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Markets Live: Back in rally gear

Date

Patrick Commins, Jens Meyer

Shares bounce off early afternoon lows as NAB reports falling quarterly revenue and impairments hit Ansell, Newcrest and Aurizon profits.

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That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

Shares lifted for the third day in a row as investors mulled a swag of company results. Despite a disappointing trading update from National Australia Bank - and impairment charges hitting the profits of Ansell, Newcrest Mining and Aurizon Holdings - strategists said they are positive about how August reporting season is shaping up.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each added 0.4 per cent, on Monday to 5587.1 points and 5580.6 points respectively. With no major economic news released, profit results were the focus.

Local shares took a mixed lead from offshore as geopolitical tensions between Ukraine and Russia continued to simmer. In the United States on Friday the NASDAQ Composite Index posted a gain, but the S&P/500 was flat, while the Dow Jones Industrial Average lost ground. Major markets around Asia provided more mixed cues on Monday afternoon.

“Reporting season is around one-quarter complete, and so far the market has responded positively to dividend surprises and buybacks as investors continue to search for yield,” UBS equity strategist David Cassidy said.

Ord Minnett senior market analyst Craig Turton said it was encouraging that Australian companies have been doing a better job of hitting their guidance numbers than companies in the US and Europe.

“While top-line revenue growth is still scarce, cost-cutting programs and slow wages growth have helped local companies maintain their margins - facilitating higher dividends or special capital returns,” Mr Turton said.

Read more.

With about a quarter done and starting this, the busiest, week of the season, AMP chief economist Shane Oliver believes corporate Australia is on track to meet expectations of posting 12 per cent earnings growth, led by resources stocks and assisted by the banks.

About 50 per cent of companies so far have exceeded market expectations, 72 per cent reported profits up from the previous year, and 63 per cent increased their dividends. As of Friday night, only 3 per cent had reduced their dividends.

Source: AMP Capital

Source: AMP Capital

Self-managed super funds are in the box seat to take advantage of Telstra’s $1 billion-dollar off-market buyback thanks to a structure that includes a huge fully franked component and an extra dividend.

Telstra will take at least 926 shares each from successful applicants and, on AFR Smart Investor’s numbers, SMSFs in pension phase should be able to sell them back to Telstra for somewhere between $5268 and $5991 in a little over two months time.

Andrew Moir, executive director at boutique wealth manager Evans & Partners, says the buyback which includes a fully-franked dividend that could be “grossed up” will be especially attractive for investors such as self-manager superannuation fund members in retirement.

“There are a lot of people in zero tax environments these days,” Moir says. “For those who have been in Telstra for a long time, participating in an initiative like this would make a lot of sense.”

For these investors, the additional franking credits will be returned in the form of a cheque from the ATO, enhancing a marginal (or even loss-making) strategy to produce an outstanding return between 3 per cent and 16 per cent.

Wealth Partners Financial Solutions Andrew Heaven says the buyback will not appeal to investors paying marginal rates of tax, but shareholders in low-tax brackets would also benefit, just not to the same extent as zero tax payers.

“If you are at a top marginal tax rate, you are better off selling your shares on market. But if you are making less than $37,000, you should take a very good look at it” he said.

So, how exactly does it work? Read more ($)

Time for the bangers and the duds among the top 200 today. That most volatile of stocks, Lynas, enjoyed a 4.8 per cent jump today, while Ansell scored second spot, jumping 4.3 per cent despite annual earnings dropping 70 percent.

Southern Cross Media slumped 4.7 per cent as the company announced a new CFO, while CSR and Mount Gibson Iron round out the bottom three.

Best and worst performing stocks in the ASX 200 today.

Best and worst performing stocks in the ASX 200 today.

Japan's Nikkei has ended flat in thin trade as geopolitical tensions dulled risk appetite and as investors shift focus to this week's annual meeting of top central bankers and economists in Jackson Hole, Wyoming.

Most other regional markets are lower, while both S&P and Dow futures are trading 0.4 per cent higher, pointing to gains at the start of Wall Street trade later this evening.

  • Hong Kong: -0.3%
  • Shanghai: +0.3%
  • Taiwan: -0.7%
  • Korea: -0.5%
  • Singapore: -0.4%
  • New Zealand: -0.15%

Shares have closed at the day's high, in a share price chart that could be best described in yoga terms as "upward facing bull".

The ASX 200 and All Ords both added 21 points, or 0.4 per cent, at 5587.1 and 5580.6, respectively.

The big banks - aside from NAB, which dropped 1.4 per cent on an earnings update - and the major supermarket owners were among the biggest contributors to the day's gains. Woolies added 0.9 per cent and Wesfarmers 0.6 per cent.

Telstra chimed in with a 0.5 per cent gain, while BHP as up 0.3 per cent.

Aside from the already mentioned NAB, Aurizon had a bad day after releasing annual profit numbers - the shares slumped 3 per cent.

All sectors in the ASX 200 gained, with healthcare the best performing, after CSL added 0.8 per cent.

Qantas’ plans for drastic cost cutting in its ailing international division are not expected to include job losses over and above the 5000 positions it has already earmarked to go.

Fairfax Media today revealed the airline planned to slash costs - excluding fuel - in its international division by one-third over the next three years.

Analysts had speculated that the move to cut $1 billion in costs could force the airline to raise its job-cut target beyond 5000.

But it is understood the airline has no plans to do so.

Nevertheless, Qantas has not ruled out major job losses in the international division within the 5000 cap.

The airline expects 1800 of the positions will be gone by next June, with 1200 already cut.

Qantas is poised to provide an update on its transformation program and structural review alongside the release of its annual results on August 28.

Announcements could include a decision on the partial sale of its $2.5 billion frequent flyer division, and news on whether the airline could split its domestic and international businesses to attract more foreign investment.

In February, Qantas deferred aircraft orders, sped up its aircraft retirement plans and announced some major changes to routes, including that it would no longer offer year-round international services from Perth.

CBA analyst Matt Crowe said only about one-quarter of Qantas’s total $2 billion cost savings program had been detailed to date.

“International seems to be where they have the biggest cost disadvantage to their competitors,” he said.

Read more.

China’s ‘new frugality’ is weighing on the prices of two luxury goods: diamonds and expensive wine.

The following Bloomberg chart shows the price of one-carat diamonds has dropped 30 per cent since July 2011, while the Liv-ex 100 Fine Wine Index dropped 31 per cent over the same period.

Meanwhile, the broader measure for diamonds that includes smaller and lower-quality stones has decoupled from the luxury segment and rallied the past two years, partly because of events in China.

