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Australia's big four banks have led the local bourse close to six-year highs, but there is concern that valuations are looking stretched.
The benchmark S&P/ASX200 rose 15.5 points, or 0.3 per cent, to close at 5527.2, just 9 points shy of the six-year high it hit in late April. The broader All Ordinaries lifted 15.9 points, or 0.3 per cent, to 5506.7.
The big banks did most of the lifting for the modest gain on the index, with Commonwealth Bank of Australia rising above $82 for the first time, before pulling back to finish the day up 0.3 per cent at a new closing high of $81.94.
National Australia Bank rose 0.7 per cent to $33.51, Westpac gained 0.5 per cent to $34.50 and ANZ added 0.4 per cent to $33.69.
Perpetual head of investment market research Matthew Sherwood said the market was getting ahead of itself and companies will still need to justify earnings, come reporting season in August.
"It has been an impressive recovery but the market has been provided with very little support from earnings growth and this remains the rally's Achilles heel," Mr Sherwood said.
"At present investors remain addicted to the stimulus drug from central banks, who seem very content to feed the habit and are unconcerned about the state of global balance sheets."
Expectations of economic growth in Australia hit a near three-year low, as consumer confidence continues to trend downwards.
The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months in the future slumped to its lowest point since late 2011.
A mind-blowing $US1 trillion ($1.07 trillion) of United States corporate cash lies trapped in foreign countries.
How to free it, put it to use or repay agitated shareholders, while avoiding the billions of dollars of taxes owed to the US government, is now a major headache for management and a top priority for boards.
First some background as to how $US1 trillion of US corporate cash, or around 60 per cent of the entire total US cash balance, has become stuck in tax-friendly jurisdictions like Ireland.
To take advantage of materially lower tax rates – Ireland's corporate tax rate is one third of that in the US – America's largest companies legally restructured their companies so the intellectual property, and therefore, the profits, flow to places with the lowest tax.
Cutting the tax bill by such a significant amount seemed like the right thing to do by shareholders, but it has become a major problem because the elaborate paper shuffle to cut taxes may be destroying rather than creating value for shareholders.
The problem is that ultimately this foreign cash will need repatriation, either to pay US expenses or to be returned to shareholders in the form of dividends or share-buy backs.
When that day comes, Uncle Sam will get his 35 per cent of the profits.
eBay: May launch its own virtual currency. Photo: AP
And here they are, the roosters and the feather dusters among the top 200 stocks today.
ALS is dividing analysts' opinions (see post at 12:22), but investors are voting with their money, pushing the lab testing services company up another 8 per cent today following yesterday's profits announcement.
Iluka is the next best performing name after its AGM today, while Bradken and Oz Minerals are two other stocks that have had some tough times but got some love today.
The worst performers were dominated by gold miners (see previous post), although McMillan Shakespeare suffered the second biggest fall after CEO Michael Kay has surprised the market by saying he will retire after six years at the helm, including perhaps the toughest period for the salary packager and car fleet manager.
Best and worst performing stocks in the ASX 200 today.
Gold fell to a fresh three-month low in Asian trade today, extending an overnight plunge, as strong US economic data and concerns about Chinese demand blunted the precious metal’s appeal.
Spot gold slipped 0.3 per cent to $US1260.97 an ounce, its weakest since early February, after falling 2 per cent to $US1264.05 an ounce in New York trade on Tuesday.
Australian Bullion Company chief economist Jordan Eliseo said a combination of factors, including the Wall Street’s S&P500 index reaching a record high led to the sudden drop on Tuesday.
"We saw gold finally break out of its very narrow trading range to the downside, there was a series of better than expected US data overnight that would have contributed to that, as well as the fact that net gold imports to China were down somewhat, which lead to a bit of bearish sentiment," he said.
He said it was safe to say that when stocks were hitting all-time highs, the desire to hold on the portfolio insurance of precious metals would naturally decline.
ANZ commodities strategist Victor Thianpiriya said gold prices were due for a break, considering how the precious metal had traded over the past two months.
"Technically the price action was forming a wedge. We were in for a sharp move either way," he said.
"It's a bit of a mixed bag, the break on formation suggests the technical picture has become worse... what's going to be key is watching the response of the Chinese importers and consumers," he said.
Gold has taken a tumble after trading in a narrow range recently.
China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown.
The nations’s 10 largest lenders reported overdue loans reached 588 billion yuan ($US94 billion) at the end of 2013, a 21 per cent increase from a year earlier to the highest level since at least 2009. The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings, while a government crackdown on nonbank funding makes it tougher for borrowers to get new credit or finance older debt.
“Overdue loans are a leading indicator of asset-quality deterioration and show the rising liquidity constraints among borrowers,” said Liao Qiang, a Beijing-based director at Standard & Poor’s. “While we believe Chinese banks’ credit woes will unfold gradually, the disturbing thing is that the end is nowhere in sight.”
Overdue loans, those late by at least a day, were 31 per cent greater for the banks as of December 31 than nonperforming ones, which are debts they don’t expect to recoup in full. That’s the biggest gap in at least five years, signalling lenders may be resisting acknowledging the deterioration to avoid setting aside funds to cover potential losses.
While nonperforming loans reported by China’s banking industry have increased for 10 straight quarters to the most since September 2008, they accounted for only 1.04 per cent of total loans as of the end of March, compared with the 4.83 per cent average of the previous decade, data from the China Banking Regulatory Commission show.
