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Energy stocks bucked the weakness on the Australian sharemarket on Tuesday, as oil and gas producers continue to benefit from a rally in oil prices caused by supply shortages.
The benchmark S&P/ASX 200 index lost ground throughout the day on Tuesday, with a drop in afternoon trade causing it to close 1.47 per cent lower, at 7275 points.
The weakness was widespread, with falls across miners, banks, healthcare and retail stocks, but energy shares gave investors some rare good news.
As the price of Brent oil hit US$80 a barrel, the highest level since October 2018, Woodside jumped 5 per cent to $25.03, Oil Search up 7 per cent to $4.40, Origin Energy rose and Santos rose 5.6 per cent to $7.12.
Beach Energy, which on Monday said it had signed a deal to sell liquified natural gas to BP, shot up 10.5 per cent to $1.36.
China may be diving head first into a power supply shock that could hit Asia’s largest economy hard just as the Evergrande crisis sends shockwaves through its financial system.
The crackdown on power consumption is being driven by rising demand for electricity and surging coal and gas prices as well as strict targets from Beijing to cut emissions. It’s coming first to the country’s mammoth manufacturing industries: from aluminum smelters to textiles producers and soybean processing plants, factories are being ordered to curb activity or – in some instances – shut altogether.
Almost half of China’s 23 provinces missed energy intensity targets set by Beijing and are now under pressure to curb power use. Among the worst hit are Jiangsu, Zhejiang and Guangdong – a trio of industrial powerhouses that account for nearly a third of China’s economy.
“With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed,” Nomura Holding analysts including Ting Lu warned in a note, predicting China’s economy will shrink this quarter.
The worsening power crunch in China – perhaps overshadowed by the attention on whether Evergrande will default on its mammoth debts – reflects extremely tight energy supply globally that’s already seen chaos engulf markets in Europe. The economic rebound from Covid lockdowns has boosted demand from households and businesses as lower investment by miners and drillers constrains production.
It’s not that governments like China are banning cryptocurrencies because they necessarily expect the technology to fail. It’s that they want to be in charge of an experiment with potentially trillions of dollars in play.
With its latest move, China joins a small list of nations that are crypto prohibitionists. And it is a swing in the opposite direction of El Salvador, which adopted bitcoin as legal tender this year and was lauded by libertarians as well as bitcoin believers. In the US, where crypto trading is allowed but regulators are taking a close look, some see an opportunity in China’s deepening crackdown.
Understanding the many dimensions of this multi-pronged battle to control the market will be key for the millions of investors hoping to cash in on the crypto craze. The fight is set to reverberate through the global financial system, where every day brings news of products such as bitcoin exchange-traded funds, bizarrely named digital tokens and NFT assets. The ultra-rich are also involved, and mainstream financial institutions are embracing digital currencies.
More broadly, the fight will also influence socio-cultural discussions over everything from climate change to inequality, and trade to fiat currencies. How the world’s two biggest economies — the US and China — fare in their effort at oversight over the market will likely have the most far-reaching impact.
“Crypto has become too big to ignore,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “Five years ago, at least in regulators’ minds, it was people wearing hoodies playing Dungeons & Dragons and trading among themselves. Today it’s a $US2 trillion ($2.7 trillion) industry and every major Wall Street bank is helping investors gain exposure to it, and now they have to deal with it.”
A fire that broke out at the Victorian Big Battery has prompted manufacturer Tesla to upgrade its global fleet of Megapack batteries after an investigation found the blaze was most likely sparked by a coolant leak causing short-circuits.
One of the 212 Tesla Megapacks at renewable energy giant Neoen’s Victorian Big Battery near Geelong, the largest lithium-ion battery in the country, caught fire during testing on July 30. It remained ablaze for three days, forced it to disconnect from the grid and covered surrounding suburbs with smoke.
After a two-month investigation, regulator Energy Safe Victoria has determined the coolant leak occurred while the Megapack was offline and in a mode that disabled fault-protections systems, enabling the problem to go undetected. The investigation coincided with root-cause inquiries by other regulators, fire authorities, Neoen and Elon Musk’s Tesla.
The regulator has required the operators to roll out a series of additional safety measures including ensuring the Megapack cooling systems are fully pressure-tested when installed and inspected for leaks after testing, and adding a new battery module isolation loss alarm.
Billionaire retailer Solomon Lew has extended an olive branch of sorts to the nation’s landlords, suggesting that both retailers and their proprietors share the costs for any additional measures required to ban unvaccinated shoppers from stores.
