Trading Day blog: live markets coverage; Map to ASX miners’ excess cash; plus analysis and opinion
The ASX closes flat as bank sector risk subdues resource strength, while Telstra is served a $1bn reprieve.
And that’s the Trading Day blog for Monday, December 4.
Samantha Woodhill 4.32pm: Stocks flat as heavyweights spar
The local share market ended the session flat as falls in banking sector were offset by strength in the mining stocks.
At the close of trade, the benchmark S & P/ASX200 was down 4.156 points or 0.07 per cent at 5985.6 points. The broader All Ordinaries index was down 4.917 points or 0.08 per cent, at 6070.6 points.
CMC Markets chief markets strategist Michael McCarthy said the pending Royal Commission into the banking sector weighed on investor sentiment, keeping the session flat.
“I think it reflects a lot of uncertainty as to what’s in the pipeline,” said Mr McCarthy.
“Until the terms of reference are published, we’re likely to see sentiment shift a number of times in the sector. Once we know exactly what the Royal Commission will be examining and how that might impact on the banks, investors are likely to extrapolate that into any potential regulatory changes 12 months down the track.
“But until we get those terms of reference, we could see swings like we’re seeing in that sector today.”
Mining stocks made gains after the iron ore stock price surged at the weekend, with the price jumping above US$70 a tonne for the first time in 2.5 months, according to the Metal Bulletin iron ore index.
BHP gained 1.56 per cent to $28.01 while Rio Tinto swelled 1.24 per cent to $72.05.
4.13pm: Getswift’s Amazon deal double
Shares in digital delivery optimser Getswift have extended a casual 122 per cent two-session run, back online earlier today after the ASX suspended trade and demanded the company elaborate on its cryptic announcement of a deal with Amazon the session prior that saw its share price double within an hour.
FRIDAY
“Getswift is pleased to announce that it has signed a global agreement with Amazon,” said the company in a statement to the ASX.
“Due to the terms and conditions of the agreement and the highly sensitive nature, no further
information will be provided by the company other than to comply with regulatory
requirements for disclosure.”
TODAY
“GetSwift is pleased to announce that it has signed a global master services agreement with
Amazon.
“The extent of the services to be provided and the revenues to be derived will be generated
from specific transactions agreed with Amazon pursuant to the Master Services Agreement. Due to the terms of the agreement the number of deliveries this agreement may generate is
currently not determinable.”
Getswift today also announced Telstra executive Nevash Pillay would be joining as a director.
GSW closed up 20 per cent on $4.33
Bridget Carter 3.29pm: Golden Meditech shies in I-Med race
I-Med suitor Hong Kong Golden Meditech is believed to have retreated in the competition for the $1 billion-plus radiology provider.
The group was advised by investment bank Deutsche and sources said today that the suitor had stood its advisory team down.
It comes after buyout firm Permira, advised by Goldman Sachs, has also reportedly bowed out of the competition.
The understanding now is that left in the contest is China Merchants, advised by Macquarie Capital, and China’s JMA.
More to come from DataRoom
3.19pm: Telstra investors’ $1bn reprieve
Telstra shares trade near the $3.52 week high it hit earlier today, adding almost $1bn in market capitalisation after landing onside analyst commentary ahead of the open.
“While Telstra has its operational challenges, its dividend is underpinned by NBN payments over the medium term, and we expect its yield — 6.4 or 9.1 per cent grossed up — to provide a level of support,” the broker says.
It adds that the structure of the NBN payment stream strongly supports 22cps dividend levels through FY22, giving a “robust backdrop from a defensive perspective”.
The broker has left its target price at $3.75 after cutting from $4.45 on June 19. Macquarie was “neutral” on Telstra (TLS) since October 2015.
Read: X marks the spot for Telstra, writes Supratim Adhikari
John Durie 3.04pm: ACCC widens gaze over BP plans
The ACCC is looking at BP’s planned $1.8 billion Woolworths deal and is now also considering blocking BP’s planned purchase of three regional airline fuel depots from Viva Energy.
The regulator said it would decide next February whether to allow the regional deal which includes Bankstown in NSW and Bundaberg in Queensland.
