Trading Day: live markets coverage; Stocks end lower as miners weigh; plus analysis and opinion
The local sharemarket ended the session lower as the resources sector weighed on the index.
That’s a wrap for the Trading Day blog for Tuesday, March 20.
Samantha Bailey 4.30pm: Stocks finish lower as miners weigh
The local sharemarket ended the session lower on the back of soft offshore leads and weak commodity prices.
At the close of trade, the benchmark S & P/ASX200 had lowered 23.034 points 0.39 per cent at 5936.4 points. The broader All Ordinaries index had lost 23.861 points or 0.39 per cent at 6040.8 points.
The local bourse fell as much as 0.7 per cent during the session before closing at an intraday high, after US futures rose.
It came after the UK FTSE index fell to a 15-month low on Monday night, after the British pound strengthened in the wake of the agreement between the UK and the European Union on a 21-month Brexit transition.
4.05pm: Stocks pare losses, US futures turn up
Australia’s S & P/ASX 200 share index has hit an intraday high as S & P 500 futures have turned up after early weakness.
The index is down 0.4pc at 5935.8 after falling as much as 0.8pc to a 3-day low of 5915.6.
S & P 500 E-mini futures have turned up 0.1pc after falling 0.2pc in early Asian trading.
Elizabeth Redman 3.55pm: ‘Painful’ consequences of rising rates
Rising interest rates will have “painful” consequences for the housing market and Australia’s highly indebted households, former federal treasurer and chairman of the Future Fund Peter Costello has warned.
He highlighted the historically low level of Australia’s cash rate, which is now 1.5 per cent but was 7.5 per cent a decade ago, and has remained on hold even as the US Federal Reserve has started to normalise interest rates from emergency levels.
“If money is more expensive, asset prices must fall. Not all prices in every situation but overall they must fall,” Mr Costello told the Urban Development Institute of Australia conference.
“It’s going to be slow and it could be painful and the question is will it be a hard landing or a soft landing but it’s going to be a landing.”
The comments come as housing prices in the once-heated east coast capitals have started to edge lower amid regulatory clamps on lending, with a range of forecasts expecting the falls to continue.
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Ben Butler 3.20pm: ANZ digs in on overdraft compo
Big bank ANZ continues to ignore demands by the corporate regulator that it compensate almost 3000 customers wrongly sold overdrafts, the financial services royal commission has heard.
The bank pumped out hundreds of thousands of letters telling customers they had been “pre-approved” for a $500 or $1000 “assured overdraft” in late 2013 and early 2014.
ASIC issued five infringement notices, dealing with five customers, to ANZ in March 2016.
In response to the notices, the bank paid penalties of $212,500.
At the time, ASIC said ANZ “has co-operated with ASIC’s investigation”.
However, evidence at the royal commission today has revealed ANZ has consistently refused to compensate customers who might not have been able to afford the overdrafts.
In her witness statement to the commission, ANZ executive Heang Forbes said ANZ had not “been able to readily identify the number of customers that have been impacted”.
Ms Forbes, who now works as a pricing officer but at the time was in charge of the overdraft product, told the commission that while ANZ did have some hardship and complaints information, it was “very difficult to link back to the failure” in compliance related to the overdraft offer.
Junior counsel assisting the commission, Albert Dinelli, asked Ms Forbes if the bank had told ASIC this.
“I’m not aware of any communications to that effect to ASIC,” she said.
She said she was also “not aware of any inquiries” relating to the five people over whom ASIC issued the infringement notices or any monitoring of people who were currently in arrears or paying huge sums.
Asked if the five people named in ASIC’s infringement notices had been remediated, she said: “Not to my knowledge.”
The Australian Securities and Investments Commission was quick to object to the unsolicited offers, writing to the bank on December 10, 2014, to ask it how the marketing blitz was consistent with its responsible lending responsibilities under the law.
Asked by ASIC how the bank was meeting its obligation to make “reasonable inquiries” about a customer’s needs before extending them credit, the bank responded that “an ANZ Assured Overdraft is a small line of credit which may be used for a wide range of reasons, without a particular purpose”.
Under examination by Mr Dinelli, Ms Forbes admitted the bank’s response to ASIC did not answer the question asked by the regulator.
She said ANZ looked at customer bank account records at the bank before deciding whether it should make an overdraft offer.
Asked if she understood that looking at accounts held by customers at ANZ wasn’t enough to meet the bank’s obligation to make reasonable inquiries, Ms Forbes said: “I understand that now, yes.”
In its February submission to the royal commission, ANZ singled out the overdraft issue but said it was unable to determine whether or not it amounted to misconduct.
“The payment of the infringement notices by ANZ wasn’t an admission of any contravention by ANZ of the [National Credit] Act,” Ms Forbes told the commission today.
3.05pm: Bank bounce fizzles
Commodity price falls could see a weak close on the Australian share market this afternoon.
Dalian iron ore futures finished the day session down 2.9pc at CNY457 after hitting a 4.5-month low of CNY453.5 a tonne.
Shanghai Futures Exchange steel rebar futures fell 1.4pc to CNY3623 after hitting a 4.5-month low of CNY3605 a tonne.
