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Macquarie Group has questioned the logic behind the decision to lump the bank alongside the Big Four under the controversial new bank levy announced in Tuesday night's budget.
Macquarie is believed to be mystified by the government's decision to include the bank – known for its global investment banking capability - alongside the big four with their predominantly retail operations and bigger domestic footprint. A spokesperson the bank declined to comment.
Macquarie chief financial officer Patrick Upfold told a small group of institutional investors yesterday he was baffled by the government's decision to throw a blanket over the five companies and apply a tax on liabilities which has been forecast to raise $6.4 billion over the forward estimates.
Macquarie Group generates 63 per cent of its income offshore. The bank believes that its predominantly institutional focus is among the many reasons it is the odd one out among the group.
Macquarie chief executive officer Nicolas Moore was conspicuously absent as the big four bank CEOs including ANZ's Shayne Elliott, Commonwealth Bank's Ian Narev and Westpac's Brian Hartzer fronted the media and rounded on the policy on Wednesday.
By comparison the company released a three paragraph statement on Wednesday which instead of critiquing the tax asked if it would be applied to Macquarie Bank Limited's statutory liabilities, funded balance sheet or whether the tax would include liabilities relating to foreign businesses or subsidiaries would also be included.
Widely circulated estimates from Deutsche Bank's Andrew Triggs and Anthony Hoo show that Macquarie Group would be the least affected by the tax putting the impost at $77 million or 3.4 per cent of net profit after tax.
A footnote to the numbers however notes that the estimates have based on the accounts of Macquarie Bank, raising the question again of how Macquarie Group might be treated under the tax given the lack of detail.
A renewed slide in commodity prices on Chinese futures markets sent mining stocks sharply lower and flattened an early sharemarket rally, leaving the ASX 200 up only a few points higher at 5878.
In morning trade the benchmark index had crossed back above 5900 points as investors showed themselves willing to get back into the major lenders despite their recent Budget-related travails. A jump in oil prices had helped lift the mood in resources at the open of trade as well.
But further weakness in iron ore futures weighed heavily on the diggers, with Rio losing 0.7 per cent and Fortescue 5.1 per cent. BHP managed to lift 0.4 per cent as energy names enjoyed some support; Woodside added 0.2 per cent.
Meanwhile, banks were trimming their morning gains and ended up putting in a mixed performance. Westpac and ANZ dropped a little, while CBA and NAB climbed. Macquarie, however, jumped 1.8 per cent.
Telstra was again a drag, falling 1.3 per cent.
In corporate news, Graincorp jumped 8.3 per cent on its earnings update, while BT Investment Management headed the other way, dropping 5.9 per cent on its half-year numbers.
Retailers JB Hi-Fi and Harvey Norman lost 1.2 per cent after an analyst slashed its profit estimates for both, citing the looming threat of offshore competition, Amazon in particular. Myer shares dropped 3.5 per cent after it revealed quarterly sales. Super Retail Group dropped 4.3 per cent in sympathy, and GUD Holdings 3.9 per cent.
Here's a more fulsome report on today's big winner:
A bumper grains crop on the east coast, combined with optimism of another good year ahead has pushed shares in grains handler GrainCorp pushed to three-year highs as it reported its highest profit in years and doubled its dividend.
In late trading, the shares are up 8.2 per cent at $9.87, near their highest level since early 2014.
Graincorp's net profit hit $90 million in the six months ended March, well ahead of the year-earlier profit of $20.4 million. Revenue rose to $2.5 billion, up from $2.1 billion. Earnings per share jumped to 39.3¢, up from 8.9¢, paving the way for the company to double its interim dividend to 15¢ a share.
"A very good start in most areas" is how the chief executive Mark Palmquist described the new year's crop.
There was "good subsoil moisture and we have had in most regions good planting," he said. "It is the weather in August and September that really matters, but we're optimistic we will start off really well."
The bumper crop last growing season came as the group wound up a large capital spending program which put investors' focus on the prospect for any capital management initiatives later in the year.
"We have more flexibility in terms of the balance sheet," Mr Palmquist told analysts. "We certainly would be looking at that and seeing what opportunities do we have to further our strat now that we are rolling off the big capital spend.
