Latest / ausbiz a.m / 20.08.26 with Greg Canavan, Canavan Capital
Transcript
- Andrew: Good morning and welcome to your morning wrap from Ozbiz setting you up for the day on the Australian share market. It is Thursday, August the twentieth, and we're expecting a positive start to the local session. That's a bit of a change, what we've seen over the past few sessions. ASEX futures up around three-tenths of a percent. In a moment, we'll preview the day ahead with Greek Canavan. First, though, a quick wrap of where global markets finished overnight. Longer dated ⁓ global yields pulled back from multi-decade highs. The US dollar, it tumbled, gold jumped. That's after the US Treasury Department said it would boost liquidity support for elongated securities. And that of course follows a broad sell-off, which has been fueled by those ⁓ those fears over swelling sovereign debt around the globe. And that boosted risk appetite, the Dow ⁓ finishing up around one-fifth of percent, ⁓ similar gains there ⁓ also from the SP and NASDAQ. And ⁓ most notably vaccine maker Moderna, it's captured the headlines. It shares up around 177% after announced that it's ⁓ mRNA cancer therapy developed with Merck cut the risk of melanoma recurrence. Among the commodities, ⁓ Brent up slightly, just above $91 a barrel, gold surging more than 4% to around $4,520 an ounce. Bitcoin also jumping about 6% to more than $68,500. And the Aussie dollar, it's up to seventy one point two. Well, let's get across those market moves now. Greg Canavan joining us from Canavan Capital. Greg, good morning. Greg Canavan: Good morning Andrew. How are you, mate? Andrew: Very well. So interesting moves, obviously given there's been a bit of a well, a lot of consternation what's going on in the bond market at the moment, ⁓ with those ⁓ treasuries, because longer data ones ⁓ at two or three decade highs. So was that inevitable that we were gonna see some ⁓ some intervention there from the US Treasury Department? Greg Canavan: I think it's ⁓ it's interesting that it follows on a couple of weeks ago from intervention in the ⁓ in the foreign exchange market. You saw the US Treasury combining with Japan there to try to support the yen. ⁓ obviously the US authorities were concerned about Japan perhaps selling treasuries to support its currency. So the fact that we've had a couple of, you know, o obvious and major interventions within a couple of weeks around the same theme, to me, just suggests that. It's the early stages of the US Treasury starting to lose a bit of control of of interest rates. Now, to be fair, the thirty year ⁓ bond is not a highly liquid market. It's not something that they issue a huge amount of treasuries in and they have been buying back those treasuries previously. ⁓ but they've just upped the the buyback rate to try to get the yield down because it was hitting the headlines. There was plenty of headlines around. in the past few days saying that those yields had hit the highest level since 2007. And obviously 2007 gives a lot of people ⁓ you know that it gives them a fair bit of nerves about what came after. So I think this is just a bit of management ⁓ of that by the the US Treasury. But more broadly it just suggests that things are getting a little bit out of control in terms of the the huge fiscal deficits that the US government is running. And that's now bumping into As everyone knows, the hyperscalers have turned from cash flow positive to having to tap the bond markets in order to fund their huge AI expenditure. So this is all I I guess part of a bigger story. ⁓ it's not necessarily ⁓ bearish in the short term. And I think it's it's actually, if you saw the reaction to the gold price, it's actually a reason for markets to probably shift into equities because they know that when it comes to bond yields blowing out. the Treasury's gonna step in, maybe the Fed steps in down the track, because the Treasury effectively funds its fiscal deficit by issuing short term, ⁓ short term securities. So it it it it's getting an increasingly precarious position. And the Financial Times reported this morning that, you know, US debt is now up to forty trillion. So the the borrowing costs on that ⁓ are getting getting larger and larger. So it is a concern. Andrew: Yeah. ⁓ yes, so having kicked it down the road, question is who pays and when. Greg, the locally peers the moves on the local market very much driven by reporting season. ⁓ interested to get your view then of of what you've seen ⁓ thus far. What ⁓ what what are the takeouts you've got? Greg Canavan: Mm-hmm. Well, I guess the key themes are obviously the slowing mortgage growth from the banks. ⁓ I think that's a longer term story. That takes some time to flow through into the economy. And as everyone knows, that the reason