That's it for Markets Live for the week.
You can read a wrap-up of all today's action here.
Thanks for reading and for your comments.
Have a great weekend and see you again Monday morning from 9.
On Friday the top 200 stocks and the All Ords each added 0.7 per cent, after local shares got a strong lead from Wall Street where the S&P 500 posted a 1.2 per cent gain, its best day so far for 2014.
Year-to-date the local benchmark index is down 3.5 per cent.
Telecommunications was the worst-performing sector over the five sessions, down 0.8 per cent as Telstra Corp fell 2.5 per cent over the week to $5.01.
Shares started the week on a sour note as a below-expectations gauge of the US manufacturing sector sparked fears the world’s largest economy may not be robust enough yet to withstand reduced monthly stimulus by the Federal Reserve. The outlook began to improve after another measure of the health of US manufacturing delivered a more positive result.
The Reserve Bank of Australia elected to hold the official cash rate at its record low 2.5 per cent on Tuesday. The central bank indicated rates are likely to stay on hold next month and most economists are now predicting a rate hike later in 2014. Low interest rates have fuelled a recovery in the housing sector that has helped banks grow their mortgage books.
Local shares rallied on Thursday after robust retail sales data and a trade report showed stronger than expected improvement.
No surprise the already mentioned Aurora Oil & Gas tops the best performers for the week, after jumping by more than a half today.
Forge Group also made its big mover today.
REA Group capped off a great week after investors bought big off the back of great earnings results.
Pacific Brands and Newcrest Mining also enjoyed strong gains.
The market was less flattering when it came to Acrux, which tanked 11 per cent as investors fretted over a mooted investigation by US regulators into links between testosterone replacement therapy and heart disease.
QBE shareholders can't catch a break, while Flight Centre, Worley Parsons, and Goodman Fielder fell heavily.
This week's best and worst performing stocks in the ASX 200.
Turning to the biggest winners and losers on the ASX today, Aurora Oil & Gas takes the prize after revealing it had accepted a $2.6 billion takeover offer from Canada's Baytex Energy Corp. The stock popped 56 per cent.
Forge surged 21 per cent, after the AFR reported whispers of a number of potential buyers for the embattled business.
News Corp was up 8.2 per cent after cost cuts pushed earnings well past analysts' forecasts.
The worst weren't all that bad. Goodman Fielder shareholders lost 3.8 per cent, at least notionally, and Virgin dropped 2.9 per cent following a bit of a rally yesterday.
As mentioned, Coca-Cola Amatil had a poor day on the exchange, while current market darling Brambles also fell.
Best and worst performers in the ASX 200 today.
Shares have finished the week on a high, with the ASX 200 closing 35 points higher, or 0.7 per cent, to 5166.5.
The All Ords was up by a similar margin to 5184.5.
Most sectors gained, led by gold stocks, which jumped 2.8 per cent, while shares in miners also added 1.5 per cent.
The energy sub-index climbed 2.1 per cent, and consumer discretionary continued its strong run, up 1.7 per cent for the day. Coca-Cola Amatil had another day to forget, down 1.4 per cent to $11.39 a share.
Financials struggled to gain ground, with Westpac the stand-out, jumping 1.3 per cent to $31.22.
IT was flat, while the listed property sector and telcos dropped 0.2 per cent and 0.8 per cent, respectively.
Bloomberg's latest survey of economists
Financial markets are pricing in 18 basis points of rate rises over the next 12 months, or a 72 per cent chance of a 0.25 percentage point hike, the highest probability so far this year, according to Credit Suisse.
But the latest Bloomberg survey of economists shows there's not been much change in terms of economist expectations, with Market Economics the only firm predicting a rate rise at the RBA's next board meeting in March. Unsurprisingly, there's no-one predicting a rate cut then either.
Shares are hanging onto their early gains ahead of the crucial US jobs report tonight, which is considered the key economic reading this week.
Economists are looking for non-farm payrolls to more than double and rise from 74k to 180k, with the unemployment rate staying at 6.7 per cent.
"We are fairly certain that payrolls will rebound because if they don't, the US economy is in big trouble and (Fed chief) Janet Yellen's credibility will come under serious scrutiny," BK Asset Management MD Kathy Lien says.
She's provided a list of indicators for, and against, a strong reading.
Arguments for stronger payrolls
- Employment Component of Non-Manufacturing ISM Hits Strongest Level Since November 2010
- Rise in Conference Board Consumer Confidence Index
- 4 Week Average Jobless Claims Drop to 334k from 358k
Arguments for weaker payrolls
- Drop in Employment Component of Manufacturing ISM
- ADP Employment Change Falls to 175K in Jan vs. 227K in Dec
- Challenger Job Cuts Rise 11.6%
- Drop in University of Michigan Consumer Sentiment
- Continuing Claims Rise to 2.96M from 2.86M
“In a decade, digital advertising will replace commercial television's 58-year reign as the top advertising medium in Australia,” says Peter Warnes, Morningstar's head of equities research.
