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.
Australia’s big banks have underpinned solid gains on the sharemarket’s first day of trade after the Easter break.
Westpac and ANZ shares hit record highs with their outperformance correlating with the traditional interim dividend period in autumn.
The benchmark S&P/ASX 200 Index rose 25.1 points, or 0.5 per cent, to 5482.7 points, while the broader All Ordinaries Index firmed 22.3 points, or 0.4 per cent, to 5467.1 points.
But volumes were thin, as expected in a week book-ended by Easter Monday and Anzac Day this Friday.
Still, Platypus Asset Management founder and chief investment officer Donald Williams said the performance of the big banks was solid and expected they alone could add another 100 points to the index in coming months.
Mr Williams said the fact the ASX has traded above 5200 points since February was in large part thanks to the banks.
‘‘We are not necessarily expecting major upgrades in the banks but I think they will produce a pretty good set of results. That might give the market a bit more impetus ... or at least to maintain current levels if nothing else,’’ Mr Williams said.
‘‘Their earnings growth rates are pretty solid given how poor credit growth is at the moment, although that is improving now.’’
Westpac leapt 35 cents, or 1 per cent, to $35.29, while ANZ strengthened 40 cents, or 1.2 per cent, to $34.28. The biggest company on the ASX, Commonwealth Bank, rose 46 cents, or 0.6 per cent, to $78.03, while NAB firmed 13 cents, or 0.4 per cent to $35.49.
The resource sector was winded after Chinese steel rebar futures dropped for the fifth day on Monday on fears demand will be unable to absorb incipient supply.
Index heavyweight BHP eased 9 cents, or 0.2 per cent, to $38.01, while rival Rio Tinto dropped 63 cents, or 1 per cent, to $62.74.
And here are the best and worst for the day.
Energy stocks were among the winners, and there are a number in the top performers.
As flagged a number of times, Woolworths is living up to it ASX code.
Miners were on the nose, and gold miners in particular, after the iron ore and precious metal price fell.
Another sharp move at the end of day settlement has helped the ASX 200 to a 25 point gain, or 0.5 per cent, to 5479.3, while the All Ords closed 22 points higher to 5467.1.
Woolworths surged 2.4 per cent, extending its gains to 6.5 per cent in only a handful of sessions. Wesfarmers also increased 1.1 per cent.
ANZ jumped 1.2 per cent and Westpac 1 per cent, while CBA and NAB also climbed, to make financials the biggest impetus for today's gains.
Woodside jumped 2.2 per cent.
The miners threatened to spoil the party, but could only limit the broader market's gains. BHP was down 0.2 per cent and Rio 1 per cent.
Out-of-favour blue chips Coca-Cola Amatil and QBE fell 1.7 and 1.1 per cent, respectively, while Crown also stumbled 1.1 per cent on reports it planned a $2 billion tilt at a Las Vegas casino.
We've read that cyclicals look good investments (see previous posts), but perhaps not all.
Analysts at CIMB reckon James Hardie and Boral (both of which are rated “reduce” by the broker) are priced for a robust and largely uninterrupted recovery in US housing activity.
But the analysts wonder how likely this is, pointing to weak recent housing permits and starts data for February.
The latter were down 5 per cent on the same month last year – “well below expectations and likely impacted by a severe winter”.
Total housing permits – the leading indicator – were up 10 per cent over the same period, however the single-family segment fell by 1 per cent.
(Note the CIMB analysts use original data rather than the seasonally adjusted figures as they believe it provides the greatest insight into volumes.)
“Any slowdown in US housing activity would impact earnings for James Hardie and Boral; however, it is important to note the data continues to reflect a seasonally quiet period and particularly challenging winter,” write the analysts.
“We believe that a sustained period of weakness, or even ‘moderate’ (below 20 per cent) growth would likely see earnings growth fall short of the market’s expectations. January-March tend to be seasonally slow months. However, absent any significant improvement in the spring, the market’s expectations will likely warrant scrutiny.”Back to top
Here are four reasons to buy cyclicals (companies whose fortunes are heavily influenced by the economic cycle), according to the equity strategy team at Deutsche Bank:
- EPS forecasts are holding up nicely, and valuations look reasonable for cyclicals. The consensus of analysts expects earnings to grow around 8% in FY14, a forecast which has held steady for the past 8 months. This stability is a marked change from the past few years of heavy downgrades (see chart).
