And here they are - winners and losers for the day.
Bit of a grab bag of uppers and downers, with Evolution Mining the top of the pops, and Lynas featuring in the bottom half of the league ladder this time around.
Best and worst performing stocks in the ASX 200 today.
Seven Group Holdings has warned dissident shareholders in the troubled Nexus Group that the group would likely collapse if its offer to take control of the oil and gas explorer fails.
The Seven offer values Nexus at just $23 million, which has sparked opposition from some Nexus shareholders.
Seven entered into a scheme of arrangement in late March to take control of Nexus Group, offering shareholders just 2c a share.
The offer price has been criticised by some shareholders for being a bargain basement price.
A shareholder meeting is to be held on June 12 to vote on the proposal.
‘‘If shareholders do not approve the scheme [of arrangement] ... in the absence of an alternative proposal ... that provides adequate and immediately available funding, the Nexus Board would be required to appoint administrators to the company,’’ Seven Group warned in a statement.
If that occurred, Seven Group said it would seek to gain control of Nexus assets ‘‘through the administration process or via the enforcement of its rights as secured creditor’’.
Nexus shares entered into a trading halt this afternoon.
Nice tweet from the WSJ's MarketWatch, showing how far off target the ECB is in terms of inflation and unemployment:
Investors have toasted the announcement overnight of further monetary easing policies by the ECB by pushing local banks higher, which translated into solid gains on the local bourse.
The ASX 200 added 27 points, or 0.5 per cent, to 5464, and the All Ords gained 24 points, or 0.4 per cent, to 5443.5.
The positive end to the week wasn't enough to offset a weak few days of the trading mid-week, with the benchmark index falling 28 points.
ANZ was the best of the big banks, up 1.3 per cent, while Westpac and CBA rose 1 per cent and NAB 0.9 per cent. Macquarie added 1.7 per cent.
Energy stocks performed well, up 1.1 per cent as a group, led by Oil Search (up 2.7 per cent) and Santos (up 1.2 per cent).
Gold miners added 2.2 per cent as the price of the precious metal enjoyed a bit of a bounce on the ECB announcement.
Telstra was the single biggest drag on the market, as it fell 1.3 per cent.
Fortescue fell 2.8 per cent and Rio 0.4 per cent, but BHP was up 0.1 per cent, leaving the metals and mining sector flat for the day.
Some of Apple’s ‘genius’ staff will be paid less than Coles’ checkout workers.
The tech giant has struck a new pay deal with retail staff that locks in starting rates lower than supermarket checkout workers and probable pay cuts in real terms every year for the next four years.
Last year, Apple recorded revenues of $6.1 billion from its Australian operations and a profit of $88.5 million in the country, which was lower than the previous year after its operation paid a $154 million dividend to its US parent. The 2013 net profit after tax was $52 million, down from $58.5 million in 2012.
The new pay deal was ratified by the Fair Work Commission on Thursday and will give Apple's lowest paid staff a base hourly rate of $20.55 from November.
Pay rates for all staff, including its so-called genius customer help staff, will rise by 2 per cent a year for the next four years, which is well below the current rate of inflation.
The agreement says these staff include salespeople as well as those stacking shelves, doing repairs and providing technical assistance.
The deal was struck with employees without the involvement of a union and was signed on behalf of employees by a senior human resources executive at the company.
In a staff ballot to approve the deal, 1916 of the company's 2372 employees cast a vote. Of that number, all but 200 voted in favour of the deal.
Shop, Distributive and Allied Employees Association national secretary Joe De Bruyn said the basic wage equated to about $750 a week was not high by industry standards.
By comparison, the bottom rung for retail workers at Coles was $773.70 a week and the basic award minimum for shop assistants was $703.90, he said.
"I would say that $750 a week is not a princely sum given that Apple is a multinational company," he said.
Beijing's policy easing signals and measures in 2014. Source: Nomura
China’s economy will moderate over the next few years as Beijing looks to rebalance it, the World Bank says, but it has warned of risks from local government debt, a cooling real estate sector and an uncertain export recovery.
‘‘China’s growth will continue to moderate over the medium term, and the structural shifts will become more evident,’’ it said in an economic update released today.
