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Australian shares have closed at a new six-year high, notching up a seven day winning streak as the big four banks lifted the index and investors reacted to a mixed bag of June quarter company updates.
The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index both added 0.2 per cent on Thursday, to 5585.2 points and 5576.8 points respectively, as local shares took muddled cues from offshore. Major equity markets in the United States, Europe and Asia were mixed.
If the market gains on Friday it will mark the longest consecutive run of gains in almost one year.
UBS has trimmed its year-end target for the ASX 200 from 5700 points to 5625 points based on subdued expectations ahead of the August reporting season when most companies deliver final full-year results for the 2014 fiscal year.
“Expectations for aggregate earnings per share growth in FY14 now stands at 13 per cent, year-on-year, compared to 14 per cent about six months ago,” UBS Australian equity strategist David Cassidy said.
The S&P/ASX 200 Index has closed 11 points higher to 5587.8 points.
Winners and losers at the close
RISE (refugees, survivors and ex-detainees) has cut ties with National Australia Bank in its capacity as a banking customer because the non-profit says that one of NAB's investment arms traded in Transfield Services stock.
RISE objects to Transfield's detention centre contracts. NAB responded that it had not directly invested in Transfield for its own benefit, according to the RISE statement. "[NAB] said that the decisions to invest in Transfield were not taken by NAB itself, but rather by investment managers who were bound to act solely based on financial considerations." RISE went on to say that was not justification enough.
"We have reached the view that it is untenable to stay with a bank that cultivates an 'ethical' image but involves itself financially with policies that degrade the mental and physical well-being of persecuted people. We have therefore ended our own involvement with NAB."
Some analysis on Newcrest from Malcolm Maiden:
Newcrest has handled its latest writedown announcement much more skilfully than it did a year ago when it was engulfed by a disclosure debacle, but the news about its giant Lihir gold mine is still not good.
After being engulfed in a disclosure debacle in June last year that resulted in it paying penalties of $1.2 million, Newcrest has kept a tight lid on its latest writedown announcement.
The group put new internal disclosure processes in place after last year’s crisis, which centred on selective briefings the company gave to stockbroker analysts.
One of them imposes a two-week "blackout" period leading up to regular results and reports, and any special events that the company’s new disclosure committee considers market-sensitive.
The ASX is currently ahead 0.2 per cent today, putting it on track to notch up its 7th consecutive session of gains to equal the market's longest winning streak in a year.
Shares last rose for seven consecutive sessions over the Easter holiday period in April.
The last time shares rose for more than seven sessions without a breather was the rally at the end of the 2013 financial year, when the market gained for the 15 sessions in a row up to and including August 1, 2013.
Hazelwood Resources has responded to the ASX's inquiry about its share price surge.
It believes the buying is because of references in the media to a resource upgrade at one of its projects and positive outcomes at another project in Vietnam.
Dry weather is likely to persist across eastern Australia for the next three months, the Bureau of Meteorology (BOM) said on Thursday, exacerbating stress on cattle and adding to concerns that wheat yields could suffer in the world's third largest exporter.
The chance of below median rainfall between August and October is greater than 60 per cent in northern Queensland, southern New South Wales and most of Victoria, the BOM said.
The dry outlook threatens wheat production across the Australian east coast, analysts said.
Over at afr.com, Jonathan Shapiro has this report on the shale gas revolution:
The opportunity that gushed from technological innovation that some argue as more profound than the internet may have passed investors by, according to Chad Padowitz, the chief investment officer of Melbourne-based global equities fund Wingate.
Those chasing the dream today may be left with nothing more than empty holes and empty pockets. Padowitz, who has recently returned from a field trip to Texas, says the US energy sector sees a “tipping point where production growth must slow, and the existing inventory of declining wells will exceed the growth rate of new wells and production”.
AGL Energy will be able to take over Macquarie Generation after the competition watchdog decided not to fight the sale of two NSW government-owned power stations.
The Australian Competition and Consumer Commission (ACCC) opposed AGL Energy's $1.5 billion offer in March, saying it would substantially lessen competition in the electricity market.
The sale would free up more money for "critical infrastructure" across NSW, state Treasurer Andrew Constance said.
As well as selling the plants, the government hopes to raise $20 billion by selling 49 per cent of the electricity distribution infrastructure, commonly called the "poles and wires".
Saudi Arabia is keeping as much as $40 billion of foreign investor capital waiting as it decides which institutions can participate in the Arab world's biggest stock exchange.
