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Early gains on the sharemarket were erased after bank stocks suffered a late morning decline as the interim report from the financial system inquiry spooked shareholders.
The benchmark S&P/ASX 200 Index closed virtually unchanged on Tuesday at 5515.3, as did the All Ordinaries Index at 5495.7
The federal government’s financial system inquiry, headed by former Commonwealth Bank of Australia boss, David Murray, was released before market open. It criticised superannuation fees and flagged the big banks may need to lift their capital ratios and face increased competition from smaller financial institutions .
In response, Commonwealth Bank of Australia shares fell 0.3 per cent to $81.50, while Westpac Banking Corporation slipped 0.21 per cent to $34.07. ANZ Banking Group declined 0.9 per cent to $33.23, while National Australia Bank bucked the trend to rise 0.5 per cent to $34.01.
The potential impact of the Murray inquiry on the big lenders’ earnings outlooks “comes at a time when sector valuations are looking stretched and investors seem to have used these issues as an opportunity to reduce their exposure to banks and deploy their capital elsewhere,” head of investment market research at Perpetual, Matthew Sherwood, said.
“There is no rhyme or reason to it,” Mr Sherwood added.
“It appears that the Australian market is trading in a narrow range. When it hits 5300 investors seem to think that is a buy signal and when it hits 5500 they seem to think its a sell signal,” Mr Sherwood said.
The Reserve Bank of Australia released minutes from its July board meeting, and revealed a largely unchanged tone, although the dollar jumped after the central bank repeated its refrain that the local unit remains ”high by historical standards”.
Australia’s big banks could face a double whammy of tougher capital rules and more intense competition in the $1.3 trillion mortgage market, under proposals being considered by the government’s financial system inquiry.
In an interim report published this morning, the inquiry panel led by former Commonwealth Bank chief David Murray canvassed several measures that would curb the dominance of the country’s biggest banks in home lending.
On the critical question of whether Australia's banks are "too big to fail", the report also signalled a case for action.
Among a range of potential responses, it floated forcing banks to set aside billions more in capital, and tougher rules that would force lenders hem to "ring fence" their critical retail banking operations.
Concerns about competition were a key driving force behind the inquiry, the first of its type in almost two decades. Treasurer Joe Hockey promoted he was in Opposition in 2010, amid a fierce public debate about the power of Commonwealth Bank, Westpac, NAB and ANZ in home lending.
The 460-page report found that Australia’s banking system was competitive, though it had become more concentrated since the global financial crisis.
But in a win for the smaller regional banks, it signalled there was scope to level the playing field.
Smaller lenders should be able to better compete with the big banks for mortgages.
The minutes of the Reserve Bank’s latest board meeting failed to change the course of the Australian dollar on Tuesday, but that may not always be the case.
''It is a big step to flip back to an easing bias,'' Westpac senior currency strategist Sean Callow said.
''They haven’t taken it yet and that would be a game changer for the Australian dollar to decline. If they [the Reserve] started to talk about an easing bias, then it would run to US92¢.''
Mr Callow said the minutes showed that Reserve officials are closely monitoring economic conditions and that next week’s inflation figures will be key to future interest rate moves.
''The RBA is not yet sufficiently worried about the pace of growth in the economy. Unless we get a big downside surprise on inflation next week, they are probably still on hold in August,'' he said.
The currency rose after the release of the Reserve Bank minutes to flirt above US94¢ before trading at about US93.91¢ about the time the sharemarket closed.
The Reserve has only recently returned to trying to jawbone, or talk down, the currency after it pushed above US95¢ in June. Some currency experts believe it may return to between US97¢ and US99¢ by the end of this year.
Traders are now pricing in just under a 50 per cent chance of a rate cut by December 31, according to Bloomberg.
''For a market that has been pricing a pretty substantial risk of a rate cut in the coming months, it didn’t get anything specific to indicate that there was a swing to the dovish side from the RBA,'' Mr Callow said.
If a rate cut does happens in the next six months, that is likely to put downward pressure on the local currency.
And here are the roosters and feather dusters for today.
Best and worst performers in the ASX 200 today.
Shares have enjoyed a late afternoon rally to finish flat for the day, after plunging bank share prices early looked likely to leave the benchmark index in the red.
The ASX 200 closed at 5511.3 and the All Ords at 5495.7.