2.53pm: China squeeze pinches safe-bet firms
It is the kind of company that for years was a safe bet for investors. China City Construction is big, government-owned and focused on building basic infrastructure such as sewers. But the bet, it turns out, was not so safe after all.
In November, China City missed interest payments on three separate bonds, after failing to refinance its hefty debts. It is one of a growing number of victims of the government’s clean-up of the financial system, or what is known in China as the “regulatory storm”.
The storm has been gathering strength for the better part of a year but its intensity over the past couple of weeks has caught many off-guard. The government wasted little time after an important Communist Party meeting in October before taking on some of the riskier parts of the financial system. As a result, China’s risk-free interest rate — ie, the yield on government bonds — has shot up. Overall, it has risen by a percentage point since the start of 2017.
Rising interest rates are partly a sign of strength. An industrial recovery has fuelled a return of inflation after years of sluggish growth, and investors are pricing in rate rises from the central bank. But the jump in yields also reflects a bout of nervousness — read more
The Economist
Andrew White 2.18pm: Warning on tax cut fever
Australaia should be wary of rushing to follow sweeping plans in the United States to cut personal and corporate tax rates because its effective rates are already among the lowest in the developed world, warns independent economist Saul Eslake.
He says a comparison of the headline rates in the US going from 35 per cent to 20 per cent under the Trump plan that is being used to argue the case for cutting Australi’s corporate rate is misleading.
A 2012 US Congressional Budget Office study found that at just 10.4 per cent, Australia was in the bottom half of G20 economies for effective tax rates, which take into account investment allowances and depreciation rates. The average rate in Australia is 17 per cent.
The US corporate rate is reported at 39.1 per cent, the highest among the world’s richest economies. But the average actually paid is 29 per cent — the third highest in the world — and the effective rate is 18.6 per cent, the fourth highest in the world
2.07pm: ASX, growth hopes come off boil
Local shares trade mixed, the ASX200 index last 4 points lower on 5985.6 as uncertainty lingers over US growth prospects in the wake of fresh political instability in discord with fresh progression of the Republican’s stimulus-friendly tax plan.
Miners and banks pull in either direction, the former higher after bullish trade in key commodities overnight (BHP and Rio +1.6pc) while investors approach financials with caution around a Turnbull government-led Royal Comission — Westpac the worst performing of the Big Four, down 1.1 per cent.
Meanwhile Telstra shares trade near a week high as analyst rekindle hope for the telco trading near 5-year lows, while Metcash skies to a near 3-year high of $2.98 after its hardware division led a strong first-half performance and a struck a contrast with depressed market sentiment around the consumer.
The Australian dollar buys $US76.03 cents ahead of the RBA’s monthly cash rate decision due tomorrow and third-quarter GDP data due Wednesday.
1.46pm: Citi maps miners’ cash delivery
Citi has upgraded some of Australia’s biggest mining companies after increasing its 2018 forecasts for a range of commodities.
Citi’s Clarke Wilkins says 2017 has been a process of ongoing mark to market upgrades of commodity prices, for Citi and market, as better than expected Chinese growth and supply side reforms provided two pillars for the market.
“Although we do not necessarily forecast significant price gains for the commodity complex in 2018, we do expect ongoing consensus upgrades to drive ongoing positive earnings revisions and very strong free cash flow generation,” he says.
“If the disciplined capital allocation approach of companies is maintained, which we expect it will likely given lack of projects and viable M & A targets, this free cash flow will flow to shareholders.”
The broker now sees iron ore averaging $US64 a tonne, coking coal at $US155 a tonne, thermal coal at $US78 a tonne, manganese at $US5.10 a dry tonne, copper at $US3.22 a pound, aluminium at US94c a pound.
Consequently it has raised BHP, Rio Tinto, South32, Fortescue and Alumina to “buy” from “neutral”, price targets raised to $32, $82, $3.75, $5.40 and $2.50 respectively.
These stocks remain outperformers in afternoon trade: BHP up 1.5pc, RIO up 1.1pc, S32 up 2pc, FMG up 1.5pc and AWC up 0.9pc.
