The benchmark S&P/ASX200 index shed 0.3 per cent at the open, as some mining stocks nad the big four banks continued to weigh on the index after yesterday’s sell-off.
The utilities sector was the biggest support to the index, suggesting investors were still seeking safer assets after yesterday’s 0.8 per cent market drop. Financials, industrials and energy stocks provided the drag. The big four banks shed between 0.5 to 1 per cent, with the exception of NAB which was only down 0.1 per cent.
CSL was a large drag on the index, declining 0.5 per cent after informing shareholders it was delaying its share buyback scheme.
Gold miners took a hit, posting some of the biggest percentage declines of the morning, with Newcrest Mining off 2.7 per cent, Evolution Mining down 3.2 per cent and Northern Star Resources off 4.5 per cent. This meant the materials index started the day lower. But BHP and Rio both gained at the open, up 0.7 per cent and 0.8 per cent respectively, while medical stocks like Blackmores and Sirtex Medical recovered some ground after poor showings yesterday, up 1.1 per cent and 5.6 per cent respectively.
“Selling dried up on international markets last night and this is likely to translate into a relatively steady open for the ASX 200 this morning,” said CMC Markets chief market analyst Rick Spooner.
“While investors will be relieved that yesterday’s selling looks unlikely to be repeated today, it’s too early to assume yesterday was a one day wonder. Markets have clearly decided that the US political situation has the potential to knock stock valuations off their relatively high perch. The size of yesterday’s downward move and the clear break through index support levels, suggest that more evidence will be required to conclude that last night’s market action is any more than a wait and see pause.”
The ASX200 at the open Photo: Myriam Robin
oOh!media and APN Outdoor’s $1.6 billion merger is understood to have been called off after the competition regulator raised a number concerns around the possible dominance of the new entity in the out-of-home advertising market.
The merger of equals, revealed by The Australian Financial Review in December, would have created a company with 55 per cent of out out-of-home market.
The nixing of the merger will disappoint the two companies and shareholders who had been arguing the out-of-home advertising market was only a small proportion of the overall advertising market.
Key to the Australian Competition and Consumer Commission’s statement of issues released on May 4 was that it did not look at the total Australian advertising market, rather it focused on just the out-of-home (our outdoor marketing) sector.
APN Outdoor chairman Doug Flynn and oOh!media CEO Brendon Cook. Photo: Christopher Pearce
What’ll be the impact on the sharemarket if President Trump is impeached? For the US, an 11 per cent drop is the order of it, according to the world’s largest hedge fund Bridgewater Associates.
In a note sent out yesterday, Bridgewater’s Greg Jensen and Jason Rotenberg set out their thoughts on “navigating markets during times of extreme political uncertainty.”
A day earlier on May 17, US stocks fell by the most in eight months after a report that President Donald Trump in February asked the FBI director whom he fired last week to drop an investigation into former National Security Adviser Michael Flynn.
Jensen and Rotenberg made clear in the note that they’re not political experts, and that they’re not predicting an impeachment, or in fact making any political predictions. The duo instead cited political prediction markets that put the odds of Trump leaving office before finishing his term at nearly 50 per cent, and focused on the potential impact of such a move on markets.
“Wednesday’s market action was a big one-day move, but not a material repricing of likely outcomes,” the note said. “While the change in pricing was not big, it was consistent with higher odds of the administration getting bogged down and higher risks of it being unable to deal with any potential shocks effectively.”
“If impeachment materialises,” Jensen and Rotenberg estimate:
- An 11 per cent drop in US equities
- A 12 per cent drop in European equities
- A 16 per cent drop in Japanese equities
- A 0.8 per cent drop in US 10-year yields
- A 14 per cent increase in the price of gold
- A 16 per cent move in JPY/USD
Markets have found their feet after Wednesday night’s Trump slump, writes IG strategist Chris Weston:
Politics continues to be the dominant driver of financial markets, although some traders were caught in a mini flash crash in GBP/USD, which fell 90-odds points in a minute. For institutional investors though, the focus has shifted somewhat away from Donald Trump to Brazil, where President Temer refuses to step down despite allegations of bribery.
This focus will revert back next week, notably with former FBI director James Comey set to testify to the Senate mid-week and that promises to be an absolute must-watch event.
On the ASX it’s all eyes on banks again and after an 8% pullback (in the financial sector) one questions if we do start seeing some brave soul starting to wade back in. The shorts will certainly be watching price action and any signs of buying will likely cause a few to cover.
The massive flows into emerging market funds this year have been partially driven by a goodwill towards reform in Brazil, resulting in the Brazilian stock market gaining close to 90% from January 2016 to February 2017. The BRL (Brazilian real) has performed admirably during that time, and traders who largely bought into the idea of reform have had to do a rethink here. Where else have we felt that? Either way, Brazilian assets have rightful been whacked overnight.
BHP looks like it will open around 1% higher, based on the moves in the American Depository Receipt, while Vale’s US-listing closed down over 6%, although this is a reflection of its exposure to Brazil and not indicative to how the Aussie mining sector may trade. Spot iron ore did fall 1%, but Dalian futures are a touch stronger and steel futures have pushed up 2.2% – all a bit messy really.
Brazilian President Michel Temer. The goodwill towards a recovery in Brazil has been a major driver of optimism around emerging markets. Photo: Igo Estrela
There’s not a massive amount of corporate news around this morning, but ASX-listed heavyweight Computershare has issued a statement this morning confirming it is in talks with interested parties about selling its 50 per cent stake in Karvy Computershare.
