Trading Day: live markets coverage; Cracks in bull case for shares; plus analysis and opinion
Cracks in the bull case for equities are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage.
Welcome to the Trading Day blog for Wednesday, March 21.
Samantha Bailey 4.25pm: Energy gains push market higher
The local sharemarket finished the session marginally higher, led by strength in the mining and energy sectors.
At the close of trade, the benchmark S & P/ASX200 had lifted 13.917 points 0.23 per cent at 5950.301 points. The broader All Ordinaries index had risen 12.344 points or 0.2 per cent at 6053.1 points.
Tribeca deputy portfolio manager Jun Bei Liu said it was a quiet session, as investors repositioned themselves ahead of Wednesday night’s US Federal Reserve interest rate decision.
“The market was only marginally up today, pretty much in line with the S & P500 overnight,” she said.
“There was really not much on today, it was really just repositioning ahead of the Fed meeting tonight, which we expect to be hawkish.”
In financials, Commonwealth Bank ticked up 0.78 per cent to $75.78 while Westpac added 0.57 to $29.80. NAB put on 0.96 per cent to $29.56 while ANZ edged 0.89 per cent higher to $28.30.
BHP made 0.87 per cent to $28.92 while Rio Tinto was unchanged at $75.23. Fortescue lifted 1.93 per cent to $4.76.
4.05pm: Asian stocks advance ahead of Fed
Asian stock markets advanced in afternoon trade ahead of the Federal Reserve’s first meeting since the appointment of its new chair, Jerome Powell.
Hong Kong’s Hang Seng index outperformed the region, up 1.2 per cent to 31,941.52. China’s Shanghai Composite Index gained 0.5 per cent to 3,306.09 and South Korea’s Kospi added 0.1 per cent to 2,487.60. Stocks in Taiwan and Southeast Asia were mostly higher. Japan was closed for a holiday.
David Swan 3.50pm: Penalty for R & D rort
A Queensland company has been ordered to pay a $4.25 million penalty for abusing the government’s R & D tax incentive scheme, with the ATO warning of a looming crack down.
The tax commissioner last year commenced action against Australian R & D Funds and Grants Services Pty Ltd and its director, Lorraine Amede, alleging they encouraged clients to lodge overstated or ineligible claims for R & D tax offsets.
The commissioner’s case focused on 10 schemes promoted by the company and Ms Amede, which resulted in eight clients receiving a total of more than $3 million in illegitimate tax refunds.
There’s concern that rorting of the R & D tax incentive scheme is on the rise, with the government-led Serious Financial Crime Taskforce (SFCT) actively pursuing taxpayers who make claims they are not entitled to.
The ATO said the number of companies to claim the R & D tax offset increased from 6,475 to 13,074 between 2013 and 2017, with the agency receiving more than $6.1 billion worth of R & D offset claims in the 2017 financial year.
“We want to protect individuals and businesses from being unwittingly caught up in schemes like this one,” ATO Assistant Commissioner Michael Hardy said in a statement.
“Those who encourage others to do the wrong thing and claim the incentive to which they are not entitled will be caught and held to account for their actions.
Read more
Scott Murdoch 3.00pm: Administrators back $30m bid for Oroton
A $30 million bid for Oroton from fund manager Will Vicars has been recommended by Deloitte to rescue the struggling retailer
DataRoom understands the voluntary administrators report recommends creditors vote in favour of the bid which could return up to 57c in the dollar.
The retailer’s 500 staff will retain their jobs and full benefits and the chains 56 stores are expected to remain open.
Mr Vicars put the bid forward late last year and it has been examined closely by Deloitte which is acting as the voluntary administrator.
A vote on the bid from creditors will occur next Thursday in Sydney.
More to come
Eli Greenblat 2.40pm: Five-finger discount hits Myer
Shoplifting, sticky fingers, the five-fingered discount, or as it is euphemistically described in the $310 billion Australian retail sector, “shrinkage”, is alive and well and cost the nation’s largest department store Myer an extra $3 million in the months leading up to Christmas.
If Myer didn’t have enough to worry about, with its record loss of $476.2 million for the first half of 2018 and an incredibly tough retail environment, the retailer also discovered that an extra $3 million worth of stock than normal went walking out the door, most likely stuffed in bags, stuffed under clothes or hidden in array of prams, wheelchairs, handbags or briefcases.
