That’s it for Markets Live today.
You can read a wrap-up of the action on the markets here.
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See you all again tomorrow morning from 9.
Australian shares have closed at their highest since mid 2008, as fears of a military escalation between Ukraine and Russia eased and local economic growth came in stronger than expected.
The benchmark S&P/ASX 200 Index lifted 46 points, or 0.9 per cent, on Wednesday to 5446.2, the highest finish since June 2008 - although just pipping last October's high - while the broader All Ordinaries Index rose 0.8 per cent to 5457.3.
Local shares climbed at the open after equity markets in the United States and Europe rallied on Tuesday night.
Tensions between Russia and Ukraine appeared to ease, pushing the S&P 500 Index to an intraday record, and European stocks closed with strong gains after Russian President Vladimir Putin said in a news conference that there is “no need yet” to use military force in Ukraine.
Stocks remained buoyant after ABS data showed the gross domestic product rose 0.8 per cent in the December quarter.
“The economy grew faster than economists expected but we still think the Reserve Bank of Australia will keep rates on hold this year,” UBS interest rates strategist Matthew Johnson said.
Australian states have improved their rankings in a global survey of mining provinces, but are still considered less attractive places to invest than several Scandinavian countries.
Sweden and Finland were ranked by Canada’s Fraser Institute as the most attractive places for miners to invest, in the Institute’s most recent annual survey of mining executives.
The survey ranks 122 different mining jurisdictions across a range of measures, from geology and the availability of labour and infrastructure to the risks of political interference.
The jurisdictions were rated differently across different measures, but Sweden was rated the highest in a composite index published by the Institute this morning.
Western Australia was the highest ranked Australian jurisdiction, finishing sixth globally, with South Australia ranked 11th.
WA was ranked the world’s second most attractive location by geology behind Alaska, but slipped down a few notches on the back of frustrations about some environmental regulations, native title and policy matters.
Australia's two most populous states - New South Wales and Victoria - were the lowest ranked Australian jurisdictions, coming in at 39 and 33 respectively. Tasmania was ranked 27th, Queensland 24th and the Northern Territory in 13th position.
And here are the best and worst for the day.
Paladin shareholders continue their roller coaster ride this year, but can enjoy a 12 per cent rise for today, at least.
Best and worst performing stocks in the ASX 200 at close.
Most of the gains were made early, but the ASX 200 managed to add 46 points, or 0.9 per cent, to finish above the most recent peak in October and register its highest close since mid 2008.
The benchmark index ended the day at 5446.2, while the All Ords also gained 46 points to 5457.3.
IT was the best performing sector, up 2.1 per cent, led by a 3.1 per cent gain in Computershare. Consumer discretionary stocks and financials were also up strongly - Westpac jumped 1.7 per cent and was the best of the banks.
BHP was up 1.2 per cent.
Gold stocks finished down, as did listed property trusts and telcos, after Telstra eased 0.2 per cent lower.
Revealed: the incredible stock pickers at the SEC!
Serious question marks have been raised about insider trading by employees at the US Securities and Exchange Commission with academic research pointing to a long history of profitable deals ahead of off-limit trading periods.
A new report by academics in the US suggests that employees working at the SEC are trading on inside information relating to investigations and upcoming enforcement actions.
In the report titled “The Stock Picking Skills of SEC Employees,” researchers found that SEC employees’ stock purchases look harmless enough, but when they go to sell their stocks, they have an uncanny ability to beat the market.
“In short, it appears that SEC employees continue to take advantage of non-public information to trade profitably in stocks under their regulatory purview," write Shivaram Rajgopal, a professor of accounting at Emory University, and Roger M. White, a doctoral student in accounting at Georgia State University.
The Washington Post reported that a spokesperson for the SEC, which has made crackdowns on insider trading a priority in its enforcement division, declined to immediately comment.
A Chinese solar company said it may not be able to make an 89.8 million yuan ($14.6 million) interest payment in full by the March 7 deadline, in what may be the first default of an onshore bond.
Shanghai Chaori Solar Energy Science & Technology, a maker of cells to convert sunlight into power, plans to pay 4 million yuan to bondholders, the company said in a statement to the Shenzhen stock exchange yesterday.
A default would highlight strains in China’s financial system after a trust product issued by China Credit Trust was bailed out in January.
China’s renewable energy industry faces a record $7.7 billion in bonds maturing this year, testing the resolve of Premier Li Keqiang who needs to allow industry consolidation to slow a build-up of debt in the economy estimated by a state think tank to account for 215 percent of gross domestic product.
