ASX closes at 3-month low in first 4-day fall since April
Australia’s share market suffers first 4-day fall since April with resources hit and the S&P/ASX 200 closing at a 3-month low.
- Vic job numbers slump
- Rex in talks with investment firm
- Iron ore prices continue to slide
- New Hope swings to full-year loss
That’s all from the Trading Day blog for Tuesday, September 22.
Local shares fell to close at their lowest for 3 months after world equity markets suffered heavy losses overnight as investors reacted to mounting fears of a second wave of the coronavirus and few signs of additional central bank stimulus. Coal miner New Hope released FY earnings while RBA deputy governor Guy Debelle spoke on monetary policy.
Richard Gluyas 8.17pm: Which bank outperforms?
Commonwealth Bank chief executives and chairs have consistently outperformed their major-bank peers since the last recession in 1992, with NAB the sector’s perennial laggard.
Detailed analysis by Jefferies analyst Brian Johnson shows that CBA’s total shareholder return (share price growth plus dividends) did better than the banking index and the ASX 200 under CEOs David Murray, Ralph Norris and Ian Narev.
While CBA has outperformed the banking index under newcomer Matt Comyn, who succeeded Narev in April 2018, it still lags the ASX 200, which has climbed 12 per cent in Comyn’s tenure compared to the bank’s 8 per cent TSR.
NAB is at the other end of the spectrum, always underperforming in relation to one or both measures. Only former CEO Don Argus was able to beat the banking index and the ASX 200.
Johnson, who has followed the big four since 1987, says in his report that he’s still amazed by the “hubris cycle” in banking.
This was best demonstrated by NAB, which comprehensively outperformed the broader market and the other banks under Argus.
7.12pm: AUD ‘technically vulnerable’: CBA
CBA’s Global Markets Research team notes that AUD/USD fell to a low near 0.7180 in part because of a bout of USD strength and RBA deputy governor Guy Debelle’s speech.
“The key takeout from Debelle’s speech is that the RBA has not ruled out a host of other easing policy options, nor have they ruled any of these policy options in. Debelle listed four ‘other’ options to ease monetary policy further: (i) purchase bonds further out on the curve (supplementing the three‑year yield target); (ii) foreign exchange intervention; (iii) cut the current structure of interest rates in the economy without going negative; and (iv) negative rates.
“Overall, we expect the RBA to maintain the current monetary policy structure. It would require a shift in the economic outlook, or lack of further fiscal support for additional monetary stimulus measures to be taken in the near term. We await details in the 6 October budget.
“Technically, AUD/USD is vulnerable to a correction near 0.7060 (June high) after breaking through its June/September support trend line. Beyond the short‑term, the fundamental AUD/USD uptrend is intact underpinned in large part by positive real Australia‑US two‑year swap rate differentials and firm iron ore prices.”
Jared Lynch 6.44pm: Boral boss gets $2m sendoff
Construction materials giant Boral has given its outgoing chief executive Mike Kane a $2m golden handshake, as the company continues to reel from the financial fallout of an accounting scandal that plagued its US windows business.
Boral gave Mr Kane $2.037m — the equivalent of a year’s salary — in “separation payments”, which the company said was in line with his employment contract, more than doubling his remuneration. But given it was a termination, there was no short-term incentive payment, and the board vetoed all his long-term incentive awards which totalled $1.67m.
It follows a torrid period for the Sydney-based company, marked by a series of downgrades and the revelation in December of financial irregularities at its North American windows unit.
Under Mr Kane’s contract, he was entitled to a $2m windfall if Boral terminated his contract without cause. Had he chosen to resign, he would have had to give six months’ notice or the company could have chosen to pay him out in lieu of that notice period.
“Boral may terminate Mr Kane’s employment at any time by giving Mr Kane 12 months’ written notice. Boral may elect to make a payment in lieu of the notice period,” Mr Kane’s contract says.
“In those circumstances … Mr Kane will receive a separation payment, which will include any amount paid in lieu of notice, equal to 12 months’ TFR (total fixed remuneration). Mr Kane will not be entitled to any STI in respect of the year of termination unless the board determines otherwise.”
Boral’s remuneration committee chairman John Marlay said Mr Kane parted on those terms, in the company’s annual report.
Lilly Vitorovich 5.04pm: Foxtel hits record sports subscribers
Pay-television and streaming operator Foxtel Group has a record near two million sports subscribers, driven by its extensive coverage of the NRL, AFL and motorsports.
Chief executive Patrick Delany said its streaming service Kayo has more than 600,000 paid subscribers now following the resumption of live sport at the end of May as coronavirus restrictions eased.
That compared with 542,000 paid subscribers as at August 4 when Foxtel’s biggest shareholder, News Corp, provided an update on Kayo’s recent performance, alongside its 2020 financial results.