The report pointed out that the world’s No.2 economy had shown signs of picking up in recent months thanks to government support measures, robust consumption and improving foreign demand, adding the recovery is likely to continue into the next two quarters.
The Washington-based lender forecast growth of 7.6 per cent this year, unchanged from its April estimate but lower than China’s actual growth of 7.7 per cent in 2013. Beijing’s own target for this year is 7.5 per cent.
However, it said there were dangers down the road, including from a disorderly deleveraging of local government debt, which could potentially trigger a sharp slowdown in investment - a key driver of the economy.
Nomura earlier this week revised upwards its GDP forecast both for the second quarter (now 7.4 per cent annual growth, from 7.1 per cent) and the full year (7.5 per cent, from 7.4 per cent), citing a pick-up in leading indicators such as the manufacturing PMIs plus a number of stimulus measures.
Iron ore is headed for its first weekly gain in eight after a slide in prices due to plentiful supply prompted some buying interest from Chinese steel mills.
Iron ore for September delivery on the Dalian Commodity Exchange is up 0.2 per cent at 687 yuan ($US110) a tonne. The July iron ore contract on the Singapore Exchange rose 0.4 percent to $US94.62 per tonne.
Iron ore for immediate delivery to China slipped 0.3 per cent to $US94.30 a tonne on Thursday, but the decline followed a three-day rebound from $US91.80 reached last Friday. For the week, the price is up nearly 3 per cent.
Despite the pick-up, iron ore remains below $US100 a tonne and not far above a 20-month low reached at the end of May as miners flood the market with spot cargoes.
Top supplier Vale has offered at least 2.2 million tonnes of iron ore cargoes via open tender this week, according to a trader who has seen the tenders, well above the amount it has offered in the spot market in recent months.
A 30 per cent decline in iron ore prices this year has helped boost profit margins of Chinese steel mills, the world's biggest buyers of the raw material, but has not encouraged them to buy iron ore in big volumes, traders said.
"Even though mills' margins are very good, they expect iron ore prices to trade between $US90 and $US100 in the second half. There's no mad rush to buy," said a trader in Singapore.
Coca-Cola has spent millions showcasing the bright, colourful drawings of Brazilian artist Speto on cans of its drinks around the world, in hopes that trumpeting its sponsorship of the upcoming FIFA World Cup championship in Brazil will burnish its brand.
But Brazilian street artist Paulo Ito recently reimagined the country's World Cup hosting with a darker image: a skinny boy clutching a knife and fork like Oliver Twist, crying over a dinner plate containing nothing but a soccer ball.
That such harsh sentiment is bubbling up in arguably the world's most soccer-obsessed nation could spell trouble for World Cup sponsors such as Coke, Hyundai, Sony, and Anheuser-Busch InBev, the makers of Budweiser. The companies have invested hundreds of millions to link their brands to the world's most-watched sporting event. They do so with slogans such as Budweiser's "Celebrate as one" and Coke's "One world, one game."
Growing street violence promises to interrupt the multinational marketing bonanza as the games start on June 12.
Protesters are fed up with high poverty, a lack of health care, and poor public services in the shadow of $US11 billion in event preparations.
Rather than letting the World Cup serve its traditional business role as a warm-and-fuzzy backdrop to sell stuff, activists seem intent on using the games as a global platform of their own—to highlight Brazil's inequality.
Brazilian activists are intent on using the World Cup to highlight the country's inequality.
Trading in Nexus Energy shares has been halted at the request of the company "pending the release of an announcement regarding the intentions of Seven Group Holdings in the event the proposed scheme of arrangement between the company and its shareholders is not implemented," according to an announcement to the ASX.
As things stand, Seven’s $26.6 million deal to take over the debt-laden oil and gas junior is at risk of being blocked as numerous shareholders line up against the deal, which requires 75 per cent approval to go ahead.
They believe the offer sells the company short and have concerns around what they see as a conflict of interest by former Nexus chairman Don Voelte, who is also chief executive of Seven.
The shares will return to trading by Tuesday at the latest.
Qantas has informed its Boeing 767 and 747 pilots that 223 of them will be surplus to requirements by the end of June as part of its 5000 company-wide staff cutting exercise.
Around 80 of them will be offered retraining on various other aircraft - but many of these would require relocation to other cities - in particular Adelaide.
