That's all from us here at Markets Live for Tuesday, we'll see you bright and early tomorrow morning.
Most sectors saw gains today:
- Consumer discretionary: +0.8%
- Consumer staples: +0.3%
- Energy: +1.9%
- Financials: +0.9%
- Gold miners: +1.1%
- Industrials: +1.4%
- IT: +3.1%
- Materials: +1.2%
- Telecommunications: +1.4%
The market has finished strongly higher, buoyed by hopes that the US can sort out a deal to lift the debt-ceiling by Thursday (US time).
The benchmark S&P/ASX200 jumped 51.2 points, or 1 per cent, to 5259.1. The broader All Ords added 52.7 points, or 1 per cent, to 5259.2.
Betting company Tabcorp says its group revenue for the September quarter is up more than three per cent on the previous corresponding period, despite tough trading conditions.
Group revenue for the three months to September 30 was 503-point-nine-million-dollars, up 3.1 per cent.
Total wagering revenue was up 5.4 per cent but, after accounting for the Victorian Racing Industry’s interest, reported wagering revenue was up just 0.1 per cent.
Tabcorp shares are flat at $3.25.
One of the takeaways from the RBA's October minutes released today is the change in the central bank's rhetoric about the Australian dollar.
While a few months ago RBA officials would talk about the strength of the Australian dollar and how a weaker exchange rate would help support the economy, the central bank tweaked its language on the currency in its minutes today, HSBC's head of FX sales in Australia Paul Edwards says.
"That's an interesting nuance change in the language of the RBA from our perspective.
Certainly with a little bit more buoyancy in the domestic landscape as well as the regional landscape, a high Aussie for the RBA isn't as problematic as a high Aussie in a situation where the economic indicators are turning down."
The dollar is currently fetching 95.33 US cents, just below the four-month high of 95.39 hit in the aftermath of the minutes.
Rio Tinto has released an upbeat set of September quarter results, with global iron ore production beating expectations and recovery of a crucial mine in the US progressing faster than first thought.
Rio produced 53.3 million tonnes of iron ore from its operations in Australia and Canada during the period, allowing it to cash in on the stronger than expected iron ore price, which refused to slip below $US130 per tonne for much of the period.
That result was slightly better than most analysts, including RBC who had predicted 53 million tonnes.
Iron ore brings in close to 80 per cent of Rio's revenue, and the miner confirmed it was still on track to hit its full year guidance target of 265 million tonnes for the 2013 calendar year.
Rio shares extended gains on the report and are currently up 2.5 per cent at $63.20.
The burden of being a billionaire weighs heavily on mining magnate Andrew Forrest.
Which is one of the reasons why the Fortescue Metals Group chairman says he will continue to give much of his vast fortune away. This week’s $65 million donation to the University of Western Australia represents only a fraction of his wealth.
Prime Minister Tony Abbott will lead the thanks at a gala dinner in Perth on Tuesday night to mark Mr Forrest’s contribution - believed to be the largest philanthropic donation ever made in Australia.
Mr Forrest, a UWA graduate, has explained that astronomical personal wealth brings its own issues, which he believes can be balanced by equally immense generosity.
‘‘It really does (become a burden), and I think it can alter behaviour and personalities,’’ Mr Forrest told Fairfax radio.
‘‘But I think if you make a decision early in the piece that you are going to give that wealth away, then you don’t think of yourself as someone who is particularly special.
‘‘Your children know they are going to get the same leg up as every other kid, which will be just enough.
‘‘You can lead a normal life, and that is a decision which (wife) Nicola and I took many years ago.’’
Andrew "Twiggy" Forrest, who has made a big donation to the University of Western Australia. Photo: Glenn Hunt
Here's how the rest of the region is doing today:
- Nikkei: +0.5%
- Hong Kong: +0.6%
- Shanghai: -0.4%
- Taiwan: +1%
- South Korea: +0.8%
- New Zealand: +0.1%
"The market is still precarious," says Takuya Takahashi, an analyst at Daiwa Securities. "Even if default can be avoided, investors are not ready to take risk at this point."
Several markets in the region are closed for holidays, including Singapore, Indonesia and India.
