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Aussie shares declined for the first time in almost two weeks as investors digested a mixed bag of corporate earnings, record NSW Covid cases and a potential mega-merger of BHP’s oil assets and Woodside Petroleum.  

The S&P/ASX 200 declined 34 points or 0.44 per cent towards its first loss in nine sessions.

What’s driving the market

The heaviest week of the corporate earnings season to date stuttered as declines outweighed advances. Bendigo Bank, Seven West Media, Beach Energy, Lendlease and Argo retreated. JB Hi-Fi, BlueScope, GPT and carsales.com advanced (more below.)

BHP rallied and Woodside Petroleum sank after confirming they were discussing a $20 billion merger of BHP’s petroleum assets with Woodside. Woodside would fund the merger by issuing shares to BHP shareholders. No agreement had been reached. BHP climbed 0.5 per cent. Woodside eased 3.88 per cent.

Adding to down-pressures was a retreat in US equity futures following the collapse of Afghanistan’s pro-west government and the steady rise in Covid case numbers. S&P 500 futures fell 13 points or 0.3 per cent.   

Asian markets fell as Chinese data confirmed growth slowed last month as authorities struggled to contain the spread of the delta variant. Industrial production, retail sales and investment data were all weaker than economists expected.  

The Asia Dow shed 0.8 per cent, Hong Kong’s Hang Seng 0.86 per cent and Japan’s Nikkei 1.86 per cent. China’s Shanghai Composite inched up 0.11 per cent.

Back home, travel and tourism stocks sagged after New South Wales announced the highest daily number of new local Covid-19 cases so far. Seven weeks into lockdown, the state recorded 478 new cases and eight deaths. The ACT extended its lockdown for two weeks after 19 new cases. Melbourne announced a two-week extension with a 9pm curfew.

Corporate Travel Management shed 3.73 per cent, Flight Centre 4.15 per cent, Webjet 3.3 per cent and Qantas 1.43 per cent.

“Australia’s virus outbreak also appears to be going from bad to worse,” NAB Director, Economics, Tapas Strickland, said.Sydney’s protracted lockdown has been widened to the whole of NSW, with Sydney’s lockdown set to be extended into September and perhaps even into October. Meanwhile Melbourne’s two week lockdown (coming just 8 days after a 12 day lockdown) looks like it may be extended for another two weeks.

“The RBA’s most recent August SoMP (Statement on Monetary Policy) forecasts are in danger of being out of date within just a week with the detraction in Q3 GDP likely a lot larger than what the RBA had pencilled in.”

Going up

BlueScope Steel tested fresh highs after becoming the latest ASX company to announce a share buyback. The steelmaker will buy up to $500 million shares on-market after increasing full-year net profit by $1.1 billion to $1.19 billion. Shareholders will receive a final dividend of 25 cents per share (up from eight cents last year) and a special dividend of 19 cents. The share price rose 0.61 per cent.

GPT firmed 3.22 per cent after raising half-year net profit to $760.5 million and confirming discussions to acquire a portfolio of industrial and logistics assets from Ascot Capital for $800 million. The diversified property group said it was in exclusive due diligence with Ascot but there was no certainty a transaction would ensue.

Record sales activity helped carsales.com to its strongest profit growth in seven years. Full-year adjusted earnings and net profit increased by 10 and 11 per cent, respectively. The share price rallied 2.12 per cent to a new high.

JB Hi-Fi shrugged off early weakness to advance 2.86 per cent as a strong full-year result overshadowed news of a lockdown-fuelled decline in sales since the start of the financial year. The retailer declared a 67.4 per cent increase in full-year net profit to $506.1 million as sales increased 12.6 per cent. Australian sales fell 14.9 per cent since July 1 amid creeping lockdowns.

Sydney Airport edged up 0.19 per cent after rejecting a revised takeover offer. The company said an increased offer of $8.45 (up from $8.25) from a consortium of superannuation funds still undervalued its infrastructure assets.

Going down

The big four banks declined with bond yields. CBA gave up 1.35 per cent, ANZ 2.73 per cent, NAB 0.22 per cent and Westpac 0.92 per cent. The yield on ten-year Australian government bonds dived six basis points this morning to 1.164 per cent.

Bendigo & Adelaide Bank sank 9.46 per cent after announcing it will acquire Melbourne fintech Ferocia to expand its digital strategy. The acquisition will be paid for by issuing up to $116 million in shares. A 172 per cent increase in full-year statutory profit to $524 million was clouded by a rise in costs and reduction in margins.  

Seven West Media retreated 7.77 per cent as an increase in operating expenses and the absence of a dividend took some of the shine off a strong rebound in profit. Full-year underlying earnings surged 141 per cent. Statutory net profit swung to $318.1 million from last year’s loss of $201.2 million. However, the media giant said operating expenses would increase this year from $1.02 billion to up to $1.1 billion.

The prospect of another “challenging year” for real estate markets helped drag Lendlease down 7.19 per cent. The construction firm declared a full-year profit of $222 million but warned enforced lockdowns would continue to impact its business.

An impairment charge of $117 million on Beach Energy‘s Western Flank operation helped knock the oil and gas explorers’ full-year net profit down 37 per cent to $317 million. The company expects production this year to be impacted by declines at Western Flank. Shares in the explorer fell 8.88 per cent to their lowest since March last year.

A cautious outlook and a decline in full-year profit helped tug Argo Investments 1.02 per cent off record levels. The investment manager’s profit fell 13 per cent to $174 million from $199.5 million in FY20 despite a strong year for its investments. Net tangible assets increased by 28.5 per cent. The company kept its dividend steady at 14 cents per share.  

“Overall, we are more cautious in our outlook than previously, due to the combination of the market trading at record highs and the ramifications of ongoing COVID-19 restrictions hampering a considerable portion of the economy,” the company said.

Other markets

Oil joined a general retreat from risk assets. Brent crude sagged 89 US cents or 1.26 per cent to US$69.70 a barrel.

Gold improved US$1.70 or 0.1 per cent to US$1,779.90 an ounce.

The dollar faded 0.18 per cent to 73.52 US cents.

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