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Markets Live: ASX closes up 1.5 per cent; ASIC intervenes in the David Jones takeover; Trade deficit widens


That's it for Markets Live today.

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Australian shares shot higher after equity markets in the United States pushed to fresh record highs. The market maintained momentum despite disappointing data that showed Australia posted a trade deficit when a small surplus had been expected.

The benchmark S&P/ASX 200 Index rose 1.48 per cent to 5455.4, while the broader All Ordinaries Index lifted 1.40 per cent to 5441.7.

Local shares rallied when the market opened following Wall Street, where the S&P 500 and the Dow Jones Industrial Average added 0.7 per cent and 0.8 per cent respectively to new all-time highs.

The Australian Bureau of Statistics reported the weakest trade balance for 18 months as ore and mineral exports fell, leaving a deficit of $1.9 billion. The result disappointed against consensus expectations for a $200 million surplus.

“It’s not much surprise given what we are seeing in the Australian economy,” Dalton Nicol Reid chief investment officer Jamie Nicol said.

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Booming global demand for battery-powered cars and portable devices such as smart phones and laptops is tipped to provide a boon for a handful of Australian miners producing the key ingredients of nickel, graphite and vanadium.

Credit Suisse analysts highlighted the opportunities in a note issued to clients on Wednesday, recommending nickel miner Western Areas and egraphite and vanadium miner Syrah Resources. Credit Suisse is also tipping aluminium producer Alumina will benefit from increased demand for the lightweight metal that is favoured in the production of electric cars.

"These companies are already starting to see the benefit of advances in energy storage,” said Credit Suisse analyst, Adnan Kucukalic. “Energy storage is a big change that the world is currently undergoing, if we can get it right, there are all sorts of opportunities for investors.”

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The S&P/ASX 200 Index has closed 1.48 per cent higher to 5455.4 points on Wednesday.

Paladin Energy, Sundance Energy and Transfield Services outperformed; Lynas Corp, Goodman Fielder and Resolute Mining rounded out the bottom of the benchmark.

Winners and losers on the ASX 200
Winners and losers on the ASX 200 

This from columnist Phil Baker on the market's fascination with milestones:

"Brace yourselves, investors. Get ready for a dose of “roundaphilia” – the fascination with round numbers and sharemarkets.

But before you get too carried away with 17,000 for the Dow Jones and 2000 for the S&P 500 – both now within spitting distance – let’s remember the call of 36,000 for the Dow.

That was made in September 1999 through a book that has become a symbol for not just the blue chip index but for all sharemarket bubbles and all the bull’s that live on Wall Street.

Dow 36,000 was written by James K Glassman and Kevin Hassett and encouraged investors to buy shares for the long term and just hang on for the ride because eventually it would work out fine.

At the time the Dow Jones was just over 10,000. The next decade ended up being a lost one for US investors as the tech wreck, 9/11, accounting scandals and the financial crisis combined to send the book – and the theory – to the rubbish bin."

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The Australian Securities and Investment Commission has sensationally intervened in Woolworths $2.2 billion takeover of David Jones and $213 million mop up offer for Country Road, demanding an independent experts valuation of the collateral benefit that it believes it will flow to rag-trader Solomon Lew.

David Jones is arguing against the need for an independent valuation and is proposing instead a letter of comfort from independent expert Grant Samuel. saying that the offer for Country Road does not change the value of the David Jones offer.

The legal battle, which emerged in the Federal Court in Sydney on Wednesday, threatens to further delay a crucial shareholder meeting on July 14. The meeting has already been delayed for two weeks.

It was revealed in court that David Jones has asked Solomon Lew not to vote his 9.9 per cent stake in the department store chain at the scheme meeting to approve the deal, but has received no response.

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The lure of staying up late to watch the World Cup has hurt gambling revenue in Macau, as the amount lost by casino punters in June fell for the first time in five years.

Gross gaming revenue in the Chinese gambling hub fell 3.7 per cent compared with June last year, to 27 billion patacas ($3.6 billion), as punters eschewed gaming tables in favour of the football broadcasts.