Valuations also favour cyclicals. Resource stocks are cheap versus the rest of the market, trading on a PE of 13.25 (a little below the 10-yr average). Cyclical industrials don’t look cheap on a PE basis, but offer upside as earnings normalise from cyclical lows.
- Businesses are reporting the best conditions in 2½ years. Sentiment at current levels points to the non-resource economy getting back to trend growth, which would support earnings for domestic cyclicals.
- The turn in the labour market should boost household income and spending.
- Chinese growth should get a boost from exports. China has reported heavy falls in export in the past 2 months, but this data looks distorted. Net exports should add moderately to growth this year, for the first time since 2010.
And Deutsche's preferred stocks to play this theme are:
- Toll and Asciano for value (12½x & 13½x, respectively) and exposure to the coming inventory re-stocking cycle.
- Boral, Bluescope, Stockland, Lend Lease & Harvey Norman, for good earnings growth which should result from their housing market leverage.
- Nine and Crown for general economy exposure. Nine is also cheap (13x), and has exposure to consumer spend on services, a growth area.
- Rio and BHP for value (12m fwd PE of 10½x & 13½x, respectively), cost-out, rising free cash flow, and leverage to better China & global growth.
As we mentioned earlier, ANZ and Westpac are trading at all-time highs, and we can add Woolworths to that list (the stock is up almost 7 per cent in four sessions).
And here are the companies trading at 52-week highs (none are at equivalent lows today).
Nader Naeimi predicted the Australian dollar would gain in February when wagers against the currency were near an all-time high. Now, he’s defying traders again by bracing for declines.
The head of dynamic asset allocation at AMP Capital Investors recommended buying the Aussie in anticipation of a rally two months ago, when leveraged investors were making near-record bets on a drop. Now that its developed world-beating gain in 2014 has convinced speculators to bet on an advance for the first time in almost a year, the fund manager is selling.
“When a view becomes so lopsided in one direction, the move is probably over,” Naeimi said. “Given that I don’t think the Australian dollar will trend higher, I’m not keen to wait for the bullish sentiment to hit extremes before selling again.”
The currency has climbed 4.7 percent this year to 93.34 US cents as home prices saw record gains and the unemployment rate unexpectedly fell. Hedge funds and other large speculators added to their net bullish bets on the Aussie last week, bringing wagers on gains to the most since April 2013.
Naeimi said last week he started reducing bets on the Aussie on April 16 and is looking to sell it toward 97. In February he said he’d buy the Aussie at 85 to 89 cents with expectations that the currency would rise to 95.
Of the 48 year-end Aussie estimates compiled by Bloomberg, Wells Fargo’s is the most bullish at 97 cents along with Commonwealth Bank of Australia.
TD Securities sees the Aussie rising further this quarter, predicting it will reach 95.50 cents by June 30 before ending the year at 87.
And yet more on the elusive figure who appears to be at the centre of the alleged $6.4 billion funding deal with iron ore hopeful Padbury…
Former hair regrowth king Roland "Husner" Bleyer has a colourful track record. He has offered to help the Greek government by arranging a 20 billion euros debt deal. He claims to have held down a key role at the Azerbaijan Bank. And now he is at the heart of a controversial proposal to finance the stalled $6 billion-plus Oakajee port and rail project in Western Australia through iron ore tiddler Padbury.
But is has now emerged that Bleyer's network of Australian companies says it was also there for billionaire Andrew Forrest in Fortescue Metals Group's hour of need.
It was back when the iron ore miner was facing a debt crisis in late 2012. The iron price had slipped to $US87 a tonne - well done from $US140 per tonne - and Mr Forrest's company needed to refinance $US4.5 billion in debt. The alternative was capital raising that would have diluted Mr Forrest's stake.
Mr Bleyer said that he had never personally spoken to FMG "but one of the other Australian companies did speak, did talk with some people at Fortescue".