Together with its core premium Foxtel subscribers, the company has almost two million sports subscribers, Mr Delany told advertising and media buyers via a webcast event on Tuesday.
“With the resumption of live sport on the 28th of May with the NRL leading the way, we had an extraordinary moment, we had a complete rebound with Kayo,” Mr Delany said.
“It‘s now sitting at over 600,000 paid subscribers, which makes it one hell of a sports platform, especially when you add it together with the Foxtel premium platform, we now have close to two million sports subscribers.
“That’s a lot of sports subscribers. The viewing data is also a highlight as we move forward in 2020,” he said.
Foxtel’s NRL audience across its various viewing platforms jumped 15 per cent over the first 18 rounds of the footy season from the same period last year.
4.31pm: ASX ends -0.7% amid global selloff
Australia’s share market suffered its first four-day fall since April as the global selloff in shares this month looked set to continue.
The S&P/ASX 200 index closed down 38.5 points or 0.7pc at a 3-month low close of 5784.10 after hitting an intraday low of 5763.2 amid underperformance from major sectors including Materials, Energy, Financials and Real Estate.
Among major stocks, BHP fell 1.8pc, Rio Tinto fell 2.4pc, Fortescue fell 2pc, NAB lost 2.4pc, ANZ fell 2.3pc, while in the tech space Xero rose 4.4pc and Afterpay gained 2.2pc.
US stock index futures extended intraday falls after the local market closed, with S&P 500 futures down 0.5pc and Nasdaq futures down 0.7pc.
That followed steep falls in European and US markets due to the resurgence of coronavirus, fear of greater regulation of global banks over their failure to stop suspicious transactions in recent years, combined with US fiscal and monetary policy hiatus.
The Australian dollar was 0.44pc weaker against the US dollar, trading at US71.92c at the close of the ASX session.
4.00pm: NAB predicts RBA rate cuts, QE
NAB has changed its view to predict more RBA policy easing including rate cuts and QE.
“NAB now sees significant risk of the RBA easing policy further by cutting the cash rate, 3-year yield target and TFF (term funding facility) rate by 15bps to 0.10 per cent from 0.25 per cent,” says NAB chief economist Alan Oster. “The remuneration on ES (exchange settlement) balances which is already at 0.10 per cent is likely to be either unchanged, or cut slightly, so as to remain positive. We also expect the RBA to announce outright QE purchases in the 5-10 year area of the curve, so as to lower longer-dated rates to provide stimulus via the portfolio rebalance effect and a lower Australian dollar. Different to YCC (yield curve control), this would likely require a nominated quantum of bond purchases per period to be announced.” NAB expects these further easing measures to be announced at either the October or November Board meetings, noting that the October Board meeting is the same day as the Budget, while the November Statement on Monetary Policy after the November Board could be an avenue to communicate its messaging to a wider audience.
While he remains of the view that further monetary easing will have only marginal impact on the economy, Mr Oster says the RBA continues to signal that it will do what it can to support the recovery with Deputy Governor Guy Debelle saying: “given the outlook for inflation and employment is not consistent with the Bank’s objectives over the period ahead, the Board continues to assess other policy options”.
“Fiscal policy also continues to be well-placed to support the recovery and further measures are expected to be announced on this front in the Budget on October 6,” Mr Oster says.
3.45pm: Payrolls data reveal true weakness: UBS
Weekly payrolls data for the fortnight to September 5 reveal the true weakness of the labour market, according to UBS Australia chief economist George Tharenou.
A 1pc fall since the recovery peak on 11th July implies job losses of more than 100,000 since early August, he notes. Though overstated due to seasonality, this contrasts with the August Labour Force Survey which boomed 111,000 month-on-month, albeit driven by ‘sole traders’ outside the scope of payrolls if they don’t use the ATO payrolls system.
Payrolls data coverage - about 80 per cent of businesses - is more than 400 times larger than the Labour Force Survey. And while the LFS showed unemployment dropped 87,000 month-on-month to less than 1 million, pre-COVID, unemployment was inline with the 700,000 on JobSeeker, in August this lifted to 1.5 million.
“This indicates the ‘true’ labour market is far weaker, with an implied unemployment rate of more than 10 per cent versus 6.8 per cent in the LFS,” Mr Tharenou says.
He also points out there’s an additional 3 million people on JobKeeper who need to be ‘directly paid’ when the subsidy tapers in October. And since March 14, payrolls are down about 4.5 per cent, implying 581,000 job losses, yet the LFS employment fell only 3.2 per cent or 417,000.
Meanwhile Victorian payrolls remained weakest, down another 0.8 per cent last fortnight and 3.8 per cent since 11th July, while “negatively” the rest of Australia fell 0.2 per cent and were flat since the recovery peak in July.