“The market price declines of collectibles such as fine wine and diamonds are related to the recent government policies, such as ’Building a Frugal Society,’” says Neil Wang, partner and China managing director in Shanghai at Frost & Sullivan. “The Chinese government’s recent action to fight against corruption has also discouraged show-off behaviour and consumption of luxury goods.”

Wang says China’s wealthy are being less ostentatious not only in their choice of ornaments. Bans or limits on official banquets and gift-giving have forced premium wine brands to “re-adjust their positioning and present more middle-end products with lower prices,” he says.

China last year passed France as the largest consumer of red wine, Les Echos reported in January.

Source: Bloomberg

Source: Bloomberg

Rodney Sacks and Hilton Schlosberg wanted to get into the packaging business. Frustrated in their attempt to find a company to buy, the partners took a tip from an investment banker and purchased a debt-laden soda maker in 1992 for $US13.7 million.

Two decades and a whole lot of caffeine later, the partners have emerged as billionaires as their company, Monster Beverage, agreed to sell a 17 per cent stake to Coca-Cola for $US2.15 billion ($2.3 billion), sending its shares as high as $US97.48 in New York trading.

The deal gives Coca-Cola greater exposure to the energy drinks market, one of the fastest-growing segments in the industry having doubled in sales since 2007. The carbonated soft drinks category, which includes brands such as Coca Cola, Pepsi and Fanta, expanded just 0.3 per cent last year.

While the global drinks giant has helped distribute Monster in the US and Canada since 2008 and owns smaller brands such as Full Throttle, Burn and Mother, it doesn't have its own major energy drink.

"If you look across mature beverage categories, it's impossible to find someone with a growth rate that does not let up like Monster Beverage's," said Jeffrey Klineman, editor of trade publication BevNet.

The company's main product, Monster Energy, has sold more than 10 billion units since its introduction in 1997. It has almost four times the amount of caffeine as Coke.

Read more.

Coca Cola has paid $US2.15 billion to gain traction in the booming energy drinks market.

Coca Cola has paid $US2.15 billion to gain traction in the booming energy drinks market. Photo: Reuters

Rio’s latest result shows how powerful the big three global producers have become, writes Intelligent Investor's John Addis:

The company’s results for the six months to June 30, with underlying earnings rising 21 per cent to $US5.1 billion ($5.47 billion), are remarkable given that iron ore prices actually fell 20 per cent over the period. After slashing costs, capital expenditure and debt, management hinted at higher dividends and more buybacks. If the mining boom is supposed to be over, no one told Rio Tinto.

The really interesting element to the result concerned production increases. Although lower iron ore and coal prices stripped $US1.4 billion from underlying earnings, volume increases, particularly in iron ore, offset that fall by more than $US900 million. All up, iron ore contributed more than 90 per cent of total profit.

With China slowing and the country’s government frantically shifting spending away from capital expenditure towards consumption, which dampens demand for ore, Rio Tinto and BHP are expanding output.

It sounds counter-intuitive but the move contains a deadly logic. Rio, BHP and Brazilian-owned Vale enjoy major cost advantages over almost every other producer. The greater their output, the more pain they inflict on the competition. If the big three can push the price of ore low enough, they can induce a global shakeout in the industry by forcing higher cost producers into bankruptcy.

After that, the Chinese become price takers - a prospect that must terrify them - and the big three will recover all the money and more they’re prepared to lose to control global output and prices.

Read more

BHP and Rio could break smaller rivals by keeping downward pressure on pricing.

BHP and Rio could break smaller rivals by keeping downward pressure on pricing. Photo: Bloomberg

Savvy investors need to look in the unloved and ignored corners of the market this reporting season, reckons Celeste Funds Management's chief investment officer, Frank Villante.

If you're like REA Group, trading at 40 times earnings, doesn't matter how good your results - where can the stock's valuation go from there?

Compare that to labour hire firm Skilled Group. The company announced its CEO would step down and a 21 per cent fall in annual profits. Yet the stock rallied into, though, and then post the announcement.

"Skilled reported a very solid result," said Villante. "It was largely to expectations, it hasn't led to any significant earnings adjustments for the current year, but that stock has gone up the best part of 15 per cent".

Why? Because "people have gone into earnings season expecting revisions downwards". For some companies, even if earnings expectations are expected to go sideways - it's still a good result.

Villante sees opportunities in the smaller IT services stocks: "Oakton has received a takeover offer, which may be a sign that sector participants maybe saying things don’t get much worse".

"SMS Management & Technology don’t look too bad," he adds.

In the retail and consumer space Villante expects "a pretty exceptional result" from Breville Group, and he also likes the look of NIB Health - another largely ignored stock in recent times.

The ASX 200 has got off to a fairly positive start to the week, despite weak Chinese property prices in July and a couple of earnings falling short of market expectations, IG's Stan Shamu notes:

  • NAB has lost ground despite reporting a 7% rise in headline profit and cash earnings for the third quarter. However, revenue was down 1% on lower market’s income, but good momentum in home loan growth is likely to offset that. Like its peers, a steady fall in bad debt charges underpinned earnings.
  • Generally analysts feel an improvement in asset quality and steady net interest margins were the key positives. NAB has been pretty aggressive on rates in a bid to gain market share and this is likely to start paying off in the future as its home loans are already up 8.5%.
  • Newcrest saw a headline loss of $2.2 billion, which was quite alarming and driven by asset impairments at Lihir, Telfer, Bonikro and Hidden Valley. However, the underlying profit of $432 million was broadly in-line with estimates. It seems like it’s the same old story with NCM and investors are likely to remain concerned about further write-downs.
  • There is a fairly chunky dividend coming out of the market tomorrow to the tune of 15.4 points, with CBA, RMD, BEN and CPU trading ex-div.

Asian stocks are mixed, after a five-day winning streak:

  • Japan (nikkei): +0.1%
  • Hong Kong: -0.5%
  • Shanghai: +0.4%
  • Taiwan: -0.6%
  • Korea: -0.4%
  • ASX200: +0.3%
  • Singapore: -0.4%
  • New Zealand: -0.2%

We are seeing ‘‘a slight reduction in geopolitical risks,’’ says Shane Oliver, global strategist at AMP Capital Investors. ‘‘The trend in shares is likely to remain up and, while it’s impossible to be sure given uncertainties around various geopolitical risks, we may have already seen the low.’’

If Asia’s richest man is any guide, the smart money started leaving China’s property market a year ago.

Hong Kong billionaire Li Ka-shing has sold about $3.5 billion worth of property on the mainland and in Hong Kong since August last year, according to the South China Morning Post.