“This is the first onshore default,” said Yang Kun, a bond analyst at Guotai Junan Securities. “It shows regulators’ attitude toward defaults has changed and they’re silently permitting defaults. Risk appetite will slump substantially.”
Guosen Securities estimates Chinese non-financial companies’ debt ratios reached 93 per cent last year, while the average in Asia hasn’t surpassed 70 percent in the last 10 years.
Hong Kong investment firm Cheung Kong Infrastructure Holdings may block Australian gas transporter APA Group's $2.06 billion takeover of smaller rival Envestra.
In a statement to the ASX, Envestra said it recommended the takeover but added that two of its directors, CKI chief financial officer Dominic Chan and CKI chief planning and investment officer Ivan Chan, "do not consider the scheme to be in the best interests of Envestra shareholders".
The CKI executives did not say why they oppose the sale but they must explain their position in a scheme booklet Envestra plans to send to shareholders in the next three weeks, sources told Reuters.
The CKI executives may not oppose the sale outright and may demand a higher price, the sources said. CKI executives could not immediately be reached for comment.
An unravelling of the deal would be a surprise blow to APA, which distributes about half Australia's gas and wants to broaden its reach. In 2012, it paid $1.4 billion for Hastings Diversified Utilities Fund.
CKI holds a 17.46 per cent stake of Envestra. For the deal to go ahead, more than 75 per cent of non-APA shareholders must support the sale. CKI's holding amounts to about 26 per cent of non-APA shares, which means its approval is necessary.
Envestra shares are up 2.6 per cent at $1.18, while APA are flat at $6.57.
The house always wins, but some houses win more than others. As you can see from the chart, in a little over 10 years Macua has eclipsed Las Vegas as a source of gambling revenue.
Macau is one of two “special administrative regions” of China (the other is Hong Kong). China allowed foreign gaming companies into the region in 2002.
“VIPs account for about two-thirds of Macau’s casino revenue,” writes Bloomberg Businessweek:
“The majority are mainland Chinese who bet on credit because of the country’s currency controls. The laws restrict to 20,000 yuan ($US3,300) the amount a citizen may take across the border and a maximum of 10,000 yuan from a cash machine in a day.
“That’s not enough for a VIP, who by the industry’s definition bets at least $US1 million during every visit to the territory, the only place in China where casinos are legal.
“So most big spenders from the mainland play with chips loaned to them, at no interest.”
Listed casino companies operating in Macau include the Hong-Kong listed Galaxy Entertainment, the US-listed Wynn Macau and Melco Crown Entertainment, and Hong Kong’s SJM Holdings.
VIPs make up about two-thirds of Macau's gambling revenue.
China will "accelerate" negotiations for a free trade agreement with Australia, Premier Li Keqiang has said in his opening speech to the National People's Congress.
Delivering his first government work report as Premier at the Great Hall of the People in Beijing on Wednesday, Mr Li said China would maintain its annual economic growth target at "about" 7.5 per cent, signalling an unwillingness to allow growth to slow - even as he warned of "great" downward pressure on his country's economy, and reiterated the urgent need for China to push through reforms to restructure its economy.
"We are at a critical juncture where our path upward is particularly steep," he said, adding that the global economic recovery remained unstable and uncertain.
Mr Li also flagged a move toward a wider trading range for the Chinese yuan, and to grant financial institutions greater power to set their interest rates.
"We will keep the renminbi exchange rate basically stable at an appropriate, balanced level, expand its floating range, and move toward renminbi convertibility under capital accounts," he said.
Economists expressed concern that China's failure to reduce its growth target may show a lack of determination in ramming home much-needed economic reforms as China rebalances its economy away from investment-led growth, and more toward consumer-led growth.
Chinese Premier Li Keqiang delivers a work report during the opening session of the annual National People's Congress in Beijing's Great Hall of the People. Photo: Ng Han Guan
Supermarket chain Coles has unveiled plans to invest $1.1 billion over the next three years building 70 new supermarkets and creating more than 16,000 jobs.
The capital investment program - unveiled by outgoing Coles managing director Ian McLeod in Canberra - represents a significant step up in Coles's expansion plans and confirms the role of the retail sector as a significant source of jobs growth over the next few years.
Mr McLeod said Coles's new store expansion would create almost 8,500 full-time equivalent retail jobs as well as more than 8,200 construction jobs over the next three years.