And while wages rose 0.9pc in the two weeks to 5th September – in both Victoria and the Rest of Australia – that followed a sharp 4pc fall since early July, so not a recovering trend.
Since the recovery peak in July, the data showed VIC wages were down 6.1pc, which is far worse than a 2pc fall for the rest of Australia.
Bridget Carter 3.25pm: Lendi IPO gathers pace
Online mortgage provider Lendi is receiving a positive reception as it fronts fund managers for an initial public offering this month.
The company has about $40m of annual revenue and a 60 per cent gross profit margin.
Working on the float plans is Macquarie Capital and Bell Potter.
The attraction for many is that Lendi is the online mortgage market leader, with a market share of about 90 per cent.
Expectations are that it will list as a business worth about $400m.
The plans to move forward with an IPO by the end of the year were first revealed by DataRoom last month, with meetings scheduled with investors following reporting season.
Macquarie Group is a past owner and had considered a float in the past, with plans to raise about $100m.
Another investor is ANZ Bank.
Lendi describes itself as a home loan specialist. It searches products from over 35 lenders.
It launched in 2013 and has helped Australians settle home loans worth more than $7bn in total.
Bridget Carter 2.45pm: Duratec IPO priced at 50c a share
Duratec Australia is understood to have priced its initial public offering at 50c per share as it looks to raise $53 million.
It is understood that the IPO is already well covered, with fund managers attracted to what they are describing as a high quality niche contractor.
The group is working on its IPO with assistance from Euroz Securities and is expected to list in the coming weeks as a business worth about $100m.
The company operates on Australia’s west coast, east coast and in the Northern Territory.
About 60 per cent of its revenue is generated from Western Australia, but is continuing to gain a greater level of market share from the east coast.
Duratec’s main area of expertise is with asset remediation, including cladding on buildings and other work with the construction industry.
But its revenue is also generated from defence force contracts, an area which attracts only limited competition.
The company’s three founders remain involved in the business and have been working together for about 25 years.
For the 2020 financial year, the company generated about $21.4m in earnings before interest, tax, depreciation and amortisation.
2.35pm: RBA more likely to cut rates: Nomura
Nomura Australia interest rates strategist Andrew Ticehurst has increased his expectation of RBA policy easing after its 6th October board meeting to 66pc from 60pc after deputy governor Guy Debelle outlined the policy options in a speech today.
While he still expects the RBA to cut official cash and 3-year bond yield targets to 0.1pc from 0.25pc now, Mr Ticehurst now also sees a probable cut in the term funding facility to 0.1pc.
He says the RBA would be more comfortable cutting the cash and 3-year bond yield targets as they are less of a direct intervention that outright quantitative easing and would lower ACGB and semi-government bond yields, while cutting the term funding facility rate would further lower costs for banks and encourage banks to buy government bonds for their yield, thereby lowering government bond yields and helping with increased bond issuance. “An outright QE bond buying program, further along the yield curve and with a sharper eye on the Australian dollar, remains an option, but more likely in the longer term, if necessary,” he adds.
2.30pm: Goldmans lifts target price on JB Hi-Fi
Goldman Sachs analysts have upgraded their first half sales forecasts for JB Hi-Fi and The Good Guys on the back of an earnings update from Harvey Norman, which revealed a 30 per cent jump in sales for the 11 weeks through mid-September.
Lifting its target price on the stock from $45.50 to $48.30, the analysts said upside risk factors included a special dividend, a stronger response to stimulus packages and a tax efficient off market buyback. The investment bank remained neutral on JB Hi-Fi.
Shares last down 0.1 per cent at $46.96.
2pm: Zoono in another legal dispute
Shares in Zoono have backtracked after the listed hand sanitiser company said it was facing legal proceedings after it terminated the contracts of two distributors for failing to meet minimum sales obligations.
The New Zealand-headquartered company said it had been advised that UAE-based Sky Scrapers General Trading intents to initiate court proceedings to have its distribution agreement reinstated.
Zoono previously announced it was in a similar dispute with China-based Qingdao Zoono Biotechnology.
“While it is unfortunate that Zoono is involved in these disputes, nothing will deter Zoono from taking what it regards as reasonable and appropriate steps to protect its business interests,” Zoono said in a statement to the ASX.
Zoono shares last down 5.9 per cent at $1.93.
Bridget Carter 1.40pm: Online directory business hipages to IPO
Fund managers are so far showing a keen interest in the online service directory business hipages group which is ramping up for an initial public offering through investment bank Goldman Sachs.
The company provides online service directories and is preparing for a non-deal roadshow in the next fortnight.
It has annual revenue of about $50m and is growing at about 20 per cent per annum.
The attraction to the business so far is that 90 per cent of the revenue is recurring, and the expectation is that it will list as a company worth up to about $400m.
News Corp, publisher of The Australian, owns about 30 per cent of the business and is not selling down any of its shares.