The scheme will offer voluntary redundancy packages of one year's pay for those with more than 15 years with the company and less for those with fewer than 15 years.
It's unclear how many will take the package and thus what proportion of the pilots will be forced to leave.
Culling pilots won't be a cheap exercise for Qantas which employs a seniority based redundancy scheme whereby senior pilots take priority over their more junior colleagues which could force cuts to be taken in the junior pilots ranks.
While the redundancy costs would be lower for more junior pilots the rump of those staying would be more highly paid.
In addition it will involve hundreds of pilots being retrained.
The move follows an announcement two weeks ago of 475 job cuts from Melbourne and Brisbane call centre staff as the company consolidates these functions to a single location in Tasmania.
Sweeping changes to Frequent Flyer have begun Photo: Getty Images
With interest rates at record lows and tipped to stay that way, once inflation and tax are taken into account, you have a negative real yield. It forces investors into riskier assets. But they should be wary about overpaying for stocks. No matter how good the listed company, if you pay the wrong price for the stock, it’s not a great investment. A good return over a long period of time is a margin above inflation and gross domestic product.
That might not be exciting for some, but the current yield play will come to an end when interest rates eventually rise.
Clime Asset Management's John Abernethy says the “difficult decision for yield-focused investors is whether the current prices of equities, particularly bank shares, is a function of their bright prospects or a function of their relatively higher yield in the short term”.
He has also taken a look at Transurban.
“While it has steadily grown its distributions, its share price has essentially traded in the opposite direction to the movement of yields for bank bills,” Abernethy says.
“That tells me Transurban is a pure yield proposition, with the returns to an owner very much driven by the astuteness of the timing of the purchase against the interest rate environment.”
With interest rates at historic lows, it’s hard to see them falling much further, which means the outlook for the stock is lacklustre.
Coming hard on the heels of the 3 per cent rise in the minimum wage, an interim report by the Productivity Commission cites Australia as one of the most expensive places to do businesses, especially in retail sub-sectors such as clothing and department stores where our cost structure is greater than the United States and Britain.
Further constricted by anomalies ranging from restrictions on trading hours across and within the states, the retail sector and the 1.2 million people it employs is encumbered by unnecessary and costly regulations that if removed could slash business costs by $4 billion and unleash hundreds of millions of dollars in savings, the interim report said.
Retailers are also beset by the threat of the internet as part of a dynamic and globalised environment.
However, the interim report, stemming from a request by the Abbott government when it came to power last year to probe costs within retail, isn’t all doom and gloom with many examples presented to the Productivity Commission of retail businesses that have relatively high costs and are still highly competitive.
Commissioner Patricia Scott said in her 109-page report said that while some costs were driven by geography, markets and commercial decisions, some costs borne by the retail sector were heavily influenced by government regulations such as those affecting trading hours, utility charges, product labelling and food safety.
Labour costs are the single largest area of expense for most retail businesses, the report said.
Australian banks are tipped to benefit from the shift to negative interest rates in Europe, as the historic move by the ECB drives more investors towards the lenders’ bonds, dragging down funding costs.
However, analysts believe it will also become more appealing for Europe’s lenders to invest in higher-returning assets overseas, including debt issued by big corporations, especially banks.
With local banks’ wholesale funding costs already at their lowest levels since the global financial crisis, such a shift is likely to further drag down the cost of raising money from global investors.
Macquarie analyst Mike Wiblin says ECB's move to introduce negative interest rates could drive more European bank investors towards bonds or mortgage-backed securities issued by Australian banks, pushing down the sector's funding costs.
He notes that in the past when stimulus measures had been introduced by central banks overseas, bank funding costs had tended to fall.
"Spreads are pretty tight now but that doesn't mean they cannot get tighter. I do think it's positive for the sector. This may well be the start of what the ECB is doing." he says.
Australian banks need to raise about $100 billion a year on wholesale markets, about half of that internationally.
So just what exactly are negative interest rates? And why's the European Central Bank introducing them anyway?
Here's a useful article explaining the measures introduced by ECB supremo Mario Draghi overnight.
Turning to markets around the region, and the major bourses haven't responded all that positively to news of additional stimulus from the European Central Bank.