An intraday bounce in the banks has fizzed and the major resources producers remain weak with BHP, Rio Tinto, Fortescue Metals and South32 down more than 2pc.
S & P/ASX 200 last down 0.6pc at 5925.
Stephen Bartholomeusz 2.23pm: Wesfarmers’ Scott has an urgent task
While the proposed demerger of Coles from Wesfarmers has been greeted enthusiastically by the market, the flip side for a greatly-downsized conglomerate is that it will ratchet up the pressure and urgency on Rob Scott to deal conclusively with his two poorly-performing businesses.
The rationale for the demerger is compelling. Shifting businesses that represent 60 per cent of Wesfarmers’ capital employed, that generate only 34 per cent of its earnings and that have a likely solid but unspectacular growth outlook, will dramatically improve Wesfarmers returns on capital and Scott’s ability to make decisions that will have a material impact on the smaller group’s financial metrics.
Where anything but a company future-wagering acquisition wouldn’t have shifted Wesfarmers’ numbers meaningfully while Coles remained within the portfolio, Scott will have the ability to make acquisitions that do move his numbers.
The other side of that equation of course, is that a poor acquisition — or a poorly performing business within the remaining portfolio — will have a more damaging and visible impact on returns once Coles has been demerged.
Given that he has two poorly-performing operations in the existing portfolio Scott has until the demerger, either very late this year or early next year, to fix them or axe them.
1.55pm: RBA shifting goalposts on growth: JPM
JP Morgan says the RBA may have started giving itself room to justify its current policy settings if economic growth and inflation remain sluggish in 2018.
“The minutes to the RBA’s March meeting maintained an optimistic tone on a future pick-up in growth, while also blurring the edges a little on what will qualify as a success on the latter,” JP Morgan economist Ben Jarman says.
In his view the standout comment from the concluding section is: “Over 2018, GDP growth was expected to exceed potential growth.”
While this was already implied by the RBA’s forecasts of year-end 2018 at 3.25 per cent, the same section last month stated growth would “average a little above 3 per cent over the next two years”.
“There are some swings and roundabouts here: a bit more conviction — surprisingly, given the data — on 2018 specifically, but shifting the goalposts somewhat by reference to (unobserved) potential growth, rather than the plus 3 per cent outcome, and while the 3 per cent growth objective has been “looking like a stretch”, the significance of missing it is reduced if the bank takes a dimmer view on potential growth, Jarman says.
Updated economic forecasts in the quarterly statement on monetary policy in May may allow economists to reconcile the Dec. 2018 forecast with the “exceed potential” comment.
But Mr Jarman also notes that the minutes focused on the recent strong trend in labour force participation, attributing the rise last year partially to cyclical recovery, but also to changes in forms of employment and health outcomes, which extend the effective working life.
“Any combination of these explanations would attribute some assumed persistence to the rise in participation,” he says. “The implied gains to employment would then support consumption in the absence of a wage recovery, while of course slowing the reduction of spare capacity. If this effect is arithmetically meaningful, it would also bias estimates of potential growth higher, in contrast to the earlier discussion.”
He feels that sluggish outcomes are “permitted as long as the business surveys suggest better times ahead, though pursuing a very gradual return to target does make it more likely that potential growth is dragged somewhat lower over time through hysteresis effects”.
1.45pm: RBA untroubled by interest-only loans hit
The hit to household budgets that comes when interest-only home loans expire will be a problem for some borrowers but not the broader economy, the Reserve Bank of Australia says.
Minutes of the RBA’s March rates meeting show the bank believes the effect of borrowers having to step up repayments when interest-free periods end “would be significant for some individual households”.
“At the aggregate level, however, the likely increase in loan-related payments would amount to a small proportion of household disposable income and the effect on household consumption growth would be smaller still,” the bank said.
AAP
Supratim Adhikari 1.08pm: iiNet, Internode to refund 11,000 customers
TPG Telecom’s iiNet and Internode subsidiaries will compensate 11,000 customers for failing to give them the service promised to them over the National Broadband Network.
The move will let 8000 iiNet customers and 3000 Internode customers choose to either move to a lower tier speed plan with a refund or exit their plan without cost and receiving a refund.
Neither iiNet nor Internode currently offers a 25 megabits per second (Mbps) download speed plan, so customers keen to move down to that speed tier will have to find another provider.
According to the ACCC, the customers impacted signed up to the service between 2015 and mid-2017 and TPG’s subsidiaries had offered them NBN plans with maximum speeds that could not be delivered.
iiNet advertised its highest-speed plan as “Up to 100Mbps. This is our fastest option and is sure to impress”, while Internode advertised its highest speed plan as “NBN Platinum: up to 100/40 Mbps”.
According to the ACCC, 7,621 iiNet customers on the 100 Mbps plan could not receive the speeds they purchased, of which 1,925 were unable to receive the 50 Mbps service.
Meanwhile, 1,720 Internode customers were unable to get the 100 Mbps service they had paid for.
