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The Australian dollar plunged below US94¢ after Reserve Bank of Australia governor Glenn Stevens declared the currency was “overvalued, and not by just a few cents” during a speech in Hobart.
In late afternoon trade the Australian dollar was buying US93.77¢.
The local unit fell from US94.31¢ to US93.80¢ immediately after Mr Stevens warned investors were “under-estimating the likelihood of a significant fall in the Australian dollar”.
Despite making some of his most explicit commentary on the valuation of the dollar in recent months, Mr Stevens also talked down the effectiveness of jaw-boning, saying “we risk chasing our tails”.
Mr Stevens said low interest rates had been having the desired impact on the economy, but suggested the RBA was still able to cut rates again if required, using frank terminology the market hasn’t heard since December last year.
Asked whether this represents the bank’s biggest jaw-boning attempt of the year, Commonwealth Bank of Australia’s Richard Grace replied, “yes, probably”.
Australian shares are off to a strong start this financial year amid bets that further gains will be driven by earnings growth and increased market confidence.
The market benchmark S&P/ASX 200 Index closed 0.66 per cent or 35.7 points higher on Thursday at 5491.1 points, the first time the market has made consecutive gains since June 10.
The day’s gains reflect further appetite for the riskier asset class, and come as the price of iron ore climbed higher, but the Australian dollar lost ground after the Reserve Bank of Australia governor called time out on gains in the currency by attempting to talk it down for the first time this financial year.
The best performing sector on Thursday was resources, while utilities made the least gains. The big four banks all improved.
Commonwealth Bank of Australia increased despite an early drop when it released a statement on the recent financial planning advice controversy, it finished the day rising 0.78 per cent to $81.55, while Westpac Banking Corporation lifted 0.94 per cent to $34.19. Australia and New Zealand Banking Group rose 0.75 per cent to $33.65, and National Australia Bank ticked up 0.39 per cent to $33.31.
Citigroup equity strategist Tony Brennan has analysed demand for Australian equities and finds "solid" net equity purchases were recorded from foreign investors and superannuation funds, while domestic investor selling slowed.
Part of this is the new equity issuance as result of the IPO boom.
"But investor sentiment also appears to have improved, with foreign investors increasing flows into emerging relative to developed equity markets again in the past six months, and Australia potentially benefiting from being perceived an [emerging markets] proxy; and Australian retail investors indicating in surveys some increased interest in equities and superannuation," he says.
Citigroup is still cautious because the reality is term deposit balances are still high, reflecting conservatism among households.
The Australian Securities and Investments Commission has not ruled out further intervention in South African retailer Woolworths's $2.2 billion acquisition of David Jones and $213 million offer for Country Road.
The corporate regulator believes that Woolworths’s $17 a share offer for Country Road represents a multi-million “inducement” or collateral benefit to ragtrader Solomon Lew, breaching “equality of opportunity” principles enshrined in corporations law.
Woolworths offered to buy Mr Lew’s 11.8 per cent stake in Country Road and about 500,000 shares held by minority investors after his private company emerged with a 9.9 per cent stake in David Jones, potentially threatening the acquisition.
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The S&P/ASX 200 Index has posted its second session of gains in a row, adding 0.66 per cent to close at 5491.19.
It is the first time the benchmark has gone back-to-back since June 10.
Catch up on all of the CBA financial planning scandal coverage at this dedicated BusinessDay page.
And the latest: Six years later, CBA boss Ian Narev talks to whistleblower Jeff Morris
Have you read this month's New York Magazine cover story?
A follow-up to our earlier post about London house prices. Norwegian banks may have to put aside more money to cover potential defaults by homeowners after the country's financial watchdog said on Tuesday it was increasing the risk weighting for residential mortgages, according to Reuters.
The financial supervisory authority, which had warned in February that such a rule might be introduced, has long been concerned about high household indebtedness in Norway.
"Finanstilsynet estimates that the requirements ... will increase risk weights assigned to residential mortgage portfolios to around 20-25 percent compared with previous levels of 10-15 percent," the FSA said in a statement.
Australian bonds delivered the world's biggest gains to global investors in the June quarter as the Aussie dollar rose. And BNP Paribas Investment Partners is betting relatively high yields will spur further gains.
An index of government securities due in more than a year returned 5.5 per cent (including currency appreciation) versus the US dollar, the most of 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.
The Aussie Bloomberg Correlation Weighted Index rose 1.6 per cent from April through June, completing the first back-to-back quarterly gains since 2010.Back to top
For the Frequent Flyers out there:
About 10 million frequent flyers saw their points-earning potential lurch into strange new territory on Tuesday as sweeping changes to the Qantas loyalty scheme kicked into gear at the start of the new financial year.
Arguably the biggest shake-up in the program’s 27-year history, it’s not beyond the pale to suggest that every single Qantas Frequent Flyer member will be affected in some way.
This includes the bulk of Australia’s business travellers on domestic and international flights.
Qantas trumpeted the changes as “Fairer Flying” – a slogan which, for the social media set, was akin to painting a big red bullseye on the Red Roo’s chest.
