As Queen would sing....another one bites the dust.
Thanks for being with us today, we hope you've enjoyed this edition of Markets Live, we'll see you all tomorrow.
Here's what you need2know this Wednesday evening:
Markets
- ASX finished 0.8% higher at 5116.8
- AUD at $US1.0292
- Nikkei up 1.8%, Hang Seng up 0.9%, Kospi up 0.2%
- Gold at $US1579, WTI oil up at $US91.03
- S&P500 futures up 0.1%, FTSE100 futures flat
News
- Public spending drives economic growth
- Mining tax unconstitutional, court hears
- Trio linked to Monsanto wrestles Roundup rights from Nufarm
- Rate reductions boost home affordability
- Mal Maiden: why the Dow peaks and the ASX doesn't
Tomorrow
- ABS jobs figures
Here's a look at how the blue chips performed today:
- BHP: +1.2%
- Rio: +0.8%
- ANZ: +1.2%
- CBA: +0.9%
- NAB: +0.8%
- Westpac: +1.3%
- Fortescue: +3.7%
- Woolworths: +0.1%
- Wesfarmers: -0.2%
- Telstra: flat
The market has finished higher, pushed up by leads from the US. The benchmark S&P/ASX200 jumped 41.4 points, or 0.8 per cent, to 5116.8, while the broader All Ords added 42.8 points, or 0.8 per cent, to 5130.9.
Now that the earnings season is pretty much behind us, what sort of trends can we take away from here?
For one, the first-half of the 2013 financial year appears to continue the trend of subdued revenue growth seen in the previous financial year.
‘‘The revenue side is subdued but the earnings have come through a bit better, so margins have started to improve, cost control has helped, and I think interest costs have come down,’’ UBS strategist David Cassidy said.
‘‘So that’s been the key trend, the margin expansion has started to come through as corporates focused on the cost base and the benefits of lower interest costs.’’
Overall, the Australian reporting season has been better-than-expected, Mr Cassidy noted in an earlier report released on Friday.
The strongest performing sectors were banks, insurance retailing and staples, while the weakest performances were in resources, REITs and infrastructure.
At the same time, according to an analysis of the 2012 financial year released by S&P Capital IQ, of the 192 companies that have reported earnings for the year, 39 per cent posted better-than-expected results.
Just above 30 per cent reported double-digit or better year-on-year growth.
Here's a breakdown of how the sectors have performed today on the ASX200:
A stockbroker who sued his former employer over claims he was entitled to a $1 million stake in the company has had his case thrown out for a second time.
Philip Pepe's appeal was dismissed by the full bench of the Supreme Court in Victoria today, after the judges upheld a December 2010 decision of the court that Mr Pepe was not entitled to an equity stake in Platypus Asset Management.
Mr Pepe claimed an employment contract he signed with Platypus in early 2006 guaranteed him entitlement to 5 per cent equity in the funds management firm once he had served a one-year probationary period.
Platypus dismissed Mr Pepe in October 2007, 18 months after he was recruited and a month after he received a $200,000 bonus for the 2006-07 year on top of his $262,000 salary package.
He currently works as a private client adviser at Shaw Stockbroking and could not be reached for comment. Platypus Asset Management also declined to comment.
After a bump in the road on Monday, markets around the region are performing reasonably well today:
- Nikkei(Japan): +1.7%
- Shanghai: +0.4%
- Taiwan: +0.4%
- South Korea: +0.5%
- Singapore: +0.8%
- New Zealand: +0.7%
Australia has a Goldilocks economy – not too hot, not too cold, in fact it's just about right, says CommSec chief economist Crag James:
- Why our good economic circumstances aren’t trumpeted more, defies rational explanation.
- Inflation is under control, unemployment is low, the economy is growing at a “normal” pace and our government deficit and debt levels are low compared with other advanced nations. To top it all off, Australia hasn’t experienced a recession in 21 years.
- The clear reason why the Reserve Bank left interest rates unchanged yesterday is because the economy doesn’t need any more stimulus.
- In fact we believe that interest rates have probably bottomed – if they haven’t completely reached the trough, certainly the low point isn’t far away.
Why has the US sharemarket reclaimed its pre-financial crisis high when the Australian sharemarket is still 25 per cent short of it? Malcolm Maiden asks (along with many others) and answers: because in fundamental ways the Americans are better than us.
Sharemarket investors buy the future rather the present, however, and when they look at the US market and the companies that inhabit it, they like what they see.
The resources boom shored up Australia’s economic growth was it was raging, and also shored up the value of the sharemarket.