Shoplifting, referred to by most retail companies as “shrinkage” usually tallies around 2 per cent a year of sales and for the entire retail sector in Australia it can cost around $9.5 billion a year in lost earnings.
This morning Myer unveiled its latest financial performance for the six months to January 27, and revealed a spike in shoplifting at its stores as the theft rate as a proportion to sales increased to around 1.2 per cent from 1.18 per cent.
That small upwards tick was enough to cost an extra $3 million to Myer in terms of lost sales due to pilfering.
Myer has admitted it “lost a bit of focus” when it came to reducing the rates of shoplifting from its stores as cost cutting might have slashed away too much at its internal security and monitoring systems.
The nation’s biggest department store is now devoting more resources to clamping down on shoplifting.
“That is a really major focus,’’ Myer executive chairman Garry Hounsell told The Australian today.
Typically the industry standard for the retail sector is a shrinkage rate of closer to 2 per cent.
It’s a problem for all retailers, and in 2012 consumer electronics giant surprised the market when it admitted to a 60 per cent leap in shoplifting over the previous 12 months as thieves helped themselves to more than $12 million worth of goods from JB Hi-Fi stores.
John Durie 2.10pm: QBE revamp looks to corporate culture
QBE chief Pat Regan will gather his top 100 executives next month to establish a new corporate culture for the embattled insurance company as part of his revamp of the company.
Regan is surveying staff to get their ideas on what the cultural values should be and then the executives will sign off on the plan next month.
Regan is presenting today at the Credit Suisse investment conference in Hong Kong where he will lay down his plans for a simpler more consistent approach after his predecessor John Neal had some seven profit downgrades as part of his efforts to clean up the company.
QBE has invested in data management company Cytora to help establish its new pricing policies.
The open source data company will be engaged to do things like assess property damage and how it happens.
In a briefing prior to his presentation Regan noted insurance premiums in Australia had increased 8 per cent this year — more than the 6 per cent average across the company.
The increase in local charges, he said, reflected higher costs for labour and increased inflation across the board.
Australia accounts for around one third of QBE’s operations but traditionally around 40 per cent of profits.
Regan flagged the impending sale of his US personal lines business, which accounted for around $US300 million in annual premiums.
He has already sold his Latin American and Thai businesses.
He will shortly hire a London-based chief underwriting officer responsible for establishing consistent standards across the company.
The Regan plan centres on a simpler business with more consistent standards on the basis of insurance which centres on underwriting, pricing and claims.
The staff suggestions for the new cultural base include a more customer-oriented business based on “outside in”, fast paced, courageous, decisive, accountable.
Samantha Bailey 1.50pm: Nufarm soars on revenue beat
Shares in fertiliser company Nufarm shot up as much as 6.3 per cent to a two-month high after the company’s first-half revenue beat consensus analyst expectations on the back of strong sales in North America, Europe and Asia.
For the six months to January 31, Nufarm booked a lower first-half net profit as it flagged an uptick in full-year earnings growth, tipped to be within the range of 5 to 10 per cent.
It comes after the company acquired a $691 million European product portfolio from Adama Agriculture Solutions and Syngenta Crop Protection during the half, with more than 50 crop-protection formulations and 260 registrations in European markets in a move allowing Nufarm to offer a broader range of products.
Nufarm said that for the 2019 financial year, the acquisitions should contribute between $110m and $115m in earnings before interest, tax, depreciation and amortisation but are not expected to have an impact on earnings for fiscal year 2018.
First-half statutory net profit after tax slid to $12m, down from $20m in the first half last year, impacted by $20.8m in one-off acquisition costs, which were more than offset by a $22.1m tax credit, mainly related to the change in the US tax rate.
The company declared an unfranked dividend of 5 cents per share, in line with last year’s interim dividend.
“Conditions in crop protection generally have been very tough for the last four or five years,” chief executive Greg Hunt told The Australian.
“Most analysts are saying that 2018 is still going to be pretty tough, and we’ve been able to grow our revenues at 8.5 per cent over that time so that’s a really fantastic story for Nufarm.”
Revenue for the first-half grew 7.4 per cent to $1.46bn, compared to the first half last year.