The benchmark index has closed above 5500 for the third consecutive day after flirting with fresh six-year highs, with the big four banks helping to consolidate on recent gains.
The ASX 200 and All Ords added 0.3 per cent, or 16 points, to 5527.2 and 5506.7, respectively.
Gains in the Big Four ranged between 0.3 per cent for CBA and 0.7 per cent for NAB, accounting for around half of the main index's net gains.
Insurers QBE (+2.6 per cent) and IAG (+1.5 per cent) both gained.
Woolies fell 1.2 per cent and Wesfarmers 0.6 per cent.
Newcrest dropped 4.2 per cent as the gold price fell, dragging down miners of the precious metals, which fell 3.6 per cent as a group.
The broader metals and mining sector reversed early losses to gain 0.3 per cent, with Iluka Resources the standout, up 6.1 per cent after its AGM in Perth.
Iron ore futures in Singapore have dropped nearly 2 per cent to the lowest since their launch last year, while prices in Dalian also dropped as plentiful supply overwhelmed the market.
Iron ore for delivery in July on the Singapore Exchange was down 1.9 per cent at $US96.20 a tonne, the lowest for the contract since SGX introduced iron ore futures in April last year.
At the Dalian Commodity Exchange, the most-traded September contract dropped 1.9 per cent to 706 yuan ($US110) a tonne.
"There's a lot of available supply and the key issue is mills are not in a rush to buy. They are keeping their inventory small and not buying a lot in advance," said an iron ore trader in Shanghai.
Iron ore for immediate delivery to China dropped half a per cent to $US98.10 a tonne overnight, as the volume of material on offer continued to weigh on prices.
The raw material broke through the $US100-support level on May 19 and has since stayed below that point, reaching a low of $US97.50 on May 20 - its weakest since September 2012.
It has been an impressive recovery but the market has been provided with very little support from earnings growth and this remains the rally's Achilles heel, Perpetual head of investment market research Matthew Sherwood says:
- Of the 25 largest markets in the world, valuations have accounted for the entire rise in 19 of them since June 2012 and more than half the rise in 21 of them. There will come a time when investors will demand to see the earnings delivery that has been absent in most markets other than in the US, Japan and Hong Kong.
- However, at present investors remain addicted to the stimulus drug from central banks, who seem very content to feed the habit and are unconcerned about the state of global balance sheets, which have even more leverage than was the case in 2007/08.
- As such, investors need to remain focused on strong balance sheets and quality operating models, which can deliver on expected earnings is what is still a sub-trend global and domestic growth environment.
Regional markets are generally higher today, after Wall Street indices touched new record highs, and amid the afore-mentioned speculation of a more accomodative policy stance by the People's Bank of China:
- Japan (Nikkei): +0.4%
- Hong Kong: +0.8%
- Shanghai: +0.2%
- Taiwan: +0.6%
- Korea: +0.7%
- ASX200: +0.4%
- Singapore: +0.05%
- New Zealand: +0.8%
‘‘We are seeing more and more evidence that Chinese growth is rebounding into the second half of the year,’’ says Nader Naeimi, head of dynamic asset allocation at AMP Capital Investors. ‘‘US data continues to get better.’’
China’s property market is very much on investors' radar, although most strategists feel the prospect of a property crash is still very low, IG’s Chris Weston notes:
- Local news today has speculated that we are likely to see a reserve ratio requirement (RRR) cut in certain regions and may also relax loan-to-deposit ratio limits. There are a number of statistics of late to show property is cooling in China, however since late February there has been a noticeable pick in accommodative language from the PBOC.
- It seems the government is happy to lean fairly heavily on the central bank to manage the transition that is occurring in the world second largest economy. It’s worth bearing in mind that domestically the cooling is not so much driven by tight central bank policy as it has been historically. On the contrary; policy has been prudent, but not tight for over a year. It seems more structural and playing back into traditional supply/demand imbalances.
- Property isn’t the default investment class of choice anymore, with wealth management products taking that spot, while many simply feel there are better opportunities elsewhere. The cooling property sector is a concern, but it’s worth bearing in mind that domestic balance sheets are in good shape and the PBOC can ease policy fairly rapidly, while continuing to encourage domestic banks to extend credit.
Bit of a mid-afternoon chart-fest; here's one from Suncorp which highlights how the Aussie dollar has a delayed reaction to the RBA's commodity price index.
"May’s commodity price index will be released on the 2nd of June," writes Suncorp financial markets analyst, Jordan Karlos. "Given the recent slump in iron ore and coal it may slide further suggesting the AUD may soon follow."
The Aussie dollar has a habit of following the commodity price index... eventually. Source: Suncorp
The Senate Inquiry into ASIC has slammed the Commonwealth Bank for providing “sketchy” information and failing to keep it and the corporate regulator fully informed about compensation for victims of its financial planning scandal.
Chairman Mark Bishop said new information received from the corporate regulator and CBA was “sketchy” and left many key questions about the scandal unanswered.
This included the number of clients affected by poor financial advice from some of the bank’s planners who had not been told of their loss or offered financial help to assess their claim.
Senator Bishop also tabled a letter from the bank that corrects earlier evidence to the Senate inquiry. Contrary to its earlier submissions and public statements the bank admitted it had not offered all victims of its Commonwealth Financial Planning and Financial Wisdom arms $5000 to pay for an independent adviser to help assess offers of compensation.