But it also pushed the value of the the Australian dollar higher, and forced the Reserve Bank to keep interest rates relatively high, to contain price and wage inflation coming out of the mining sector.
Now the resources boom has cooled, and as interest rates and the $A remain relatively high, the underlying pressure on the industrial sector of the sharemarket is exposed.
Three former Monsanto executives, local managers of Chinese-backed Sinochem, have emerged with the Australian distribution rights for the herbicide Roundup, a day after Nufarm lost them.
Nufarm shares fell 12 per cent on Tuesday after the company announced it had lost the exclusive rights to sell roundup, made by Monsanto, which it had held since 2002.
But Nufarm shares have recovered more than 6 per cent to $5.15 today as investors pick a buying opportunity.
Veteran corporate raider Sir Ron Brierley has cashed in more Guinness Peat Group shares as the investment firm he helped found draws closer to its next incarnation, while chairman Rob Campbell builds up his stake.
On March 4, Sir Ron sold five million shares at 48.5 Australian cents apiece, totalling some A2.4 million ($NZ3m), according to a notice to the stock exchange. The septuagenarian investor now holds 26.9 million shares, or 1.8 per cent of GPG’s voting rights.
He began selling GPG in October, and has cashed up 25 million shares for some $12.05 million.
A legal challenge against the federal government’s mineral resources rent tax has started in the High Court with lawyers for miner Andrew ‘‘Twiggy’’ Forrest arguing the controversial impost breaches the constitution.
Forrest wasn’t present in court today for the start of the case that pits his Fortescue Metals Group against the commonwealth.
Governments in the big mining states of Queensland and Western Australia have intervened in the hearing. The full court of the High Court, sitting in Canberra, has set down three days to hear the case, which will involve complex legal argument.
At one point, Justice Kenneth Hayne observed: ‘‘Nothing is unduly simple in this.’
This one is a cracker! BusinessDay's Michael West writes on the mother of all bailouts.
Anybody keen for a loan of $380 billion at, let’s say, an interest rate of 3.4 per cent?
Sounds nice eh? Well, you the taxpayer are in the process of actually making such a loan. Or at least you will soon extend, most kindly if as yet unwittingly, such a credit facility to the big banks, to be used at any time, at their discretion.
Yes, it is execptionally generous, the so-called Committed Liquidity Facility, which is in effect a permanent bailout facility which comes into play in 2015.
In a story somewhat interred in the inside pages of the AFR this morning, Christopher Joye makes the point that this massive line of credit is unusual and generous by global banking standards and it has been established with “no public debate”.
Scared of heights?
Well, according to Australian Foundation Investment Co, one of the largest of the listed investment companies, you shouldn't be.
Even though its shares are trading at a premium to NTA and hence a touch overvalued, perhaps, this slide from a presentation it filed today with the ASX indicates that the market overall has some way on the upside to go before it gets back to historic valuation levels.
A fresh look at the companies leading the ASX200 higher:
- Bathurst Resources: +10.34%
- Nufarm: +6.08%
- Iluka: +5.49%
- Whitehaven: +4.33%
- Seven West: +4.24%
The financial sector in Australia is up 16% this year, adding to 2012's 21.7% rise! ^SD — CommSec (@CommSec) March 6, 2013
BusinessDay’s Brian Robins writes that the Queensland Government has announced a shortlist of four proposals for the proposed multi-billion dollar Gold Coast Broadwater Marine Project, with three including a casino in their application, one of which was submitted by New Zealand's Sky City, with clear implications for Echo Entertainment, which has a casino nearby, UBS told clients.
"Without more information in terms of product (ie, number of slots/tables) and tax rates etc, determining the likely return viability of such a project and any impact to Echo Entertainment remains difficult," UBS told clients in a note.
"It is worth noting however Echo generates only about $77million EBITDA from its Gold Coast property (with fragmented market in the form of competition from pubs/clubs)."
The proximity of the Gold Coast and Brisbane markets means any competition in Gold Coast will likely risk and reduce the scale of any redevelopment of Brisbane which Echo and the Queensland Government are negotiating, it noted.
"Whilst risk of competition under Echo's licences continues to remain an uncertainty (ie Crown’s proposed Barangaroo VIP casino and any potential impact to Echo earnings from FY20/21, and now Queensland via Gold Coast) our view around the attractiveness of the Echo assets is unchanged," it told clients.
"With Crown and Genting having applied to the regulator to increase their Echo stake, we view the approvals and any subsequent creep in Echo as a near-term catalyst."
