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ASX News LIVE | XJO Falls with Global Markets on Middle East Tensions; RBA Annual Report and Employment Figures Out Today
Oil prices ease slightly, thoughts from AMP Economist
Oil prices have eased slightly, with WTI Crude, down 0.49% to US$91.05 and Brent Crude hovering at +0.19% US$88.15.
In a great post covering the Middle East conflict and its impact on oil and the economy, Shane Oliver shared his thoughts here.
The post is worth a read to understand why we haven’t seen prices rising further when compared to other flare-ups.
Source: Macrobond
As he says:
‘So far, the impact on oil prices has been modest with oil prices up about $US4 a barrel to around $US0.87 for West Texas Intermediate since Hamas’ attack on Israel. However, it comes at a time when oil prices had already reversed a large part of their fall into June to just below $US70 a barrel post their rise last year to a high of $US123.7 on the back of the invasion of Ukraine, which was their highest since 2008 when they peaked at $US145′.
While highlighting risks:
‘The main risk is if Iran, which backs Hamas and Hezbollah in Lebanon, is drawn into the war which could threaten its oil production (2.5% of global consumption), the flow of oil through the Strait of Hormuz (through which 20% of world oil flows) or even Saudi production (as Iran did in 2019).’
Record profits for Nick Scali
The company surprised the market today with stronger revenue and profits than many were expecting.
In FY23, sales revenue increased by 15.1% to $507.7 million. The company said the revenues were underpinned by the efforts of the Logistics team, who were able to manage the peaks of product inflows, enabling lowered lead times to customers.
Net profit after tax for the year was a record $101.1 million up 34.9% when compared to FY22. However, they signalled headwinds for the company.
Nick Scali boss Anthony Scali says he is bracing for a tougher year ahead, warning that consumers are “very cautious” and spending on big-ticket items such as sofas is coming under pressure.
He did not provide any firm full-year guidance for the new financial year but flagged that July orders fell 8.1% from strong sales in July last year to $39.7 million.
The Company maintained a strong financial position with cash-on-hand of $89.3 million at the year-end.
Treasurer Jim Chalmers comments from Canberra
Treasurer Jim Chalmers spoke in Canberra today after the release of the latest jobs figures from the ABS.
He says the fall in the unemployment rate to 3.6% is “very welcome news” for the Australian economy but says unemployment will go up given the economic headwinds.
“This is very welcome news given what is coming at us from around the world, it’s a very welcome result because it comes at a time of serious global volatility, as well as the impact of [interest] rate rises here at home,” he commented.
“But we still expect unemployment to rise as a consequence of higher interest rates and concerns around China, and conflict in Europe and now the Middle Eastas well.”
“We are seeing in the numbers before you today, some softening around the edges of the data. You see it in the hours worked, participation has come off a bit, but still near record highs, and we also know that job ads have been a bit weaker as well.”
“So we’re seeing some of that softening as a consequence of the combined economic challenges from around the world, and here at home.
“We know that the interest rate rises, which are already in the system, are biting consumption hard in particular.
“We know that retail turnover has been soft, and we know that people are under pressure.”
He also commented about the conflict in Gaza and the likely impact on oil prices in the future, saying:
“The inflation numbers that we see next week, which predate the escalation of the conflict in the Middle East, we think will capture some of those early impacts of the elevated global oil price as a consequence of the way that supply was ramped back, even before we’ve seen the developments in Israel and on the Gaza Strip in recent days.”
Amount of mortage owners facing financial distress climbing but ‘no cliff’
Reporting from the AFR today showed the amount of homeowners with variable rates who are facing financial distress is up, but the long-feared ‘mortgage cliff’ has likely passed and has turned closer to a painful staircase for many.
Despite the abating fears, Australia still has the highest share of income for loan repayments in the developed world, according to the IMF’s latest report.
Source: Guardian-IMF
Strength in the employment figures today, combined with resilient house prices, could give the RBA room to raise rates again this year to try to dislodge the sticky inflation. For investors, the important figure to watch in this ongoing saga will likely be Oil and petrol prices for Australians as the two have heavily impacted consumer discretionary spending in recent months.
"About 5% of variable rate owners occupiers are earning income that is less than their combined mortgage payments and essential living expenses, up from 1% in April 2020." https://t.co/I4vkTWVALl If that continues, that would translate to record Australian mortgage defaults.
— Michael Janda (@mikejanda) October 19, 2023
Latest jobs figures out for September
The ABS released the latest employment number for September today, showing:
- Our unemployment rate, trend, remains at 3.6%.
- Unemployment rate, seasonally adjusted, falls to 3.6%
The Bureau of Statistics estimates that only 6,700 jobs were created last month, which is lower than the amount required to fill the growth in the working-age population.
This was countered by a falling participation rate which fell from 67% to 66.7%, pushing unemployment lower.
For all the charts, we look to the busiest chart sharer in the Aussie market Shane Oliver.
Another confusing Aust jobs report:
Employment up just 6.7k in Sept (mkt was +20k), full time jobs -40k & hrs worked -0.4%
But unemployment fell to 3.6% only because the participation rate fell to 66.7% from 67%
The jobs mkt is still tight but its continuing to cool.