The financial sector was the biggest drag on the market after investors digested the potential impact from the interim Murray report, which was released before market open.
ANZ was the worst hit, down 0.9 per cent, while CBA fell 0.3 per cent and Westpac 0.2 per cent. NAB bucked the trend and added 0.5 per cent.
Miners gave support to the market, with BHP up 0.5 per cent, Rio 1.2 per cent and Fortescue 1.7 per cent. Woodside added 0.6 per cent, while Beach Energy was up 2.7 per cent.
One of Australia’s largest privately owned food marketing and distribution businesses, Menora Foods, has been put on the sale block following inbound strategic approaches, sources have told the AFR's Street Talk column.
It is understood Menora, whose shareholders include chief executive Sam Schachna and one of its founders, Daniel Gluck, has appointed investment banks CIMB and Moelis & Company to manage an auction.
Menora secured a marketing and distribution deal with the London-listed Premier Foods for its Peckish range of rice snacks in May this year and also distributes brands such as Cobram Estate olive oil, Wattle Valley cheeses and dips, and Maille mustard.
It is similar to Manassen Foods, which was acquired by China’s Bright Food in 2011. The sources suggested Menora makes sales of about $170 million and could be worth as much as $100 million.
Menora was set up more than 45 years ago in Melbourne and has more than 150 staff across Australia and New Zealand, according to its website.
Menora distributes brands such as Cobram Estate olive oil, Wattle Valley cheeses and dips, and Maille mustard. Photo: Melanie Dove
The top picks in the energy sector are Oil Search, Drillsearch Energy and Karoon Gas, say analysts at UBS, ahead of a slew of quarterly reports.
Woodside reports its latest production numbers on Thursday, with Santos the next day. Oil Search is July 22 and Drillsearch two days after. Late in the month comes Beach (July 29) and AWE (July 30), followed by Roc, Horizon, Karoon and Tap on July 31.
The PNG LNG project is now producing gas, to the benefit of Oil Search and Santos, which both have stakes. “But OSH also has exposure to Taza delineation in Kurdistan and participation in Elk/Antelope development,” write the UBS analysts, who have a buy rating on the stock and a 12-month price target of $11 a share.
“We forecast Drillsearch to hit top end of its FY14 production guidance range (3.3 mmboe), with share price weak following the bid for Ambassador Oil and Gas,” they write. “We continue to expect Karoon's share price to be primarily driven by the farm-out of interests in its Browse and South American acreage.”
They rate both stocks a buy with price targets of $1.80 and $6.50, respectively.
Ahead of quarterly reporting, Oil Search, Drillsearch and Karoon Gas are UBS analysts' top picks. Source: UBS
Takeovers, changes to investment regulations and demand for high yielding, ‘‘safe haven" bricks and mortar assets, attracted close to $10 billion of cash to the Australian commercial real estate sector over the past few months, according to new data.
This trend is tipped to continue in the coming months, boosted by Asian-based insurance companies, which have access to more than $7 trillion, thanks to a liberalisation of investment regulations.
The buying has been in direct assets across office towers, shopping malls and hotels as well as indirectly through real estate investment trusts, which offer a ‘‘safe haven’’, pseudo-bond market stability in a low interest rate environment.
The REITs head into the 2014 reporting season next month with the average return tipped at about 10 per cent on a total return basis.
Recent asset sales include, in Sydney, the Sofitel Wentworth Hotel in Phillip Street and the Ausgrid site, 570 George Street, which were snapped up by Singaporean investors, while US company Blackstone bought a half share of the Westpac headquarters at 275 Kent Street - with an accompanying deal to buy other Mirvac properties valued at $824 million.
In Melbourne, Chinese and Hong Kong investors bought into the hotel market with the boutique Ovolo and Park Hyatt.
Some recent sales have come from China and Singapore and expectations are that the inflow will continue to be strong for a range of properties, with a focus on city-based offices that can be converted to apartments.
There are suggestions a number of China-based buyers are looking at a number of landmark Sydney office towers. This includes 4 Bligh Street and AMP’s 338 Pitt Street.
The Westpac building in Kent Street in Sydney. Photo: Mayu Kanamori
Japanese stocks look cheap on a relative and absolute basis, although investors should be prepared for some bumps along the way, say strategists at Societe Generale.