Echo shares were up 2c at #3.67 with Crown ahead 12c at $12.19.
A look at the state by state GDP numbers.
NSW grew by 0.4 per cent for the quarter and 2.4 per cent for the year, while Victoria recorded a 1.1 per cent fall for the December quarter and an annual 0.1 per cent retraction for 2012.
Queensland was flat for the fourth quarter and grew 2.2 per cent for 2012, as South Australia shrunk by 0.5 per cent for the quarter but grew 0.3 per cent for the year.
Western Australia recorded 0.5 per cent of growth for the quarter and a strong 14.2 per cent for the year. Tasmania contracted by 0.6 per cent for the last quarter and fell 4.6 per cent for last year.
The ACT saw 0.4 per cent of growth for the quarter and 3.4 per cent for the year, as the Northern Territory soared 9.7 per cent for the quarter and 32.8 per cent for 2012.
Here's one of the major stories coming out of the GDP result - a decent chuck of the nation is in recession.
Economics editor Tim Colebatch writes:
Victoria has slumped into recession, along with South Australia, Tasmania and the ACT, as the Australia’s two-speed economy has sent much of the country into reverse.
The Bureau of Statistics reports that state final demand - the total spending of consumers, business and governments - fell 0.7 per cent in Victoria in the December quarter, in trend terms, on top of a fall of 0.4 per cent in September.
Investment in the state has now fallen for three quarters in a row, falling 5 per cent in that time. Asset sales cloud over how much of that in the public and private sectors respectively, but the Bureau reported last week that as a share of output, capital expenditure by Victorian business has now fallen to the levels of the 1990-92 recession.
Brian Redican at Macquarie Bank says he doesn’t think the RBA will pay too much attention to the GDP numbers.
‘‘This kind of trend-like growth is what the RBA is happy with. Until we get a well-below trend growth number, it's only then that the RBA will sit up and pay attention to it."
HSBC has weighed in on the GDP result. Chief economist Paul Bloxham said the figures showed that the Australian economy grew at a moderate pace in the quarter, as higher export volumes offset weakness elsewhere.
‘‘Household consumption was particularly weak, investment slowed down a bit but we did see a strong contribution to the economy from net exports, as coal and iron ore exports ramped up,’’ he said.
Mr Bloxham said growth was likely to improve in 2013, which meant the Reserve Bank of Australia (RBA) was unlikely to cut the cash rate below its current level of 3.0 per cent.
‘‘We think the soft patch these figures represent is behind us and that growth will pick up in the first half of this year, so we think the RBA’s easing phase is done.’’
Markets again price out rate cuts by the RBA- Now expect 30bp (from 34bp pre-GDP). Good rev to Q3, and Q4 gains led by govt sp+export growth — Chris Weston (@ChrisWeston_IG) March 6, 2013
Citi senior economist Josh Williamson said although the headline GDP numbers matched the market’s expectations, the underlying results "showed a fairly soft profile for growth".
"Most measures of consumption were fairly weak in the quarter, and if it wasn't for a particularly large, and some would say, abnormal increase in public sector capital investment, GDP would be a lot weaker."
For some context for today's GDP numbers, here are the annual rates stretching back to 2006:
- 2012: 3.1
- 2011: 2.7
- 2010: 2.8
- 2009: 2.5
- 2008: 1.6
- 2007: 3.8
- 2006: 3.2
#xjo starting to defy gravity (& perhaps logic). +1% as #GDP not strong enough to remove easing hopes, not weak enough to create concerns — David Scutt (@David_Scutt) March 6, 2013
On GDP, household final consumption expenditure rose 0.2 per cent in the December quarter and was up 2.8 per cent over the year to December, adjusted.
Total investment in dwellings rose 2.1 per cent in the quarter to be down 0.7 per cent in the year to December.
Total gross fixed capital formation rose 0.8 per cent in the quarter and was up 5.9 per cent over the year.
Domestic final demand rose 0.3 per cent in the quarter and was up 3.5 per cent over the year.
On GDP, the September quarter was revised up from growth of 0.5 per cent to 0.7 per cent, marking the 0.6 per cent on the three months to the end of December as a slight fall to 0.6 per cent.
The GDP numbers have come in bank on expectations, or in the case of the year-on-year reslt, slightly ahead.
- GDP for Dec qtr: +0.6%, vs expectations of +0.6%
- GDP for the year: +3.1% vs expectations of +3.0%
Focus is now firmly on the domestic GDP December quarter 2012 results, due in two minutes.