Coles has also pledged to treble the number of indigenous staff from 1,000 to 3,000 before 2020.
Mr McLeod said the $1.1 billion investment in new stores reflected Coles's confidence in the future of the food retail sector.
Over the last five years Coles has opened about 20 new supermarkets a year but closed a similar number, so net new-store growth has been limited.
Coles plans to add 70 stores. Photo: Ian Waldie
Glencore Xstrata, the world’s fourth-biggest mining company, is studying separate deals with Rio Tinto and BHP Billiton in Australia to reap cost savings at struggling coal and nickel operations.
The company is assessing a bid for BHP’s Nickel West assets in Western Australia, which are near a Glencore nickel project, chief executive Ivan Glasenberg said. The sale also has attracted rival Mick Davis, former CEO of Xstrata, whose X2 Resources has studied bidding, a person familiar with the matter told Bloomberg.
A combined Glencore-Rio coal business on the east coast of Australia would save more than $US500 million, Credit Suisse said last week. The price of power-station coal is trading near a four-year low.
“There’s a lot to be done where we can get substantial synergies,” Glasenberg, told analysts in London yesterday regarding the possible coal tie-up. “We’re talking to Rio Tinto, but it takes time for both sides to assess each other’s assets. We’ve been talking to them for a long time. How far we’ll get and how soon we can reach an agreement, I don’t know. But it’s something that clearly makes a lot of economic sense.”
Glasenberg also said Glencore remains in talks with China Minmetals for an asset that’s been valued at more than $US5 billion.
“There’s no roadblock in the talks,” the billionaire said, referring to a copper mine in Peru that Glencore offered for sale last year. “We are in discussions with a potential buyer and if we can get the right price we will go ahead and sell it.”
Bill Gross, the founder and boss of the world's biggest bond fund manager, PIMCO, says that this could be the last year that central banks' policies underpin high asset prices, which implies that 2014 could be another good period for riskier assets such as shares.
"As long as artificially low policy rates persist, then artificially high-priced risk assets are not necessarily mispriced," writes Gross in his latest regular investment outlook notes. "Low returning, yes, but mispriced? Not necessarily."
"It is reasonable to forecast at least a 12-month future where risk assets can outperform the safest assets. In plain English, stocks, bonds and other “carry”-sensitive assets would outperform cash."
"Continue to be mindful, however, of longer-term consequences. As quantitative easing ends in the US, liquidity in corporate bonds will be challenged."
"If inflation begins to appear as a result of five years of artificially low policy rates worldwide, then assets may indeed be mispriced."
Activity in China's services industry ticked up in February from a two-and-a-half year low the previous month, confirming other data showing a pick-up in services even as manufacturing activity slows.
The HSBC/Markit Services Purchasing Managers' Index (PMI) rose to 51.0 in February from January's 50.7, buoyed by new orders, remaining above the 50 line that separates expansion from contraction.
The rise tallied with the official non-manufacturing PMI, released earlier in the week, which showed activity at a three-month high, and contrasted with two surveys that showed manufacturing activity slowed in the month..
"February data signalled stronger expansions of business activity and new work at Chinese service-sector firms," HSBC/Markit said in a statement.
"That said, the rates of growth remained subdued in the context of historical data."
The data came as Premier Li Keqiang told China's annual parliament session that expanding domestic demand will be a major economic driver and an important structural adjustment as the country pushes ahead with reforms to promote consumer-led growth.
The PMI found that service-sector firms remained optimistic in February, generally expecting business activity to be higher than current levels in one year.
Carsales.com.au this morning announced it will pay $7.2 million for another 3 per cent stake in iCar Asia, bring its share to 22.9 per cent.
The purchase represents the "maximum permitted ‘creep’" under corporations law, the company said in an ASX announcement.
iCar Asia owns and operates a network of online automotive sites in ASEAN with operations in Thailand, Malaysia and Indonesia reaching more than 4.5 million unique visitors every month.
Carsales shares are down 1.9 per cent to $10.62.
While the RBA kept the cash rate steady yesterday, lenders continue to push down the price of fixed loans.
Westpac-owned St George is the latest bank to cut its fixed mortgage rates, lowering its three-year rate to 4.99 per cent from today.
The cut, which follows reductions from National Australia Bank’s on Monday, takes St George’s three-year fixed-rate offering to the lowest of the big four.
The offer is open to new customers and existing borrowers with the bank who want to fix part of their loan.
“We’re seeing many of our customers choosing to fix a large part, but not all, of their loan,’’ said Andy Fell, the general manager of retail banking.