Warnes quotes research suggesting digital advertising will reach $4.7 billion in 2014 compared to the total television market of $4.2 billion - growth of 18.5 per cent dwarfing 3.5 per cent.
That research also forecasts an "explosion" in mobile advertising over the next five years.
“Which companies, international and domestic, are going to be the beneficiaries from the portability of data and the rapidly growing usage of smartphones and tablets?” asks Warnes.
He believes Telstra “is very well-placed”, and that other local telco “will do well”.
In the US, Warnes says American Tower Corporation (NYSE ticker: AMT) has “taken his eye”:
“It is a real-estate investment trust and is the leading independent owner, operator and developer of wireless and broadcast communications real estate, with a portfolio of over 62,000 properties including wireless towers, broadcast towers and distributed antenna system networks.”
“The portfolio consists of company-owned properties and those operated under long-term lease arrangements. Over 27,000 are located in the US and almost 35,000 in Central and Latin America, Africa, India and Europe.”
A Senate inquiry will scrutinise how Qantas and Virgin secured private "no-action" letters from the corporate watchdog, which allowed the airlines to send millions of unsolicited payment cards to their members.
Senators from both sides of politics have asked the regulator to explain how the airlines could circumvent the laws on unsolicited debit cards, worried that ASIC has effectively given the green light to similar card mail-outs.
They have asked ASIC, Qantas and Virgin Australia to make submissions to the Senate Economics Reference Committee detailing their reasons for the massive unsolicited Visa and MasterCard mail-outs.
A special report by Thomson Reuters' Compliance Complete and Fairfax Media found that the cards were being sent out — potentially illegally — to around one-third of the Australian population. Consumer groups have questioned why ASIC would offer regulatory safe harbour to the issuers when the cards were already going out successfully on an opt-in basis.
EM veteran of 40 years ... Mark Mobius
The worst isn’t over for emerging markets after the benchmark stock index sank to a five-month low and the nations’ currencies tumbled, emerging markets guru Mark Mobius has told Bloomberg.
‘‘The negative sentiment is pretty much in place so you can expect a lot more selling,’’ says Mobius, 77, who oversees more than $US50 billion in developing nations as an executive chairman at Templeton. ‘‘We are looking but actually not buying at this stage. Prices can come down or take time to stabilise.’’
Despite his doubts, Mobius, a consistent advocate of emerging markets who’s been investing in the countries for more than 40 years, has found opportunities to buy in frontier markets, those that are too small or underdeveloped to be included in emerging-market indexes.
He’s been adding to companies in Africa, including Kenya and Nigeria, on expectations their growth will be less impacted by turbulence in larger economies.
‘‘There are opportunities,’’ Mobius says. ‘‘But there’s no rush to get in.’’
The US debt ceiling suspension ends today and yet again Congress has not acted in advance, writes Westpac currency strategist Sean Callow.
But while there will be some “scrambling around” by US politicians, Callow reckons that “markets should not be too concerned”.
There is “very little risk of a repeat of the August 2011 debacle when Democrats conceded heavy spending cuts in return for Republican agreement [of an extension to the debt ceiling]”.
Then markets tumbled and S&P cut the US credit rating.
This time “ratings agencies are relaxed and will remain so long as [Republican] speaker Boehner continues to pledge that default will not occur.”
“By far the most likely outcome is an agreement that does not impose new spending cuts, meaning the 2014 growth outlook will not be impacted,” Callow writes.
Talking dollar, Goldman Sachs is one of the more bearish forecasters, believing the Aussie is likely to test recent lows again, with another rate cut predicted this year.
Despite the drops over the past year, Goldies still thinks the dollar is overvalued.
The Aussie may extend last year’s steepest slump in five years as capital flows from reserve managers weaken and the commodities boom fades, Goldman Sachs chief currency strategist Thomas Stolper told a conference in Sydney today:
- Could we see in two years time something like 70 or high 60s handle? Absolutely possible in our view.
- Not necessarily in a straight line, not necessarily a sharp move, but that’s just the normal rebalancing that you would expect in this situation where you go into a big cyclical change of the magnitude happening at the moment in the commodities sector.
BHP Billiton's "relentless'' focus on productivity will see more jobs lost from its Queensland coal division, the miner revealed this afternoon.
BHP's coking coal joint venture with Mitsubishi has determined that staff numbers at the Saraji mine are too high, and will begin talks with workers over how the numbers will be reduced.
The closures continue a trend in Australian coal, which has seen numerous closures in recent years on the back of slumping coal prices, high labour costs and increased royalty obligations to Maurice Newman's Queensland State Government.
Two coal mines named Norwich Park and Gregory have already been closed by the BHP and Mitsubishi joint venture in recent years, while other growth options, including one at Saraji have also been abandoned.