1.30pm: The Trading Day ahead
Join the conversation with our Trading Day experts for breaking news and analysis in financial markets here and on Sky News Business (Ch: 602)
1.50pm: Yvonne Mann — Bloomberg Asia
2.00pm: Michael McCarthy — CMC Markets
2.10pm: Jim Minifie — Gratan Institute
2.20pm: Jessica Rusit — FIIG Securities
2.30pm: Peter O’Connor — Shaw & Partners
2.45pm: Sarah Hunter — BIS Oxford Economics
(All times in AEST)
1.18pm: Crown facing class action
Simone Ziaziaris writes:
Crown Resorts has been hit with a class action alleging it did not give shareholders enough information about risks it was taking in China.
Law firm Maurice Blackburn today filed the Federal Court action, saying the James Packer-controlled casino operator did not make timely and accurate disclosures to the market about activities that led to last year’s arrest of 18 employees in China and a 14 per cent fall in its share price — read more
CWN last down 1.2 per cent on $12.18
Supratim Adhikari 12.40pm: X marks the spot for Telstra: Goldman
The iPhone X is shaping up as a winner for Telstra with the telco outperforming Optus and Vodafone Hutchinson Australia on pre-orders, according to Goldman Sachs.
According to the investment bank’s latest snapshot of the telco industry, rampant demand for the iPhone X will deliver a stronger second quarter in FY2018 for Telstra.
“We estimate the iPhone X to be $10/m/sub more profitable for Telstra than either the 7 or 8
across both its contract and leased plans,” Goldman analysts said.
Goldman Sachs analysts added that the premium Telstra is charging on its iPhone X (+17pc) is in line with the premium on the iPhone 8 (+18 per cent).
With its iPhone X price premium unchanged and subscribers turning out to be more profitable, the impact of the latest iPhone is a rare positive for Telstra, which is facing increasing pressure in the mobile and fixed line market.
Telstra last week downgraded its total profit and pre-tax earnings (EBITDA) forecasts for the 2018 financial year after NBN Co pressed pause on the rollout of the hybrid-fibre coaxial (HFC) portion of the National Broadband Network.
TLS last up 2.9 per cent on $3.52
12.28pm: Entrants pacify G8 prospects: Macquarie
An oversupply of new childcare centres is likely to remain an issue for G8 Education in fiscal 2018 according to Macquarie.
“At an industry level, supply remains a challenge as data shows that industry supply growth is exceeding demand growth,” Macquarie analysts say.
“G8 pointed to supply issues in Western Sydney, Gold Coast, East Brisbane and Inner Melbourne. We expect this supply and demand imbalance to continue to impact occupancy into FY18.”
GEM shares are down 21 per cent at $3.51 after the company warned that that FY17 underlying earnings (EBIT) will be about $160m, lower than previous guidance in the mid-$170’s — read more
11.48am: Dollar shrugs off GDP input data
Stronger than expected inventories and weaker than expected company profits data have had little net impact on GDP expectations, leaving the Australian dollar consolidating around $US75.92 cents.
Inventories rose 0.2pc versus market expectations of no change for the September quarter. Company profits fell 0.2pc versus expectations of a 0.1pc fall.
Balance of payments and retail sales data tomorrow will round out GDP inputs, the read on domestic growth due Wednesday with Bloomberg’s consensus estimates forecasting 0.7pc Q/Q and 3pc Y/Y growth.
11.39am: The Trading Day ahead
Join the conversation with our Trading Day experts for breaking news and analysis in financial markets here and on Sky News Business (Ch: 602)
NOW: Elias Hadid — Senior Currency Strategist, CBA
11.45am: Tim Officer — Shaw and Partners
12.00pm: Tony Davidson from Henderson Maxwell guest hosts
12.00pm: Evan Lucas — The Lucas Review
12.15pm: James King — Currency Analyst, AFEX Australia
12.30pm: Joe Mayger — Lake house Capital
12.45pm: Stephen Walters — Chief Economist, AICD
(All times in AEST)
11.28am: Stocks tread water in early trade
Preshant Mehra writes:
The Australian share market is slightly higher in early trade, with investors uncertain of the direction after a volatile Friday session on Wall Street.
The benchmark S & P/ASX200 stock index was up 0.1 per cent after the first half-hour of trade, helped by gains in materials and energy shares.