“Many customers could not reach the maximum speeds advertised by iiNet and Internode because their NBN connection was not capable of delivering it. Some customers couldn’t even receive the maximum limit of lower speed plans,” ACCC commissioner Sarah Court said.
iiNet and Internode will contact affected customers by email or letter by 27 April 2018, tell them the maximum speed their connection can receive (which is only known once a customer is connected to the network), and explain their compensation options.
12.51pm: Resources weigh on stockmarket
The share market is lower as weaker commodity prices weigh on miners.
The benchmark S & P/ASX200 index was down 0.6 per cent at 5,922.7 points at 1200 AEDT, after falling 0.7 per cent in the first half-hour of trade on Tuesday.
Wall Street provided a weak lead for the market due to falls among technology stocks, particularly Facebook.
That was caused by concerns of a regulatory crackdown following reports that a consultancy that worked on US President Donald Trump’s election campaign gained improper access to data on 50 million Facebook users.
IT stocks on the Australian market were modestly weaker, but it was the mining, energy and health sectors with the sharpest falls.
Copper prices were weaker, and iron ore fell to $US67.45, its lowest level since November, according to Metal Bulletin data.
BHP Billiton had dropped 2.3 per cent, Rio Tinto was down 2.1 per cent, South32 had fallen 3.2 per cent and Fortescue Metals was 2.2 per cent weaker. Among the energy producers, Origin Energy was down 1.9 per cent, Oil Search had dropped 1.4 per cent, Woodside Petroleum had given up 0.6 per cent and Santos was also 0.6 per cent lower.
Blood products and vaccines developer CSL was leading the health care sector’s falls, with a drop of 2 per cent, while Cochlear was down 1.3 per cent and radiology and pathology group Sonic Healthcare was 0.9 per cent weaker. The big four banks were all modestly higher.
TPG Telecom was down 3.3 per cent after the internet provider’s half year profit fell 11 per cent and its interim dividend was lowered.
The Australian dollar briefly dipped below 77 US cents after losing ground from its overnight high of 77.26 US cents, but got a slight boost from the release of the minutes of the Reserve Bank of Australia board’s March monetary policy meeting at 1130 AEDT.
The minutes confirmed the RBA’s view that economic growth, inflation and wages will gradually improve in 2018.
Ben Butler 12.05pm: CBA overdraft error undetected for years
For four years, the nation’s biggest bank, CBA, failed to detect an error in its computer systems that resulted in 10,500 customers getting an overdraft they potentially couldn’t afford, the financial services royal commission has heard.
Between 2011 and 2015, the bank’s automated system for assessing whether customers could afford an overdraft substituted a zero for housing expenses declared by the applicant and used a wrong — lower — number for other living expenses.
Giving evidence this morning, CBA’s executive general manager of retail products, Clive Van Horen, admitted this failure breached the bank’s responsible lending responsibilities under the law and should have been detected earlier.
In 2016, following an investigation by the corporate watchdog, CBA agreed to pay four infringement notices totalling $180,000 and write off $2.5m in overdrafts related to the breach.
Today’s case study comes amid a torrid fortnight for the bank at the royal commission, which has heard of fraud by out-of-control mortgage brokers at bank subsidiary Aussie Home Loans, explored junk insurance told to credit card customers and attacked the institution for its unhelpful submissions.
Mr Van Horen told the royal commission a “big data” project to stop similar problems happening again, got underway only last year.
“It would be at least six months ago,” Mr Van Horen said. “It could be nine.”
“It’s not in the last week or month, it’s going well back into 2017.”
An internal bank committee initially rejected the big data project, which was forecast to cost between $2m and $3m, when it was first proposed in August 2016, the commission heard.
At the time, bank chief executive Ian Narev had been asking questions about what was going on with the overdraft problem, CBA executive Fiona Lamach said in an internal email shown to the commission
Mr Van Horen said that at the time the proposal was a “placeholder” that lacked detail.
“We agreed that it was a priority and we needed to proceed with it,” he said.
CBA first became aware of problems within its overdraft system in late 2014 as a result of correspondence from the Consumer Action Law Centre.
Partly as a result, it reviewed its systems across the entire overdraft area.
At the same time, CBA was changing to a new automated overdraft system. A comparison of output from the two systems revealed the error in mid-2015.
11.50am: RBA expects “gradual” improvement
The RBA has reiterated its expectation of “gradual” progress toward its inflation and unemployment goals, while continuing to warn that high household debt is contributing to the uncertainty surrounding the outlook for consumption growth.
“Gradual” is a fashionable word among central bankers this year as they contemplate policy normalisation in response to stronger economic growth, even as inflation remains below target. In fact “gradual” or “gradually” gets six mentions in the RBA minutes versus two mentions of the word “fast” or “faster”. The latter adjectives were reserved for expectations for Fed policy and economic growth in the major advanced economies versus estimates of their potential. Still, “household balance sheets still warranted careful monitoring”, the minutes said.
Michael Roddan 11.40am: Borrowers should brace for rate hikes
Borrowers should brace for the first round of rate hikes on home loans out of cycle with the Reserve Bank in years, as banks grapple with rapidly rising interest rates in the US and increasing global funding costs.
It’s a sign that the market for home loan rates may now begin to rise sharply after hitting historical lows, with the US central bank set to continue its march towards more normal levels of official interest rates.