The regulator will publish rules next month allowing participation for the first time by qualified foreign financial institutions starting in the first half of 2015, the Capital Market Authority said on its website Tuesday. The announcement sent the benchmark Tadawul All Share Index to its highest level since May 2008.
The world's biggest crude exporter is opening one of the most restricted major stock exchanges as King Abdullah pushes to diversify the economy from oil and create new jobs. Entry to MSCI Inc.'s benchmark emerging-markets index could mean $40 billion of inflows to Saudi stocks, said Rami Sidani, the head of frontier markets investing at Schroder Investment Management in Dubai. Buying shares may be restricted initially to long-term institutional investors, according to Shuaa Asset Management.
"They have been very clear about what they are looking for, which is very large institutional investors, sticky money with long investment horizons," Amer Khan, a senior executive at Shuaa in Dubai, which oversees more than $300 million in assets, said by telephone Tuesday. "They have seen what happened during the financial crisis and they want to limit hot money."
MH17 the musical? A gameshow, play or movie based on the horrific plane crash? As appalling as that sounds this could actually happen as it looks the Malaysia Airlines tragedy is about to become the centre of a local trademark stoush.
Less than one day after the doomed Malaysian Airlines flight MH17 crashed into fields in eastern Ukraine killing all 298 passengers aboard, a mysterious company in Kuala Lumpur applied to the Australian Trade Marks Office to have the term ‘‘MH17’’ trade marked.
According to documents obtained by Fairfax Media, Remit Now International has applied for a trademark for ‘‘MH17’’ for Class 41 services which covers a huge swathe of usages including films, online games, game shows, video games, plays, musicals, magazines and educational texts.
Every now and then you read something truly terrifying in a seemingly innocuous analyst report.
This is today's, from Credit Suisse's Damien Boey and Hasan Tevfik:
"It would only take 100bps" - [1 percentage point] - "of rate hikes to bring the debt-servicing ratio back to GFC highs, which we view as unsustainable."
That's their take on the Reserve Bank of Australia and the interest rate outlook and part of the reason why they think if the RBA did raise, the peak would be below 3.5 per cent. Right now rates are at 2.5 per cent.
Borrowers can't afford rate rises like they used to because mortgages are bigger in dollar terms.
Mortgages are bigger
Australian house prices aren't overvalued yet, but negative gearing tax breaks have added almost 9 per cent, or $44,000, to current average house prices, financial group Moody's Analytics has reported.
While properties aren't currently overvalued, there are "worrying trends” that could come back to bite homebuyers when interest rates rise as rents and incomes have failed to keep pace with surging property prices, the report cautions.
Moody’s compared house prices with long term valuations – taking into account rents, income and the costs associated with borrowing, including interest rates and other charges - to assess whether the 10 per cent year on year rise in house prices in Australia's eight largest cities means property prices were overvalued.
Negative gearing has enhanced house prices
Macquarie Group shares are down a solid 2 per cent today, with the market cold on the investment bank's trading update.
Here is the outlook.
Key business forecasts
The Australian dollar hit a three-week high on Thursday after a closely watched survey showed activity in China's factory sector in July expanded at its fastest pace in 18 months.
Activity in China's factory sector expanded at its fastest pace in 18 months in July, a preliminary HSBC survey showed, as a raft of government stimulus measures kicked in.
The Aussie rose as high as US94.8, from around US94.4 just before the survey was released.
Chinese manufacturing rose to an 18-month high in July.
HSBC's flash purchasing managers index came in at 52.0, compared with the 51.0 that economists were expecting according to a Bloomberg survey.
Credit Suisse has downgraded Iluka Resources to underperform from neutral after the miner's disappointing sales results and cuts to mineral price forecasts.
Its price target is now $8.50 from $9 and sum of the parts has taken a massive blow to $6.90 from $8.50.
"We continue to wait for a price recovery to make Iluka attractive," the broker says.
New sum of the parts valuation.
Bank of America-Merrill Lynch is more positive on G8 Education, raising its price target to $6.60 a share with a buy.
The broker thinks that G8 can achieve a 10 per cent-plus increase in 2015 earnings before interest and tax with a 1 per cent improvement in occupancy forecasts and 2 per cent increase in cost savings.
Timpetra Resources has sold 80 per cent of its stake in Saracen Mineral Holdings leaving it with no debt but it is unlikely to pay a dividend "in the near term".
