The ASX is expected to open higher. But then again, it may not. ASX 200 futures were up 0.5% to 7,315 this morning, but that could prove a false positive depending on the earnings results released today and February jobs data.
Origin Energy Ltd (ASX:ORG), Telstra Group Ltd, Magellan Financial Group Ltd (ASX:MFG), AMP Ltd and the ASX itself will deliver their earnings. National Australia Bank Ltd is set to provide a first-quarter trading update.
The ASX closed down yesterday, falling 78 points (-1.06%) to close at 7,352. The market was weighed down by the Commonwealth Bank of Australia (ASX:CBA)’s earnings report despite its record half-year profit.
Of the sectors, Financial was 3.39% lower, Consumer Staples lost 1.36% and Energy Sectors were down 0.88%. On the positive side, Utilities was 1.12% higher, Consumer Discretionary gained 0.55% and Industrials lifted 0.23%.
Overnight on Wall St, US markets closed higher on the back of positive January retail sales.
US retail sales rebounded by 3% against the 1.8% expected, the strongest increase since March 2021.
IG analyst Tony Sycamore said, “The robust retail sales report, coming two weeks after the hotter-than-expected jobs report, highlights the resilience of the US economy and reinforces the Fed’s message that rates will need to go higher and stay there for longer.”
The better-performing stocks in the US included Airbnb, which surged 13.35% to $137.01 after its fourth-quarter earnings beat expectations. Tesla also had a good day as Elon Musk vies to be the world’s richest man. Shares closed 2.38% higher to $214.24.
Here’s what we saw (source Commsec):
- The Euro fell from US$1.0732 to US$1.0660 and was near US$1.0690 at the US close.
- The Aussie dollar slid from US69.37 cents to US68.64 cents and was near US69.05 cents at the US close.
- The Japanese yen eased from 132.94 yen per US dollar to JPY134.35 was near JPY134.15 at the US close.
- Global oil prices fell. According to the US Energy Information Administration, US crude stockpiles jumped by 16.3 million barrels last week to 471.4 million barrels, their highest since June 2021. But the International Energy Agency said that it expects oil demand to lift by 2 million barrels per day (bpd) in 2023, up 100,000 bpd from last month's forecast.
- The Brent crude oil price fell by US20 cents or 0.2% to US$85.38 a barrel.
- The US Nymex crude oil price slid US47 cents or 0.6% to US$78.59 a barrel.
- Base metal prices tumbled. The aluminium futures price lost 1.1%, pressured by weak demand in China and a rapid build-up of inventories in exchange warehouses. The copper futures price slid 1.4%.
- The gold futures price fell US$20.10 or 1.1% to US$1,845.30 an ounce.
- Spot gold was trading near US$1,838 an ounce at the US close.
- Iron ore futures lifted US14 cents or 0.1% to US$124.34 a tonne.
Australia's M&A scene thriving
Australia is one of the most favourable places in the world for mergers and acquisitions.
Although there was a drop in value and volume in 2022, the outlook moving ahead remains positive.
Pitcher Partners has released its Dealmakers: Mid-market M&A in Australia 2023 Outlook and reported that dealmakers were divided over whether 2022’s cooler market for M&A represented the start of a longer decline or a pause for breath in what was an overheated market for activity.
The report confirmed the value of deals dropped by 52% and volume by 5% after the heady heights of 2021.
However, there is optimism.
Sixty domestic and international M&A dealmakers were asked for their outlook, with 56% expecting a rebound in 2023 and half of these anticipating major improvements.
That optimism is backed by the long-term view with deal values in 2022 still nearly twice that in 2020.
Pitcher Partners Melbourne Corporate Finance partner Michael Sonego said the 2022 Federal election influenced the downtrend in value and volume but had not dented positive sentiment.
“For all the pessimism and fear of an impending recession, this economy is not slowing people down," Sonego said. “If you strip away the noise, we saw a year in which a long lead-up to a Federal election dampened activity, and it has been picking up ever since.”
959 mid-market M&A transactions in 2022, were collectively valued at $140 billion.
Looking forward, there was a 75% confidence score based on factors such as relative ease of doing deals and abundant opportunities that created value. Some 78% suggested they planned to increase their mid-market investments in the next 12 months.
Australia remains a favourable destination, with 87% of respondents planning transactional activity within the next 12 months and 56% saying they expect M&A conditions will improve in 2023.
Nearly two-thirds (63%) of respondents rated Australia’s economy as significantly more attractive than those in Singapore, India, Emerging Southeast Asia, China, Korea, Japan and Hong Kong.
“Australia’s economic stability and certainty have cemented its position as the preferred M&A market in the Asia-Pacific region, as dealmakers seek to insulate themselves from global volatility,” Sonego said.
The survey showed half of respondents expected closer alignment between buyers and sellers would deliver an increase in deal flow, while 47% said realistic value expectations would factor into 2023’s M&A trends.
While cost-of-living pressures and rising inflation are raising concerns over consumer discretionary spending, Sonego said there was little else for dealmakers to be concerned about.
“I don’t think we’ll be seeing any overly high valuations or dealmakers paying a big multiple for a business at the moment but realistic deals will be made.”
Sonego said deals could take longer to complete but the quality of those transactions would remain high and patient buyers could capitalise.
“Rising interest rates might make acquisitions more expensive and high inflation could bite into investment returns, but offsetting those concerns is the fact that Australian investments are seen as a strong hedge against economic and geopolitical uncertainty,” he said.
Results of the survey show the industrials and chemicals sector was tipped to experience the biggest increases in mid-market M&A. Succession plans also loom as a major driver of M&A activity in this sector.
“A lot of company founders are ageing, and the reality is a lot won’t wait for a recession to happen and for Australia to recover from it,” Sonego said.
“If it looks like we are about to enter a protracted period of low growth or economic trouble, we expect more owners to pull the plug.
“People are going to have to be more accepting of a lower number because they need to do a deal and they don’t have years to deal with it.”
The full report can be accessed here.