The US Federal Reserve will almost certainly raise the cash rate 25 basis points to 1.75 overnight Wednesday. That will leave Australia’s cash rate — at a record-low 1.5 per cent since August 2016 — at a lower point than its US counterpart for the first time in more than a decade.
Suncorp on Tuesday said it would be hitting owner occupier borrowers with a five basis point increase, which would leave them with a standard variable rate of 5.6 per cent. Investors will face an 8 basis point hike to standard variable loans, taking the rate to 6.07 per cent. Borrowers with interest-only loans will be slugged a 12 basis point hike, leaving owner-occupiers with a 5.77 per cent rate and investors with a 6.49 per cent rate.
Suncorp said small business rates will rise 15 basis points.
“Funding costs have been steadily rising since the end of October,” Suncorp Bank boss David Carter said. “This has been driven by the outlook for US interest rates, as well as domestic factors.”
Mr Cater said the three-month bank bill swap rate — a key benchmark for funding costs — had risen 20 basis points.
“This increase results in higher interest costs to our wholesale funding, as well as our retail funding portfolio, such as term deposits,” he said.
Australians have been privy to record-low interest rates in recent years, after the RBA cut official rates to “emergency” levels amid a sluggish economy. Low variable rates offered by mortgage lenders have helped fuel surging house prices in east coast cities, allowing borrowers to pay manageable monthly repayments.
However, with loan rates now on the rise, borrowers are likely to experience more mortgage stress and more constrained house price growth.
11.24am: Morgan Stanley boosts iron ore, coal forecasts
Amid all the gloom about trade wars some good news today as Morgan Stanley boosts its commodity price forecasts. The broker now sees coking coal averaging $US209 a tonne in 2018, a 41pc increase on its previous forecast. It has also raised its 2018 iron ore forecast 15pc to $US67 a tonne, while its forecasts for copper, nickel and zinc have gone up 6pc, 8pc and 9pc for the same time frame.
They note that prices drifted lower through March as focus turns to potential headwinds from China’s slowing infrastructure/construction growth outlook, the end of winter capacity controls in steel and aluminium, and US trade barriers — all potential headwinds.
“While MS economists see a low risk of overtightening in China, they expect the infrastructure and property sectors to slow further through 2018-19 — underpinning our outlook for weakening commodity prices through the second half of the year,” they say.
Interestingly they have lifted their lithium forecast 7pc for 2018 despite their recent warning of oversupply in future years. But their 2020 forecast for the battery metal has fallen 15pc due to expected oversupply.
Rhiannon Hoyle 11.14am: New Hope sees 69pc jump in profit
New Hope Corporation recorded a 69 per cent jump in its fiscal first-half profit, reflecting better coal prices, higher sales and lower operating costs.
The coal miner (NHC) said it earned a net profit of $115.6 million for the six months through January, up from $68.4 million in the same period a year earlier.
New Hope said it would raise its interim dividend by 50 per cent to 6 cents a share.
The miner benefited from improved coal prices, which have been aided by restrictions on coal mining in China, sparking higher demand for foreign coal.
The company also reported a 10 per cent increase in sales, underpinned by increased production from the Bengalla coal mine in NSW, and said it gained from “a continued focus on cost management.”
Still, New Hope cautioned of emerging cost pressures. “Improving commodity prices have started to impact upon the cost of both labour and other materials, which will require careful cost management over coming periods,” the miner said.
Dow Jones newswires
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11.05am: Banks, Telstra help ASX 200 pare decline
Australia’s S & P/ASX 200 share index has pared some of a 0.7pc intraday falls as banks, Telstra and Woolworths have turned up after early falls.
However, the resources sector remains weak, with BHP down 2.6pc, Rio Tinto down 1.9pc and South32 down 2.5pc.
Samantha Bailey 10.50am: FIRB approves Mantra takeover
AccorHotels has cleared another hurdle in its proposed $1.2 billion takeover of the Mantra Group after Australia’s Foreign Investment Review Board approved the deal.
The deal, which will see French-listed Accor acquire 100 per cent of shares in Mantra by a scheme of arrangement, remains subject to the approval of Mantra shareholders, as well as the approval of the Federal Court of Australia.
Accor, which operates Swissotel and Sofitel, will own over 200 hotels across Australia if the deal is completed, adding more than 125 Mantra properties to its suite of hotels, under brands including Peppers, Break Free and the Deague Art Series.
It comes after the competition watchdog cleared the deal earlier this month, after it began investigating the proposed acquisition in October of last year.
In a statement to the ASX this morning, Mantra said it expects to distribute a scheme booklet to shareholders in April, with a vote to be held in May.
If approved, the deal is expected to be implemented in May this year.
10.42am: US futures fall adds to pressure on stocks
A fall in US stock index futures is adding to downward pressure on the Australian share market this morning.
US stock index futures have fallen about 0.3pc, pushing Australia’s S & P/ASX 200 down 0.7pc versus a 0.4pc fall implied by overnight SPI 200 futures.
Focus now turns to Tokyo, where futures imply a relatively modest fall of 0.8pc.