Mr Bleyer would not say which of his companies had held discussion with Fortescue. In the case of Padbury, the proposed funding deal appears to run by a private company called Alliance Super Holdings. Industry sources claim that representatives of Alliance Super Holdings - whose directors include Kenneth Grimmond and Jeffrey Perrey - have used the supposed Fortescue discussions as a selling point to do other deals.
Market sources say that Mr Bleyer rarely fronts meetings with companies Alliance is interested in dealing with. He is said to leave the discussion to directors such as Mr Grimmond and Mr Perrey.
Rising commission payments, soaring lapse rates and unnecessary product enhancements aimed at encouraging advisers to switch their clients are undermining life insurers' attempts to stop churning, say advisers and product providers.
Some insurers are claiming that lapse rates – where policyholders drop their cover – are rising to about 19 per cent because of economic pressures, rising premiums and competitors grabbing market share.
Attempts by the industry to avoid more regulation and clean up bad practices were derailed after major players – including ClearView and ANZ Bank's OnePath – rejected the strategy.
It is believed dissenters back the idea of reform but disagreed with the proposed agenda, believing it would stifle competition and do little to address needed long-term reforms.
Anthony Brown, chief executive of Noble Oak, said many life insurers continue to add low-value features to their life insurance products to obtain higher grades from the ratings agencies, allowing advisers to justify a switch to the new product.
"Churning" happens when a policyholder is encouraged by their adviser to frequently turn over policies to generate commission income for themselves.Back to top
As banks drive our market higher today, it’s worth noting that ANZ ($34.18 per share) and Westpac ($35.23) are trading at all-time highs, while CBA at $77.91 is not far off its $79.32 record close recorded on November 8.
On the other hand, NAB remains well below its pre-GFC highs.
The chart below shows the past 10 years’ worth of weekly share price movements, normalised off a base of 100.
CBA has clearly been the best performing name.
Oil Search has given a bullish assessment of production for the full year, after reporting a year-on-year quarterly increase in output for the March quarter and confirming a likely early start to production at the large Papua New Guinea liquefied natural gas project.
“Based on recent PNG LNG Project progress and assuming a relatively trouble-free commissioning and ramp-up process, we presently anticipate that Oil Search’s 2014 production will be at the upper end of our previously advised guidance range of 13 – 16 million barrels of oil equivalent,” Oil Search managing director Peter Botten said in a quarterly report this morning.
“Further guidance will be provided once we have received a formal PNG LNG project production update from the operator.”
Oil Search, which some sources say is in the sights of Woodside Petroleum as a potential takeover target, posted revenues of $US170.2 million for the March quarter on production of 1.68 million barrels of oil equivalent.
Output was down 5 per cent on the 1.77 million boe produced in the December quarter, but up from 1.56 million boe in the year-earlier quarter.
The company said the result was “pleasing” given the impact of a planned shutdown of its oil production plants during the quarter.
The ExxonMobil-operated PNG LNG venture is “progressing a few months ahead of schedule” with first cargo expected in mid-2014, Oil Search said, confirming previous guidance given by the US operator of the $US19 billion project.
NAB's head of personal banking says fierce competition in the $1.2 trillion mortgage market is pressuring profit margins from home lending, as lenders scramble to win customers.
With banks offering hefty discounts to new borrowers, group executive Gavin Slater said the pricing of new loans was subtly crimping the bank's margins from mortgages, a trend that is likely to continue.
While he did not go as far as smaller banks who claim there is a price war, he said rivalry between lenders was ''inevitably'' squeezing margins – which are a key influence on profits.
''Whenever there's competition you're going to have margin pressure,'' he said in an interview with BusinessDay.
Mr Slater said he did not think the trend would have a "dramatic" impact, but he believes it is likely to continue.
Record low interest rates – which are expected to remain unchanged until late this year at the earliest - also squeeze bank profits because lenders make lower returns on deposits and surplus capital.
''If I had to predict the future, I don't see margin spreads going the other way... I don't see them going up. I think margin pressure is a fact of our industry and I think it reflects competition.''
It is the latest acknowledgement that competition between banks could hit profit growth.
Australia is at the “very beginning of a recovery from an extended growth recession”, writes Morgans’s chief economist, Michael Knox, supporting his view that the RBA will not raise rates before the final quarter of 2015.