Last week Mr Lew laid down the gauntlet to landlords, saying they should be responsible for vetting shoppers’ vaccination status at the point of entry to malls, noting it would be impractical for each store within a shopping centre to have its own security guard or marshall.
Today, Mr Lew again asked for state governments to outline how the framework for assessing customers’ vaccination status would work, noting time was “running out” as shops are set to reopen in NSW on October 11.
“A standardised set of measures applied consistently across centres will provide much needed confidence for customers and retail employees as well as certainty for landlords and retailers,” Mr Lew said. “It’s no use having a patchwork of guidelines by state or by store.”
“In a shopping mall context, it is far more practical and efficient for the health and safety measures to be established and administered by landlords at shopping centre entrances rather than the individual store.”
“In Premier’s view, these additional necessary measures for shopping centres should be mandated by State Governments and jointly funded by retailers and landlords.
There’s been no salvation for the ASX today as of yet, with the index’s fall continuing into the afternoon. Just before 2pm today, the bourse is down 1.1 per cent, or 82 points, and is hovering around the 7300 mark.
This morning’s earlier decline in the healthcare sector has now been spread amongst the rest of the market, with almost all sectors reporting losses of at least 1 per cent.
Energy, however, has shown no sign of letting up its market-leading rise today, with Beach Energy’s gains for the session still holding strong at 8 per cent. Whitehaven Coal has also continued to gain as the day has worn on, now reporting a rise of 7.1 per cent.
Heavyweights CSL and BHP are dragging the market down the most, with the latter reporting a 2 per cent fall after shareholders were told to reject its climate change strategy at its annual meeting in a few weeks.
Just 43 companies are in the green as the ASX heads into the close.
Westpac is the only major bank that has not announced a share buyback this year, though last month it signalled one was probably coming, saying the board would consider returning excess capital at its full year results.
So, a key debate in financial markets is how big this likely share buyback will be.
One of the market’s top analysts, Brian Johnson of Jefferies, makes the bearish case in a new note. He suspects the bank could end up with less surplus capital than the market expects.
Johnson, who says Westpac is his least preferred of the big four, points to a few reasons why he thinks the bank’s surplus capital pile may not be as large as hoped.
In a view he says is “non-consensus,” Johnson argues upcoming changes to the capital rules could affect Westpac more than rivals because of its higher exposure to interest-only and property investor loans.
The UK’s chaotic fuel crisis has a number of home-grown elements but underlying them is an increasingly global energy crunch.
In the UK there are dire shortages of petrol and diesel. Major industries are closing after drastic disruptions to transport deliveries. Petrol stations are being shut down. Energy retailers are collapsing. Energy costs are soaring. The public is panicking.
While some of the issues are UK-specific – a shortage of drivers being blamed on Brexit and the dearth of access to European workers; an industry structure where energy retailers buy in the spot market and sell to customers on long-term contracts; the closure of coal mines and nuclear power plants – those factors don’t explain why Europe and, increasingly, Asia, are confronting similar problems.
European governments are subsidising energy bills and imposing price caps. Industries are reducing production. There is talk of reopening mothballed gas fields and coal plants.
In China, the crackdown on emissions as it tries to reduce power consumption and carbon emissions is forcing factories to close or to curtail production, coal mines are being shut in and power stations and street lights are being turned off.
Macquarie analysts say the market is being too pessimistic regarding the impact of last week’s Victorian earthquake on Insurance Australia Group, as they re-affirmed their predictions of a share buyback.
IAG, the company behind insurance brands including NRMA, CGU and SGIO, saw its share price dip last week after last week’s earthquake. The company said on Thursday it had received 435 claims from the event.
In a note, Macquarie’s analysts have lifted their rating on IAG to “outperform,” saying investors may have over-reacted to the tremors that shook Melbourne last week. They also think the insurer is over-provisioned to the tune of $400 million for a court case involving disputed claims from pandemic-hit businesses.
“Reactions to the Victorian earthquake are overdone and we are inching towards clarity on the second business interruption test case,” the analysts say.
They argue the stock is trading at a discount of 10 to 17 per cent of key valuation measures, and they are tipping a $400 million buyback.
They say “catalysts” for a recovery in its share price could be an investor day in November and the court case on business interruption claims, which also starts in November.
IAG shares were 1.8 per cent higher at $4.90 in late morning trading.