BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
US policy looms over trading today as investors stick to the sidelines, but can the ASX recover lost ground?
- The four danger stocks in February
- ASX breaks intraday downtrend
- QBE smacks down takeover talk
- Saputo bids for Warrnambool takeover
- The broker red-faced on Aconex call
BusinessNow: live market coverage on Monday, January 30 — headline post
5.17pm: Tokyo stocks end in the red
Tokyo stocks closed lower Monday as a stronger yen weighed on the market and investors cashed in recent gains, while sentiment was also hit by concerns over President Donald Trump’s controversial immigration moves.
The benchmark Nikkei 225 index ended the day down 0.51 per cent, or 98.55 points, at 19,368.85, while the Topix index of all first-section issues slipped 0.35 per cent, or 5.48 points, to 1,543.77. AFP
Michael Roddan 5.01pm: YBR grows book, widens losses
Mark Bouris’ financial services company Yellow Brick Road has revealed deterioration in its second quarter accounts, with the group’s operating loss widening to $1.94 million over the three months through December.
It’s slight blow out on the $1.7m quarterly operating deficit book during the same period a year earlier. In a statement to the market on Monday afternoon, chief financial officer Richard Shaw said settlements through Yellow Brick Road’s mortgage aggregator, Vow Financial, fell over the quarter due to regulatory pressures on lending practices. Read more.
4.32pm: Stocks see largest fall in 2 months
The Australian sharemarket has surrendered all its gains for the calendar year so far, as global financial markets reacted cautiously to Donald Trump’s weekend executive order temporarily freezing refugee and Muslim migration from some countries. It saw investors favouring safe havens like previous metals and government bonds over equities at the start of the week.
Australia’s S&P/ASX 200 share index fell 0.9 per cent to 5661.5 points, while the broader he broader All Ordinaries was down 51.3 points, or 0.89 per cent, at 5,714.3 points.
The biggest one-day fall in the Australian share market in the past two months came as US stock index futures shed about 0.3 per cent and Japan’s Nikkei 225 slipped 0.6 per cent amid a 0.6 per cent rise in the Japanese yen. The Australian dollar was supported near $US75.50 against a weaker greenback. Read more.
4.13pm: Aussie jumps, December trade eyed
The Australian dollar nudged higher in midafternoon trade on Monday, helped by a softer US dollar, with traders nervous after the latest round of major decisions being announced by the new Trump Administration.
At 3.40pm (AEDT), the Australian dollar was at US75.52 cents, compared with US75.43c late in on Friday.
The Australian dollar will likely get some support later in the week with economists expecting a record trade surplus in December, thanks to rising commodity prices and soaring export volumes of iron ore and coal.
Supratim Adhikari 4.00pm: TechnologyOne heats up council stoush
TechnologyOne has ramped up its defence in the ongoing stoush between the ASX-listed enterprise solutions provider and the Brisbane City Council, over a botched project to upgrade 13 outdated customer service IT systems used by the council with a new local government systems (LGS) program.
With lord mayor of Brisbane Graham Quirk giving the company six months deliver on the contract or lose the deal altogether, TechnologyOne asserts that it has been hung out to dry.
According to TechnologyOne, the total value of the project is approximately $50 million over ten years, with the additional $72m in costs attributable to BCC council staff and contractors.
Alan Kohler 3.40pm: Why there won’t be a trade war
It’s probably a big mistake to think that US President Donald Trump will cause global trade to freeze up.
(“Probably” because anything seems to be possible in the US these days, so definite predictions are dangerous.)
But what’s usually missed, or ignored, about President Trump’s January 23 memorandum pulling the US out of the Trans-Pacific Partnership is that it was a surgical withdrawal from one deal only, and that Trump used it to make a generally pro-trade statement.
3.20pm: Spotless’ record in question
Cleaning and catering group Spotless plans to vigorously defend any allegations it misled investors about its 2015 financial results.
Spotless (SPO) is facing a possible class action with litigation funder IMF Bentham proposing to fund Federal Court proceedings against the group, alleging its 2015 results were misleading and in breach of its continuous disclosure obligations.