Other shareholders are planning to retain their stake so the sell down may only be small.
Among other shareholders are Ellerston Capital, which owns more than 10 per cent.
Another investor is Right Click Capital.
The business was founded in 2004 by David Vitek and chief executive Roby Sharon-Zipser, who each own about 10 per cent.
1.30pm: Lower rates first RBA choice: DB
Deutsche Bank Australia chief economist Phil Odonaghoe argues the RBA’s favoured option for more monetary policy stimulus is lowering the cash rate to 0.1pc from 0.25pc.
Mr Odonaghoe notes that it was the only option listed by deputy governor Guy Debelle in his speech today about which he didn’t discuss drawbacks.
But he maintains that a rate cut is unlikely before February since the Melbourne lockdown means that the economic outlook is distorted and the RBA will wait for some ‘clear air’ in the new year before deploying its next easing.
While he still feels that increased bond buying is increasingly likely, he now expects it to be deployed separately after a reduction in interest rates.
Mr Debelle highlighted that very few financial instruments in Australia price off long dated bond yields and that the current level of government bond rates is not a constraint on the fiscal decisions for the Australian and state governments.
Patrick Commins 1pm: Jobs numbers decline in Victoria
Victoria continued to bleed jobs over the two weeks to early September, while growth in the employee workforce across the rest of the country stalled, new figures from the ABS show.
The data from the Australian Bureau of Statistics, which draws on weekly Taxation Office payroll numbers, revealed that the further deterioration over the fortnight left the number of payroll jobs in Victoria down by 2.1 per cent over the month to September 5. This compared to a drop in 0.2 per cent for the rest of Australia, the ABS said.
EY chief economist Jo Masters said the decline in payrolls in recent weeks was led by labour shedding among small and medium-sized firms.
“Larger businesses seem to have adapted better to the crisis, with payrolls in firms of over 200 employees increasing across the country, including in Victoria,” Ms Masters said. This may reflect larger businesses’ “greater agility to respond to rapidly changing conditions,” she said.
National payroll jobs remain around 4.5 per cent lower than in mid-March, when Australia recorded its 100th coronavirus case, an estimated deficit of around 480,000 jobs versus pre-COVID.
In Victoria, which continues to suffer through a second round of even more intense restrictions, payroll jobs are down 8.3 per cent versus March – revealing that the state has not participated in the national recovery over the past six months. Outside Victoria, payroll jobs were down 3.1 per cent between September and March.
Total wages paid through the ATO’s weekly payrolls data remained 4.3 per cent lower than in mid March.
Bridget Carter 12.20pm: Larry Kestelman in talks with Pas Group
The private equity interests of Melbourne-based entrepreneur Larry Kestelman are believed to be close to striking a deal to buy the Australian fashion retailer Pas Group.
Mr Kestelman, who founded the internet company Dodo and owned the Melbourne United basketball team, had earlier been a shareholder of the listed Pas Group, and moved to block a takeover bid of the company in 2015 by Coliseum Capital with his 10 per cent stake.
He chairs the Melbourne-based private equity firm Queens Lane Capital and his business interests span across a range of sectors including technology and property.
More to come
12.00pm: ASX -0.9%; remains weak
Australia’s share market has remained weak after sharp falls in offshore markets amid economic growth concerns amid worsening coronavirus trends and US fiscal and monetary policy hiatus and political uncertainty.
After falling 0.9pc to 5772.3 in early trading, the S&P/ASX 200 bounced to 5799 as US futures rose, but hit a 3-month low of 5770.9 just before lunch as US futures turned down.
Share trading volume is 8pc below average which is very light for a Tuesday, so the fall is due more to a lack of buying than strong selling.
But the heavyweight miners and banks have fallen sharply with BHP down 2.1pc, Rio Tinto down 2.9pc, Fortescue down 3pc and South32 down 4.6pc, while in the banking sector, three of the four major banks are down more than 2pc.
The Energy and Real Estate sectors are also underperforming with Santos down 3.2pc and Scentre down 3.9pc.
11.10am: ASX bounces as US futures rise
Australia’s S&P/ASX 200 share index halved its intraday fall as US index futures rose.
After falling as much as 0.9pc to a 3-month low 5772.3, the S&P/ASX 200 bounced to an intraday high of 5799, at which point it was down just 0.4pc. It came as S&P 500 futures rose 0.4pc and Nasdaq futures rose 0.5pc. Together with the Energy and Real Estate sectors, the heavyweight Materials and Financials sectors continue to underperform, with BHP down 1.7pc, Rio Tinto down 2.4pc, Fortescue down 3pc, and the four major banks down 0.9-1.8pc.
10.50am: Rex in talks with investment firm
Regional airline Rex has confirmed it is in negotiations with Asia-Pacific focused investment firm PAG Asia Capital regarding an investment of up to $150 million to support the launch of its domestic major city jet operations.
