ASX rallies above 7000 as traders price in RBA rate cuts

The chairman of pubs and liquor retailing giant Endeavour Group has hit back at 15 per cent shareholder Bruce Mathieson’s torrent of criticism, telling Endeavour’s 420,000 shareholders to be “wary of selective and incomplete information”.

Peter Hearl, who has been chairman of Endeavour since it split from supermarket operator Woolworths in mid-2021, declared the board was acting in the interests of all shareholders, not just one.

The correspondence represents a ramping up of Endeavour’s defence of its performance and strategy under chief executive Steve Donohue, after almost two weeks of fierce criticisms from Mr Mathieson, whose son Bruce Mathieson jnr is on the Endeavour board. Mr Mathieson wants to add Bill Wavish, a former Myer and Dick Smith Electronics chairman, to shake up the business.

Endeavour operates 266 Dan Murphy’s stores, 1435 BWS liquor stores and 354 hotels with 12,700 poker machines.

The letter from Mr Hearl accuses Mr Mathieson of providing an incomplete picture to shareholders, and disregarding the disruptions posed by the COVID-19 pandemic. It rejects that costs are out of control, as Rich Lister Mr Mathieson has asserted.

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Canadian asset manager Brookfield’s dream of funding (and profiting from) Australia’s energy transition is alive, but it will likely need to cough up another few billion dollars if it is to win Origin Energy’s looming takeover war.

In a big victory, Brookfield has convinced the competition regulator that it is in Australia’s interest for it to own and run Origin’s energy markets business, even though it is a big owner of other energy infrastructure and provided questionable evidence in its submissions.

The Australian Competition and Consumer Commission decided Brookfield was better placed to speed up investment in wind farms and batteries and turn the national electricity market green, and replace fossil fuel generation earlier than would otherwise occur.

That public benefit was enough to make up for the fact it may substantially lessen competition, in the ACCC’s view, in what was clearly a tortured decision accompanied by undertakings and testing and retesting evidence and submissions.

One of the deciding factors was the specific Brookfield fund that turned up for Origin.

Read more.

Oaktree Capital Management’s David Rosenberg says he’s a pessimist by profession.

Credit, or corporate debt investors, aren’t rewarded if they make a good investment, but they’re punished if they buy a bond or loan and a company runs into trouble.

Rosenberg, however, says this is a rare moment when he feels optimistic. High-yield or sub-investment grade debt is paying double-digit returns and that means it is far more compelling to lend to a company rather than own its shares.

“The very reason that debt is attractive, in my view, is the same reason equities are less attractive,” he tells The Australian Financial Review.

Rosenberg is a managing director and co-portfolio manager of Oaktree’s high-yield bond strategy for the $US169 billion ($264 billion) firm that has a near 30-year pedigree.

“Money is more expensive, so you’re not going to be able to borrow as much,” he adds.

Read more.

The S&P/ASX 200 has rallied back above 7000, buoyed by dovish comments from US Federal Reserve members and positive signs of inflation easing in NAB’s monthly business survey.

The benchmark was up 78 points, or 1.1 per cent, to 7048, after the gauge traded below the 7000 threshold for most of the past week. The All Ordinaries posted similar gains on Tuesday.

All 11 sectors are in the green, with rate-sensitive tech and real estate stocks up more than 2 per cent.

Utilities stocks are the best performing, up 3.9 per cent, buoyed by a 4.8 per cent gain in Origin Energy after Australia’s competition watchdog approved an $18.7 billion buyout offer for the electricity and gas wholesaler.

Meanwhile, energy stocks are 1.3 per cent higher as crude oil held on to yesterday’s gains amid still-escalating violence in the Middle East. Woodside and Santos are up 1.3 per cent and 0.9 per cent, respectively.

Traders re-price RBA cuts

Overnight in the US, Fed officials suggested the recent surge in long-term Treasury yields may reduce the need for the US central bank to raise its benchmark interest rate again. Wall Street rallied following the comments, sending the Dow and the S&P 500 both up 0.6 per cent, and Nasdaq 0.4 per cent higher.

Closer to home, NAB’s September business survey showed labour cost growth eased to 2 per cent in quarterly equivalent terms, and purchase cost growth actually declined to 1.8 per cent. Overall price growth also eased to 1 per cent.

Australian bonds pricing now implies a 45 per cent chance of an increase from the Reserve Bank by May next year from 52 per cent yesterday and 74 per cent last week. Traders also reintroduced the chance of a rate cut, ascribing a 31 per cent chance by December next year. That was from zero chance last week.