BHP said today's decision to start talks over job cuts came after an extensive review of the mine, which found "mine site workforce numbers were greater than required to efficiently operate the mine".
''A fundamental improvement in the cost base of the open-cut operation is required to ensure that it remains competitive," the company said in a statement.
AFR columnist Chris Joye is a lot more worried about high house prices than the RBA is:
In the interests of not spooking traders, the RBA is clinging to its stubbornly optimistic view of Australia’s frothy housing market. Instead of noting that Australia’s 133.6 per cent housing debt-to-income ratio is a bee’s appendage away from the 134.2 peak recorded in mid 2010, the RBA simply says this ratio is “little changed”.
Double-digit inflation in housing costs, which is running at more than three times wages growth, is recast as “broadly consistent with the historical relationship between interest rates and housing prices”. That is, nothing to fret about right now.
A game-changer would be a second high core inflation number in the March quarter. This would discredit the RBA’s benign narrative and likely precipitate tighter policy.
Yet if house prices keep ballooning at their present pace, Australia’s residential property sector will be more expensive relative to incomes than at any previous point over the past 40 years.
The bottom line is that I do not share the RBA’s confidence on housing or inflation in the period ahead.
The Australian dollar is holding near recent highs after the RBA raised its forecasts for economic growth and inflation, putting the currency on track for the largest weekly gain since September.
The Aussie cooled off slightly to 89.38 US cents after trading as high as 89.73 US cent today, but was not far off a four-week peak of 89.81 US cents touched Thursday.
It has gained around 2.1 per cent so far this week after the Reserve Bank dropped its easing bias and scaled back its verbal rhetoric for a lower currency.
Earlier in the session, the Aussie briefly edged higher after the release of the RBA's quarterly monetary policy report. The central bank again reiterated that rates were likely to remain steady for a while as stimulatory policy and a weaker local dollar were working to support the economy.
"Initially, the Aussie rose in a logical reaction," says Sean Callow, a senior rate strategist at Westpac. "But since then there has been a pull back that gives the impression that there is a lot of short-term money flushing around at the moment and perhaps closing out on Aussie long positions ahead of US payrolls."
US non-farm payrolls data is due later on Friday and there is much uncertainty about what it will show given weakness in December, bad weather and an end to long-term jobless benefits.
Callow says a strong number could knock back the Aussie to the high 88 cents area, while a very weak figure could send it past 90 cents.
Virgin has signed a new code share agreement with South African Airways (SAA), which already has a long-standing partnership with competitor Qantas in the one world airline alliance.
The announcement comes as the country’s biggest airline, Qantas, struggles to keep market share as Virgin has aggressively muscled into the domestic and international arena. Qantas is asking Canberra to ease some of its ownership restrictions so it can try match the deep pockets of Virgin’s airline partner-investors.
The formal alliance between Qantas and South African Airways on flights between the two countries is set to expire in 11 months.
Two years ago, Qantas’s bid to extend the alliance for another five years was shot down by the International Air Services Commission, which described the tie-up between the two airlines as an “effective duopoly”.
Joe Hockey’s tough budget just got a little easier, writes BusinessDay columnist Michael Pascoe:
The Federal Government’s budget outlook has just been substantially changed by the RBA, because the economy is doing substantially better than the Treasury was betting just eight weeks ago.
The latest RBA statement on monetary policy cautiously upgrades its forecasts for the Australian economy. The bank now expects 2.75 per cent real GDP growth this financial year instead of the 2.5 per cent central forecast it made in November.
More importantly, growth for the year to June 30, 2015 – what Joe Hockey will be concentrating on in his first budget – has been increased to 3 per cent.
Given that the Treasury Secretary, Martin Parkinson, sits on the RBA board and the two institutions’ economic forecasts tend to agree with each other, several billion dollars worth of pain promised in Hockey’s December mid-year-economic and fiscal outlook presentation has been revised away.
And while we're looking at China, the country’s stocks have slipped as mainland markets resumed trading after a week-long holiday.
The Shanghai Composite Index is down fell 0.5 per cent to 2023, the lowest level since January 21. During the holiday, emerging equities slumped for their worst start to a year, while Hong Kong’s benchmark index slid to a six-month low.
‘‘China’s stocks are digesting the bad news from global markets during the break,’’ says Zhang Gang, a strategist at Central China Securities in Shanghai. ‘‘The market will still remain weak in the near term.’’
China’s policy shifts are a bigger driver of the sell-off in emerging markets than the Federal Reserve’s decision to dial back stimulus, according to Goldman Sachs Asset Management.
Volatility will rise toward its long-term average and that means an increase in risk premiums, said Philip Moffitt, head of fixed income in Sydney for Asia and the Pacific at Goldman Sachs Asset Management.
The risks for different emerging economies will become more idiosyncratic and Mexico presents a buying opportunity following the rout, he said.