Ben Butler 1.22pm: ‘We never should have made the loan’
A part-time carer was kept at a car dealer until late in the night before being given a Bank of Melbourne car loan to buy a vehicle that turned out to be a lemon, the financial services royal commission has heard.
Nalini Thiruvangadam told the commission that in mid-2012 she wanted to buy a reliable new car for her job after her old Mitsubishi Magna caught fire while she was driving it.
However, the only bank or dealer who would give her finance instead sold her an unreliable demonstrator Ford Focus with a lot of kilometres on the clock and a habit of stalling.
She fell behind on the payments of $259.19 a fortnight almost immediately, the commission heard.
Ms Thiruvangadam was giving evidence today as part of hearings in which the commission has today thrown its spotlight on to misconduct in the $35.7bn a year auto finance business, including both lending practices such as sky-high commissions for dealers and the sale of often useless add-on insurance.
Bank of Melbourne’s parent, big four bank Westpac, now admits the loan should never have been made.
“We never should have made this loan, that’s correct,” Westpac’s general manager of specialist finance, Phillip Godkin told the commission.
He admitted the bank did nothing to verify the information given to it by the car dealer but said the bank had strengthened its policies since then — including as recently as last August.
However, he said he was not qualified to comment on whether the bank was breaking credit laws by relying on material from car yard dealers.
“In the vast majority of cases, we do not” verify expenses, he said.
12.50pm: Stocks flat ahead of Fed meeting
Australia’s S & P/ASX 200 is almost flat at 5938, giving up most of a 0.5pc intraday rise to 5963 mainly because the resources sector heavy weights BHP and Rio Tinto have more than halved their early gains, but also because of relatively sharp falls in Telstra, Wesfarmers and Scentre. The S & P/ASX 200 has faded despite gains in Asia — Japan is closed — and a lack of significant movement in commodities or US stock index futures today. Overall the market looks cautious before tonight’s FOMC meeting.
12.20pm: Cracks in bull case for shares: BAML survey
Cracks in the bull case for equities are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage, according to BofAMLs’ March Fund Manager Survey.
Chief investment strategist Michael Hartnett says a trade war is now seen as the number one “tail risk”, stagflation risks loom with the lowest global growth expectations since July 2016 and the highest inflation expectations since June 2004, and investors are clearly worried about corporate leverage, wanting more cash flow to improve balance sheets.
“Ominously investors yet to act on these fears.”
Supratim Adhikari 11.51am: TPG may have to raise capital for 5G: Citi
TPG Telecom may be forced to raise more capital to make sure it gets a piece of the valuable 5G spectrum, according to Citi analysts, especially if the upcoming auctions are keenly contested.
According to Citi’s David Kaynes, TPG’s balance sheet could come under pressure as it looks to get its mobile network off the ground.
“While the current capex plans are manageable, the balance sheet will be stretched and if spectrum auctions are highly competitive,” Mr Kaynes said in a client note on Wednesday.
“TPG may be forced to raise more capital if it wants to participate.”
11.42am: Potential corporate activity for Myer — Macquarie
Macquarie says Myer’s interim result was “weak”, as while underlying profit met recent guidance and gross margin was slightly better than expected, the cost of doing business/sales ratio was slightly worse than expected and the dividend was scrapped.
Despite a renewed focus on product, price and customer service, the broker notes that debt covenants are “increasingly close, so we suggest financial capacity limits investment capacity and ultimately turnaround potential”.
“We see earnings and share price risk skewed to the downside yet some — admittedly increasingly modest — potential for corporate activity.
MYR last up 2.9pc at $0.4425.
11.13am: ANZ Bank’s $90bn fail
ANZ Bank’s Sarah Stubbings has told the royal commission that the bank overcharged customers about $90bn in home loan repayments and fees.
11.03am: UBS sees 38pc upside to BHP earnings at spot
UBS analyst Glyn Lawcock says his BHP earnings forecast would rise 38pc and his Rio Tinto forecast would rise 24pc assuming spot commodities and currencies as at March 19.
That would put BHP on calendar 2018 EV/EBITDA multiple of just 4.7 times and RIO would be on 5.6 times. South32’s earnings would rise 25pc.
Mr Lawcock says that based on historic trading multiples it appears the market is pricing equities more closely in line with UBSe, rather than spot prices.
But spot pricing would imply upgrades for his entire resources sector coverage.