S & P/ASX 200 last down 0.7pc at 5920.3.
10.28am: Stocks fall sharply at open
Australia’s S & P/ASX 200 share index has fallen 0.7pc to 5920.7 — worse than expected — as the resources sector leads broadbased falls after offshore markets were hit by the Facebook data breach and commodities suffer from the brewing US trade war with China.
BHP is down 2.3pc at $28.55, taking 8 points off the index, while Rio Tinto, South32 and Alumina are also underperforming. Seek is down 4.3pc on a downgrade from Morgans.
Ben Butler 10.12am: Overdrafts in commission spotlight
Junior counsel assisting the commission, Albert Dinelli, has been laying out the schedule for today.
In the next day or so the commission is to hear about two issues: overdrafts and account processing errors.
CBA executive Clive Van Horen, who gave evidence yesterday about the bank’s sale of junk insurance to credit card customers — which he admitted breached the institution’s credit license — is first in the stand and will talk about overdrafts.
The bank has admitted to an error, between July 2011 and September 2015, in the calculator it used to work out whether a customer should be given an overdraft.
This resulted in hundreds of thousands of customers either being given an overdraft when they shouldn’t have been or getting a higher limit than they should have.
We’ll then be hearing from two ANZ executives — Heang Forbes and Sarah Stubbings — about its overdraft problems and processing errors.
ANZ has admitted to failing to properly check the details of people it offered overdrafts between November 2014 and January 2015 and charging some home loan customers too much interest for a period of about a decade between 2003 and July 2013.
Bridget Carter 10.05am: Megaport to raise $75m
Royal Bank of Canada and Morgans have been hired to help Bevan Slattery’s Megaport raise $75 million via an institutional placement and secondary sell down.
Shares are being offered at $3.75 each, which represents a 7.4 per cent discount to the last traded price on Monday.
The group will raise $50m via a placement and $25m via a secondary sell down.
The funds will be used to upgrade Megaport’s network capacity, accelerate expansion to new locations and markets and fund staffing, marketing and operating costs and general working capital requirements.
10.00am: UBS sees ‘risk’ for Coles spin-off
UBS sees “risk” for the planned Coles spin-off from Wesfarmers. While analysts at the investment bank believe the demerger is a positive for the grocery industry in that the entity post-demerger will be a “higher-returning, higher-growth business”, they see risks for the separately listed Coles entity from higher capex and costs.
“We believe Coles CAPEX and costs will increase, putting pressure on earnings,” UBS analyst Ben Gilbert says.
“Furthermore, the implied 11.5x multiple for Coles at current levels (a 2pc discount to Woolworths) is too small, in our view, given inferior earnings growth and higher risk.”
Gilbert has a $41.30 target price and Neutral rating on Wesfarmers.
Samantha Bailey 9.55am: Kathmandu lifts H1 profit, enters halt
Outdoor adventure wear and equipment retailer Kathmandu has entered a trading halt, announcing an equity placement to acquire a US outdoor retail chain, as it delivered a bumper first-half net profit.
Unveiling a first-half net profit after tax up 23 per cent to $NZ12.3 million, chief executive Xavier Simonet said the $US60m acquisition of Oboz footwear in North America is a significant step in expanding the company’s geographic footprint.
“As our wholesale business in Europe is expanding, we are now very pleased to announce the acquisition of Oboz, an innovative outdoor footwear brand based in North America,” he said.
“This is a significant event for the company, accelerating our international growth, and diversifying our product mix, geography and channels to market.”
The dual-listed company declared an interim dividend of NZ4 cents per share fully franked for Australian shareholders, compared to the unfranked NZ4 cent first-half dividend it paid last year.
Sales drove up 3.7 per cent to $138.4m in Australia for the six months ending January 31, while sales in the company’s international segment more than doubled to $4.4m, compared to the first half last year.
But sales in the company’s New Zealand business slumped 6.4 per cent to $65m for the half, compared to the previous corresponding period, impacted by lower first quarter sales as a result of lower levels of clearance stock.
9.46am: S & P/ASX 200 vulnerable as trade jitters grow
Australia’s S & P/ASX 200 is expected to open down just 0.4 per cent at 5935 based on overnight futures relative to estimated fair value, but it could test chart support around 5900 as trade jitters continue to weigh on commodities and the risk appetite.
While a 1.4pc fall in the S & P 500 was driven by a 6.8pc fall in Facebook as regulatory clouds swirl after a data breach, the broader US tech sector was also hammered and the falls flowed through to the major indexes in the US and Europe.
Risk aversion wasn’t exactly broadbased as government bonds and gold didn’t react, although the VIX volatility index jumped from under 16pc to above 19pc, and industrial commodities lost ground, with iron ore and nickel down more than 1pc.
But reports of plans for a package of US tariffs worth $US60 billion aimed at China continued, with Trump said to be preparing to unveil the package by Friday.
The market is also potentially vulnerable to interest rate jitters before the FOMC meeting early Thursday where a 25 basis point rate hike is widely expected and an increase in the Fed’s economic forecasts and “dot plot” interest rate projections is possible.
The RBA releases the minutes of its March board meeting although they’re unlikely to drive the share market.