3.05pm: Your slice of the picture perfect...pizza?
A tech company has developed a system that photographs pizzas as they emerge from the oven at fast food chains so customers can see that their order is picture perfect.
Israeli based technology group Dragontail Systems (DTS), which floated on the Australian Securities Exchange in December, wants to automate quality control at restaurants, starting with pizza chains.
In the past year, Dragontail has been testing its Camera Cut Station Unit, a system of wireless sensors that monitor oven, fridge and kitchen temperatures while taking photos of freshly cooked pizzas.
The camera analyses the quality of ingredients and checks that there is nothing missing from the pizza, Dragontail chief executive Ido Levanon said. “The camera takes a picture automatically when the pizza comes out of the oven and it analyses the pizza using a mathematical model,” Mr Levanon said.
“First the quality of the dough, quality of the cheese and then it compares it to the colour and texture of what it is supposed to look like. If it doesn’t look like it’s supposed to then it alerts staff right there on the spot.”
The system also sends a photo of the pizza and the temperature of the product to customers via SMS or email where customers have the option to respond via a link.
The company already provides automated order and delivery systems to a number of chains, including Pizza Hut in North America and Israel.
AAP
Stephen Bartholomeusz 2.27pm: A flurry of Fed interest
Whenever the US Federal Reserve Board’s open market committee meets there’s enormous anticipation over what it might say about the likely future course of US interest rates. After this week’s meeting, there will be more than one reason for Fed watchers to pore over the detail of the Fed’s deliberations.
There is no expectation that the Fed will follow up December’s 25 basis point increase in US short-term rates with another rate rise, even though the members of the committee have foreshadowed three more 25 basis points rate hikes this year.
Apart from some soft recent economic data, in these early tumultuous days of the Trump administration the Fed is likely to err on the side of caution, waiting to see how the campaign promises — which are at face value highly stimulatory — translate into actual policy.
There has been a flurry of excitement among those who follow the Fed closely in recent weeks, however, sparked by comments from regional Fed presidents about the prospect of a decision by the US central bank to signal the eventual start of the unwinding of a balance sheet swollen by the unconventional measures it adopted in response to the financial crisis. Read more.
Sarah-Jane Tasker 1.58pm: Occupancy rates further Estia’s woes
Estia Health (EHE) could miss on its occupancy guidance, analysts warn, but the troubled aged care provider is also tipped to bounce back from the hit.
Macquarie analysts have said that despite Estia reconfirming is earnings guidance range of $86 million to $90m, the investment bank did not expect a strong recovery in occupancy rates, which supported that guidance.
1.30pm: ASX breaks intraday downtrend
Australia’s S&P/ASX 200 is down 1 per cent at 5655 after falling as much as 1.2 per cent.
The index has broken the intraday downtrend that was sparked by jitters about US immigration policies, however it will continue to look a bit weak while below last week’s high at 5714.2.
Trump’s immigration policies themselves are unlikely to be a lasting concern for markets, but they do increase concern about the potential for antitrade policies that may limit economic growth.
Also there’s potential for hawkish comment from the FOMC meeting early Thursday Australian time.
Expect consolidation within last week’s range of 5604-5714 early this week ahead of further gains post-FOMC.
1.13pm: The four dangers stocks face in Feb
First half earnings numbers will start flowing in this week and four stocks have been identified by Morgan Stanley as having hazard signs hanging off them.
Automotive Holdings, Estia Health, SMS Management & Technology and CSG Limited have been slapped with a warning sticker by the analysts, who see risk to share prices in the short term as earnings could disappoint. These are some of the stocks brewing a dangerous cocktail of high PE ratios and low earnings growth.
Here’s what Morgan Stanley analysts John Stavliotis, James Bales and Wayne Ma are saying about these emerging companies.
Automotive Holdings (AHG)
“The logistics business has had a poor start to the year and a strategic review is expected to yield results in the second half but we see risk to meeting FY17 expectations. With tough trading and a high risk relating to the ASIC F&I review we remain underweight.”