Analysts say the sales, via the investment company Hutchison Whampoa and some real estate trusts which he part-owns, indicate a concerted strategy to reduce Li’s exposure to the Chinese property market. Li himself doesn’t like the sales to be highlighted. But he is not alone.

Other big property investors, while not necessarily selling out of China, have certainly been diversifying their portfolios away from its troubled real estate sector. And Australia is among the overseas markets being targeted.

Just last week, it was revealed Wang Jianlin, chairman of Wanda Group and the richest man on the mainland, has committed $1.7 billion to Australian real estate including the construction of a $900 million beachfront resort on the Gold Coast.

The investment is part of Wanda’s push overseas. In the last few years, it has spent $US2.6 billion on American movie theatre company AMC, bought British luxury yachtmaker Sunseeker and announced $US1 billion dollar hotel developments in London and New York.

Wang and others are looking abroad because in China, developers are struggling with falling prices, subdued demand and tougher credit conditions. Residential property sales fell 17.9 per cent in July from a year ago, while developers’ inventories of unsold properties are now 25 per cent higher over the same period.

And this morning there was more bad news as the National Bureau of Statistics reported home prices fell last month in 64 of the 70 surveyed cities.

Read more ($)

Average new home prices in China's 70 major cities dropped 0.9 per cent in July from June, a third consecutive monthly drop following June's drop of 0.5 per cent, according to Reuters calculations from official data published today.

Compared with a year ago, home prices were up 2.5 per cent in July, easing from the previous month's 4.2 per cent rise.

After a strong performance in 2013, China's real estate market has softened as sales have slowed and banks have become increasingly cautious about lending to developers and home buyers.

The National Bureau of Statistics said new home prices in Beijing rose 4.0 per cent in July compared with a year earlier, and after June's increase of 6.4 per cent. They dropped 1.0 per cent from June.

Shanghai's home prices were up 4.1 per cent in July from a year ago, versus 7.0 per cent in June. They fell 1.2 per cent from June, the third month-on-month fall in a row.

Read more at Bloomberg.

Chinese property prices fell in the majority of cities.

Chinese property prices fell in the majority of cities. Photo: Bloomberg

Stockland’s chief executive Mark Steinert says the year ahead will be characterised by ‘‘greenfield’’ developments and the acquisition of assets in the residential, apartments and mixed use projects, as well as the fast growing business parks and warehouses sectors.

Development of housing near or in shopping centres, depending on planning and land availability, was also on the agenda, he said.

The news came as Stockland announced a 12.2 per cent rise in net profit for the year to June 30, to $555 million. Operating profit before tax and interest was $602 million, in line with market forecasts of $601 million.

Mr Steinert forecast a 6 per cent to 7.5 per cent rise in earnings in the current year, but said he expected house price growth rates to drop back after the past few strong years.

Brokers at Macquarie Equities said that on first inspection, the result and outlook were consistent with expectations.

Stockland was in a good position to benefit from strong residential market conditions, Macquarie analysts said, but reminded investors that residential was only about 20 per cent of the Stockland business.

Read more.

Less than a quarter of Americans get the most important investment question right.

Recently, Gallup asked Americans what they thought their best investment bet was over the long run. 24 per cent of Americans named stocks and mutual funds — but the same share named gold, and even more (30 per cent) named real estate. The trend lines are actually positive, as in 2011 a baffling 34 per cent of Americans named gold as their top pick.

There's a right answer here — and it's one that about two thirds of respondents who answered the question got wrong. If history is any guide, stocks are the best bet in the long run, and gold and real estate certainly are not.

Wharton professor Jeremy Siegel's popular book Stocks for the Long Run (now in its fifth edition) illustrates this point very effectively using historical data Siegel compiled encompassing the whole 19th and 20th centuries through the present. While for the first part of the 19th century, American stocks and bonds were roughly equivalent in performance, stocks have pulled away ever since.

[Recent] trends do suggest that, in the short-run, it's much more reasonable to move toward bonds. As a table of Siegel's shows (below), over time the probability that stocks will underperform bonds shrinks dramatically. It doesn't hit zero — stocks won 99.3 percent of 30 year intervals from 1871 to 2012 — but it gets very close. But that also means that there's a reasonably high chance bonds will out-perform over a one to five year interval.

So it makes sense to move into lower-risk, lower-return investments the closer you get to wanting to cash out.

Read more at Vox.

Stocks tend to outperform bonds over the long term, something American investors underappreciate. Source: Vox

Stocks tend to outperform bonds over the long term, something American investors underappreciate. Source: Vox

AGL Energy chairman Jerrry Maycock has been announced as Peter Smedley’s successor to chair mining and steel group Arrium.

Maycock, a former managing director of building products group CSR, was appointed as a non-executive director of Arrium two weeks ago.

He will take charge of the steel, iron ore, and mining consumables company following Smedley’s retirement on November 17.

The outgoing Smedley has chaired Arrium, formerly known as OneSteel, since 2000 when BHP Billiton spun out its steel long products division to create OneSteel.

German discount retailer Aldi might be the hot supermarket brand with shoppers at the moment  but the chain, looks to have failed to properly inform its customers about the true cost of swiping their credit cards at the check-out.

The Australian Securities and Investments Commission has today reported that Aldi has pledged to improve signage and other point-of-sale communication about the disclosure of credit card surcharges in its supermarkets following an action by the corporate regulator.

Aldi, owned by the highly secretive and reclusive Albrecht family of Germany, failed to consistently disclose in all of its stores that there is a 0.5 per cent surcharge for consumers paying by credit card, and specifically disclose that transactions made using 'tap and go' contactless payment systems were also subject to the 0.5 per cent surcharge, which applied in ALDI stores where either a credit card or debit card is used.

An ASIC review of signage in a select number of Aldi supermarkets found that the 0.5 per cent credit card surcharge was disclosed in some stores by a sign above the registers and, in others, by a sticker at the registers. In two stores, there were no signs or stickers, the corporate regulator said.

For credit card payments where a PIN or signature is used, disclosure of the 0.5 per cent surcharge was made on the credit card terminal screen after customers inserted or swiped their card to pay for their purchase.

Read more.

ASIC found that Aldi failed to consistently disclose in all of its stores that there is a 0.5 per cent surcharge for consumers paying by credit card.

ASIC found that Aldi failed to consistently disclose in all of its stores that there is a 0.5 per cent surcharge for consumers paying by credit card. Photo: Getty Images

The clean up continues for NAB's janitor in chief Andrew Thorburn, writes BusinessDay columnist Elizabeth Knight:

National Australia Bank’s recently installed chief executive, Andrew Thorburn, must be feeling more like a janitor than a banker.

He has barely placed his feet under the desk but already his is dealing with tidying and cleaning up issues.