(ABS charts) pic.twitter.com/LqN4gJYQvf— Shane Oliver (@ShaneOliverAMP) October 19, 2023
Midday market update
The ASX 200 is down -1.21% around noon, now below 7,000 again, as Middle East tensions continue to rise as the fallout from the hospital explosion in Gaza has pushed both sides away from the negotiating table.
Despite Biden endorsing Israel’s claim that Palestinian militants were behind the explosion at Al-Ahli Arab Hospital on Tuesday, he urged caution by Israeli officials, including PM Benjamin Netanyahu.
He warned of making the ‘US mistakes of rage’ and compared the situation to the 9/11 attacks, saying:
“You can’t look at what has happened here … and not scream out for justice. While you feel that rage, don’t be consumed by it.”
“After 9/11, we were enraged in the United States. And while we sought justice and got justice, we also made mistakes.”
Despite the tempering words, markets have seen the disagreements over the attack as the wedge that could potentially spur a wider conflict, sending bond yields to near multi-decade highs and gold prices surging.
Oil has eased from its climb, with WTI Crude falling -0.55% to US$87.83 while Brent is down -0.71% to US$90.85.
Traders are concerned about the involvement of Iran in the broader conflict as it would likely impact the Gulf country’s oil trade through the Straight of Hormuz.
Source: Freeworldmaps
Closer to home in the ASX, all sectors are in the red at midday, with Materials (-1.60%) and Real Estate (-1.52%) the worst performers today.
Today’s Top individual performers are Weebit Nano, which is up 6.75%, and Macmahon Holdings, which has gained 6.67%.
TELIX Pharmaceuticals is the worst performer today so far, falling 15.93%.
Origin takeover gets the nod by independent review
Origins $18.7 billion takeover by two North American private firms has been deemed ‘fair and reasonable’ and in the best interests of shareholders by an independent expert.
The man tapped for the job of evaluating the deal, Grant Samuel, gave a valuation of Origin shares at between $8.45 to $9.45, a price that sits within the offer price of $8.81 a share from the private firms Brookfield and EIG.
Despite the nod, there are still majority shareholders who are unsure about the deal, seeing it as undervaluing the company. The shareholder vote, which is planned to go ahead on the 23rd of November, has already been given the nod by competition watchdog ACCC, but the last hurdle may be Origin’s largest shareholder, AustralianSuper.
They have signalled clearly that they are not happy with the price and have tapped figures closer to $10 per share, and have reiterated that they see the deal as ‘substantially below fair value’.
Other concerns were raised by smaller groups at the general meeting this week, where Origin Energy chairman Scott Perkins took a barrage of questions over the deal.
“Retail shareholders expressed a view to keep the company in Australian hands,” said Australian Shareholders’ Association representative Lewis Gomes, adding that much of the opposition to the deal voiced at the AGM was due to concerns it would pass into the hands of overseas investors.
The deal will require 75% approval at the vote, which is a challenge with AusSuper’s 13.68% stake in the company and its support of shareholders Perpetual and Macquarie Equities.
Qantas Terminates Proposed Alliance Aviation Takeover
Qantas has finally terminated its proposed takeover of Alliance Aviation more than six months after the Australian Competition and Consumer Commission (ACCC) knocked back the proposal.
The ACCC rejected Qantas’ bid in full in April, stating that the combination of two of the top three players in the resources-heavy states of Western Australia and Queensland would have substantially lessened competition.
Both Qantas and Alliance had argued that the acquisition would have created customer value without lessening competition in the highly competitive resources sector. However, both companies have now acknowledged that there is no reasonable path forward for the deal at present
Good Morning
Good morning all,
The ASX 200 opened down -0.67% to 7,030.0, following the global market’s heavy losses overnight as patterns move back into September’s down period, with rising oil and bond prices overshadowing equities.
The good-news-is-bad-news reality is back in play as robust U.S. retail data stoked fears that the Fed will raise rates again. This pushed U.S. bond yields up to 17-year highs and left Wall Street closing down over 1%.
Wall Street: The Dow -0.98%, Nasdaq -1.62%, S&P 500 –1.34%, Russell 2000 -2.11%.
Overseas Markets: FTSE -1.14%, STOXX -1.12%, Nikkei flat, SSE -0.80%
Tesla fell -4.78% after revenues fell short of expectations and core profits sank. Net Income in the third quarter was US$1.85b, down 44% from a year earlier.
U.S. 10-year notes jumped 8 bps to 4.91%, a 17-year high nearing the dreaded 5%, which will make markets nervous.
Australia’s 10-year Treasury bond continued to surge, climbing 19bps to 4.74%.
Gold is climbing steadily, up 1.33%. Silver gained 0.22%. Precious metals markets haven’t run as far as some analysts expected from concerns in the Middle East, and bonds are largely the issue.
Oil prices are climbing, up 1.33%. Brent Crude is up 1.41%, US$90.91, while WTI crude is up 1.59% at US$88.04.
Iron Ore is flat at US$119.31 as positive GDP figures from China yesterday are weighed down by the fears that the country’s largest property developer, Country Garden, will likely default, missing overseas payments again.
The Aussie dollar is down -0.45%, at US63.34 cents, now at values seen last November as high U.S. bonds flow currency into the greenback.
Bitcoin is down -0.31% to US$28,330 as it bounced off the $28,500 resistance but is looking to retest soon as spot Bitcoin ETF deliberation looms.
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