ASX 200 LIVE: Shares slump; AGL to buy $150m Kaluza shares; Beach Energy flags $400m hit; Bain bids for Bapcor; oil jumps. (2024)

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US Fed jitters hits ASX as miners tumble

Cecile Lefort

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Australia’s sharemarket suffered the biggest daily drop in six weeks as investors braced for the US Federal Reserve to push back on immediate rate cuts at its policy meeting this week.

Political uncertainty also weighed on the mood after the far-right made big advances in European elections and an ensuing surprise poll in France revived concerns about the future of the bloc.

The benchmark S&P/ASX 200 slumped 1.3 per cent, or 104.6 points, to 7755.4, reversing some of last week’s 2 per cent advance after two major central banks buoyed hopes of lower borrowing costs.

The All Ordinaries also dropped 1.3 per cent.

Mining sell-off

Of the 11 sectors, 10 flashed red led by a heavy sell-off in materials and interest-rate-sensitive property stocks.

Index-heavy BHP shaved off 1.8 per cent to $43.74, Rio Tinto fell 1.9 per cent to $122.91 and Fortescue retreated 3.2 per cent to $23.6, tracking a sharp drop in iron ore prices on concerns over demand in top consumer China.

South32 dived 5.2 per cent to $3.67.

Gold miners also took a beating after the price of the precious metal suffered the biggest drop in three years on Friday, when a strong US jobs report dashed rate-cut hopes. Reports that China’s central bank is holding off gold purchases further undermined demand.

Gold is sensitive to higher interest rates as they increase the opportunity cost of holding non-yielding bullion.

West African Resources was the second-biggest laggard on the index, down more than 9 per cent to $1.395, while Ramelius, St Barbara and Bellevue Gold all shed more than 7 per cent.

“This isn’t just a gold focus but, broadly, materials plays are out of favour,” said Chris Weston, head of research at Pepperstone.

“Investors are managing risk and assessing exposures ahead of the ‘big two’ event risks, with US CPI data and the Fed meeting throwing up the potential for rates volatility, and sizeable moves in higher beta equity and gold.”

Indeed, investors turned cautious ahead of key US consumer price data on Wednesday (AEST) and a Fed rate announcement on Thursday (AEST) where the central bank is expected to keep rates on hold but alter its quarterly projections to fewer rate cuts than forecast earlier in the year.

Traders have dialled back expectations for US rate cuts after Friday’s strong US job report. The market is pricing in a 50 per cent chance of a Fed rate reduction in September from 70 per cent before the data.

In Australia, the market implies a one-in-three chance of a Reserve Bank will rate cut by Christmas. It is fully priced for a move by July next year.

ANZ’s economic team also pushed out the likely timing of the first rate cut to February from November this year, and it expects two more after that.

Stocks on the move

The big four banks all finished weaker with Westpac and National Australia Bank falling more than 1 per cent to $26.69 and $34.87, respectively.

In corporate news, AGL Energy fell 1.7 per cent to $10.31 as it plans to spend $150 million to take a 20 per cent stake in Kaluza, a technology platform that manages electricity supply and billing.

And automotive parts retailer Bapcor was among the index’s top performers, soaring 14 per cent to $4.97 after receiving an unsolicited bid from US-based Bain Capital to buy its shares at $5.40 apiece. It was Bapcor’s biggest gain in four years.

Collins Food Drew O’Malley steps down as chief executive

Cecile Lefort

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Collins Food chief executive Drew O’Malley will step down to focus on his family and Kevin Perkins will remain in the role of interim chief.

ANZ raises $4.25 billion in bonds

ANZ Group has sold $4.25 billion in three and five-year bonds at a margin of 70 basis points and 86 basis points over swap and bank bill swap.

The heavily oversubscribed self-led offer attracted $5.8 billion in bids, allowing the issuer to pay a margin at the tight end of the marketing ranges.

The three-year bonds started at 73 basis points over swap and the five-year bonds around 90 basis points.

The final offer consisted of four tranches:

  • $1.9 billion in three-year floating rate notes (FRN).
  • $300 million in three-year fixed notes.
  • $1.55 billion in five-year FRN.
  • $500 million in five-year fixed notes.