Some of these stains are 15 years old and require a lot of scrubbing.

His first task (which is undertook in the week before he officially took over ) was to offload a large wad of the bank’s underperforming commercial and real estate loans in the UK.

There is plenty of conjecture around the (discounted) price NAB received but it was a move that was long overdue.

Next he set to cleaning out the management ranks and inserting his own A-team. This exercise is pretty standard fare when new chief executives arrive.

But Thorburn’s move was particularly fast and comprehensive.

Today he announced the bank would be making additional provisions relating to the misconduct issues in UK business that have plagued the bank for a may of years.

Some of this relates to conduct as early as 2000 but has washed up in part because of fresh regulatory eyes.

There are plenty of issues within the Australian bank that need his attention - sufficient that he needed to hit the ground sprinting.

Earnings for the March 2014 quarter rose 7.1 per cent but revenue fell a disappointing 1 per cent.

While the fall in revenue is mainly attributable to market income which was weaker because trading income was affected by a lack in volatility, it will nonetheless cause some concern about business conditions in the banking industry.

Thorburn described revenue growth as challenging even though the bank gained market share in home lending but gave away some share in business lending.

Read more.

NAB chief Andrew Thorburn has had plenty of work to do.

NAB chief Andrew Thorburn has had plenty of work to do. Photo: Josh Robenstone

There are more than 50 hazelnuts per 13-ounce jar of Nutella, and with 180 million kilograms of the chocolatey spread produced each year, that adds up to an insane number of hazelnuts.

Right now, many confectioners are scrambling to secure hazelnuts: Hail storms and frost in March damaged the crop in Turkey, the world’s main growing area, causing prices to climb by as much as 60 per cent this year.

Nutella maker Ferrero Group has less reason for concern. It acquired Turkish hazelnut supplier Oltan Group in July.

“Ferrero has protected itself from the supply issues to an extent by buying Oltan Group,” said Julian Gale, deputy editor of Foodnews, in an e-mail.

Ferrero is already the largest consumer of hazelnuts, consuming 25 per cent of the world’s supply. “Oltan Group is the worldwide leading operator in the procurement, processing and marketing of hazelnuts,” Ferrero said in a press release. Oltan has five production facilities exporting to the European Union and the world’s other major markets.

People around the world have been consuming more Nutella than ever. Sales of the spread increased 6.4 per cent, to $2.46 billion, in 2013, according to data from market researcher Euromonitor. In the US, Nutella sales were up 5.9 percent.

Read more at Bloomberg BusinessWeek.

Ferrero buys around a quarter of the world's hazelnut supplies, and has bought a major producer to ensure supply as prices surge. Source: Bloomberg BusinessWeek

Ferrero buys around a quarter of the world's hazelnut supplies, and has bought a major producer to ensure supply as prices surge. Source: Bloomberg BusinessWeek

CBA chief executive Ian Narev has received just a slight boost to his pay, up 1.2 per cent to $7.9 million, despite another record profit up 12 per cent to $8.6 billion.

But his actual take home pay for the year, reported for the first time, hit $8.1 million as bonuses linked to the CBA’s customer satisfaction ratings and total shareholder returns in previous years were paid out.

The second highest paid executive was chief risk officer Alden Toevs, who pocketed $7.2 million, followed by chief financial officer David Craig on $6.2 million.

The soon to retire head of business and private banking, Grahame Petersen, who runs the second biggest earning division for the bank, will take $5.6 million with him.

NAB, ANZ and Westpac haven’t yet released their executive pay figures for 2014, but based on their chief executives’ 2013 take home pay, Narev received the second highest amount after Westpac’s Gail Kelly, who received $10.9 million in 2013.

It is the first time CBA has reported the take home pay of its chief executive..

It is the first time CBA has reported the take home pay of its chief executive.. Photo: Louise Kennerley

Property owners in the historic goldmining city of Kalgoorlie-Boulder have long enjoyed high yields and strong capital gains, backed by a strong resources industry.

Those days appear to be at an end for Kalgoorlie and other mining hubs around the country, such as Port Hedland, Karratha and Moranbah, where the effects of the pullback in resource project construction are being felt.

NSW-based couple Emma and Jacob Griffiths have rented their two-bedroom investment property in Kalgoorlie-Boulder, in Western Australia, since 2012 for $370 per week but have had to lower the rent to $300 as demand has fallen.

They are now looking to sell the property at around 18 per cent less than they paid for it for in 2009.

“At first it was really easy, there were so many people looking for a rental,” Mrs Griffiths said.

“We are now finding it difficult to rent or to sell because no one is buying houses.”

Median weekly rent has fallen 20 per cent in the last year, from $410 in June 2013 to $330 last quarter, Real Estate Institute of WA figures show.

The theme has already played out in many resources-reliant towns.

In little more than 12 months the median sale price in the coalmining town of Moranbah, in Queensland, has dropped from $750,000 to $370,000 with the median rent falling from about $1500 per week to about $450 per week.

Experts warn that mining hubs such as Kalgoorlie-Boulder, which remained stable during the boom and pullback, are now on the edge of their own cliff.

“I’ve never felt Kalgoorlie was a good buy but right now the market is really struggling,” property researcher Terry Ryder said.

“There has never been a worse time in recent memory to consider investing in mining towns across Australia because those big double-digit rental returns aren’t available anywhere anymore and that’s because the heat has come out of the mining boom.”

Read more ($).

Kalgoorlie ... big rental returns no longer possible with the heat gone out of the mining boom. Photo: Philip Gostelow

Kalgoorlie ... big rental returns no longer possible with the heat gone out of the mining boom. Photo: Philip Gostelow

Imdex was upbeat when discussing earnings with analysts, saying that minerals division revenue, which is where it has taken the biggest hit, bottomed in the March quarter, rising every month since then. As a result, July revenue of this division, which has traditionally accounted for around two-thirds of revenue has hit a thirteen-month high.

"It's not fancy, but it is certainly improving," the managing director Bernie Ridgeway told analysts.

Imdex, a specialty drill-services operator, posted a little better than break-even profit at the EBITDA level after a $9.1 million hit from a containment spill at a drill site.

It said mining juniors are starting to boost exploration spending, which is flowing through to the bottom line.

"I think we're in the very early stages of a cyclical recovery," Ridgeway said.

Imdex shares were up 0.7 per cent at 69c in early afternoon trading.

Fast food retailer Collins Foods has tried to fend off criticism from dissident shareholder Stephen Copulos by releasing a trading update which showed that earnings rose more than 20 per cent in the first quarter of 2015.

