Markets Live: ASX back above 5500

That's all for today - thanks for reading.

Here's the evening wrap.

shares up

The late jump in the index was sparked by some buying in the banks, which ended mostly higher:

  • ANZ: +0.15%
  • CBA: +0.4% to a new closing high of $81.20
  • NAB: flat
  • Westpac: +0.8%
  • BHP: -0.1%
  • Rio: +0.05%
  • Telstra: +0.2%
  • Woolies: +1%

Here are some of today's biggest winners and losers in the top 200:

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euro

German economic growth accelerated more than forecast last quarter as mild weather boosted construction and domestic demand countered weaker exports.

Gross domestic product expanded 0.8 per cent from the fourth quarter, when it rose 0.4 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a 0.7 per cent gain.

Data earlier today showed the French economy unexpectedly stagnated in the period, with GDP unchanged instead of the predicted 0.2 per cent rise.

Germany, as the euro area’s largest economy, is key to the 18-nation currency bloc’s drive to sustain a recovery from its longest-ever recession. While fundamentals for this quarter still point to growth, the pace of expansion in the country is likely to slow, the Bundesbank said last month.

‘‘The German economy is in very good shape,’’ said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ‘‘Special factors such as the mild weather added to this good set up and we had very strong growth in the first quarter.’’

market close

The sharemarket has closed at the day's high, after languishing in the red for large parts of the session.

The benchmark S&P/ASX200 index added 14.3 points, or 0.3 per cent, to 5510.8, while the broader All Ord also gained 14.3 points, or 0.3 per cent, to 5490.2.

Among the sectors, financials rose 0.3 per cent, materials ended flat and energy stocks gained 0.5 per cent.

money

Singapore oils trader Wilmar International and Hong Kong investment company First Pacific have offered to lift their 65 cent-a-share takeover offer for major food producer Goodman Fielder by 5 cents, to 70 cents.

The offer is conditional on key shareholders agreeing to sell part of their stakes and the Goodman board backing the new offer.

Shares in Goodman Fielder have gone into a trading halt while the board considers the revised offer.

It is understood that major shareholders Perpetual Investments and Ellerston Capital have both agreed to back the new offer, which is conditional on them selling 5 per cent of their 12 per cent stakes.

Last week, Wilmar and First Pacific threatened to withdraw their offer if Goodman Fielder, which owns brands including Helga’s, MeadowLea, Vogel’s and Olive Grove, sold its New Zealand dairy business.

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michael-pascoe_127x127

While everyone's been off chasing weasel words, the centrepiece of Joe Hockey's first budget has been largely overlooked and its major new ideological commitment understated, Michael Pascoe comments:

First and foremost, Tuesday night's effort was the government's bookkeeping estimates and policy outlook for the next financial year. And the bottom line is that Hockey is promising lower growth than the previous two years and rising unemployment.

After nine months in office, looking forward to the next 13, the Treasurer is telling Australian business that economic growth will be a tad worse than that of 2012-13.

According to the Reserve Bank, the economy right now is growing at better than 3 per cent. Hockey's budget says GDP growth will slow to 2.5 per cent after doing 2.75 this year. We managed 2.6 per cent in 2012-13.

The latest couple of months of labour market statistics show an unemployment rate that has come down to 5.8 per cent. Hockey's budget says it will rise to 6.25 per cent and stay there.

The figures don't match the "growth" and "build" spin of Tuesday night's rhetoric.

Read more

trading halt

Goodman Fielder, already the target of an unsolicited takeover approach, says it has been approached about a "change of control" transaction and asked for trading in its shares to be halted.

Last month, Goodman rejected a $US1.2 billion takeover bid from Wilmar International and a Hong Kong-listed partner First Pacific Co Ltd as too low, fuelling expectations of a higher or rival bid.

Shares last traded at 67.25 cents, down 0.4 per cent for the day.