- Nikkei flat
- Hang Seng -0.1%
- Shanghai Composite -0.4%
- Taiwan TAIEX flat
- Korea's KOSPI -0.7%
- Jakarta Composite 0.2%
- NZX 50 +0.4%
For the first time in years, we don't feel overtaxed.
The latest Per Capita tax survey shows more Australians believe they pay the right amount of tax than believe they pay too much, the first such finding in three years.
The proportion who believe they pay “about the right amount” jumped 18 percentage points to 53 per cent in February 2014. The proportion who believe they pay too much fell 17 points to 33 per cent.
The executive director of the Per Capita think tank David Hetherington said there had been a “marked turnaround”. In the fourth of its annual surveys, the only regular survey of public attitudes to tax and government spending.
“Between 2010 and late 2012, our views of the tax system became steadily less generous,” he said.
“We felt increasingly we were paying too much tax and our support for public spending, while high, was falling."
“These sentiments have now reversed. Rather than saying they pay too much, Australians now claim they are paying about the right amount, and their support for higher public spending has risen.”
Mr Hetherington said the change appeared to be driven by a retreat from alarmist rhetoric around the carbon and mining taxes, the absence of the expected major economic pain arising from those taxes and an acceptance that the wind down of the mining boom meant Australians could no longer expect tax cuts without sacrificing services.
Shareholders in takeover target Crowe Horwath Australasia, Australia’s fifth largest accounting firm, have called for more disclosure of how profits are distributed between subsidiaries in the group.
Investors want assurances that any sale price will recognise a $45 million pile of franking credits held by the company, which at Thursday’s market close had a market capitalisation of $125.6 million.
Wilson Asset Management chairman Geoff Wilson, whose company controls roughly 2 per cent of Crowe Horwath stock, said the franking credit balance belonged to the shareholders.
“I want to send a clear message that the franking credits inside Crowe Horwath belong to current shareholders and any takeover deal must be structured in a way that finds a mechanism to return that,” he said.
Crowe Horwath’s biggest shareholder, Alceon Group, echoed the call.
“The company’s significant franking credit balance forms part of the overall value proposition and we would expect any proposal to acknowledge that,” Alceon Group director Daniel Chersky said.
The Sydney-based funds advisor has built a stake worth almost 20 per cent since it emerged that private equity firm, Anchorage Capital Partners, was doing due diligence back in March. Anchorage was beat out in a bidding war by current suitor Findex Australia.
Franking credits, also commonly referred to as imputation credits, are a mechanism to eliminate double taxation on corporate earnings when they are distributed to shareholders.
Read more ($).
If there was ever a video that summed up both the doublespeak, and the political economy of the euro crisis, it is ECB prez Mario Draghi at this press conference.
An earnest, clean-cut German journalist raises concerns that a policy of ever-lower rates is hurting savers.
Ah, says Super Mario, that questions reflects “a deep misunderstanding” about the ECB’s zero interest rate policy. You see, that applies to the interbank market, not to commercial deposit rates.
And, hey, if the banks pass that cost on to customers through lower rates, then that’s their decision – nothing to do with us! says Draghi.
Even better, the ECB put this video up on its website, presumably to allay the fears of savers everywhere!
Technocratic waffle ensues...
Mieko Tatsunami finds Prime Minister Shinzo Abe’s drive to reflate Japan’s economy hard to digest.
“The price of everything we eat on a daily basis is going up,” Tatsunami, 70, a retired kimono dresser, said while shopping in Tokyo’s Sugamo area. “I’m making do by halving the amount of meat I serve and adding more vegetables.”
Tatsunami’s concerns stem from the price of food soaring at the fastest pace in 23 years after April’s sales-tax increase. Rising prices helped push the nation’s misery index to the highest level since 1981 (see chart below), while wages adjusted for inflation fell the most in more than four years.
With food accounting for one quarter of the consumer price index and the central bank looking to drive inflation higher, a squeeze on household budgets threatens consumption as Abe weighs a further boost in the sales levy. The prime minister may be forced to ease the pain with economic stimulus, cash handouts or tax exemptions championed by his coalition partner.
“Price hikes without confidence that wages are going to rise will hurt appetite for spending,” said Masamichi Adachi, senior economist at JPMorgan Chase in Tokyo. “Abe has to raise people’s belief that the economy will improve.”