"We will revisit balance sheet capital management year end."
Even though low grain prices are pressuring returns for farmers, prompting more to hold back grain from the market, Graincorp as the grain handler saw the bumper crop boost its earnings.
"Record volumes translates to significant margin expansion, earnings and strong cashflow," JP Morgan analyst Belinda Moore said.
The continued sale of smaller, non-strategic assets such as Graincorp's stake in Allied Mills and some smaller malt units in Germany has also helped to lift cash levels.
The NSW government's housing affordability package will include both supply and demand side measures to help first home buyers, which could include discount on the stamp duty, in the June 20 budget.
At a press conference to announce it has wrapped up its "poles and wires" privatisation" on Thursday, NSW premier Gladys Berejiklian said the state government will be looking at both supply and demand side measures to help first home buyers.
"There's no doubt supply is the main driver of downward pressure on prices. But we also appreciate there are other things we can do to really support people who are struggling more than ever to save for their first home," Ms Berejiklian said.
"And our measures will be comprehensive, and they will focus on supply but they will also focus on some other things because we appreciate how hard it is to enter the market."
Tuesday's federal budget means from July 1 first home buyers will be allowed to use up to $30,000 of voluntary superannuation contributions to put a deposit on a house or apartment.
However, in Sydney the median price for a house or apartment is $860,000, and stamp duty on such dwelling costs about $35,000, according to CoreLogic data.
Despite naming housing affordability as one of her top priorities, Ms Berejiklian has ruled out both negative gearing reform and replacing stamp duty with a land tax. This leaves stamp duty discount as a possible option for addressing housing affordability on the demand side.
"I do want to remind everyone we have record approvals now in NSW in terms of number of dwellings, and the record infrastructure spend we have through better roads and rails is encouraging greater housing along those transport corridors but we know we need to do more," she said.
"The bit of the puzzle that's missing is what can we do on the demand side to support people getting into the market for the first time."
In February, the NSW government hired former Reserve Bank governor Glenn Stevens to come up with a housing affordability strategy aimed at helping first home buyers.
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Lithium miner Orocobre has said it has no plans to list its shares in Argentina.
The company also said it hadn't appointed Banco Santander Rioor Puente Hnos as advisers. The rebuttal came after Bloomberg had cited people familiar with the matter as saying that Orocobre, which owns the Salar de Olaroz lithium mine and is a partner in the Olaroz lithium facility in Argentina, planned to list shares there.
Orocobre, which is based in the Milton area of Brisbane, has traded on the Toronto Stock Exchange since 2010. The company is seeking to complete the listing in as soon as 11 weeks, and may sell shares as part of the operation, according to one of the people, who asked not to be identified because the talks are private.
Argentina wants to lure more mining companies to develop reserves in its lithium-rich northern region that borders mines in Chile and Bolivia. The three countries are home to 40 per cent of the world's lithium deposits. The government hopes mining will help drive a nascent economic recovery after a recession last year and capture demand from battery-makers including Tesla.
About 40 foreign companies are studying projects in Argentina's mining industry, more than half of those in lithium, according to Mining Secretary Daniel Meilan.
Orocobre produces the metal at Salar de Olaroz in Argentina, atop salt flats in the province of Jujuy. Orocobre will invest $160 million over three years to increase production in Jujuy to 30,000 tonnes a year in 2020 from 13,000 tonnes now, Argentina said in March after a government delegation visited Australia.
Toyota Tsusho, an affiliate of Toyota, is a minority stakeholder in the project.
Orocobre shares are up 2.6 per cent per cent at $3.62.
Xero CEO Rod Drury insists Silicon Valley billionaire and Trump adviser Peter Thiel remains a "strong supporter" of the Kiwi cloud accounting company, despite his recent share sales.
Speaking after Xero posted a narrower full-year loss, Mr Drury confirmed he had recently been in contact with Mr Thiel and his associates.
"We had a good chat to them last week, they've still got some shares, they have moved around the portfolio because of Peter's profile. But they're still strong supporters and try to help us out as much as they can," he said.
