Markets Live: Caution ahead of Fed

That's all from us here at Markets Live for this week. Have a great weekend.

Click here for a full wrap of the day's session

And for the week:

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Here are the best and worst performers on the ASX200 today:

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shares up

For the week, the ASX200 added 74.61 points, or 1.5 per cent.

market close

The market has closed lower, with the benchmark S&P/ASX fell 22.9 points, or 0.4 per cent, to 5219.6. The broader All Ords slipped 23.5 points, or 0.4 per cent, to 5214.7.

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As we mentioned earlier today, gold is heading for its worst week in two months, down 5.8 per cent to $US1311.58.

The precious metal poised to extend declines as the US Federal Reserve withdraws stimulus and economic data improve, according to Goldman Sachs, which says that there’s a risk that bullion may drop below $US1000 an ounce.

Spot gold was trading at $US1311 an ounce this afternoon, extending yesterday's 3.2 per cent slump.

While debt-ceiling discussions in the US and the Syrian crisis may support bullion in the near term, gold will resume its decline into next year, Jeffrey Currie, head of commodities research, said in an interview on Bloomberg Television today.

The bank’s target for 2014 was $US1050, and the commodity may overshoot to the downside, Mr Currie said in Singapore.

Spot gold hasn’t traded below $US1000 since October 2009.

Bullion has dropped 22 per cent this year as some investors lost faith in the metal as a store of value, the US economy improved and stocks and the greenback rallied.

The demise of gold.
The demise of gold. 
healthcare

Former CSL boss Brian McNamee left the top position at blood products and vaccines supplier at the end of June with pay and entitlements worth almost $20 million.

Dr McNamee spent 23 years as chief executive of CSL and stepped down on June 30, 2013, after growing the company into a global bio-pharmaceutical firm with an increased annual profit of $US1.22 billion in the 2012/13 financial year.

He continues in an advisory capacity to the CSL board until October 15.

Dr McNamee was replaced by Paul Perreault, who as president of CSL Behring, received a total remuneration of $3.04 million in fiscal 2013.

CSL’s annual report, released on Friday, shows that Dr McNamee’s total remuneration for fiscal 2013 was $19.6 million compared to $7.99 million in the prior year.

Of that $19.6 million, $7.88 million was received or available as cash in respect of 2013.

CSL said Dr McNamee’s end-of-service entitlements are payable in fiscal 2014, in accordance with the Corporations Act.

World markets have more than clawed back their deep losses from when the US investment bank Lehman Brothers filed for bankruptcy, although Australia remains one of a handful yet to return to record highs.

Australia’s benchmark S&P/ASX200 Index this week hit a five-year high, but is some 1600 points short of its November 2007 record.

From the peak to the GFC low, reached in March 2009, the benchmark S&P/ASX200 plummeted 50.4 per cent.

After Lehman Brothers collapsed in September the local market lost 37.4 per cent in just over a half a year.

But the United States share market, helped by a flood of cheap money, has seemingly put the worst behind it.

Both the Dow Jones and the S&P500 lost more than 40 per cent in months after Lehman, with both also falling more than 50 per cent from their 2007 peaks.

So how far have we really come?

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The ASX200 from 2007-now.
The ASX200 from 2007-now. 
bonds

Fixed-income markets are showing confidence Australia’s new government can cope with a spike in unemployment that has already climbed to a four-year high.

Since Tony Abbott’s Liberal-National coalition won elections on September 7, the cost to insure the nation’s sovereign debt has dropped 6 basis points compared with credit-default swaps on the US, set for the steepest weekly drop this year. The Australian dollar reached a three-month high and benchmark bond yields rose to a level unseen in almost 18 months as surveys on business and consumer sentiment improved.

Abbott defeated the Labor minority government pledging to lower taxes and cut red tape in order to spur the $1.5 trillion economy as a China-led mining investment boom crests. Global risk appetite was buoyed this week by the possibility a US military strike on Syria may be averted and on prospects the Federal Reserve’s stimulus withdrawal will be gradual.