The expectation is for growth of 0.6 per cent. A reading greater than this will likely extend equity gains into the afternoon, and provide another boost for the resurgent dollar. Conversely, a reading below the expectation may halt today's rally and sober the market.
Growth across emerging markets including China and India slowed in February, according to a monthly purchasing managers' index, which hit its lowest level since August.
India, Brazil and China all saw growth rates decline after a strong increase in January, according to the HSBC Emerging Market Index, published on Wednesday. The slowdown was evident in both manufacturing and services.
Investors are eyeing closely whether emerging markets can continue to grow despite strong headwinds from a slow global recovery, with particular concern surrounding a possible slowdown in the Chinese economy.
The HSBC PMI index, based on purchasing managers' surveys of 16 emerging economies, fell to 52.3 from 53.8 in January but remained above the crucial 50 level which signifies overall expansion.
"The slowdown appears to be broad-based across manufacturing and services, with BRIC activity moderating after a promising start to the new year," said Murat Ulgen, chief economist at HSBC.
A bit more here on the Dow. America, birthplace of the credit crisis that erased $37 trillion from global equity values, is leading the world’s stock markets back.
The Dow Jones Industrial Average rallied 126 points to 14,253.77, joining Denmark’s OMX Copenhagen 20 Index among major stock gauges in the 45 largest markets to regain all-time highs, according to Bloomberg. Four years after bottoming, equity benchmarks in those countries are an average of 27 per cent below their peaks, the data show.
About $US10 trillion has been restored to US equities, fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve.
“In financial markets, there is no more powerful signal than a move to new all-time highs. This suggests traders and investors are comfortable paying the highest price ever for an instrument in the belief that it will continue to the upside,’’ said Steven Dooley, head of research at ForexCT.
“Overnight, we saw the Dow Jones trade above 14200 for the first time ever – an achievement even more remarkable when we consider that the US government is facing US$85 billion worth of budget cuts as a result of the ongoing ‘fiscal cliff’ negotiations.
“Traders will now be looking to build new long positions on the Dow Jones with a pullback towards previous resistance at 14130 likely to be seen as the next buying opportunity.”
Iron ore fell again overnight, notching $US3.60 loss to $145.20 a metric tonne. That's nine sessions without a gain, and losses in seven of those.
A quick look at some of the blue chips and the banks are carrying the market higher in early trade:
- CBA is 1.21% higher to $69.51
- ANZ is 1.63% higher to $29.34
- NAB is 2.19%% higher to $31.26
- Westpac is 1.41% higher to $31.69
Something from Italy from overnight. Italian President Giorgio Napolitano is considering appointing a new technocrat government led by a non-politician as one way out of Italy's political stalemate, officials said.
Such a solution would come into play if centre-left leader Pier Luigi Bersani failed to form a government after receiving an initial mandate from Napolitano, as is expected, they said.
"Napolitano wants a government with the broadest possible support that will last as long as possible," one of the officials said.
Bersani won a majority in the lower house of parliament and says he has the right to be the first to try to form a government, although he has no workable majority in the Senate.
However, 5-Star Movement leader Beppe Grillo, who holds the balance of power after winning a huge protest vote, responded to speculation about a technocrat government in Italian media on Tuesday by saying he would not support such an administration.
Australian homes are the most affordable in three years, thanks to rising incomes and falling interest rates.
The Real Estate Institute of Australia’s (REIA) Housing Affordability Report shows that housing affordability improved in the December quarter, with the proportion of income required to meet loan repayments decreasing by 1.4 percentage points to 30.4 per cent. The result is at its lowest level since December 2009.
REIA president Peter Bushby said housing affordability had been improving over the past year and a half as the Reserve Bank of Australia continued to cut the cash rate.
‘‘Rising income and declining mortgage repayments contributed to the improvement, with the median family income increasing 2.2 per cent and the average monthly loan repayments decreasing 2.1 per cent,’’ he said.
The best-performed companies on the ASX200 include:
- Nufarm: +9.48%
- Whitehaven: +3.54%
- NRW Holdings: +3%
- Caltex: +2.99%
- Gindalbie: +2.98%
- Boart Longyear: +2.95%
- Seek: +2.83%
Sector-by-sector on the ASX200 now:
- Info tech: +1.6%
- Financials: +1.2%
- Energy: +0.75%
- Industrials: +0.58%
- Consumer disc: +0.53%
- Materials: +0.45%
Some of that Wall Street gold dust has rubbed off on local stocks. The Australian share market has opened more than two-thirds of a per cent higher.
