ASX closes flat, Fletcher, Lendlease drop 

Markets are still pricing a rate increase by the Reserve Bank of Australia this year despite the government forecasting that inflation could be back within target by Christmas.

Investors say the new forecasts, which will be included in Treasurer Jim Chalmers’ third federal budget on Tuesday, are “too optimistic” – the government predicts that headline inflation will slow to 3.5 per cent by the end of June. That is despite a new round of cost of living measures, including relief for power bills and rent.

It’s also lower than the 3.75 per cent predicted by the government in the mid-year economic and fiscal outlook released in December, and is below the RBA’s own forecast of 3.8 per cent.

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ANZ Bank has confirmed that the corporate regulator is investigating its execution of a long-term Australian government bond issued last year.

The big four bank said it had been appointed by the Australian Office of Financial Management to act as a risk manager in relation to the issuance of 10-year Treasury bonds last year, and confirmed that the trade was now subject to a formal investigation, following a report in The Australian Financial Review.

“ANZ understands that ASIC is investigating suspected contraventions of a number of provisions of the ASIC Act and the Corporations Act,” the bank said.

“ANZ takes compliance with its regulatory obligations seriously and is cooperating fully with ASIC.”

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Copper rose on Monday, underpinned by investors’ hope for Fed rate cuts and rising demand in top consumer China and as supply disruptions lent support.

Three-month copper on the London Metal Exchange was up 0.6 per cent at $US10,060 per metric tonne, while the most-traded June copper contract on the Shanghai Futures Exchange advanced 1 per cent to 81,050 yuan ($16,985) a tonne

China’s consumer prices rose for a third straight month in April, while producer prices extended declines, signalling an improvement in domestic demand, as Beijing navigates challenges in its bid to shore up a shaky economy.

However, new bank lending in China fell more than expected in April, the central bank revealed on Saturday, raising the prospect of more action to support the economy.

Meanwhile, copper remained underpinned by a growing supply deficit that is likely to worsen if prices don’t rise enough to incentivise new mines, said ANZ research analysts.

They estimate that the price required to incentivise a marginal greenfield project was about $US12,000 per tonne.

The Australian government’s funding task for 2024/25 is expected to double to $100 billion, according to RBC Capital Markets.

The Australian Office of Financial Management, the financing arm of Treasury, will release its debt requirements after Tuesday’s federal budget.

RBC forecasts a modest budget surplus of $12 billion to be announced for 2023-24, versus an estimated deficit of $1.1 billion forecast in December last year.

Australian milk production is forecast to end the 2023/24 season 2.9 per cent higher in volume and is set to rise in 2024/25, predicts Rabobank.

“Feed availability is adequate following good winter and summer crops, and full water storage will also ensure availability of irrigation water,” said Rabobank’s senior dairy analyst Michael Harvey, who predicts a further 1 per cent increase in milk output next season starting June 1.

A Rabobank report said Australian dairy exports volumes, however, had remained weak, down 6 per cent season-to-date.

Local Australian milk pricing is set to be “somewhat positive” for the new season due to healthy demand and competition among dairy companies.

Australian milk output was higher across all regions and states this year despite a “mixed autumn break”.

When Treasurer Jim Chalmers enters the House of Representatives on Tuesday evening to deliver his third budget speech, leading economist Chris Richardson won’t be listening.

It’s not personal. Mr Richardson hasn’t listened to a treasurer’s budget speech in decades.

“The numbers always tell a much truer story than the words,” he told The Australian Financial Review.

Instead, Mr Richardson will head straight to the so-called “table of truth” in budget paper one. The table shows the net effect of a government’s spending and taxing decisions on the budget bottom line.

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Following Fletcher Building’s profit warning, Citi expects “a non-enviable decision” to be made, it said in a note. The broker flagged a possible equity raise at a relatively known/higher stock price or a wait to see how the New Zealand regulatory pipe decision or macro environment plays out.

“Given the potential quantum of the unknowns, we retain our ‘sell rating’ and believe it may be prudent for a new CEO to shore up the balance sheet with a raise,” it said.

Citi has a target price of $NZ3.5. The shares tumbled nearly 11 per cent to $2.88 on the ASX.

The sharemarket was down in the early afternoon with energy dragging the index lower as investors looked to navigate a federal budget that may bolster the case for the Reserve Bank to keep interest rates high as it fights inflation.