Collins Foods, Australia’s largest KFC franchisee, said on Monday that EBIT for the 12 weeks ended July 20 rose 28 per cent to $8.5 million and net profit by 21 per cent to $4.5 million as sales grew 28 per cent to $124.3 million.

The strong growth was fuelled in part by the March acquisition of fellow KFC franchisee Competitive Foods, which boosted the number of KFC restaurants from 125 to 169 and gave Collins a foothold in Western Australia.

Outgoing managing director Kevin Perkins said trading in KFC restaurants had exceeded expectations, with same-store sales rising 3 per cent. But sales and earnings at Sizzler stores continued to decline.

Collins Foods is embroiled in an increasingly bitter spat with 17 per cent shareholder and non-executive director Stephen Copulos, who has publicly criticised the performance of the Sizzler chain, accused the company of poor corporate governance and remuneration practices, and questioned growth strategies such as last year’s acquisition of Snag Stand.

Mr Copulos has accused Mr Perkins of a conflict of interest because of his 55 per cent stake in Sizzler USA and his continued defence of the Sizzler strategy in Australia even though Sizzler’s sales and earnings have been in decline since the initial public offer three years ago.

The rest of the board has rejected Mr Copulos’ criticism, defended Mr Tate and Mr Collins, and rejected his allegations of a conflict of interest.

However, the company has promised to re-evaluate the future of Sizzler by the end of the financial year.

Collins Foods shares are up 2.6 per cent to $2.36.

Read more.

Collins Foods is Australia's largest KFC franchisee.

Collins Foods is Australia's largest KFC franchisee. Photo: Wayne Taylor

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank chief Glenn Stevens.

Australia’s misery index – the sum of unemployment and inflation rates – is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings froze credit markets around the world and triggered the deepest recession in the US since the Great Depression.

While policy makers from the US Federal Reserve to the European Central Bank are still pumping stimulus into their economies at least in part to address job-market slack, Australia’s price pressures limit that option for the RBA. The upshot for the nation’s businesses and consumers: little prospect of lower borrowing costs from Stevens.

“The hurdle to cut further is high,” says Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “The RBA is likely to remain reluctant in the absence of an external driver, and the case to cut from an already historical low will need to be compelling.”

The misery index is higher than when policy makers began their latest easing cycle that brought rates to a record-low 2.5 per cent. It was 9 in June based on a jobless rate of 6 per cent that month and second-quarter, year-on-year inflation of 3 per cent.

Since those numbers were issued, the jobless rate has jumped to a 12-year high of 6.4 per cent, which the RBA said is unlikely to fall in a sustained way before 2016. Stevens will deliver testimony to a parliamentary panel August 20.

There is insufficient domestic demand growth to stabilise wage growth or the unemployment rate and together with fiscal policy changes this would feed through to weaker household income growth,” Tim Toohey, chief Australia economist for Goldman Sachs Group, who forecasts a rate cut next month, said after last week's wages data.

Bell Potter has cut its rating on ANZ to a “hold” from “buy” recommendation amid fears about future sluggish growth and the advent of a more conservative regulatory environment.

While the broker’s banking analyst, T.S. Lim, pointed out ANZ’s outlook statement, issued at its quarterly results presentation, “appears more positive this time around”, he warned the slowing rate of growth in underlying earnings presents a key concern.

ANZ expanded its cash profit by 8 per cent to $5.2 billion over the first three quarters of the financial year, driven primarily by a strong performance in Asia and “steady contributions from Australia and New Zealand”.

But Bell Potter lists out a several challenges ahead, including an anticipated lurch towards greater conservatism from the Australian Prudential Regulation Authority (APRA).

ANZ has flagged its tier 1 capital ratio – a vital measure of financial strength – will hit 8.5 per cent by the end of September. However, Bell Potter expects it to tighten further to 8.75 per cent in line with the higher requirement for discounted cash flow purposes and a clampdown from APRA within the 12 to 18 months.

The broker is also bearish on ANZ’s terminal growth rate, predicting it will slip to 3.25 per cent from 3.5 per cent, “given the bank’s slower domestic top line growth that still provides the bulk of group operating income”.

ANZ is down 0.3 per cent at $32.30, after opening higher this morning.

Housing market sales continued to reflect positive housing market sentiment in the past week, ANZ says in a note this morning:

  • Elevated auction clearance rates and positive home vendor sentiment have maintained cleared auction levels well above historical norms. However, the depth of home buyer demand is likely to be tested in the coming weeks with the number of auctions expected to increase around 20-25% in spring.
  • Home prices edged higher in the past week, with price growth stabilising at around 11.8% in annualised trend terms. Trend price growth remained strongest in Melbourne (+1.6% m/m), followed by more moderate gains in Sydney (0.9% m/m). In contrast, home prices remained broadly unchanged in Brisbane, Adelaide and Perth.
  • Reflecting steady consumer confidence in recent weeks, elevated auction clearance rates in Sydney and Melbourne in particular foreshadow strong sales demand and further housing price gains in the remaining months of 2014.
Source: RP Data, ANZ Research

Source: RP Data, ANZ Research

Economists can’t keep pace with Australia’s biggest bond rally in three years, forcing them to slash yield forecasts even as they stand by calls for a sell-off.

Australia’s sovereign debt has returned 6.2 per cent since December 31, on pace for the best annual return since 2011, a Bloomberg index shows. The 10-year yield is trading at 3.34 per cent, having dropped 90 basis points this year.

Economists surveyed by Bloomberg News this month predicted the benchmark will increase to 3.85 per cent by December 31, cutting their median estimate from July’s 4.25 per cent, the biggest change in more than a year.

Investors are piling into Aussie bonds on bets the RBA will keep its interest rate at an all-time low, extending a pause to a record stretch, as US and European policy makers pledge to maintain accommodative measures.

Yields should rise into year-end as the RBA’s first rate increase since 2010 approaches in the second quarter of 2015 and traders realise the market is overpriced for economic weakness, according to ANZ.

“We do think that bonds are too expensive but to some extent, we’ve been saying that for some time and we’ve been wrong,” says Zoe McHugh, an interest-rate strategist at ANZ in Sydney. “Mixed global data, geopolitics, much lower German and Japanese bond yields, and this whole reach for yield is continuing and does seem to be broadly ignoring the improving macro-fundamentals, but we don’t think that can continue indefinitely.”

The yield on Australian 10-year bonds over the past 10 years.

The yield on Australian 10-year bonds over the past 10 years.

As regulators in the United Kingdom put a temporary ban on the sale of risky and complex hybrid debt, CBA has launched a multi-billion dollar offer of the stuff:

Commonwealth Bank of Australia has launched its highly anticipated $2 billion PERLS VII hybrid securities offer at the tightest margin for a Tier I offer since the global financial crisis.

