That's all for today, folks - we'll be back tomorrow from 9am.
Here's the full wrap of today's session.
Australian shares pushed higher, with the big miners gaining after a disappointing private survey of Chinese factory activity prompted speculation of stimulus to come. Bank stocks were also higher as Macquarie Group radically lifted its profit guidance.
In China, a preliminary reading of the March HSBC – Markit manufacturing purchasing managers index unexpectedly fell for the fourth month in a row, down 0.4 points to 48.1 . The gauge of factory activity, considered a key indicator for demand for Australia’s coal and iron ore, had been tipped to rise 0.2 points to 48.7.
But the local benchmark index, like the Shanghai Composite Index and Hong Kong’s Hang Seng Index, pushed higher amid speculation the disappointing data might prompt looser monetary policy from the People’s Bank of China. “We expect Beijing to launch a series of policy measures to stabilise growth,” HSBC China economist Qu Hongbin said.
However, other investors said the weaker manufacturing data was unlikely to concern China’s policy-makers.
“China’s manufacturing PMI has been flat-lining around 50 for a number of years now, but that is offset buy improvements in the services sector PMIs which are consistently posting around 55 points. This shift is consistent with the re-balancing of China’s economy that its policy-makers are trying to achieve.” Magellan Asset Management portfolio manager Dom Giuliano said.
“The change will lead to slower demand growth for raw materials over the next three to five years but it is important to remember that demand will still be rising.”
Resources giant BHP Billiton led the ASX higher, up 0.5 per cent to $35.74. Main rival Rio Tinto added 0.2 per cent to $61.50 while iron ore miner Fortescue gained 2.2 per cent to $5.09 as the spot price for iron ore, landed in China, was steady at $US110.70 a tonne.
Good day for Kathmandu shares after the retailer posted a jump in first-half profit. Here's the list of today's winners and losers in the ASX200:
AGL Energy has decided to challenge the competition regulator’s veto of its $1.5 billion takeover bid for large NSW electricity generator and wholesaler Macquarie Generation.
AGL said it had lodged an application with the Australian Competition Tribunal seeking authorisation to buy the power producer, saying the ruling by the Australian Competition and Consumer Commission can’t go unchallenged.
“The ACCC’s decision has significant implications for the future of the energy industry in this country and, in our view, can’t be left unchallenged,” AGL managing director Michael Fraser said.
The tribunal has three months to consider AGL’s application, which could be extended by a further three months.
The sharemarket has closed slightly higher, recovering from a soft start amid speculation weak Chinese manufacturing data could prompt Beijing to stimulate the economy.
The benchmark S&P/ASX200 index rose 8.8 points, or 0.2 per cent, to 5346.9, while the broader All Ords gained 8.1 points, also 0.2 per cent, to 5362.1.
Financials led the rebound, rising 0.4 per cent, the same as materials, while industrials slipped 0.4 per cent and energy lost 0.1 per cent.Back to top
Credit Suisse is tipping a modest rise in iron ore after last week’s flash crash, providing an opportunity for bargain hunters.
CS analyst Matthew Hope says he expects a modest lift in prices as China's steel mills begin restocking.
But in a report out today he says ''very high'' crude steel growth of about 7 per cent would be needed to stop an oversupply of iron ore weakening the metal's price:
- It is difficult to envisage another sharp down-leg to the near-term price.
- On the basis of low mill stocks, it looks likely to us that the next move for the iron ore price will be upwards, provided steel production picks up from February's lows.
- But looking into the second half we are not so sanguine.
Still, he says Australian iron ore equities are resilient, particularly Fortescue. He says Fortescue's break even price is the low $US70s a tonne, which would drop in to the $US60s if production costs continue to fall.
Hope says Fortescue's expansion has been fruitful, slashing costs by $US15 a tonne, and by 2015 its cost of production would be $US3 a tonne lower than BHP's:
- FMG's key advantage is its modern port and rail which has all the benefits of 40 years in rail advances over the majors and much better efficiency.