Food prices rose 5 per cent in April from a year earlier, with fresh food climbing 10 per cent. Onions soared 37 per cent, and salmon - a staple of the nation’s lunch boxes - jumped 30 per cent.
Abe lifted the sales tax by 3 percentage points on April 1.
Japan's "misery index" (7, white line) - which measures unemployment plus inflation - is at its highest since 1981, while US (8.3, orange) and EU (11.2, pink - second axis) have dropped and Australia's (8.7, green) has climbed.
A reader asked yesterday about an international comparison of minimum wages, after the Fair Work Commissionon on Wednesday lifted Australia’s minimum wage by 3 per cent, or $18.70 a week, to $33,335 a year.
The table shows that Australia has the world’s highest minimum wage in US dollar terms, while it also is the third highest on a purchasing-power parity basis.
This means it is the world’s highest in terms of relative labour costs and the third highest in terms of what workers can buy with their pay.
On a purchasing-power parity basis, only Luxembourg and France rank higher than Australia.
Australia’s love affair with British online retailer ASOS is well and truly over.
One of the hottest and fastest growing fashion brands in the country in recent years – 13 months ago it was flying four jumbo jets full of clothing to Australia each week – ASOS is now going backwards in this country due to a weaker Aussie dollar and slowing demand.
The slump in demand from young fashionistas and internet-savvy shoppers was revealed after founder and chief executive Nick Robertson announced a surprise profit warning in London on Thursday.
Investors took an axe to the share price with ASOS shares down almost 50 per cent in early trade before recovering slightly to be down by about a third. ASOS shares - which hit £71.95 in February – were at £31 in afternoon trade.
Australia had been the company’s biggest overseas market outside the United States. ASOS launched a dedicated Australian website in 2012, and later set up its first non-UK office in Sydney. In previous briefings ASOS management has talked about local customer buying clothing by the jumbo load and logging orders every seven seconds.
It was regularly held up as an exemplar of the threat online retailers pose to traditional “bricks and mortar” retailers such as Myer and David Jones.
But much of Mr Robertson’s conference call on Thursday was dedicated to the problems faced by its Australian operations. The main problem has been the strength of the British pound against the local currency.
Mr Robertson said currencies in Australia and Russia were down more than 20 per cent against the pound.
Perth-based Amcom Telecommunications has raised $40 million at $2.05 a share through broker Euroz Securities.
Amcom was released from a trading halt this morning and announced the offer, which was made to sophisticated and institutional investors. The shares are down 5.9 per cent to $2.09.
Amcom said the $40 million would be put towards potential acquisition opportunities, with the company in a $6 million net cash position.
Nine people, including an Australian, have been convicted of a £70 million ($126.4 million) fraud in Britain, in which more than 1000 investors unwittingly funded a lifestyle of private jets and luxury yachts.
The participants in a ''boiler-room fraud'' running out of Madrid between 2003 and 2007 were convicted after a seven-year operation by the UK's Serious Fraud Office.
In the scheme, investors were sold shares in shell companies or businesses that had been shut down, and told they would be unable to sell them for a year. When the lock-in period expired, they found the shares were worthless.
Australian Jeffrey Revell-Reade was convicted on Wednesday of conspiracy to defraud.
Several others, aged between 33 and 62, were convicted and sentenced last year, which can only now be fully reported.
Profits from the fraud were spent on luxuries including private jet hire, yachts, overseas property and wine collections, the Serious Fraud Office's director David Green said.
''The victims were deliberately charmed, lied to and bullied, whatever it took to make them send their money to these criminals,'' he said. ''Over 1000 UK investors were defrauded by these criminals, who caused substantial financial damage and hardship.''
Jeffrey Revell-Reade outside his Sydney home in 2010. Photo: Nick Moir
About 118,000 homes and businesses that should be connected to the national broadband network can’t use the service because of defective fibre connections.
The government-owned company building the network is set to pay contractors tens of millions extra to fix the problems and resolve a two-year negotiation stalemate.
Figures obtained by Fairfax Media reveal that more than 118,338 premises counted as covered by the NBN as of last week need millions of dollars of repairs.
The underground pipes that connect the buildings to fibre cabling on the street are damaged or missing.
The problems exist at more than one-third of all existing premises passed by the fibre optic network.