In a note to clients, the SG strategists note that while economic "reforms are clearly under way, investors are frustrated by the current slow pace and have expressed concerns about the ability of Abenomics to boost growth, thus fuelling volatility in the stock market".
The French investment bank's analysts now recommend buying "value" stocks, such as banking groups Sumitomo Mitsui and Mizuho, Daiwa Securities, Japan Airlines and Daihatsu Motors.
They point out that the country's sharemarkets look close to their cheapest ever against bonds. They also use a proprietary equity risk premium model to measure the absolute value in the market, using a measure of the cost of capital, calculated as the discount rate at which the present discounted future cash flows is equal to the current level of the equity market.
Their conclusion is the Japanese equity market is undervalued, as the cost of capital is "well above its historic average".
That is pretty wonkish, which brings us to the chart below that shows Japanese shares trading at a 21 per cent discount relative to Asia ex-Pacific equity markets, and a 41 per cent discount relative to global equities. They are also at a 20 per cent discount to US stocks.
Japanese stocks look good value versus other Asian, US, and European equities. Source: Societe Generale
Credit rating agency Moody’s has cut its rating on Nufarm as the crop protection group’s inventory build in South America puts strain on the balance sheet.
Nufarm has made working capital management a key priority as the company bolsters its inventory to meet surging demand for agricultural chemicals in the fast-growing South American region.
However, Moody’s has downgraded Nufarm’s corporate family rating to Ba3 from Ba2 and slashed its rating on the company’s $US325 million ($346 million) senior unsecured notes to B1 from Ba3.
“The downgrade of Nufarm’s ratings reflects our expectation that operating conditions in Australia will remain challenging in the next 12-18 months and that working capital will continue to pressure credit metrics,” Moody’s analyst Saranga Ranasinghe said.
Two consecutive dry seasons in Australia and an elevated cost base have taken their toll on Nufarm’s earnings in recent years.
In March and April, the company announced the closure of two Australian manufacturing plants and one facility in New Zealand, as well as up to 165 job cuts.
Nufarm shares have sunk 3.3 per cent to $4.51.
Telstra is seeking to launch profit-sharing agreements with major Asian telecommunications providers in exchange for building their 4G mobile networks.
Telstra chief financial officer Andy Penn said the company had built its Asian strategy on three pillars including technology services, long-term investments and mobility partnerships.
While Telstra has previously flagged sending its staff to sell its mobile network expertise to regional telcos, this is the first time the company has said it is willing to co-invest and profit share with the various operators.
“The only way that people [in Asia] can get access to the internet and access to connectivity is through mobile networks and ... many of the mobile networks in Asia at the moment are 2G- or 3G-based networks,” he said. “The extent of LTE (4G) coverage is only about 10 per cent.
“There’s opportunities for us to take the capabilities we’ve got in managing and running these networks to look for areas where we can invest.”
Telstra signed a profit sharing agreement for enterprise technology services with Indonesia’s biggest telco, Telekom Indonesia, in January and helped build Vietnam’s mobile networks.
Mr Penn said the company was ramping up the number of strategic advisors and telco experts in the region in part to win more mobile network sharing deals. But he acknowledged Telstra had not signed any major contracts in the space.
“You’ve got to generate an enormous amount of activity in order to execute on a relatively small number of opportunities,” he said. “Absolutely [these would] include the profits.
“But obviously Telstra is not the only party that can see the opportunity so we need to be realistic in terms of what it means to us.”
Chinese banks lent a much stronger-than-expected 1.08 trillion yuan ($185.1 billion) worth of new yuan loans in June as Beijing steps up efforts to stimulate the world's second-largest economy.
Markets had expected banks to write 915 billion yuan in new loans for the month, up modestly from May.
Broad M2 money supply jumped 14.7 per cent last month from a year earlier, the People's Bank of China said in a statement on its website on Tuesday, also higher than a forecast of 13.5 per cent in a Reuters poll of economists.
"While a fall in short-term lending rates hinted at a higher supply of funds during the month, the money swirling in the market reflects the urgency of the authorities to ramp up economic activity," said Chester Liaw, an economist at Forecast Pte in Singapore.
Outstanding yuan loans grew 14 per cent from a year ago, better than a predicted 13.8 percent rise.
The central bank also said China's total social financing aggregate, a broad measure of liquidity in the economy, was 1.97 trillion yuan in June versus 1.4 trillion yuan the month before.