China's central bank appears to have underlined its commitment to currency reform by allowing the yuan to set record highs against the dollar despite signs of unexpected weakness in exports.
The yuan hit a second consecutive record intraday high of 6.1011 today, after the People's Bank of China set its mid-point - the centre of the currency's 2 per cent daily trading band - at an all-time peak the previous day.
The currency moves came hot on the heels of official data showing Chinese exports slid in September by 0.3 per cent from a year earlier.
The export figures confounded expectations for a 6 per cent rise and marked the worst performance in three months.
A stronger yuan is a key goal for policymakers trying to wean the economy off a heavy emphasis on exports more towards consumption-led growth.
But they face complaints from Chinese exporters that the yuan's enduring strength is putting their products at a disadvantage in overseas markets even as foreign demand remains tepid.
The yuan is up around 2 per cent in 2013, in marked contrast to slides posted by other Asian currencies, and more than 35 per cent higher since a revaluation in 2005.
New car sales have fallen but are expected to bounce back now proposed changes to fringe benefits tax (FBT) have been scrapped.
Sales in September totalled 94,150, down 0.1 per cent from August.
Sales in the 12 months to September were down 3.5 per cent, in seasonally adjusted terms, the Australian Bureau of Statistics said today.
The figures showed sales of passenger cars and sports utility vehicles were down but sales of ‘‘other’’ vehicles (utes, panel vans, trucks and buses) jumped by 4.0 per cent.
The Australian dollar has hit a new four-month high on the back of a move towards a neutral monetary policy stance by the Reserve Bank in its minutes, a sense of a possible short-term debt ceiling and budget deal in the US and an improving China outlook.
The currency was buying as high as 95.34 US cents just after 12pm, its highest level since mid-June. It was trading about 95.22 US cents at 1.40pm.
Westpac's chief currency strategist Robert Rennie says the displeasure in Asia over the political turmoil in the US was weakening the appeal of the US dollar.
"The biggest supporting factor for the Aussie in Asia is this ongoing rolling concern about the debt situation in the US," Rennie says.
"It harms the status of the US dollar in Asia and from my point of view makes the Aussie dollar more attractive."
Up, up and away ... the dollar's rise today.
Property forecaster BIS Shrapnel is expecting Sydney house prices to rise by 19 per cent over the next three years while Melbourne prices will rise by only 6 per cent due to an oversupply of inner city apartments.
Perth is tipped for big growth with a forecast 17 per cent rise in house prices while Brisbane prices are expected to be 16 per cent higher for the three years to June 2016.
Releasing its Australian Housing Outlook report in Sydney today, Robert Mellor, the managing director of BIS Shrapnel, said ongoing under-supply, strong demand driven by population growth and strong overseas immigration will drive prices higher in Sydney, Perth and Brisbane over the next 3 years.
Despite warnings from some that house prices are heading towards a bubble, particularly in Sydney, Mr Mellor said affordability in nearly all capital cities was at its best levels since the early 2000s.
Heading north: Sydney home prices are forecast to rise. Photo: Peter Braig
Metals recycler Sims Metal is to close its Melbourne lead smelter as it continues to reduce local manufacturing activities.
The smelter operates as a joint venture with Nyrstar of Europe, and the planned shutdown follows the sale of the ventures secondary lead producing facility in Sydney two years ago.
In the year to June, the Australasia division pre-tax profit of Sims slumped to just $18.8 million from $102.0 million a year earlier.
Company officials would not comment on the planned move, nor was it possible to obtain details of the size of the operation, which is believed to be smaller than the lead unit in Sydney which was sold for around $80 million.
The disclosure, in the group's latest annual report, flagged confidence in the outlook, thanks largely to the anticipated ongoing recovery in the US.
So what can we take away from the RBA's October minutes, published this morning?
Citi economists Josh Williamson and Paul Brennan say the Reserve Bank was taking a neutral stance and keeping its options open on future monetary policy moves.
"By not extinguishing the possibility of further rate cuts, the RBA can support confidence and not be accused of lifting currency expectations," the economists write in a note.
"But by not encouraging a belief of further imminent rate cuts, the Bank avoids supercharging the housing market, which is red hot."
RBS senior currency strategist Greg Gibbs adds that the RBA appears from these minutes less likely to cut rates despite the recent appreciation of the exchange rate.