Index last 5959.4.
Supratim Adhikari 9.30am: TPG upgrades guidance as H1 profit slides
TPG Telecom has upgraded its full-year guidance while keeping a lid on its overall costs, with the slowdown in the rollout of the National Broadband Network (NBN) helping it to manage the squeeze on its margins.
NBN Co suspended the sale of services over the hybrid fibre coaxial (HFC) portion of the network in November and TPG said that the halt had helped it manage its margins as customers move from its network to the NBN.
TPG posted an 11 per cent drop in net profit to $198.7 million for the half year ended January 31, while earnings before interest, tax, depreciation and amortisation for the period were down 11.7 per cent to $418.2m.
However, underlying EBITDA increased slightly in the half to $418.2m and total revenue edged up 1 per cent to $1.25 billion.
In light of the first-half performance TPG has raised its underlying EBITDA guidance for the full year from between $800m and $815m to between $825m and $830m.
Capital expenditure for the full year is expected to stay within the range of $270m to $310m, even as the telco works to build its mobile network and gets ready for a 5G spectrum auction.
Ben Butler 9.25am: CBA back in the RC hot seat
The royal commission will today hear more evidence from Commonwealth Bank’s executive general manager of retail products, Clive Van Horen, who was yesterday grilled about junk credit card and loan insurance the bank sold to hundreds of thousands of customers.
Then it will move on to car finance, with ANZ executives Heang Forbes and Sarah Stubbings next on the witness list.
9.13am: Tassal eyes entry into prawn market
Tasmanian Atlantic salmon producer Tassal is believed to be on the cusp of announcing an acquisition in north Queensland as part of an entry into the prawn market.
While the deal is only said to be worth about $40 million, it is important, offering the listed company a path into what is expected to become an increasingly lucrative market in the months ahead, sources have said.
The challenge for Tassal is that gaining a new lease to operate is seen as nearly impossible, so an acquisition is the only way in.
Bridget Carter, Scott Murdoch
9.07am: Broker rating changes
Seek cut to Reduce — Morgans
Nine Entertainment cut to Sell — Morningstar
Nine Entertainment cut to Neutral — Credit Suisse
Newcrest cut to Neutral — CIBC
8.55am: Trump to target China with $60bn tariffs
Donald Trump is said to be preparing a package of tariffs worth $US60 billion, aimed at China, by Friday, Bloomberg reported at 0835 AEDT this morning.
This is double the $US30bn package reportedly recommended by US trade representative Robert Lighthizer two weeks ago. In those reports Trump had said he wanted more tariffs, but the latest news suggests he wants a tariff package double in size.
AUD/USD — a proxy for trade jitters — fell from 0.7718 to 0.7708 on this news. The currency hit a 2-month low of 0.7687 yesterday.
Bridget Carter 8.47am: Kathmandu to raise $NZ40m through Goldmans
Kathmandu is launching a $NZ40 million private placement through Goldman Sachs to help fund its acquisition of Oboz Footwear.
Shares are being offered at $2.16 each with the offer equating to 9.16 per cent of issued capital, according to a term sheet sent to investors.
The offer price is a 10 per cent discount to Kathmandu’s last closing share price of NZ$2.40.
The placement will be followed by a share purchase plan for up to NZ$8m.
Michael Roddan 8.35am: ANZ explores IPO for car finance arm
ANZ Banking Group has chosen a possible float of its New Zealand-based car financing arm after the sale of the division to a Chinese conglomerate was blocked by regulators concerned with the suitor’s shadowy ownership structure.
ANZ said today it would “explore the possibility” of an initial public offering for its UDC Finance arm, after it ditched the potential $600 million deal with China’s HNA Group in January.
New Zealand’s Overseas Investment Office in late December said it would block ANZ’s attempt to sell its vehicle financing arm UDC Finance to China’s HNA Group, after the conglomerate — which has substantial investments in Australia — failed to give clear information about its ownership and control interests.
“We have been looking at strategic options for UDC’s future for some time as part of ANZ’s strategy to simplify the bank and improve capital efficiency,” ANZ New Zealand boss David Hisco said.
“While UDC is continuing to perform well and there is no immediate requirement to make decisions, after last year’s planned sale to HNA did not proceed it makes sense to keep examining a broad range of options for UDC’s future,” he said.
“The range of strategic options we have for UDC, including approaches we have received regarding the business and the option of retaining it, will take a number of months to examine before any decision is made. In the meantime, it will continue to be business as usual for UDC.”
Although HNA Group had the option of appealing the NZ regulator’s decision, ANZ in January used a clause in its sale agreement, stipulating a contracted time frame for the deal to be completed, to walk away from the sale. The decision gave ANZ an opportunity to find a different buyer for the business.
The proposed sale of UDC Finance to TIP-HNA Holdings was announced about a year ago.
But Lisa Barrett, the deputy chief executive of policy and overseas investment for the New Zealand regulator, in December said the Overseas Investment Office could not clear the takeover without sufficient knowledge of who controlled HNA Group.
