Morning Report

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Good Morning ,

U.S. Markets closed lower.

Our market is expected to open 0.2% lower.

Research on APX, CCP and COF have been included.

Other News 

• ASX to slip, Wall St broadly lower, RBA rate decision pending - Australian shares are poised to open lower amid weakness overseas. The Australian dollar tumbled, US Treasury yields surged. Oil retook the $US100 a barrel mark. Stoking uncertainty was the prospect of heightening tensions between the US and China as well as comments from several Federal Reserve policymakers that there is a lot more work to do to check inflation.ASX futures were down 14 points or 0.2 per cent to 6893 near 6.30am AEST. The local currency tumbled 1.5 per cent; the Bloomberg spot dollar index was 0.8 per cent higher. On bitstamp.net, bitcoin was up 0.2 per cent to $US23,039.74 near 6.30am AEST. The yield on the US 10-year note leapt 18 basis points to 2.75 per cent at 4.33pm in New York, reports AFR.

• Chalmers holds firms against fuel excise relief - Treasurer Jim Chalmers has stared down calls by the Coalition to extend the fuel excise reduction, calling the move a poll-driven exercise that would cost the budget $3 billion. After Opposition Leader Peter Dutton and a handful of his backbenchers called for the extension, Dr Chalmers said the budget could not afford it. ‘‘We’ve inherited a budget which is absolutely heaving with a trillion dollars in Liberal Party debt. And when interest rates are rising, it actually costs more and more to service that debt,’’ he said., reports AFR.

• Gas prices fall as Santos, Origin consider Domestic Supply - Maintenance work at an LNG freezer in Queensland and a sudden bout of warm winter weather in south-eastern Australia have combined to lower gas and electricity spot prices, signalling a respite from the energy crisis that has gripped the eastern states. The respite comes a day after the federal government threatened to intervene in the gas market on the advice of the Australian Competition and Consumer Commission to avert a possible shortfall in domestic gas supply in the eastern states next year. Spot prices for gas on the east coast have fallen sharply after two months of extreme rates, although some manufacturers say they still are unable to source affordable supplies and are stuck on higher prices of well over $40 a gigajoule – the level of the price cap maintained by the Australian Energy Market Operator until last Sunday, reports AFR.

• Grain exports ‘will take months to recover’ - Ukraine’s infrastructure minister has warned it will take months before grain exports from Odessa and neighbouring ports reach prewar levels and alleviate the global food crisis, despite the relaxation of a Russian blockade in the Black Sea. Speaking after the departure yesterday of a ship transporting corn from Odessa to Lebanon – the first under a deal between Russia and Ukraine brokered by the UN last month – Oleksander Kubrakov said he expected no more than five vessels to leave in the next two weeks from Odessa, Chornomorsk and Pivdennyi, reports AFR.

• Global rally signals turn in sentiment - Global equities have added nearly 10 per cent in the past six weeks as investors shrug off signs of distress across the global economy, from higher interest rates to evidence of slowing Chinese growth and geopolitical instability in Ukraine and Taiwan. The MSCI All Country World Index, one of the best proxies for the global equity market and one that tracks trillions of dollars traded on bourses from New York to Mumbai and Tel Aviv to Tokyo, has jumped 9.2 per cent since the middle of June. The advance reflects a surge in US shares, which account for roughly half of the benchmark and have jumped 12 per cent since their June low, but also gains in other regions, including Australia, reports AFR.

Economic News 

• RBA Interest Rate Decision - The Reserve Bank of Australia raised the cash rate by 50 bps to 1.85% during its August 2022 meeting. The move followed a 50-bps hike in July and June and a 25-bps rise in May, bringing the cash rate to a level not seen since April 2016. The board said that rate hikes over recent months have been required to bring inflation down and to create a more sustainable demand and supply, adding that the RBA was committing to take further tightening but it is not on a pre-set path, as the size and timing will be guided by the incoming data. The committee noted that 2022 CPI would be around 7-3/4% and a little above 4% in 2023. The central bank reaffirmed its commitment to doing what is necessary to ensure inflation returns to target while paying attention to the global outlook, which stays clouded by the war in Ukraine, its effect on prices of energy and commodities, and China's anti-COVID measures. The board increased the interest rate on Exchange Settlement balances by 50 bps to 1.75%, reports Reserve Bank of Australia.