Estia Health (EHE)
“An improvement in operational performance is required in H2-FY17 to meet guidance at the same time as funding changes will put pressure on revenue. We see risk of a poorer than expected H1 result and potentially challenging outlook.”
SMS Management & Technology (SMX)
“We expect limited detail in the 2H outlook despite consensus needing 2H17 to be an inflection point and a return to growth following successive periods of negative momentum. Stronger performance by listed peers implies that the issues may be more than just cyclical for SMX. Low market expectations and a share price in line with our valuation keeps us equal-weight.”
CSG Limited (CSV)
“We believe full year guidance is relying on some headwinds moderating and operating leverage kicking in, in the second half. This is somewhat justified by one-off factors in H1-17 but the risk to margins is skewed to the downside and there is uncertainty from a lack of visibility during this time of transition. A substantial derating and long term opportunity keep us equal-weight.”
12.45pm: The figures powering Australia’s economy
Record-low interest rates, stronger global economic growth, buoyant residential construction and robust resources-sector earnings are expected to support the domestic economy and the sharemarket this year, according to The Australian’s survey of financial markets economists and strategists.
Australia’s benchmark S&P/ASX 200 share index is widely expected to record another positive year, with a median forecast of 5950 points implying a 4.4 per cent gain through the year after a 7 per cent rise in 2016. The key share index yesterday closed up 0.7 per cent at 5714 points.
John Durie 12.20pm: Westfarmers to name CEO’s successor
Wesfarmers (WES) is expected to name Rob Scott as Richard Goyder’s heir apparent at its results briefing on February 15 with Goyder expected to stay in the top job for the remainder of the year.
It is expected Scott who presently runs the industrial division and resources, affectionately known as Rob Scott’s dogs, will be named as deputy managing director.
Goyder is now in his 12th year as boss having first been appointed as deputy managing director to then boss Michael Chaney in May 2004 and assuming the top job in July 2005.
Finance director Terry Bowen is the other person in the running for the top job and assuming Scott gets the top job he is expected to stay withn the company for at least some time.
12.10pm: Why Oz Minerals likes copper over gold
Rhiannon Hoyle writes:
Oz Minerals says it plans to increase its focus on processing copper ore versus gold in the years ahead, betting on strong prices for an industrial metal used widely in manufacturing and construction.
Adelaide-based Oz Minerals (OZL) laid out its revised plans as it reported copper output fell and gold production rose on-year in the final quarter of 2016. Annual production of each metal met earlier company forecasts — read more.
Dow Jones newswires
11.48am: Market sours on Trump immigration policy
Australia’s S&P/ASX 200 has reacted negatively to Donald Trump’s policy action in suspending visas from seven mainly Muslim countries.
The index is down 1.1 per cent at 5650 points, on track for its biggest one-day fall in two months. Overnight futures had indicated only a 0.2 per cent fall.
The broadbased fall in Australian shares comes amid slight risk aversion in global markets. US bonds are down 1 basis point, spot gold is up 0.2 per cent, US stock index futures are down 0.3 per cent and the US dollar is down 0.2 per cent.
Trump’s immigration policy as raised concern about the risk of sudden and extreme policies from the new President. However, despite condemnation from world leaders and corporate America, this recent policy change in itself is unlikely to have any economic effects.
“Investors will continue to be frustrated by the lack of clarity on the economic front as the president continues to focus on protectionism and immigrations,” says OANDA senior trader Stephen Innes.
“But I don’t believe this immigration stance is economically disruptive to the scale where it will dampen Wall Street’s current momentum and the dollar should regain solid ground quickly.”
Most of Asia is closed for Lunar New Year holidays, but volume on the S&P/ASX 200 is line with the 20-day average.
11.28am: QBE smacks down takeover talk
QBE has officially smacked down the Handelsblatt report that it participated in informal takeover talks with Allianz.
The Australian insurer says: “QBE confirms it is not in discussions with Allianz or any other potential buyer.”
Shares in the company (QBE) fell from $12.88 to $12.65 on this announcement and were last up 3.8 per cent at $12.80. Earlier they rose 5.2 per cent to a 14-month high of $12.97.