It also admitted that not written to all victims of CFP with offers of compensation as previously claimed.
Iam alarmed ASIC says over 4000 clients affected by inconsistent approach CBA applied to compensation measures Maybe ten of thousands 5/6— Senator Mark Bishop (@senatormbishop) May 28, 2014
A nice chart from Barclays showing that the value of mining projects under way continues to fall sharply as work on major projects starts to draw to a close, based on Bureau of Resources and Energy Economics data released today (see also post at 11:59).
The value of committed projects continues to fall, summarise the Barclays economists, dropping from $240bn (15% of GDP) at the end of last year to $229bn (14%) now. This compares with the peak of %268bn (18%) reached in 2012.
With no new mega-projects under way, the bureau has forecast that the value of committed projects will decline to about $210bn (13%) by end-2014, falling to about $130bn (8%) by end-2015 and hitting $70bn (4%) by end-2016.
The resources investment cliff. Source: Barclays.
The bulls are firmly in control today, driving the share market not only to its highest in 2014 but also in six years.
Big banks are leading the gains as investors chase yield yet again, with CBA topping $82 for the first time, up 0.5 per cent. ANZ is up 0.7 per cent, NAB and Westpac have gained 0.8 per cent.
Fairfax Media is cheap on a cash-flow basis, but strategists at Credit Suisse are happy to take profits now given the outlook for the company’s core business remains “uncertain”.
In its place, in their model portfolio the analysts add the “out of favour” Myer.
“It has suffered as consumer confidence has weakened and the company has struggled to grow sales,” the strategists write in a note to clients. “Earnings trends remain poor which is always a sign of an unloved company among the momentum-focused active investor base in Australia.”
The department store owner is just too cheap to ignore – the broker points to a double-digit gross dividend and free-cash-flow yields. The company trades on a 40–50 per cent P/E discount to the global sector average, they add.
“Also, we don't discount the possibility of the company benefiting from M&A activity,” the strategists write.
In terms of their overall strategy, the broker’s analysts are focusing on four themes:
- Restructuring: Rio Tinto, NAB, Fortescue, Caltex, Seek and CSR
- Efficient free cash generators: Sonic Healthcare, Flight Centre, and Seek
- Housing demand: CSR, Mirvac
- Dividend yield: Telstra, Suncorp, Sonic Healthcare, Mirvac, and Myer
The strategists’ short ideas are: Santos, Crown, Ramsay Health Care, ASX, Bank of Queensland, and Metcash.
Here's one that's stirring the pot higher up on the website: despite surging house prices, housing affordability has apparently risen to its most favourable level in 12 years in the first quarter of this year, thanks to record low interest rates, at least that's what an HIA-CBA measure claims.
The HIA-CBA Housing Affordability Index improved by 2.1 per cent in the March quarter and chalked up a 10.8 per cent annual rise.
The index measures a wide range of factors of which house prices are only one. The other major factors are interest rates and incomes.
"Increases in home prices over the past year have been significant," says HIA economist Shane Garrett. "However, the impact of lower interest rates and continued earnings growth has ensured that home purchase affordability has improved over the past year for existing home-owners and those on the cusp of entering the market in the short term.
"We're talking about house purchase here, and at the moment it's easier to purchase."
Even a real estate agent is doubtful about the findings.
"Affordable in our market? Not really," McGrath's Jonathan Viewey says.
"It’s tough out there at the moment, whenever something decent comes up there is a lot of competition."
Australian Agricultural Company chief executive Jason Strong said the cattle company has secured supply agreements for its $91 million Darwin abattoir ahead of the mammoth facility’s scheduled opening in September.
The nation’s largest beef producer this morning said its statutory after-tax loss for the year ended March 31 narrowed to $40 million from the year-earlier $49.8 million loss.
AACo, which is Australia’s oldest company, has struggled with fierce drought conditions across the Northern Territory and Queensland where its seven million hectares of cattle stations are.
The company has been building its massive meatworks at Livingstone, 50 kilometres south of Darwin, and conducted a $299 million capital raising last year to help shore up its stretched balance sheet and fund the project.
Mr Strong said the facility is about opening new offshore markets for the company and insulating AACo from volatility in the domestic beef market.
There have been concerns that the abattoir, which requires large volumes of cattle to be efficient, would not have security of supply at reasonable prices given AACo does not have enough cattle to do it alone.
But Mr Strong said on Wednesday that AACo has reached agreements with other beef producers in the region to supply the facility through to March 2015.
“We have secured them now so we’ll have no need to be in the spot market and we don’t intend to operate in the spot market. It has given us some confidence in our plans to set up multiple sources of supply over time,” he said.
The Australian dollar has remained steady despite the release of stronger than expected construction figures.
The local currency is trading at 92.59 US cents, flat from its Tuesday's close.
Construction work rose 0.3 per cent in the March quarter, after a 1.1 per fall in the December quarter, the Australian Bureau of Statistics said.
The figure was better than the 0.8 per cent fall economists were expecting and the report also showed a strong pickup in residential construction.
That should have boosted the Australian dollar but the data had no impact on the currency, Westpac senior currency strategist Sean Callow said.
"There was no reaction to the construction numbers which was disappointing because they were very good," Mr Callow said.
"They're an input to gross domestic product, there was a huge rise in residential construction so some very good signs on the housing market.
