry metric, plunged by 89pc during the quarter ended June 30.
“The recovery in RevPAR has been mixed, as various parts of the world remain subject to travel restrictions and quarantines which continue to suppress demand and drive uncertainty surrounding the pace and timing of recovery across individual markets,” Hyatt said.
However, Hyatt said comparable system-wide RevPAR improved each month after reaching a low point in April.
At the end of July, Hyatt said about 87pc of total system-wide hotels were open.
The Chicago-based company recorded a loss of $US236 million, or $US2.33 a share, compared with a profit of $US86 million, or 81 cents a share, a year earlier. The company had an adjusted loss of $US1.80 a share for the quarter. Analysts polled by FactSet were expecting an adjusted loss of $US1.40 a share.
Total revenues were $US250 million, down from $US1.29 billion in the year-earlier period. Analysts were targeting revenue of $US285.3 million.
Dow Jones
7.00am: US to borrow extra $US2tr
The US expects to borrow an additional $US2 trillion in the second half of the year as federal spending ramps up to combat the coronavirus pandemic, the Treasury Department said.
The department estimated the government would borrow $US947 billion from July through September, a record for the quarter, bringing total borrowing for fiscal year 2020 to $US4.5 trillion, in line with earlier estimates. That total is more than triple last year’s $US1.28 trillion, and it dwarfs borrowing during and after the 2008 financial crisis.
The Treasury also estimated net marketable borrowing from October through December would total $US1.216 trillion. Senior Treasury officials said their estimate assumes Congress will eventually pass another round of economic relief, driving about $US1 trillion in borrowing through the end of calendar year 2020.
The White House and congressional leaders are at a stalemate over the next fiscal aid package, which could include a second round of stimulus payments, an extension of the extra $US600 in weekly jobless benefits that expired Friday and additional aid for state and local governments.
Dow Jones
6.20am: ASX set to leap at the open
Australian stocks are tipped for a strong start after gains on Wall Street, where the Nasdaq’s
rise was fuelled by Microsoft’s potential takeover of TikTok, and as markets monitored talks in Washington on another federal relief package.
At 6am (AEST) the SPI futures index was up 87 points, or 1.5 per cent.
On Monday, Australian stocks ended flat after falling as much as 1.1 per cent during the day, weighed down by the Victoria lockdown.
The Australian dollar is weaker, at US71.22c.
The spot price of iron ore is up 4.4 per cent to $US116.35.
6.10am: Wall Street lifted by tech surge
US stocks rose, lifted by a surge in technology stocks like Apple and Microsoft, as well as signs that the rate of new coronavirus infections could be slowing.
The Dow Jones Industrial Average gained 236 points, or 0.9 per cent, as of the close of trading in New York, getting August off to a strong start. The index climbed 2.4 per cent in July. Trading volumes are expected to slide in coming weeks with the onset of the summer vacation season, leading to a potential increase in volatility.
The S&P 500 rose 0.7 per cent, while the tech-heavy Nasdaq Composite climbed 1.5 per cent, giving the benchmark a fresh record.
Investors have piled into technology stocks in recent weeks, particularly companies that seem to benefit from stay-at-home orders. Robust earnings from tech companies and virus-fuelled disruptions to traditional sectors, like airlines, retail and manufacturing, have widened the gap between Big Tech and everyone else.
“We expect to see that bifurcation in the market until we get some sort of solution for how to move past the virus issue,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
Apple shares gained 2.5 per cent on Monday. Microsoft shares climbed 5.6 per cent, a record close, after the software giant said over the weekend that it would move forward with plans to buy the U.S. operations of the hit video-sharing app TikTok. The companies’ gains helped make tech stocks the best-performing sector of the S&P 500 on Monday.
Meanwhile, the U.S. registered its lowest number of new COVID-19 infections in weeks, spurring investors’ hopes that the growth in cases could be slowing. The US reported more than 47,000 new coronavirus cases, the smallest daily increase in almost four weeks, after posting a record number of new infections in the month of July.
New data showed U.S. manufacturing activity grew in July, a sign that the sector is recovering after the COVID-19 pandemic forced much of the US economy to an abrupt halt. The Institute for Supply Management’s manufacturing index rose to 54.2 last month, from 52.6 in June. Economists had expected the reading to come in at 53.8. Anything above 50 represents an expansion in activity.
Overseas stocks rose after similar data pointed to a manufacturing recovery. The pan-continental Stoxx Europe 600 rose 2.1 per cent, its biggest gain in more than a month, bolstered by survey data showing signs of recovery in euro area factories. In China, the Shanghai Composite Index rose 1.8 per cent after a private gauge of manufacturing activity on the mainland rose in July to its highest level in more than nine years.
Dow Jones Newswires
5.45am: Trump wants slice of TikTok price
President Trump confirmed he is open to a deal in which Microsoft Corp. or another US company buys the video-sharing app TikTok, but said the government should receive payment for clearing a purchase.
Speaking to reporters at the White House, Mr Trump described the Sunday conversation he had with Microsoft CEO Satya Nadella over the company’s interest in buying TikTok from its Chinese owner, Beijing-based ByteDance Ltd.
“I said, ‘Look it can’t be controlled for security reasons by China,’” Mr. Trump said. “Here’s the deal, I don’t mind whether it’s Microsoft or somebody else – a big company, a secure company, a very American company buy it.”
But the president, who on Friday floated banning TikTok, also said there would be conditions to a sale and he did not see how only part of the company could be purchased.
