Markets Live: Metals' mini meltdown

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market open

Shares have opened lower following a wobbly night on global markets as investors tweaked their expectations on the timing of US fiscal stimulus and major metals prices fell.

The ASX is down 0.3 per cent at 5766.9, putting it on track for a 0.7 per cent weekly loss.

Like yesterday, the big miners are once again weighing heaviest on the index, with BHP falling 2.4 per cent and Rio down 2.7 per cent.

“US Treasury Secretary Mnuchin’s remarks on tax reform have served as a reminder of the scope of the task ahead of the US government in introducing major tax changes,” said CMC chief market analyst Ric Spooner. “Markets are reacting to the risk of delay in fiscal stimulus and unwinding some of the recent optimism that followed President Trump’s phenomenal tax package remarks.”

Gold was a winner in the market’s adjustment to caution on the risks and timing surrounding US fiscal stimulus, making gold stocks a likely winner of today’s session, Spooner said.

Evolution Mining is up 4.5 per cent and Regis Resources has added 3.2 per cent.

Among stocks reporting:

  • Super Retail Group: +8.8%
  • Ramsay: -1.5%
  • Bellamy’s: -2.7%
  • NextDC: +12.5%
  • Mayne Pharma: +0.7%
  • Automotive Holdings: -1.7%
  • Billabong: flat
  • Quickstep: flat
  • Graincorp: +0.4%
  • Charter Hall: +2%
  • RCG: -15%
  • Cabcharge: +8.8%

china

Another case of good cop / bad cop? President Donald Trump has declared China the “grand champions” of currency manipulation, just hours after his new Treasury secretary pledged a more methodical approach to analysing Beijing’s foreign exchange practices (see post at 9.24am).

In an exclusive interview with Reuters, Trump said he has not “held back” in his assessment that China manipulates its yuan currency, despite not acting on a campaign promise to declare it a currency manipulator on his first day in office.

“Well they, I think they’re grand champions at manipulation of currency. So I haven’t held back,” Trump said. “We’ll see what happens.”

During his presidential campaign, Trump frequently accused China of keeping its currency artificially low against the dollar to make Chinese exports cheaper, “stealing” American manufacturing jobs.

But Treasury Secretary Stephen Mnuchin told CNBC on Thursday he was not ready to pass judgment on China’s currency practices.

A formal declaration that China or any other country manipulates its currency requires the US Treasury to seek negotiations to resolve the situation, a process that could end in punitive tariffs on the offender’s goods. The US Treasury designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was the last country to get the designation, in 1994.

The current situation is complicated because China’s central bank has spent billions of dollars in foreign exchange reserves in the past year to prop up the yuan to counter capital outflows.

The International Monetary Fund said last year that the yuan’s value was broadly in line with its economic fundamentals. The US Treasury also said in its last currency report in October that its view of China’s external imbalances had improved somewhat.

Manipulated currency or fair value?
Manipulated currency or fair value? Photo: Bloomberg

IG

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Have markets run too hard or are we just getting started? The market is split, writes IG analyst Gary Burton:

Since the global equities market rally inspired by Trump inflation, the trading community is now falling into two camps. The first believe this equities and commodities rally is just getting underway, this is highlighted by the trading and hedge fund investment houses being net long everything from equities to property and commodities.

The second, is the group that are waiting in angst for the potential correction or significant pull back for an entry point but they watch the markets march higher every trading day.

For markets to continue higher all of the players must be of one mind, bullish. The Dow moved higher again, however the Dow transports came off a full one per cent or 100 points, the Nasdaq fell by half a per cent at 5835. This is often the warning shot across the bow that price weakness may be coming and may offer an entry point to those left behind. 

Read more.

 

The market is in two minds.
The market is in two minds. 

money printing

A few other earnings:

1. Murray Goulburn has suffered a half-year loss of $31.87 million after taking an impairment on its milk supply support package and making step-up payments to suppliers.

The dairy co-operative was hit by lower milk supplies and very wet conditions in the southern milk region in August and September dragging it into the red for the six months to December 31, compared to a $10 million profit the previous corresponding period.