10.54am: IOOF, Janus added to portfolio — Macquarie
Macquarie has added IOOF and Janus Henderson, while removing NIB and Seek from its model portfolio after assessing reporting season trends.
Key takeaways from reporting season were that offshore earners continue to deliver strong results, capital management continues to feature with a number of share buyback surprises, retailer net profit margins are expected to fall despite more optimistic revenue growth, growth in China continues to support China-exposed companies; and resources were disappointing on cost performance.
10.33am: Stocks lift in early trade
Australia’s S & P/ASX 200 jumped 0.4pc to 5963 in early trading, recovering from Tuesday’s fall after offshore markets bounced.
Overall the index is coiling in a neutral “pennant” pattern defined by 5915 and 5980 — it could move sharply on a break of that range.
The Materials and Energy sectors are strongest today after crude oil surged, with BHP up 2.3pc and Rio Tinto up 1.6pc.
Nufarm is leading the market with a 5pc rise after encouraging interim results and BlueScope is up 3.3pc after Morgan Stanley reinstated its rating at Overweight.
Crown is flat after an early dip on James Packer’s resignation and Myer is up 4.1pc despite a more than $500m goodwill impairment.
Index last up 0.4pc at 5957.8.
Ben Butler 10.30am: ANZ rapped over ASIC omission
ANZ has apologised to the financial services royal commission after failing to hand over to it correspondence between the bank and the corporate regulator.
During evidence yesterday, bank executive Heang Forbes was taken to emails between the bank and the Australian Securities and Investments Commission dealing with the regulator’s request the bank compensate customers who had been given an overdraft they potentially couldn’t afford.
ANZ failed to make any inquiries of the customers about their financial situation before “pre-approving” them for a $500 or $1000 overdraft.
In the email, sent just last month, an ANZ executive acknowledged receipt of ASIC’s demand for “case by case remediation”.
Asked by junior counsel assisting the commission, Albert Dinelli, if ANZ had since compensated any of the 10,500 customers affected, Ms Forbes said: “I’m not aware of any remediation having occurred”.
Opening proceedings this morning, commissioner Kenneth Hayne said checks by commission staff overnight “appear to confirm that email string was not produced” by ANZ.
“Attention was given to notice to produce, category A3 of which required production of any correspondence between ASIC and ANZ regarding the incident,” he said.
Counsel for ANZ, Matt Collins, QC, told the commission the bank and its lawyers had investigated the issue overnight “as a matter of priority”.
He said the email chain had initially been reviewed by the bank “but inadvertently mischaracterised as not falling within the category”.
“On behalf of the ANZ Bank I apologise for the omission,” he said.
He said the bank would take steps to make sure it didn’t happen again.
ANZ is not the first bank to earn the commission’s ire over its disclosures to the inquiry.
Opening the first round of public hearings last Tuesday, counsel assisting, Rowena Orr, QC, blasted CBA for a scanty initial submission that included just eight paragraphs on its mortgage broking subsidiary, Aussie Home Loans.
She also slammed the bank for responding to the commission’s request for more information with a swath of unhelpful spreadsheets.
10.20am: Nufarm shares lift 4pc
Nufarm shares are up 4.3pc at $8.64 after an encouraging interim report.
Initial support and resistance now at $8.20 and $8.66.
10.10am: Crown shares slide on Packer exit
Crown shares dipped 1.7pc to a 4-week low of $12.85 early trading after James Packer left the board.
But they quickly regained initial support at $13.00. A daily close below $13.00 would be slightly bearish from a technical standpoint.
But the share price is basically range trading while above the February low at $12.42, which is also near the 200-DMA at $12.33.
CWN last down 0.2pc at $13.04.
10.00am: Energy to drive stockmarket gains
Australia’s S & P/ASX share index is expected to open up about 0.1pc, with the energy sector likely to lead gains after crude oil surged.
European and US equities recovered slightly overnight — with the S & P 500 up 0.2pc — despite further weakness in Facebook. That suggests Tuesday’s sell-off was mostly about tech stocks, which should reassure the tech-light Australian market.
Energy stocks led gains on Wall Street after WTI crude oil rose 2.3pc to $US63.53 as the special committee set up to monitor the OPEC-led production cut agreement said supply will come into balance with demand by the end of September, sooner than previously expected. During a visit to the White House, Saudi Arabian Crown Prince Mohammed bin-Salman said that he sees a more stable oil market emerging.