Treasurer Jim Chalmers will hand down the Labor government’s third federal budget on Tuesday, promising cost-of-living relief to struggling householders while delivering a second consecutive surplus.

The benchmark S&P/ASX 200 slipped 0.2 per cent, or 18.2 points, to 7730.8, after advancing 1.6 per cent last week, the third straight five-day gain. The All Ordinaries fell 0.3 per cent.

Out of the 11 sectors, seven were in the red. Consumer discretionary led gains.

The big four banks were mixed. ANZ was the hardest hit, down 3.4 per cent as it traded ex-dividend. The Australian Financial Review reported the bank was being investigated by the corporate regulator over concerns its traders manipulated the sale of government debt last year. Westpac eased 0.4 per cent, while NAB was flat and CBA rose 0.5 per cent.

Miners were split, with BHP up 0.5 per cent and Rio down 0.5 per cent. Fortescue fell 0.7 per cent.

Worries on fuel demand weighed on oil prices, sending Brent and West Texas crude 0.4 per cent lower. Santos shed 1.2 per cent, Woodside retreated 0.8 per cent and Whitehaven Coal fell 0.2 per cent.

Profit warnings and tax bills

Construction group Fletcher Building was the biggest laggard, down 11 per cent, after cutting earnings guidance for fiscal 2024 due to a “notable slowdown” in house sales in New Zealand and a weaker Australian property market.

Property group Lendlease was also among the biggest losers, down 3.7 per cent after confirming it has been hit with a $112 million tax bill from the Australian Taxation Office, connected to a tax dispute over its retirement living business.

In economic news, business conditions eased in April, while confidence remained steady albeit below average in the month, a NAB private survey showed on Monday.

Investors are also awaiting a batch of economic indicators at home and overseas this week to assess whether the RBA and the US Federal Reserve will have more work to tame inflation.

With prices both at home and abroad proving stickier than anticipated, and polls showing pessimism is entrenched, the emphasis has shifted to fears that the RBA may resume tightening.

K2 Asset Management’s George Boubouras cautioned that budget spending – along with more outlays from state government – would mean inflation remained stubbornly high. “It is very difficult for the RBA to cut interest rates this year, and it is hard for economists to make the case of cuts with current robust aggregate economic conditions and government spending,” he said.

Stocks on the move

Bunnings Landlord BWP Trust shaved off 0.4 per cent as it finalises the acquisition of smaller rival Newmark Property REIT.

Commercial radio group ARN Media dropped 3.6 per cent as it revives a collapsed acquisition of assets from its rival Southern Cross Austereo.

Gold explorer Ramelius Resources jumped 2 per cent after upgrading the outlook on Mt Magnet in both tonnes and grade.

Explorer Sayona Mining shed 4.6 per cent despite promising drilling results at its North American Lithium site in Quebec, Canada.

Oil prices extended declines on Monday amid signs of weak fuel demand and as comments from US Federal Reserve officials dampened hopes of interest rate cuts, which could slow growth and crimp fuel demand in the world’s biggest economy.

Brent crude futures slid 26 cents, or 0.3 per cent, to $US82.53 a barrel by 0025 GMT while US West Texas Intermediate crude futures was at $US78.03 a barrel, down 23 cents, or 0.3 per cent.

Both benchmarks settled about $US1 lower on Friday as Fed officials debated whether US interest rates are high enough to bring inflation back to 2 per cent.

Analysts expect the US central bank to keep its policy rate at the current level for longer, supporting the dollar. A strong greenback makes dollar-denominated oil more expensive for investors holding other currencies.

Oil prices also fell amid signs of weak demand, ANZ analysts said in a note, as US gasoline and distillate inventories rose in the week of ahead of the start of the US driving season.

Refiners globally are struggling with slumping profits for diesel as new refineries boost supplies and as mild weather in the northern hemisphere and slow economic activity eat into demand.

Still, the market remained supported by expectations that the Organisation of the Petroleum Exporting Countries and their allies, together known as OPEC+, could extend supply cuts into the second half of the year.

Iraq, the second-largest OPEC producer, is committed to voluntary oil production cuts agreed by OPEC and is keen to cooperate with member countries on efforts to achieve more stability in global oil markets, its oil minister told the state news agency on Sunday.