"The most sensible assessment is that rates have reached their low point and will stay there for some time," Gibbs says in a note.
"This should put upward pressure on the exchange rate. Perhaps to the point down the road where the RBA may need to cut again. It will hope, however, that the Australian dollar will fall over time as mining investment slows further."
Here's a bit more on the views of Robert Shiller, who was jointly awarded the Nobel Prize in Economics overnight. Shiller has written extensively on the behaviour of financial markets:
"Shiller gently suggested that the rapid rise in the market, and in particular the Nasdaq, might reflect trend-following..."— EM Simpson (@charlie_simpson) October 15, 2013
"...on the part of investors rather than a rational appraisal of future prospects. “People are not stupid, but they have their limitations.”— EM Simpson (@charlie_simpson) October 15, 2013
Read the full New Yorker profile of Shiller here.
Rich countries must urgently take advantage of looser monetary policy to stabilize their economies and stimulate growth, without relying solely on central banks, Mexican central bank governor Agustin Carstens said overnight.
He was speaking as lawmakers in the United States haggled over the US debt ceiling while the world's No.1 economy stares down the barrel of a potentially devastating debt default.
Central bankers in several advanced economies have opened a space for their governments to implement fiscal, financial and regulatory reforms that should be seized, Carstens told central bankers from Europe, the Americas and Asia gathered at a forum in Mexico City.
"It is urgent that the countries most affected by the crisis effectively use this window of time that the central banks have offered," Carstens said. "Monetary policy alone can't solve the problems economies are suffering from."
Carstens said he believed a US default was a remote possibility, and if it were to happen, could create financial volatility.
"No one would win," Carstens said.
Bears have had a field day the past several months now, pointing to the prospects of a surge in gas exports from North America undercutting the economics of the local projects being developed in both Queensland and off Western Australia.
This correspondent has long felt the fears were overblown.
Now, it seems at least one of the two projects proposed for the US north west, in Oregon, has hit problems, with local government officials denying an application from the Oregon LNG and Oregon Pipeline Co’s application for a proposed LNG.
"The ruling ...highlights the important issue that greenfield US LNG export proposals face materially higher commercial and social hurdles than brownfield proposals," JP Morgan told clients in a note this morning.
"US LNG exports will not have a meaningful impact on the oil linked pricing dynamic that underwrites current and future Australian based LNG projects."
So far four US-LNG projects have received part of the government approvals needed to proceed, and all are brownfields projects, which have significant economic advantages over greenfield proposals.
There are as many as 14 greenfield proposals which will have higher operating costs along with prospects of a slow or impossibly difficult regulatory process due to local opposition.
Potentially this is good news for the likes of BHP, Woodside, Santos, Origin et al.
Fairfax Media has poached the head of Tourism Australia, Andrew McEvoy, to head its events business from January next year underlining the importance of this business to the media group’s future as traditional print advertising revenue declines.
“Andrew’s brief is to rapidly develop what is already a core strength of Fairfax Media,’’ said Fairfax chief executive Greg Hywood. ‘‘Events are a growth sector in the Australian economy and Andrew’s appointment will drive new revenue and greatly enhance Fairfax’s performance in the sector."
Fairfax has already developed a portfolio of mass participation and corporate events across its main mastheads, The Sydney Morning Herald, The Age and the Australian Financial Review. This includes the SMH City2Surf and Night Noodle Markets, the AFR’s Women of Influence, and a range of business media forums and conferences, and regional events and field days.
Fuel supplier and retailer Caltex will sell its Sydney bitumen business to Puma Energy, a subsidiary of Dutch commodities trader Trafigura Beheer BV.
Caltex began supplying bitumen, which is a by-product of the refining process, to the NSW road construction industry after deciding to close its Kurnell refinery in 2010.
The bitumen business includes an agreement to operate the Port Botany Bitumen Terminal for Caltex.
Caltex Australia managing director Julian Segal said bitumen was no longer part of the company’s core business.
‘‘The decision to divest is consistent with our strategy and it makes operational and financial sense,’’ Mr Segal said.
Caltex did not put a figure on the deal.
The sale is subject to approval by the Foreign Investment Review Board and it is planned to be completed by the end of the year.