Shares in Rio Tinto were up 1.7 per cent after the mining giant announced former Anglo-American Plc executive Simon Thompson will take over from Jan du Plessis as chairman.
Rivals BHP Billiton and Fortescue Metals were also trading more than one per cent higher.
Energy stocks got a boost from oil prices settling higher, with Woodside Petroleum, Oil Search and Santos all trading in positive territory.
However, financial stocks were under pressure, with each of the four major banks trading lower.
But Telstra shares were up more than one per cent.
Shares in Metcash jumped more than six per cent to $2.93 after the grocery wholesaler posted a 24 per cent lift in half-year profit to $92.9 million.
AAP
11.08am: Hounsell resigns from Dulux board
Gary Hounsell has stepped down as a non-executive director of Dulux Group effective December 31.
Mr. Hounsell provided valuable guidance and insight during the group’s listing, its development as a public company and its successful acquisition of Alesco in 2012, according to chairman Peter Kirby.
“I would like to thank Garry for his outstanding contribution as a Board member over the past
seven years,” said Mr. Kirby
Mr. Hounsell commenced his tenure as Myer chairman last month.
DLX last $7.99
10.15am: Charter Hall in $94m Virgin block buy
Ben Wilmot and Bridget Carter write:
Charter Hall’s Long Wale REIT is tapping the market for $94.1 million in order to buy the Virgin head office in Brisbane and refresh its balance sheet.
The listed Charter Hall-run fund bought the building at 56 Edmondstone Road from the group’s wholesale arm.
The raising, being undertaken by UBS by way of a 1 for 9.25 accelerated non-renounceable pro rata entitlement offer, is at $4.15 per security — a 3.5 per cent discount to Friday’s closing price or a 3.2 per cent discount to the theoretical ex-rights price.
The move could be a sign that capital railings are back in the property sector after a very little new equity was issued in 2017.
CLW last $4.30
Bridget Carter 10.05am: Quicksilver nabs Scope for Billabong deal
Surfwear company Quiksilver has drafted in the US-based advisory firm Scope to advise on its takeover of rival Billabong.
Quicksilver, which carries the name Boardriders at corporate level, has lobbed a $1 per share offer for Billabong, as revealed by The Australian’s DataRoom on Friday — read more from DataRoom
BBG last 95 cents
9.55am: ASX eyes breach of 6000
Australia’s S & P/ASX 200 should rise today on US budget progress, a lessening of political pressure on Donald Trump and broker upgrades on some major stocks in the local market.
Despite a 0.1pc fall in S & P/ASX 200 futures on Friday night, traders should anticipate a decent rise in the US share market to start the week.
The S & P 500 dived 1pc intraday after the US ABC incorrectly reported former Trump security adviser Michael Flynn would testify that he was directed by Trump to contact Russian officials during the election campaign.
The ABC since retracted the story, and said Trump’s alleged directive came after he was elected.
Also, on Saturday, the tax bill was passed by the Senate early Saturday morning.
Those factors pushed the USD/JPY up as much as 0.7pc in early trading and come alongside upgrades of major stocks in the local market this morning.
Citi has upgraded a BHP, RIO, FMG, S32 and Alumina to “buy” versus “neutral”, and Macquarie has raised Telstra to “outperform” vs. “neutral”.
These factors are likely to push the local market back above 6000 points and a retest of last week’s high at 6030.4 is possible.
Later in the week the focus will turn to monetary policy, with the RBA meeting tomorrow, as well as economic data.
Today, company profits and inventories are due ahead of retail sales tomorrow and GDP on Wednesday.
Index last 5989.8.
Bridget Carter 9.48am: Dulux lustre lost on global scale: Citi
Analysts at Citi have ruled out any potential acquisition of listed paint company Dulux Group despite a wave of consolidation in the sector.
In a research note, the analysts said that Dulux had strongly outperformed the market, driven largely by what they believe to be a resilient renovation market and industry consolidation.
However, they say that the group is unlikely to be a target for global paint majors given its relatively small scale, exposure to a mature market and high valuation.
The analysts have a sell on the stock because of its weaker growth outlook relative to global peers and the broader domestic market — more to come from DataRoom.