why the banks are struggling on the mortgage growth is because of the the changes that were enacted in the budget. So that was back in May. You're starting to see the initial signs of that, but that's going to flow through to credit growth, economic activity, employment, all that sort of thing. and that will take some time. To flow through, but you're already seeing ⁓ with the retailers that we're seeing ⁓ reduced consumption there. So JB Hi-Fi went into that result trading on about 18 times earnings, showed that July like for like sales were falling marginally. So the market sold that off about 12% on the day. ⁓ yesterday, Temple and Webster that was trading on a lot higher multiple going into the results, showed that ⁓ The early s early signs for FY27 were sharply falling, falling sales. So that's coming off a high base for Temple and Webster, but still it just it's it paints a picture of the consumer pulling back, which is exactly what the RBA wants to see. And funnily enough, it's it's reflecting that the market sort of taking that as a as a as a positive sign in some ways that the that the RBA's rate hikes are working and that we're looking at ⁓ going into rate cuts next year, which is actually supporting the market in a in a bizarre way. So ⁓ but more broadly reporting season I I think is showing that companies are not necessarily growing too fast on the domestic side. So seven group holdings which is obviously a you know industrially exposed to to the Aussie economy that showed ⁓ pretty flat growth and the market sold that off ⁓ sharply when it when it sold ⁓ put its result last week. And resource companies that are more exposed to global growth ⁓ are doing well and BHP showed that with its its strong ⁓ copper result ⁓ the other day as well. So bit of a mixed bag, ⁓ but not as volatile as I think what the market expected going into this. Andrew: Yeah. You mentioned the retailers. We've got a couple out today, in fact. ⁓ Super Retail Group and Universal Stores. ⁓ Super Retail obviously been under pressure at ⁓ off around ⁓ twenty plus percent this year. I mean, w when you look at these individual retailers, ⁓ are you assessing them stock by stock then at at the moment? Greg Canavan: Yeah, absolutely. I mean, look, all the the work I do is fundamentally based. You look at each individual company, its balance sheet, its its suite of assets, its return on those assets, all those sorts of things. But if you look at the r the consumer ⁓ discretionary sector, it rallied twenty-five percent from the lows which were struck around the time of the budget. Rallied twenty five percent into this reporting season. So you you're actually going in and this is what I I think it's important to understand that it's the it's all about the expectations when the results come out. So a lot of these companies have rallied quite strongly into this results season. And now obviously with JB Hi Fi, which is one of the main ⁓ retailers reporting that that weaker results, I think some of the heat's coming out of that that rally. So in sympathy with JB Hi Fi, you saw Harvey Norman sell off and Yes, Su super retail group I think will will be very closely watched today as well. Andrew: Another big stock to report today is Fortescue. So Greg, ⁓ we've seen the the diversified miners, you know, in particular BHP, ⁓ stellar result, very much driven by copper. But of course Fortescue does not have copper. It's all about iron ore. So it has suffered as a result. What what are you seeing? What are your expectations? Greg Canavan: Yeah, iron ore and ⁓ Twiggy and these ⁓ renewables push. So ⁓ look Fortescue's down twenty percent ⁓ from from June, so it's it's certainly underperformed while the market's rallied quite strongly. And as you said, I think that just reflects its its single exposure to to iron ore. And if you look at BHP's result, BHP hardly mentioned iron ore, it was all about copper. and and stocks these days are all about stories, right? So if if everyone Andrew: Yeah. Yeah. Greg Canavan: Everyone believes that BHP is a copper story. Everyone's gonna buy BHP and the and the copper and the data center narrative. ⁓ whereas Fortescue has been has been left out. ⁓ not a stock I follow closely, but if you think about again, when I mentioned expectations going into the result having sold off twenty percent, ⁓ wouldn't surprise me to, you know, to see it maybe maybe have a bump ⁓ on the result. But ⁓ not as I said, not one I follow closely. Andrew: Northern Star, the big gold miner, that's out today as well. Has been under pressure though. I mean, we look at the what's happened with the bullion price obviously since over the course of the ⁓ the conflict in the Middle East, and looks as though maybe bullions formed some sort of base and we've seen stocks