Asked whether he expected Mr Thiel's Valar Ventures to continue selling down its stake in Xero Mr Drury said: "No. That's up to them but the indications are [they won't]. We know the individuals really well, that network is incredibly useful to us".
Xero narrowed its net loss to $NZ69.1 million ($64 million) from $NZ82.5 million a year earlier. The company broke through the 1 million subscriber mark and said it was now generating positive operating cash flow. Its ASX listing soared by as much as 7 per cent on Thursday.
"Overall an encouraging result from Xero," Citi analysts said in a note to clients, describing the numbers as "better than expected".
Xero's Australian shares rose 4.2 per cent to $21.44 on Thursday and are up 48 per cent in the past 12 months.
With $NZ113.7 million cash and short-term deposits on its books, Mr Dury said Xero, which had previously flagged plans for a US IPO, had no plans to raise capital.
It emerged earlier this year that Mr Thiel, a co-founder of PayPal alongside Elon Musk, and an early backer of Facebook, had secretly been awarded New Zealand citizenship in 2011, with the backing of Mr Drury.
The citizenship was approved despite Mr Thiel not meeting the normal requirements, stoking significant controversy across the Tasman. Mr Thiel's Valar Ventures, which once owned as much as 7 per cent of Xero, has been reducing its stake in the company. Last month it sold a further 1.1 million shares, reducing its position below the 5 per cent threshold at which it must be publicly disclosed.
Operators of the Little Vienna sandwich outlets in Sydney have been fined $87,040 for allegedly exploiting 11 Korean workers who were paid as little as $10 per hour and for using false pay records.
One of the adult employees was allegedly underpaid by nearly $30,000.
Sydney man Jae Kwang Kim, who owns and operates six Little Vienna outlets in the Sydney CBD, has been fined $10,880 and his company has received a further penalty of $76,160 in the Federal Circuit Court.
Fair Work Ombudsman Natalie James said she was particularly concerned that Kim and his company deliberately recruited Korean employees by placing job advertisements on a Korean-language website.
Two of the employees gave evidence that without financial assistance from friends or family, they would not have been able to meet their basic living expenses.
The Fair Work Ombudsman which investigated the fast food outlets found 11 South Korean employees were underpaid a total of $111,781 between December, 2012 and April, 2015.
Ten of the employees were on 417 working holiday visas and one was on a student visa and most of the employees spoke little English.
The employees were allegedly paid $10 an hour for their first two weeks of work, before being paid flat rates of $11 to $13 an hour.
As casual employees under the Fast Food Industry Award, the adult employees were entitled to $21.21 to $23.15 an hour.
All employees have now been back-paid in full.
Kim and his company also allegedly breached workplace laws by providing Fair Work inspectors with fabricated records that suggested staff had been paid much higher rates than they received. Pay slip laws and minimum engagement hours were also allegedly breached.
Judge Robert Cameron said Kim expressed no remorse or regret for his actions and the failure to keep proper records "is a particularly pernicious practice because it makes the proper quantification of workers' entitlements more difficult than would otherwise be the case".
Mark Mobius has a left-field theory on why volatility in global stock markets is so low.
"Social media is having a huge impact," the executive chairman of Templeton Emerging Markets Group said. "It's creating confusion with a lot of false news," he said.
"You're getting a situation where a lot of information is discounted immediately because people are afraid that maybe the information they're getting is not true."
The VIX Index, the so-called fear gauge for US stocks, fell earlier this week to its lowest close since 1993, as record-low turbulence plays out in markets across the world. Far-right candidate Marine Le Pen's defeat in French elections was the latest development imbuing calm among investors.
Along with sowing doubt about the veracity of news, social media is shortening people's attention span, according to the 80-year-old fund manager. That's softening the impact of events like Tuesday's firing of FBI Director James Comey, he said.
Mobius, who's spent decades watching global markets, says president Donald Trump's action amid the agency's investigation of Russian interference in last year's election will meet a similar fate: people will brush it off.
"No, I don't think" it will impact US stocks, Mobius said of the Comey news. "There's so much controversy around Trump in many directions that this is one more page in this whole history of changes," he said. "I think it's in the background, because it doesn't have any economic impact."