Finance Minister Mathias Cormann says the government will temporarily freeze its controversial roll-back of Labor’s future of financial advice laws after months of criticism.
Senator Cormann, who took over responsibility for the policy last week, said he wanted to “have a round of conversations with all of the stakeholders first and then go ahead when everybody that was on same page is back on same page”.
“I’ve just got in the job and have decided to pause the process on the FOFA regulation to enable me to consult in good faith with all relevant stakeholders before pressing the go button on our changes,” he told The Australian Financial Review.
“We remain committed to implement the improvements to FOFA which we took to the last election as soon as possible.”
The Labor opposition has vowed to oppose the changes and is likely to raise the matter in Parliament today. Shadow Treasurer Chris Bowen described the decision as “encouraging” first step.
The reason why markets didn't slump in the wake of the weaker than expected Chinese manufacturing data is that it's put stimulus hopes back on the agenda, IG's Evan Lucas notes:
- The HSBC numbers (flash China PMI) showed output, new orders, quantities (output and import) and prices (output and import) are all contracting at a faster rate than previous months. This means these investment trades are going to break down even faster as asset quality and fixed return see value collapsing - more defaults.
- The PBoC has announced over the weekend that it is willing to accept these defaults and will look to continue its reform agenda of wringing out speculative lending, but this is going cause jitters.
- The data also lends itself to being extrapolated out to GDP estimates, and this is where the Chinese Dragon is really struggling against the market bears. The print suggests that GDP could now be even lower than 7% once you factor in the industrial production figures from last week.
- This gloom leads to a very predictable outcome - stimulation. It has already begun with the announcement that domestic demand is to be stimulated through the acceleration of the current state-produced infrastructure pipeline.
- The perception of future stimulus is emulated in the markets today with regional majors in the Hang Seng, the Nikkei and the Shanghai Composite all turning green as the prospect of some form of intervention.
- It is also likely to see the PBoC leaning on the exchange rate for longer.
Here's a great read from the weekend by our China correspondent Phil Wen on why China's infamous ghost cities are more of a risk to the country's economy than they were several years ago:
It might be a humble third-tier city in one of the poorest parts of China, but by next year Guiyang will boast a seven-star hotel centred on a 67-storey, 400-metre-tall skyscraper.
More than 150 square kilometres of property floor space will be built and put on the market in the next three years, enough to house 3 million more people in a city with a population of just 4.3 million - prompting fears Guiyang will be home to China's next ghost city, alongside infamous examples in Inner Mongolia's Ordos and in Wenzhou.
Guiyang is but one example of the quixotic nature of centrally planned urbanisation. Just last week, China announced a sweeping plan to manage the next stage in one of the greatest migrations in human civilisation.
The central government expects 100 million more rural residents to move into cities by 2020, on top of 100 million former farmers already in cities but lacking access to basic services. This means hospitals and schools, roads and railways and, above all, housing - lots of it - need to be built.
But with China already grappling with the risks presented by its extensive shadow banking sector and surging local government debts, analysts are warning that the biggest demons lurk in its overheated property market.
Fears of property oversupply in China's poorest province
Massive urban redevelopment projects in Guizhou are prompting fears of massive oversupply and fears that its capital, Guiyang will be left a ghost city.
Campaigns to get banks and big funds to drop their support for fossil fuel enterprises are gathering momentum and are likely to increasingly lead to reputational damage for coal miners, says an Oxford academic.
The campaigns are also likely to lead to increased financing costs for fossil fuel projects, according to Ben Caldecott, director of the Stranded Assets Program at Oxford University.
Caldecott, who is in Australia for two weeks for a series of lectures and meetings with investors and politicians about his research, said that moves by large funds to exclude coal stocks from their portfolios were spreading remarkably rapidly.
While the sale of fossil fuel stocks typically has little impact, the bigger effect would be through "stigmatisation" of the companies, hampering their operations within society.