Independent economist Stephen Koukoulas said the NAB survey figures were “the nail in the coffin for the interest rate hiking scenario”.

“When you do a little bit of very simple correlation work between what businesses are saying about prices, costs and inflation, it’s obvious that inflation will fall back to the target much sooner than the RBA is currently thinking,” he said.

Stocks to watch

Origin Energy is up 4.8 per cent. Australia’s competition watchdog has authorised the $18.7 billion buyout of the ASX energy giant by Brookfield and MidOcean.

Weebit Nano bounced 6 per cent after the company confirmed its Israel-based operations had been unaffected by the Hamas-led attacks over the weekend.

Core Lithium is up 7.4 per cent after being upgraded to a neutral rating by analysts at Citi. Pilbara Minerals and IGO were upgraded to buy in the same report and have jumped 5.1 per cent and 3.7 per cent, respectively.

Chairman of Lynas Rare Earths Kathleen Conlon will step down from her role at the end of November after 12 years with the WA miner. Shares gained 2 per cent.

Reece shares trade ex-dividend. Chorus pays its dividend to investors.

Dovish US Federal Reserve comments and signs of price pressures easing in NAB’s latest business survey have bond traders winding back rate hike expectations and pricing in cuts.

The bank’s September business survey showed prices and costs growth were stepping down, with labour cost growth easing to 2.0 per cent in quarterly equivalent terms, and purchase cost growth actually declining to 1.8 per cent. Overall price growth also eased to 1.0 per cent.

The news has further bolstered a dovish market sentiment first spurred by overnight comments from US Federal Reserve members, who suggested the recent surge in long-term Treasury yields may reduce the need for the US central bank to raise its benchmark interest rate again.

Following the news, equity markets have rallied, with the S&P/ASX 200 up more than 1.3 per cent, and Australian bond traders have pushed back rate hike expectations. Markets are now implying a 45 per cent chance of an increase by May next year from 52 per cent yesterday and 74 per cent last week.

They have also reintroduced the chance of a rate cut by late next year, ascribing a 31 per cent chance by December. That was from zero chance last week.

ANZ senior economist Adelaide Timbrell noted that most of the survey’s cost and price measures had hit at their weakest level since late 2021.

“While we still consider the RBA November meeting live, this slowdown in cost pressures adds to the likelihood that the RBA will continue with its extended pause,” she said.

Going further, independent economist Stephen Koukoulas called the NAB survey figures “the nail in the coffin for the interest rate hiking scenario”.

“When you do a little bit of very simple correlation work between what businesses are saying about prices, costs and inflation, it’s obvious that inflation will fall back to the target much sooner than the RBA is currently thinking,” he said.

“All of the indicators are pointing to lower inflation. That means no more rate hikes, and it means the possibility of rate cuts moving onto the agenda.”

National Australia Bank’s monthly businesses survey has shown “a welcome sign for the broader inflation outlook”, according to the bank.

The survey’s results showed that price and cost growth stepped down in the month. Labour cost growth eased to 2.0 per cent in quarterly equivalent terms, and purchase cost growth declined to 1.8 per cent.

Overall price growth also eased to 1.0 per cent, and while retail price growth was unchanged at 1.8 per cent, recreation and personal services price growth eased to 0.8 per cent.

“The survey showed some positive signs for inflation with cost pressures and price growth easing in the month,” said NAB chief economist Alan Oster.

“Minimum wage impacts and movements in oil prices have caused some volatility in cost pressures recently but the September survey results suggest the easing trend seen earlier in the year may continue.

Mr Oster said the upcoming Q3 CPI release was still expected to show strong inflation for the quarter as a whole with energy, rents, and a range of services prices likely to contribute strongly.

“Nonetheless, the September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook,” he added.

The S&P/ASX 200 is rallying more than 1 per cent and has broken back above 7000, buoyed by dovish comments from US Federal Reserve members and positive signs of inflation easing in NAB’s recent business survey.

The benchmark was up 78 points, or 1.1 per cent, to 7048, as of noon, after the gauge traded below the 7000 threshold for most of the past week. The All Ordinaries posted similar gains on Tuesday.

All 11 sectors are in the black. Utilities stocks are the best performing, up 3 per cent, buoyed by a 4.5 per cent gain in Origin Energy after the competition watchdog approved an $18.7 billion buyout offer for the electricity and gas wholesaler.