‘‘This gives customers the peace of mind that comes from a set repayment each month, but with some flexibility of a variable loan.’’
The latest round of cuts in fixed rates have been affected by a slide in bond yields, which has pushed down the cost to banks of borrowing two and three years.
Time for a look around the region. Stocks are mostly higher after comments from Russian President Vladimir Putin signalled the Ukraine crisis won’t immediately escalate.
- Japan (Nikkei): +1.5%
- Hong Kong: +0.2%
- Shanghai: -0.6%
- Taiwan: +1.05%
- Korea: +0.9%
- ASX200: +0.6%
- Singapore: +0.2%
- New Zealand: +0.7%
‘‘My sense is that this isn’t going to be the thing that takes down the bull market,’’ says Mark Matthews, Singapore-based head of Asia research for Julius Baer. ‘‘At the margin you have positive developments in China. I don’t see a lot to complain about right now.’’
China set a growth target of 7.5 per cent today as an annual meeting of Communist Party officials begins.
Maintaining expansion close to last year’s 7.7 per cent would help sustain demand for oil and iron ore and support a global economy. At the same time, analysts from UBS to Societe Generale say a lower goal would’ve been more in keeping with the government’s pledge to move away from growth at all costs. The inflation target is 3.5 per cent.
‘‘I feel like an important decision has been made in China,’’ says Julius Baer’s Matthews. ‘‘They have chosen to focus on quality over quantity.’’
Some more on that Credit Suisse report on Chinese money pouring into Australian housing, which is gaining quite some traction on our sites.
Wealthy Chinese buyers have purchased $24 billion of Australia housing in the past seven years, and over the next seven years an additional $44 billion will be spent on residential property, the investment bank estimates.
But the figures might even understate the true picture of Chinese investment in Australian property.
That's because there are alternative means to do so which fall outside of readily trackable measures of this trend, such as when a Chinese national provides the money for an Australian-based family member, friend or solicitor to purchase a property.
"Or when an Australian citizen sells her apartment in Shanghai and switches into a Melbourne Docklands flat," the Credit Suisse strategists say.
The four measurable routes to the so-called "Quarter Acre Dream" are
- a Chinese citizen buying off-the-plan in Australia with FIRB approval
- a Chinese citizen with temporary residential needs buys a house through the Significant Investor Visa scheme ($5 million and higher)
- purchase of a property for redevelopment purposes by a Chinese citizen through FIRB approval
- Chinese settlers with permanent residential status who doesn't need purchase approval.
Qantas' embattled chief executive, Alan Joyce, insists his relationship with the Abbott government is "very good" despite suggestions it has become strained, pointing out that he has been talking to senior ministers as recently as today.
Days after the Abbott government dashed his hopes of a debt guarantee, Joyce told a business audience in Sydney that Qantas respected the decision.
"My focus now [is that] we have to implement a significant transformation of the business," he said. "We are facing significant challenges. It is up to the management team to focus on the change agenda."
Earlier this week Qantas made clear that it was riled about the government's decision to ditch the prospect of a guarantee - in the form of a standby debt facility - in favour of attempting to repeal a section of the Qantas Sale Act.
No strain ... Alan Joyce. Photo: AFP
A drop in household savings is paying for more spending.
For households, the key takeaway today from the strong GDP data is that the savings rate dropped below 10 per cent for the first time since 2010, which may be a sign that consumers are feeling more confident, writes JP Morgan economist Stephen Walters.
“The fall in the savings rate helps to square decent spending outcomes against what has been pretty sluggish growth in household income,” he writes.
Indeed, the pick-up in consumer spending over the fourth quarter of 2013 came against a backdrop of continued pressure on household incomes, with the quarterly gain "funded" by lower household savings, points out Westpac economist Andrew Hanlan.
Household disposable income - which nets out interest and tax payments – was down 0.2% for the quarter in real terms (after inflation) with annual growth slowing to 1.1%, implying declining income in per capita terms.
“With wages growing at the slowest rate for more than a decade and the jobless rate rising, it will take further sustained falls in the savings rate to deliver decent household spending outcomes from here,” reckons Walters.
Banks are increasingly offering borrowers cold hard cash in an attempt to sign them up as mortgage customers.