"But there are some releases that the Aussie dollar just refuses to pay attention to and the construction survey is one of those."
Capital expenditure figures being released by the ABS on Thursday, however, could affect the currency, Mr Callow said.
'A bit of a game changer': The Australian dollar fell dramatically after the release of the RBA minutes. Photo: Bloomberg
Rio Tinto’s new Australian boss says the nation has reached a crossroads, and will slide into obscurity unless serious structural reforms are made.
Speaking in Canberra today, Phil Edmands said the much-discussed need to improve productivity in Australia would not be achieved without reform of workplace laws.
‘‘There is no way to achieve increased productivity without changes that affect the way we employ and deploy labour. Avoiding these changes is a fool’s paradise,’’ he said.
‘‘Without them ultimately we will not preserve jobs, we will lose them, because we will not grow the economic pie, we will shrink it.’’
Similar concerns with the Fair Work Act, which was created by the Labor government in 2009, have been expressed publically by other mining companies including BHP Billiton.
The Queensland state government has created another showdown between rivals Echo Entertainment Group and James Packer's Crown Resorts, with both casino operators shortlisted in the bid to build a new $1 billion-plus casino and entertainment complex in Brisbane.
The two casino competitors have moved through to a shortlist of four bidders to redevelop the Queens Wharf precinct, along with Chinese property developers Greenland and Hong Kong Far East Consortium/Chow Tai Fook.
Auckland based casino operator SkyCity Entertainment and local property developer Lend Lease have not progressed in the tender process.
Deputy Premier Jeff Seeney was poised to make the announcement today, just one day after the government announced the conditional provision of gaming licences to two regional casino projects.
Hong Kong property developer Tony Fung and ASF Consortium have been given the greenlight to pursue their plans for two new casino developments in Cairns and the Gold Coast respectively.
Echo already operates the Treasury Casino in Brisbane, which is adjacent to the Queens Wharf development precinct. The company has indicated if it won the right to build a new casino resort it would turn the heritage listed Treasury building into a boutique hotel.
Australian real estate investment trusts have moved into the spotlight as a haven option in the current environment of low interest rates and post-federal budget unrest.
The corporate activity with Westfield and the Westfield Retail Trust and Stockland and its indicative, non-binding tilt at Australand has also kept investors and analysts busy in recent months.
Westfield and WRT investors will vote on the proposed $70 billion restructure on Thursday, with investors still split as to the outcome. If it is approved, a new company, Scentre, will be created to run the Australian and New Zealand shopping centres.
''If it fails, Westfield Group will bear costs and uncertainty, but we see limited downside risk for WRT. There are benefits to both if it passes," said CLSA analysts. "If it fails, this would be a short-term negative for Westfield Group, given $43 million of costs and uncertainty regarding its Australia exit. We see the most likely outcome as either a revised offer, or a 'status quo' Westfield with a gradual sale of non-core assets.''
Overall, the brokers predicted continued strength in A-REITs this year: ''A-REITs offer an attractive dividend yield of 5.6 per cent with EPS [earnings per share] growth of 4 per cent.''
The Kindl family which own more than one third of publicly listed women's clothing chain Noni B could be considering taking the struggling retailer private after it announced this morning a $5.5 million write down of its assets which will see the company's full-year loss blow out to as much as nearly $8 milliion.
Unseasonable warm weather, which has dogged many fashion retailers, has also hurt the group with sales down 7.8 per cent for the 11 months to the end of May.
The company said independent directors of the Noni B board were presently considering discussions with the Kindl family – who own around 38% of the company's issued shares – in respect of ''strategic alternatives'' to the company's capital structure.
The fashion retailer has also blamed the Federal Budget for its woes and consumers being hooked on discounts whuch it has strained to resist to safeguard profits.
Noni B said in an announcement to the ASX this morning the one-off non-cash writedown of $5.5 million would be applied to the carrying value of the remaining intangibles on the company's balance sheet.
Combined with continued tough trading conditions, which saw sales down 14 per cent for the three months to March, Noni B was now expecting to report a full year after tax loss, before the $5.5 million impairment, of between $1.8 million and $2.2 million, subject to June trading conditions. It is against a profit for the first half of fiscal 2014 of $1.9 million.
Quarterly construction work has bounced thanks to house building. Source: ABS
Total construction work done bounced back in the first three months of the year, thanks to a surge in housing.
Construction work rose 0.3 per cent in the March quarter, after a 1.1 per fall in the December quarter, official data showed.
JP Morgan economist Tom Kennedy said the figures showed some encouraging signs that the economy was rebalancing away from mining investment.
Residential building work rose 6.8 per cent, non-residential work fell 1.5 per cent and engineering work done, which includes mines, roads, bridges and the like, was down 1.6 per cent in the quarter.
‘‘Engineering, which is typically resource-related and has been going very strong for the past decade, is a very large component of total construction, it makes up roughly two-thirds, so really if that moves violently one way or the other, it has quite a large bearing on what happens to total construction work done,’’ Mr Kennedy said.
‘‘It looks like that decline today has been a drag on the headline figure.
‘‘There are some encouraging signs that we are seeing a rotation away from resource-sector led investment and building work toward the residential component.
‘‘This is one of the first pieces of the GDP accounting that we get which suggests that at least on the building side, things are still fairly subdued and a little bit underwhelming.’’
National Australia Bank senior economist David de Garis said the data showed that housing construction is ready to take over from mining investment as the key driver for the economy.