"We had previous expected aggregate financing to come in much higher, but still the 1.97 trillion yuan printed is a major upside surprise," Liaw said.
The People's Bank of China has pledged to keep credit and money supply growth at a reasonable level to meet the needs of the real economy. It aims for a 13 per cent annual rise in M2 this year.
The strong growth in money supply in June "is an explicit loosening of (monetary) conditions. Some of this is seasonal. At the end of the quarter there was demand for cash. And evidently, the authorities supplied it," said Tim Condon, economist at ING Bank in Singapore.
The Bank of Japan kept its record stimulus unchanged and forecast inflation will pick up to its 2 per cent price target.
The central bank stuck with its goal of an annual increase in the monetary base of between 60 trillion yen and 70 trillion yen ($690 billion), it said in a statement today in Tokyo, as forecast by all 34 economists surveyed by Bloomberg News. Consumer prices excluding fresh food will rise 1.9 percent in the year starting April 2015, the median estimates of board members showed, matching its forecast three months ago.
Economists have pushed back projections for further easing, as Governor Haruhiko Kuroda signals confidence in the bank’s progress in driving inflation. With the economy forecast to rebound from a contraction last quarter triggered by a sales-tax increase in April, Kuroda’s task is to sustain momentum as rising prices and limited wage gains squeeze households.
“The BOJ is confident about the outlook for inflation,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said before the decision. “Additional easing is unlikely any time soon, but the BOJ isn’t clear of risks. The rebound could be weaker than expected, pressuring the BOJ to take more action.”
The Nikkei is 0.6 per cent higher.
UBS predicts BHP Billiton’s pledge to simplify its portfolio will follow a three-stage phase, with the imminent sale of Nickel West paving the way for a demerger followed by the possible elimination of the dual-listed structure.
According to the bank’s analysts, a slimmed down, single-listed entity would be more focused and attractive.
UBS says its three-step process creates value, with Nickel West expected to sell for a premium to its US$340 million ($362.4 million) valuation combined with a projected lift in margins and returns from the disposal of lower quality assets.
Further enhancements include the release of cash generated by the insertion of debt into the demerged entity, which in turn can be channelled towards a buyback, as well as the reduction in complexity and cost associated with maintaining dual-listed structure.
The analysts also point to the closing of the spread between the Limited and the Plc entities along with the heavier index weighting that may trigger an uplift in investment as additional value-generating factors.
However UBS notes that BHP has stated it is committed to a dual-listed structure, even though the analysts note that recent medial reports in Britain suggest otherwise.
Street Talk has reported that Glencore, one of the most high-profile contenders for Nickel West, has bowed out of the race for the West Australian assets.
UBS maintained its “buy” rating on BHP and its 12-month price target of $42.
The Socceroos may have bowed out of the World Cup after the group stage but Australian punters kept bookmakers busy, placing more than $287 million in bets throughout the month-long tournament in Brazil.
A survey of the five largest wagering operators has shown varied performance among Australian bookies, although all reported growth on previous tournaments.
Before the World Cup Tabcorp, the country’s largest wagering operator, said it expected turnover of about $120 million – a similar amount to that which the company expected for an entire AFL season.
A spokesman declined to provide a final turnover figure, saying the company would announce its performance at its full-year financial results announcement on August 7.
The company was the exclusive wagering sponsor during broadcasts of the tournament on SBS and played advertisements with former Socceroo goalkeeper Mark Schwarzer. Tabcorp also unveiled a new website built especially for the World Cup.
Sportsbet, which is owned by the Irish wagering giant Paddy Power, reported the greatest turnover of the online-only bookmakers, after punters wagered $74 million.
Online betting exchange Betfair, which is part-owned by James Packer’s Crown Resorts, took $52 million in bets from Australian punters.
William Hill Australia, which owns the Sportingbet and Centrebet brands as well as Tom Waterhouse’s online venture, took in bets of $24 million. A spokesman said multi-bets, which took into account Tatts Group, lagged the field with $17 million.
Germany's Mario Goetze scores the winning goal against Argentina in the 2014 FIFA World Cup final.
Putting the likely impact of the Murray review of the financial system to one side, maybe the stellar run in CBA shares over the past 12 months or so is coming to an end.
It was ahead of the curve in pinning a 'buy' on CBA early last year at $60. Now, Bell Potter has downgraded the call to a 'hold', with a 12-month price target of $86.
