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.
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.PT1M9S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-357wc 620 349 March 21, 2014
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."
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.
Running out of juice: the Micex (green line) has decoupled from the oil price.
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 $US55 trillion by 2030. In US dollar terms, Asian equity markets will exceed the US, European Union and Britain combined by 2030.
Markets are taking the weak Chinese manufacturing data in their stride, with regional bourses mostly higher and the Aussie dollar back at 90.71 US cents, erasing about half its losses.
Here's how Asian stock markets doing:
- Japan (Nikkei): +1.8%
- Hong Kong: +1.05%
- Shanghai: +0.3%
- Taiwan: -0.15$
- 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.
Most elements of the barometer point down. Source: HSBC and Markit
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.
The dollar slides on weak Chinese data.
The Chinese manufacturing data is in and it's a bit lower than expected.
The widely observed HSBC flash China PMI for March came in at an eight-month low of 48.1, down from 48.5 in February. Economists had expected a reading of 48.7
Any reading below 50 points to a slowdown in activity.
‘‘Weakness is broadly-based with domestic demand softening further,’’ Qu Hongbin, Hong Kong-based chief China economist at HSBC, said in a statement.
‘‘We expect Beijing to launch a series of policy measures to stabilise growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.’’
If you think housing is unaffordable in Australia, spare a thought for Chinese first-home buyers. In Beijing, the property price to disposable income ratio is a staggering 33 times, the world’s highest, according to figures from Numbeo.
Shanghai is only slightly better at 29 times, which is well ahead of the ratio of 9 times income in Sydney and 15 times in London.
Looking at the figures another way, downtown apartment prices in Sydney are only 15 per cent more expensive (per square meter) than Shanghai, even though average disposable incomes are more than four times higher in the NSW capital. In anyone’s language this looks like a bubble.
And so the government is hoping to gradually lower prices without blowing up the industry.
So far its plan appears to be working, although it is still in the early stages. According to a Reuters survey, published last week and based on official data, home prices across the country grew at an annual rate of 8.7 per cent in February, slower than January’s 9.6 per cent rise.
Shares are trading slightly lower in fairly quiet trade, with investors treading carefully around the Crimea crisis and ahead of HSBC's flash China manufacturing PMI survey due out in about 30 minutes.
"It's a lack of interest, I think there's also sweat (ahead) of the Chinese data," says John Milroy, investment adviser at Macquarie Bank, adding that volumes were very low.
"I think the market's on a bit of a hold here for lack of a driver, the tendency is to drift off a bit really."
The big miners are up about 0.4 per cent, while the big banks are mixed and Wesfarmers has lost about 1 per cent. Both Macquarie (earnings upgrade) and Kathmandu (first-half profit) are strongly higher.
There could be an extra 2.4 million of us in five years, yet we’re still talking about investing in infrastructure to handle the existing population, let alone that growth. Michael Pascoe comments:
Business Week: population clock ticking
There could be an extra 2.4 million of us in five years, yet we’re still talking about investing in infrastructure to handle the existing population, let alone that growth. Michael Pascoe comments.PT4M34S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-35crt 620 349 March 24, 2014
Deliveries of tobacco to retailers in Australia rose slightly last year for the first time in at least five years, even after the introduction of plain packaging aimed at deterring smokers, according to industry sales figures to be released today.
Australia, which in December 2012 became the first country to ban branded cigarette packs, is being closely watched for signs of success as other nations including Ireland, New Zealand and the United Kingdom explore similar measures.
In 2013, the first full year of plain packaging, tobacco companies sold the equivalent of 21.074 billion cigarettes in Australia, according to industry data provided by Marlboro maker Philip Morris International. That marks a 0.3 per cent increase from 2012, and reverses four straight years of declines.
The exact reason for the upturn is unclear. Some tobacco companies argue that higher shipments of loose tobacco and a decline in cigarettes suggest smokers may be trading down to cheaper products and can therefore afford to buy more of them.