The likelihood that two of Virgin Australia’s three largest shareholders will eventually privatise the country’s second-largest airline is increasing every time they boost their stakes, Macquarie analysts say.
Speculation about possible ownership scenarios have intensified since Etihad last week achieved its goal of gaining a 19.9 per cent stake in Virgin. Air New Zealand, which is the largest shareholder, also has regulatory clearance to boost its stake from 23 per cent to 26 per cent.
In a detailed report, the Macquarie analysts say Air New Zealand and Singapore Airlines, which has a 19 per cent stake, are the most likely to pair up to acquire Virgin in the medium term.
However, the analysts emphasise that while the two airlines are the ‘‘most likely combination due to overlapping strategic interests’’, they will first have to form a tighter alliance.
Etihad achieved its ownership target last week after buying part of the stake in the Australian airline owned by Richard Branson’s Virgin Group. It left the latter with a 10 per cent stake, which still gives the English entrepreneur the chance to play king maker in any deal to take Virgin private.
Virgin shares last traded up 1.2 per cent at 42 cents.
The head of ANZ, Mike Smith, has urged the United States to solve its debt crisis, describing it as a "disaster".
"It's irresponsible behaviour because the consequences of a default would be like a Lehmans [Brothers] but worse," Mr Smith said, referring to the investment bank which was allowed to fail in 2008, owing more than $500 billion.
"And they just don't get that, they really don't get it."
Questioned whether politicians would solve it before key deadlines, Mr Smith said: "They'll have to."
The comments come as US senators report they are close to a deal that would reopen the government and defer a default until early 2014.
Without a deal between Democrats and Republicans to raise the cap on government borrowing, the US is set to violate its debt limit on Thursday (Friday Australian time).
Mike Smith Photo: AFR
Toyota Australia is to cut 100 jobs at its manufacturing operations in Melbourne.
The car maker says it will seek voluntary redundancies as it moves to reduce production from 470 to 430 vehicles a day from December.
Executive vice president Dave Buttner says the decision has been necessary because of a fall in exports to the Middle East.
He says the decision also comes as Toyota seeks to cut the cost of building each car in Australia by $3800 by 2018 in order for its local manufacturing operations to remain viable.
‘‘We’ve got to continue to work hard to reduce our overall cost base,’’ Mr Buttner said today.
‘‘That’s the key to us remaining sustainable.’’
The RBA has repeated it retains the option of reducing interest rates as policy makers gauge the impact of ‘‘substantial’’ policy stimulus on the economy, minutes of the October 1 meeting showed.
‘‘The effect of low interest rates was evident across a range of indicators and had further to run,’’ the Reserve Bank of Australia said in the minutes released today. ‘‘Members agreed that the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.’’
Governor Glenn Stevens and his board left rates unchanged at a record-low 2.5 per cent this month after reducing borrowing costs by 2.25 percentage points since late 2011 to try to rebalance the economy as a mining investment boom crests. Policy makers are weighing a resurgent Australian dollar as data from China improved and the Federal Reserve delayed tapering its stimulus, with better local sentiment since a September 7 election.
‘‘Members noted two developments over the past month, namely the appreciation of the exchange rate and the pick-up in measures of both consumer and business confidence over recent weeks,’’ the minutes showed. ‘‘It was difficult to know how significant the effects of either of these developments would be, partly because it was uncertain whether they would be sustained.’’
A private report last week showed business confidence surged in September to the highest level in 3 1/2 years after the election ended a hung parliament and low rates spurred sentiment. Consumer confidence dipped this month after rising following the election of the Liberal-National coalition led by Tony Abbott. Home prices in Australia’s biggest cities rose 3.7 per cent in the three months through September, according to the RP Data-Rismark Home Value Index.
Richard Usher, JPMorgan Chase's chief dealer in London, wrote instant messages while he was at Royal Bank of Scotland that UK regulators are scrutinizing as part of their investigation of alleged currency manipulation, two people with knowledge of the matter said.
The messages to traders at other firms included details of his trading positions, said one of the people, who asked not to be identified because they weren’t authorized to speak publicly. The spot currency trader left Edinburgh-based RBS in 2010, and his departure was unrelated to the probe, the person said. The regulator’s review doesn’t imply wrongdoing on Usher’s part, the other person said. The people didn’t say how many other traders’ communications are being scrutinized.