"That makes it much harder for them to get capital, to hire people, and do all sorts of things in society," he said. "That is a very significant potential problem."Back to top
Putting any story on China’s economic growth in context means coming back to the size of the beast and the tendency for some commentary to be stuck in the mindset that the world needs Chinese growth in double digits or something near that, Michael Pascoe comments on today's China flash PMI disappointment:
For quite a while now, I’ve used a simplistic example to try to explain the bigger pie business, pointing out that 7 per cent of 200 is 40 per cent more than 10 per cent of 100.
AMP’s chief economist, Shane Oliver, has come up with the actual figures: As the Chinese economy is almost twice as big now as it was in 2007, growth of 7 per cent is a similar increase in real economic activity as 13 per cent growth was seven years ago.
Given the scale, it really doesn’t matter much if growth is 7.2 per cent, 7.5 or 7.6. The growth percentage will and must steadily fall in the years ahead – and China will still overtake the US as the world’s biggest economy before the end of the decade.
If you enjoy playing with a graphs and such and plotting China v US growth with various variables, you can have a lot of fun with this interactive tool from the Economist magazine. Pick a number, any number – that seems to be what the commentariat does.
Yanzhou Coal Mining has decided to walk away from a privatisation offer to purchase the 22 per cent of Yancoal Australia it does not already own.
Yanzhou, the Chinese state-owned company which owns 78 perc ent of Yanzhou, notified the Australian company it "no longer wishes to pursue" its proposal announced July last year, Yancoal said.
The proposal had cleared the foreign investment regulatory hurdle late last year, enabling Yanzhou to take full control of its local unit.
By annexing Crimea, Russian President Vladimir Putin is decoupling his nation from the very source of much of its wealth.
While Putin’s intervention in Crimea has fuelled a $US127 billion slide this year in the value of companies listed on the country’s stock market, oil prices have remained steady. Standard & Poor’s and Fitch cut Russia’s credit outlook last week on concern that US and European Union sanctions will slow growth in the world’s largest energy producer.
“If there are sanctions against the use of Russian oil and gas, that’s going to economically hurt Russia and also prop up the prices of commodities,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in New York. ‘‘We have no clue what the resolution will be. Eventually, the correlation between Russian stocks and oil will reassert itself, but we don’t know when.”
Oil prices have jumped more than fivefold since 2001, stoking a 536 per cent advance in the Micex as Russia recovered from the 1998 debt default to become the world’s eighth largest economy. Revenue from crude and gas exports account for more than half of the government’s budget.
Russian stocks entered a bear market this month as America penalised officials and business leaders tied to Putin.
May and July have been tossed around as months when a rate hike of one quarter of a percentage point to the official cash rate could be announced by the Reserve Bank, the AFR's Phil Baker comments:
But that’s the extreme view and it’s important to note that traders aren’t betting there’s going to be a move either way any time soon. Most economists think the rate hikes won’t come until later this year.
When RBA governor Glenn Stevens addresses the annual Credit Suisse Asian Investment Conference in Hong Kong on Wednesday, he’s sure to get a few questions about the direction of rates.
The recent shift in thinking has been driven by a more optimistic outlook in business conditions and the employment intentions of companies.
Any talk of rate rises will also underpin the $A. Westpac think that rising rates and an improvement in trade will push the $A back into the upper part of the US90¢ to US100¢ bracket. That’s despite a stronger greenback as the Fed withdraws its stimulus.
Brace for a tectonic shift in the global economic as Asia markets mature, ANZ says in a new report:
The bank says we can expect the liberalisation of China's financial system to unleash a flood of capital into global bond and equity markets and that Asia's financial system will be larger than the US and Europe combined by 2030.
In a report titled Caged Tiger: The Transformation of the Asian Financial System, ANZ says the 10 largest economies in Asia - China, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam - which it dubs the ''A10'', will account for half of global gross domestic product by 2050 and almost half of the global middle-class population.