As lenders jostle to expand their share of the home loan market, all big four banks are now trying to lure new customers with types of cash rebates, and one non-bank lender is even offering fuel vouchers:
- NAB's UBank is offering new customers $2014
- the Commonwealth Bank has a $1000 rebate for first home buyers
- Westpac-owned St George, Bank of Melbourne and BankSA are all offering $1250 to new customers
- ANZ is offering up to $1000 to cover the costs of customers who switch banks.
- Non-bank lender Better Choice is seeking to tap into concerns about fuel prices by offering new customers discounts of between 10c and $1 a litre on petrol, depending on how much they borrow.
One of the big winners of today is Fairfax, which pushed above the $1-mark for the first time since July 2011.
Shares in Fairfax, publisher of this website, jumped as much as 7.4 per cent to a high of $1.015, before retreating to be up 2.7 per cent at 97 cents.
There was no apparent reason for the rally, which extended February's strong gains in the wake of better than expected earnings.
However, Credit Suisse in a report on rising Chinese investment in Australian property, (see also 11.06am post) named Fairfax as one of the companies set to profit, adding the shares to its portfolio.
Property developers, building material companies, property websites and banks will benefit from further Chinese residential investment in Australia, Credit Suisse says.
"We don't discount the possibility of a Chinese entity taking over one of these companies," the analysts write. "Our portfolio is already long Mirvac, CSR and National Australia Bank; we now add Fairfax."
Sydney is the fifth most expensive city to live in the world, of the 131 analysed by the Economist Intelligence Unit.
The priciest is Singapore, followed by Paris, Oslo and Zurich, while Tokyo is number six.
Tokyo and Osaka, which ranked first and second last year, have seen the biggest falls in costs because of a cheaper yen, writes The Economist.
The index is a weighted average of the prices of 160 products and services, with New York's figure set to 100 to provide a base for comparisons.
London is the 15th most expensive place to live, while New York is 26th.
New Delhi, Karachi and Mumbai are the cheapest of the lot.
Ratings agency Fitch says its Dinkum RMBS [residential mortgage backed security] Index recorded its lowest mortgage arrears figures since 2009.
Fitch’s Dinkum RMBS Index has been designed to enable investors to track the arrears and LMI performance of mortgages underlying Australian RMBS.
A mere 1.21% of outstanding loans were more than 30 days in arrears at the end of 2013, the lowest end-of-year levels since 2009.
In a strong housing market and low interest rate environment, the increase of 2 basis points (0.02 percentage points) was below the average fourth-quarter rise of 7bp over the past four years.
Arrears remained overall stable, with 30-59 and 60-89 days arrears rising by 1bp and 2bp respectively, while 90+ days arrears improved by 1bp.
Higher house prices and decreased selling times benefited long-dated arrears, improving 90+ days arrears across all Dinkum RMBS indices.
Very few Aussies are behind on their loans.
Wagering company Sportsbet has emerged as the fastest growing online bookmaker by total bets placed in 2013, pulling ahead of incumbents Tabcorp and Tatts Group as well as its online-only rivals.
Full-year results released overnight by the company’s Irish owner, Paddy Power, show punters wagered €1.9 billion ($2.92 billion) with Sportsbet in 2013, up 12 per cent on 2012. In constant currency, which is measured in Australian dollars, Sportsbet had turnover growth of 24 per cent.
Paddy Power, which has sourced data from its competitors’ public filings, said this compared with growth in online turnover of 16 per cent at Tabcorp, Australia’s largest wagering operator. Tatts Group, the Australian market’s other incumbent, does not report turnover, but had revenue growth of 14 per cent in 201
Like other wagering operators, Sportsbet’s result was dragged down by a tough Spring Racing Carnival, in which five of the eight Group One races were won by the favourite horse, including Fiorente in the Melbourne Cup.
And here are some first reactions by economists to the GDP numbers:
UBS interest rate strategist Matthew Johnson:
GDP was a bit better than what the RBA and the market were expecting but not really good enough to bring rate hikes into focus. There was a good increase in private consumption up 0.8 percent and that combined with exports is the driver of growth.
Overall, it's good quality result but not great. What you want to see is more domestic activity and that should come through in terms of house building and possibly consumption. We still think rates are on hold this year.
CBA chief economist Michael Blythe
It's a bigger increase than we've seen for a while, but we're still running at a below-trend pace through the course of last year, but there are at least tentative signs of some momentum coming back, and, given where the leading indicators are, there's more to come in 2014.
There's a little bit of a pick up (in non-mining sectors) or at least the parts that are supposed to be picking up weren't as weak as earlier data had led us to believe. So it does look like the transition is underway but it was clearly in the very early stages at the end of last year.