Authorities are scrutinizing electronic messages used by currency traders as part of an investigation of potential manipulation of the $5.3 trillion-a-day foreign-exchange market, according to a person with knowledge of the talks. The UK’s Financial Conduct Authority is focusing on trading around the so-called WM/Reuters rates, benchmarks used to value trillions of dollars of investments, the person said.
Bloomberg News reported in June that traders at some banks may have pooled information about their positions through instant messages and sought to manipulate the WM/Reuters rates for profit by pushing through trades before and during the 60- second windows when the benchmarks are set. RBS, Britain’s biggest publicly owned lender, opened an internal inquiry and uncovered the transcripts after the report, one of the people said.
According to analysts, Ten Network is due to report its earnings this Friday, although the company will not confirm its release date.
Credit Suisse analysts Samantha Carleton and Lucas Goode don’t see any nasty surprises coming from the broadcaster's books.
“We expect TEN to report slightly below breakeven NPAT result for FY13 (excluding the impact of the sale of Eyecorp and other one-offs), broadly in line with consensus.”
However, Ms Carleton and Mr Goode are expecting a 47 per cent fall in earnings before interest, taxes, depreciations and amortisation.
They also pointed out a few key items to keep an eye on when Ten’s numbers come out:
- Commentary surrounding televisions advertising market conditions since the election
- An update on programming strategy for the rest of the 2013 calendar year and the 2014 ratings season, particularly with regards to areas of investment
James Packer may have missed the resource boom but investors are finally waking up to the idea he may have gone one better with his punt on a casino boom in Asia.
Crown shares have hit another record this morning at $16.46, up more than 3 per cent, after Macquarie raised its price target to $19 from $14 a share after upgrading its growth outlook on Crown’s Macau operations.
Macquarie’s regional gaming team upgraded the growth outlook for Macau for the current calendar year from 13 per cent to 18 per cent, and next year’s growth expectations have been raised from 8 per cent to 12 per cent with the same growth expected for 2015.
Queensland opening the door on Monday to a Crown casino resort proposal would not have hurt the share price either.
Telstra has maintained its forecasts of low single-digit income and earnings growth as it continues to pump money into its 4G mobile network.
Telstra chief executive David Thodey, in a speech to the company’s annual general meeting in Sydney, said the telco expected free cashflow of between $4.6 billion and $5.1 billion for 201314.
Thodey also forecast capital expenditure in line with the 14.9 per cent of sales recorded last financial year. Telstra’s capex was $3.8 billion in 2012-13.
‘‘We expect capital expenditure to be around 15 per cent of sales as we continue to build out our 4G mobile network and complete the build of the NBN transit network,’’ he said.
Thodey also signalled further cost savings. ‘‘We believe there remains further opportunity to improve operational efficiency while growing new business opportunities,’’ he said.
Shares are up 0.8 per cent at $4.97.
The former Rams Home Loans Group, RHG, has gone into a trading halt, after receiving another proposal from the Resimac/AMAC Syndicate.
“It is not yet clear whether the terms of that proposal would be accepted,” the company said in a letter to the ASX.
The group has been subject to a takeover battle between Resimac and Pepper who have been looking to get their hands on RHG’s main asset, the lending book of RAMS, which was a competitor to the big banks before the GFC.
RHG made a profit of $30.3 million last financial year.
Shares last traded at 48 cents.
Hearing devices maker Cochlear has warned its shareholders of more pain to come, flagging weak first half earnings as it continues to look to new products for future growth.
In the six months to December, it warned of continued margin pressures which will keep the profit little changed year on year.
Some improvement is expected in the second half, however, while the directors have flagged a slight rise in the dividend which may limit the impact of today's warning.
"We expect the fiscal 2014 net profit after tax to be at the prior year level with a heavy bias to the second half," chairman Rick Halliday-Smith told shareholders at today's annual shareholder meeting. "If our outlook is unchanged we propose to support the interim dividend at $1.27 a share and also the final dividend at this level."
This will mark a slight increase from the interim of 120 cents and the final of 125 cents paid in the latest financial year.