8am: Copper slips
Copper eased and aluminium briefly touched its lowest since mid-December as cyclical assets broadly weakened ahead of an expected rise in US interest rates and as finance ministers met for a G20 summit.
Along with concerns that higher interest rates could dampen growth, US President Trump’s announcement of import tariffs on steel and aluminium has sparked fears of a global trade war that could weigh on demand for raw materials. “Anything that undermines global growth will undermine metals consumption,” said Societe Generale analyst Robin Bhar.
Aluminium, which has registered sharp increases in stockpiles in recent weeks as cuts to Chinese smelting capacity came to an end, slipped to its lowest since mid-December before paring losses as the dollar retreated.
Reuters
7.45am: Facebook tumbles
Facebook has shed about $US36 billion in market value since Friday as shares of the social-media giant skidded lower.
Facebook’s stock closed down 7.9 per cent overnight, as the technology giant marked its worst daily drop since March 26, 2014, with the downturn equating to a $US36.4 billion loss in market value, from its value of $US537.67 billion at Friday’s close, according to FactSet data.
The social network has come under fire pegged to how it has managed users’ information after the company announced that a firm with ties to the 2016 Trump campaign improperly kept data for years despite saying it had destroyed those records.
Dow Jones
7.15am: ASX to open lower
The Australian share market is expected to open lower after US stocks suffered heavy falls during the offshore session, driven by losses in technology stocks.
At 7am (AEDT), the Australian share price futures index was down 33 points, or 0.55 per cent, at 5,925.
In the US, the major stock market indexes were down by more than one per cent, after Facebook led a sell-off in technology stocks on reports that the social media company’s user information was misused. The Nasdaq closed 1.8 per cent lower.
The Australian share market yesterday closed slightly higher, helped by positive leads from other markets.
The benchmark S & P/ASX200 index was up 10 points, or 0.17 per cent, at 5,959.4 points, while the broader All Ordinaries index was up 9.8 points, or 0.16 per cent, at 6,064.7 points.
In economic news today, the Reserve Bank releases the minutes of its March monetary policy meeting, where it kept the cash rate unchanged, the Australian Bureau of Statistics releases its home prices figures for the December quarter, and the ANZ-Roy Morgan Consumer Confidence weekly survey is due out. In equities news, Kathmandu and TPG Telecom release their half year earnings, and Rio Tinto chief executive Jean-Sebastien Jacques delivers CEDA’s 2018 Copland Lecture.
AAP
6.55.am: Tech sector leads US stocks lower
Shares of technology firms tumbled overnight, as a shake-out in the market’s best-performing sector caused the S & P 500 and Nasdaq Composite to endure their worst day since the February correction.
Tech stocks, a major contributor to the nine-year bull-market rally, suffered one of their most crushing sessions of the year, forcing investors to question the resiliency of a sector that appears to be priced for perfection.
Investors turned on tech after learning that a firm tied to President Donald Trump’s 2016 election campaign had gathered data from millions of Facebook profiles without authorisation. After weeks of pouring billions of dollars into tech stocks and the funds that track them, investors made a sharp reversal, selling off shares of Facebook, Google parent Alphabet and other tech titans in the overnight session.
The FANG stocks of Facebook, Amazon, Netflix and Alphabet collectively shed more than $US100 billion in market-cap value, with shares of Facebook representing about $US34.2 billion in lost value.
The drop in Facebook stock came after the company said Cambridge Analytica improperly obtained data from some of its users. The New York Times and the Guardian reported that Cambridge was able to tap the profiles of more than 50 million Facebook users without their permission. Legislators in the US and Europe criticised the company’s response, and investors wondered if companies like Facebook and Alphabet will face tighter regulation as a result. Daniel Ives, chief strategy officer and head of technology research for GBH Insights, said Facebook is in a crisis, and it will have to work hard to reassure users, investors and governments.
“This is a defining moment for them,” he said. “It either becomes a blip on the radar and it helps the platform mature ... or it becomes the start of something broader.”
The sell-off in tech touched all other corners of the market, analysts said, as investors remained on edge about interest rates rising too quickly and an escalation in trade tensions. All 11 major S & P 500 sectors finished the day lower, with energy, healthcare and materials companies among the biggest decliners after tech.
“The saviour of the market all of a sudden becomes a problem,” said Mike Bailey, director of research at $1 billion wealth manager FBB Capital Partners. “Investors were waiting for some kind of trigger, and Facebook is one of the big, widely held tech names.”
The Dow declined 336 points, or 1.3 per cent, to 24,611, pushing the index back into the red for the year as nearly all 30 components traded lower, with the exception of shares of Boeing. The S & P 500 dropped 1.4 per cent, falling for the fifth time in six sessions, while the Nasdaq Composite dropped 1.8 per cent. The tech-heavy index had recovered its February losses in recent weeks and set a new highest a week ago.
The S & P 500 and the Nasdaq suffered their worst daily decline since February 8, while it was the Dow’s biggest fall since March 1.
Technology stocks have been a key pillar of support for a stock market that has been struggling to maintain its upward momentum in recent weeks. Fears that the Federal Reserve could raise interest rates more quickly than expected to keep inflation in check and concerns over whether the Trump administration’s protectionist policies will spark a trade war have roiled stocks for more than a month, causing investors broadly sell off equities.