‘‘The sell-off in emerging markets has much more to do with China than with Fed tapering,’’ Moffitt said. ‘‘China’s such a big source of global demand, in particular for other emerging markets, uncertainty’s going to stay high and risk premiums should be expanding.’’
The big banks appear attractive following the recent dip in global equity markets, with most trading comfortably below fair value estimates, Morningstar writes in a bullish research note:
- Other metrics support our favourable view, with price/earnings ratios of 12 times and 6% fully franked dividend yields appearing more attractive than the broader market. Strong inherent competitive advantages allow the majors to achieve attractive returns despite modest economic growth and a fluid risk environment.
- In current conditions, we expect solid underlying earnings growth to continue, though headline growth should slow as the strong tailwind of declining bad debts eases.
- The major banks’ solid earnings growth and sustainable dividends should appeal to investors in periods of moderate economic growth. But unlike most relatively defensive, high yielding investments, bank earnings have substantial longer-term upside, being leveraged to the economy.
- We prefer ANZ, NAB and Westpac based on attractive discounts to their fair value estimates. ANZ trades at the greatest discount, followed by NAB and WBC. CBA is a strong competitor, but trades at close to its fair value estimate.
- We believe an important advantage of investing in Australian major banks is the potential for dividends to at least match the growth rate in nominal gross domestic product, or GDP. This is a very attractive feature for the rapidly increasing cohort of retail and self-managed super fund investors seeking sustainable and reliable income in retirement.
Sony forecast a $1.1 billion loss and will cut 5000 more jobs as chief executive Kazuo Hirai sells its personal-computer business and splits the television division into a separate unit.
Sony hasn’t ruled out selling its TV business in the future after receiving “various offers,” Hirai told reporters in Tokyo yesterday. The net loss will total 110 billion yen in the year ending March 31, the company said in a statement, scrapping its revised October forecast of a 30 billion-yen profit.
Hirai expanded his reorganisation after failing to meet a pledge to end TV losses this year and spur a revival, having announced at least 10,000 job cuts previously and plans to focus on mobile devices, games and imaging products. Sales of Sony’s key products are declining as the company struggles to find new hits and consumers shift to mobile devices by Apple and Samsung Electronics.
“The reform announced today comes far too late,” said Masahiko Ishino, an analyst at Advanced Research Japan Co. “Sony cannot take measures ahead of changes in market deterioration. There isn’t much hope to revive the electronics business overall.”
The company will sell its PC business, which produces notebooks under the Vaio brand, to buyout firm Japan Industrial Partners, Sony said yesterday.
Sony shares have jumped 5.1 per cent in Tokyo, and are the third-most traded stock by turnover.
Woolworths is set to regain its crown as Australia's fastest growing food and liquor retailer after posting its strongest sales growth since 2011, aided by rising food prices, better relationships with suppliers and clever marketing.
Same-store sales from Woolworths' Australian food and liquor outlets rose 3.4 per cent in the December quarter, the best rate of growth since the fourth quarter of 2011, despite patchy market conditions in the lead-up to Christmas.
Twenty new supermarkets and 13 new liquor shops drove sales 5.1 per cent higher, but heightened concerns over the supermarket sector floor-space race.
Analysts believe Woolworths' same-store sales growth may exceed Coles' for the first time in more than four years as Australia's largest retailer regains its mojo and food prices start to rise after three years of deflation.
Commonwealth Bank analyst Andrew McLennan said: "If they do that in the second quarter, it's likely to continue into the third and fourth quarters."
Chief executive Grant O'Brien said the December quarter and first-half sales showed that strategies put in place in 2011 to ''extend and defend'' Woolworths' market share were starting to deliver results.
"That work is beginning to bear fruit," he said, "but we still have an enormous amount of work to do."
In a move long-anticipated by investors and analysts David Jones is set to add property to its business with a move to get a foothold into the booming city residential market in Sydney.
The company has lodged a preliminary development submission in relation to its Market Street property, long known in Sydney as the company's "men's store".
With department store retail in the doldrums, David Jones could be joining the growing trend toward converting existing city buildings to residential sites.
It's understood the company plans to continue to own any development that takes place but bring in a third party to market and manage it.
David Jones owns the flagship Elizabeth and Market Street stores in Sydney and two in Melbourne’s Bourke Street Mall. Combined, the CBD properties are valued at $612 million.The rest of it store sites are leased.
The upside of a bad start to the year is that stocks are more attractively priced, which has pushed expected total returns from the sharemarket up to 14 per cent by year end, write strategists at Credit Suisse.
That said, “the emerging market crisis remains a concern and no doubt a source of further volatility,” they write. “Our global strategists do not believe it will develop into a full-blown crisis like we had in the late 1990s or the more recent GFC”.
“But we do think investors should tread with caution around those stocks most exposed the vulnerable regions within EM - Central Europe and Africa and Latin America.”
“Perhaps most important for investors,” they continue, “is that the equity market is not as expensive now, than it was leading up to previous crisis. There seems to be at least some bad news in the price”.