CBA has said the securities will yield between 2.80 percentage points and 3.00 percentage points over the bank bill swap, which is around 2.63 per cent on a fully franked basis. This means investors can expect an initial yield on the securities of around 5.45 per cent making it the lowest yielding bank hybrid to be issued since the financial crisis. The notes are set to be called in December 2022.

The 5.45 per cent yield compares to around 3 per cent yield on a major bank term deposit, and a sub-3 per cent yield on a major bank senior bond according to Morgans analyst James Lawrence. A CBA ordinary share is expected to deliver a 7 per cent yield based on current dividends. Bonds and deposits rank head of hybrids in the capital structure while shares rank below hybrids.

As term deposit rates slide and investors search for higher yielding alternatives, new retail income note offers have been few and far between.

Brokers are already predicting a scramble for yield for CBA's offer, which was evident from the strong demand for the maturing PERLS V securities which traded above face value as investors bought the notes to ensure they got allocated on the PERLS VII offer.

Read more ($).

The US stock market looks very expensive right now, Yale professor Robert Shiller writes in the New York Times, noting the CAPE ratio, a stock-price measure he helped develop - is hovering at a worrisome level:

  • Now it is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks.
  • The CAPE (CAPE stands for cyclically adjusted price-earnings) was never intended to indicate exactly when to buy and to sell. The market could remain at these valuations for years. But we should recognise that we are in an unusual period, and that it’s time to ask some serious questions about it.
  • In the last century, the CAPE has fluctuated greatly, yet it has consistently reverted to its historical mean - sometimes taking a while to do so. Periods of high valuation have tended to be followed eventually by stock-price declines.
  • Still, the ratio has been a very imprecise timing indicator: It’s been relatively high - above 20 - for almost all the last 20 years, with the exception of 20 months, mostly in the recession of 2007-9, when prices tumbled and it fell as low as 13.32.
  • In other words, the ratio is saying the stock market has been relatively expensive for years. And that raises a question: Are there legitimate factors behind high stock prices that might keep them elevated for decades more?
  • Nothing I’ve come up with is a slam-dunk explanation for the continuing high level of valuations. I suspect that the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before. If the mood changes again, stock market investments may disappoint us.

US oil player Apache has made what is being heralded as the country's largest oil discovery in the past 30 years, and the first in the offshore part of Western Australia's Canning Basin.

The Phoenix South-1 well found oil in at least four different sections of the hole, and testing has shown the reservoir to be productive, with potentially up to 300 million barrels of oil in place, Apache has reported.

Shares in Carnarvon Petroleum, a junior partner in the venture, instantly more than doubled.

Apache's executive vice president and chief operating officer for the international business, Thomas Voytovich, described the result as "exciting", while cautioning that the results were still in the early stage of evaluation.

Even so, he said the qualities of the reservoir found "point to a commercial discovery".

"If these results are borne out by further appraisal drilling, Phoenix South may represent a new oil province for Australia," Mr Voytovich said.

Carnarvon Petroleum one of the three junior partners in the Apache-led venture, described the result as "one of the most significant developments in Australian oil and gas in recent times."

Carnarvon managing director Adrian Cook said the find was "the most significant new oil play in the North West Shelf since the Enfield discovery opened up the Exmouth Basin almost 20 years ago."

"The implications on the rest of our acreage are still being assessed but the potential is extraordinary," Mr Cook said.

Carnarvon shares, which closed Friday at 8.1¢, surged as high as 20¢.

Carnarvon owns 20 per cent of the WA-435-P drilling venture, as do Japan's JX Nippon and unlisted Finder Exploration, while Apache owns 40 per cent and is the operator.

Drilling fluids company Imdex has acknowledged that its full-year performance has been “adversely impacted by subdued activity within the minerals sector”, posting a $5.3 million net loss for 2014 financial year, compared to FY13’s $19.4 million net profit.

The Perth-based mineral services company said the results underscored the importance of its strategy to diversify into the oil and gas sector.

Imdex’s minerals division generated $125.3 million of revenue in the 2014 financial year, and contributed 61 per cent of the company’s combined full year revenue, with its oil and gas division generating $79.3 million revenue, up 19 per cent from the 2013 financial year.

The Federal Government has launched a period of formal consultations with Sydney Airport over the company’s first right of refusal to build and operate a new $2.5 billion airport at Badgerys Creek in Sydney’s west.

Sydney Airport said it had received a “notice to consult” on the development, which marks the start of a number of consultative processes that are expected to take up to two years to complete.

The government advised the airport the nine-month consultation phase will start on September 30.

Sydney Airport chief executive Kerrie Mather said her company would “work constructively” with the government through the process.

“Since Badgerys Creek was confirmed in April this year as the site for the Western Sydney airport we have been engaged in preliminary discussions with the Department of Infrastructure and Regional Development,” she said.

“Together with the Department we have begun to map the considerable work that needs to be addressed during the consultation period.”

Ms Mather said Sydney Airport had appointed a team of external experts to assist in evaluating the opportunity.

Read more.

Share price moves among reporting companies this morning.

Share price moves among reporting companies this morning.

Here's a quick summary of investors' reactions to earnings announcements this morning.

 

 

Cooper Energy reported a surge in net profit for the full year, up to $22 million from just $1.3 million in 2012-13, which was reduced by tax adjustments. Underlying net profit almost doubled to $25.3 million, from $12.7 million.

Operating cash flow jumped to $50.3 million, from $12.5 million, on revenues that rose 35 per cent to $72.3 million. Cooper also said it would start assessing the feasibility of developing the gas resource in the Basker-Manta field off the Victoria coast to supply the tight east coast gas market.

Rio Tinto will consider divesting its majority stake in the Bouganville Copper project, after the local government imposed tough new conditions on the project last week.

Bouganville Copper, of which Rio owns more than 53 per cent, was stripped of exploration and mining licences last week under new mining laws that sought to give the government more control over the mine.

Rio has responded today by declaring the project to be under review.

''Rio Tinto has decided now is an appropriate time to review all options for its 53.83 per cent stake in Bougainville Copper Limited (BCL),'' the company said in a statement.

Rio shares are a few cents lower at $65.26.

Read more (to come).

Bouganville Copper, which Rio owns more than 53 per of, was stripped of exploration and mining licences last week under new mining laws.

Bouganville Copper, which Rio owns more than 53 per of, was stripped of exploration and mining licences last week under new mining laws. Photo: Louie Douvis

Mining services firm MacMahon Holdings has been granted a trading halt until Wednesday’s open at the latest pending “an announcement about the company’s project in Mongolia”, the company said in an ASX statement.