JPMorgan has raised its price target to $12.30 on Sims Metal Management from $11.80, staying overweight, following a target of earnings before interest and tax uplift of $240 million over the next five years.
"In what can only be characterised as an opaque industry, with high earnings volatility, management’s decision to present an 'ambitious but realistic' target is undoubtedly bold. What's more, management has set the target, 'without relying on external cyclical recovery or acquisitions' and also without incurring further significant restructuring charges or capital expenditure requirements," the broker says.
Uplift in sight
We reported on Sydney earlier. Here's what's happening down south.
Melbourne's house prices have jumped more than 10 per cent over the year, but experts say the strong period of growth is now behind us.
The surge in prices follows a solid June quarter where house prices grew by 1.7 per cent to a new median of $607,721, according to Australian Property Monitors data released on Thursday.
"There is a solid amount of confidence and auction clearance rates are holding up," said APM's senior economist, Andrew Wilson.
Melbourne's houses prices are now $57,000 higher than the median of $550,773 reported by APM at the end of June 2013, equating to a rise of $156 a day.
It’s rare that an ill wind blows no one any good.
Just look at Lynas Corp, the deeply troubled rare earths miner and processor. Its share are in the middle of a good old trot, rallying another 10 per cent so far Thursday, bringing its gains to 50 per cent over the past six days trading.
One of the triggers just may be the deepening woes of US competitor, Molycorp. Earlier this week, ratings agency Moody’s downgraded its debt to Caa2, which is deep in junk bond territory. Like Lynas, Molycorp is struggling to bed down an expansion, which has caused all sorts of strife. Not only did the cost blow out but there have been ongoing operational issues as well.
Avalon Minerals is in a trading halt while it prepares a capital raising.
Boart Longyear has responded to an ASX price query about the surge in its shares.
The company says that there are no new developments to report regarding its strategic review and media speculation around its recapitalisation problems might be behind the price volatility.
The share price appreciation may also be explained by the fact that a substantial shareholder is close to or finished reducing their stake, thus reducing sell pressure on the stock.
Newcrest Mining is set to wear another round of massive asset impairments, with the gold miner today warning it could be forced to write down the value of its assets by as much as $2.5 billion.
Barely one year after writing down the value of its assets by almost $6 billion, Newcrest revealed the pain for investors was not finished yet, with its Lihir, Telfer and Bonikro assets once again the issue.
Newcrest said operating cost assumptions were being revised at Lihir in Papua New Guinea, after running the plant expansion there for a full year.
Lihir was supposed to be another large, low cost gold mine to complement Newcrest's flagship Cadia mine, but has been plagued with operational troubles and now appears to be a higher cost operation than first thought.
Insurance Australia Group has upgraded its full year profit margin expectations to its highest levels since the company listed on the Australian Securities Exchange in 2000, as benign weather and a lack of claims boosted the insurance giant’s bottom line.
IAG, the owner of brands such as NRMA and CGU, expects to table an insurance margin of 18 to 18.3 per cent, a substantial hike from the previously flagged 14.5 to 16.5 per cent range.
It is the fifth consecutive time that IAG has upgraded its full year insurance margin guidance.
IAG's brands, including Western Sydney Wanderers sponsor NRMA, are performing strongly Photo: Getty Images
Goldman Sachs has raised its price target on Caltex Australia to $24.25 a share, with a neutral recommendation.
That's because of more optimistic assumptions around its marketing division.
Morgan Stanley has reiterated its overweight call on AMP with a price target of $6 a share.
"Markets are driving a cyclical recovery in flows; The market has over-reacted to Life risks and margins are at cyclical lows; AMP can execute a low cost operating model; and wealth management can deliver positive jaws in normal markets."
AMP return on equity
Deutsche Bank equity strategist Tim Baker has looked at the earnings season which begins next week and found that revisions to forecasts are weakening, mostly because of slack in the cyclical sectors.
The one bright spot he sees is housing construction.
Here's what's really interesting, the company surprise breakdown.
Upside: Aurizon, BHP, Commonwealth Bank of Australia, Echo, Federation Centres, IAG, James Hardie, Orora, Rio Tinto, Seek, Suncorp, WorleyParsons.
Downside: Amcor, Arrium, Computershare, Resmed.
Earnings revision trend
It may only be a small part of the group, but BHP Billiton and Anglo American are looking to sell their jointly owned manganese assets portfolio in South Africa and Australia, the Wall Street Journal reports. The assets include two mines in South Africa, one in Australia, and processing plants in both countries. BHP owns 60 percent and Anglo 40 percent of the operations, according to the report.