From an RBA point of view they will take some comfort from what they see is happening but it won't see them shifting from their current stable, holding pattern on rates.
JPMorgan chief economist Stephen Walters
Slightly better than expected. Domestic spending actually went up, so there is a risk that could have gone down again. But you still get most of the growth coming from exports. Of the 0.8 (percent growth) over the quarter, 0.6 of that came from net exports, which is mainly a boost on the export side.
It's getting slightly better as we go through the year. We've got essentially 3.0 per cent growth by the end of the year. Modest improvement, because we are still not getting that evidence that capital spending in particular outside mining is picking up yet.
Not much (implication for rates), it doesn't really tell us anything we didn't already know.
NAB senior eocnomist Spiros Papadopoulos
The household part of the economy is steadily improving, but uncertainty remains on the business investment side and just how much bounce we will get on the non-mining business investment front during the course of the year.
If we don't see a significant bounce, we'll see the unemployment rate rise.
We've got another rate cut expected before the end of the year, and these figures doesn't change our view in any way.
RBC senior economist Su-Lin Ong
Year-on-year growth... that's still sub-trend but it's a tad stronger and consistent with the general view that the rate-sensitive sectors of the economy picked up pace in the last quarter of 2013 and the economy had a little bit more momentum.
The consumer was definitely stronger in the quarter and that has, to some degree, helped offset the drag on activity from weaker capex.
Investors are the most bearish on Australian stocks since 2007 after last month’s rally pushed up valuations by the most since April and the central bank signaled a reluctance to add stimulus to the economy.
Outstanding put options on the S&P/ASX 200 Index outnumbered equivalent call contracts by 2.50 times on March 3, according to data compiled by Bloomberg. The ratio rose to 2.52 on Feb. 28, the highest since September 2007.
Bearish three-month options yesterday cost 7.1 points more than bullish ones, up from 5.8 points at the end of 2013, the data show.
The total return on Australian shares exceeded that of the Standard & Poor’s 500 Index last month, even while the US equities measure rose to a record, as companies from BHP Billiton to Rio Tinto boosted dividends and earnings grew at CBA.
That pushed profit multiples to more than 8 per cent above the average of the past five years.
“We’ve had a very good run and people are wanting to take out some protection against that move,” Toby Lawson, head of futures, options and cash equities trading for Asia Pacific at Newedge Group said. “A few have said ‘right, I’ve got to be careful’, so you tend to see more options to protect against a downside move.”
Turning to our roosters and feather dusters thus far, and Paladin Energy is the early leader, closely followed by Fairfax Media, which briefly spiked above $1 a share!
Decmil and Ausdrill were the two hardest hit stocks in the ASX 200, while Qantas shareholders are having another tough day.
Best and worst performers in the ASX 200 this morning.
Some reactions to the surprisingly strong GDP numbers, which were boosted by better than expected household spending:
Household saving ratio way down from 10.6% September quarter to 9.7% December quarter, wallets are opening again.— Cameron Kusher (@cmkusher) March 5, 2014
Woot, AUS GDP is a beat ... at 0.8%. On a tear!! Can't wait till the car industry numbers take affect.— AlphaBeta (@trends_trader) March 5, 2014
Aust Dec qtr GDP: +0.8%qoq, +2.8%yoy. Actually quite respectable given the mining inv slump and all the gloom about the Aust economy !— Shane Oliver (@ShaneOliverAMP) March 5, 2014
With the Chinese government setting a goal of 7.5 per cent GDP growth this year, it's worth remembering that China always beats its targets, points out IG's Chris Weston.
Let's put it down to that that famed communist efficiency.
China always beats its targets.
The dollar is about to crack 90 US cents on the back of the strong GDP numbers, jumping nearly half a cent to 89.95 US cents.
The Australian economy expanded at a stronger pace in the last three months of 2013, taking the annual growth rate to 2.8 per cent.
The economy grew at a seasonally adjusted 0.8 per cent in the December quarter, up from a 0.6 per cent expansion in the three months to September.
Economists had tipped the growth rate for the quarter to come in at 0.6 per cent, and for the year-on-year rate to be 2.5 per cent.
A series of indicators released over the past week that feed into the GDP figures have painted a mixed outlook for the economy.
Economists have said resources exports were expected to driven GDP growth, but that domestic demand remained weak.
China has maintained its annual growth target at “about 7.5 per cent” this year, a sign the new government is unwilling to accept a significant slow-down even as it attempts to restructure the economy.