''This is a tectonic shift in the global economic landscape,'' ANZ says in the report, prepared by chief economist Warren Hogan.
As Chinese e-commerce company Alibaba plans a blockbuster initial public offering this year, ANZ says many Asian governments are also seeking to transfer assets into private hands.
''A succession of the world's largest IPOs in Asia can be expected in coming years,'' the report says. ''IPOs are likely in financial services, energy, telecommunications and infrastructure, sectors currently dominated by large, state-owned enterprises.''
Asia ex-Japan equity market capitalisation is set to explode, the report says, rising from $US9 trillion ($9.9 trillion) to almost $US55 trillion by 2030. In US dollar terms, Asian equity markets will exceed the US, European Union and Britain combined by 2030.Back to top
Markets are taking the weak Chinese manufacturing data in their stride, with regional bourses mostly higher and the Aussie dollar back at 90.71 US cents, erasing about half its losses.
Here's how Asian stock markets doing:
- Japan (Nikkei): +1.8%
- Hong Kong: +1.05%
- Shanghai: +0.3%
- Taiwan: -0.15$
- Koea: +0.4%
- ASX200: -0.15%
- Singapore: +0.9%
- New Zealand: +0.1%
Shares held gains after the China Purchasing Managers’ Index from HSBC and Markit Economics unexpectedly dropped to 48.1 in March from 48.5 a month earlier.
‘‘It’s reflecting a slowdown we are seeing globally,’’ said Andrew Sullivan, director of sales trading at Kim Eng Securities in Hong Kong. ‘‘As long as we can see what’s happening with the global economy, it’s not a surprise. Obviously it’s not a positive for the market, but I don’t think it’s a huge negative.’’
You would call Macquarie's latest update cautiously optimistic, and if the big investment bank is cautiously optimistic, the market probably is too, Mal Maiden comments:
The forecast is close enough to Macquarie's March 31 balance date to provide more evidence however that the investment bank and the markets it derives revenue and earnings from are a long way away from their global crisis nadir, despite recent volatility and investor concern.
Macquarie won't beat its 2008 record profit of $1.8 billion in the year to March it is about to rule off, but it's going to be well clear of the $871 million profit it posted a year later as the global crisis hit.
The result is shaping up to be its third best ever, beaten only by the record $1.8 billion profit in 2008 and a $1.46 billion profit in 2006-07.
Commonwealth Bank has offered its largest sale of notes tied to Japan’s benchmark stock index, flagging demand for bets the Nikkei will rally after its worst start to a year since 2008.
The bank planned to settle $450 million of three-year securities in seven batches from March 21 to April 3 which pay when the Nikkei 225 Stock Average index reaches a certain level, according to data compiled by Bloomberg. The two biggest portions, at $100 million each, are the lender’s largest structured notes of any kind since July 2010.
‘‘From a valuation perspective, the Japanese market in the short term looks oversold,’’ says Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners in Singapore. ‘‘There are some fantastic opportunities and I think corporate earnings are going to underlie that.’’
The Nikkei 225 has declined 12 per cent this year ahead of an increase next month in Japan’s sales tax to 8 per cent from 5 per cent, the first time the levy has been raised since 1997. Short-selling of Japanese stocks rose to the highest since at least October 2008 last week.
A look at the components of the PMI shows that there's really not much to be upbeat about.
The PMIs (HSBC and official) have increasingly become a barometer of China’s economy for global investors. One advantage is that they’re among the first gauges for each month, as government reports on trade, industrial output and retail sales typically are released several weeks later.
Today’s report gives some indication of how much a slowdown in the first two months of the year extended into March. Economists at companies including JPMorgan and Goldman Sachs earlier this month cut their projections for China’s growth after fixed-asset investment rose at the slowest January-February pace since 2001, industrial production trailed estimates and exports fell by the most since 2009.
The weak China PMI data instantly weighed on the Australian dollar, pulling it down more than a third of a cent to around 90.50 US cents.Back to top