Reports that US President Trump is still considering putting tougher sanctions on Iran, OPEC’s third largest producer, also helped support prices, according to ANZ. But copper and zinc fell more than 1pc as the threat of a trade war with China raised concerns about the impact on demand for metals.
Reports suggest President Trump is looking at announcing new sanctions on Chinese imports, in particular metal-intensive products such as electronics and electrical appliances, said ANZ’s head of research Daniel Been.
Overall the market should be fairly quiet before the FOMC decision at 0500 AEDT Thursday. While a 25 basis point rate hike is widely expected, the Fed’s interest rate projections have potential to surprise on the upside, particularly in terms of its estimate of the so-called “terminal rate”.
In terms of individual stocks, Nufarm’s results should please the market, while James Packer’s exit from Crown may cause some jitters there and Myer will be on the ropes after a hefty writedown and scrapping of its dividend in its results today. BHP ADRs’ equivalent close at $29.08 implies a 1.4pc gain in the resources sector heavyweight.
Eli Greenblat 9.45am: Myer unveils biggest loss ever
The nation’s biggest department store Myer has unveiled the biggest loss in its more than a century in operation, reporting this morning a half-year loss of $476.22 million as more than half a billion dollars in restructuring costs and impairments of its goodwill sank the retailer deep into the red.
The half-a-billion-dollar wipe-out of its goodwill has slashed the value of the Myer brand name, a business synonymous with the best of Australian retail and which was founded in 1900 by immigrant Sidney Myer that grew to at one stage be one of Australia’s most successful and largest retailers.
The awful result for the December half has also forced Myer to skip paying a dividend to shareholders. But directors of Myer and its chairman will share some of the pain, with Myer also announcing this morning cuts to chairman and director fees.
Myer this morning reported its results for the 26 weeks to January 27 and, as the market has been expecting, it was a horror performance from one of Australia’s most well-known and oldest retailers as poor trading conditions and intense competition in the fashion sector crunched its profits.
Revenue for the first half was down 3.6 per cent to $1.719 billion.
More to come
Scott Murdoch 9.42am: Capital return for Rio shareholders?
The prospect of Rio Tinto carrying out a capital return to investors is rising after the $US1.7 billion sale of its Queensland mine and the start of a major debt reduction program.
The miner announced last night its stake in the Hail Creek coking and thermal coal mine and Valeria deposit in Queensland would be purchased by Glencore after being put on the market at least six months ago.
A buyer is still being sought for the Kestrel project in the Bowen Basin.
Glencore was a late entrant to the race to the buy the two sites and lobbed its bid to the Rio Tinto board only a week ago.
The Kestrel mine remains for sale and DataRoom understands that South32 and Apollo remained keen on that asset.
Glencore primarily beat Whitehaven and Yancoal to secure Hails Creek.
Analysts believe the likelihood of Rio Tinto carrying out a share buyback or declaring a special dividend is increasing, following the sale.
“The sale is timely given hard-coking coal and thermal coal prices remain at strong levels,” RBC analyst Paul Hissey said.
“While the funds will ‘be used for general corporate purposes’ we believe shareholder returns are likely to remain the favoured avenue.”
Ben Butler 9.33am: Commission puts spotlight on car finance
As we hit the three-quarter mark of the first public round of hearings held by the royal commission, the focus is expected to swing to car finance.
We were expecting some of this to be dealt with yesterday, but instead the commission dealt with account errors, including a decade-long problem at ANZ that resulted in home loan borrowers paying too much on their mortgages and a snafu at CBA that meant more than 10,000 customers got an overdraft they potentially could not afford.
This morning the commission is to complete hearing evidence from ANZ’s Sarah Stubbings about account errors.
It is also to hear from a finance industry customer in a case study believed to be related to car finance.
Other witnesses listed are Phillip Godkin, who is general manager of specialist finance at Westpac and Guy Mendelson, the general manager of the small business bank at ANZ, although there is no guarantee the commission will get through all of them today.
Paul Garvey 9.25am: Rio Tinto advances coal exit
Rio Tinto has sold its Hail Creek and Valeria coal projects in Queensland to Glencore for $US1.7 billion ($2.2bn), taking it a step closer to a full exit from the coal industry.
