That's it for Markets Live today.
Thanks for reading and for your comments.
See you tomorrow morning from 9.
PS Apologies for the intermittently working chart, hopefully it will be fixed by market open tomorrow.
The Australian share market slipped to a seven-week low, extending the previous session’s sell-off as investors mulled the chances of interest rate rises after the Reserve Bank of Australia on Tuesday flagged a change in its monetary policy stance.
The benchmark S&P/ASX 200 index closed the day at the year’s low, down 26.8 points, or 0.5 per cent, at 5070.3, after sliding 1.75 per cent on Tuesday. The broader All Ordinaries Index fell 25.4 points, or 0.5 per cent, to 5088.7.
The local bourse ignored positive leads from Wall Street, which recovered from its worst one-day loss since last June.
After disappointing manufacturing numbers which led to the share plunge in the United States, Friday’s US non-farm payrolls have become a key number for investors. The Federal Reserve will be looking for indications that the trajectory of the recovery in the world’s largest economy is off track.
“But all that means is that the taper in the US is going to be data dependent, therefore they can pause throughout calendar 2014 and that’s what the data profile is all about,” Equity Trustees chief investment officer George Boubouras said.
“There are good signs in America, it is a bit more of a broad-based recovery this year than in the previous year. It’s not perfect but it’s moving in the right direction.”
Asian markets trended upwards, with the Japan’s Nikkei leading the way, up close to 1.4 per cent in late trade.
“The news from the RBA yesterday to remove that easing bias and to be more accommodative of where the Aussie dollar is, is not helping corporate sentiment in Australia in the year ahead,” Mr Boubouras said.
Australian Workers Union chief Paul Howes has called for a "grand compact" between business and unions to take the heat out of the industrial relations debate and admitted wages in some sectors had increased too quickly.
The speech was declared a "disgrace" by the Greens deputy leader Adam Bandt, who said the AWU leader was "giving ammunition to Tony Abbott's attack on Australian wages" and should resign his post.
Mr Howes warned the resources boom was now over and that Australia faced a jobs crisis, with 130,000 losses since the global financial crisis and "tens of thousands more lie just around the corner".
Mr Howes urged his comrades in the union movement to concede there had been a pattern of unsustainable wages growth in some sectors of the economy, adding "we could be pricing ourselves out of the market".
But he urged business to concede that on an economy wide basis, industrial disputes had fallen and wages growth had slowed.
"Perhaps they [business] might agree - penalty rates and the minimum wage are fundamental planks of our social contract and should remain."
Well, here's a thing. Looks like the sharemarket is not the only one flip-flopping today.
Yesterday bond traders were pricing in a 5 per cent chance of a rate hike after the RBA decision, according to Credit Suisse.
Today it's a 6 per cent chance of a rate cut.
Looks like investors across the board are in two minds.
As mentioned, it was a good day to hold shares in consumer discretionary stocks, with the sector the only corner of the market to make any money in another dismal day.
Pacific Brands, JB Hi-Fi, Flexigroup and REA Group were top of the pops in today's list of best performing stocks in the ASX 200.
The ever-exciting Fortescue also had a strong run, up 2.2 per cent.
Acrux had a tough day after failing to convince investors they shouldn't be worried about a US regulatory body's announcement that it would be looking into the links between testosterone replacement therapy and heart disease. The drug-maker's share price fell 7.9 per cent, adding to yesterday's even steeper fall.
The market did not take to Echo Entertainment's interim result, despite trying to convince shareholders that a drop in VIP gaming revenue should be considered an "extraordinary item". Down 6 per cent.
Virgin Australia plunged 6 per cent as investors become increasingly concerned about the airline's upcoming interim result. Qantas also fell, perhaps in sympathy.
Best and worst performing stocks in the ASX 200.
Today's Federal Court finding on late penalty fees handed down against ANZ will open up the floodgates to the other six banks sitting in the queue, Adele Ferguson comments.
And according to Hugh McLernon at litigation funder IMF – which is bankrolling the action - it could open bigger floodgates than the banks.
“There are utilities that charge penalty rates for late payments that are sometimes out of all proportions. These organisations will now need to look at what they are doing as their customers are entitled to compensation,” he said.
But it was a bittersweet victory as four of the other fees that were put up as part of the legal action, were struck out.
Shares have confounded a positive lead from Wall Street and a rebound in Japan's Nikkei index to post losses.
After starting in positive territory early, a wave of selling hit soon after, a trend which didn't relent until well into the afternoon.
The ASX 200 index dropped 27 points, or 0.5 per cent, to close at 5070.3, while the broader All Ordinaries suffered a similar fate to finish down 25 points to 5088.7.
The big four banks all finished down, as did BHP, Telstra and CSL. QBE dropped 1.7 per cent to $68.33.