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FIRB approves Saint-Gobain’s CSR takeover

Cecile Lefort

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The Foreign Investment Review Board has approved the takeover of CSR by French building materials giant Saint-Gobain.

The deal is subject to shareholder approval at the scheme meeting on June 13.

Saint-Gobain is offering $9 a share in a deal that values the Australian company at $4.3 billion.

Moody’s warns that Queensland budget will lift its “debt burden significantly higher”

Cecile Lefort

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Ratings agency Moody’s warns that lower mining royalties and record capital spending will drive Queensland’s debt burden significantly higher after the state released its budget.

The rating agency notes that Queensland projects’ commodity prices, particularly coal, will continue to moderate to more “normal” levels amid record capital spending and a deeper fiscal deficit over the four years.

All these factors are “credit negative”, Moody’s says.

“We consider underlying global inflation pressures and an uncertain monetary policy outlook as posing downside risks to the state’s growth outlook.”

Moody’s rates Queensland Aa1 with a stable outlook.

Queensland’s budget erodes rating headroom: S&P

Cecile Lefort

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Rating agency S&P Global says waning fiscal discipline, revenue headwinds, and a growing infrastructure pipeline are eroding the buffer of its AA+ rating on Queensland.

“Today’s budget highlights large cost-of-living measures in the lead up to the October 2024 election, more infrastructure spending, and the Australian state’s softer revenue outlook,” it says.

Infrastructure spending will mean gross debt will continue to climb, after a temporary decline in 2023 as operating revenues spiked, it notes.

Even so, the agency concludes the state’s debt levels will remain similar to its domestic peers, rated AA+.

“Queensland’s economy, financial management, and comprehensive liquidity coverage support our ratings and the stable outlook,” S&P Global says.

Iron ore tumbles to 2-month low on concerns over weakening China demand

Reuters

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Iron ore futures fell to a two-month low today, weighed down by lingering weak fundamentals and concerns over demand prospects in top consumer China following the latest carbon emission plan for the steel sector.

The most-traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) ended morning trade 3.69 per cent lower at 810 yuan ($US111.68) a metric ton, the lowest since April 11. The Chinese futures market was closed on Monday for the Dragon Boat Festival.

The benchmark July iron ore on the Singapore Exchange was 0.9 per cent lower at $US104.45 a ton, as of 0334 GMT, the lowest since April 9.

Iron ore supply has risen while demand has softened and showed little room for improvement, analysts at Sinosteel Futures say in a note, adding that high port-side inventory weighed on the market.

Hot metal output will have to be reduced by 46 million tons in 2024 if steelmakers are to enforce the carbon emission plan stringently, analysts at Jinrui Futures say in a note, forecasting daily hot metal output at 2.27 million tons from June to December.

Last Friday, China’s state planner issued a special action plan on conserving energy and reducing emissions of carbon dioxide in the steel sector. It aims to reduce emissions by about 53 million tons between 2024 and 2025.

Ore prices were also pressured by the scepticism about the effect of various property stimuli on real steel demand.

China’s efforts to clear massive inventory by turning unsold homes into affordable housing are unlikely to help cash-strapped developers due to the program’s limited size and potentially low prices, analysts and developers say.

How China’s ‘big short’ moment catapulted Tribeca to big returns

Joshua Peach

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It was the summer of 2021 when Tribeca credit manager John Stover first heard rumblings about Chinese officials becoming increasingly concerned about the state of their nation’s property developers.

At the top of their list was China’s second-largest property developer, Evergrande.

Those rumblings were to prove the beginning of one of Stover’s best trades and one of the country’s greatest economic challenges.

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ASX tumbles as BHP, gold stocks drop

Cecile Lefort

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Australian shares deepened losses in early afternoon trading on Tuesday as investors braced for the US Federal Reserve to push back on immediate rate cuts at its policy meeting this week.

Political uncertainty weighed on the mood after the far right made big advances in the European elections and an ensuing surprise poll in France revived concerns about the future of the bloc.