‘‘I suspect we’ve passed the low point in this current slowdown,’’ said Deutsche Bank economist Phil O’Donaghoe. ‘‘Australia is a small, open economy and we’re very dependent on the global outlook. There are some reasons to be optimistic, particularly with Chinese data of late.’’

china

It's pretty much a sea of red around the region, amid some profit taking after a strong week of gains, but the biggest losses are on the Chinese market.

The Shanghai Composite is down 1 per cent, its biggest slide in seven weeks, led down by shippers and banks. It's still up a ripping 4.3 per cent this week.

‘‘It’s good to see some corrections for stocks after the recent rally,’’ says Wu Kan, a Shanghai-based fund manager at Dragon Life Insurance. ‘‘After the correction, we’ll see stocks continue to go up as there are lots of expectations about reform measures from the government.’’

Some traders expect the losses to be only temporary, amid growing signs the worst of the economic slowdown is over.

"I think we are due for more gains and we are recommending clients start accumulating more beta counters in the Chinese banking and property sectors," says Francis Cheung, CLSA's managing director of Hong Kong-China strategy.

"The rally so far has been mainly short covering and some of the long money is beginning to return. So many were so bearish on China earlier this year, so even a return to equal weight will help lift the market."

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bonds

Fixed-income markets are showing confidence an Abbott government can cope with a spike in unemployment that has already climbed to a four-year high.

Since the Coalition won the election, the cost to insure Australia's sovereign debt has dropped 6 basis points compared with credit-default swaps on the US, set for the steepest weekly drop this year.

The Australian dollar reached a three-month high and benchmark bond yields rose to a level unseen in almost 18 months as surveys on business and consumer sentiment improved.

‘I suspect we’ve passed the low point in this current slowdown,’’ says Deutsche Bank economist Phil O’Donaghoe. ‘‘Australia is a small, open economy and we’re very dependent on the global outlook. There are some reasons to be optimistic, particularly with Chinese data of late.’’

However, the weak jobs data provided a bit of a reminder that Australia’s probably going to lag any global pickup, says Michael Turner, a debt strategist at Royal Bank of Canada. ‘‘The market was probably getting a bit ahead of itself, having seen a couple of decent confidence numbers this week, maybe a slightly better tone in general after the election and some decent Chinese data.’’

analysis

Can exports fill the mining capex hole? UBS economists Scott Haslem and George Tharenou ask in a note this afternoon:

  • It’s almost certain slowing mining capex will be a significant drag on growth in the period ahead. To avoid a period of weak activity & rising unemployment, Australia needs to rebalance, back toward more domestic-led growth. There are tentative signs this is occurring, helped by a lower RBA cash rate, and a now lower AUD. But the moderate recovery in housing, worth about ¼%pt to y/y growth, won’t be enough.
  • While this suggests Australia’s domestic growth will be below trend for a while to come, we’d argue forecasters are under-estimating the likely benefit to ‘top-line’ GDP growth from the coming boom in export growth.
  • Our analysis suggests the pay-off post the capex boom – higher export volumes & lower import volumes – will add significantly to real GDP growth over the next 3-5 years.
  • In the wake of the capex boom, our analysis suggests export volumes will grow an above average 7½%pa from 2013-16, and given weaker capital imports & a lower AUD, we see import volumes rising a below average 2¼% pa from 2013-16.
  • Together, this will add a significant 1-1½%pt to y/y GDP growth. Relative to a net export drag of 1¼%pt from 2010-12, this could indeed ‘fill the mining capex hole’.
legal

The ghosts of a long-running corruption scandal have returned to haunt Pilbara junior Brockman Mining, with its chief executive having charges laid against him in Hong Kong over the past 24 hours.

Luk Kin Peter Joseph has confirmed that charges have been laid against him by Hong Kong's Independent Commission Against Corruption, which has been investigating him since October 2011.

While the exact nature of the charges were unclear, Brockman said Mr Luk planned to defend the charges vigorously.

The charges come at an awkward time for Brockman, which is entering the pointy-end of a rail access dispute with Fortescue in Western Australia.