“With PAG’s support, I have every reason to believe that Rex can successfully launch its domestic major city jet operations,” chairman Lim Kim Hai said.
“As a well-established carrier with an impeccable track record, I am confident that Rex will deliver to Australians an alternative major city domestic service that is safe, reliable and affordable. Rex’s affordable fares will support Australia’s economic rebuild and recovery efforts.”
Rex’s major city jet operations are set to launch in March next year.
10.40am: Lower $A “definitely” beneficial: RBA
RBA Deputy Governor Guy Debelle has dialled up the Bank’s preference for a lower exchange rate, saying at the Australian Industry Group conference that it “would definitely be beneficial for the Australian economy, so we are continuing to watch developments closely.”
AUD/USD dropped from 0.7235 to 0.7204 on his comments for a 0.4pc intraday fall.
The 50-day moving average at 0.7201 remains under pressure after the currency hit a 2-week low of 0.7199 overnight.
Patrick Commins 10.30am: Rates, bond buying are options: Debelle
Reserve Bank deputy governor Guy Debelle has flagged that a further reduction in rates towards, but not through, zero and buying longer term bonds remain the most likely policy tools at the central bank’s disposal should the economic recovery falter.
In a speech on Tuesday morning, Dr Debelle said “overall, the recovery has not been a rapid bounce but more of a slow grind”.
“As the outlook for the Australian economy unfolds, the board will continue to assess the merits of the range of monetary options to best support the economic recovery,” he said.
The country’s second most senior central banker repeated that, given the RBA’s forecast for growth out to the end of 2022, it was “highly unlikely” that the cash rate would be lifted over the coming three years.
“Given the outlook for inflation and employment is not consistent with the bank’s objectives over the period ahead, the board continues to assess other policy options,” he said.
Those options include expanding the RBA’s bond purchase program – which is focused on keeping three-year rates at 0.25 per cent – to longer maturity bonds. While 10-year bonds are an important benchmark in markets such as the US, Dr Debelle said “very few financial instruments in Australia price off these yields”, but buying longer maturity debt “can contribute to a lower exchange rate”.
There are concerns that the resilient and even strengthening Australian dollar through the COVID-19 recession will drag on the recovery by making exports less competitive, but Dr Debelle effectively ruled out currency intervention.
“That said, a lower exchange rate would definitely be beneficial for the Australian economy, so we are continuing to watch developments in the foreign exchange market carefully,” he said.
Another option available to central bankers was to lower rates “a little more without going into negative territory”, although he did not say to what level.
10.15am: ASX -0.9% to 3-mth low
Australia’s S&P/ASX 200 share index dropped 0.9pc to a 3-month low of 5772.3 in early trading, on track for its first four-day fall since April, after sharp falls in European and US markets amid a resurgence of coronavirus and US fiscal and monetary policy hiatus. The Materials, Energy, Financials and Real Estate sectors underperformed with BHP down 1.7pc, Santos down 2.5pc and ANZ down 2.2pc. Technology outperformed with Xero up 2.3pc after the US tech sector bounced off lows. Also outperforming were the defensive Health Care, Consumer Staples, Communications and Utilities sectors, along with Consumer Discretionary and Industrials.
ASX last down 0.8pc at 5779.
10.00am: Cromwell boss pay shaved
Cromwell Property paid chief executive Paul Weightman nearly $3.26m for 2020 financial year after he pocketed a $561,000 cash bonus.
His total pay packet was down on the prior year when he received $3.9m which included a $797,225 cash bonus.
The long-running battle for the property group reached a dramatic finale last week with challengers Gary Weiss and Joe Gersh winning board seats in a tight shareholder vote following a lengthy campaign.
9.50am: What’s impressing analysts?
AMP raised to Buy: Morningstar
Jumbo Interactive cut to Neutral: Evans & Partners
Laybuy Group started at Buy: Bell Potter
Australian Pharmaceutical Industries price target cut 22pc to $0.85: Bell Potter
Appen target price cut 11pc to $33.75: Bell Potter
Magellan Financial target price cut 10pc to $60: Citi
9.45am: ASX expected -1%; RBA focus
Australia’s share market should react negatively to offshore falls while awaiting a speech on monetary policy by RBA deputy governor Guy Debelle at 1030am.
Overnight futures suggest the S&P/ASX 200 will open down 1pc at a 3-month low of 5765 after falling 0.7pc to 5822.7 on Monday.
The S&P 500 fell 1.2pc to a 6-week low close of 3281.6, which was about twice as much as anticipated by the Australian market.
Much greater falls in Europe, including 3.7pc off the Euro Stoxx 50, 3.4pc off the FTSE 100 and 4.4pc off the DAX 30 came amid a resurgence of coronavirus including record high new cases in France and Spain.