DLX last $7.89
9.38am: The Trading Day ahead
Join the conversation with our Trading Day experts for breaking news and analysis in financial markets here and on Sky News Business (Ch: 602)
10.00am: Gaurav Sodhi from Intelligent Investor and Mathan Somasundaram from Blue Ocean Equities guest host
10.00am: Alex Leyland — Leyland Private Asset Management
10.45am: Live cross — NAB Asset Management
11.00am: Ben Le Brun — Charles Schwab
11.15am: Daniel Hynes — Senior Commodities Strategtist, ANZ
(All times in AEST)
Bridget Carter 9.32am: Steadfast seals $92m Whitebread deal
The country’s largest insurance broker Steadfast Group has confirmed that it is acquiring Whitbread Insurance Group, paying $95 million for the operation.
The acquisition by the $2.2 billion company was flagged in The Australian’s DataRoom column today — more to come from DataRoom
SDF last $2.93
9.19am: Analyst rating changes
BHP raised to Buy; target price $32 vs. $29 — Citi
Rio Tinto raised to Buy; target price $82 vs. $71 — Citi
South32 raised to Buy; target price $3.75 vs. $3.50 — Citi
Fortescue raised to Buy; target price $5.40 vs. $5.10 — Citi
Alumina raised to Buy; target price $2.50 vs. $1.90 — Citi
Telstra raised to Outperform; $3.70 target price retained — Macquarie
Afterpay Touch Group initiated at Buy; $7.30 target price — Goldman Sachs
Primary Health cut to Hold — Morningstar
Ben Butler 9.13am: GFC safe-haven terms worried ASIC
The corporate watchdog received a flood of complaints from term deposit customers allegedly ripped off by Australia’s banks as they sought safe-haven investments after the global financial crisis, new documents show.
Details of the Australian Securities & Investments Commission’s concerns about shady term deposit practices are contained in a draft of a 2009 letter from its then chairman, Tony D’Aloisio, to bank chief executives, obtained by The Australian under Freedom of Information laws.
8.48am: Hardware boon for Metcash
Grocery wholesaler Metcash has boosted its half-year profit 24 per cent on the back of a lift in revenue driven by sales from the Home Timber & Hardware business which it acquired last October.
Net profit for the half-year to October 31 grew to $92.9 million, from $74.9 million a year earlier, while sales revenue rose 7.6 per cent to $7.1 billion, from $6.6 billion in the prior year when it received only one month of sales from Home Timber & Hardware.
Metcash declared a fully franked interim dividend of six cents per share, compared to no dividend in the 2017 financial year — AAP
MTS last $2.75
8.36m: Rio names Thompson new chairman
Rio Tinto has named Simon Thompson as its chairman effective March 5, 2018, replacing Jan Du Plessis who will step down after nine years in the role.
Mr. Thompson joined the Rio board as a non-executive director in 2014, currently chairs London-based private equity group 3i and held various senior positions in mining groups such as Anglo-American after working as an investment banker earlier in his career.
RIO last $71.17
Alan Kohler 8.24am: How to fix the NBN
Last week NBN Co took its first faltering step towards some kind of adulthood. There’s a long way to go.
The decision to delay HFC cable connections so the technology could be fixed was its first assertion of independence from the government, which is on the hook politically for a quick rollout of the network. That’s because speed of rollout was part of the reason given for downgrading it, the real reason being that it had to be different from the ALP’s idea.
7.45am: ASX set to open flat, or edge lower
Futures point to Australian stocks opening slightly lower after news that former US security adviser Michael Flynn said he was willing to testify against President Trump over Russia’s involvement in the US presidential election.
At 7am (AEDT), the share price futures index was down six points, or 0.1 per cent, at 5,991.
Former US national security adviser Michael Flynn pleaded guilty to lying to the FBI about his contacts with Russia and agreed to co-operate with prosecutors delving into the actions of US President Donald Trump’s inner circle before he took office.
The news hit key international markets with most closing lower, including Wall Street where expectations the Republican’s tax reform package would pass the Senate helped cushion the impact.
The Dow Jones Industrial Average fell 0.17 per cent, the S & P 500 lost 0.20 per cent and the Nasdaq Composite dropped 0.38 per cent.