ASX

The world’s fifth largest bank CBA continued its winning streak as the banking giant continued to receive buying support from the market for a second trading session, CNC sales trader Bety Lam notes:

  • Smashing through the $81 price barrier, CBA claimed fresh records as it did most of the heavy lifting for what was a relatively soggy session for Australian equities. The other major banks stood aside as interbank switching took place, this activity kept the ASX200 suspended in single digit red for a majority of the trading day.
  • BHP was also on the receiving end early boosting support. The mining powerhouse has held its re-entry back into $38 territory for a third session as iron ore held steady at the $103 mark. The stock took a tumble just before lunch as profit taking came into play.
  • In afternoon trading, it appears that investors are weary after digesting the budget and have retreated to the sidelines. In lieu of any pressing local economic data, volumes were very skinny.
china

The China reform trade is backfiring in the stock market, Bloomberg remarks on the lacklustre performance of Chinese bourses.

While Beijing's November policy package led Goldman Sachs to raise its recommendation on Chinese shares to overweight and spurred Citigroup to predict returns of at least 20 per cent in 2014, investors have shifted their focus to the depth of China’s economic slowdown.

Instead of boosting stocks, the government’s emphasis on reform may impede gains as policy makers downplay the importance of short-term growth, according to CLSA Asia-Pacific Markets.

“Pessimism is running high on whatever China does or announces,” says David Gaud, from Edmond de Rothschild Asset Management in Hong Kong. Measures such as the 2007 floated exchange link between Shanghai and would create a more sustained rally “in any other part of the world".

Expectations were high back in November. Goldman Sachs upgraded China stocks in a November 21 report, saying the Communist Party’s pledge to boost private investment in state-controlled industries, protect rural citizens’ land rights and ease the one-child policy had “reinvigorated” reform expectations.

Credit Suisse said in a note on the same day that Chinese equities were among its three top recommendations in Asia. Shen Minggao, an analyst at Citigroup, said in a November 26 report that the reforms would “unleash” the country’s growth potential.

 

asian markets

Here's how the region's sharemarkets are doing:

  • Japan (Nikkei): -0.9%
  • Hong Kong: +0.3%
  • Shanghai: -0.7%
  • Taiwan: -0.1%
  • Korea: -0.2%
  • ASX200: flat
  • Singapore: +0.2%
  • New Zealand: -0.3%

‘‘The recent economic data confirms the fact that the (Chinese) economy isn’t in a good shape,’’ says Dai Ming, a money manager at Hengsheng Hongding Asset Management. ‘‘Under such a scenario, you cannot count on stocks to go up. The market will fluctuate before there’s further progress on new initial public offerings.’’

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world news
How the silver price is fixed. Source: silverfix.com
How the silver price is fixed. Source: silverfix.com 

The 117-year old London silver price benchmark - or fix - will cease on August 14, its operator says, as regulatory scrutiny of price-setting intensifies across markets.

The fix is set once a day by banks getting together via telephone to work out a price, based on deals between their clients. It is used by producers, consumers and investors who use it to base contracts on.

But after Deutsche Bank decided to withdraw from the commodities business, it gave up its seat on the price-fixing panel. The other two member banks decided that having just two members on the panel is unviable.

The announcement by the London Silver Market Fixing yesterday left a question mark over the role of a benchmark, which could be replaced by an electronic alternative.

Some users said they were taken aback by the silver fix loss. "I'm a customer of the fix, and I have to say, I'm completely in the dark about this," one precious metals trader said.

Players have been investigating ways to offer a more transparent way of disseminating information throughout the gold and silver fix. Over the past few months bullion banks have been contemplating a move to electronic platforms to respond to tighter regulatory requirements.

The London Metal Exchange (LME) currently distributes gold and silver forward rates on behalf of the London Bullion Market Association (LBMA).

"We are always looking at ways to expand our product offering, and are ready to expand our range of price discovery and post-trade tools to further service the precious metals market," the LME said in a statement.

politics

Forget inflation; forget the government bond rate. Treasurer Joe Hockey this morning injected a new price measure into the political lexicon: the Middy Exchange Rate (MER).

In an interview with the ABC’s Chris Uhlmann, Hockey said Labor and doctors’ groups needed a reality check on the impact of a $7 Medicare co-payment on GP visits. Compared to other everyday costs, he said, a co-payment is small beer, literally.