Woolworths and Rio Tinto bucked the trend, while Fortescue powered forward 2.1 per cent, and Lend Leas 1.9 per cent.
Looking across the sectors, consumer discretionary stocks were the lone group to finish up, if only by the slightest of margins, led by 21st Century Fox, REA Group and JB Hi-Fi.
Worst performing sectors were health care and financials.
Virgin shares have plunged to a two-year low amid growing expectations the tightly-held company will report a significant half-year loss due to higher operating costs.
Virgin shares closed 2¢, or 6 per cent, lower at 31.5¢ after falling as low as 28¢ earlier in the day. That compares with a pre-Australia Day trading price of 37¢, which was only slightly below the 38¢ a share price of a $350 million capital raising last year.
The airline, which has reported rising yields, or returns on fares, has declined to provide any guidance for the first half. It has a free float of just 23 per cent, with the remaining shares held by Air New Zealand, Singapore Airlines, Etihad Airways and Richard Branson’s Virgin Group.
There is no indication from the trading volumes that any of the strategic shareholders are selling their shares. The only seller in recent times has been Virgin Group, which last sold a tranche to Etihad at 48¢ a share in October.
Brokers including JPMorgan, Deutsche Bank and UBS have forecast the Australian carrier will make a profit during that period as it did last year. But CBA, Bell Potter and Merrill Lynch have issued significant downgrades to their numbers over the last fortnight.
Nosedive ... Virgin shares over the past 12 months.
It may come as a surprise, but investors are prepared to pay a lot more for industrial stocks leading into this earnings season.
The chart below from Bloomberg shows the industrials sub-index of the ASX 200 trading on a forward P/E of over 20 (the red line), against the benchmark's estimated P/E of 14.1 (the white line beneath it).
Banks (the brown line) as a group are trading at 13 times, and resources (unfortunately also a white line, the bottom one) are at 12 times.
So why are industrials trading at such a premium? It may be that the market is now prepared to buy into more cyclical industries in anticipation of a return to life in the non-mining corners of the economy. And perhaps they are prepared to look through more expensive valuations based on this financial year, in anticipation of earnings growth in the next.
The RBA's rather downbeat assessment of the local economy while at the same time suggesting the next move in interest rates will be up rather than down is not great news for investors buying companies now based on a rebound in interest-rate sensitive sectors in 2014-15.
Maybe that's why the market has slumped today.
The industrials sub-index is trading well above other sectors on a forward P/E basis.
Was there an air of complacency in the sharemarket as 2013 came to a close that meant investors were caught out when trading in 2014 was up and going? the AFR’s Phil Baker asks:
In the end stocks are driven by earnings and interest rates, but in between they are always driven by a strategy. And these strategies can last long enough to get everyone hooked in.
Over the years there has been the resources boom, the frenzy of IT stocks and of course the yield theme. Each time they push prices to extreme levels before turning nasty but when the strategy is flying no one wants out.
So was there an air of complacency towards the sharemarket as 2013 came to a close that meant investors were caught out when trading in 2014 was up and going?
Bank of America think so. They think as 2013 came to an end, quite simply, there weren’t enough bears around.
The bank cites the Investors Intelligence poll of financial advisors to show that everyone was just too bullish. The reading was taken as the S&P 500 was putting the finishing touches to a 30 per cent plus year. It was the same sentiment that made options traders greedy.
How do you build a portfolio when you’re stuck in a "purgatory of low returns”, in a period of “financial repression” when central banks around the world are committed to keeping rates low for an extended period?
It’s a question GMO’s James Montier has been pondering for some years.
To Montier, a committed value investor, buying assets with a margin of safety is near impossible, as nothing screams “I’m undervalued”.
“You are in this situation where where you’re stuck in this kind of foie gras market where you’re being force-fed risk assets,” he told Advisor Perspectives.
So you try to invest in the “perfect dry-powder asset,” says Montier, who sits on GMO’s global asset allocation committee.
Such an asset would have three characteristics: it would give you liquidity, protect you against inflation, and it might generate a little bit of return.
Unfortunately no such asset exists, so you try to recreate it synthetically, with a mix of cash (for liquidity), inflation-protected bonds, and then something like credit or equity-spread trades for some return – but nothing too risky, Montier says.
“You can imagine two polar extreme outcomes: central banks could end financial repression tomorrow. You would get real-rate normalisation and the only asset that survives unscathed is cash.”
“Or, the central banks keep their rates incredibly low for a very, very long period.”
“The portfolios you want to hold under those two different outcomes are extremely different. I have never yet met anyone with a crystal ball who can tell me which of these two outcomes is most likely – or even which one could actually happen.”
“You’re left trying to build a portfolio that will survive both outcomes. It won’t do best under either one of the two outcomes or the most probable outcome, but it will survive.”