It declared a fully-franked interim distribution of 1.7 cents per share, down from 3.5 cents.

2. Super Retail Group returned to profit growth in the December-half, lifting bottom-line profit by 65.7 per cent to $74.4 million after completing restructuring at outdoor retailer Ray’s and achieving solid sales and earnings growth at all three divisions – auto, sports and leisure retailing.

Normalised net profit – excluding one-off restructuring costs for Ray’s in the year-ago period – rose 26.3 per cent to $74.4 million, beating consensus forecasts around $67.3 million.

The results received a fillip from timing differences. The latest results covered 26 weeks to 31 December, while the prior period results were for the 26 weeks to 26 December. The extra five days trade contributed an extra $28 million to sales and $7 million to earnings before interest and tax.

Total sales rose 6.6 per cent to $1.29 billion and like-for-like sales across the group were up 5 per cent, with the strongest  gains in leisure and sporting goods chains Rebel and Amart.

3. Aged care provider Regis Healthcare has lifted half-year net profit by 9 per cent to $30.9 million, helped by increased inflows and a recent acquisition.

Revenue for the six months to December 31 jumped 20 per cent to $284.7 million and the company declared a fully-franked interim dividend of 10.3 cents a share.

The company said it expects second-half earnings to be in line with those in the first half of the fiscal year, and has reaffirmed its previous guidance.

4. Automotive Holdings Group’s first-half net profit has tumbled 19.8 per cent to $38.6 million on the back of Western Australia’s economic downturn and a loss in its refrigerated logistics division.

The retailer and logistics firm said revenue jumped 7.6 per cent to $2.96 billion in the six months to December 31. Automotive Holdings will pay an interim dividend of 9.5 cents per share, unchanged.

All of today’s earnings at the AFR’s reporting season blog

Footwear retailer RCG Group‘s net profit rose 31.7 per cent to $21.2 million in the December-half, buoyed by the acquisition of rivals Hype DC and the Accent Group.

Underlying net profit rose 34 per cent to $23.3 million, in line with market forecasts.

Underlying earnings before interest, tax, depreciation and amortisation jumped 42 per cent to $42.9 million as sales rose 40 per cent to $301.3 million.

RCG is now the largest specialty footwear retailer and distributor in Australia following the acquisition of the Accent Group in May 2015 and Hype DC in August 2016.

It has more than 400 stores across 10 different retail banners and exclusive distribution rights for 10 international brands in Australia and New Zealand including The Athlete’s Foot, Platypus Shoes, Hype DC, Skechers, Merrell, CAT, Vans, Dr.Martens, Saucony, Timberland, Sperry Top-Sider, Palladium, Shubar and Grounded.

RCG Corp has grown by acquisition to be Australia's biggest footwear retailer and distributor.
RCG Corp has grown by acquisition to be Australia’s biggest footwear retailer and distributor. Photo: Natalie Boog

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dollar

The Australian dollar hit a new 2017 high overnight, as the greenback sagged following comments by US Treasury Secretary Steve Mnuchin who made it clear that any structural reforms by the Trump administration will take time to boost the economy. 

The Aussie rose as far as US77.41¢ overnight, its highest since the immediate aftermath of the US elections in November, before consolidating around US77.15¢ this moring.

The new high extends a strong rise since the beginning of the year – the Aussie has soared against most major currencies, leading some to suspect investors are stocking up on the currency in a way to gain exposure to forecast strong growth in Asia. 

Mnuchin flagged “very significant” tax reform focusing on middle income tax cuts, simplification and lower company taxes, and added the Trump administration is still studying a proposed border tax on imports.

“We want to get this done by the August recess,” he told CNBC, acknowledging in another interview that such a timeline was “very aggressive”.

But he also noted that any boost to GDP growth from the new administration’s policies, which have yet to be detailed, will be a long term story, saying that tax reform wouldn’t boost economic growth to 3 per cent before late 2018.

Investors were disappointed by the lack of detail around tax reform, while Wednesday’s more dovish-than-expected Federal Reserve meeting minutes also continued to weigh on the greenback.