The benchmark S&P/ASX200 index is up 35.7 points, or 0.70 per cent, at 5,111.1, while the broader All Ordinaries index is up 34.9 points, or 0.69 per cent, at 5,123.00.
On the ASX 24, the March share price index futures contract is up 31 points at 5110, with 8,655 contracts traded.
In other news, Venezuelan president Hugo Chavez has died, according to a national televised address by his vice-president Nicolas Maduro.
Chavez, who had been battling cancer for two years, had not been seen in public nor heard from since undergoing surgery in Cuba on December 11, his fourth operation since the disease was detected in his pelvic area in mid-2011.
And off we go:
Sound the horns! #SPI futures off to the races yet again, now +28. Fresh 4-year highs on the way! #yieldtrumpsall #bullmarket #ausbiz
— David Scutt (@David_Scutt) March 5, 2013
Looking beyond the overnight all-time high in the Dow, CommSec market analyst Juliana Roadley says the Dow's strong showing will be tested when the US employment numbers for February are released on Friday.
"That is going to be a big test for this new level for the Dow," Roadley says.
"There’s also a fair bit of talk around at the moment from these Federal Reserve members - Lacker (president of the Richmond Federal Reserve Bank) basically coming out and saying that with the Fed’s large balance sheet, any small errors in the way they try and reduce the amount of stimulus they are throwing into the US economy could create big waves in the market.
"So there’s people out there speaking. A lot of people are trying not to listen and are trying to push the markets higher, but there are some naysayers at the moment."
Also set to influence the US and Australian markets is the raft of Chinese data coming out over the weekend, Ms Roadley added.
Today's main number is the economic growth data for the December quarter, due at 11.30am.
Economists expect GDP in the three months to the end of the year to rise by 0.6 per cent, up from 0.5 per cent in the September quarter. The year-on-year result is expected to come in at 3 per cent, down from 3.1 per cent.
The expectations, however, are from last week's survey. Some data from this week, such as strong government spending and a lower than expected current account deficit could see the quarterly figure coming in a bit better.
In case you missed it yesterday, China’s new rulers said the nation will focus on consumer-led growth to narrow the gap between rich and poor while taking steps to curb pollution and graft.
Outgoing Premier Wen Jiabao, speaking at the opening of the annual session of parliament, also announced record government spending in 2013 that will sustain growth and maintain the ruling Communist Party's grip on power through an enhanced budget for internal security.
As you might imagine, world markets cheered the comments. European stocks added 2 per cent Wall Street rose about 1 per cent on the China news and solid data.
Aussie stocks are set to follow the bullish mood on offshore markets. The Dow Jones Industrial Average closed at a historic high after China pledged record government spending to boost growth and data showed the US service sector expanding at its fastest pace in a year.
The Dow finished 0.89 per cent higher to 14253.77, breaking the October 9, 2007 closing record of 14,164.53.
There was no specific news to drive trade on Tuesday; Asian and European markets were up moderately, with Europe then catching fire for stronger gains after the Dow powered past the old record within seconds of the market opening.
But record-low interest rates and slow but steady economic growth seemed to justify the new heights, analysts say.
"Stocks are close to fair value, but very cheap relative to the bond market and to cash, which is very expensive," says David Kelly, managing director and chief market strategist at JPMorgan Asset Management in New York.
"Central banks have been keeping rates low and that justified higher stock prices. But we weren't seeing that because of these risks. As these risks have diminished, money is going into stocks because it has nowhere else to go. That led to the new high on the Dow Jones Industrial Average today," he said.
‘‘The last time we were here, the economy was about to fall off a cliff,’’ says Art Hogan of Lazard Capital Markets. ‘‘The economy is in a better place,’’ he said.
The Dow Jones since 1997:
For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key markets numbers:
- SPI futures are 19 points higher at 5098
- The $A is higher at $US1.0247
- The Dow surged 0.9% to a record high of 14,253.77,
- In Europe, the FTSE100 rose 1.36% to 6431.95
- China iron ore lost $US3.60 to $US145.20 a metric tonne
- Gold rose $US2.50 to $US1,574.90 an ounce
- WTI crude oil added 23 cents to $US90.35 a barrel
- Reuters/Jefferies CRB index added 0.3% at 291.58
Good morning folks. Welcome to the Markets Live blog for Wednesday.
Contributors: Thomas Hunter, Jens Meyer, Max Mason
This blog is not intended as investment advice
BusinessDay with agencies
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