“That really is the pre-eminent occupation of my mind at the moment.”
Continuing on the topic of whether the Australian dollar's lows for the year are already behind it, BK Asset Management's managing director for currency strategy Kathy Lien says there could be a 4 to 6 per cent rally in the dollar following the RBA's statement:
- After selling off for the past three months with virtually no relief rallies, we believe that the Australian dollar has officially bottomed.
- For the first time in two years, the Reserve Bank of Australia expressed comfort with the current level of interest rates and their currency. By dropping their easing bias, the RBA set off a wave of short covering in the Australian dollar last night that we expect to continue in the weeks to come.
That said, the Australian dollar wasn't the only currency to push higher overnight. The New Zealand dollar and other currencies, notably from emerging market nations, also gained as the market recovered from its latest bout of jitters.
Given the volatility in foreign exchange markets over the past few weeks, analysts said it would be difficult to discern a long-term trend in the direction of the Australian dollar just from its US2¢ rise overnight.
"One day's price action does not necessarily set a trend for the Aussie. There's no doubt [the RBA's] statement was positive for the Aussie overall, but it's just one of the factors that drives the Aussie," Westpac's senior currency strategist Sean Callow says.
- They knew what they were doing and I don't think anyone would be shocked if the Aussie was back to US87.60¢ two days from now because of what can happen overseas.
- Last night could have easily been a day where the S&P 500 sold off by 1 per cent. It's been so volatile. It happened to be that the RBA introduced that language just as risk-appetite was rebounding. So you had a very big rise in the Turkish lira, the Brazilian real, the South African rand overnight.
- So that meant the [Australian dollar's] gain was perhaps amplified, but at the very least, sustained. We've seen many times in recent weeks that a bounce in the Aussie has been wiped out. Think of the bounce after the CPI. A day later, it was back to where it was."
Ahead of two key meetings tomorrow night by the European Central Bank and the Bank of England, Reuters columnist James Saft recommends not to expect the central bank cavalry to come to the rescue:
The pain is increasing in global markets, but the likelihood of immediate relief from the Federal Reserve and the European Central Bank isn't.
A novel idea, that the Federal Reserve won't send the cavalry every time risk assets fall by a few per cent, will in itself be profoundly unsettling to investors used to conflating their own wellbeing with that of the global economy. But with transition to new leadership and no sell-off in critical government bonds, it will take more than a few per cent off equities to prompt a U-turn on the Fed's decision to trim bond purchases.
The ECB is if anything less well positioned to provide balm, though given its track record and the euro zone's institutional issues this will come as less of a surprise.
It is important to understand that investors have been habituated, like users of pain-killers, to relief from the Fed when they show signs of even slight distress. The idea that the Fed can't and won't always ensure steadily rising asset prices may prove to be the slap-your-head lesson of 2014.
As the local market hits the day's lows, regional equities have also come back a bit from their early gains:
- Japan (Nikkei): +0.9%
- Hong Kong: -0.2%
- Taiwan (coming out of a holiday): -2.7%
- Korea: +0.4%
- ASX200: -0.6%
- Singapore: +0.3%
- New Zealand: +0.25%
It probably didn't help confidence that Bill Gross, who oversees the world’s biggest bond fund at Pimco, said the pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets.
“I call China the mystery meat of emerging-market countries,” Gross said overnight during an interview on Bloomberg Television. “Nobody knows what’s there and there’s a little bit of bologna, so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.”
Good article in the paper today by Peter Martin taking a closer look at Hockey's "end to the age of entitlement":
Within minutes of Treasurer Joe Hockey declaring an end to ''the age of entitlement'' on Monday, assistant Infrastructure Minister Jamie Briggs stood on a highway on the outskirts of Hobart and announced a grant of $3.5 million to a Tasmanian seafoods manufacturer, Huon Aquaculture.
It would help ''provide the equipment to process fresh fish, as well as smokehouses and other machinery for boning, skinning, portioning and mincing'', he said.
The Tasmanian government was kicking in $1.5 million, the Commonwealth $3.5 million and Huon Aquaculture $7 million.
As it happens, the proportions are roughly similar to those asked for by SPC Ardmona to save its fruit canning plants in Victoria.
Who gets what
On the cusp of the February earnings season, a leading funds manager has warned that investors' “lofty expectations need to be rolled back”.
“The market will grind higher in 2014 but the dominance of the big banks and miners mean its ability to shoot ahead is restrained,” Perpetual head of investment research Matthew Sherwood said.
The big four banks along with BHP Billiton account for nearly 40 per cent of the entire S&P/ASX 200 benchmark index.
“It is unlikely the big resources stocks will get a big re-rating this year as commodity prices are expected to come under pressure, while constrained credit growth means the banks won’t get a meteoric rise either,” Sherwood added.