Despite those concerns, investors had been looking to tech stocks for some safety and steady performance, especially after many of the sector’s companies, including Amazon and Microsoft, reported upbeat profit results for the fourth quarter. Investors put $US2.6 billion into US-focused tech funds, a record, for the week ended March 14, based on a Bank of America Merrill Lynch analysis of EPFR fund flows data.
Valuations among tech’s biggest names were stretched even further, as companies like Microsoft, Apple and Cisco had contributed nearly a fifth of the S & P 500’s gains for the year so far, according to S & P Dow Jones Indices. Including Amazon and Netflix, two tech companies that sit alongside other consumer-discretionary stocks in the S & P 500, those five companies make up nearly half of the broad index’s gains for the year.
The market’s tilt toward tech has been a major concern among money managers who say the overreliance on one particular sector has made major indexes more vulnerable to a sell-off similar to that overnight.
“The market feels top heavy, literally and figuratively, with these big-market cap companies in tech,” said Diane Jaffee, a senior portfolio manager at TCW Group Inc. “It makes me nervous.”
The tech sell-off stretched across nearly every stock in the sector, from software makers to chip producers to IT-service providers. Facebook, which had sparked the sell-off, fell 7 per cent, its worst decline in a single day in four years.
Shares of Alphabet fell 3.4 per cent, while PayPal Holdings shed 3 per cent. Chip makers Nvidia and Broadcom shed 4.2 per cent and 3.9 per cent, respectively.
Netflix, meanwhile, fell 2.4 per cent, while Amazon stumbled 2 per cent.
The rocky session extended the latest bout of volatility that has gripped markets in recent sessions, as investors await further clarity this week on whether the Federal Reserve will need to raise interest rates more aggressively to keep the economy from overheating.
Futures contracts gave a 94 per cent chance to the Fed raising interest rates by 0.25 percentage point on Thursday (AEDT) to a range between 1.5 per cent and 1.75 per cent, according to data by CME Group. This would be the first time borrowing costs go up in 2018, and investors are trying to gauge whether Fed Chairman Jerome Powell will raise rates three more times this year, or only two.
Dow Jones Newswires
6.45am: Dollar bounces back
The Australian dollar has bounced back from the three month low it hit yesterday, despite heavy falls on Wall Street, but following a bounce in gold prices.
At 6.35am (AEDT), the local currency was worth US77.17 cents, up from US76.92 cents yesterday.
Gold prices recovered amid weakness in equity markets, after the metal touched its lowest price in more than two weeks on Monday ahead of a US central bank meeting that could raise interest rates and signal three more increases this year.
AAP
6.40am: Driverless Uber kills woman
A self-driving car from Uber Technologies struck a woman who died Monday in Tempe, Arizona, local police say, in what is believed to be the first known fatality of a pedestrian from a driverless vehicle.
Following the accident overnight, Uber is temporarily pulling its self-driving cars off the roads in Tempe, San Francisco, Pittsburgh and Toronto, where it is testing them, a spokeswoman said. She said Uber is investigating the incident and co-operating with authorities.
6.35am: Pound surges as Brexit deal sealed
The pound rose after Britain and the EU reached a landmark deal on a two-year transition after Brexit that will buy businesses and citizens time to adjust to life after the divorce.
World stock markets jittered, meanwhile, in a Facebook-led tech sell-off and ahead of a feared US interest rate hike later this week, as concerns of a possible trade war sparked by US President Donald Trump’s announcement on tariffs also weighed.
“The British pound was the biggest currency mover of the day,” said Jasper Lawler, head of research at London Capital Group. “Having the extra two years of continuity should reduce business uncertainty and encourage investment.” But the “unfed elephant in the room”, the unresolved Irish border question, kept a lid on sterling’s gains, he added.
Rocking the US equity market were Facebook’s shares plummeting more than seven per cent following reports of a large data breach.
EU Justice Commissioner Vera Jourova called “horrifying” reports that Cambridge Analytica, the data analysis firm hired by Donald Trump’s 2016 presidential campaign, stole information from 50 million Facebook user profiles to help design software to predict and influence voters’ choices.
But the social media giant’s downturn was just one factor in a cocktail of reasons for selling stocks.
“Concerns over the potential for a Trump trade war still seem to be weighing on the minds of investors, with a lack of risk appetite still leading to caution in global stock markets,” FXTM research analyst Lukman Otunuga said.
The pound found strength in a deal reached between Britain and the EU on a transition period between March 29, 2019 and December 31, 2020.
Crucially, the transition will give Britain and Europe more time to agree on a trade deal.
Weighed down by the stronger currency, the London FTSE 100 benchmark underperformed its European peers as a strong pound stands to hurt exporters.
London closed down 1.7 per cent, Frankfuirt ended down 1.4 per cent and Paris closed down 1.1 per cent.
AFP
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.
ASX 200 mostly erases April tariff losses; gold miners dive
Trade deals optimism rises as US President Donald Trump softens stance on China, Fed chair Jerome Powell. Paladin top gainer. Safe-haven gold pulls back from its record high.