Mobius has a Twitter account, but says he doesn't administer it himself. He says hedge funds can pay for analysis of the quality of information on social media, but most people can't, which is why they tend to dismiss news that they're unsure about.
"Ironically, it's having a calming effect," he said. "If you have all this confusing information, and you don't know which one is true and which one is false, you say, OK, the heck with it, I won't do anything."
Brisbane apartment builder CMF Projects has called in administrators in what could be the first sign of a shake out in the cooling market.
According to the builder's website, it has constructed major projects for residential developers, commercial and retail developers as well as a number of government contracts.
Its residential book shows it has completed medium rise apartment projects including the Mowbray Apartments, ARIA group's AUSTIN Apartments, Kyabra Street Newstead, Artisan South Brisbane and Vine South Brisbane.
The company and its directors Greg Campbell and Cameron Fidler could not be reached when contacted.
According to ASIC filings David Clout and Patricia Talty from David Clout and Associates were appointed as administrators on Wednesday.
It is not known why the builder has had administrators appointed, however some builders have been under pressure with high construction costs and a sudden pull back in new apartment project plans.
Apartment approvals slipped to 110,401 for the 12 months to March this year - the lowest since May 2015, when they stood at 109,141 according to the ABS.
In Queensland apartment approvals fell 29 per cent in the month of March.
The decline has been driven by tighter financing from banks, stricter rules on both foreign and domestic investors, and rising costs.
Changing fundamentals in the Brisbane market have also seen the city's inner-ring vacancy rate rise to a new high of 4.4 per cent, following a year in which the city saw a record number of new apartments settled.
Growth in vacancy in the March quarter, from 3.6 per cent in the three months to December, reflected supply outstripping demand according to Real Estate Institute of Queensland chief executive Antonia Mercorella.
Myer has an uphill battle to restore profit growth, writes AFR Chanticleer columnist Michael Smith:
Myer chief executive Richard Umbers wants investors to focus on earnings growth rather than falling sales as he tries to convince the market his strategy to turn the company around by shrinking the store footprint is working.
It is a hard sell in the current environment where the hysteria around the arrival of online giant Amazon is at fever pitch and economists are warning the discretionary retail sector is heading for a recession. There is little in the federal budget to make retailers more optimistic either as the rising cost of living and zero wages growth saps the will of many Australians to shop for anything but the essentials.
Myer hoped to head off a sell-off in the company's stock by reaffirming forecasts for net profit growth this financial year as it released a third quarter trading update. This surprised some analysts given third-quarter sales were worse than expected. Total sales for the 13 weeks to 29 April fell 3.3 per cent to $653 million was due to store closures. Like-for-like store sales fell 2 per cent.
However, Umbers will argue the latest figures are further evidence his strategy is working.
Umbers is closing or down-sizing underperforming stores, improving service and stocking more brands his customers want to buy. The whole point of the strategy is to focus on earnings growth rather than chasing profitless discounted sales, which is what got the company into trouble in the first place. This strategy makes sense in isolation but is challenging when rivals like David Jones are willing to sacrifice profits to clear stock.
Umbers has promised to restore sales growth across the group to more than 3 per cent a year by 2020, lift sales per square metre by 20 per cent and grow earnings at a faster rate than sales. He is 20 months into the turnaround plan so there is more time to play out but trading conditions are more challenging than when he started in the job.
Chinese iron ore futures are extending their overnight slide, putting some pressure on the shares of local miners.
Dalian futures have dropped 4 per cent in early trade to 446 yuan ($US64.60).
Fortescue has slid 3.8 per cent, diversified miner Rio has dropped 0.3 per cent, while Mt Gibson is down 0.8 per cent, Grange Resource off 3.1 per cent and Atlas Iron has shed 3.6 per cent.
The NSW government has wrapped up its "poles and wires" privatisation with what Premier Gladys Berejiklian described as an "outstanding" deal to sell a majority stake in power networks owner Endeavour Energy to a Macquarie Group-led consortium.
Confirming a report by the AFR's Street Talk, Macquarie's infrastructure arm and partners AMP Capital and two foreign funds, made a bid that valued the electricity distributor at more than $9 billion, including debt.