Locally, in economic news today, the Australian Bureau of Statistics releases its business indicators for the September quarter, CoreLogic releases its capital city house prices survey for the week just ended and the ANZ job advertisements series for November is expected to be released.
In equities news is, Metcash is expected to release half-year results.
The Australian market on Friday closed higher, led by the healthcare and energy sectors, while the under- pressure banks faded after an early rally as the looming royal commission weighs on the financial sector.
The benchmark S & P/ASX200 index rose 19.9 points, or 0.33 per cent, to 5,989.8 The broader All Ordinaries index gained 18.3 points, or 0.3 per cent, to 6,075.5 points.
AAP
7.05am: Dollar back above US76c
The Australian dollar climbed back above US76 cents after news that former Trump security adviser Michael Flynn had pleaded guilty and was prepared to testify against the US president regarding Russian involvement in the presidential election dented market sentiment.
At 6.35am (AEDT), the Australian dollar was worth US76.04 cents, up from US75.64 cents on Friday.
Westpac’s Imre Speizer says the impact of the Flynn news was partially offset by the likelihood that the Senate would pass the Republican’s tax reform package. “The US dollar index closed Friday down 0.2 per cent on the day, falling sharply on the Flynn news but recovering on the tax vote news,” Mr Speizer said in a morning note.
“(The) AUD rose from 0.7560 to 0.7640.”
Also of interest to markets was US construction spending which rose 1.4 per cent in October, which was much better than the anticipated 0.5 mainly. And, ISM manufacturing slipped from 58.7 to 58.2, which was still an elevated level and not much different to the 58.3 expected, Mr Speizer said.
The key local event risk today would be third quarter company profits, he said, with the local currency not expected to move dramatically. “(It’s been) rangebound since 21 November between 0.7530 and 0.7645.” The Aussie dollar is also higher against the yen and the euro.
AAP
6.50am: Oil jumps
Oil prices rose at the weekend after the Organization of the Petroleum Exporting Countries and other big producers agreed to continue limiting their output for an additional nine months, raising hopes that oil prices will continue to climb out from a three-year slump.
US crude futures rose 96 cents, or 1.67 per cent to $US58.36 a barrel on the New York Mercantile Exchange — their second highest settlement of the year. Brent, the global benchmark, rose $US1.10, or 1.76 per cent, to $US63.73 a barrel on ICE Futures Europe.
Dow Jones
6.45am: Iron ore price rises
The price of iron ore is up 2.2 per cent to $US69.30, according to The Steel Index.
6.40am: ASX to respond to US tax reform
It’s unclear just how well the Australian share market will respond to the passing of a significant tax reform bill in the US Senate when trade resumes today.
CommSec chief economist Craig James says he expects the local market to start the week higher, with the benchmark S & P/ASX200 up by between 15 and 20 points, supported by rises in commodity prices such as oil and iron ore.
However at 6.50am (AEDT), the SPI futures index was down six points.
However it’s “a little bit uncertain” just how positively the market will respond to the US Senate’s support for a tax overhaul, he says, which took place on Saturday, Australian time.
“That will be the real question mark,” he said.
The US House of Representatives and Senate will now begin working on a common tax bill, with the reforms expected to have a positive flow-on effect for international financial markets, including Australia.
Major indexes closed lower on Wall Street on Friday after it was reported former US national security adviser Michael Flynn would plead guilty to contacting Russians during the election campaign.
The S & P 500 closed 5.36 points, or 0.20 per cent, lower to 2,642.22 while the Dow Jones Industrial Average fell 40.76 points, or 0.17 per cent, to 24,231.59.
There’s plenty of local data on its way this week, with the Australian Bureau of Statistics set to release retail trade figures for October, and the September quarter current account balance figures on Tuesday.
The bureau will also release gross domestic product figures for the quarter on Wednesday, international trade in goods and services figures for October on Thursday and housing finance for the same month on Friday.
The Reserve Bank of Australia will meet tomorrow and make its latest interest rates decision, with rates expected to remain unchanged at 1.5 per cent.
The benchmark S & P/ASX200 stock index finished Friday 0.33 per cent higher at 5,989.8 points, while the market made a slim 0.1 per cent gain over the course of the week.
The Australian dollar was trading at 75.64 US cents.
AAP
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