“I'd say to you, Chris, one of the things that quite astounds me is some people are screaming about a $7 co-payment,” Hockey said. “One packet of cigarettes costs $22. That gives you three visits to the doctor. You can spend just over $3 on a middy of beer, so that's two middies of beer to go to the doctor.

“And is a parent really going to deny their sick child a visit to the doctor which would be the equivalent payment of a couple of beers or one-third of a packet of cigarettes?”

Read more

Small beer ... Joe Hockey defends the $7 Medicare co-payment on GP visits.
Small beer ... Joe Hockey defends the $7 Medicare co-payment on GP visits. 
money

Despite a sudden crash in the use of cash after banks began pushing contactless payments in earnest two years ago, people are still more likely to reach first for notes and coins for the foreseeable future, says a two-year study of payment methods.

A survey of Australians’ use of 15 different payment options from BPay and eftpos, to credit cards and Bitcoin, since September 2011 shows the use of cash fell sharply in the year to September 2013 from near 90 per cent to 70 per cent of respondents.

But its use has risen slightly again since then, according to the study by Hewlett Packard and consultancy RFi.

Alan Shields, RFi’s managing director of advisory, said cash use is being eroded by a plethora of different payment methods as well as more people buying online. But the decline of cash had “plateaued” because small business are reluctant to introduce contactless terminals.

“A lot of the erosion of cash came about as a result of contactless,” he said. “When the supermarkets introduced that, it was massively successful.’’

Shields says cash use will decline again when small businesses accept contactless, particularly for low value payments. “The issue there is a lot of newsagents and coffee shops that don’t want to accept it.”

They have little incentive to do so because many see cash as free to accept, whereas business pays a merchant service fee to banks and card companies when they accept cards.

Big retail stores have more sophisticated methods for calculating the real cost of handling cash. They also get big discounts on card merchant service fees due to their high volume of transactions.

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dollar

The Australian dollar is lower, unable to maintain its one-month high that it hit a day ago.

It's currently fetching 93.72 US cents, down from a five-week high of 94.10 US cents hit yesterday afternoon.

Forex.com research analyst Chris Tedder says the Australian dollar has fallen as traders sold it to take profits:

  • I don’t thing there’s much happening in the market at the moment - the Aussie dollar struggled to stay up around 94 US cents.
  • The market was a bit nervous about pushing it higher, it’s just profit taking that is pulling it back down.
  • The dollar was affected when the euro fell overnight after a Reuters report said the European Central Bank is getting ready for an interest rate cut at it June meeting.
  • That had a massive effect on the euro and we did see some corresponding strength in the Aussie a bit later on. Against the euro we are looking for continued strength.
money

This year's surprise bond rally has unleashed a wave of mergers and acquisitions, share buy-backs and increased dividends as companies use the low cost of debt and large cash balances to finance activity.

More than ten deals of over $US10 billion have completed so far this year as companies from Pfizer to General Electric look to put their money to work.

“What you are seeing now is remarkable pick-up in activity,” says Jonathan Bader of Halcyon Capital:

  • The reasons are obvious. Debt is cheap, and balance sheets are strong. Now CEOs have more confidence than they had a year ago. They were like deers in headlights and despite the same conditions they were not prepared to pull the trigger. That has changed.

 

York Capital Management’s Jamie Dinan says that low interest rates have created an “arbitrage” between the cost of debt and the cost of equity, which will result in the former being used to fund buying the latter:

  • You are getting rewarded for using your balance sheet. If you are hoarding your cash and not using [cheap] debt you are being penalised because of the negative returns on cash. Anything you can do is being accretive.

 

BT Investment Management’s head of income and fixed interest Vimal Gor said the tax advantages both in the US and Australia is partly why companies are gearing up their balance sheet to help offset earnings:

  • Because of the low growth environment, companies are leveraging up their balance sheets at a similar pace to what we saw prior to the global financial crisis and using that to participate in share buybacks. Apple was a recent example of this. They they get tax relief for doing that.

He added that the risk of an asset bubble is very real and could burst if economic growth were to slow abruptly.

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housing

A senior Reserve Bank official has warned first-home buyers against taking on too much debt in order to buy property, saying the squeeze on this part of the market is probably temporary or ‘‘cyclical.’’