CBA is to report 2014 results on August 13. The broker is forecasting a post tax profit of $8.59m, which is slightly ahead of the consensus forecast of $8.56m.
In the year ahead, it expects a slight rise in costs largely due to higher compliance and other governance costs that are offset by favourable bad debt charges.
"These lead us to maintain our $86.00 price target," the broker said in a client note this morning. "CBA has, however, had a strong run in the last quarter and especially since our upgrade to a buy rating back in January 2013 when the share price was around $60.
"As such, we feel a hold rating is now more appropriate. This investment view is further underpinned by a 12-month total expected return of around 10%, the fact that the bank appears to be trading ahead of its medium term ROE potential and the narrowing gap between the share price and dividends."
Online travel group Webjet has unveiled a €21 million ($30.4 million) acquisition of European online hotel provider SunHotels, in a move that will help the Australian company grow its accommodation portfolio.
Webjet had long focused on selling flights rather than hotels but has been pushing into the hotels business, where it competes against Wotif.com Holdings and overseas-owned rivals such as Expedia and Priceline’s Booking.com, and Agoda in some segments, and also in business-to-business selling through its Lots of Hotels brand.
US group Expedia last week agreed to a $703 million takeover of Wotif, which remains subject to approvals from the competition regulator and has sparked concerns from local hotel providers that commissions will rise if the deal is completed.
SunHotels, established in 2002, has an annual turnover in excess of €90 million and has been consistently profitable over the past eight years, including earnings before interest, tax, depreciation and amortisation of €2.6 million in 2013, with 2014 earnings tracking higher.
SunHotels focuses on providing a wide range of hotels and transfers in European resort destinations, selling into the major markets of Scandinavia and Britain.
Webjet will fund the cash purchase through a euro-denominated debt facility. The deal is expected to be completed by the end of next month.
Webjet managing director John Guscic said with the outstanding progress of Webjet’s Lots of Hotels B2B division – which began in February 2013 – and this significant acquisition, the company was well placed to expand B2B operations across a number of regions.
Webjet's share price has added 1.1 per cent to $2.67.
Oz Minerals has lifted its full year copper production target but has warned its gold output may be at the bottom of its forecast range.
The miner now expects to produce between 85,000 and 90,000 tonnes of copper for the calendar year, up from 75,000 to 80,000 tonnes previously.
But gold production is expected to be towards the lower end of the company's 130,000 to 140,000 ounce range.
"As a result of a higher proportion of copper ore and lower proportion of gold-only ore expected in the mill feed for the remainder of the year, while annual production guidance of 130,000oz to 140,000oz is maintained, it may be towards the lower end of this range," the company said in a statement.
The company produced more than 40,000 tonnes of copper and 64,600 ounces of gold during the first half of the year.
Oz Minerals also says the higher copper production has helped to reduce costs.
The company expects to reduce copper cash costs from $US1.20 a pound to $US1.10 a pound for the full year.
Oz Minerals' share price is down 1.3 per cent to $4.26.
Bit more on Whitehaven Coal, one of the best performing stocks so far today...
The NSW miner's shares have shot up after it said it sold 22 per cent more coal this year than last year and reached record production levels.
However the persistently weak coal thermal coal prices of the last two years were expected to continue in an over-supplied market.
The company's shares last traded 4.6 per cent higher to $1.54.
Full year sales were 10.84 million tonnes, about 22 per cent higher than the previous year and included 1.99 million tonnes of metallurgical coal.
Total coal sales for the June quarter of 2.9 million tonnes were 12 per cent higher than the previous corresponding period.
Whitehaven increased annual production of saleable coal by 26 per cent to a record 10.3 million tonnes.
June quarter production of saleable coal was up 27 per cent to 2.9 million tonnes.
However coal prices fell during the quarter.
Whitehaven gets most of its earnings from thermal coal, but the price it realised during the quarter fell from $US75.19 a tonne to US$72.81.
"While demand continues to grow, albeit at a lower rate than in recent years, a state of oversupply is expected over the next six months," the company said.
Metallurgical coal - used in steelmaking - was down from $US100.79 a tonne to $US93.63, with Whitehaven predicting $US91-$US92 this quarter.
However positive price signs were emerging in that market with about 19 million tonnes of metallurgical coal output removed and more cuts likely to occur in coming weeks.