Commodities were hit by fear of a slowdown with spot iron ore down 4.8pc at $US115.20, WTI crude oil down 3.5pc at $US39.68, Nickel down 2.5pc and copper down 1.8pc.
Gold fell 1.9pc to $US1912.91 and AUD/USD fell 0.9pc to 0.7222 as the US dollar rose. BHP ADR’s suggest the resources sector heavyweight will open down 2pc at $36.61.
Global banks were smacked, with the KBW Bank index down 3.5pc after leaked files showing banks moved more than $US2tln that their compliance offices flagged as suspicious in 2,100 filings with the US Treasury’s Financial Crimes Enforcement Network from 2011-2017.
The Russell 2000 small caps index dropped 3.5pc, but tech stocks bounced with the Nasdaq down just 0.1pc at 107778.8 after falling 2.5pc to a 6-week low of 10519.4 and the S&P 500 Tech sector rising 0.8pc as Apple surged 3pc, Microsoft rose 1.1pc and PayPal jumped 4.1pc.
The S&P 500 formed a bullish “hammer” pattern, suggesting a potential bottom, but the major US indexes are yet to reach the targets of “bear flag” patterns, which, in the case of the S&P 500, suggests a further 3.4pc drop is on the cards
Meanwhile the US monetary and fiscal policy hiatus continues along with US political uncertainty before the election. Moreover the economic recovery is at risk of faltering amid resurgence of coronavirus and no confirmation of effective vaccines so far.
9.40am: Iron ore prices continue to slide
The spot iron ore price fell overnight to $US120 a tonne on concerns of oversupply, with steel market participants in China noting an increase in inventories.
The price for Australia’s largest export has now fallen from $US131 a tonne to $US120 a tonne in just a week.
Commonwealth Bank mining and commodities research director Vivek Dhar said the price slide raises concerns that a downward correction is on the cards.
“The likelihood that iron ore prices will move sharply lower will largely depend on the trajectory of steel mill margins in China,” he said.
“The major downside risk to consider for iron ore prices is the likelihood that steel mill margins turn negative.”
Still, Mr Dhar said that negative steel margins – which would weigh heavily on iron ore prices – are unlikely to eventuate this year given China’s resilient demand for steel.
“China’s steel demand has found support on several fronts this year,” he said.
“Infrastructure, which accounts for between 20 per cent and 25 per cent of China’s steel consumption, has led the way with policy support.
“China’s manufacturing sector, which accounts for about 20 per cent of China’s steel demand, has also expanded at an impressive rate.”
9.30am: New Hope swings to full-year loss
New Hope Coal has told the market it has defied the effects of the COVID-19 pandemic, after it increased its coal production and sales, as a result of its 80 per cent interest in the Bengalla Joint Venture.
Still, the company posted a net loss attributable to shareholders of $156.8 million after recognising a string of impairments, compared to a net profit of $210.7m the previous period. Profit after income tax and before non-regular items was $83.9 million.
The company did not declare a final dividend, saying it would focus on liquidity management and investment.
9am: SkyCity NZ casinos reopen to public
SkyCity has reopened its Queenstown and Hamilton casinos to the public after the New Zealand government announced that with the exception of Auckland, New Zealand would move to Alert Level 1 restrictions. The two casinos had previously been restricted to SkyCity Premier Rewards members only under Level 2 restrictions.
The company said that it would be able to recommence events and promotions as well as electronic gaming machines and gaming tables without physical distancing requirements at those two casinos.
The Auckland casino remains open with physical distancing and hygiene in place, the company said in a statement this morning.
8.50am: Newcrest announces board renewal
Gold miner Newcrest Mining has announced the appointment of Sally-Anne Layman as an independent non-executive director and the retirement of Xiaoling Liu in a board renewal announcement this morning.
Ms Layman spent 14 years at Macquarie in a range of senior positions, including as joint head of the Perth office of the Metals, Mining & Agriculture Division. She is also a non-executive director of Beach Energy, Pilbara Minerals and Perseus Mining.
David Ross 8.36am: Energy framework lacking: Labor
Labor shadow minister on Climate Change and Energy Mark Butler has said despite recent announcements from the federal government on energy an overall investment framework was still lacking.
“You can’t just have a description of technology, you need investment rules that will see that technology built on the ground,” he said on Radio National Breakfast.
“What investors need is to understand what the rules on their investments might be.”
Mr Butler said the government’s announcements would not spur investment as businesses needed certainty to commit the hundreds of millions of dollars major projects required.
“You need to know what the ultimate destination is, that’s why I’ve criticised the government and business groups have criticised this government,” he said.
