ASX News LIVE | XJO to Rise; US and Aussie Bond Yields Surge as Central Banks Mull Further Rate Hikes

The ASX 200 closed up 0.31% as positive sentiment from China overcame pessimistic early morning trading that was influenced by muted movement on Wall Street as fears of further rate hikes clouded investor optimism.

In global markets, Gold (+0.75%) and Oil (+2.22%) continued their gains as the concerns of a wider conflagration in the Middle East became closer to a reality in the wake of the bombing of a hospital in Gaza, which killed hundreds. Both sides blame each other for the attack.

While scant evidence at this point gives a definitive answer, both sides are adamant it was the other, leading to Palestinian leaders cancelling their summit with Biden in his trip over this evening, leading to markets to fear a tempered tone may be lost from here.

In local markets, the ASX benchmark saw an even split of sectors gaining and losing today. The biggest gainer today was the Energy Sector (+2.47%), which surged with the climbing oil prices. Whitehaven was up 11.49% after coming out of a trading halt this morning after BHP revealed it was the preferred bidder for its two QLD coal mines.

The worst-performing sector today was Utilities (-0.95%), with all of the top eight companies down at close today. The worst hit was Mercury NZ, which posted its operational update yesterday, showing hydro power generation was 21% lower than PCP due to dry conditions in the Waikato catchment and lower industrial demand in the wake of Cyclone Gabrielle’s impact on the Pan Pac timber mill.

As the Wall Street Journal succinctly put it, ‘If the economy is so strong, why are consumer stocks tanking?‘.

This is such a large concern for America’s economy because U.S. consumers make up almost two-thirds of the total economic activity of the U.S. While many observers counted on the fact that many households still hold savings accrued from the pandemic, with an excess of around US$2.1 trillion added to their usual savings lump, many thought this still had plenty of legs.

However, the latest data from the S&P 500 shows over two dozen stocks in consumer sectors are setting new 52-week lows this month, showing the average U.S. consumer has tightened their purse strings.

Many analysts are pointing towards higher gas prices as the main culprit, as sticky inflation and higher credit conditions also weigh on spending.

Investors also seem to be moving away from the sector, with money in net withdrawn from consumer-good sector funds in 10 of the past 12 weeks. These outflows reached $1 billion.

Source: The Wall Street Journal

China’s economy grew faster than expected in the third quarter, suggesting the recovery may have enough momentum to meet Beijing’s full-year growth target.

Gross domestic product (GDP) grew 4.9% in July-September from a year earlier, beating analysts’ expectations of 4.4% growth and slowing from the 6.3% expansion in the second quarter. On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and beating the forecast of 1% growth.

The world’s second-biggest economy has started to show signs of stabilising thanks to a slew of policy measures in recent months. However, a protracted property crisis, uncertainties over employment and household income, and weak confidence among private firms pose risks to a durable revival.

Currently, Xi is attempting to slowly steer the Chinese economy away from the debt-fuelled property cycle investments and unproductive state infrastructure but has so far failed to add materially significant stimulus.

Source: Financial Times – CNBS

Specialist coal miner Whitehaven [ASX:WHC] says it has “executed definitive sale agreements” with BHP and Mitsubishi Development, who jointly own the Daunia and Blackwater coal mines through the BMA joint venture.

Whitehaven will pay US$2.1 billion upfront for the two mines that produce coking coal, which is used in steelmaking.

The buyer will then pay a further US$500 million on both the first and second anniversaries of the completion date, with a final US$100 million payment on the third.

The company will also pay up to a further US$900 million over three years, contingent on coal pricing exceeding agreed thresholds.

Whitehaven said the deal would be funded through available cash reserves, a US$900 million bridging loan and cashflows from the expanded business over the next three financial years.

It also said it would consider selling minority stakes in the mines to global steel producers, which would reduce funding requirements

Explaining the move today, Whitehaven CEO Paul Flynn said:

‘This transformational acquisition will pivot our portfolio towards metallurgical coal, which has been a core pillar of our strategy for many years making this a better balanced business,’

‘Our thermal coal business remains strategically important as we continue to provide much-needed coal products to support the global energy transition and as customers seek our high-quality and high-CV products to limit their emissions.’

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Michele Bullocks’s fireside chat this morning showed the RBA is keeping a keen eye on house prices in its calculations moving forward. Here are some of Mrs Bullock’s thoughts from the chat this morning in Sydney:

‘The other thing in the established housing market, of course, is that there is quite a big pipeline to be run off from all of the stimulus that went into the housing market through fiscal programs and state government programs. But there’s actually quite a big cliff coming housing approvals and starts and so on, six to nine months out, are not looking very good at all. So there’s a few things in the established housing market. Some suggest that maybe things are stabilising; others are suggesting, no, they’re not.’

Here’s the latest data from our regular tweet addition AMP Senior Economist and Investment Strategy Head Shane Oliver with the latest Core Logic home prices for October.

Aust CoreLogic home prices Oct month to date
Syd +0.5% +0.8% at mthly rate
Mel +0.4%
Bri +0.8%
Ade +0.7%
Per +1%
5 city av +0.6%, +1% at mthly rate
Price gains down from recent highs but still solid with the supply shortfall dominating the impact of higher rates pic.twitter.com/cuiDQr6xZI

— Shane Oliver (@ShaneOliverAMP) October 18, 2023

Radio broadcaster ARN Media has teamed up with private equity firm Anchorage Capital Partners to make a non-binding takeover offer for rival Southern Cross Media, valuing the company at $330 million.

ARN owns major radio stations, including KIIS FM, home to Kyle and Jackie O, while Southern Cross houses the National Hit and Triple M networks.