The Credit Suisse strategists say buy the dips, but watch out for stocks that have exposure to those more troubled parts of the emerging market, for example:
- Boart Longyear
You can read more about the research at Smart Investor.
Aussie shares look to have at least some bad news priced into them.
How uncertain is the RBA about the economic outlook?
According to our (unscientific) survey of the last five Statements of Monetary Policy, the central bank seems to have become less uncertain since May 2013. At the time, its usage of the word "uncertainty" peaked at 18, before dropping to today's count of 12.
However, in what may have the makings of a future sub-index, one of the interesting takeaways from today's Statement of Monetary Policy is the fact that the central bank is quite openly acknowledging that it is "uncertain" about exactly what caused the surprise jump in inflation in the fourth-quarter of last year (see blog post at 11.54am).
"It's interesting that when the Reserve Bank goes through the explanation of why inflation's a bit higher, both in the last quarter and in the near term, they go through any number of possible explanations, which is what was surprising," JPMorgan's chief economist for Australia Stephen Walters says:
- I think that's the key takeaway - that the RBA is not clear either. In that sense, it's quite understandable that they are leaning back towards a neutral policy stance because they don't really know.
- It makes sense not to have a very clear bias when you are not very sure.
This is what the RBA said in today's SOMP: "It is not possible to distinguish clearly between the different explanations [about the higher-than-expected inflation outcome] because of the inability to directly observe pass-through, margins, costs or noise. Some combination of these may be at work."
The dollar is bouncing around quite a bit in the wake of the RBA's monetary policy statement, first climbing to the day's high, then dropping nearly half a cent to the day's low.
Overall the currency remains stuck below 90 US cents and is highly unlikely to break through that barrier before the release of the US jobs data overnight.
The dollar over the past two days.
On the 40th anniversary of his career as one of Australia's most trusted economic commentators, Ross Gittins nominates the 10 reforms that helped transform Australia from closeted financial backwater to one of the most prosperous countries in the world.
Here's his list, topped by the free float of the currency in December 1983:
- Floating the dollar
- Deregulating the banks
- New taxes on capital gains and fringe benefits
- Removing import protection
- Privatising government businesses
- Enterprise bargaining
- National competition policy
- Central Bank independence
- Goods and services tax
- Taxes on mining and carbon
Do you agree with the list? Anything missing? Ross is online now to answer questions and comments and to discuss his views.
In other, less positive, economic news, the building industry has slumped back into contraction following a fall in new orders.
The Australian Industry Group’s Performance of Construction index dropped 2.6 points to 48.2 in January, indicating the building sector is contracting.
It dints hope that the industry was on a rebound after strong growth in house building propelled the broader construction sector into its third consecutive month of expansion in December following several years of decline.
Driving the fall was a decline in new orders (down 6.6 points to 47.7), a steeper fall in employment (45.1) and a continued reduction in deliveries from suppliers (49.0), Ai Group says.
Ai Group public policy director Peter Burn said the reading casts doubt over possibilities of a recovery in the construction sector.
‘‘Its performance in the next few months will be critical in determining whether there is a consolidation of the gains of late last year or a resumption of the weakness that has characterised the residential and commercial construction slump in the past couple of years,’’ he says.
The Reserve Bank is satisfied that inflation is on track and will be consistent with its 2 to 3 per cent target over the coming few years. But it is puzzled by the pickup in the latest round of figures that took the CPI to 2.7 per cent in the December quarter, with underlying inflation rising as well.
The RBA says there are several possible explanations for the acceleration:
- It could be that the falling exchange rate has flowed through into consumer prices, via higher import prices, more rapidly than normal.
- Or slower growth of wages, thanks to the weak labour market, is taking longer than usual to flow through into the prices of non-tradeable goods and services.
- Or perhaps business margins between input costs and selling prices have widened, possibly consistent with improved trading conditions suggested by business surveys.
- Or perhaps there’s less spare capacity in the economy than thought, meaning even sluggish growth could put a higher floor under prices.Or maybe it was just ‘‘random noise in the data’’.
‘‘It is not possible to distinguish clearly between the different explanations because of the inability to directly observe pass-through, margins, costs or noise,’’ the RBA says. It may even be some combination of some or all of those factors.
Either way, the RBA expects inflation to be well behaved.
Here's more from the RBA's monetary policy statement:
- Economic growth forecast for the year to December 2014 upped to between 2.25 per cent and 3.25 per cent, up from 2 to 3 per cent forecast in the November Statement on Monetary policy.
- The central bank also increased all its other forecasts for the coming few years by a quarter of a percentage point.
‘‘Growth is thought likely to strengthen a little in 2014, though to a pace that is still a little below trend,’’ the RBA said. ‘‘It is then expected to pick up further to an above-trend pace by 2015/16.’’