7.58am: Cryptic Musk tweet
Tesla chief executive Elon Musk tweeted late Monday an “important note” about the electric-car maker’s Battery Day slated for Tuesday: What Tesla will announce tomorrow “will not reach serious high-volume production until 2022.” The product or products will affect long-term production “especially” of the Tesla’s Semi, the company planned long-haul truck, the pick-up truck Cybertruck, and the redesigned Roadster, Musk said. Tesla stock, one of the few to end Monday in the black, turned 2.5% lower in the extended session. The Battery Day and Tesla’s annual shareholder meeting are scheduled to be webcast.
Dow Jones
Important note about Tesla Battery Day unveil tomorrow. This affects long-term production, especially Semi, Cybertruck & Roadster, but what we announce will not reach serious high-volume production until 2022.
— Elon Musk (@elonmusk) September 21, 2020
7.25am: Fraud claims smash Nikola
Shares of embattled auto start-up Nikola tumbled again Monday following the sudden resignation of company founder Trevor Milton in the wake of fraud allegations.
The Phoenix-based company said in a statement late Sunday it had accepted Milton’s resignation and he would be replaced immediately by Stephen Girsky, a Nikola board member and former vice-chairman at General Motors.
The resignation of Milton, who served as executive chairman, was the latest twist in a heady two-week period that saw the company soar after scoring an alliance with GM, and then reel as it was hit by fraud allegations that put the company on the defensive.
Shares of Nikola fell nearly 20 per cent to $27.58.
Milton launched the company in 2015 to develop trucks and pick-ups powered by electric batteries or hydrogen fuel cells, and though Nikola has not yet built anything, it caught attention by signing strategic partnerships with such renowned groups as GM and German engineering giant Bosch.
The announcement of the GM partnership on September 8 caused shares to leap 41 per cent on the New York Stock Exchange amid hopes that the Arizona company would be the next Tesla.
But two days later, investment company Hindenburg Research published a report accusing the start-up of “intricate fraud” based on multiple lies by Milton, who it said “misled partners into signing agreements by falsely claiming to have extensive proprietary technology.” That announcement triggered a plummet in share value, with stock diving 36 per cent in three days.
6.40am: More spending needed, say Powell
US Federal Reserve Chairman Jerome Powell said the economic response to the coronavirus alleviated the fallout from the pandemic-induced recession but suggested Congress would likely need to spend more money to shore up parts of the economy that continue to struggle.
“Our economy will recover fully from this difficult period,” Mr. Powell said in prepared remarks posted Monday that are set for delivery at a congressional hearing Tuesday morning. The Fed will “do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.” Mr. Powell begins three days of hearings on Capitol Hill on Tuesday morning, beginning with the House Financial Services Committee, where he will testify alongside Treasury Secretary Steven Mnuchin. Both men will also appear before the Senate Banking Committee on Thursday. Mr. Powell testifies Wednesday before a separate House panel overseeing the U.S. response to the coronavirus pandemic.
Stocks plunged Monday morning as investors assessed an array of risks. Those include delays to additional fiscal-relief packages, an increasingly heated U.S. presidential campaign, continuing tensions with China and the threat that more curbs on commerce might be reimposed in many places because of the country’s difficulty controlling the virus.
Mr. Powell said the economy had rebounded in recent months following the end of lockdowns imposed to slow the spread of the virus, and that gains in household spending likely reflected federal stimulus efforts that included expanded unemployment benefits.
Mr. Powell has said the government will need to do more to support hard-hit businesses, state and local governments, as well as unemployed workers in those sectors to prevent deeper scars from slowing any rebound.
“The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government,” he said.
6.26am: Virus, stimulus weigh on Wall St
Wall Street stocks dropped for a third straight session Monday as worries about the latest coronavirus surge and the diminishing odds of another US stimulus bill weighed on equities.
The Dow Jones Industrial Average ended at 27,147.70, down 1.8 per cent or around 510 points, but more than 400 points above session lows.
The broadbased S&P 500 fell 1.2 per cent to 3,281.06, while the tech-rich Nasdaq Composite Index edged down 0.1 per cent to 10,778.80.
Stocks were in the red all day, but recovered somewhat the afternoon in apparent bargain-hunting.
A surge of COVID-19 cases in France, Britain and other countries has revived talk of new restrictions in the region, weighing on investor sentiment.
Adding to that unease, hopes of another round of US stimulus spending took another hit with the death of US Supreme Court Justice Ruth Bader Ginsburg, which has sharpened already significant partisan differences in Washington ahead of the US presidential election November 3.
Ginsburg’s death “means the political scene now seems more hostile, decreasing the possibility of a stimulus deal getting done,” said TD Ameritrade’s JJ Kinahan in a note.
There were also indications that a spending bill to avert a government shutdown at the end of the fiscal year on September 30 could become problematic in Washington.
Major banks fell following an investigation by Buzzfeed News and the International Consortium of Investigative Journalists on the flow of money tied to drug wars and other illicit activity through the financial system. Bank of America, Citigroup and JPMorgan Chase all shed at least two per cent.