The release follows reports in the Indian media suggesting as much, which the company says it is aware of.
But, the company warned, “there is no certainty that Computershare will continue to participate in discussions or that a transaction will eventuate”.
A report in India’s Economic Times newspaper posted overnight said private equity funds Blackstone and General Atlantic are in talks to purchase a 74 per cent stake in Karvy Computershare, which is India’s largest share registry company. The discussions come, the paper claimed, as Computershare looked to exit its Indian business. Computershare was not quoted in the piece, while Blackstone and General Atlantic declined to comment.
In the February reporting season, Computershare lifted its full year earnings per share guidance, and delivered a sharp gain in first-half profits off the back of a successful cost savings program. The company has been divesting of some of its assets, having disposed of its Australian head office and its investment in US-based Inveshare last year.
Computershare CEO Stuart Irving. Photo: Patrick Scala Back to top
And here are the overnight highlights by numbers:
- SPI ASX futures down 3 points to 5727
- AUD -0.2% to 74.21 US cents (Overnight range: 74.08 – 74.67)
- On Wall St, Dow +0.3%, S&P 500 +0.4%, Nasdaq +0.7%
- In New York, BHP +1.4%, Rio +0.8%
- In Europe, Stoxx 50 -0.6%, FTSE -0.9%, CAC -0.5%, DAX -0.3%
- Spot gold -1.1% to $US1247.47 an ounce
- Brent crude +0.6% to $US52.51 a barrel
- Iron ore -1% to $US61.60 a tonne
- Dalian iron ore +0.4% to 476 yuan
- Steam coal +0.3% to $US74.05, Met coal +0.0% to $US174.50
- LME aluminium -1% to $US1905 a tonne
- LME copper bid down 1.8% to $US5507
- 10-year bond yield: US 2.23%, Germany 0.34%, Australia 2.50%
- Brazil’s 10-year yield surged 176 basis points to 11.76%
On the economic calendar today:
- Nothing on the local agenda. Only data of note tonight is Canadian inflation and retail sales figures.
Stocks to watch:
- Oil Search, Invocare and Syrah Resources annual meetings scheduled
- Sydney Airport April traffic data due
- NIB cut to sell at Shaw
- Qube cut to underperform at Credit Suisse
- Independence Group raised to neutral at Goldman
- Western Areas raised to neutral at Goldman, but cut to sell at UBS
- OZ Minerals raised top buy at Goldman
Call that a political crisis? This is a crisis.
Brazil’s currency, stocks and bonds have tumbled as a fresh political crisis ensnared President Michel Temer and threatened to derail an agenda designed to pull Latin America’s largest economy out of its deepest recession on record.
Brazil’s political crisis deepened as government allies began discussing scenarios for the replacement of Temer after federal police carried out search and arrest warrants throughout the capital. The operation came after O Globo newspaper reported on leaked testimony indicating that Temer approved payoffs to buy the silence of Eduardo Cunha, the mastermind behind last year’s ouster of former president Dilma Rousseff.
The presidential press office vehemently denied the allegations. Very early this morning, Sydney time, Temer told reporters he had nothing to hide and would not be stepping down.
Trading on the Ibovespa exchange briefly came to a halt, with state-owned companies from Petroleo Brasileiro to Banco do Brasil among the worst losses. The real posted its biggest slide since 2008 even after the central bank intervened to support the currency. The premium investors demand to own the nation’s sovereign bonds rather than US Treasuries jumped the most since June 2013.
“Markets will overreact, but the reality is that Brazil is rooting out the corruption that has plagued it for centuries,” said James Gulbrandsen, a Rio de Janeiro-based portfolio manager at NCH Capital who holds Brazilian shares. “This significantly increases the likelihood of new elections within the coming months.”
The iShares MSCI Brazil Capped exchange-traded fund plunged 16 per cent.
Brazil’s currency futures plunged in early trading, triggering a circuit breaker. The real and Brazil’s benchmark sharemarket index both slumped in the vicinity of 9 per cent.
Wall Street managed a modest recovery overnight from its biggest sell-off in more than eight months, helped by strong US economic data, but uncertainty over President Trump’s agenda kept an index of global equity markets near a three-week low.
The US dollar reversed early losses against a basket of major currencies after stronger-than-expected American economic data put the focus back on a widely anticipated increase in interest rates by the Federal Reserve.
“We could be just shaking off the jitters here. Yesterday, investors were really worried,” said Janna Sampson, co-chief investment officer at OakBrook Investments in Illinois.
Still, reports that Trump had tried to intervene in an investigation of alleged Russian meddling in last year’s presidential election, and that his aides had numerous undisclosed contacts with Russian officials, kept markets concerned over his ability to implement his economic agenda.
Investors were likely relieved, Ms Sampson said, by Wednesday night’s appointment of former FBI chief Robert Mueller to investigate alleged Russian interference in the election and possible collusion between Trump’s campaign and Moscow.
“Whatever the (investigation) result, people feel they might have confidence it’s an accurate, unbiased result,” she said.
Earlier in the session, the Philadelphia Federal Reserve said its business activity index rose in May after declining for two months. Weekly unemployment data also pointed to strength in the labor market.
The Dow Jones rose 0.3 per cent, the S&P 500 gained 0.4 per cent, and the Nasdaq added 0.7 per cent.
Wall St steadied overnight. Photo: The New York Times
Good morning and welcome to the Markets Live blog for Friday.
Your editors today are Myriam Robin and Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.