Sources close to NBN Co said it would cost more than $100 million to fix the buildings already passed, including up to $40 million in extra fees to contractors.
NBN Co will use an updated corporate plan, due in the middle of this year, to set out a budget and targets to reduce the number of homes which need repairs.
Chief executive Bill Morrow confirmed there was an internal program to fix the problem. He would not comment on how much money would be needed, but said NBN Co, which has a $41 billion budget, would not spend materially more money.
“There’s far too many people rolling trucks out to various areas,” he said. “We’ve had to put our foot down in order to get this done right, where it’s economically efficient and not frustrating to the customer and causes confusion.”
NBN Co will start fibre-to-the-node broadband trials in May. Photo: Rob Homer
ASX companies with exposure to Europe. Source: Bloomberg
This rough and ready screen shows the ASX-listed companies in the All Ords with the biggest exposure to Western Europe, as measured by percentage of revenue derived from the region.
Will these companies benefit or not? If the ECB actions stimulate economic activity and demand, then they well might. That said, a weaker euro - the central bankers' other desired outcome - will hurt profits once translated back into Aussie dollar terms.
Also, they could make Australian imports more expensive, unless the Aussie business has their costs denominated in euro as well.
There's been a 10 point easing of monetary policy over the past six to nine months despite the Reserve Bank leaving its cash rate steady.
That's the extent of bank interest rate discounting that you won't read about because it's not put in writing. It's also why the laggards in abandoning forecasts of another official interest rate cut have been so remiss – there was an unofficial one happening anyway.
Various official figures record banks' published rates, but not what they are actually charging for loans. Discounting is now so rife that the banks' "official" variable rate home loan rates are up there with the Easter Bunny, Tooth Fairy and Joe Hockey's budget crisis.
And while the discounts are greatest for those borrowing the most, they are universally there for the asking. Any borrowers paying full fare are most likely to be guilty of subscribing to The Checkout's "lazy tax" – there's never been a better time to shop around.
The banks have become stuck in a web of their own making with the unofficial discounting. They are loathe to cut their official benchmark rates because of the hit they'd take on their massive book of established loans – they rely on the inertia of the vast majority of their customers to sit pat and not renegotiate or move.
Shop around: There are better interest rates available than what is advertised.
Troubled rare earths miner and processor Lynas fell another 6 per cent in early trading, to 14.5c, adding to yesterday's 6 per cent fall, as investors continue to react warily to news of the change of the chief executive.
On Thursday, Lynas said it has appointed Amanda Lacaze as the chief executive, less than six months after she was appointed to the board.
Ms Lacaze has no experience in the resources sector, having spent much of her career working in the marketing and telecommunications sectors.
However she does have experience working with financially troubled outfits, most notably stepping in to run Commander Communications when it was in its death throes.
She is expected to focus on axing costs in a bid to revive cashflows.
Lynas was forced to raise a further $40 million from shareholders recently since it continues to bleed cash, with its processing unit in Malaysia yet to reach cash break even.
The company is seeking to renegotiate a loan with Japanese trading houses, in a bid to take pressure off its balance sheet, since it is facing difficulties with the existing repayment schedule.
Solid start to trading this morning as the overnight action in Europe buoys global investor sentiment, with the big banks driving the local bourse higher..
The ASX 200 and All Ords are both up 17 points, or 0.3 per cent, to 5454.2 and 5436.2, respectively.
Banks are leading the market higher, with the Big Four all up between 0.3 and 0.5 per cent.
Woolies has gained 0.7 per cent, while Wesfarmers is the single biggest drag on the index, 0.5 per cent lower.
Gold miners are the fastest advancing corner of the market, up 1.8 per cent as the gold price jumps the most in weeks. Newcrest Mining is 1.5 per cent higher.
BHP and Rio are both down slightly in early trade, which is crimping broader gains.
There's probably only so much ever easier monetary policy can do to buoy the economy, but what will stimulate activity is a lower currency, which has to be a key goal of the ECB as it introduces a raft of unorthodox policies.
Unfortunately, while the euro went down a little on the announcement, it then actually tracked higher as the press conference got under way.
Early days - and probably reflective of market positioning leading into the announcement rather than fundamental drives - but it's not what ECB boss Mario Draghi would have wanted to see.
The ECB does all that and the euro goes... up!