After surging 8.8 per cent yesterday, ALS has surged another 11.4 per cent to $8.88 so far today, as investors look to a recovery in earnings. The stock, which is popular with small investors, raised is final dividend as year to March earnings came in line with its lowered guidance, holding few surprises.
But, if you’re looking for guidance from analysts who follow the stock, there’s no consensus, although the common view is that it may be too soon to buy the shares.
Morgans CIMB has an ‘‘add’’ rating with a $8.60 price target, on the view that ‘‘revenue is stabilising and market expectations are sufficiently low to suggest we are at the beginning of ALS’s next earnings growth cycle,” it told clients.
Macquarie isn’t so confident, maintaining an ‘under-perform’ rating with a $7.75 target price, up from $7.50 previously. ‘‘Margins remain weak and we see ongoing challenging conditions in minerals... Earnings momentum will continue to be a key share price driver - we are not yet convinced the bottom has passed.’’
Over at Goldman Sachs, it has reduced its forward earnings estimates by up to 8 per cent “given the lower than expected EBIT margin performance”. It also cut its price target slightly to $7.20 from $7.30.
In contrast, Credit Suisse raised to $8.25 from $7.60 its target share price, and raised its investment rating to ‘neutral’. ‘‘This follows an extended downgrade cycle and subsequent share price underperformance. ...We believe a higher degree of earnings predictability should therefore be accompanied by a stock re-rating,” it told clients today.
UBS has a “sell” call, with an unchanged $6.30 target price due to the ‘‘limited visibility around the timing of a turnaround in minerals’’.
US equities are at record highs, but a key measure of investor sentiment for future performance indicates a reluctance to chase the market higher, reports the FT.
S&P 500 call options, which give the buyer the right, but not the obligation to own the index at a future date, are at their cheapest level since the current bull market began five years ago, according to research from Credit Suisse.
A call option becomes profitable when the underlying asset rises in value beyond the cost of the premium paid by the investor.
“The options market is not seeing a lot of upside potential,” said Mandy Xu, an equity derivatives strategist at Credit Suisse.
This comes as the S&P 500 rose to new highs above 1,900 on Tuesday. It has been largely range-bound so far this year, however, rising only 3.4 per cent after 2013’s 30 per cent gain.
Cheap call options are a reflection of the current regime of low volatility, said Ms Xu. The CBOE’s Vix, a measure of equity volatility known as Wall Street’s “fear gauge”, has fallen to 11.51, a historically low level.
It is not unusual for the price of call options and cash equities to move in opposite directions at times when the market is rallying. But, unusually, volatility and, in turn, the price of call options, are cheap across asset classes.
That includes not just equity but also oil and gold, where implied volatility is currently at one year lows, Ms Xu said. The volatility for rates and foreign exchange for G7 countries is also low.
Low volatility has been a consequence of interest rate suppression by central banks in the aftermath of the financial crisis, which has put pressure on the trading revenues of banks.
While options investors are not making large bets on a rally from here, they are also not too worried about a substantial correction either. The equity market has not experienced a major correction since 2012.
The number of major resources projects that have been given a green light has fallen by almost one third to 48 last month from six months earlier, according to the latest Bureau of Resources and Energy Economics report.
The total value of projects regarded to be at the “committed stage” by BREE has dipped to $229 billion from $250 billion.
Rising numbers of finished projects added to this decline, but were partially offset by the approval for Gina Rinehart’s $10.7 billion Roy Hill iron ore project.
Over the past six months, some 21 projects worth a combined $25.6 billion were finished, according to the Resources and Energy Major Projects report.
BREE deputy executive director Wayne Calder said while the investment cycle has peaked, the country was now moving into a period of increased production across resources and energy projects.
“In the past year alone there have been large increases in production capacity including 215 million tonnes of iron ore, 43 million tonnes of coal and more than 1100 petajoules of gas,” Mr Calder said.
The report warns that investment in the resources and energy sectors is likely to exhibit some weakness in the short term.
However, there remains an opportunity to sustain higher levels of investment should projects at earlier stages of development proceed through the pipeline, the bureau said.
The number and value or committed major resource projects is on the decline. Source: BREE
Qantas will close its call centres in Brisbane and Melbourne with the loss of about 450 jobs, as the airline moves ahead with a $2 billion transformation program.
The Brisbane call centre, which employs around 200 full-time equivalent employees, would be closed by 2016, while its Melbourne operation, which employs approximately 250 full-time equivalent employees, would close by mid-2015, the carrier announced on Wednesday.
Employees in the Brisbane and Melbourne call centres will be offered re-deployment to Hobart, where the airline will base its call centre operations in a single facility by 2016.
The decision to close the Brisbane and Melbourne centres follows a three-month review.
It's part of a previously announced $2 billion transformation program, which will eventually see Qantas shed 5000 jobs.
Qantas Domestic chief executive officer Lyell Strambi said operating three call centres in different states was not efficient.
"We are facing some of the toughest conditions Qantas has ever seen, which means we have to look at ways to become more efficient and remain competitive," Mr Strambi said in a statement.
"Having call centres in three different states presents a number of challenges including property costs, duplication of management and operational complexity."
There has been a massive decline in the number of people contacting call centres.
Travellers increasingly prefer to book flights online and call volumes have halved since 2005.