Developments on the WestSide Corp takeover from our friends at The Australian Financial Review's Street Talk. The company is on track to be snapped up by China’s Landbridge Group when its takeover offer closes on Tuesday.
Telstra analysis from the Australian Financial Review:
"Will Telstra buy back billions of dollars of its own shares from the mums, dads and institutional investors that now own one of Australia’s biggest companies?
The answer, says a rising chorus of analysts and fund managers, is yes.
Credit Suisse research analyst Fraser McLeish has told clients he “expects Telstra to announce a $2 billion buyback” at its 2013-14 financial year results on August 14.
“This would be large enough to be meaningful (3 per cent of issued share capital) but would still leave plenty of capacity for Asian acquisitions,” he said. “[A $2 billion buyback] would add 1.8 per cent to earnings per share in a full year.”
Why would Telstra issue a buyback? In recent months it has sold its Hong Kong mobile service provider, CSL, in a deal worth $US2.42 billion ($2.56 billion) along with a 70 per cent share in its directories business, Sensis, for $454 million."
Lawyers representing victims of Commonwealth Bank’s financial planning scandal have questioned the bank’s new compensation scheme, saying it fails to pass the independence test.
The bank unveiled a new compensation program on Thursday that will allow anyone who signed up with a CBA financial planner through Commonwealth Financial Planning and Financial Wisdom between 2003 and 2012 to apply to the bank for compensation.
All claims will be assessed by ‘‘a specialist Commonwealth Bank team’’ before an offer is made by an independent customer advocate funded by the bank.
If a customer does not agree with the assessment, it can be reviewed by an independent panel.
Maurice Blackburn principal John Berrill – who settled individual claims for victims of one of the bank’s banned planners, Don Nguyen – said the scheme was a repeat of the bank’s earlier failed compensation scheme.
Credit ratings agency Moody's is worried about iron ore and its impact on Fortescue Metals Group, Atlas Iron, Thornberry Holdings, Emeco Holdings and Ausdrill.
Australia’s Bureau of Resources and Energy Economics downgraded the iron ore forecast to $US97 per tonne for 2015 last month.
"As single-commodity iron ore producers, Fortescue and Atlas are heavily exposed to any movements in iron ore prices. Pro forma for an $US8-per-tonne reduction in iron ore prices at current production levels, Fortescue’s annual revenue would decline by approximately $US1.2 billion (or about 11 per cent of 2013 revenue), while Atlas’ revenue would fall by around $US90 million (or about 9 per cent of 2013 revenue). As a producer of lower grade iron ore, the discounts that Atlas has taken have widened with the decrease in iron ore prices, further hurting revenue and cash flow," Moody's says.
"To preserve margins, we expect iron ore miners to reduce their scope of work and renegotiate contracts with mining services producers."Back to top
The average price of a property in London has leapt by more than a quarter over the past year, a rate of growth unequalled since the summer of 1987, according to the latest figures from the UK's largest building society cited in The Guardian.
Prices in the capital rose by 25.8 per cent between the second quarter of 2013 and the same period this year, pushing the average to £400,404, the first time it has topped £400,000 and 30 per cent higher than the peak reached in 2007.
GE Money has been ordered by the Federal Court to pay a $1.5 million fine over making "false and misleading" representations to more than 700,000 credit card customers.
The Australian Securities and Investments Commission initiated legal proceedings late last year, saying the firm had told customers that in order to activate their cards, or apply for an increased credit limit, they would have to consent to getting unsolicited invitations for future credit limit increases.
The Australian services industry continues to deteriorate amid consumer concern over spending cuts announced in the federal budget.
The industry has now contracted for four consecutive months, the Australian Industry Group says.
Ai Group's Performance of Services Index (PSI) fell 2.3 points in June to 47.6 points, below the 50 level separating expansion from contraction.
It appeared likely to be at least several months before momentum would rebuild in the sector, said Ai Group chief executive Innes Willox.
Former Australian Competition and Consumer Commission chief Allan Fels has attacked the high profits of general insurers and annual premium increases and questioned whether there is effective competition in the industry.
In a report sparked by an investigation into the impact of the removal of the fire services levy from insurance premiums in Victoria, Professor Fels attacked unexplained premium increases.
“Insurance companies in Australia are more profitable than banks and this suggests an absence of effective competition,” he said.
“One of the things that would help drive effective competition is for consumers to be better informed.”
Lynas has been one of the worst performers on the market over the past 48 hours.
Troubled rare-earth miner Lynas Corp is to shift its head office abroad as part of a renewed cost-cutting regime as the company seeks to stop haemorrhaging cash.
It also comes amid production difficulties at its recently commissioned Malaysian processing unit that have yet to be resolved, and as negotiations continue to refinance a key funding package.
Lynas said it would move its head office to Kuala Lumpur, from Sydney, which will result in an unspecified number of job losses, with further jobs to go at its Perth office.
But with the total cost of the move and associated redundancies put at about $5 million, the total number of jobs being cut would appear modest.Back to top