Microsoft has said it is interested in buying TikTok operations in the US, Canada, New Zealand and Australia, leaving other parts of the business in Chinese ownership.
“I did say that ‘If you buy it … a very substantial portion of that price is going to have to come into the Treasury of the United States, because we’re making it possible for this deal to happen.’ Right now they don’t have any rights unless we give it to them.”
The White House didn’t immediately respond to a request for additional information about how that would work. Microsoft didn’t immediately respond to a request for comment.
Mr. Trump indicated a deadline of Sept. 15, after which TikTok would be banned in the U.S. Microsoft said Sunday that it would move quickly to pursue discussions with ByteDance and it aims to complete the negotiations by Sept. 15. TikTok says it has 100 million users in the U.S.
Dow Jones
5.35am: Trial ordered for alleged bitcoin fraudster
A judge in Paris has ordered a French trial for Alexander Vinnik, a Russian suspected of money laundering on the bitcoin exchange BTC-e, also wanted by Washington and Moscow, his lawyer and other sources told AFP.
Vinnik was extradited to France in January from Greece, where he had been arrested on an American warrant in 2017.
Vinnik allegedly operated the BTC-e exchange until his arrest at the northern Greek tourist resort of Halkidiki, which set off a three-way extradition tussle between the United States, France and Russia.
A US indictment accuses him of 21 charges ranging from identity theft and facilitating drug trafficking to money laundering.
French authorities, meanwhile, accuse him of defrauding more than 100 people in six cities between 2016 and 2018.
Vinnik has denied the charges and has sought an extradition to Russia, where he is wanted on lesser fraud charges involving just 9,500 euros ($11,000).
But a judge has ruled that Vinnik will stand trial in France for extortion, aggravated money laundering, criminal association, and fraudulently accessing and modifying data in data processing systems, a source close to the case told AFP.
AFP
5.30am: Markets climb amid bargain-hunting
Stock markets rose on both sides of the Atlantic as hopeful economic data prompted bargain hunting, with some of Asia’s equities markets also making solid gains.
Analysts did not seem entirely confident about the reasons for the rebound as investors appeared to shrug off a wide gap between the White House and Democrats about the next round of relief spending, worsening coronavirus numbers in many parts of the world and festering US-China tension.
Michael Hewson at CMC suggested that “US markets appear to be being propped up by a cohort of the large tech stocks, as well as a resilient pharmaceutical sector, on optimism about a possible vaccine, or vaccines”.
Ipek Ozkardeskaya, at Swissquote, credited better-than-expected Japanese GDP data for the good mood on trading floors, as well as forecast-beating Chinese manufacturing numbers.
But volumes were light thanks to the summer holiday season, which possibly explained part of the strong market moves.
Key European indices were up by around two per cent or more at the close after manufacturing sector surveys in the region pointed to a return to growth. London added 2.3 per cent, Frankfurt gained 2.7 per cent and Paris rose 1,9 per cent.
Earlier, Japan’s Nikkei 225 had received a boost from data showing the economy contracted less than first thought in January-March.
Shanghai also surged following a forecast-beating reading on factory activity from Caixin, days after an official report pointed to a much improved manufacturing sector.
AFP
5.25am: US manufacturing rebounds
US manufacturing continued to recover in July and demand jumped compared to June but firms are still shedding jobs, according to an industry survey.
The Institute for Supply Management’s (ISM) manufacturing index jumped to 1.6 points to 54.2 per cent, the highest in a year and beating the consensus.
Of the 18 manufacturing industries, 13 reported growth last month.
“In July, manufacturing continued its recovery after the disruption caused by the coronavirus (COVID-19) pandemic. Panel sentiment was generally optimistic” with two positive comments received for every negative comment, Timothy R. Fiore, head of the institute’s survey committee, said in a statement.
AFP
5.20am: HSBC profit slumps
HSBC reported a 69 per cent slump in net profit, joining a number of major banks whose earnings have been slammed by the coronavirus fallout.
HSBC announced earnings of $US3.1 billion compared with almost $US10 billion in the first six months of 2019, as spiralling China-US tensions also hurt the British-based but Asia-focused lender.
HSBC said that its pre-tax profit slid 64 per cent to $US4.3 billion in the first half while revenue was down nine per cent at $US26.7 billion.
The figures missed analyst forecasts and the bank also raised its estimate for 2020 loan losses to $US13 billion from $US8 billion.
Chief executive Noel Quinn described the first six months of the year as “some of the most challenging in living memory”.
Alongside HSBC results, top French bank Societe Generale on Monday announced a second-quarter loss of more than one billion euros as the pandemic forced it to set aside more provisions against bad loans.
UK banks Barclays, Lloyds and NatWest all last week reported huge financial hits linked to the pandemic’s fallout.
But there have been some bright spots, with French bank BNP Paribas weathering the coronavirus storm in the second quarter with only a small dip in net profits thanks to a surge in investment banking.
Credit Suisse meanwhile saw net profit jump almost a quarter in the April-June period, also on investment banking gains.
AFP
ASX 200 hits fresh record; Zip, Lynas up
Rinehart lifts Lynas stake. Broker upgrade for Zip. Origin down after cutting APLNG output expectations. Lendlease selling Capella. Ramsay Health Care loses key executives in restructure. Apple's iPhone sales dip.
ASX soars to record high on tech, rate cut hopes
The sharemarket has jumped to a record high of 8515.7 points, amid positive leads from Wall Street after big tech reports and Reserve Bank rate cut hopes. DeepSeek will not derail Microsoft’s $US80bn AI investment this year. Zip and MinRes drop.