The sale, outlined Tuesday night, will add even more cash to the existing pile sitting within Rio following the recent sale of its Coal & Allied business in NSW, although Rio was quick to state that the proceeds would be used “for general corporate purposes” rather than specifically earmarked for return to shareholders.
Rio has been running a sale process over its two remaining Australian coalmines, Hail Creek and Kestrel, since late last year. It is understood that the company is well advanced in its efforts to also find a buyer for Kestrel.
For Glencore, the acquisition adds to its already major position in Queensland’s coal industry. Glencore already owns five mining complexes in the Bowen Basin, and produced more than 38 million tonnes of thermal and coking coal in the state in 2016.
The acquisition of Hail Creek should significantly increase Glencore’s exposure to coking coal, a higher value commodity used in the production of steel. Glencore produced only 6.1 million tonnes of coking coal in its Australian mines last year, but Hail Creek alone produced 5.2 million tonnes of coking coal last year as well as 4.1 million tonnes of less valuable thermal coal.
9.07am: Packer resigns from Crown
James Packer has resigned as a director of Crown for “personal reasons”.
“We have appreciated James’ contribution to the board and respect his decision to step down from his role as a director at this time,” Crown executive chairman John Alexander said.
This could present some “key man risk” impact on the share price today.
9.02am: Nufarm underlying profit beats consensus
Nufarm’s underlying net profit looks to have beaten expectations for earnings in the first half on stronger-than-expected revenue, while the dividend missed.
The crop protection business reported a 46pc fall in underlying net profit to $10.7 million vs. $7.1m expected, according to Bloomberg.
Revenue of $1.46 billion beat Bloomberg’s consensus estimate of $1.37bn by 6.6pc. The interim dividend of 5c per share missed the consensus estimate of 6cps.
Underlying EBIT fell 12pc due to its ANZ plant upgrade and a softer Brazilian market but that was expected by the market and it added market share in Brazil.
Importantly Nufarm says its on track for 5-10pc growth in underlying EBIT for the full year, with strong momentum heading into the seasonally stronger second half.
8.43am: Broker rating changes
Elixinol Global started at Buy — Bell Potter
BlueScope restarted at Overweight — Morgan Stanley
BHP raised to Neutral — Exane
Kathmandu raised to Buy — Canaccord
7.50am: Oil prices higher
Oil prices climbed more than 2 per cent to three-week highs as Crown Prince Mohammed bin Salman’s visit to Washington raised the prospect of a more aggressive stance toward Iran.
US crude futures rose $US1.34, or 2.16 per cent, to $US63.40 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $US1.37, or 2.07 per cent, to $US67.42 a barrel on ICE Futures Europe. Both benchmarks settled at their highest level since February 26.
A closely watched meeting between President Donald Trump and the Saudi crown prince helped shift the oil market’s focus to Middle East tensions on Tuesday.
Prince Mohammed has taken a more confrontational approach with Iran, and the Saudi foreign minister, Adel al-Jubeir, on Monday called the multinational deal for Iran to freeze its nuclear program in exchange for easing sanctions a “flawed agreement.”
“This rally is greatly aided by comments from the Saudi foreign minister, “ said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.
Dow Jones
7.35am: Amazon passes Alphabet
Recent weakness in large technology stocks is reordering the list of the biggest US firms.
During a sell-off that has dragged down the broader market this week, Amazon.com’s market value passed that of Alphabet. Amazon closed as the second biggest US company overnight, topping Alphabet for the first time ever, according to The Wall Street Journal’s Market Data Group.
Amazon closed up 2.7 per cent at $US1,586.51, giving it a market value of $US768 billion, while Alphabet shed 0.4 pe recent to $US1,085.80, lowering its market cap to $US763 billion. Apple has the largest market cap, at $US889 billion.
Some investors are worried that Alphabet, the parent company of search-engine giant Google, and others could be affected by regulatory steps to address allegations that Facebook failed to stop improper access and handling of user data. Alphabet is up 4.9 per cent in 2018, while Amazon has risen 36 per cent.
Dow Jones
7.30am: Oil shares lift US stocks
Strong gains by petroleum-linked shares helped lift US stocks higher despite lingering worries about trade and a Facebook data scandal that hit social media shares.