BHP has a host of other operations on the block, including some nickel assets.
Here's how stocks are faring at the open.
Shares are slightly lower.
Winners and losers at the open
Sydney's median house price has smashed through the $800,000 barrier to reach an all-time high of $811,837, new figures show.
Last month's surge of 3.1 per cent brings the total house price growth for the 2013-14 financial year to 17 per cent, or $118,000, according to the Australian Property Monitors Quarterly House Price Report.
The latest quarterly increase is in line with the March quarter results but still considerably lower than the boom era 5.1 per cent recorded over the quarter ending December last year.
The senior economist at APM and the Domain Group, Andrew Wilson, said: ''December 2013 was the high watermark for Sydney's current growth cycle. However, the market continues to perform."
In crisis management circles, they call it the "black swan" - an event that is extremely rare but has enormous consequences.
As major revival plans are considered for Malaysia Airlines after its second "black swan" in four months, disaster management experts say it can regain the trust of passengers.
The airline was losing money even before the disappearance of MH370 in March, but the shooting down of MH17 over eastern Ukraine has caused an unparalleled blow and taken it into unknown territory.
Now it's expected only drastic measures will be able to secure the survival of the troubled airline, with turnaround options tipped to be presented this week.
A Malaysia Airlines plane on the tarmac.
Facebook Inc's fast-growing mobile advertising business helped drive a 61 per cent increase in revenue during the second quarter, beating Wall Street's financial targets and sending shares to a record-high in after-hours trading on Wednesday.
The world's No.1 Internet social network said on Wednesday that it saw increased interest from both advertisers and from users during the second quarter.
Facebook now counts 1.5 million advertising customers and the company's ad business saw strong growth across all of its geographic regions in the second quarter, Chief Operating Officer Sheryl Sandberg told Reuters in an interview on Wednesday.
Three of the country's largest banks have slashed their fixed mortgage rates, fighting to win new customers by allowing borrowers to lock in longer-term interest rates of less than 5 per cent.
The Commonwealth Bank, National Australia Bank and Westpac on Wednesday became the latest banks to cut fixed rates, each giving customers the chance to secure historically low borrowing costs over the longer term.
CBA moved first, slashing its five-year loan to 4.99 per cent, a new low for the bank.
Within hours NAB and Westpac had responded by matching the CBA's five-year rate. NAB also cut the rate on its four-year loan to 4.99 per cent and its three-year product to 4.94 per cent.
For a five-year fixed loan with a balance of $400,000, the CBA's reduction lowers monthly repayments by $166 a month, RateCity said.
New Zealand's central bank raised interest rates to the highest level in more than five years on Thursday but said it would now take a breather as it looked at the impact of its tightening and watched inflation in the economy.
The Reserve Bank of New Zealand lifted its official rate by 25 basis points to 3.50 per cent, as expected, the fourth consecutive rise in as many meetings.
It said rates would need to return to a more neutral level, but the economy appeared to have slowed amid falling commodity prices and moderate inflation.
Macquarie Group has reported a drop in its operating group’s contribution to profit in the three months ended June 30, compared to a year earlier, but stuck to its full-year guidance to match its bumper 2014 earnings.
The soft first-quarter results were weighed on by units such as Macquarie Securities, which continues to suffer from weak equity trading volumes and lower volatility, Macquarie said in a statement ahead of its annual general meeting in Sydney.
The group’s capital markets divisions, including advisory division Macquarie Capital and Fixed Income Currencies and Commodities, had lower combined earnings in the quarter compared to the same period a year earlier.
Macquarie’s annuity style businesses, including Macquarie Funds and Corporate and Asset Finance, were tracking broadly in line with the same quarter last year.
Here's what you need2know ahead of the open.
• SPI futures up 19 points to 5546
• AUD at 94.55 US cents, 96.01 Japanese yen, 70.27 Euro cents and 55.52 British pence
• On Wall St, S&P 500 +0.2%, Dow -0.2%, Nasdaq +0.4%
• In Europe, Euro Stoxx 50 +0.1%, FTSE flat, CAC +0.2%, DAX +0.2%
• Spot gold fell 0.1% to $US1305.41 an ounce
• Brent oil adds 0.8% to $US108.13 per barrel
• Iron ore falls 1.2% to $US94.30 per metric tonne