Whitehaven's coal production has hit record levels.
Bank share prices have weakened considerably since we reported on them this morning (see post at 10:43), and they've taken the market down with them. It may be that investors are only now starting to digest the interim Murray report released this morning, and don't like what they taste...
- CBA -0.6%
- ANZ -0.8%
- Westpac -0.3%
- NAB flat
- Bendigo & Adelaide Bank flat
- Bank of Qld +0.7%
- AMP +0.2%
- Challenger -0.4%
The Aussie dollar has enjoyed a bit of a bump immediately following the release of the RBA minutes, and last traded at 93.99 US cents. The currency - which traded as high as about $1.11 and as low as 80 US cents in the past five years - has remained above 90 cents since March even as the price of some of the nation’s key commodity exports declined.
In language echoing its July 1 statement, the RBA said “the exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy.”
The exchange rate remains "high by historical standards", the RBA reiterated in its latest minutes
Platinum Asset Management founder Kerr Neilson is shifting more of his portfolio to growing Asian markets and away from Japan and Europe, highlighting that Chinese shares are trading at almost half the valuation of their Western counterparts but boasting twice the economic growth.
The billionaire investor’s closely followed commentary was released in Platinum Capital’s quarterly report this morning. Platinum Capital is a listed investor which slightly underperformed over the past three months and year recording returns of 2.1 per cent and 17.3 per cent respectively. The MSCI World Index (in Australian dollar terms) added 3.1 per cent and 19.2 per cent. Since inception, Platinum Capital has averaged returns of 12.8 per cent.
“The engagement of reform in the world’s two most populous nations underpins our belief in the durability of global growth,” Mr Neilson wrote. “That there will be setbacks is likely but in the case of China, the domestic stock market has been in a severe downward trend for over six years... Other markets in Asia are equally interesting and we are finding companies we want to own.”
Fairfax Media is set to rejoin the ASX100, providing the takeover of David Jones proceeds, S&P has confirmed.
Shares in Fairfax, publisher of BusinessDay, have risen 40.6 per cent this year amid sharp cost-cutting and hopes about its real estate classifieds business, Domain. It is now valued at $2.12 billion.
Carsales.com and real estate classified business, REA Group, were in the ASX100, as at June 30. Nine Entertainment and News Corp were in the ASX 200.
The removal of David Jones will allow the entrance of vet group Greencross into the top 200.
Former competition chief Graeme Samuel has hit out at Labor and the Coalition for politicising the National Broadband Network and granting it what he sees as excessive monopoly protections.
Mr Samuel was Australian Competition and Consumer Commission chairman from 2003 to 2011, which included the formative years of the NBN under the Rudd and Gillard Labor governments.
Communications Minister Malcolm Turnbull has repeatedly criticised him for his support of the NBN and the fact that he oversaw the approval of key deals between NBN Co and Telstra and SingTel-Optus.
But Mr Samuel disagreed with Mr Turnbull's claims and said the NBN should not have been given the monopoly conditions it has. Under telecommunications laws passed by the previous Labor government, NBN Co is protected as the wholesale broadband network of choice.
''I'm never terribly keen on regulatory processes being overtaken by legislative processes. Competition policy served the country well for years and it's better to be left in place the way it has developed over time,'' Mr Samuel said.
''Anti-competitive legislation or exemptions from the processes of the competition law ought not to take place unless it could be demonstrated with a very vigorous, independent and objective analysis that the public benefit is best-served. It didn't take place here.''
Both NBN Co and the previous Labor government have said the monopolistic arrangements are vital to generate enough money to pay for the broadband network construction in rural and regional Australia.
With the interim Murray report out this morning (see post below), financial stocks are generally higher, aside from CBA and ANZ. Here's a taste:
- CBA -0.1%
- ANZ flat
- Westpac +0.4%
- NAB +0.5%
- Bendigo & Adelaide Bank 0.4%
- Bank of Qld +1.2%
- AMP +0.4%
- Challenger +1.3%
Whitehaven Coal expects a slight improvement in metallurgical coal prices in late 2014 as producers cut supply, while it expects thermal coal markets to remain oversupplied over the next six months.
Whitehaven, which is on track to start exporting coal from its long-delayed Maules Creek mine in March 2015, said about 19 million tonnes a year of metallurgical coal output had been cut so far and further cuts were likely in the near term.