A growth recession, explains Knox, is when employment growth is slower than growth in the labour force.
“The average growth rate of employment in Australia since the beginning of this century is 2.05 per cent per annum. As you can see in the chart below, employment in the past two years has only been a fraction of this.
“The trend measure of year-on-year employment growth was well below average back in July 2012. For the year to July 2012 employment by this measure grew by only 1.2%. A year later in July 2013, it was even lower at 1.03%. The low in this series of year-on-year growth rate in employment was not reached until February 2014, where employment grew only 0.64% for the year to date. Inevitably this led to unemployment sneaking up.
“In February unemployment was 5.9% on the trend measure and 6.1% on the seasonally adjusted measure. In March, unemployment fell on a seasonally adjusted basis from 6.1% to 5.8%.
“This was reported as the beginning of a rapid recovery - it is not. The improvement in the more reliable trend measure was minuscule. Trend employment growth rose from 0.64% for year to February to 0.66% for the year to March.
“We do think this is the bottom for employment, but the recovery will take a long time to happen. We suspect the seasonally adjusted number for unemployment, having fallen too far in March, will rise again in April. In fact, employment growth has to be growing at faster than the long term average of 2.05% for unemployment to fall. We believe it will be the end of 2014 before employment again rises to the long term average level.
“Many commentators have suggested that the improvement in the employment picture we have just seen suggests that interest rates will soon be going up. We think that is entirely premature. It is difficult to believe that the RBA will put up interest rates in the circumstances of rising unemployment.
“Our view remains that there will be no increase in interest rates before the final quarter of 2015.”
The story that keeps on giving…
Padbury Mining's $6.4 billion man, former hair clinic operator Roland Bleyer, claims to have been in negotiations with the government of prime minister George Papandreou to lend Greece billions of euros during its debt crisis.
He also claims to have played a key role at an Azerbaijani bank and had business meetings with Lebanese prime minister Rafic Hariri, who was assassinated in a 2005 bombing, and ministers of the Syrian government.
In addition, he claims to have been kidnapped while in London in 2000 and to have beaten two cocaine-related criminal charges in the US.
Mr Bleyer, also known as Roland Husner, made the claims during a deposition given under oath in 2012 after suing a website for defamation.
On Friday he told BusinessDay a group of companies including Superkite and Alliance Super Holdings, where he is ''chairman of the finance committee'', is working with mining junior Padbury to fund a $6.4 billion port and rail project at Oakajee, in Western Australia.
Padbury stock has been suspended since April 11, following a share price rise triggered when the company announced it had secured funding for the deal.Back to top
US health giant HCA Holdings is among the bidders eyeing $4 billion Melbourne-based private hospital group, Healthscope.
Healthscope’s owners TPG and The Carlyle Group are currently running three potential exit processes; a full $4 billion-plus trade sale, a float or a property operating company split and sale.
Sources close to the process say Deutsche Bank is advising HCA on a potential acquisition for Healthscope, the country’s second-largest private hospital operator, in its entirety.
HCA, capitalised at $US22 billion, is competing against Malaysia healthcare giant IHH, which is taking its counsel from JPMorgan and CIMB, and at least one other Asian trade buyer.
Healthscope is looking for bids for the entire group to be submitted by the end of April/early May, while the float has been pencilled in for end of July.
Bank of America and the New York Stock Exchange were among dozens of exchanges, brokerages and traders sued over high-frequency trading by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.
Scrutiny of high-frequency trading and whether it gives some investors unfair advantage intensified this year amid government probes and the March 31 publication of “Flash Boys” by Michael Lewis.
The lawsuit filed yesterday is one of the first by an institutional investor since US Attorney General Eric Holder in March promised Congress a full investigation into whether high-frequency traders violated laws against trading on inside information.
One defendant in Providence’s complaint, Virtu Financial, a high-frequency trader that delayed its initial public offering, has received inquiries from the office of New York’s attorney general, Eric Schneiderman, according to a person familiar with the matter. Schneiderman announced last month that he’s investigating high-frequency traders.
The FBI has said it’s looking into whether firms that engage in high-speed trades get an improper jump on other investors by using information about their trading to make profits.