A drop in NAB shares following its quarterly update has restricted early gains in the market, while BHP and the rest of the big four banks keeping shares in positive territory.

The ASX 200 and All Ords are both 11 points, or 0.2 per cent, higher at 5577 and 5570.3, respectively.

BHP is 0.5 per cent higher as further details emerge of a mega demerger, while CBA, ANZ and Westpac are all around 0.2 per cent up.

NAB is the single biggest drag, 0.8 per cent down, while CSL is 0.6 per cent lower. Other reporting companies this morning include Aurizon, which is 1.3 per cent down, and Newcrest, which has retreated 1.5 per cent.

Bradken is 3.4 per cent down as it trades ex-dividend.

Wesfarmers and Woolies are up 0.5 per cent, making consumer staples the best performing sector early.

"NAB’s quarterly update is another in a string of reports suggesting that the big four banks struggled to maintain revenue momentum last quarter," CMC's Ric Spooner says:

"While NAB’s revenue was held back by trading income from low volatility markets last quarter, the growth outlook for banks might make it difficult to push share prices aggressively higher given current high valuation multiples."

The biggest gold miner on the ASX, Newcrest Mining, has narrowly beaten analyst expectations by posting a $432 million underlying profit for 2014 financial year.

Analysts had predicted an underlying profit of $431.57 million, according to a consensus figure published by Bloomberg.

As foreshadowed in July, Newcrest has suffered asset impairments of $2.35 billion, largely on the Lihir mine but there were also write downs linked to Bonikro, Hidden Valley and Telfer.

The impairments saw the miner slump to a $2.22 billion net loss.

While not desirable, the impairments pale in comparison to the $6 billion round that was announced one year ago as Newcrest suffered one of the worst years in its history.

New chief executive Sandeep Biswas will address investors shortly. Shareholders will be keen to hear Mr Biswas clarify the plan for the Lihir asset, and specifically the timing of development for the prospective Kapit deposit.

The gold price was $US1302.83 per ounce this morning, and Newcrest shares last traded at $11.20.

Read more (to come).

As foreshadowed in July, Newcrest has suffered asset impairments of $2.35 billion.

As foreshadowed in July, Newcrest has suffered asset impairments of $2.35 billion. Photo: Bloomberg

Australia’s mining fraternity is still basking in the era of entitlements but continues to talk up its contribution to the nation’s coffers by conflating company tax payments with royalties, writes BusinessDay's Michael West:

The latest PR offensive from the Minerals Council of Australia is a report it commissioned from Deloitte Access Economics which puts the miners’ “contribution” to Australia at $22.7 billion last year.

“Deloitte Access Economics estimates the total tax burden on the minerals sector at $22.7 billion,” says the introduction. This figure, however, includes $10 billion in royalties. Royalties are not tax.

The document is cleverly worded. Tax and royalties are analysed separately within the report but the attending spin from the Minerals Council does little to dispel a widespread confusion that royalties and tax should be viewed as more or less the same thing.

Royalties are a cost of the resources extracted from the earth and are paid to Australian state governments representing Australians as owners of those resources.

Even Deloitte Access director Chris Richardson conflates the two in his covering letter to the Minerals Council:

“Dear John,

Estimated company tax, MRRT, carbon tax and royalties expenses for the minerals sector

Please find attached our report presenting and analysing elements of the tax paid by the minerals sector.

We hope this analysis proves useful to the MCA”

The public needs to be educated that royalties are not an industry “contribution”. The resources that miners acquire are owned by Australians. If mining companies wish to make money out of extracting, processing and selling resources then, in layman’s language, the royalties are the market price paid to Australia for the transfer of ownership of those raw materials.

Read more.

 

 

Rail operator Aurizon has warned industrial action could hamper attempts to negotiate a new enterprise agreements with staff as it reported a 43 per cent fall in 2014 net profit to $253 million.

Aurizon’s statutory net profits were hurt by previously announced asset impairments of $317 million and voluntary redundancy costs of $69 million after it slashed jobs and scaled back its wagon and locomotive fleet to cut costs.

Underlying EBIT of $851 million was up 11 per cent on a year earlier but were lower than analysts’ consensus forecasts of around $876 million.

The company, which has already reported 2014 coal haulage volumes of 210.4 million tonnes, gave a cautious outlook on the coal market for 2015, forecasting volumes would be between 210 and 220 million tonnes.

It also said 2015 earnings could be hurt by industrial action.

Aurizon revealed in May it wanted to get rid of 14 enterprise agreements after more than a year of unsuccessful ­bargaining with unions on new agreements. Its application to scrap the agreements has been referred to the full bench of the Fair Work Commission and hearings will be in November.

Read more.

Aurizon said it would increase planned cost cuts to up to $300 million from an original target of $230 million to boost earnings.

Aurizon said it would increase planned cost cuts to up to $300 million from an original target of $230 million to boost earnings. Photo: AFR

Stockland has reported an underlying profit of $555 million for the full-year to June 2014, a 12.2 per cent increase on the previous year.

Funds from operations per security was 24.8¢, up more than 16 per cent. The property group has forecast earnings per security growth of 6-7.5 per cent for the 2015 financial year.

“Throughout FY14 we have focused on our core strategic priorities of growing our assets and customer base; capital strength; and operational excellence. This strong result demonstrates our approach is working and Stockland is now well positioned to deliver sustainable earnings growth,” Stockland chief executive officer Mark Steinert said in a statement.

Stockland’s residential business was a standout. Operating profit jumped 57.2 per cent to $95 million. Stockland’s head of residential Andrew Whitson said all states were experiencing generally positive housing market conditions.

Demand in Sydney remains very strong with relatively low supply impacting affordability in the established housing market. In Victoria, the market is steady with good demand balanced by higher competition. The outlook in Queensland is particularly strong, underpinned by positive economic indicators and a slower start to the housing market recovery,” Mr Whitson said.

Net operating income (NOI) also grew for Stockland’s retail and logistics and business parks businesses. The office arm division was down with -2.1 per cent comparable NOI, thanks mainly to divestments.

Stockland on Friday finally agreed to sell its 19.9 per cent stake in Australand Property Group to Asian property group Frasers Centrepoint, booking an $80 million profit.

Glove and condom maker Ansell said its full-year net profit dived 70 per cent to $US41.8 million, dragged down, as expected, by a major business restructure and $US124.7 million write-down announced in June.

The protective equipment manufacturer reported an underlying net profit of $US157 million. Analysts had expected underlying net profit of $US155.9 million, according to data compiled by Bloomberg. The result delivered underlying earnings per share of $1.10, which was in line with guidance.