With first home buyers’ share of house sales near record lows, RBA head of financial stability Luci Ellis today acknowledged that many people trying to buy their first property may feel ‘‘squeezed out’’.

However, she cautioned first-home buyers against overstretching themselves in order to compete with investors and other buyers. Not only would this be against first-home buyers’ own interests, it could also increase risk in the financial system, she said.

She also affirmed the RBA’s view that house price growth would not return to the boom-time increases of the 1990s and early 2000s.

Ellis said that in recent years banks had become more cautious in their assessments of how mortgage borrowers would cope with higher interest rates. This approach – one that is backed by the RBA – limits lending to first-home buyers more than others because they tend to have smaller deposits and lack equity in the property market.

NZ

New Zealand's centre-right government has delivered a no-frills election year budget with the first surplus in seven years, but kept a tight rein on its finances despite forecasts of bigger surpluses in a strongly growing economy.

Finance Minister Bill English said the government would return to the black with an increased forecast surplus of $NZ372 million in the year to June 2015 from an $NZ86 million forecast last December.

The government also raised its surplus forecasts for later years, hitting $NZ3.5 billion in 2017-18 because of better than expected economic growth, which is expected to peak at 4 per cent next year before settling back to about 2.1 percent in 2017.

"The New Zealand economy has recovered much of the ground lost in the recession and global financial crisis," English said.

The budget modestly increased spending on assistance to families, health and education services, expanded tax breaks for research and development, but all within its previously advised limit of $NZ1 billion spending boost.

The government raised its debt issuance plans by $NZ1 billion to $NZ8.0 billion for 2014-15, and said it planned to increase issuance in coming years.

Hockey's envy ... Bill English delivers a budget with a surplus.
Hockey's envy ... Bill English delivers a budget with a surplus. 
shares down

Nickel prices have come crashing down, dropping as much as $US1000 in just 25 minutes, as light profit-taking triggered heavy technical sales after supply concerns fuelled a rally of more than 15 per cent in the past week.

Three month nickel on the London Metal Exchange slumped to $US18,804 at one point this morning, a drop of 6.2 per cent from yesterday when it notched up a 4.5 per cent loss.

Prices have steadied at $US19,050, still down by 4.9 per cent and trimming the year's gains to 37 per cent. A trader saw support at $US18,500-19,000.

Three-month copper on the London Metal Exchange edged down 0.3 per cent to $US6896, paring a 1.1 per cent advance from the previous session. LME copper hit its highest in more than two months at $US6940 a tonne on Wednesday, before closing up 1.1 per cent.

trading halt

Shares in Metgasco have been put in a trading halt after the NSW government suspended the coal miner’s licence for a controversial coal seam gas site at Bentley.

The government says Metgasco has not fulfilled a condition of its exploration licence for the site, near Lismore on NSW’s north coast. And it has referred Metgasco to the Independent Commission Against Corruption (ICAC) after receiving information about shareholdings and interests.

In a brief statement, Metgasco said it was seeking clarification about its licence from the government. The Bentley mine project has attracted fierce opposition from locals.

Shares were last trading flat at 8.8 cents.

japan

Japan’s economy grew at the fastest pace since 2011 in the first quarter as companies stepped up investment and consumers splurged before the first sales-tax rise in 17 years last month.

Gross domestic product grew an annualised 5.9 per cent from the previous quarter, the Cabinet Office said today in Tokyo, more than the 4.2 per cent rise economists were tipping.

Consumer spending rose at the fastest pace since the quarter before the 1997 tax increase, while capital spending jumped the most since the aftermath of the 2011 earthquake.

Today’s data add to signs the economy will have sufficient momentum to bounce back from the 3 percentage point levy rise that is projected to trigger a contraction this quarter.

‘‘Consumption was a driver for growth in the first quarter,’’ says Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management. ‘‘The economy may return to growth in the third quarter even if it shrinks in the second, though the rebound is likely to be limited.’’

The Nikkei is still down 1.2 per cent, as disappointing earnings and a stronger yen overshadow the stronger than expected GDP numbers.

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