"Let the shareholders fund the business." Photo: Joe Armao
Poker machine manufacturer Aristocrat Leisure said its first-half net profit rose 9.2 per cent to $57.3 million, which was boosted by a greater share of sales in both the US and Australian markets and a weaker Australian dollar.
Reported revenue rose 7.6 per cent to $412.5 million for the six months ended March 31. The result was down 2 per cent in constant currency, but was broadly in line with analysts' consensus of $416.8 million, according to Bloomberg.
Earnings before interest and tax rose 1.1 per cent to $76.1 million, above consensus of $73.0 million. In constant currency EBIT fell 13.9 per cent, as a result of investment in design and development, the company said.
Chief executive Jamie Odell called out increased profitability in North America as a highlight. The company's footprint of installed machines that are run on a revenue sharing arrangement with venues, known as gaming operations, increased 18.6 per cent to 8,207. The average fee earned per day increased 6.1 per cent to $US43.27.
"This has been achieved by leveraging the industry's best technology and creative talent to attack key segments with high quality, tailored game portfolios," Mr Odell said in a statement.
In Australia the company achieved the highest share of new machines sold in the March quarter, Mr Odell said. However Australian revenue fell 6.4 per cent to $84.2 million, with the average sale price of new pokies falling 5.1 per cent to $15,986.
Bank of England governor Mark Carney and International Monetary Fund managing director Christine Largarde have fired a broadside at the financial sector, saying bankers should be less selfish and step up their efforts to reform the financial system.
Speaking at a conference on 'Inclusive Capitalism' in London overnight, Mr Carney set out a list of steps to repair the financial system's ethos.
He called for governments to complete measures, this year, to enable all failing institutions to be resolved, and said that tougher bonus rules might need to penalise entire groups of staff in cases of widespread failures in performance or risk management at banks.
Following recent scandals of rate rigging and foreign exchange manipulation, Mr Carney also said that ''merely prosecuting the guilty to the full extent of the law will not be sufficient". ''Authorities and market participants must also act to recreate fair and effective markets.''
The scandals indicated "a malaise in corners of finance that must be remedied," he said, adding such "corruption" had hurt trust in modern capitalism.
The BoE governor suggested that bankers needed to rebuild public trust and think more about the health of the rest of the economy.
"Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself," he said.
"A sense of self must be accompanied by a sense of the systemic."
Christine Lagarde says bankers should be less selfish. Photo: Andrew Harrer
Paladin Energy is the morning's best performing stock, after the miner confirmed it had place one of its uranium mines into "care and maintenance" due to depressed commodity prices.
ALS continues to pop after yesterday's profit results, while OzForex - the biggest loser so far - continues to go the other way.
Among the worst are a variety of gold miners as the price of the precious metal broke below its recent narrow trading range overnight, while McMillan Shakespeare shares are lower after announcing the transition to a new CEO.
Best and worst performing stocks in the ASX 200 this morning.
Wesfarmers boss Richard Goyder said this morning the Perth-based conglomerate would be ''negligent'' if it didn't eventually make a leap into international markets through an offshore acquisition but that investors needed to be patient.
Mr Goyder said Wesfarmers was continuing to invest in its newly created business development office in Hong Kong to help the company direct and lay the ground work an eventual move overseas with the group building its internal capabilities so that when the right opportunities came along the company had the skills to meet the challenge of an offshore deal.
‘’We have got the people, systems and processes that are capable of delivering value to shareholders from other jurisdictions,’’ Mr Goyder told analysts.
Mr Goyder said investors shouldn’t be alarmed about an expansion overseas by the Perth-based group whose origins stretch back to 1914 as a Western Australian farmers’ cooperative. But this was something that could take years or even decades to occur.
"Don’t hold your breath for it to happen but we would be negligent not to do it,'' Mr Goyder said.
A leap outside Australia, when the time is right, would add an overseas edge to Wesfarmers existing assets which are currently heavily domestically dominated and in particular around the retail sector through its ownership of Coles, Bunnings, Officeworks, Target and Kmart.
Mr Goyder, addressing analysts for the conglomerate's strategy day, said growth in the company's retail businesses would be supported in the year ahead by continued improvements in customer value and offer, range and category innovation. Wesfarmers would also drive operational productivity, store network and the continued roll out of its online offers across its retail brands.
Branching out: Wesfarmers chief Richard Goyder. Photo: Sasha Woolley
The latest reading from the Westpac-Melbourne Institute Leading Index, which is designed to be an early indicator for economic activity in the coming months, has plunged to its lowest level since 2011, pointing to sharp slowdown in the economy, reflecting falling consumer sentiment and commodity prices.
Hassan added that the data was at its weakest since late 2011, when the RBA embarked on its latest interest rate easing cycle. “At that time, Europe’s sovereign debt crisis was in full swing and consumer sentiment had slumped heavily,” he said.
“The latest leading index reading is not quite as weak as the lows in 2011 but there are some similarities with that episode.”
“The latest decline has also been associated with a sharp fall in consumer sentiment and deteriorating external conditions (declining commodity prices and slowing growth in US industrial production).”
But he added that some of the factors contributing to the result may be temporary, including consumers’ negative reaction to the Budget, the timing of holidays in April, and the cold winter in the US.
“While there may be some quirks in the latest readings, the fact that the slowdown is corroborated across all components is a strong indication that a genuine slowdown is underway.”
The index suggests the likely pace of economic growth three to nine months into the future fell to –1.16 per cent in April from +0.03 per cent in March.
