Monday 7th September -Market Wrap
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The ASX 200 fell another 10 points to bounce off the 5000 support, closing at 5030.4. The Chinese rout failed to materialise as coordinated PBoC and government comments helped steady the ship, but slipped after lunch 1.6% down. US markets are closed tonight. Volume was light as a result.
A positive start to the banks evaporated in minutes as worries about growth continued to plague the markets. Another 75 point range today as volatility looks set to continue into the run up to the Fed meeting. A good touch-up at the close helped things with the banks the focus of end of day buying. However it was noticeably quieter than previous sessions.
Banks and Financials were once again the big drag on the market early, as the deadline for both the ANZ SPP and the CBA rights issue approaches. Commonwealth Bank (CBA) +0.24% even posted a gain for the day on late buying support. Tomorrow is decision day and suspect that there is pressure from underwriters on both share prices at the moment. Whether to subscribe, is becoming more line-ball by the day. The falls in the banks spilled over to insurance stocks with IAG –3.4%, Suncorp (SUN) –1.6% and AMP -0.71% all weaker than the market.
In resources, gold shares continue to perform strongly as the lower AUD helps keep the gold price at around $1622. Sadly though Newcrest (NCM) +3.45% had a Father's Day fatality at Cadia and has suspended operations there. Northern Star (NST) +7.18%, OceanaGold (OGC) +8.5% and Evolution Mining (EVN) +2.61% were also in demand.
The big miners continue to bounce around with BHP –2.03% suffering more than most. RIO -1.23% is out on the road at the moment talking the company up and it seems to be working. Energy shares were hit again despite Venezuela calling for an OPEC meeting to stabilise (raise) the oil price. Santos (STO) –4.34% was in the firing line as front page stories on the LNG industry are not helping the situation. Origin (ORG) –2.6% and Oil Search (OSH) –0.44% hit too but Santos is the easy short for hedge funds.
In the industrials we saw some positive sectors from REITS and infrastructure stocks like Sydney Airports (SYD) +0.88%, Qube (QUB) +0.99% and Transurban (TCL) + 0.21%.
In corporate news Westpac (WBC) –0.47% announced it will boost investment spending by 20% to $1.3bn a year adding it will stick to a return on equity target "above 15%". The bank has also lifted its performance targets – include adding 1 million new customers by 2017 and driving the expense-to-income ratio down below 40% within three years.
In some rare news for Australian Biotech's, Star Pharma (SPL) +21.31% had a ripper of a day after announcing a drug delivery deal with AstraZeneca. The deal is potentially worth around USD126m.Upfront they get $2m but further development launch and sales milestones will attract the remainder. With a market cap of around $240 this is a game changer if all the pieces fall into place. CSL + 0.53% also did well today given shares were ex-dividend too by 90 cents.
One of the world's biggest mining companies, Glencore has halted trading in its shares today in HK with news to come of debt restructuring.The company has raised US$2.5bn and has suspended its dividend saving a further US$2.4bn The company needs to cut net debt by almost half to $US16 billion by the end of next year to retain its credit rating, which may lead to the sacrifice of 2016 dividends. Glencore's net debt was $US29.6 billion as of June 30, according to an August 19 filing. Standard & Poor's cut Glencore's outlook to negative from stable last week, saying weaker growth in China will weigh on copper and aluminum prices.
AGL -0.06% announced late this afternoon that it had completed the sale of the Macarthur Wind Farm JV for $532m to H.R.L Morrison & Co fund managers.This was the value of the asset on the books so no p/l will be recorded.
In economic news today, job ads rose 1.0% in August, bouncing back from the 0.5% fall in July. Job ads in the 12 months to August were up 8.7%.
Construction picked up in August as new orders strengthened in all sectors, including the beleaguered commercial and engineering sectors. The Performance of Construction Index jumped 6.7 points to 53.8 last month, its highest reading in almost a year, as continued strong residential work was bolstered by positive signs in the other sectors.
Closely held producer Swisse Wellness Group has tasked Goldman Sachs to examine a possible sale that may fetch as much as $1bn as the local vitamins and supplement industry is enjoying bumper times. Vitamin and dietary supplement sales almost doubled in the past five years in China, jumping 12% to 100.1 billion yuan ($15.7 billion) in 2014. Blackmores (BKL) -0.3% said sales to Chinese and other Asian buyers accounted for $150 million, or almost a third of annual revenue, in the year ended June 30.
Turning to Asia, Chinese markets were given some better news today from the National Development and Reform Commission. The NDRC cited data from the state grid as saying that China's total power consumption in August rose 2.47% on the year – the fastest growth so far this year – and steady growth was likely to continue in September. The average daily rail freight volume rose 1.6% in August from July, the NDRC said.
China today revised down its 2014 GDP number from 7.4% to 7.3%. Hardly earth shattering and the big change was the services industry which only grew by 7.8% rather than the previous 8.1% forecast.
This graphic from Fulcrum Asset Management above shows China is stabilising. Hopefully.
Nice little graphic from RBS showing the different winners and losers from any Chinese slowdown /US recovery.
In Asian markets, Japan rose slightly whilst Hong Kong and Shanghai were barely changed despite some early falls.
Trouble is brewing for US shale producers as an October 1 reset of their borrowing base: the valuation of their oil and gas reserves that banks use to determine how much they will lend.
The aggregate net debt of US oil and gas production companies more than doubled from $81bn at the end of 2010 to $169bn by this June, according to Factset. US shale producers reported a cash outflow of more than $30bn in the first half of the year. This shortfall points to a rise in bankruptcies and restructurings in the US shale gas industry which has never covered its capital expenditure from its cash flow.
Early calls on the European markets:
FTSE 6079 up 36
DAX 10103 up 65
CAC 4551 up 28
And finally, Apple launches its new iPhone 6s on Thursday. If it is a winner it will drive sales at JBH and Dick Smith plus the mobile phone companies. Watch this space. Exciting to have a new phone in the offing.