The Dow Jones Industrial Average finished up 0.5 per cent to 24,727.27. The broadbased S & P 500 gained 0.2 per cent to 2,716.94, while the tech-rich Nasdaq Composite Index advanced 0.3 per cent to 7,364.30.
Australian stocks are set to open slightly higher. At 7.35am (AEDT) the SPI futures index was up 7 points.
US stocks were in positive territory most of the day, a big improvement from yesterday, when the market was dragged lower by a pullback in large technology shares in the wake of a Facebook data breach scandal.
Energy shares were among the best performers, with Halliburton winning 1.8 per cent, Apache 1.9 per cent and Dow member Chevron 0.5 per cent.
Oil prices rose on speculation President Donald Trump could spike the nuclear agreement with Iran that loosened sanctions on the country.
Gains in energy shares helped offset worries about trade disputes in the wake of Trump’s tariffs on imported aluminium and steel. Investors are also girding for an expected Federal Reserve interest rate hike tomorrow.
Facebook dropped 2.6 per cent, adding to Monday’s big decline on word the Federal Trade Commission was investigating the company over reports that a data analysis firm hired by Trump’s presidential campaign had misused the data of some 50 million users.
Twitter, another big social media company, slumped 10.4 per cent after Israeli Justice Minister Ayelet Shaked threatened “legal action” against the microblogging network for not doing enough to counter messages that incite violence against Israel.
But within technology, the losses were mostly contained to social media names. Amazon gained 2.7 per cent, Microsoft climbed 0.3 per cent and Netflix won 1.3 per cent.
Oracle tumbled 9.4 per cent after reporting a six per cent rise in quarterly revenues to $US9.8 billion. The company’s forecast for cloud services sales growth lagged many analysts’ expectations.
Reuters
7.25am: US unafraid of trade war: Mnuchin
The United States is not seeking a trade war over tariffs but does not fear one, US Treasury Secretary Steven Mnuchin said at the end of a meeting of G20 finance ministers in Argentina.
A trade war “is not our goal, but we are not afraid of it,” Mnuchin said at the end of the two-day meeting in Buenos Aires, which was overshadowed by looming US tariffs on steel and aluminium.
AFP
7.20am: $US60bn wiped off Facebook
Shares of Facebook have continued their downward slide as investors feared regulatory repercussions after revelations about the company’s mishandling of data on 50 million users.
Facebook’s stock was down 5.3 per cent in New York trading on Tuesday, after a 6.8 per cent drop yesterday.
As of midday (US time), the decline had wiped out around $US63 billion ($A82 billion) off the company’s market value since last Friday’s closing price, with its market cap at around $US475 billion.
Reuters
7.10am: ASX to open higher
The Australian share market is expected to open slightly higher after a strong surge in oil prices gave energy stocks and the major US stocks indexes a boost.
At 7.05am (AEDT), the Australian share price futures index was up 15 points.
In the US, stocks and in particular the energy sector got a boost from a two per cent surge in oil prices, which was driven by tensions in the Middle East and the possibility of further declines in Venezuelan crude output.
The Australian share market yesterday closed lower following soft leads from other markets and a fall in iron ore prices.
The benchmark S & P/ASX200 was down 23 points, or 0.39 per cent, at 5,936.4 points, while the broader All Ordinaries index was down 23.9 points, or 0.39 per cent, at 6,040.8 points.
In equities news today, troubled department store chain Myer, and Agricultural chemicals supplier Nufarm both release their half year results.
AAP
7.00am: US stocks regain footing
US stocks rose overnight, a day ahead of the Federal Reserve’s policy decision, though social media stocks continued to struggle.
The Dow Jones Industrial Average climbed 121 points, or 0.5 per cent, to 24730. The S & P 500 rose 0.2 per cent and the technology-heavy Nasdaq Composite gained 0.3 pr cent, after the indexes on Monday logged their biggest daily losses since February 8 as tech stocks led a broad downturn.
Australian stocks are set for a small gain at the open. At 7.05am (AEDT) the SPI futures index was up 15 points.
The S & P 500’s tech sector fell 0.2 per cent, as political leaders in the US and Europe called for inquiries into whether Facebook failed to stop improper access and handling of user data and it was reported that the Federal Trade Commission was probing the company regarding the issue.
Shares of Facebook fell 5.3 per cent overnight after sliding 6.8 per cent yesterday and wiping out about $US36 billion in market value.