Still, Handelsblatt is a fairly credible source. It’s hard to believe they are completely wrong when it comes to a major German company.
QBE also has tailwinds from rising US interest rates and a falling Australian dollar, it looks capable to testing $15.00 while $11.96 holds.
A break of $15.00 would target $17.53.
11.00am: The broker red-faced on Aconex call
Sometimes it pays to be bold, but sometimes it definitely doesn’t.
Yesterday Morgan Stanley released a note advising investors load up on Aconex (ACX) shares ahead of what they predicted would be a strong month. Instead the stock slumped more than 30 per cent at this morning’s open. Ouch.
“We believe the share price will rise in absolute terms over the next 30 days,” analysts James Bales, John Stavliotis and Wayne Ma said.
“This is because of an earnings release. We expect 1H17 result to show strong sales momentum and for ACX to provide more detail on its cash flow profile.
“We estimate that there is about an 80 per cent plus (or ‘highly likely’) probability for the scenario.”
The $9.30 price target is sticking out like a sore thumb at the moment as the stock plunges to a 38 per cent to a 6-month low of $3.48 after today’s profit warning.
It forecast FY17 EBITDA of $15m-$18m vs. $22m-$25m previously forecast, up to 35 per cent below Bloomberg’s $23.1m consensus estimate.
On a technical basis, it looks like the $3.80 to $4.00 areas will be major resistance.
Matt Chambers 10.30am: BP cuts forecasts, cites renewables
British oil giant BP expects global coal demand to peak in the next decade and has cut forecasts for long-term oil and gas demand as renewable power takes more market share, energy efficiency slashes demand and the popularity of electric and driverless cars grows.
The forecasts, revealed in BP’s annual energy outlook last week, show BP believes renewables and energy efficiency will be more of a threat to its existing business than it did a year ago.
10.10am: Newcrest gold production slips
Newcrest Mining Ltd. said gold production slipped in its fiscal second quarter after it lowered production at a big Australian operation and sold a mine in Papua New Guinea.
The Australian mining company (NCM) on Monday said it produced 614,715 troy ounces of gold in the three months through December, down from 615,498 ounces in the quarter immediately prior and 620,691 ounces a year ago — read more.
Dow Jones Newswires
9.55am: Saputo bids for Warrnambool takeover
Warrnambool Cheese and Butter (WCB) has received a takeover offer from Canadian-based Saputo, which is looking to mop up all remaining shares in the Australian company it doesn’t already own.
Saputo Dairy Australia — a wholly owned subsidiary of Saputo Inc — today announced an off-market $8.85 per share cash offer, which represents a 24.8 per cent premium to Warrnambool’s last traded price of $7.09.
Saputo currently owns 88 per cent of Warrnambool, and notes the remaining 12 per cent sees “very limited trading”, which means this offer, it says, “is a rare opportunity and potential liquidity event for WBC shareholders who wish to exit their investment.
Saputo also notes it has already received approval from the Foreign Investment Review Board and says there are “limited prospects of any competing proposal to emerge”, thanks to its own majority interest.
The major hurdle will be Japanese-owned Kirin, which holds 7 per cent of Warrnambool.
Warrnambool has a current market capitalisation of $546.5 million, according to Bloomberg, and has seen its shares fall 26.5 per cent since its most recent peak of $9.60 in March last year.
Saputo, which is one of the top ten dairy producers in the world and is listed on the Toronto Stock Exchange, makes it clear its intentions are to delist Warrnambool from the ASX if successful.
Warrnambool Cheese and Butter is Australia’s fourth-largest dairy producer and sells products under brands such as Coon, Cracker Barrel and Great Ocean Road.
Matt Chambers 9.35am: Record $1.9bn in LNG exports
Australian liquefied natural gas exports have stepped up dramatically in recent months, with the second of three LNG trains at the massive Gorgon plant in Western Australia reaching almost full capacity and exports jumping from Gladstone as Origin Energy’s Australian Pacific LNG plant nears full output.