That means stock-picking will be a harder task then normal this year, he said.
“The macro-economic backdrop is positive with the United States and global economy improving, but 2014 is the first time in seven years that the market started with full valuations.”
Sherwood expects the best returns to come from three main themes: businesses that will benefit from an improving housing sector, manufacturers with global markets, and companies with US dollar earnings.
The chart below suggests that it could be time to sell defensive-style stocks and buy cyclicals.
Meanwhile, Perpetual fund manager Vince Pezzullo said he was extremely bullish on Boral leading into reporting season.
Boral is due to release interim results on February 12.
The left-hand chart shows banks are trading at historically high levels, and the right-hand one shows relative valuations of cyclicals v defensive stocks (orange line) and relative earnings (blue).
Here's a different take on the Australian dollar from Barclays' chief economist Kieran Davies and currency strategist Hamish Pepper.
In a note today, the two analysts look at the Reserve Bank's fair value model for the exchange rate. They conclude that the terms of trade is the dominant influence on the currency, and that its is now close to fair value after being 10 to 12 per cent overvalued in late 2012 and early 2013.
They add that although the central bank appeared to be less concerned about the exchange rate in its statement yesterday, "we believe the exchange rate can fall further over the coming year, driven by external factors". Here's more:
- In particular, the recent tightening in China's policy bias, in conjunction with slowing economic growth and the commitment by Chinese policymakers to rebalance the economy away from fixed investment towards private consumption, is a bearish development for the Australian dollar.
- At the same time, there should be additional pressure from a stronger USD this year, on the back of a faster-than-expected improvement in the US labour market and a normalisation of the Fed's monetary policy.
- Consequently, the exchange rate seems likely to decline by more than the Reserve Bank expects, and we think it will reach US84¢ by the middle of this year and US80¢ by the end of this year.
A weaker exchange rate could also see the Reserve Bank hike the cash rate later this year, the analysts added.
Australians spent $14.7 billion in online shopping last year, as they shelled out more on electronic games, toys, groceries and liquor in December.
The online sales figures for the year was equivalent to 6.5 per cent of spending on traditional bricks and mortars retailers, NAB said in its monthly online retail sales index, released today.
In year-on-year terms, online sales grew by 12.6 per cent in December, according to the index. That's up from 11.2 per cent in November.
NAB said the improving growth trend for online sales was spread across almost all categories, except for the personal and recreational goods section, which slipped by 1 per cent year-on-year. At the same time, traditional retailers also saw a lift in sales, with seasonally adjusted growth of 0.6 per cent in November.
The latest figures come ahead of the release of the Bureau of Statistics' official numbers on retail sales for December tomorrow. Retail sales are forecast to rise by 0.5 per cent last month, after a healthy 0.7 per cent in November.
The sector, which struggled through much of last year amid subdued consumer demand and sentiment, has experienced a recovery in recent months.
Sales of new vehicles dipped in January as falling demand for commercial vehicles got the new year off to a soft start, though Mazda put in a strong performance.
Total vehicle sales in January were 82,285, a decrease of 3.7 per cent on the same month last year. According to the Australian Federal Chamber of Automotive Industries' VFACTS report sales were down 15 per cent on December, though when adjusted for seasonal factors that equated to a fall of 4.1 per cent.
Weighing on the market was a sharp 12.9 per cent drop in sales of light commercial vehicles. Even demand for sports utilities faded after a very strong 2013, with sales off 2.8 per cent on January last year.
However, SUVs now account for a record 29 per cent of total vehicle sales, showing Australia’s love affair with four-wheel drive cars is not stalling.
For January alone, Toyota retained first place on the sales ladder with a market share of 16.6 per cent. Mazda had a brisk month to take its share up to 11.4 per cent, pipping the local Holden unit of General Motors at 10.8 per cent. Hyundai came fourth with 8.7 per cent, ahead of Ford at 8.3 per cent.
The gas producing region of remote Cooper Basin may be a hotbed of merger and acquisition activity this year, according to analysts at Credit Suisse.
Consolidation among the mid-cap companies operating in the region, such as Beach Energy, Senex, New Standard Energy and Drillsearch, could come as a result of mergers between themselves or via a takeover from larger players such as Santos and Chevron.
"The Cooper Basin’s re-emergence as an incremental supply point for gas to eastern Australia increases its strategic focus," write the analysts.
They also highlight the opportunity for the exploitation of unconventional gas reserves, including from shale.
Goldman Sachs’ local chief economist, Tim Toohey, is another (see our post below on the "wise oldies") who reckons the RBA’s cycle is not “done and dusted”.
“Ultimately, weather anomalies have temporarily distorted the data,” writes Toohey in a note to clients.