Following a number of acquisitions Ansell announced a restructure of its operations in June, which led to the write-down, and caused the company to warn that earnings per share in the 2014 year would decrease by US80¢.

Ansell said then that underlying earnings per share for the year would land at “the low end” of guidance provided in February, which was a range of $US1.10 and $US1.16.

The company’s recent acquisitions have boosted its earnings at a time when uncertain economic conditions around the globe are stymying organic revenue growth.

Revenue in the 12 months ended June 30 rose 16 per cent to $1.59 billion, which was in line with analysts’ consensus of $1.589 billion.

Ansell shares have gained 4 per cent in the past year, compared to a 9 per cent rise in the S&P/ASX200 index. The stock closed at $18.99 on Friday, down from a 12-month high of $22.08 hit last September.

The board declared a dividend of 22¢, payable on September 24.

Read more.

Ansell reported an underlying net profit of $US157 million., slightly above predictions.

Ansell reported an underlying net profit of $US157 million., slightly above predictions. Photo: Michael Clayton-Jones

National Australia Bank’s new chief executive Andrew Thorburn said the bank will make additional provisions at the full-year result for misconduct issues in the United Kingdom, which have plagued the bank for several years. Mr Thorburn said misconduct charges in the UK were “difficult to predict”.

NAB this morning reported to the ASX third quarter cash profit of “approximately $1.6 billion”, up 7 per cent on the previous third quarter. NAB said revenue was down by around 1 per cent “due mainly to lower markets income as subdued volatility reduced trading opportunities”.

In a statement, Mr Thorburn said misconduct charges in the UK were “difficult to predict” but “”we now expect that we will need to take further provisions” for cases involving interest rate hedging products and payment protection insurance (PPI).

NAB said an additional provision of “at least £170 million ($305 million)” will be required at full-year result in relation to interest rate hedging products.

At least £75 million” would be required at the full-year relating to “increased costs of administering the PPI remediation program” and in relation to increased costs of administering the PPI remediation program.

Read more.

NAB reported a third quarter cash profit of “approximately $1.6 billion”, up 7 per cent on the previous third quarter.

NAB reported a third quarter cash profit of “approximately $1.6 billion”, up 7 per cent on the previous third quarter. Photo: Louise Kennerley

Qantas Airways plans to slash the cost base of its ailing international business by almost one-third over the next three years, in a move that has sparked speculation of further capacity cuts and job losses.

Chief financial officer Gareth Evans this month revealed “$1 billion or thereabouts” of the company’s $2 billion cost savings target would come from its international division.

The division had controllable costs – which exclude fuel, depreciation and operating leases – of about $3 billion last year, according to analyst estimates.

“For us, it’s about controlling what we can control, and pulling out $1 billion worth of costs [and] continuing to improve the network and the product quality for our customers is absolutely what we can control,” Mr Evans said at the CAPA Australia Pacific Aviation Summit.

Qantas, including Jetstar, has a total controllable annual cost base of $11.6 billion, so the planned cuts will hit the international division disproportionately.

The company expects inflation will erode some of the cost savings, meaning $1 billion of cuts to international would equate to actual cost cuts of about $730 million by the end of the third year.

Of the $2 billion target for the business as a whole, Qantas has said it will cut $800 million from its cost base by June next year and the other $1.2 billion of savings are expected over the following two financial years.

The airline is expected to provide a further update on cost-cutting alongside its full-year results on August 28. Qantas is expected to report a pre-tax underlying loss of $750 million, but the bottomline loss - including restructuring charges and impairments - could surpass $1 billion.

Read more.

The cost cutting Kangaroo.

The cost cutting Kangaroo.

US stocks erased early losses on Friday as increasing violence in Ukraine sent oil prices to the biggest increase in a month and spurred a rally in energy producers.

The S&P 500 pared declines in the late afternoon, ending the day little changed at 1,955.06. It earlier fell as much as 0.7 per cent. The Dow Jones slid 50. 7 points, or 0.3 per cent, to 16,662.91.

“Investors are trying to weed through what exactly is going on in Ukraine, and the market is drifting back,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group, said. “We have a geopolitical situation that needs to be addressed, and that’s overshadowing everything else in the market.”

Ukrainian government troops attacked an armed convoy that had crossed the border from Russian territory, Andriy Lysenko, a spokesman for the country’s military, told reporters in Kiev. Ukrainian soldiers continue to come under shelling, including rounds fired from Russia, he said.

The turmoil pushed energy prices higher, with West Texas Intermediate crude rising 1.9 per cent to $97.35 a barrel.

The S&P 500 rose 1.2 per cent last week as signs of a slowing economy stoked bets central banks will leave interest rates near record lows for longer, overshadowing escalating tensions in Ukraine.

Economic data on Friday showed industrial production advanced 0.4 per cent in July, while the New York Fed Empire Manufacturing gauge fell more than estimated and consumer confidence unexpectedly declined to its lowest level of the year.

Newcrest Mining, Stockland and Ansell are first off the rank as financial results season accelerates in the days ahead, potentially helping to extend last week's rally in local shares.

Here's what you need2know:

• SPI futures up 10 pts, or 0.2%

AUD at 93.21 US cents, 95.34 Japanese yen, 69.63 Euro cents and 55.68 British pence

• On Wall St, S&P 500 -0.01%, Dow -0.3%, Nasdaq +0.3%

• In Europe, Euro Stoxx 50 -0.8%, FTSE +0.1%, CAC -0.7%, DAX -1.4%

• Spot gold lost 0.7% to $US1304.83 an ounce

• Brent oil is at $US103.53 per barrel

Iron ore added 0.2% to $US93.40 per metric tonne

What’s on today:

Australia: New car sales data from ABS at 11:30 AEST

Stocks to watch

NAB third quarter earnings update

• Reporting full-year results today: Newcrest, Ansell, Ardent Leisure, Aurizon, Growthpoint, Stockland

• Trading ex-dividend today: REA Group, Bradken, GUD Holdings

New entrants in the ASX 200 this week: Genworth will replace Australand after August 21 close; Spotless replaces Envestra today.

• BHP Billiton is pushing ahead with a demerger of its non-core assets, with chief Andrew Mackenzie preparing to unveil, as soon as this week, a new $14 billion resources giant that will instantly become one of Australia’s biggest miners.

Healthscope rated a new hold at Deutsche Bank; price target $2.30.

• Goldman Sachs has maintained a “neutral” recommendation on Domino’s Pizza, with a 12 month price target of $21.00, down from the current share price of $23.39.

• CIMB has an “add” recommendation on Primary Health Care and a $5.57 target price.

Read more.

Good morning and welcome to the Markets Live blog for Monday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

BusinessDay with wires.

 

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