The nation logged record LNG export revenues of $1.9 billion in November, despite international oil prices, on which LNG contracts are based, remaining depressed.
9.12am: Last week’s winners and losers
Local gold miners will be looking to bounce back after being flattened last week by a stronger US dollar and record highs on Wall Street.
The price of the precious metal dropped as much as 3.2 per cent in three days but saw a modest rally into the weekend, bringing it back just above $US1190.
Aussie gold stocks were sent into a tailspin, with Saracen Mineral Holdings (SAR) losing 8.2 per cent, Northern Star (NST) falling 7.9 per cent, Evolution (EVN) giving up 7.8 per cent and Newcrest (NCM) slipping 4.7 per cent over the five days.
On the positive side, Salmon farmer Tassal (TGR) was the best performer on the ASX 200 for the week as investors cheered the company taking another step toward expanding its Tasmanian facilities with a proposal for a Dam winning council approval. Tassal gained 11.2 per cent over the week.
Read more: Banks spur ASX to stronger close
\Michael Roddan 9.05am: Exec exodus puts heat on financials
Senior managers and executives are continuing to depart diversified financial groups AMP and Suncorp, as both companies reveal signs of stress as they prepare to open their accounts next week.
For Sydney-based AMP, the departure of two high-level executives in the group’s financial planning arm is the latest sign of problems after a dramatic overhaul of AMP’s financial advice business.
8.58am: QBE dismisses Allianz takeover bid
QBE is dismissing reports this morning that it is weighing a takeover bid from German insurer Allianz at a 22 per cent premium to its last traded price. The bid first came to light this morning via German language publication Handelsblatt, citing undisclosed sources.
QBE says there is no basis for speculation the group has received a takeover offer, according to an emailed statement cited by Bloomberg.
Participation in sector consolidation is not part of QBE’s strategy, a spokesman said.
The rumoured offer is said to be $15 per share, compares to the $12.85 it closed at one Friday and represents a level not seen by the stock since December 2013.
The deal would value QBE at $20.6 billion, according to Bloomberg, and would be Allianz’s second-largest acquisition since 2001.
It is a far cry from the $35.49 at which the company’s shares were valued before the GFC, and for long suffering investors it would certainly come as a shock offering.
Allianz CEO Oliver Baete is said to have met with QBE chief John Neal before Christmas for talks, but the reports stop short of calling it a takeover negotiation.
QBE currently sees eight buy ratings from analysts, according to Bloomberg data, five holds and one sell.
8.40am: Aussie higher against greenback
The Australian dollar is higher against the US dollar, despite the greenback lifting against a basket of currencies for a second day.
At 0635 AEDT on Monday, the Australian dollar was worth 75.48 US cents, up from 75.26 on Friday.
The US dollar shrugged off disappointing US fourth-quarter gross domestic product growth numbers to extend its rally against a basket of currencies. Currencies have seesawed on US president Donald Trump’s executive orders as investors try to make sense of their implications for the US and global economies.
AAP
8.30am: Stocks to dip on choppy US trade
The Australian market looks set to open lower following a lacklustre performance on Wall Street, where Dow and S&P500 stocks fell fractionally but closed basically flat.
At 0700 AEDT on Monday, the share price futures index was down 11 points at 5,650.
In the US, the Down Jones Industrial Average remained above the landmark 20,000 points, closing flat, down just 0.04 per cent at 20,093.78.
US stocks edged lower for a second consecutive session as some underwhelming corporate earnings and gross domestic product data offset recent enthusiasm over policy actions by President Donald Trump.
The Australian market on Friday closed higher led by big gains in the heavyweight banks and major retailers.
The benchmark S&P/ASX200 index was up 42.5 points, or 0.75 per cent, at 5,714 points, while the broader All Ordinaries index rose 39.6 points, or 0.69 per cent, to 5,765.6 points.
Meanwhile, the Australian dollar is higher against its US counterpart as currencies seesaw in response to Trump’s executive orders.
The local currency was trading at 75.48 US cents at 0700 AEDT on Monday, from 75.26 cents on Friday.
AAP
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