What’s more, “underlying inflation is around the mid-point of the RBA’s target band, inflation expectations are near a 20-year low, domestic demand remains tepid, employment is contracting, and the biggest challenge of Australia’s long expansion - the normalization of the commodity prices and investment booms - lies ahead in 2014 and 2015”.
Too much inflation is not the problem, writes Toohey; rather, it’s too little demand that's the main worry.
But Toohey grudgingly admits that the higher than expected inflation numbers for the December quarter “does complicate the communication of a near-term rate reduction”.
As a result, he has pushed out his forecast cut to July (from March), and the Goldies team has also pushed out their forecast start of the tightening cycle to the June quarter of next year, from the first quarter.
Marc Faber, the original ‘Doctor Doom’, has lashed out at central bankers for being out of touch with reality and stimulating asset bubbles that are socially divisive by pumping out trillions of dollars in monetary stimulus since the financial crisis.
“Central bankers are completely insane,” he said, speaking to the Australian Financial Review from Thailand. “These are people who are professors, academics who never worked a single day in their life in an ordinary job. Because money printing doesn’t help ordinary people ... it helps asset prices.”
Faber is a Swiss economist and the publisher of the Gloom, Boom, Doom report. He made a reputation for himself calling the Wall Street crash of 1987 and is known for his bearish predictions.
His comments highlight the risk that central banks, through their ultra-stimulatory policies, enrich only asset owners by inflating the prices of stocks and property.
“My sense is that central banks are unlikely to tighten because they’re in such deep shit already and they will continue to print,” said Faber, who is concerned about the risk of credit bubbles.
But he was almost as critical about the years of inaction from central banks in emerging markets, which in the past fortnight have rushed to raise interest rates to stabilise their currencies and control inflation.
“What the central banks in emerging economies missed is that they should have slowed down their economies and credit growth two years ago and taken some pain,” he said. “Basically central bankers are Keynesian, they believe in intervention but what they never do is cool down the system.”
Central banks are in 'deep shit', Marc Faber says.
Time for a round-up of regional markets, sans China, where New Year celebrations continue, and the pictur ethus far is mixed:
- Japan's Nikkei has rebounded 1.5 per cent (after losing 4.2 per cent yesterday).
- Taiwan's stock exchange is down 2 per cent.
- Korea's KOSPI index is 0.7 per cent higher.
- Indonesia's Jakarta composite index is 0.8 per cent lower.
This from AFR columnist David Bassanese:
As if the jitters across global markets were not bad enough, local equity market investors have even less reason to cheer after this week’s Reserve Bank policy meeting.
In a surprise to the market, the RBA has not waited until the release of the minutes to this week’s policy meeting in a fortnight’s time to indicate whether it retains its long-held policy easing bias.
Instead, its post-meeting policy statement has immediately killed it off, by stating in unequivocal terms that “the most prudent course is likely to be a period of stability in interest rates”.
In a further blow to investors, the RBA’s change of heart less reflects the fact the demand side of the economy is getting a lot better. Indeed, the RBA still expects below-trend economic growth “for a time yet” and a further lift in the unemployment rate.
Rather, the RBA has become more cautious because persistently weak economic growth and rising unemployment has not produced as much of a pay-off in terms of low inflation as had been hoped.
The upshot of higher than expected inflation is that the RBA is now prepared to turn a blind eye as the unemployment rate likely rises further over the next few months – in a sense, the RBA now needs a higher unemployment profile to ensure inflation remains under control. This shift in interest rate bias – despite the still weak economy – is not great news for share or property investors over the short-term.
Rather than discussing if and when interest rates will be cut again, investors are likely to start fretting over when the first rate hike will take place.
Read more ($).
Gold declined for the third time in four sessions as a rebound in emerging-market currencies slowed demand for the precious metal as an alternative investment.
South Africa's rand and Turkey's lira strengthened against the dollar. Both currencies weakened more than 6 per cent versus the greenback this year through yesterday.
The Standard & Poor's GSCI Spot Index of 24 commodities rose for the first time in four sessions. Gold climbed 3.1 percent last month.
''There are some signs of stabilization today,'' Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. ''The gold rally seems to be running out of steam.''
Gold prices rose 1.6 percent yesterday, the most since Jan. 23, as global equities declined and a sell-off in emerging-market currencies accelerated.
The precious metal slid 28 percent last year as some investors lost faith in the metal as a store of value after the U.S. economic recovery gained traction. The Federal Reserve said last week it will trim monthly bond buying by $10 billion.
Bill Gates has quit as Microsoft chairman to take up a new role as technology adviser in a management shake-up that will see Satya Nadella become chief executive.
The announcement ends a long search for a new chief after Steve Ballmer announced his intention to retire in August.
Mr Nadella is only the third chief executive in Microsoft's 39-year history, following co-founder Bill Gates and Steve Ballmer.
Shares of the world's largest software maker rose one per cent in early trading.