Providence is seeking unspecified damages on behalf of all public investors that bought or sold stock in the last five years, according to the complaint filed yesterday in federal court in Manhattan.
Providence claims the exchanges, the biggest brokerage firms and a group of high-speed trading firms allowed some traders to gain access to non-public data about investors’ trades. The scheme allegedly included electronic front-running, in which high-frequency traders learned of bids and offers, made transactions at better prices and then profited from the investors that made the original orders.
Providence named as defendants 14 brokerages, 16 securities exchanges and 12 high-speed traders.
Shares are trading marginally higher at the open, with banks more than making up for weakness in the miners.
The ASX 200 is up 9 points, or 0.2 per cent, to 5463, while the All Ords is 8 points higher at 5452.7.
The big banks are all stronger, led by ANZ, which is up 0.5 per cent, Westpac and NAB are up 0.4 per cent and CBA 0.3 per cent.
Woodside is 1.1 per cent higher, while a quarterly production report has pushed Santos 0.8 per cent up.
A fall in the iron ore price on more indications Chinese authorities are reluctant to implement stimulus measures to support the slowing economy has hit miners. BHP is 0.6 per cent lower and Rio 1.2 per cent. Fortescue has retreated 0.9 per cent.
Newcrest Mining - down 2.2 per cent - has led gold miners lower to be the worst performing corner of the market this morning.
Monday's gain marked the S&P 500's fifth straight climb, its longest winning streak since October. The S&P 500 wrapped up its best week since July last week, boosted by results from such names as General Electric and Morgan Stanley.
The Nasdaq also scored its fifth straight gain on Monday.
Of the 87 companies in the S&P 500 that had reported results through Monday morning, 62.1 per cent have topped earnings expectations, according to Thomson Reuters data, compared with the 66 per cent average over the past four quarters. On the revenue side, 51.7 percent have exceeded forecasts, below the 54 percent average over the past four quarters.
Dozens of S&P 500 components will report earnings this week, including such closely watched companies as Apple, Biogen Idec and Facebook.
A number of Dow components, including McDonald's, AT&T Inc, Procter & Gamble and Caterpillar, will also report results.
More than 30 companies in the Nasdaq 100 are slated to report earnings. The Nasdaq 100 represents more than half of the index's weight.
S&P 500 companies' first-quarter earnings are projected to have increased 0.8 per cent from a year ago, Thomson Reuters data showed. The forecast is down sharply from the start of the year, when profit growth was estimated at 6.5 percent.
"We are certainly in a wait-and-see mode for earnings, which can be volatile, and therefore a lot of money is just waiting on the sidelines to see what happens," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
"Certainly, companies that confirm the rest of the year guidance, even if they miss the first quarter, it's a good thing because there is still a lot of expectation that we are going to see the economy begin to accelerate and also do some catch-up from the weather-impacted first quarter."
The RBA’s move to a “neutral bias” on monetary policy has angered the Abbott government, which believes any upward pressure on the dollar makes economic management in the next two to three years more difficult.
The central bank has been informed directly of Treasurer Joe Hockey’s displeasure.
The Reserve Bank shifted to a neutral position on future interest rates in February when board members indicated they were finished with a two-year cutting cycle.
The central bank signalled it had little choice but to shift position in February after a rebound in key economic indicators, including for inflation.
The neutral stance leaves open further rate cuts if there is an unforeseen shock such as an economic slump in China or big budget cuts at home.
More importantly, however, it leaves open the prospect of higher rates. Concern is mounting among some economists that official rates are too low given signs of strength in the labour market, with more than 80,000 jobs created in recent months.
All eyes will be on this week’s consumer price index. Analysts predict headline inflation surged in the first quarter to 3.2 per cent, the fastest pace in more than two years and above the top of the Reserve Bank’s 2 to 3 per cent target range.
The government’s displeasure over the stance of monetary policy comes at a challenging time for the Reserve Bank board, which is juggling the need to drive down the high dollar against risks of an asset-price blowout, particularly for house prices.
Senior government sources say they understand the central bank’s concern about property prices, but its stance does not help put further downward pressure on the dollar, and, if anything, is contributing to the renewed strength in the currency.Back to top