The companies confirmed in statements this morning that ARN and Anchorage had made an indicative proposal under which Southern Cross Media shareholders would receive 0.753 ARN shares and 29.6 cents in cash for each Southern Cross share they own.

That implies a bid value of 94 cents per Southern Cross share or $225.5 million in total. The stock closed at 73 cents on Tuesday, putting the offer at a 29 per cent premium to the company’s last share price. Including net debt, the bid gives Southern Cross an enterprise valuation of $330 million.

Southern Cross’s shares surged by 17.81% in today’s trading.

Confirming receipt of the bid this morning, Southern Cross called the proposal ‘unsolicited, complex and highly conditional‘ in an ASX statement and advised its shareholders not to take any action in relation to the bid.

‘The indicative proposal is subject to the unanimous recommendation of the SCA board, due diligence, shareholder and regulatory approvals from both the ACCC and ACMA, and other terms and conditions,’ it said.

Media ownership rules in Australia aimed at protecting the country’s diversity of media voices state that no person or company can own more than two commercial radio licences in one market which could confuse proceeding dealmaking.

The ASX 200 is hovering around flat this afternoon, balancing negative sentiment out of America with a more hawkish Fed, combined with better-than-expected third-quarter GDP figures from China.

China’s gross domestic product rose 4.9% in July-September from the year earlier.

As a response, the AUD rose 0.16% to 63.73 cents.

Gold continues to edge gains, now up 0.93% in the midst of fears that the conflict in the Middle East could escalate after an explosion at a hospital killed hundreds in Gaza, while both sides traded blame.

Australia’s house prices are expected to climb 7.7% this year, according to a Bloomberg survey of economists, recovering a 4.8% decline in 2022. The recovery is unexpected, given its coming during the central bank’s hiking cycle, underscoring an acute supply crunch from surging population growth and a slowdown in housing construction combined with strong FOMO markets.

New Reserve Bank Governor Michele Bullock says the continuous global shocks, like the Israeli-Palestinian conflict, are keeping inflation and interest rates high, something she would rather avoid, saying:

‘The problem is that we’ve just got shock, after shock, after shock,’ she said.

‘And the more that that keeps inflation elevated, even if it’s from supply shocks, the more people adjust their thinking. And the more people adjust their inflation expectations, the more entrenched inflation is likely to become.’

Mrs Bullock shared her thoughts at a ‘fireside chat’ at the ASFA Annual Summit in Sydney today, her first as the RBA chief.

The chat will be watched closely after the RBA board’s latest minutes were released yesterday. In them, a notably hawkish tone was seen, in which board members remarked [bold added for emphasis]:

‘In reaching their decision, members noted that some further tightening of policy may be required should inflation prove more persistent than expected. The Board has a low tolerance for a slower return of inflation to target than currently expected. Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.’

In her chat today, Mrs Bullock noted that the labour market remains well in their calculations for ‘incoming data’, saying:

‘We’ve still got a very tight employment market — there are signs that the labour market is turning, but the labour market is still very tight — and that’s putting pressure on wages.’

She also noted that the housing market’s resilience had ‘surprised her’ in the speed in which it returned back to pre-pandemic prices.

Mining giant BHP Group [ASX:BHP] named Whitehaven Coal [ASX:WHC] as the preferred bidder of its Daunia and Blackwater coking coal mines in Queensland

Whitehaven Coal is in a voluntary trading halt until Friday, 20th November, when it is expected to announce its plans around the purchase.

BHP also released its quarterly activities report today, showing it’s on track to meet FY24 production guidance.

BMA’s coal has been impacted by planned maintenance and will see 16% lower production in FY24 vs FY23.

Source: BHP Quarterly Report

 

Good morning all,

The ASX 200 opened up +0.23%, 7,072.0, following Wall Street after a strong rally overnight.

The good-news-is-bad-news reality is back in play as robust retail data overnight has traders thinking that the case for the Fed to raise rates has risen. This pushed US bond yields up to 17-year highs and left Wall Street closing around breakeven.

The Dow flat, Nasdaq -0.25%, S&P 500 flat.

The drop in the Nasdaq was primarily attributed to Nvidia dropping –4.7 % after plans arose of US export restrictions on advanced AI chip exports to China.

US 10-year notes jumped 13 bps to 4.83%, a 17-year high.

Australia’s 10-year Treasury bond had the highest one-day surge yesterday, climbing 18bps to 4.63%.

Gold is up +0.30%. Silver gained 1.12%. Precious metals markets haven’t run as far as some analysts expected from concerns in the Middle East, and bonds are largely the issue. High bond yields are serving as the preferred vehicle, taking the heat out of the equity and precious metal markets.

Oil prices are fluctuating in the run-up to Biden’s visit to the Middle East. Brent Crude is up 1.41%, US$90.91, while WTI crude is up 1.59% at US$88.04.

Iron Ore is up 0.57% at US$119.25 as a rebounding iron ore market continues to surprise many, considering the state of the Chinese economy.

In Rio Tinito’s third-quarter production update, they gave a reason for the positivity, saying:

‘China’s domestic steel demand is up one per cent year-to-date to August 2023 despite continued weakness in residential property, while a 40 per cent spike in net steel exports lifted crude steel production and iron ore imports by 4.5 per cent and 5 per cent, respectively,’ Rio said

The Aussie dollar is up +0.41%, reaching US63.65 cents, close to values seen last November.

Bitcoin is down -0.26% to US$28,430 as it bounced off the $28,500 resistance and slowed after briefly spiking 10% on fake news of an SEC-accepted ETF.