• Higher Rates tipped to bite - Third monthly 0.5pc cash rate lift Economic growth downgraded RBA may pivot to smaller hikes on way to 3pc. The Reserve Bank of Australia is tipped to moderate its recent frantic push to raise the official interest rate in an effort to stamp down rising inflation, with financial markets lowering expectations for September, reports AFR.

• Inflation surges on high demand and tight supply - Inflation is being pushed to multi-decade highs by constrained supply and higher demand, according to new economic analysis, supporting the Reserve Bank’s push to raise interest rates to curb price growth. The RBA has faced criticism for tightening monetary policy in response to rising inflation, as overseas pressures such as high global oil and food prices are unaffected by domestic monetary policy. But Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, said while supply was playing a large role in the current inflationary pulse, demand pressures were broadening, reports AFR.

• Productivity update reveals five lost years - The federal government failed to shift the dial on the most important metric to long-term living standards despite being handed a blueprint for growth by the Productivity Commission five years ago. A new report titled The Key to Prosperity showed 2020 topped off the worst decade for productivity growth in more than 50 years, which lowered wages growth and without correction will hold back national income. Despite a global slowdown in productivity, the update found that Australia was falling behind peer nations and has only maintained a ‘‘rich country’’ status through increasing the share of people in work, reports AFR.

• House prices to fall further: UBS - UBS expects house prices to fall 10 to 15 per cent, or worse if the Reserve Bank increases interest rates above the 3 per cent level, following a drop in house prices in July. Chief economist George Tharenou said expectations had been for a drop of at least 10 per cent. National dwelling prices dropped by 1.3 per cent in July, the largest decline since 1983, CoreLogic’s home value index shows, reports AFR.

• Australian Home Loans - The value of new loans granted for owner-occupied homes in Australia decreased by 3.3 percent from the previous month to AUD 20.50 billion in June 2022, compared with market forecasts of a 3.0 percent fall and reversing from a 2.1 percent rise in May. The decline mainly linked to falls in both purchases of newly erected dwellings (-2.7 percent vs 2.3 percent in May) and purchases of existing ones (-4.4 percent vs 0.3 percent). “Even with the June falls, the value of new owner-occupier loan commitments remained 50 percent higher than the pre-pandemic level in February 2020, and the value of new investor loan commitments remained 101 percent higher," said Katherine Keenan, ABS head of Finance and Wealth, reports Australia Bureau of Statistics.

• Listing jumps put heat on sellers - Residential listings jumped 7.1 per cent nationwide in July, with every capital notching up large rises fuelled by a rapid build-up in older stock, data from SQM Research shows. Stock levels rose 11.1 per cent in Brisbane, the largest increase across all cities, followed by Adelaide with a 9.9 per cent increase and Canberra (9.6 per cent). SQM Research managing director Louis Christopher said most sellers struggled to sell as demand plummeted.. reports AFR.

Other Stock News

• Appen (APX, $4.15, -27.23%, HOLD TP $5.87) - Investor confidence in former ASX darling Appen has taken another beating and a major question mark now hangs over management’s ability to turn around the flailing artificial intelligence data services company. The business, which had lost 85 per cent of its value since August 2020, lost another 27 per cent yesterday, falling to $4.15 per share, after releasing unaudited first half financial results to the market, revealing a 69 per cent fall in underlying EBITDA to just $US8.9 million ($12.68 million) for the first six months of the year, reports AFR.