The S&P/ASX 200 was down 1.4 per cent or 108.5 points at 7751.5, reversing some of last week’s 2 per cent advance after two major central banks buoyed hopes of lower borrowing costs. The All Ordinaries also dropped 1.4 per cent.

The ASX was closed on Monday for a public holiday. Of the 11 sectors, 10 flashed red led by a heavy sell-off in materials stocks and utilities.

Index-heavy BHP shaved off 1.9 per cent, Rio Tinto fell 1.8 per cent and Fortescue retreated 2.8 per cent, tracking lower iron ore prices in Asia.

Gold miners also took a beating after the price of the precious metal suffered the biggest drop in three years on Friday when a strong US jobs report dashed rate-cut hopes and reports that China’s central bank was holding off gold purchases.

Gold is sensitive to high interest rates as they increase the opportunity cost of holding non-yielding bullion.

West African Resources was the biggest laggard on the index, down more than 9 per cent, while Ramelius, St Barbara and Bellevue Gold shed more than 6 per cent.

“This isn’t just a gold focus but broadly materials plays are out of favour,” said Chris Weston, head of research at Pepperstone.

“Investors are managing risk and assessing exposures ahead of the ‘big two’ event risks in the session ahead, with US CPI and the Fed meeting throwing up the potential for rates volatility, and sizeable moves in higher beta equity and gold.”

Rate hopes dented

Indeed, investors turned cautious ahead of key US consumer price data on Wednesday and a Fed rate announcement on Thursday (AEST) where the central bank is expected to keep rates on hold but alter its quarterly projections to fewer rate cuts than forecast earlier in the year.

Traders have dialled back expectations for US rate cuts after Friday’s strong US job report. The market is pricing in a 50 per cent chance of a rate reduction in September from 70 per cent before the data.

Bond yields jumped with policy-sensitive three-year yields rising 9 basis points to 3.99 per cent and the 10-year benchmark adding 10 basis points to 4.34 per cent.

Local traders imply a one-in-three chance of an Reserve Bank rate cut by Christmas and are fully priced for a move by July next year. On Tuesday, ANZ also pushed back the likely timing of the first rate cut to February next year from November this year and expects two more after that.

The Australian dollar bounced to US66¢ from a one-month low of US65.74¢ hit on Monday.

Stocks in focus

AGL Energy fell 1.4 per cent after it announced it would spend $300 million over the next four years after signing a partnership with Ovo’s Kaluza smart energy platform. It will also take a 20 per cent direct stake in Kaluza.

Automotive parts retailer Bapcor was among the index’s top performers, up nearly 13 per cent after receiving an unsolicited offer from Bain Capital to buy 100 per cent of its shares at $5.40 in a scheme of arrangement.

New Zealand electricity retailer Mercury rallied 2.7 per cent after appointing Stewart Hamilton as chief executive after Vince Hawksworth decided to retire.

Beach Energy eased 0.3 per cent after flagging up to $400 million in impairment charges.

Gold stocks retreat ahead of ‘big two’ events this week

Cecile Lefort

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Gold miners took a beating today after the price of the precious metal suffered the biggest drop in three years on Friday, when a strong US jobs report dashed interest rate cut hopes.

Gold is sensitive to high rates as they increase the opportunity cost of holding non-yielding bullion.

West African Resources was the biggest laggard on the index, down more than 9 per cent, and Ramelius, St Barbara and Bellevue Gold shed more than 6 per cent.

“This isn’t just a gold focus but broadly materials plays are out of favour,” says Chris Weston, head of research at Pepperstone.

“Investors are managing risk and assessing exposures ahead of the ‘big two’ event risks in the session ahead, with US CPI and the Fed meeting throwing up the potential for rates volatility, and sizeable moves in higher beta equity and gold.”

Spot prices eased 0.3 per cent to $US2303.8, having dipped to $2286.50 on Friday. Further undermining the mood was a report that China’s central bank was holding off gold purchases.

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ASX 200 LIVE: Shares slump; AGL to buy $150m Kaluza shares; Beach Energy flags $400m hit; Bain bids for Bapcor; oil jumps. (2024)
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