Maintaining the elevated target is likely to mean significant fiscal stimulus is required to support the economy, a positive sign for iron ore and coal prices.
Yet it is likely to delay the long promised rebalancing of the economy away from fixed asset investment to one driven by consumers spending.
China set its annual inflation rate at 3.5 per cent for this year, the same as 2013.
It is also targeting the creation of 10 million urban jobs and not letting unemployment rise above 4.6 per cent.
It is targeting money supply growth of 13 per cent, the same target as last year.
ANZ’s chief China economist, Liu Li-Gang, said maintaining the growth target at 7.5 per cent will delay reforms and required a “significant” easing of credit conditions and ramp up in government spending.
Mr Liu said the government would have been “wise” to set the growth target within a range of 7 per cent to 7.5 per cent.
“This would have given more room for long-awaited structural reforms,” Mr Liu wrote in a note published before the meeting opened.
The Chinese economy grew at 7.7 per cent in 2013.
An annual growth rate below 7.5 per cent would be the country’s slowest since it achieved 3.8 per cent in 1990.
China's growth expectations - economists' consensus.
Did the oligarchs put pressure on Putin to extend an olive branch to the West? That may be overestimating their influence on the Russian President, but Moscow’s plutocrats can’t have been too happy watching their fortunes melt as tensions over the Crimea escalated.
Bloomberg’s Billionaire Index shows that the global equities slump that was sparked by the Crimean crisis hurt the Russian rich more than anyone else, bar Bernard Arnault, the chairman of LVMH Moet Hennessy Louis Vuitton, the French luxury brand favoured by Moscow’s oligarchs.
Altogether the Russian billionaires saw $US13 billion disappear, thanks to Putin’s decision to send some 16,000 troops to the Crimean peninsula, Bloomberg has calculated. Russia’s Micex index fell 10.8 per cent on March 3, wiping out about $US60 billion in market capitalisation. It rebounded 5.2 per cent yesterday.
These were the biggest losers in Monday’s global rout:
1. Gennady Timchenko (Russia)
2. Leonid Mikhelson (Russia)
3. Vladimir Lisin (Russia)
4. Bernard Arnault (France)
5. Vagit Alekperov (Russia)
7. Sergey Galitskiy Russia)
8. Vladimir Evtushenkov Russia)
Billionaire Leonid Mikhelson, who with Gennady Timchenko, is reported to have lost $US3.2 billion. Photo: Bloomberg
The local market has followed the overnight lead from overseas and recorded strong gains in early trading.
The ASX 200 index is 34 points, or 0.6 per cent, higher to 5434.3, and the All Ords is up 34 points to 5445.6.
Early leaders among the sectors are consumer discretionary, up 1.2 per cent, and IT, up 1.3 per cent, but the gains are broad.
The exceptions are health care, dragged lower by CSL, down 0.6 per cent as as it trades ex-dividend, and gold miners are also underperforming.
Rio, which also trades ex-div today, is 0.6 per cent lower.
Australia's services sector expanded for the first time in more than two years amid strong growth in health, community services, finance and insurance, a private survey has found.
The Performance of Services Index for February, by the Australian Industry Group, recorded its highest reading in since March 2008 as it surged by 5.8 points to 55.2.
Other sub-sectors within the survey, such as retail trade, improved, but remained below 50 points, which represents a contraction.
“After gradually clawing back towards expansion over the second half of 2013, the services sector leapt ahead in February with a very solid improvement in sales and employment,” AiG chief executive Innes Willox said.
“There was a hint of this welcome movement in January with reports of strength in new orders after a gradual climb from very low levels in mid-2013."
The strengthening of the services sector comes in contrast to the struggles facing the manufacturing industry.
AiG's gauge of manufacturing activity for February, which was released on Monday, showed that the sector had slowed for the fourth-straight month.
Stephen Miller, a fund manager at BlackRock, the world's biggest asset manager, says a cooling economy will probably drive the Aussie toward 80 cents this year.
That’s despite a report that today is expected to show GDP quickened in the final quarter of 2013, according to a Bloomberg News survey.
Fair value for the currency is between 80 and 85 cents given the prospects for Australia's commodity export prices, the high cost structure of the economy and reduced stimulus in the US, Miller said.
Miller expects the RBA to maintain the 2.5 per cent benchmark rate for the rest of this year, in line with the median prediction from economists surveyed by Bloomberg.
“It wasn't a very long pause in the RBA's jawboning [of the dollar in its meeting minutes],” said Sean Callow, a currency strategist at Westpac.