“The market is continuing to wait for the important details of the tax/fiscal plans, the absence of any infrastructure details, and that Mnuchin said that the step up in growth to 3 per cent may not occur until late 2018,” said NAB economist David de Garis.

Focus now shifts to RBA governor Philip Lowe’s testimony before the House of Representatives’ Standing Committee on Economics this morning, which may provide further momentum for the currency.

Lowe will be asked to address a series of disappointing economic figures out this week – including weak private sector wage growth and lower-than-expected business investment.  

The Australian dollar has been on a roll this year.
The Australian dollar has been on a roll this year. Photo: Bloomberg

It’s not quite as big a day for earnings as the past few, but there are still a number of better known companies reporting:

Mayne Pharma’s acquisition of a portfolio of generic drugs from Israeli Teva Pharmaceuticals has turbocharged its growth, with profit soaring 278 per cent to $72.7 million in the first half. 

The Teva deal, which was completed in August, helped boost revenue by 138 per cent to $294.8 million in the six months to December 31, while underlying earnings before interest, tax, deprecation and amortisation rose 158 per cent on the prior year. 

The company re-affirmed full-year profit guidance. Bell Potter forecast 2017 earnings to rocket from $37.4 million for FY16 to $127.1 million. 

Mayne Pharma shares have been under pressure since December when it was revealed that the US US Department of Justice launched legal proceedings.

The civil complaint filed by 20 US states accuses six companies – industry leaders Teva Pharmaceuticals and Mylan, along with Mayne Pharma, Heritage Pharmaceuticals, Aurobindo Pharma and Citron Pharma – of conspiring to artificially inflate prices on an antibiotic and a diabetes drug.

Mayne said today that “external counsel has been engaged and the directors’ current assessment remains that these investigations will not have a material impact on Mayne Pharma’s future earnings“.

Mayne Pharma says US legal proceedings won't have 'a material impact' on future earnings.
Mayne Pharma says US legal proceedings won’t have ‘a material impact’ on future earnings. Photo: Eamon Gallagher

ASX

Boston based investor Delta Partners has upped it stake again in troubled Bellamy’s Australia, increasing its holding to 8.79 per cent from just over 8 per cent ahead of the baby formula company releasing its first half results today.

Delta Partners has been increasing its stake in recent months and is now is the second biggest shareholder after rebel investor Jan Cameron, who is leading the charge to spill the board. A meeting has been set for Tuesday in Melbourne.

It is not clear which way Delta Partners’ owner and portfolio manager, Charlie Jobson, will vote. Later this morning interim chief executive Andrew Cohen will present the company’s half year results where sales are expected to reach $116 million, up 11 per cent while earnings before interest, tax, depreciation and amortisation will be $17 million, a fall of 11 per cent, a downgrade previously flagged in January by the company.

Mr Cohen took over from Laura McBain in January after she was stood down following the company’s missteps in China and subsequent collapse in value of the company.

Meanwhile, law firm Slater and Gordon [Eds: oh, the irony], backed by litigation funder IMF Bentham, on Thursday said it has commenced proceedings in the Federal Court of Australia against the company on behalf of investors who acquired shares in the company between 14 April 2016 and 9 December 2016.

It alleges that Bellamy’s made misleading statements to the market about its growth strategy in China and also failed to keep the market informed about its declining market share in Australia during 2016. Bellamy’s is facing two other possible class actions.

Bellamy’s said it would vigorously defend the allegations.

Bellamy's Australia will report interim profits today in the midst of shareholder revolt.
Bellamy’s Australia will report interim profits today in the midst of shareholder revolt. Photo: Kate Geraghty

eye

US Treasury Secretary Steven Mnuchin has laid out an ambitious schedule to enact tax relief for the middle class and businesses by August, but said the Trump administration was still studying a proposed new border tax on imports.

Comments in his first televised interviews since taking office last week suggested that much work was still needed on key elements of the sweeping tax reform plan that he called his “No. 1 priority”.

“We are committed to pass tax reform. It will be very significant. It’s going to be focused on middle income tax cuts, simplification and making the business tax competitive with the rest of the world,” Mnuchin told CNBC in his first television interview since taking office last week.