“This should lead to a modest recovery in prices towards the end of this calendar year,” the company said in its quarterly production report on Tuesday.
Whitehaven expects prices for its metallurgical coal in the September quarter to be in the range of $91-$92 per tonne, down from $93.63 a tonne in the June quarter.
The miner's shares have jumped 5.4 per cent to $1.56.
The first government review into the financial system in almost two decades published its interim report this morning. Here’s what it has to say about key issues affecting consumers:
- Superannuation: There is not enough competition on fees, and scope for more efficiency. The report suggests introducing further policies similar to MySuper to push down costs and proposes reinstating a ban on super funds borrowing to invest.
- Credit card fees: The inquiry is considering banning “interchange fees”, and allowing merchants to work with real time pricing information to allow them to monitor fees.
- Retirement products: The inquiry wants to explore whether rules should be introduced to encourage retirees to buy retirement income products, introduce a default ‘investments’ option for retirees or mandate the use of certain retirement income products such as annuities.
- Financial advice: The inquiry recognised the importance of good financial advice and the need for affordable, non-conflicted advice. It suggested that the minimum standards required to become a financial advisor be increased and that a public register should be introduced. One of the strongest recommendations was to rename general advice as ‘sales’ or product information so that savers could better distinguish whether an agent was selling or actually advising something.
- Business access to finance: Small and medium-sized businesses face “structural” barriers in accessing finance, the report found.
- Home loans: The inquiry does not support restricting higher risk lending for the sake of financial stability, which New Zealand, the United Kingdom and other countries have done.
- Disclosure of investment products: It suggests new ways of communicating with investors, including using technology.
- Taxation: The inquiry pointed out that the current tax system “distorts” household finances, encouraging families to concentrate borrowing on property purchases.
Financial system inquiry chair David Murray.
Shares have extended yesterday's gains, with a mixed performance from the big banks limiting early gains.
The ASX 200 and All Ords are both 12 points higher, or 0.2 per cent, at 5523.3 and 5508.1, respectively.
Miners and energy names are the biggest contributors to the higher benchmark indices. BHP is 0.5 per cent higher and Woodside 0.9 per cent up. Rio has added 0.5 per cent while Fortescue has rebounded from yesterday's fall and gained 1.8 per cent after the iron ore price climbed overnight.
Telstra has gained 0.5 per cent.
CBA is 0.2 per cent lower and ANZ 0.1 per cent following the release of the interim Murray report this morning. But Westpac and NAB are up 0.2 per cent.
Newcrest has joined a rout in gold miners, down 1.5 per cent.
Coles has upped the ante in taking on Australia's big four banks, with plans to issue personal loans in a new service planned for introduction in mid-2015.
The supermarket giant has teamed up with financing major player GE Capital and will split the cost 50/50.
The partnership reflecting a global trend of retailers pushing into banking.
Coles finance director Rob Scott said the offering would initially stay clear of mortgages, issuing credit cards and other personal finance products, such as small loans.
"There are a whole range of products and services that we can get involved in," Mr Scott said.
"But we also have a few screens. The first thing is can we deliver fantastic value and, secondly, can we offer great service.
The joint venture is subject to formalising a memorandum of understanding and regulatory approvals, which Mr Scott said he hoped would be completed within this financial year. It will not require a banking licence.
Although Mr Scott said it was a natural progression in Coles' foray into financial services – steadily introduced by Wesfarmers since it bought the supermarket chain in 2007 – he declined to comment on any plans to obtain a banking licence that , which would enable the supermarket to accept deposits.
Such a move isn't unique among retailers. In Britain, Tesco, Sainsbury, and Marks & Spencer take deposits and sell personal loans.
"It's best that I say no comment on that."
Mr Scott acknowledged that the banks had a headstart on Coles, but said that was not a disadvantage.
"The advantage of us coming late into the game is that we don't have 40 years of IT legacy infrastructure. We can come in with best-in-class platforms that we can bring faster to market."
The major banks are trying to invest and overhaul legacy technology, although Commonwealth Bank has completed much of the upgrades.
Coles will team with GE Capital to offer loans.
Main Street and Wall Street are moving in opposite directions.
Individual investors are ploughing money back into the US stock market just as professional strategists say gains for this year are over.
About $US100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.