The leading index will “clearly encourage” the RBA to keep rates firmly on hold, Hassan said.
Westpac-Melbourne Institute's leading indicator of economic activity suggests a sharp slowdown is underway.
Shares have followed the lead of Wall St, if in a somewhat more subdued form, with the ASX 200 and All Ords adding 11 points early, or 0.2 per cent, to 5523.6 and 5502.5, respectively.
Metals and mining stocks, down 0.1 per cent as a group in early trade, are putting the breaks on stronger growth in more cyclical sectors such as consumer discretionary (plus 0.4 per cent) and the broad industrials grouping, which is also 0.4 per cent up.
Gold miners have suffered from a weakening in the gold price overnight, with the sub-index 3 per cent lower.
Financials excluding listed property trusts are 0.3 per cent higher, buoying the market.
Australia’s major supermarket chains will soon face the same digital disruption that has carved a swath through discretionary retail sectors such as electronics, books and homewares.
The local supermarket duopoly is coming under attack from pure-play online retailers and packaged goods suppliers seeking growth by selling directly to consumers, according to management consultant A. T. Kearney.
A. T. Kearney’s global consumer and retail partner, Michael Brown, says low-cost, pure-play online retailers selling products from pet food to health and beauty supplies, and packaged goods companies selling toilet paper, nappies and cleaning products direct to consumers will siphon sales from the major chains overseas, undermining their business models.
Unless Woolworths and Coles maintain their dominance over online grocery sales, they risk losing volumes to smaller rivals and becoming less relevant to consumers.
“What Woolworths and Coles offer is the convenience of the one-stop shop, but if online players start to siphon off pet care, health and beauty and bulky goods like toilet paper, the more that gets siphoned off, the one-stop shop is not as important,” Mr Brown told The Australian Financial Review.
“And if I didn’t need to do a one-stop shop, Woolworths and Coles might not be the best place for my fresh produce or fresh meat,” he said.
Online grocery sales represent only 1 per cent or 2 per cent of the Australian market, compared with 8 per cent in the US and 12 per cent in Britain.
But A. T. Kearney expects online grocery sales to reach 20 per cent and start disrupting the market when they reach 12 per cent.
Changing work practices are proving a boon for barbers shops. Photo: Louise Kennerley
Gold fell the most in one day since December overnight, as another record high on Wall Street and economic optimism triggered a heavy bout of technical selling.
Spot gold fell 2 per cent to its lowest since February 7 at $US1264.05 an ounce, marking its worst daily loss since December 19.
Technical analysts also cited gold's recent pennant chart formation, also known as a flag because of its triangular shape, which represents a brief consolidation with narrowing price ranges before the previous market move is resumed.
Prior to its consolidation period, gold had fallen more than $US100, or about 10 per cent, after rallying to a near nine-month high at $US1390 in mid March.
"Gold managed to break out of a triangle formation to the downside, which is a bearish sign and should provoke follow-up selling," said Carsten Fritsch, analyst at Commerzbank.
Rare earths miner Lynas has requested a trading halt "pending the completion of the demand book build and related arrangements for the proposed top up placement that was announced on 5 May 2014," according to the statement to the ASX.
Trading will resume on Friday at the latest.
Supermarket giant Woolworths is considering spinning out a portfolio of pubs into a separately listed $600 million-plus real estate vehicle, in the latest sign the country’s year-long initial public offering boom shows little sign of faltering, reports the AFR's Street Talk column.
Woolworths has already drafted in UBS and Goldman Sachs to plot a debut on the stock exchange in the second half of the year, in the largest shake-up of the retailer’s lucrative hotel division, ALH Group, since its formation almost a decade ago.
Pub king and billionaire Bruce Mathieson controls 25 per cent of the venture, which now represents almost 10 per cent of Woolworth’s total earnings before interest and tax.
ALH runs over 300 pubs but the new vehicle will rank as a listed landlord, with only the freeholds spun out into a separate entity. In 2012, Woolworths embarked on a similar path by shunting a portfolio of 75 neighbourhood-style supermarkets into real estate offshoot SCA Property.
The ALH portfolio is expected to contain close to 100 pubs, pitching the retailer up against market leader ALE Property Group, which owns about 90 hotels across the country, all tenanted by Woolworths.
If the float goes ahead, investors are likely to question the growth prospects of ALE Property Group, one of the listed real estate sector’s most consistent performers, averaging a near 20 per cent compound return for the past decade.
However, it is understood Woolworths has already allowed ALE to cast an eye over the portfolio, signalling the trust will fight to win the hotels. A deal of this size would stun the market.
It has been five years since ALE bought a pub, although investors are repeatedly told this is due to the trust’s strict acquisition criteria.
Property group Stockland has announced it is increasing its takeover offer for smaller rival Australand to $2.52 billion.
Stockland's revised all-scrip offer comes a month after Australand rejected its $1.95 billion offer as undervalued.
A major new front in the corruption inquiry targeting Leighton Holdings has been opened up, with corporate investigators now probing suspect commission payments and alleged corporate misconduct in India.
ASIC investigators this month have issued Leighton staff with notices to produce documents as part of a new inquiry into possible corporate offences flowing from Leighton's dealings with Indian construction firm Welspun as well as a mysterious multimillion-dollar payment made to an Indian steel company.