Few people outside Microsoft had ever heard of Satya Nadella until last Thursday, when the Indian-born executive was named as the most likely candidate to become chief executive of the technology giant.
He has been promoted from executive vice president of the cloud and enterprise group, a role he was promoted to in July last year by the departing Mr Ballmer.
The 46-year-old technology chief has spent almost half his life at Microsoft, largely involved in so-called "enterprise" products that are geared towards businesses rather than consumers. He currently leads its enterprise and cloud division.
The appointment comes at a crucial juncture for the company. Mr Gates built the computer giant on the principle that if the software was good enough, the rest would surely follow. It was a strategy that worked for decades. Microsoft Windows was so far ahead of the competition, computer manufacturers installed it in their products by default.
However, the world eventually changed around it and gadgets rather than software became the keys to success.
More on local drug maker Acrux, which, despite its best efforts to hose down the likely implications of a move by the US regulator the FDA to review possible adverse implications of tostesterone replacement therapy (TRT), has come under renewed selling pressure this morning.
So far today its share price is down a heavy 9 per cent at $1.90 on top of yesterday’s 10 per cent dive, in continued heavy trading.
Macquarie got the ball rolling Tuesday by highlighting the FDA’s decision.
Other brokers have got in on the act this morning.
The FDA move followed two published papers which were ‘‘observational only and not clinical trials’’, Bell Potter told clients. In other words, there was no clinical evidence to point to an association between TRT and increased risk of a cardiac event.
‘‘We do not regard either study as being particularly reliable,’’ it told clients.
‘‘The impact on Axiron revenues, if any, is uncertain. In the interim, all TRT therapy remains on the shelves.’’
The broker cut its price target due to uncertainty around Acrux receiving a $US50 million milestone payment in fiscal 2015.
Richard Branson's Virgin Atlantic will ditch daily flights between Sydney and Hong Kong in May, blaming increasing costs and a challenging economic environment.
The decision to end flying to Australia after almost 10 years will be a fillip for Virgin's rivals on the route, Qantas and Hong Kong flag carrier Cathay Pacific.
Virgin Atlantic chief executive Craig Kreeger said external factors such as increasing costs and a weakening Australian dollar had affected the airline's profitability on the route.
"These are still difficult times for the airline industry and as part of our strategy to operate more efficiently, we need to deploy our aircraft to routes with the right level of demand to be financial viable," he said.
The decision is set to result in job losses at Virgin Atlantic's operations in Sydney and Hong Kong. Virgin Atlantic said it had begun a consultation period with employees.
It leaves British Airways as the last major European airline to still fly to Australia.
As we mentioned earlier, the Australian dollar has jumped by more than US2¢ since the Reserve Bank removed its jawboning on the need for a lower currency to support the economy as mining investment declines.
The local currency was trading around US87.50¢ before rising to US89.42¢ this morning.
But how much is the jump in the currency to be attributed to the RBA? And did the Australian dollar reached its bottom earlier this year when it fell to US86.60¢?
Currency strategists say that despite the sharp rise in the Australian dollar overnight, it is still too early to call a bottom on the local currency, especially when concerns about emerging markets and China are expected to persist.
"Who thinks that emerging markets and equity turmoils are over for the year? We had a good night last night, but it was just yesterday that the Nikkei fell 4 per cent. So there's a lot of water to flow under the bridge for the Aussie," Westpac senior currency strategist Sean Callow said.
"It's possible US86.60¢ is the low for the year, but if it is, it means the global environment is not too bad for this year, so we'll take that.
"But it would be no great shock, whether it's in the next two weeks, or whenever it's soured enough, for the Aussie to revisit those lows. I think it is still very fluid and somewhere from the mid-80s to the very low 90s is probably our base case for the Aussie over the next few months."
ANZ customers suing the bank over its fees have had a partial victory, after the Federal Court today ruled its late payment fees charged on credit cards were illegal.
The case ANZ is a template for a wider class action against major lenders including the Commonwealth Bank, Westpac, NAB, and Citi, which proponents say could be worth up to $220 million.
Some 170,000 customers have joined the legal challenge, which is being billed as the biggest class action ever in Australia.
However, the court today also ruled that other types of fees – so-called honour, dishonour, and non-payment fees – were not penalties and therefore allowed under the law.
Litigator Bentham IMF in a release to the ASX said that late payment fees represent around a quarter of the value of all claims brought.
The ruling sets the scene for the customers and the bank to enter into talks over compensation, and could also result in similar discussions for customers of other major banks.
Customers of ANZ had launched the legal challenge alleging that the bank was breaking the law through a range of fees, because they more than exceeded the cost to the bank of the customer overdrawing their account of making a late payment.