News of the dividend rise couldn't sway investors, who have pushed down the shares 2.9 per cent to $58.10.
The stock market has opened strongly higher. The benchmark S&P/ASX200 has jumped 56.5 points, or 1.1 per cent, to 5264.4, while the broader All Ords has gained 54.6 points, or 1 per cent, to 5261.1.
Among the sectors, materials are rallying 1.7 per cent, financials have jumped 1 per cent and industrials are up 1.3 per cent. No sector is posting losses.
The Australian dollar has swung wildly in the past hour, dropping to 94.78 US cents before rising as high as 95.06 US cents. That's the highest since mid-September, when the US Federal Reserve delayed a wind back of its stimulus program.
It is currently trading around 94.98 US cents.
ANZ currency strategist Andrew Salter says the fluctuations were not a result of the news coming out of Washington on the debt ceiling talks.
It was instead likely to be a result of a lack of liquidity in the forex markets as the US reaches the end of its Columbus Day public holiday.
Other Australian currency crosses such as the euro, yen and pound sterling are not reacting, he adds.
One of three American economists who won the 2013 economics Nobel prize today for research into market prices and asset bubbles expressed alarm at the rapid rise in global housing prices.
Robert Shiller says the US Federal Reserve's economic stimulus and growing market speculation were creating a "bubbly" property boom.
This was the case in the collapse of the US housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.
"This financial crisis that we've been going through in the last five years has been one that seems to reveal the failure to understand price movements," Shiller said.
Housing guru: Robert Shiller speaks at a press conference in Connecticut. Photo: Reuters
After having started the session on a negative note, US equities swiftly reversed and rallied to a fresh all-time high with a deal looking like it is close to being done, says IG's Stan Shamu:
- As US trade rolled on, markets got quite excited that negotiations in the Senate were actually seeing strong progress and it seems likely that we will see a short-term solution announced soon.
- Reports are that we will see the government re-opened until January 15, while the debt ceiling will be extended until either February 7 or 15 (depending on what media reports you read). The can will be kicked into the New Year, and from here we will probably have the pain of watching new negotiations begin.
- It is also worth pointing out that once we get a deal in the Senate, it will subsequently have to be passed through the Republican controlled House (although it should still pass).
- The risk-on trade will be on headline watch all session long as US political leaders try to knock up a deal.
US Senate Majority Leader Harry Reid says he and Republican McConnell have made "tremendous progress" towards debt limit, government funding deal, but "we are not there yet"
Here's our columnist Michael West's take on the debt ceiling negotiations.
The crisis over the debt ceiling and impending US default is about brinkmanship; it is about who is going to blink first, the Republicans or the Democrats.
President Barack Obama and his negotiator Lew, and indeed their Republican counterparts, have been suitably vague about what happens next.
They have allowed the talk of Armageddon to play out on the public stage because urgency is a useful negotiating tool.
You can read the full analysis here.
US senators said they were closing in on a deal today that would reopen the government and push back a possible default for several months, though many hurdles remained as a Thursday deadline drew near.
"I'm very optimistic that we that we will reach an agreement that's reasonable in nature this week," Senate Democratic Leader Harry Reid said on the Senate floor.
Lawmakers are racing against the clock, with US officials estimating that the federal government could run out of borrowing capacity on October 17.
Optimism is high in Washington that there will be a resolution that will allow the US to avoid hitting its debt ceiling. Wall Street was up slightly on the news and the ASX is poised to open higher.
What you need2know:
- SPI futures up 46 points to 5,253.
- AUD fetching 95.00 US cents, 93.57 yen, 70.03 euro cents, 59.41 pence
- On Wall St, Nasdaq +0.6%, Dow Jones +0.4%, S&P500 +0.4%
- In Europe, Eurostoxx +0.1%, FTSE100 +0.3%, CAC +0.1%, DAX flat
- Spot gold rises 0.5% to $US1277.05 an ounce
- Brent oil falls 0.3% to $US110.93 per barrel
- Iron ore gains 0.4% to $US133.60 per tonne
Making news today
- The Reserve Bank of Australia is due to release the minutes of its October board meeting.
- ABS Lending finance for August
- Telstra annual general meeting
- Rio Tinto third quarter operations review