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Shocker: Josip Drmic had a glorious chance to knock Argentina out of the World Cup.
Shocker: Josip Drmic had a glorious chance to knock Argentina out of the World Cup. Photo: Getty Images

Four months ago, when British finance minister George Osborne made a trip to Singapore, the pretext was to promote a collaborative development of ­Singapore and London as offshore yuan trading hubs.

But Mr Osborne could have picked up some other useful intelligence en route. If there is one country that has seen a ­UK-style bubble develop in its property market, it is Singapore.

Over the past four years, the Asian city state has implemented more than a dozen measures to cool its housing ­market and stem a growing tide of protest from locals that rich foreigners are ­making home ownership unaffordable.

If this sounds like an echo of popular sentiment in London, that is because these are very similar economies. A big financial services industry, paying ­generous wages, sustains demand for high-end housing. That, in turn, pulls up prices further down the price scale, a dynamic accentuated by the availability of mortgage finance at record low rates. Both cities are also regional hubs for wealthy foreigners, with solid legal systems and relatively open borders attracting property investment from Chinese, Russian and Middle Eastern millionaires.

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The scandal engulfing the Commonwealth Bank's financial planning arm highlights the risk that Australian banks may be forced to hold billions more in funds to deal with internal failures, new research says.

After last week's call for a royal commission into severe misconduct by Commonwealth Bank financial planners, Credit Suisse analysts Jarrod Martin and James Ellis say the big banks could face pressure to set aside more capital to handle ''operational risk''.

In a note to investors, the analysts say Australian banks are holding less capital than global lenders to cover this type of risk, which includes costs from failed internal processes and legal battles.

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Asian stocks are at a six-year high in trading this afternoon.

The MSCI Asia Pacific Index rose 0.7 percent by 12:13 p.m. in Tokyo, trading at the highest level since June 10, 2008, Bloomberg reports.

S&P 500 Index futures are up 0.1 percent.

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A reminder from Portugal that when things go badly for banks the market reacts swiftly and brutally. Securities regulators in Portugal and Britain temporarily banned short-selling in Banco Espírito Santo after the Portuguese lender’s stock fell more than 16 percent on Monday on fears about its corporate parent.

The Financial Conduct Authority of Britain followed suit on Tuesday.

An audit in May by the Bank of Portugal found that Espírito Santo International, the parent company of Banco Espírito Santo, was in "serious financial condition."

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The UK may have delivered a startling PMI overnight but its not all good news in the resurgent British economy.

The Markit/CIPS manufacturing purchasing managers index rose to 57.5 in May, and ahead of forecasts for a 56.8 result.

The Guardian reports lingerie chain La Senza's UK franchise is headed for administration after failing to find a buyer. It's the second time in two and half years it has called in administrators.

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The country’s peak body representing financial planners has taken a stand on the Commonwealth Bank, saying it will support a royal commission into the bank unless the bank agrees to form an independent committee to oversee a “full and fair” compensation process to customers affected in the financial planning scandal.

In a letter obtained by Fairfax Media to its members, the Financial Planning Association’s chairman Matthew Rowe says: “Like many of you, I am appalled at the damage done to many customers of the Commonwealth Bank Financial Planning business as well as the actions of some in CBA Management.”

The letter comes as the financial industry is reeling over the findings of a senate report into the CBA financial planning scandal and ASIC’s performance.

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It may have been out of favour for a while now, but Mesoblast is in privileged company with its agent for congestive heart failure ranked as one of the most valuable R&D projects worldwide in the biotech space.

A global comparison by biotech industry outfit EvaluatePharma reckons Mesoblast’s heart treatment Revascor is worth $US4.3 billion, in terms of its net present value. The agent is in phase three clinical trials, which are being funded by Teva Pharmaceutical.

Not only is Mesoblast the sole Australian company with an agent on the list of top 20, but it is the only one from a ‘junior’ with all of the others making the list well-known US/EU pharma companies such as Merck, Bristol Myers, Roche and Pfizer. From a novel, overlooked treatment a few years back, the assessment views stem cell therapy, which is at the heart of the Mesoblast research effort, as becoming more mainstream in the biotech space. In afternoon trading, Mesoblast shares were up another 0.7 per cent at $4.70, and extending its rebound following a recent downswing.