“We want to get this done by the August recess,” he added, acknowledging later on Fox Business Network that such a timeline was “very aggressive.”

US equities have risen to record highs in recent weeks on hopes tax reform and other Trump administration policies would boost growth, but investors have started to become impatient for details.

President Donald Trump has promised announcement of a “phenomenal” plan by early March to cut business taxes.

Some Republican senators have criticised a House Republican plan to levy a 20 per cent tax on imports aimed at encouraging more US production and exports and raising $US1 trillion in revenue over a decade to offset lower business tax rates.

Mnuchin said the border tax plan was still being studied, but the tax reform plan would be negotiated with the House and Senate.

“We’re looking at it seriously. There are certain aspects of it that we’re concerned about, there are certain aspects that we like,” Mnuchin told Fox Business Network of the border tax adjustment plan. “It’s going to be something that’s focused on growth, and we will have listened to people’s concerns and we will have taken them into account.”

In addition to tax reform, Congress and the administration are trying to settle on a plan to replace “Obamacare” with new healthcare legislation.

Mnuchin did not rule out potential tax cuts for wealthy earners, but told CNBC that the administration would aim to offset any “high end” tax cuts with reduced deductions and other breaks.

He told both networks that he believed the tax reform plan would help the US boost economic growth above 3 per cent by late 2018 from 1.6 per cent in 2016. Growth effects from tax reform and less business regulation would not likely start to take hold until next year, he added.

Mnuchin added to recent comments in the Wall Street Journal regarding the strong US dollar, telling Fox Business Network that short-term increases in the dollar’s value “are a reflection of the optimism of the economic plans” of the Trump administration.

He signalled no urgency to designate China a currency manipulator, saying he wants to use a regular review of foreign-exchange markets to determine if the US’s largest trading partner is cheating. Treasury is required by law to report on these findings by April 15.

From 'phenomenal' to 'significant': Steven Mnuchin flags a tax reform package.
From ‘phenomenal’ to ‘significant’: Steven Mnuchin flags a tax reform package. Photo: Olivier Douliery

Super Retail Group returned to profit growth in the December-half, lifting bottom-line net profits by 65.7 per cent to $74.4 million after completing restructuring at outdoor retailer Ray’s and achieving solid sales and earnings growth at all three divisions – auto, sports and leisure retailing.

Normalised net profit – excluding one-off restructuring costs for Ray’s in the year-ago period – rose 26.3 per cent to $74.4 million, beating consensus forecasts around $67.3 million.

The results received a fillip from timing differences. The latest results covered 26 weeks to 31 December, while the prior period results were for the 26 weeks to 26 December. The extra five days trade contributed an extra $28 million to sales and $7 million to earnings before interest and tax.

Total sales rose 6.6 per cent to $1.29 billion and like-for-like sales across the group were up 5 per cent, with the strongest  gains in leisure and sporting goods chains Rebel and Amart.

Same-store sales growth at Super Cheap Auto was more subdued after aggressive industry wide discounting during Woolworths’ Masters $700 million liquidation sale.

Super Retail Group increased its interim dividend by 7.5 per cent or 1.5¢ to 21.5¢, payable April 7.

BCF owner Super Retail Group has reported earnings.
BCF owner Super Retail Group has reported earnings. Photo: DAVE LANGLEY

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commodities

Copper prices tumbled overnight as worries about demand in top consumer China resurfaced after the country’s housing minister suggested moves were afoot to stabilise the property market.

The benchmark copper futures contract on the London Metal Exchange ended down 3 per cent at $US5859 a tonne, its biggest one-day fall since September 2015. The price has slipped 5.7 per cent from a 21-month high of $6204 on Feb 13.

Iron ore was also caught up in the slide, as it shed 3.1% to $US91.34/tonne.

Traders say a generally higher dollar due to mounting speculation that the US Federal Reserve will raise interest rates next month was weighing on industrial metals because they are priced in dollars and cost more for holders of other currencies.

“The dollar is one element,” a copper trader said. “The other part is China. If they are going to try and cool the property market, it’s not good news for demand.”