The RBA said this was primarily due to the lower Australian dollar, which is expected to boost export and restrain imports:
- The depreciation of the exchange rate should provide some additional impetus to activity in the traded sectors of the economy.
The bank acknowledged that economic growth to the year ahead will continue to be restrained by the ‘‘substantial fall in mining investment and planned fiscal restraint’’ by state and federal governments. ‘‘At the same time, low interest rates are stimulating prices and turnover in the established housing market.’’
The bank said that business conditions improved in the latter part of 2013:
- ‘Retail sales and the Bank’s liaison point to a pick up in household consumption growth in the December quarter and measures of consumer sentiment remain a little above average levels.
- Leading indicators suggest that dwelling investment is likely to have increased in the (December) quarter and will grow further over the coming months.’’
‘‘On present indications, the most prudent course is likely to be a period of stability in interest rates,’’ RBA governor Glenn Stevens said in a statement accompanying the decision on Tuesday. The RBA reiterated that comment in the statement on Friday.
In line with Wall Street's jump (and a fall in the yen), Japan's Nikkei has opened strongly higher, surging 1.6 per cent at the open.
Shares in Sony opened up 3.45 per cent at 1680 yen after the electronics giant said it is cutting 5000 jobs and exiting the stagnant PC market this year.
The Dow Jones Industrial Average gained 1.2per cent on Thursday amid optimism that the January jobs market report out early on Friday will point to firm economic growth.
‘‘The upcoming US jobs data is viewed as critical for markets, which are pricing in further growth. So any hints that they might be good are positive for sentiment,’’ said Mutsumi Kagawa, senior strategist at Tokai Tokyo Research Centre.
The US dollar was at 102.07 yen early on Friday, hardly changed from 102.10 yen in in New York Thursday afternoon but well above the mid-101 yen range in Tokyo earlier on Thursday.
The Reserve Bank has raised its growth and inflation forecasts for Australia in its Statement of Monetary Policy, which has just been released.
The central bank said it is seeing signs of "very stimulatory" policy supporting economic growth and adds that a lower Australian dollar will assist in achieving balanced growth.
The Australian dollar rose from 89.45 US cents to 89.69 after the report was released.
more to come on this
Investors will closely eye the RBA's Statement on Monetary Policy, due in less than 10 minutes, for any forecast changes.
"For rate markets, Tuesday’s pronouncement of a period of stable interest rates has stolen much of the fire but currency markets will look for any further clarification about the absence of the “uncomfortably high” terminology with respect to the AUD," ANZ notes:
- We see the latter as reflecting the movement in the currency quite close to the US0.85 mark the Governor had nominated, making the description no longer relevant, rather than marking any desire for a higher currency.
- The Bank would still like a somewhat lower currency and this will likely come through in today’s longer statement.
- We expect the Bank to revise up its near-term growth and inflation forecasts reflecting the higher Q4 CPI outcome and also better export performance in recent months, an upgraded housing recovery and the lift in consumer spending.
Shares in Aurora Oil & Gas have jumped by more than half after the company agreed to a takeover by Canada's Baytex Energy Corp worth $2.6 billion, including debt.
Baytex will pay $4.10 for each share of the Perth-based oil producer, a 52 per cent premium to its average price in the past week, valuing the company at $1.84 billion.
Shares in Aurora hit a high of $4.09 and last traded up 55 per cent at $4.06.
Markets face 'Freddie Krueger-like nightmare'.
Calm seems to be restored in global markets, but Societe Generale's uber-bearish strategist Albert Edwards isn’t buying it.
To Edwards, the recent emerging market selloff was the "final tweet of the canary in the coal mine" and he now predicts a global recession with equity valuations dropping to their lowest levels in a generation.
"The ongoing EM (emerging market) debacle will be less contained than subprime ultimately proved to be," he says in a research note quoted by CNBC, warning that markets face being trapped in "a Freddie Kruger-like nightmare".
"The market has at last awoken from the dream it hoped would last forever." He adds:
- We saw yen weakness further undermining an already weak balance of payments situation in the emerging world as a direct replay of 1997.
- A strong US dollar/weak yen environment is typically an incendiary combination for EM, and so it has proved once again. Having reached tipping point the yen will often rally strongly as it has now and as it did in May 1997.
- This may or may not delay the impending EM implosion for a few weeks.
The top gainer this morning is News Corp, whose shares have jumped more than 8 per cent after cost cuts helped push profit well ahead of analyst forecasts.
Among blue chips, it's the miners and Westpac that are doing particularly well this morning:
- BHP: +1.5%
- Rio: +0.8%
- CBA: +0.3%
- ANZ: +0.8%
- NAB: +0.6%
- Westpac: +1.7%
- Woolies: +0.8%
- Wesfarmers: +0.2%
- Telstra: -0.2%
Top winners and losers this morning.