"They certainly don't want to give any encouragement to the notion that we should be buying dips in the Aussie."
US stocks rallied overnight, with the S&P 500 at a record high, as fears eased of a confrontation between Russia and Ukraine and Russian President Vladimir Putin said there was no need to use military force in the Crimea region for now.
"Monday's selling and Tuesday's stark reversal have become commonplace in traders' calendars in 2014," said Andrew Wilkinson, chief market analyst at Interactive Brokers. "Investors have clearly got an appetite for equities displaying strong momentum no matter whether geopolitical risks or fears for the health of the recovery stand in their path."
The Dow Jones industrial average rose 230.94 points or 1.4 per cent, to 16,398.97, the S&P 500 gained 28 points or 1.5 per cent, to 1873.73 and the Nasdaq Composite added 73.901 points or 1.7 per cent, to 4351.202. The S&P hit an intraday record of 1871.44 while the Nasdaq Composite touched a 14-year high.
The CBOE Volatility index, Wall Street's so-called fear gauge, fell 11.9 per cent to 14.09, after rising 14 per cent in the previous session.
"The longer-term trend of the US equity indexes remains positive," but short-term indicators "remain overbought and are peaking as most indexes rally back to resistance at their 2014 highs," said Robert Sluymer, analyst at RBC Capital Markets.
Ukraine tensions just a blip on the Fear Index.
China will unveil key economic targets and reform priorities for 2014 at the start of an annual parliament meeting this morning. Expectations are that Beijing will stick to gradual changes to avoid an economic shock.
Premier Li Keqiang addresses the National People's Congress at the start of the nine-day session, and investors will be watching his speech for clues on what lies ahead for the world's second-biggest economy.
He is likely to provide an economic growth forecast for China in 2014, and analysts have said maintaining last year's target of 7.5 percent, as he is likely to do, will give room for policy-makers to drive reforms.
Policymakers are aware that an abrupt slowdown resulting from a rebalancing of the economy, and job losses and bankruptcies, could derail the reform agenda.
"Anyone hoping for a re-run of the excitement around last year's third plenum will be disappointed," Mark Williams and Qinwei Wang at Capital Economics in London wrote in a note.
"Nonetheless the congress should at least give us a better sense of the government's priorities and objectives for the rest of the year."
Some analysts believe there is an off chance that Li could stop issuing an explicit growth target this year, to underscore the importance of economic reforms.
Others say he may stop referring to a "target" in economic growth, instead using "projection" or "expectation" to give more wiggle room for the government.
Among the less controversial reforms, the central bank could unveil a long-awaited deposit insurance system in coming months, a step toward its declared goal of freeing up bank deposit rates, and it may also widen the yuan's trading band to encourage international usage of the currency.
Analysts say some changes, such as government downsizing or closures of debt-laden factories, could take a back seat to avoid fuelling job losses and undermining social stability.
Investors could get a sense of how much of a growth slowdown the government is willing to tolerate from the annual budget, which will also be announced today.
Global share markets rallied overnight after Russian President Vladimir Putin’s said he was not considering taking control of Crimea and that military force would be a “last resort”.
Putin ordered troops involved in a military exercise near the Ukrainian border back to their bases as he sought to ease tensions a day after Russian stocks, bonds and currency were hammered.
The easing of geopolitical tensions saw a reversal of yesterday's movements in most asset markets - shares up, gold and oil down.
"However, tensions remain high and suggest some further volatility in financial markets while the situation in Ukraine remains uncertain," St George writes in its morning note.
Here's what you need2know this morning:
- SPI futures up 43 points at 5448 at 8.45am AEST
- On Wall St, S&P500 +1.5%, Dow Jones +1.4%, Nasdaq +1.8%
- In Europe, Euro Stoxx 50 +2.7%, FTSE100 +1.7%, CAC +2.5%, DAX +2.5%
- Spot gold down $US12.96 to $US1337.65 an ounce
- Brent oil down $US2.07 to $US109.13 per barrel
- Iron ore fell 0.8 per cent, or US90c, to $US116.80/tonne
What’s on today in economics:
- Australia: Australian Industry Group performance of services; fourth-quarter GDP.
- China: HSBC-Markit services purchasing managers’ index.
Stocks trading ex-dividend today:
- Mighty River Power
- NRW Holdings
- Rio Tinto
- Select Harvest
- Tox Free Solutions
- Twenty-First Century Fox
- Village Roadshow