China’s deputy housing minister Lu Kehua said preparatory work was being undertaken for a nationwide property tax, but did not give details.

In the shorter term however, supply disruptions in Chile and Escondida are expected to support prices, as is stronger manufacturing growth around the world.

“Demand looks like it’s going to accelerate over the next three months, the PMIs suggest solid growth and seasonally, metals markets normally see deficits in the second quarter,” said Goldman Sachs analyst Max Layton.

“Medium- and long-term loans for corporates, the government and households, so across the spectrum, improved dramatically.”

Chinese banks extended 2.03 trillion in net new yuan loans in January, the second-highest monthly tally on record and nearly double the December number.

Copper prices are up by more than 10 per cent since Donald Trump was elected on bets of improving demand helped by the US president’s spending pledge.Trump is touting a $US1 trillion infrastructure spending package over 10 years that would invest in roads, bridges and airports.

Suggestions of curbs on China's hot property market hit copper prices hard.
Suggestions of curbs on China’s hot property market hit copper prices hard. Photo: Bloomberg

need2know

And here are the overnight market highlights:

  • SPI futures is down 9 points at 5750.
  • AUD +0.1% at 77.1 US cents
  • On Wall St, Dow Jones +0.2% to 20,810, S&P 500 flat at 2364, Nasdaq -0.4% 5836
  • In New York, BHP -2%,  Rio -3.7%
  • In Europe, FTSE Euro Top 100 -0.2%, FTSE 100 -0.4%, DAX -0.4%
  • Spot gold +1.1% at $US1250.24/ounce
  • Brent crude +1.2% at $US56.50/barrel
  • Iron ore -3.1% at $US91.34/tonne
  • Copper -3% at $US5859/tonne

On the economic calendar:

  • RBA governor Philip Lowe is due to testify before the House of Representatives Standing Committee on Economics, in Sydney, at 9:30am AEDT

​Reporting profits today:

  • Automotive Holdings
  • Mayne Pharma
  • ​Super Retail Group
  • Corporate Travel Mgt
  • Charter Hall Group
  • Regis Healthcare
  • Graincorp
  • Billabong
  • NextDC
  • Vista Group

 

US news

Wall St floundered after hitting record intraday highs earlier in the overnight session as losses in tech stocks offset the impact of a jump in oil prices. But the Dow Jones still managed to extend its incredible streak of record closes to 10.

Oil rose more than 2 per cent after data showed a surprise decline in US inventories, suggesting a global oversupply may be ending. The S&P 500 energy index jumped 0.6 per cent, led by gains in Exxon and Chevron. The sector also provided the biggest boost to the broader index.

The technology sector, however, dropped 0.3 per cent, largely due to losses in Nvidia, setting the Nasdaq up for its worst day of this month.

“What I like about this market is that (investors) seem to be a little more focused on fundamentals as opposed to looking at the volatility coming from politics,” said Omar Aguilar, chief investment officer at Charles Schwab Investment Management.

Meanwhile, copper prices tumbled 3 per cent overnight – their biggest one-day fall since September 2015 – as worries about demand in top consumer China resurfaced after the country’s housing minister suggested moves were afoot to stabilise the property market, while a firm dollar reinforced negative sentiment.

US stocks have been on a record-setting rally in the past two weeks after Trump said his administration would make a major tax announcement in the coming weeks.

US Treasury Secretary Steven Mnuchin told CNBC that he expected a “very significant” tax reform to be enacted by Congress’ August recess. But Mr Mnuchin also said he didn’t think the US economy would see a meaningful acceleration in economic growth until 2018. This may have tempered investors’ enthusiasm, and the US dollar declined overnight, helping the bump higher in oil and pushing gold prices higher.

Optimism is a mile high, but an inch deep,” said John Manley, chief equity strategist for Wells Fargo Funds Management in New York. “People are being pulled into this stock market. They’re worried it’s gone up too fast.”

There's no stopping the Dow, which extended its streak of record closes to 10.
There’s no stopping the Dow, which extended its streak of record closes to 10. Photo: AP

Good morning and welcome to the Markets Live blog for Friday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

Fairfax Media with wires.



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