With the green on screen from Europe and the US following the green on screen from Asia, particularly the Australian market yesterday, is all forgotten? IG's Evan Lucas asks and answers:
- I think on a three-month view this is unlikely. China returns from Chinese Luna New Year holidays today and is likely to play catch up for the seven day holiday it has just been on.
- The holidays are also likely to feed into retrospective data over the coming months and will give the China bears even more fodder as data will come in under expectations due to the downing of tools. The March and April data last year was a trigger for a correction on the ASX, then the credit concerns took over to push further; I have a great sense of déjà vu here and expect a similar story to appear this time.
- However, looking to today’s trading session, local data will again be fundamental today, particularly the RBA policy statement. Having seen the Board move to dead centre by removing its easing bias call, more colour as to why this has happened will shine the spotlight on areas that are either performing or underperforming.
- It will also give insight into its opinion of what is a ‘comfortable level’ regarding the AUD and its opinion on non-mining that we believe is still struggling.
The sharemarket has opened higher, buoyed by a resurgence of optimism in global markets that helped Wall Street post its biggest gains of the year.
The benchmark S&P/ASX200 index is up 16.2 points, or 0.3 per cent, at 5147.6, while the All Ords is up 0.3 per cent at 5163.7.
Among the sectors, materials have jumped 0.9 per cent, energy has gained 0.8 per cent, financials are up 0.3 per cent, but healthcare has lost 0.9 per cent.
Twitter shares plunged nearly 25 per cent overnight, wiping off about $10 billion in market value, after the company reported a sharp slowdown in user growth, but analysts aren't that bearish on the stock.
The stock, which debuted at $US26 in November, hit a low of $US50 in early trading. The shares hit a peak of $US74.73 in late December as investors bet that the social media platform could become as ubiquitous as Facebook.
Analysts, unlike investors, are divided on the company's outlook a day after it reported fourth-quarter results.
Twitter, according to broker assessments, is either the overvalued owner of a niche product whose potential is fading or an undervalued phenomenon that is set to give Facebook a run for its money in mobile.
"We remain firmly in the latter camp..." said Deutsche Bank, one of at least six brokerages that raised target prices or ratings on Twitter's stock.
Deutsche, in a note entitled "Great Quarter, Aside From The Most Important Metric", said it was impressed by Twitter's improving monetisation and expected slowing user growth to reverse during 2014.
The broker, which sees Twitter on its way to 1 billion user, maintained a "buy" rating on the stock and raised its price target to $US65 from $US50. Facebook has about 1.2 billion users.
UBS, on the other side of the argument, issued a "sell" recommendation on the stock and cut its price target to $US42 from $US45. It was one of at least eight brokerages to cut their target prices or recommendations on Twitter's shares.
"A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated," UBS analyst Eric Sheridan said in a note.
Twitter since debut.
Stocks in focus this morning:
- In New York, BHP Billiton ADR jumped 2%, Rio Tinto ADR +2.9%
- AGL Energy (AGK): May need to make concession in Macquarie Generation bid, CBA says
- Aurora Oil & Gas (AUT): Canada’s Baytex made $1.84b bid, or $4.10 a share, a 53% premium
- Australand (ALZ): May sell part of residential book, Australian reports
- BHP Billiton (BHP): Richards Bay Coal Terminal Jan. shipments rise 8.5% y/y
- Forge (FGE): Decmil (DCG), NRW Holdings (NWH), Monadelphous (MND) among 10 parties looking at Forge’s books, AFR says in Street Talk column
- Iluka (ILU): Peer Kenmare fell most since October in London trading
- News Corp (NWS): 2Q, 1H earnings; webcast 8.30am Sydney time
- Oil Search (OSH): PNG plans to raise $1.7b to pay off bond issued to Abu Dhabi, retain Oil Search stake, Reuters says
- Rio Tinto (RIO): EMED Mining says Rio Tinto project licensing process on track
- 21st Century Fox (FOX): 2Q adj. EPS matches est, rev beats; sees film, ad. rev. hurting yr Ebitda
- Virgin Australia (VAH): South African Airways, Virgin Australia in code-share pact
- Woodside (WPL): Co., InterOil in talks over potential gas fields stake, AFR reports
- Trade Me (TME NZ): Cut to hold from buy at Deutsche Bank; PT NZ$4.45
The Australian dollar is hanging onto its strong weekly gains of more than 2 cents, currently fetching 89.56 US cents, but has not yet managed to break through the 90 US cents ceiling.
The currency's move up was triggered on Tuesday by the RBA scrapping its easing buys and its tough rhetoric on the dollar's strength, and got another boost by stronger than expected trade data yesterday.
"The current reversal in the downward trend of the Australian dollar seems to have brought with it a renewed sense that unhedged foreign investors may not continually be punished on a daily basis for buying listed Australian assets," Rivkin CEO Scott Schuberg notes:
- I believe that this is creating the early implementation of good global news via the Australian market, before Europe and the US wake up.
- We saw this yesterday as our market rallied independently of US equity index futures throughout our day session, and then US equity futures only began to move higher as their market began trading.