Meanwhile, energy stocks are 1.4 per cent higher as crude oil held on to yesterday’s gains amid still-escalating violence in the Middle East. Woodside and Santos are up 1.3 per cent and 1.7 per cent, respectively.

Brent crude is largely flat at $US87.95 per barrel, while WTI is priced at $US86.19 a barrel. Both oil benchmarks jumped more than 4 per cent on Monday.

Bond traders re-price in RBA hikes

Dovish US Federal Reserve comments and signs of price pressures easing in NAB’s latest business survey has bond traders winding back rate hike expectations and pricing in cuts.

Overnight in the US, FOMC members suggested the recent surge in long-term Treasury yields may reduce the need for the US central bank to raise its benchmark interest rate again. Wall Street rallied following the comments, the Dow and the S&P 500 both gained 0.6 per cent, while the Nasdaq increased 0.4 per cent.

Closer to home, NAB’s September business survey showed labour cost growth had eased to 2.0 per cent in quarterly equivalent terms, and purchase cost growth actually declining to 1.8 per cent. Overall price growth also eased to 1.0 per cent.

Following the news, Australian bonds pricing now implies a 45 per cent chance of an increase by May next year from 52 per cent yesterday and 74 per cent, last week. Traders have also reintroduced the chance of a rate cut by late next year, ascribing a 31 per cent chance by December. That was from zero chance last week.

Independent economist Stephen Koukoulas called the NAB survey figures “the nail in the coffin for the interest rate hiking scenario”.

“When you do a little bit of very simple correlation work between what businesses are saying about prices, costs and inflation, it’s obvious that inflation will fall back to the target much sooner than the RBA is currently thinking,” he said.

Stocks to watch

Origin Energy is up 4.5 per cent. Australia’s competition watchdog has authorised the $18.7 billion buyout of the ASX energy giant by Brookfield and MidOcean.

Weebit Nano bounced 6.7 per cent after the company confirmed its Israel-based operations had been unaffected by the Hamas-led attacks over the weekend.

Newcrest Mining is down 1.1 per cent. The takeover target is set to appear in court for a second time on October 17 to approve its proposed buyout by global gold mining giant Newmont. The deal still requires shareholder approval.

Chairman of Lynas Rare Earths Kathleen Conlon will step down from her role at the end of November after 12 years with the WA miner. Shares gained 2.4 per cent.

Reece shares trade ex-dividend. Chorus pays its dividend to investors.

Oil held on to its biggest jump in six months as Israel said its retaliation for the weekend deadly attacks by Hamas had “only started,” increasing the prospect of fresh instability as the fighting enters its fourth day.

West Texas Intermediate was little changed after surging 4.3 per cent on Monday, as markets reacted to fighting that began on Saturday, reigniting a conflict with broad repercussions across the region. Israel has announced its largest-ever mobilisation of more than 300,000 army reservists as it attacked Gaza from the air and sea, with Prime Minister Benjamin Netanyahu vowing to “change the Middle East”, while Hamas threatened to execute hostages.

The conflict has ratcheted up oil’s volatility, following sizable swings over the past month as economic concerns weighed on a rally following supply cuts by Saudi Arabia and Russia.

While Israel’s role in global oil supply is limited, the outbreak that has left more than 1500 people dead threatens to embroil both the US and Iran. Any retaliation against Tehran, which supports Hamas, could endanger the passage of vessels through the Strait of Hormuz, a key passageway for much of the world’s crude, one that Iran has previously threatened to close.

Iran denied on Monday that it was involved in the assault.

The Australian dollar stood taller on Tuesday, having regained some territory above the US64¢ mark despite investors’ flight to safety because of the weekend deadly attacks by Hamas from the Gaza strip on neighbouring Israel.

The $A traded at US64.22¢, extending Monday’s gains as its US counterpart softened on cautious comments from US Federal Reserve officials about the need for further tightening. If sustained, it would be the fifth consecutive session of gains for the Aussie.

The $A dropped to an 11-month low of US62.83¢ last week. It has shaved off 5.8 per cent this year, largely on interest rate differentials between the US and Australia.

Also helping the $A is a small reduction in speculative short contracts fund managers.

Real money accounts trimmed net shorts in the $A to 82,100 contracts in the week ended October 3, from 96,700 contracts the previous week.

This came as hedge funds increased their negative views on the Aussie with net shorts of 13,900 contracts, from 9100 the week before

. Sean Callow, a senior FX currency strategist at Westpac noted the overall $A position was “heavily bearish”. Using CME data, he said speculators’ net short positions stood at nearly $10 billion.