A rash of successful debuts from New Zealand companies over the past 12 months has set the stage for a Kiwi invasion of the Australian Stock Exchange a prospect bankers and fund managers are greeting with enthusiasm.

ASX Ltd, the company that operates the local stockmarket, is actively encouraging more companies from around the Asia Pacific region to list in Australia.

Of the 34 initial public offerings, valued at $50 million or more, to hit the local market in the financial year ended June 30, four were New Zealand businesses. All are currently trading above their offer price.

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Legal firm Maurice Blackburn lodged documents in the Federal Court on Wednesday to begin a class-action lawsuit against Treasury Wine Estates. The legal action is on behalf of more than 600 shareholders over what the firm claims was a late disclosure of heavy writedowns relating to its United States business in 2013.

The lawsuit is being funded by Bentham IMF.

Maurice Blackburn principal Rebecca Gilsenan filed the class action in the Federal Court in Sydney. The documents don’t specify the size of the claim, although it is expected to run into the "tens of millions".

Treasury Wine said in a note to the Australian Securities Exchange that it "strongly denies any and all allegations against it and will vigorously defend the legal proceeding".

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CommSec economist Savanth Sebastian's take on the trade data:

"Not only did Australia record a second consecutive trade deficit, but the magnitude of the deficit was certainly a lot worse than expectations. In addition the deficit in April was revised lower...

"Interestingly Australia’s trade exports with China surged to a fresh record high, above $100 billion over the year to May and well over a third of our exports now head to China. Mining investment may have flattened, but the boost to the economy from Chinese purchases of our resources is on-going.

"In fact while some fret that the mining boom is over, in the background Australia continues to rack up record trade surpluses with China. The trade surplus with China held near record highs - $51.1 billion in the year to May. Interestingly over a quarter of all our trade is now conducted with China. Our reliance on China is now even greater than when Japanese industrialisation was at its peak."

Australian trade data
Australian trade data 

Some more analysis of trade data from Westpac economist Andrew Hanlan:

"The detail reveals that exports of metal ores dropped some $760 million - we had expected a fall of $480 million. The ABS included a negative adjustment of $449 million to iron ore export earnings, which we had not anticipated. A $352 million fall in other mineral fuels (which includes LNG) was a surprise, with this series on an upward trend on expanding capacity. Contributing to weakness were coal, down $119 million, and metals, falling $143 million.

The trade balance has swung from a surplus of $3.1 billion in Q1 to a deficit of $2.7 billion for the initial two months of Q2. We expect the terms of trade to fall by around 3.7 per cent in Q2 - a figure that we will need to review following data revisions by the ABS to iron ore. The drop in the terms of trade explains the bulk of this deterioration in the trade position between Q1 and Q2."


Gold's rally will reverse this half and investors should bet on a second annual drop as global growth gains traction, according to the second-most-accurate precious metals price forecaster tracked by financial news provider Bloomberg.

Bullion will retreat to $US1,150 an ounce at the end of 2014 as the US Federal Reserve presses on with cuts to stimulus, according to Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp. That's about 13 per cent lower than yesterday's price, and would be a 4.3 per cent loss for the year. Silver will also decline.

Bullion rallied 70 per cent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero to spur growth after the global financial crisis. Prices ended the 12-year bull run last year as US inflation remained low and central bank policy makers prepared to taper stimulus. Global growth is expected to strengthen this year and quicken further next year, the International Monetary Fund forecast in April.

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A poor debut from Smartgroup today.

Smartgroup, the second salary packaging company to float since March, fell 7.5 per cent within 10 minutes of its debut on the ASX on Wednesday, despite strong pre-bids.

By 12.30pm AEST, Smartgroup’s share price had fallen to $1.49 after trading commenced in Smartgroup at midday at $1.60.

The company set its offer price deliberately low at 9.8 times 2014 forecast net profit after tax compared to the most comparable business, McMillan, which was then trading at around 13 times earnings. However, Bloomberg has McMillan currently trading at around 9.7 times earnings.

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