Other social media stocks like Twitter, which dropped 12 per cent, were weak, while shares of Oracle fell 9.1 per cent after the company released guidance that didn’t impress investors.
Some other tech and consumer giants staged a rebound. Square added 5.5 per cent and Amazon rose 1.9 per cent.
In midday trade, Amazon was on track to overtake Alphabet as the US company with the second-largest market cap. Shares of Alphabet fell 0.6 per cent.
Michael Farr, chief executive of investment management firm Farr, Miller & Washington, said Facebook could have better responded to the news about its user data. Even so, he thinks this is a good time for investors to add more shares of the company to their portfolios given its strong balance sheet.
“There is a sort of broader concern over the Facebook news about how consumers’ data is used and protected,” he said. “The market doesn’t like it.”
The yield on the benchmark 10-year Treasury note rose to 2.878 per cent, according to Tradeweb, from 2.844 per cent the previous day.
Investors are concerned that an increase in inflation could drive central banks to tighten monetary policy quicker than expected. Money managers are watching for clues tomorrow after the Federal Reserve’s policy meeting as to whether new Chairman Jerome Powell will keep to three rate increases in 2018 — futures markets give this scenario a 64 per cent chance, compared with 74 per cent a month ago — or will raise rates four times instead.
The central bank is widely expected to raise interest rates tomorrow.
Dow Jones
6.55am: Dollar follows metals prices lower
The Australian dollar is back below US77 cents, under pressure from falling metals prices, amid market caution about higher US interest rates and worries about a possible trade war.
At 6.35am (AEDT), the local currency was worth US76.84 cents, down from US77.06 cents yesterday.
Copper prices are at their lowest levels in more than three months, and gold is also lower as the US dollar strengthens ahead of a US Federal Reserve meeting at which the US central bank is expected to raise interest rates for the first time this year.
AAP
6.50am: Twitter shares plunge
Twitter shares were hammered following reports that Israel was weighing action against the company, adding to the growing woes of social media stocks.
On Wall Street, Twitter shares were down 12.0 per cent after comments by Israeli Justice Minister Ayelet Shaked, who criticised Twitter for not doing enough to counter messages that incite violence against Israel.
Shaked warned the Israeli government was considering “legal action” against Twitter, Bloomberg News reported.
AFP
6.45am: CEO suspended in data misuse scandal
Cambridge Analytica, a British communications firm hired by Donald Trump’s presidential campaign, said it had suspended CEO Alexander Nix “pending a full, independent investigation”.
The move follows allegations the company harvested data on 50 million Facebook users to influence the US presidential election and the emergence of undercover recordings of Nix offering so-called dirty tricks services to potential clients against political rivals.
6.40am: World stocks recover ahead of Fed
World stocks nudged higher in cautious trading on the eve of a US Federal Reserve decision, dealers said, with European gains capped by news of plunging German investor confidence.
Equities were also wobbly over a continuing sell-off of Facebook shares, while concerns of a possible trade war sparked by President Donald Trump’s announcement on tariffs also weighed.
In Germany, a survey of 220 analysts and investors from the ZEW institute gave a reading of 5.1 points — a slump of 12.7 points from February’s level and far below the 13.1 forecast by analysts.
The last time confidence among financial players was so low was in the months after Britain’s June 2016 vote to quit the European Union.
London stocks meanwhile gained ground after data showing a slowdown in British annual inflation in February which analysts said took some pressure off the Bank of England to raise rates and led to a weakening of the pound.
“Small gains in UK and European markets have not put much of a dent in yesterday’s losses,” noted IG analyst Chris Beauchamp.
London closed up 0.3 per cent, Frankfurt ended up 0.7 per cent and Paris finished 0.6 per cent higher.
AFP
ASX 200 rises; CBA only Big Four in the red
Lynas talks up opportunity in China-US fight. Bega preps for Fonterra deal. James Hardie allays governance concerns. Trump tariff impacts weigh on Flight Centre, Brambles. Telix down on US FDA blow.
May rate cut ‘locked in’; ASX plots strong finish before Anzac Day break
Westpac's Luci Ellis predicts rate cuts in May, Aug, Nov. Miners lead local gains. Mixed Asian markets reflect Trump trade uncertainty amid softening stance on China.