respond. But ⁓ Northern Star had its has had its own problems, hasn't it? Greg Canavan: ⁓ absolutely. And it just goes to show that when you're buying miners, you're also buying into operational ⁓ issues as well. And and and Northern Star you know has has grown exceptionally over the past ten years, but it's now got to a point where it's very large. It's managing a number of different ⁓ projects with a lot of CapEx. And when you've got those situations there are there is room for thing things to go wrong. ⁓ and and that's really hit. Northern Star over the past sort of 12 months or so. And that that means it hasn't benefited from the huge advances that a lot of the other gold stocks have benefited from because the market's starting to question its ⁓ operational execution abilities. ⁓ I think there was a ⁓ a position taken by Elliot Elliott, which is ⁓ an activist US hedge fund style ⁓ business trying to generate some, you know, movement on the board to get some ⁓ value out there for for shareholders. So ⁓ not sure what update that will bring today on the operational front, but as I said, just goes to show that you've got to be pretty selective in the management teams and the the type of assets that are being ⁓ managed when you're trying to get exposure to a to a commodity price run. Andrew: I I know it's sort of been mentioned in in dispatches a potential takeover target. Obviously it's very large. That would be ⁓ quite amazing if that were to happen. But I mean ⁓ are we likely to see more ⁓ and A in that space, do you think? Greg Canavan: Yeah, look, I mean, this is what happens in in bull markets, right? And you saw, I it was Oceana Gold ⁓ make a bid for Ozgold ⁓ just recently this week. There has been some some activity. In general, though, the Aussie miners have behaved pretty rationally in terms of ⁓ their capital allocation and and the merger activity that's that's gone on. It hasn't gotten silly, which suggests that maybe this this bull market has got some time to run. We did see that correction, as you just mentioned. Andrew: Well. Greg Canavan: ⁓ that was a decent correction there ⁓ midway through the year. ⁓ but now the the gold price is starting to move again and as we said at the at at the start, the the moves by the US Treasuries put another bit of a fire under the gold price and that was up two percent overnight. So that's at least a good backdrop going into the the results for Northern Star today. Andrew: So Greg, overall, excuse me, you're saying perhaps this reporting season not as volatile as you're ex as expected. I mean, how's this set us up for the second half of the year? Are you expecting the continued growth? Greg Canavan: My view in general is that the equity market more broadly ⁓ is is you know overvalued. ⁓ and that a lot of that has to do with the the the high valuations at the higher end of the market. So if you look at if you do a breakdown of the market, the ASX20 has outperformed the rest of the market quite strongly over the past past year or so. ⁓ and you look at companies like Wes Farmers on over 30 times earnings, ⁓ Macquarie Bank, the banks in general are still quite richly valued given where where they're going over the next 12 months. So the last reporting season, there was plenty of bombs going off because a lot of those companies, for example, CSL, Cochlear, they went into those results with pretty higher multiples and they disappointed. And and a lot of that, and you saw it in companies like Xero and Wise Tech and things like that as well. So a lot of the heat has come out of those companies that were richly valued. and now you're seeing that unwind with CSL's results. ⁓ this week wasn't a particularly great result. ⁓ but it certainly showed that its problems are over and the market is now, you know, diving back into that ⁓ company. So I think once the once the reporting season's done and the market's got a lot of new information in, it will realize that the economy is quite weak. We've still got productivity problems, we've still got an RBA that isn't interested in cutting rates anytime soon because we've got an inflation problem. We've still got the issues in the Middle East that aren't going away that are going to put pressure on inflation from energy. ⁓ so I think the market will, you know, struggle. And we're going into a a volatile seasonal period in the US in in September and October. ⁓ so I wouldn't be surprised if we continue to see some volatility post reporting season, maybe, maybe some profit taking. Andrew: Yeah. Great. Great to get your assessment of what you're seeing in reporting season. Thanks so much for joining us from Canavan Capital. Greg Canavan: Good on you, Andrew. Thanks, mate. Andrew: And that is your Osbiz Morning Wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.