Standard & Poor’s, ABN Amro and Local Government Financial Services (LGFS) will pay $30 million in legal costs and compensation to over a dozen Australian councils after the global credit ratings agency lost its appeal in the Federal court today.
In a landmark decision of global significance, the appeals were dismissed unanimously by Justice’s Jacobson, Gilmour and Gordon, with exception of one cross appeal under section 1041E.
“S&P new that it had no reasonable basis for putting a AAA rating on the investments,” said council spokesperson, John Walker, Managing Director of IMF Europe
The NSW councils, including the City of Ryde, Bathurst-Regional, Cooma Monaro and Deniliquin will now be able to recover $30 million in losses after a four year battle.
Prior to the global financial crisis the councils invested heavily on the basis of AAA credit
ratings, determined by S&P.
The councils invested in complex synthetic derivatives known as constant proportion debt obligations
(CPDO’s), otherwise known as ‘rembrandt notes’ that were rated AAA by S&P,
arranged by ABN AMRO and sold by LGFS.
The investments subsequently tanked during the GFC and the councils lost 93% of their investments.
Super Mario's rates decision is not quite the big bazooka markets were hoping for, the AFR's Phil Baker comments on the ECB measures:
For all the talk and announcements from the European Central Bank, the euro hardly budged and that’s still a problem for the region.
The high euro won’t help any export-led recovery and will also keep inflation low. That’s not what the ECB wants. The euro initially sold off but it didn’t last long at all. There will be lots of headlines regarding the measures but in the end markets weren’t that impressed.
Sharemarkets of course loved the idea of negative rates and the promise of some form of quantitative easing sometime down the track – so off they went. Bond markets however were little moved. Perhaps that’s because they are still worried about economic growth and the problem with banks lending money to business in Europe.
For sure, the ECB is making it uncomfortable for the banks to leave their money with the central bank but at the same time the regulators are making it tougher to lend with higher capital requirements. It’s been described as a “push me pull you” situation. What the ECB want is an increase in the demand for money that will drive a recovery in the real economy. Overall, markets warmed to all the additional liquidity measures, and given the extreme level of anticipation heading into this meeting that’s no mean feat.
For that reason alone, ECB President Mario Draghi will be seen as having done another good job of selling the package which probably came in at the higher end of expectations. And he has. But there’s not going to be a sudden expansion in the ECB’s balance sheet any time soon, which would weaken the currency.
First there was ZIRP. Now get ready for NIRP.
Time for a quick explainer.
The first is “zero interest-rate policy,” the strategy for trying to stimulate economic growth that the US has undertaken for the last five and a half years (and the Bank of Japan much longer than that). The second is “negative interest rate policy.” And that’s what the European Central Bank put in place overnight for the 18 nations that use the euro currency.
What is a negative interest rate?
When the interest rate is negative, you pay the bank to hold your money.
Why would the ECB do that?
The theory is that when it becomes more costly for European banks to keep money in the ECB, they will have incentive to do something else with it: lend it out to consumers or businesses, for example. Or if negative rates make it less attractive for global investors to park money in Europe, it could cause the euro to fall on currency markets, helping reverse a rise in its value that has made European exporters less competitive.
How will banks react to negative rates?
Banks will most likely pass these negative interest rates on to consumers, or at least try to. On the other hand, if the interest rate is only slightly negative, banks may just eat the loss in order to avoid alienating customers. If they do that, however, it will cut into bank profitability.
But, if you make interest rates negative, won’t people just withdraw their money?
Maybe! This is one of the big reasons that the ECB has moved so reluctantly toward a negative interest rate and the US Fed, Bank of Japan and Bank of England haven’t gone that direction.
It is possible that, assuming banks pass along the negative rates through either fees or explicitly charging negative interest, people will withdraw their money as cash rather than keeping it on deposit at banks.
One immediate effect of the ECB's announcements overnight was to push the yields on bonds for "peripheral" European countries - such as Portugal, Italy and Spain - lower.
Irish bonds also were pushed lower. In fact, they fell below the yields on the equivalent US treasuries.
Getting jiggy: Irish bond yields fall below treasuries for the first time since 2009. Source: Nomura
BHP Billiton expanded iron ore production too rapidly, causing the Anglo-Australian miner to overlook the underlying growth of its overall business, its chief executive said.