Turning to the best and worst stocks this morning, Acrux shareholders are obviously not impressed with the drug maker's explanations regarding a US regulatory investigation into the risks of testosterone replacement therapies.
The stock returned to trading after requesting a halt yesterday to be greeted by a 7 per cent fall.
Energy World Corp continues its run and is already up 7.7 per cent. Forge has yo-yoed up 5.2 per cent.
REA Group continues to bask in the glory of yesterday's earning results.
This mornings best and worst performing stocks among the top 200.
Three of Australia’s foremost market economists - with a century of experience between them - are defying their peers and traders’ bets by predicting the central bank will be forced to resume cutting interest rates.
Hours after the Reserve Bank of Australia signaled it was abandoning a two-year easing cycle, Westpac chief economist Bill Evans, NAB’s Alan Oster and Bank of America Merrill Lynch’s Saul Eslake were sticking to the view that rising unemployment and the end of a mining boom will drive the overnight cash rate lower.
“It’s the wisdom of the oldies,” Oster, a former Treasury economist, told Bloomberg.
Evans, the first to call the easing cycle that began late in 2011, said he’s still predicting two rate cuts in the second half, forecasting joblessness will rise to a 12-year high and subdued wages will keep a lid on inflation.
Eslake, who last year set a 25 percent chance of a recession in 2015, said he’s “used to the idea of having a minority point of view.”
As expected, shares have followed the lead of Wall Street and posted a small gain at the open of trading.
The ASX 200 index is up 0.3 per cent to 5111.3, while the All Ordinaries is up a similar proportion to 5128.6.
There were broad gains across sectors, aside from healthcare, dragged lower by a poor opening from CSL.
The Australian services sector is moving closer toward expansion, thanks to low interest rates and the falling dollar.
The Australian Industry Group Australian Performance of Services Index (PSI) jumped 3.2 points to 49.3 in January, but still remained below the 50 level that separates expansion from contraction.
Health and community services, along with finance and insurance, strengthened last month but accommodation, cafe and restaurant services remained depressed.
The services sector represents around 70 per cent of the national economy, Ai Group says.
"In four of the past five months the services sector, as measured by the Australian PSI, has moved closer to a long-awaited expansion," Ai Group chief executive Innes Willox said.
"While there is some volatility, the sector seems to be building slowly towards expansion with the help of lower interest rates and, for services businesses exposed to international trade, by the lower dollar."
But while there were positive signs, recovery was still fragile, Mr Willox said.
With no major US economic reports scheduled released today, currencies and equities rebounded following the steep sell-off on Monday, writes BK Assert Management's Kathy Lien.
Compared to the magnitude of yesterday's losses however, the relief rally was modest. So far, the move in currencies and equities represents nothing more than a dead cat bounce but that can change if tomorrow's ADP [a private indicator of US employment] and non-manufacturing ISM [due early Thursday morning, Australian time] reports surprise to the upside.
The sell-off in US assets on Monday was triggered by the sharp decline in the ISM manufacturing index but the US is a services-based economy so if non-manufacturing ISM increases, today's corrective rally could turn into a stronger recovery.
According to the Congressional Budget Office, "economic activity will expand at a solid pace in 2014 and the next few years," with the jobless rate holding at 6.7 per cent in the fourth quarter of 2014.
While the ISM report is important, our focus will be on the employment component of the index because it has a very strong correlation with non-farm payrolls [due out early Saturday morning, local time].
Inaugural Rugby World Cup winning captain David Kirk has joined the board of outdoor clothing company Kathmandu as chairman, after joining the company as non-executive director in November last year.
Mr Kirk, who captained New Zealand’s All Blacks in the 1987 Rugby World Cup, will replace acting chairman John Harvey.
Mr Kirk takes his new position at a time when Kathmandu seems to have weathered the downturn experienced by many retailers.
In the most recent financial year, Kathmandu’s net profit jumped 27 per cent to $NZ44.2 million ($40.6 million), through the combination of 16 new stores and strong growth in online sales.
Consensus estimates predict net profit growth for the next three financial years, according to S&P Capital IQ.
Last year, Kathmandu was the sixth best performing share on the benchmark S&P/ASX200, surging more than doubling to $3.23. However, shares this year have followed the general market trend down, currently sitting at $2.92.
“I have been impressed by the results achieved by the company since it listed in 2009,” Mr Kirk said. “And in particular, the significant progress it has made in growing its online sales through Kathmandu’s own platform and global marketplace websites.”
Casino owner Echo Entertainment has announced CEO John Redmon will step down in the coming six months, as the company reported a 30 per cent fall in first-half profits to $46.1 million, blaming one-off expenses of $22.2 million from "extinguishing out of the money interest rate swaps" and a lower actual win rate in the VIP gaming business.
Excluding those items, NPAT for the six months to December was up 1.3 per cent against the previous corresponding period to $71.5 million.