Electric truck company Nikola plunged nearly 20 per cent after the surprise departure of founder Trevor Milton in the wake of fraud allegations.
But Microsoft jumped 1.1 per cent after announcing it will acquire ZeniMax Media for $7.5 billion, adding muscle to its Xbox arm ahead of a fierce battle in the market for new gaming consoles.
AFP
6.15am: US deadlock over aid
Negotiators in Washington have made no progress on getting a new economic aid package through Congress but a top White House official on Monday suggested such spending may not be necessary.
Democrats and Republicans are deadlocked on how much to spend to support the world’s largest economy as it weathers the continuing side effects of the coronavirus pandemic which caused lay-offs to surge, though some businesses are recovering.
White House economic adviser Larry Kudlow said that recent data pointed to a “self-sustaining, strong” recovery, and while a new spending bill “has some elements that could help” it may not be needed after all.
“I do not think the recovery is contingent on that assistance package,” Kudlow said.
Congress passed the $2.2 trillion CARES Act as the pandemic intensified in March, which provided loans and grants to badly affected small businesses as well as extra benefits to the unemployed.
Those programs have since expired, and even though sectors like real estate and retail sales have seen strong growth in recent months as lockdown orders have been lifted, Democrats controlling the House of Representatives have called for more spending to aid the recovery.
They passed a $3 trillion measure earlier in the year, which Republicans controlling the Senate have so far rejected. A Republican-backed measure costing $500 billion also failed to clear the Senate earlier this month after Democrats objected.
Despite the reopening, weekly Labor Department data shows lay-offs remaining well above the worst week of the 2008-2010 global financial crisis, with 860,000 new claims filed in the week ended September 12, only a slight decrease from the week prior.
AFP
6.05am: HSBC, Deutsche, ING hammered over dirty money
Shares in major banks such as HSBC, Deutsche Bank and ING were hammered Monday following allegations they had handled huge sums of dirty money for almost 20 years.
An investigation by Buzzfeed News and the International Consortium of Investigative Journalists (ICIJ) alleges that potentially dubious transfers worth about $2.0 trillion took place at a host of banks between 1999 and 2017.
Five banks – JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon – were specifically accused of continuing to move assets of alleged criminals, even after being fined for earlier failures to stem flows of dirty money.
In Frankfurt, Deutsche Bank’s stock gave up 8.8 per cent while Standard Chartered, another bank named in the international probe, was down by 5.8 per cent in London.
Earlier in Hong Kong, HSBC shares fell to their lowest level in 25 years, closing with a loss of 5.3 per cent.
In addition to being named in the investigation, a report said HSBC might be on Beijing’s “unreliable entity list” as part of a tit-for-tat stand-off with several western countries.
The Dutch bank ING was also named in the probe, and its shares fell by 9.3 per cent in Amsterdam.
Dutch media reported that an ING subsidiary in Poland had helped clients get suspect funds out of Russia for several years.
“Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme were all allowed to flow into and out of these financial institutions, despite warnings from the banks’ own employees,” the investigation found.
It was led by more than 100 international media outlets from 88 different countries and is based on over 2,000 suspicious activity reports (SARS) submitted to the US Treasury Department’s financial law enforcement agency, FinCEN, by banks.
That said, “SARS are not crime or fraud reports, or evidence of wrongdoing, but alerts to potential instances of economic crime,” noted UK Finance, a sector lobby group, in a statement sent to AFP.
“Law enforcement may sometimes request firms keep a client relationship ongoing to support further investigations,” the group added.
– ‘Hollow’ banking safeguards? –
In its introduction to the report, BuzzFeed News nonetheless said: “These documents, compiled by banks, shared with the government, but kept from public view, expose the hollowness of banking safeguards, and the ease with which criminals have exploited them.” HSBC told the investigation team it has always met its legal duties on reporting suspicious activities.
A bank statement said it had been overhauling its ability to combat financial crime and underscored that “HSBC is a much safer institution than it was in 2012,” when it signed an accord with the US Justice Department on the issue.
A Deutsche Bank statement said the transactions in question were “well known to our regulators” and added that it invested “billions of dollars to more effectively support authorities in this effort.” The bank was “very focused on meeting our responsibilities and obligations,” the statement said.
ING said it had stopped working with one of the suspected enterprises in 2018 and was preparing to cut off relations with a second.
A shockwave impacted European banks in general Monday, and shares in Societe General, also named in the report, plunged by 7.7 per cent in Paris.
ASX 200 falls on China update; BHP leads mining reversal
Iron ore, copper futures, AUD down after China's underwhelming economic update. RBA's 'step down' in hawkishness evident in September minutes, but deputy governor Andrew Hauser says inflation job's not done yet.
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Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.