• Brickworks (BKW, $21.24, 0.47%, HOLD, TP $20.23) - Australia’s largest brick-making company, Brickworks, says a final investment decision on whether to proceed with a proposed $20 million-plus bioenergy plant to help power a Sydney manufacturing facility is likely to occur in the next year as it steps up work on a project with ASX-listed Delorean Corporation. Brickworks and Delorean, a specialist operator in the field of bioenergy facilities where organic waste is converted to gas and electricity, on Tuesday said they were developing a partnership to try to prove up the commercial feasibility of a facility., reports AFR.

• CSL Limited (CSL, $296.85, 0.66%, UNDERPERFORM, TP $254.40) - Blood products giant CSL has received all regulatory clearances for its $US11.7 billion ($16.7 billion) acquisition of Switzerland’s Vifor Pharma, paving the way for the ASX-listed biotech to enter into new territory with iron deficiency and kidney products. It is welcome news for CSL management and investors, after the closing date for the deal was pushed out by several months while regulators sought more information. The acquisition, expected to close on August 9, is the third-largest outbound M&A deal for an Australian company. reports AFR.

• Ramsay Health Care Ltd (RHC, $70.57, -0.085%, HOLD, TP $75.93) - Ramsay Health Care and health insurer Bupa have failed to reach a new agreement, which means those covered by the nation’s largest private hospitals operator will need to pay more out-of-pocket costs after a transition period. In early May, Ramsay gave notice to terminate its hospital purchaser provider agreement (HPPA) with Bupa, one of Australia’s biggest private health insurers with an estimated 28 per cent market share. This was followed by a negotiation period. But takeover target Ramsay said yesterday the pair had not resolved key elements of a new contract and as a result it had been terminated, reports AFR.

• Regional Express Holdings Ltd (REX, $3.97, 6.02%) - Regional Express deputy chairman John Sharp says passengers usually loyal to Qantas or Virgin Australia are switching to his airline because of its superior on-time performance and cancellation record, powering a bumper start to the financial year that has bolstered confidence in Rex’s domestic arm. The airline, which launched interstate domestic services to accompany its regional flying only last year, will now introduce a seventh Boeing 737 jet to its fleet and is in ‘‘advanced discussions’’ to acquire two more this year, reports AFR.

• Telstra Corporation Limited (TLS, $3.97, 0.00%. UNDERPERFORM, TP $3.50) - Telstra chief executive Andy Penn – a long-time critic of the NBN Co’s pricing model – has praised new Communications Minister Michelle Rowland for her profound change to the government’s telecommunications policy. ‘‘Michelle and the current government are thinking about telecommunications and the role it plays in the digital future of this country and NBN is an important part of that,’’ he said in an interview with The Australian Financial Review. ‘‘The point I’ve always made to government is you need to think about the telecommunications network through the lens of the digital economy, not through the lens of the NBN, reports AFR.

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Kind regards,

Russell Wright

General Manager of Research

Barclay Pearce Capital

russell@barclaypearce.com.au

02 8288 6900  

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The research analyst(s) identified on the cover of this report individually certify that in respect of each security or issuer that the research analyst covers that: this report accurately reflects his or her personal views about any and all of the subject issuer(s) or securities; and no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by the research analyst(s) in this report.

Barclay Pearce Capital provides research services to its client. Mr Wright is General Manager of Research and has over thirty (30) years’ experience in the financial services industry, particularly in financial analysis and research report writing. Mr Wright joined the Barclay Pearce Capital team in 2020 where he has been involved in the research and publication of reports. Prior to this Mr Wright worked at a number of entities where he held Director/Head of Research and General Manager of Research positions. Mr Wright holds a Bachelor of Mathematics (Honours) from Edinburgh University, is a qualified Chartered Accountant and has completed the SDIA Accreditation Program (RG146) through DeakinPrime.

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Free Float (float / current shares outstanding) *100 – This float figure is the number of shares that are available to the public and is calculated by subtracting the shares held by insiders and those deemed to be stagnant shareholders. Stagnant holders include ESOP's, ESOT's, QUEST's, employee benefit trusts, founding shareholder equity stake plus senior management equity stake, corporations not actively managing money, venture capital companies and shares held by Governments.

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