Leighton insiders have also revealed that the company's board recently met to discuss a damning internal investigation into previous failures in corporate governance surrounding dealings between Leighton's operating company, Thiess, and a company linked to allegedly corrupt Indian businessman, Syam Prasad Reddy.
In yet more bad news for Leighton Holdings, it is also believed that federal police have moved to seek legal advice about whether they can press charges over an alleged $40 million bribery conspiracy involving Leighton's dealings in Iraq in 2010.
The revelations bring back into focus the practices associated with Leighton's deal making and operations in several corruption-prone countries, including Iraq, Indonesia and India.
Investors seem to be saying "no way" to the market phrase "sell in May and go away" with Wall Street hitting record highs and Australian shares ending a trend that has been running for the past four years, both of which raises the question, how much longer will it last?
The local benchmark, S&P/ASX200 has declined by an average of 4.3 per cent for the past four Mays in a row but this month, the market is up 2.2 per cent and is closed at 5511 points on Tuesday afternoon. It's the highest the market has been since hitting 5536 points in late April.
Meanwhile, the US S&P 500 is up 0.6 per cent and hit a record high of 1911 points overnight as investors woke from a public holiday to digest news that the European Central Bank is considering further stimulus, as well as a report confirming stronger US durable goods orders and a big corporate takeover.
The global market index, the MSCI World Index powered to its highest point since October 2007 on further talk that the ECB is likely to cut rates into negative territory in an effort to spur lending, when the bank meets on June 5.
The gains offshore are expected to push Australian shares higher when the market opens, but are likely to disappoint any investor who may have been hoping that equities had reached their peak and were bound for a sell off.
On Saturday, trader Shawn Hickman, who is principal at Market Matters, warned that the market may have reached its top and was bound for a correction in May.
The market is defying the adage "sell in May and go away". Photo: AP
Along with Monday’s comments from the ECB’s Mario Draghi, US economic data also supported equities overnight.
Orders for durable goods, which are US manufactured goods meant to last three years or more, unexpectedly rose in April, and consumer confidence perked up in May, backing views of a rebound in economic growth.
- Headline durable goods orders were better than expected, rising 0.8% m/m in April (consensus was for a 0.7% drop).
- However, “core” orders (capital goods orders excluding defence goods and aircraft, which can be very volatile on a month-to-month basis) fell by more than expected (-1.2% m/m; mkt:-0.3% m/m), but this was offset by a hefty 2.5ppt upward revision to March’s 4.7% m/m growth.
“Overall, capital goods orders have continued to strengthen, and should contribute strongly to Q2 GDP growth,” write economists at ANZ.
- Case-Shiller house prices were also stronger than expected in March. The 20-city composite series rose by 1.2% m/m (mkt: +0.7% m/m), taking the annual pace of growth to 12.4%
- The conference board measure of consumer confidence rose to 83.0 in May, from 81.7 in April, in line with market expectations.
"These data are close to post-GFC highs and consistent with a pick-up in consumer spending going forward," the ANZ team say.
- Meanwhile, the Richmond Fed and Dallas Fed manufacturing activity indices were a touch weaker than expected. Richmond’s measure came in at 7 (mkt: +8) and Dallas’ at 8 (mkt: 9.5)
“However, combined with other forward-looking indicators, these data continue to suggest manufacturing activity in the US should strengthen going forward,” writes ANZ.
The S&P 500 extended its rally and in so doing underpins a positive tone for the start of local trading.
Here's what you need2know:
- SPI futures up 6 points to 5533
- AUD at 92.57 US cents, 94.42 Japanese yen, 67.91 Euro cents and 55.09 British pence
- On Wall St, S&P 500 up +0.6%, Dow up +0.4%, Nasdaq +1.2%
- In Europe, Euro Stoxx 50 +0.1%, FTSE +0.4%, CAC +0.1%, DAX +0.5%
- Iron ore down 0.5% at $US98.10 a tonne
- LME copper 3-month is at $US6934 a tonne
- Spot gold tumbles 2.1% to $US1265.42 an ounce
- Brent oil down 0.2% to $US110.06 per barrel
What's on today:
- Australia: Westpac leading index for April at 10:30am AEST, CBA/HIA first-quarter house affordability, ABS first-quarter construction work done at 11:30 AEST
- US: MBA mortgage applications
- Japan: BoJ Governor Kuroda speaks at 10am AEST
Stocks to watch:
- Supermarket giant Woolworths is considering spinning out a portfolio of pubs into a separately listed $600 million-plus real estate vehicle, The Australian Financial Review reports
- Now that the capacity war between Virgin Australia and Qantas Airways appears to be all but over, AFR's Street Talk column speculates a privatisation of Virgin by its largest shareholders is again on the table
- Aristocrat releases first-half profits
- Iluka Resources holds an AGM in Perth
- McMillan Shakespeare CEO Michael Kay will be replaced by Mike Salisbury from October 1.
- Novogen reaches milestone in SBP drug program; US-listed stock rose 3.5%
- Prana Biotech's US stock soared as much sa 35% overnight
- Wesfarmers holds a strategy briefing day in Sydney
- Tower raised to outperform vs neutral at Credit Suisse; price target $1.70
- Deutsche Bank cut its 12-month price target on Regis Resources by 30 per cent to $1.85 a share and downgraded its recommendation to “hold”
- RBC Capital Markets is keeping a “sector perform” on APA Group and a $6.75 a share price target pending certainty on the Envestra bid