The consortium, called Advance Energy, has already got the green light for the deal from the federal treasurer and other regulators, Ms Berejiklian and Treasurer Dominic Perrottet said.
The transaction, structured as a 99-year lease, has delivered "gross proceeds" of $7.6 billion for the state, they said. That adds to the proceeds from the first two assets sold, 100 per cent of the high-voltage grid operator Transgrid and 50.4 per cent of NSW's largest distributor Ausgrid.
As the stoush between the government and the big banks over the new tax continues, Peter Morgan asks a perfectly legitimate question:
Dave hypothetically if the company tax rate for banks was cut to 15% how much would be passed on to customers? pic.twitter.com/dVvtLMLdKm
— Peter Morgan (@psimpsonmorgan) May 11, 2017
Oil is trading above $US50 again, OPEC seems to be losing its ability to influence prices and a wave of new supply is hitting the market from Texas to Libya.
For some, there's never been a better time to buy. Despite last week's selloff, the global oil market is rebalancing rapidly, said Jeffrey Currie, head of commodities research at Goldman Sachs.
If OEPC extends its cuts into the second half - as the group has signalled - demand will significantly exceed production, according to the IEA's head of oil industry and markets Neil Atkinson.
"Do I want to be long oil? The answer is absolutely yes because we are going into a deficit market," Currie said at the S&P Global Platts Global Crude Summit in London overnight. "With demand continuing to surprise to the upside," the global supply deficit may be as wide as 2 million barrels a day by July, he said.
While the resurgence in US shale oil continues to cause doubts about whether the three-year supply glut really is over, banks including Goldman and Citi say markets are nevertheless tightening and prices are poised to rise again.
The bulls got some powerful backing on Wednesday from the most keenly watched data on the market - the US Department of Energy's weekly report on crude stockpiles. The nation's inventories fell by 5.2 million barrels last week, the biggest reduction this year, sending Brent up more than 2 per ent to above $US50.
The decline in global fuel stockpiles will accelerate this quarter, Currie said. The volume of crude held in floating storage on tankers - often a key indicator of a supply surplus - is dropping like a brick, he said.
Goldman Sachs, which believes OPEC will extend and potentially deepen its cuts, sees Brent climbing to $US57 in the fourth quarter.
"It is starting to become clear that if the objective of the OPEC cuts was to flip the market from a surplus into a deficit, that is slowly beginning to happen," said the IEA's Atkinson.
No respite for Quintis: the shares are down another 35 per cent at 38 cents after the company admitted yesterday the board wasn't informed it lost a key contract in December.
Adding to woes, the company's long-time supporter, broker Cannacord, has suspended coverage of the stock.
Shares have lost 64 per cent in just two sessions and are down three-quarters since the start of the year.
One investor rubbing their hands in glee will be Glaucus, which first put the spot on the company with an incendiary report in March, in which it likened Quintis to a Ponzi scheme, recommending to short the stock.
High-profile US bond fund manager Jeffrey Gundlach has come out in defence of struggling active funds managers this week, with a fiery declaration that passive investing is "just a myth", and his prediction that the pendulum is about to turn, which will see active fund managers start to outperform.
The swing towards passive management is accelerating sharply. The amount of money invested in global exchange-traded funds has climbed above the $US4 trillion mark, after investors poured a record $US38 billion into these popular passive investment vehicles last month alone.
In the first four months of this year, around $US235 billion flowed into ETFs, compared with around $US80 billion in the same period last year, according to figures from industry data provider ETFGI. Indeed, some researchers predict that by the end of this year, more than half of all equity assets in the US will be passively managed.
But Gundlach - who has been dubbed the "bond king" because of his ability to outperform the market - has highlighted the distortions caused by this huge swing towards passive investment, saying that had stretched valuations in US and European equity markets, compared with emerging markets.
"People greatly over-believe this idea that passive outperforms, or has a birthright to outperform, all active managers", he said in a TV interview this week.
In contrast, market history showed that there was "an incredibly predictable cyclicality" whereby active managers delivered superior performance to passive funds for periods of time, and then the reverse occurred, and he added that the length of the present period of outperformance by passive funds is "very similar to how long they've lasted historically".