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tech

Goldman Sachs, on pace to be the top adviser on US initial public offerings for the first time since 2009, scored a coup by landing the lead role on Twitter’s sale.

Twitter, which announced today that it filed for an IPO, gave Goldman Sachs the job of running the sale, a person with knowledge of the matter said. Twitter is likely to appoint other banks on the offering.

Goldman Sachs lost out to rival Morgan Stanley on similar roles in the highest-profile technology IPOs in recent years, including Facebook’s $16 billion sale last year and offerings by Groupon and Zynga. the year before. San Francisco-based Twitter may have opted for Goldman Sachs after the other offerings drew criticism and complaints from shareholders, according to Michael Holland of Holland & Co.

‘‘The Facebook experience was one that was so egregious that Twitter did a fairly predictable thing,’’ said Holland. ‘‘When the biggest and best have needed IPO services, Goldman is always a finalist.’’

banks

ANZ has announced it will leave its variable interest rate on hold at 5.88 per cent.

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asian markets

With just over half the local trade day done and dusted, here's how the rest of the region is looking:

  • Nikkei: -0.3%
  • Shanghai: -0.5%
  • Taiwan: -0.6%
  • South Korea: -0.6%
  • Singapore: -0.2%
  • New Zealand: +0.2%
housing

This story has gathered quite a bit of steam and is sure you have you guys arguing a bit in the comments section (keep it civil please).

Home prices in Sydney could rise by as much as 10 per cent over the next 12 months, driven in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents.

As much as 80 per cent of homes in parts of Sydney are being sold to Chinese buyers, John McGrath, chief executive officer of the company that recorded $7 billion of property sales in the year to June 30, said in an interview in Sydney. Record-low interest rates and the biggest influx of investors in almost a decade are also fuelling prices.

“The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market,” McGrath said. “Record low interest rates, the ability to fix such rates for a long period of time is very attractive.”

Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the US and Singapore in fiscal year 2012, the latest figures from the Foreign Investment Review Board showed. They accounted for $4.2 billion of transactions, a 75 per cent jump from 2010, according to the data.

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mining

The world’s largest drilling company Boart Longyear has had its credit rating downgraded as it braces for a tough year ahead.

Ratings agency Standard and Poor’s cut the company’s credit rating from B+ to B, and revised its ratings outlook from stable to negative.

Boart recently recorded a loss of $US329 million ($366.13 million) for the first half of 2013, driven largely by massive falls in earnings in its drilling services division as mining companies continue to slash their exploration budgets.

Around half the company’s drilling rigs are now laying idle and it has slashed 2,800 staff this year.

Shares in the company were down 2 per cent cent at 48.5 cents.

legal

Australian financial research analyst Trent Martin faces a five-year prison sentence in the US after pleading guilty to an insider trading scandal involving computing giant IBM’s confidential $US1.2 billion takeover of a Chicago software company.

Martin, 34, who grew up on Sydney’s northern beaches, appeared before US District Court Judge Andrew Carter Jr in a Manhattan courtroom.

Martin was arrested just before Christmas in Hong Kong and his lawyer Larry Krantz said he spent an horrific three months in Hong Kong jails, including a period in a prison hospital for inmates with ‘‘severe psychiatric disorders’’, before eventually being extradited to the US and freed on bail.

Martin, who was the key figure in the $US1 million-plus insider trading scandal but pocketed just $US7,900 for himself, had maintained his innocence until Thursday when he entered guilty pleas before Judge Carter Jr to one count of conspiracy to commit securities fraud.

iron

Aquila Resources has rebounded into profit as it offloads assets and plans to bring its Eagle Downs project into production by 2017.

Aquila said 2012-13 profit was $317 million following a loss of $238 million in the prior year.

Revenue from the sale of coal was $197 million in the year.

The company said asset sales replaced coal sales as the primary source of income during the year, with the sale of three assets resulting in a net gain of $491 million.

Aquila sold a 50 per cent stake in its Isaac Plains project and a 24.5 per cent interest in Belvedere.

The company said its Eagle Downs project was scheduled for production in the first half of 2017.

Aquila shares are down 1.8 per cent to $2.18.

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