The growing optimism contrasts with forecasters from UBS to HSBC, who say the stock market will be stagnant with valuations at a four-year high. While the strategists have a mixed record of being right, history shows the bull market has already lasted longer than average and individuals tend to pile in at the end of the rally.
“If Wall Street, after pouring over all known data, comes up with a target and we’re already there, and you still see individual investors buying and they’re typically the ones that are late to the party, it would seem there is limited upside,” Terry Morris, a senior equity manager who helps oversee about $2.8 billion at National Penn Investors Trust, said.
US stocks slid from record highs last week, sending the Standard & Poor’s 500 Index to the biggest drop since April, amid concern over financial stress in Europe and the timing of higher U.S. interest rates. The Chicago Board Options Exchange Volatility Index jumped 17 per cent from a seven-year low.
The S&P 500 rose 0.5 percent overnight to 1,977.10 as Citigroup rallied on better-than-forecast earnings. The benchmark gauge is up 7 per cent for 2014, compared with a 3.5 per cent advance in the Bloomberg Commodity Index of 22 raw materials and 3.3 per cent gain for the Bloomberg US Treasury Bond Index.
Gold futures posted the biggest decline in almost seven months overnight as Portuguese banking concerns eased and equities gained, diminishing demand for haven assets.
Portuguese 10-year government bonds were set for the biggest two-day advance in a month on speculation that Portugal would contain financial woes at one of its banking groups. The Standard & Poor's 500 Index added as much as 0.6 per cent after Citigroup reported profit that topped analysts' estimates.
The drop comes after gold capped the longest run of weekly gains since 2011, partly as missed payments on notes by a parent company of Portugal's second-biggest bank renewed concern that Europe hasn't resolved its debt crisis.
EU spokesman Simon O'Connor said July 11 that the country has taken steps to shore up its financial system. Goldman Sachs's Jeffrey Currie reiterated his outlook for lower bullion prices as confidence increases in the economic recovery and inflation remains tame.
"A strong stock market and some stability in the EU" are pressuring gold, Peter Thomas, a senior vice president at Zaner Group in Chicago, said. "A lot of people were looking at Portugal as a domino effect, and as we saw, O'Connor prevailed and it didn't have a significant impact."
Gold futures for August delivery fell 2.3 per cent to settle at $US1,306.70 an ounce at 1.50 pm on the Comex in New York, the biggest loss for a most-active contract since December 19.
Goldman's Currie reiterated his outlook for prices to drop to $1,050 an ounce by year-end, even as hedge funds add to their bullish holdings for a fifth straight week and assets in exchange-traded products advance.
The gold price has ended its longest run of weekly gains since 2011. Photo: Supplied
Local shares are poised to open higher, lifted by positive sentiment on Wall St after unexpectedly solid quarterly results from Citigroup, while the RBA releases minutes of its last meeting late this morning.
Here’s what you need2know:
- SPI futures up 20 points to 5491
- AUD at 93.89 US cents
- On Wall St, S&P 500 +0.5%, Dow +0.7%, Nasdaq +0.6%
- In Europe, Euro Stoxx 50 +0.9%, FTSE +0.8%, CAC +0.8%, DAX +1.2%
- Spot gold plunges 2.4% or $US31.55 to $US1307.15 an ounce
- Brent oil up 14 US cents to $US106.80 per barrel
- Iron ore up over 1 per cent to $US97.90 per tonne
What's on today:
- Australia: RBA minutes and ABS new car sales, both at 11:30am AEST. Financial System Inquiry interim report (Murray report) was released at 8am.
- US: Testimony by US Federal Reserve chair, retail sales
- Japan: Bank of Japan monetary policy statement and press conference
Stocks to watch:
- Woolworths cut to neutral at Credit Suisse
- CBA cut to hold from buy at Bell Potter; price target $86
- Australand: indpendent expert KPMG concludes Frasers Centrepoint's $4.48/share offer is fair and reasonable
- Buru Energy cut to hold from buy at Deutsche Bank
- Cape Lambert to get $51.6m after the co reaches settlement with MCC on iron ore dispute
- Greencross to replace David Jones in the ASX 200 after close of trading on July 18
- Lion Air may buy Qantas' stake in Jetstar Asia: Reuters
- Resolute Mining raised to hold from sell at Canaccord; PT 60c
- Sedgman: Private equity group is working on a offer: AFR
- Wesfarmers: Coles to team up with GE Capital on personal loans: AFR