And Gundlach also took issue with those who predict that the active funds management is doomed, saying "I think the pendulum is about to swing".
Investors are showing their support for the major banks, happy to buy in at lower prices and seeing through the marginal erosion of income implied by the new bank levy (formally) announced Tuesday night.
That has helped push the ASX 200 up 35 points or 0.6 per cent to 5910. The market gains are helped along by the energy sector, which is up 1 per cent thanks to the overnight jump in the oil price. BHP is up 1.6 per cent and Woodside 1.1 per cent. Beach Energy has jumped 3.2 per cent, while Santos is up 1.2 per cent.
This morning's release of a super negative analyst note on JB Hi-Fi and Harvey Norman (see post below) has predictably sent the stocks lower, by 1.2 and 1.4 per cent, respectively. The sell-off was anticipated in large part on Tuesday, when JB dropped a more hefty 4.4 per cent and Harvey Norman 3.5 per cent.
More retailer woes: Myer has dropped 2.5 per cent following its trading update. The department store plunged close to 10 per cent on Monday after Credit Suisse slashed its forecasts for the company. The arrival of new overseas competition, Amazon in particular, is the common thread.
Back to the banks and they are all well higher, on average by around 1 per cent. Macquarie is up 1.2 per cent. Once again the gains on the sharemarket are broad, and once again Telstra is a notable drag. The big telco is off 0.4 per cent. Miners like Rio and Fortescue are also down.
In corporate news, Graincorp has jumped 5.2 per cent on its earnings update, making it the best performer in the top 200 this morning.
Also updating today, eastern Australia's biggest grains handler GrainCorp has more than tripled interim profit after benefiting from bumper grain crops and lower costs, buoying the shares.
GrainCorp reported an interim net profit of $90 million, up from $20.4 million a year ago as earnings before interest, tax, depreciation and amortisation soared to $236 million, up from $134 million a year ago. Underlying interim profit was $100 million, up from $32 million a year ago.
GrainCorp was boosted by a record wheat output during the 2016-17 season, supporting the company's storage and handling segment as well as its trading arm.
Australian wheat production totalled 35.13 million tonnes last year, surpassing the previous record set in the 2011-12 season.
Shares have opened 4 per cent higher at $9.50.
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Volatility in US stocks remains surprisingly low, but there is action elsewhere, says IG strategist Chris Weston:
Life is slow when implied volatility (highlighted by the "VIX" index) is at 10, but that is the world we live in right now and global equities, led by the S&P 500 are moving higher, but at a very subdued pace.
As a lead for Asia, the S&P 500 closed up 0.1%, with new highs seen in the NASDAQ. Outperformance within the sectors came from tech, energy and materials, with financials up 40 basis points. At a stock level all the talk is on SNAP, which has been taken to the cleaners in the after-market, with price down 23.5% and looking to test the IPO price of $17. There isn't much to like, with Q1 revenue 5.6% below consensus and detailing soft daily active users.
Outside of the US, there are some interesting opportunities though. The India Nifty 50 is a trend followers dream and is about as bullish a market as one will see. The Nikkei 225 is also in a strong trend higher and likely to test 20,000 on open and the highest level since November 2015. A break of this level and we should see a fairly quick move into 21,000 (the August 2015 highs) and with USD/JPY moving into ¥114.37 and the JPY weakening more broadly against the crosses, this index is also one which should be traded from the long side.
For traders who like expressing a view using Exchange-Traded Funds (ETF), then the EEM ETF (Emerging Markets ETF) looks beautiful from a trend perspective and trading at the highest levels since June 2015. The rally really started in December and has moved some 21% in that time, but the trend is strong and again the path of least resistance here is higher.
Our own ASX 200 has shown that it just doesn't want to break below 5833 (the top of the trading range in January to March) and we see an open today around the 5900 level. A move and close through 5906 (the 61.8% retracement of the May sell-off) would be positive and would increase probability that the index tests and breaks the recent high of 5965.
Naturally we will be watching the financials today, but if we look around the markets for other leads it seems materials and energy are where we will see the outperformance today.
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