An interim dividend of 4 cents fully franked was declared.
"Disaster": The man who designed Sydney's The Star casino is not impressed with the way it turned out. Photo: Greg McKenzie
IG’s Stan Shamu is calling for the local market to open up 0.1 per cent to 5099:
- The hawkish turn in the RBA’s commentary and AUD recovery won’t bode well for the domestic market in the near term.
- Expect to see a broad recovery in most of the cyclical names as the risk trade experiences a bit of a recovery.
- Stock-specific news will continue to dominate trade, particularly with earnings hitting the wires. REA Group was one of the best performers yesterday in a very poor performing market. As a result I expect this stock to continue to gain momentum today.
- Gold stocks were a bright spot yesterday with Newcrest poking its head above $10 – the question is can the momentum be maintained after gold gave back gains? Traders are more likely to be looking for fresh opportunities to short these names.
Japan’s Nikkei index was the hardest hit among developed markets in yesterday's global share sell off as an appreciating currency exacerbated problems for Japan.
The Nikkei plummeted 4.2 per cent on Tuesday. It was the biggest one day fall in the Japanese equity market since June 13.
After a stellar rise of 52.4 per cent last year, the Nikkei has started 2014 by losing 14 per cent.
"The Nikkei had an exceptionally strong year last year. Now as a drop in US markets is causing a flight away from global equities at the same time as the yen is falling, the combined effect is putting pressure on the Nikkei," Wingate Asset Management chief investment officer Chad Padowitz said.
Nikko AM's Tokyo-based chief global strategist John Vail said that on Tuesday "a rising yen added a double whammy to the effect of a 2.3 per cent decline in the S&P 500 in the United States overnight".
As the Nikkei climbed in 2013 the Japanese yen weakened 21.4 per cent against the US dollar.
"The Nikkei is quite dictated to by the currency because Japanese listed companies have a very high export component," Mr Padowitz said. "When the yen goes up or down the Nikkei tends to move a similar amount in the opposite direction."
Nikko AM's Tokyo-based chief global strategist John Vail said global macro-economic concern are driving the fall in the Nikkei and rise in the yen rather than any domestic concerns.
"Japanese company reporting season has been pretty good. Not great but better than consensus expectations with only a few big disappointments," Mr Vail said.
Nikkei futures are up strongly - 2.7 per cent - suggesting a rebound when the market opens at 11 this morning.
The Australian dollar has surged more than 2 per cent overnight, after the Reserve Bank of Australia on Tuesday softened its stance on the currency's strength and signaled a shift away from an easing bias for interest rates.
The Aussie traded at US89.3¢ this morning as it continued to pile on gains in the wake of the RBA’s first statement on monetary policy for the year.
"Most of the market was short Aussie and Kiwi into last night,” ING Capital Markets director of foreign exchange Lane Newman said.
“The RBA surprised them hawkishly. The fact that the world is not going to end, even if China slows down, according to the RBA.”
Citi currency strategist Todd Elmer said after the RBA statement that the local currency had outperformed other commodity currencies since stronger than expected inflation numbers in January.
In other currency movements, the US dollar and euro gained back some ground against the yen but were firmly in recent ranges, reflecting the drop in volatility that accompanied the flood of money out of emerging economies in search of traditional safe havens in the developed world.
The New Zealand dollar accelerated its rise against the greenback in early New York trade, to gain 1.14 per cent on the day, holding at US81.72¢.
The euro dropped below $US1.35 against the dollar, revisiting Monday's two-month low of $US1.3475.
"Part of the reason why the euro is not really participating in the moves today where the dollar is weaker, has to do with this fear the ECB (European Central Bank) is going to ease policy again on Thursday," said Jens Nordvig, head of G10 FX strategy at Nomura Securities in New York.
Local stocks are set to open flat as investors in the US took the previous session's sell-off as a buying opportunity.
What you need2know:
- SPI futures down 4 points at 5046 at 5.39am AEST
- AUD at 89.37 US cents at 5.39am AEST
- On Wall St, S&P500 +0.84%, Dow Jones +0.55%, Nasdaq 1.06%
- FTSE100 -0.25%, CAC +0.24%, DAX -0.64%
- Spot gold at $US1253.13 an ounce, down 4.23 or .372 per cent
- Brent oil $US105.80 per barrel, down 0.23 per cent
- Iron ore 122.600 per tonne
What's on today
The AI Group will release its services index.
Stocks to watch
RBC Capital Markets has an "outperform" recommendation on Aurora Oil and Gas which has seen strong reserves growth. Its price target is $3.75 a share.
Deutsche Bank has a "buy" rating on Rio Tinto and a 12-month target price of $86.00 a share. The miner will report its 2013 earnings on February 13 (at 5PM).
Echo Entertainment releases earnings.