The dollar over the past month.
Canadian heavy oil producer Baytex Energy has offered to buy Aurora Oil & Gas for $1.84 billion to add production from the prolific Eagle Ford shale oil region of Texas.
Baytex is offering $4.10 for each share of the Perth-based oil producer, a 53 per cent premium to its closing price on Thursday.
Baytex said it will pay a total $C1.8 billion for the shares and assume $C744 million of Aurora's long-term debt, valuing the deal at close to $C2.6 billion ($2.6 billion).
The acquisition, which will be funded in part with a $C1.3 billion share issue underwritten by Scotiabank and RBC Capital markets, will bring to Baytex Aurora's 22,200 acres of exploration lands and 166.6 million barrels of reserves in the Sugarkane field in south Texas, which Baytex says lies in the heart of the Eagle Ford region.
Aurora produces 24,678 barrels of oil equivalent per day, just more than half the 57,100 boepd Baytex produced last year.
In company news, Australian newspapers were once again a drag on News Corp's revenue. But the Rupert Murdoch chaired group reported a 9 per cent increase in earnings before interest, tax, deprecation and amortisation to $US327 million for the second quarter, compared with the previous corresponding period.
Revenue fell by 4 per cent to $US2.2 billion, due largely to falling advertising in the company’s news and information services division, foreign exchange fluctuations and the sale of the Dow Jones Local Media Group.
News Corp’s Australian newspapers, which includes The Australian and The Daily Telegraph, saw revenue plunge by 17 per cent for the quarter, although 10 per cent of this fall was due to foreign exchange rate movements.
The ECB held fire on rates overnight and said there is no deflation problem in the eurozone, and that lifted spirits in the eurozone and beyond.
The European Central Bank left its main interest rate at 0.25 per cent, but its president, Mario Draghi, surprised markets by not signalling a near-term rate cut in comments to reporters despite deflation worries in the 18-country eurozone.
"There is certainly going to be subdued inflation, low inflation for an extended, protracted period of time, but no deflation," Draghi said.
Draghi's remarks sent the euro, which had lost ground to the dollar immediately after the decision, to a one-week high of $US1.3619 and pushed up German bund yields. The euro was last up 0.4 per cent at $US1.3591.
"Really the move started when (Draghi) mentioned there is no deflation problem. That is when the euro gapped higher, because when you are denying deflation you are not easing anytime soon," said Sebastian Galy, senior currency strategist at Societe Generale in New York.
The market was largely betting the other way on the ECB, expecting either a rate cut or a strong signal from Draghi that this was a prospect. It got neither and that set off the euro's short-covering rally.
"While he reiterated that risks for the economy remain to the downside and that inflation pressures are likely to remain subdued, he has not taken any meaningful step closer to easing monetary policy," says Omer Esiner, chief market strategist at Commonwealth Foreign Exchange.
US stocks posted their best day of the year after a drop in applications for unemployment insurance boosted confidence in the economy and Disney's results overshot expectations.
The rally came ahead of the widely-followed payrolls report for January due Friday, which some are expecting to be affected by the extreme weather that hit much of the United States. December's number was a much-lower-than-expected 74,000 and an upward revision wouldn't be a surprise.
Initial claims for state unemployment benefits declined 20,000 last week to a seasonally adjusted 331,000. While the data has no direct bearing on January's employment report it bodes well for the jobs market and the overall economy.
"Investors recently have been choosing to look at the glass half empty data and not focus on the positives," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
"Bad weather causes cancellations, flight problems, business closings. I'm hoping we get an upward revision to the December (payrolls) number tomorrow, but if we get a lousy number I'm not going to crawl under a rock."
Walt Disney was the most recent bellwether to beat expectations as its profit topped estimates, sending its shares up 5.3 per cent to $US75.56. Disney led gains on both the Dow industrials and S&P 500.
According to Thomson Reuters data, of the 330 companies in the S&P 500 that have reported earnings through Thursday morning, 68.8 per cent have topped Wall Street expectations, above the 63 per cent beat rate since 1994 and the 67 per cent rate for the past four quarters.
Local stocks appear likely to open higher, extending yesterday's rally, on optimism that the US economy is headed in the right direction and after ECB president Mario Draghi said there is no deflation problem in the eurozone.
Here's how some of the major markets performed:
- SPI futures up 37 points at 5119
- AUD flat at 89.60 US cents and 65.93 euro cents, but stronger at 91.5 yen
- On Wall St, S&P500 +1.24%, Dow Jones +1.22%, Nasdaq +1.14%
- In Europe, Eurostoxx +1.63% , FTSE100 +1.55%, CAC +1.71%, DAX +1.54%
- Spot gold down slightly at $US1257 an ounce
- Brent oil up half a per cent to $US106.84 per barrel
- Iron ore down 1.14% to $US121 per tonne
Read more in this morning's need2know