However, Andrew Mackenzie said that despite the iron ore market facing temporary overcapacity, there was enough demand coming back from China and elsewhere to justify the firm's capacity increase.
"We don't quite see the case for the scale of investment we saw in last 10 years ... But the base business we built is going to be a strong bedrock for decades to come," Mackenzie told reporters in Beijing.
Global miners, including BHP, Anglo-Australian rival Rio Tinto and Brazil's Vale, have all banked on a sustained increase in iron ore demand from China, ramping up capacity and boosting available seaborne supplies.
But a slowdown in China's economic growth to its weakest in 23 years, which has coincided with a surge in new iron ore supplies, has sparked warnings of a global oversupply and long-term depressed prices.
BHP, the world's third-biggest producer of the steelmaking raw material behind Vale and Rio Tinto, is on track to raise its total annual production to 260-270 million tonnes, up from a planned 217 million tonnes in 2014.
More iron ore is hitting the market, and faster that demand is growing. Photo: Bloomberg
If the ECB was trying to push the Aussie higher, they succeeded. The local currency jumped around half a US cent on the announcement.
The RBA must be rapt.
The Aussie jumped on the European central bank's new wave of monetary easing.
The European Central Bank has left the door open for quantitative easing for the first time after cutting interest rates to record lows as part of a package of extraordinary measures aimed at depressing the euro, stimulating economic growth and staving off the threat of deflation.
In a raft measures that will be scrutinised by central banks around the world including Australia - and could push the local currency higher - the ECB moved into unchartered territory by becoming the first major central bank to have a negative deposit rate while also proving up to €400 billion in cheap loans to lenders.
Much of the package announced in Europe on Thursday—including the negative deposit rate to encourage lending to businesses—was expected by the market which has now turned its attention to whether the ECB's Italian president, Mario Draghi, will announce a full-scale QE stimulus package later in the year.
"The ECB delivered everything that was feasibly asked of it," said HSBC economists Karen Wood and Janet Henry. "This will all help at the margin but Draghi will ultimately have to unleash large scale asset purchases.
"The question remains how weak must the economy and inflation get before the bazooka is out."
Mr Draghi did little to play down this expectation, saying the ECB's 24-member governing council had unanimously agreed to consider "unconventional instruments" or QE quantitative easing if inflation stayed low.
Record lows: Mario Draghi announces the new measures. Photo: AP
Local stocks are poised for a subdued start, supported by more monetary stimulus, this time from Europe's central bank.
What you need2know:
- SPI futures up 10 points to 5452
- AUD at 93.32 US cents, 95.65 Japanese yen, 68.36 Euro cents and 55.53 British pence
- On Wall St, S&P 500 +0.7%, Dow +0.6%, Nasdaq +1.1%
- In Europe, Euro Stoxx 50 +0.9%, FTSE -0.1%, CAC +1.1%, DAX +0.2%
- Spot gold up 0.8% to $US1253.43 an ounce
- Brent oil adds 0.5% to $US108.89 per barrel
- Iron ore drops 0.3% to $US94.50 per metric tonne
- LME three-month copper is at $US6780 per tonne
What’s on today:
- Australia: Ai Group PCI
- New Zealand: house prices
- China: trade balance
- Japan: leading co incident index
- Germany: industrial production, trade balance; UK: trade balance
- US: non-farm payrolls, consumer credit; Canada: unemployment rate
Stocks to watch:
- ALS: cut to sell vs hold at Deutsche Bank; price target $7.05
- Atlas Iron, BHP, Fortescue, Rio: Port Hedland tugboat unions talk with Teekay Shipping made some progress: union.
- BHP: CEO says Chinese steel production to rise on urbanisation
- Gentrack IPO based at NZ$2.40, near top of range: AFR
- Nexus rejected higher offer from Seven, reports The Australian
- Paladin cut to underperform from sector perform at RBC Capital Markets; price target 30c. Toronto-listed stocks falls 9.2 per cent
- Ramsay Health to buy 83 per cent stake in France's GDS for around $1.2b: AFR
- Santos CEO sees production "upside" potential after PNG project start
- Wesfarmers' Coles unit unwilling to sell Vintage Cellars chain: Australian
- Western Areas raised to outperform from sector perform at RBC Capital Markets