"When you commoditise a product, people go after the price," said Eoin Dardis, director of corporate affairs for Philip Morris in Britain.
"If people are buying cheaper stuff, maybe they're smoking more of it, I don't know ... It's definitely a point of interest and that's something that absolutely needs to be explored because that's the counter of what this policy was seeking to achieve."
''We've seen no impact of plain packaging on the business to date": British and American tobacco chief Nicandro Durante. Photo: Angela Wylie
Childcare operator G8 Education has swooped on 91 centres owned by failed sharemarket hopeful Sterling Early Education, agreeing to pay $228 million in a transaction that increases its number of student places by almost a third to 27,995.
A proposed float of childcare roll-up Sterling was pulled just over one week ago by Macquarie Capital after it failed to raise $200 million from institutional investors. Fund managers baulked at earnings forecasts, which had been revised down just prior to a book build.
The latest acquisition comes just over a month after G8 Education spent $105 million on 63 new centres and marks a period of enhanced corporate activity in the fragmented sector.
The 91 centres will contribute annualised earnings before interest and tax of $39.4 million in the 2015 financial year, G8 Education said today. The company said the purchase price, which includes cash of $215 million and a further $10.5 million subject to earnings targets being met, represents 5.79 times anticipated EBIT for the 12 months ending December 31 2015.
The price is more expensive than its previously stated guideline of not paying more than 4-times EBIT for new centres.
The company described the newly purchased centres as “premium”. They include 76 long day centres and 15 centres for outside school hours care.
G8 Education will fund the cash component of the deal through cash and debt.
Its shares were put into a trading halt this morning.
Local shares have trimmed their losses, as regional markets open higher.
The Nikkei is up 0.5 per cent this morning, as is Korea's Kospi index.
Futures on Hong Kong’s Hang Seng are up 1 per cent, while contracts on the Hang Seng China Enterprises Index have gained 1.7 per cent.
"With US markets finishing moderately lower on Friday and Chinese manufacturing data looming, local investors had been given reason to be on edge with an air of caution presiding in early trade," says CMC sales trader Niall King. "So far, the major banks have dragged the benchmark index into the red with moves higher by BHP and Rio relieving some of the pain."
Federal Treasurer Joe Hockey has appointed four international business people to provide support to the government’s financial system inquiry headed by David Murray.
Hockey says the international advisory panel will provide an expert perspective to the inquiry in terms of technological change, Australia’s global competitiveness and offshore regulatory frameworks.
The four include former Westpac chief executive and deputy Treasury secretary David Morgan, who is now head of private equity group JC Flowers in Europe and Asia-Pacific, based in London.
He is joined by London-based founder and chief executive of global multi strategy asset management firm CQS, Sir Michael Hintze, and JPMorgan Chase chair of technology, media and telecom investment banking Jennifer Nason in New York. The fourth is Andrew Sheng, who is a former central banker and financial regulator in Asia, now based in Hong Kong.
Macquarie has positively surprised with an upgrade of earnings expectations for the year ended March 31, saying profit would rise as much as 45 per cent subject to the completion rate of pending transactions.
The company said earnings in its Fixed Income Currencies and Commodities unit had improved, which would see a result in that division in line with or slightly better than 2013, according to a statement to the Australian stock exchange. Previously, Macquarie expected a more sombre result from the FICC unit.
This morning's statement said Macquarie expected full-year earnings would come in about 40 per cent to 45 per cent higher than 2013, implying the company is on track for an annual profit of as much as $1.23 billion.
That is a markedly better outcome than Macquarie’s previous guidance which suggested the company would beat last year’s $851 million annual profit and for net income in the latter half of the 2014 year to print above $501 million booked at its interim results.
Investors were disappointed in February after a third-quarter update, when Macquarie stuck to its conservative outlook. Despite pointing to a $1 billion-plus profit, investors were hopeful of a more upbeat assessment of activity and increased optimism on the outlook.
Macquarie shares are up 3.2 per cent at $56.61, and moving closer towards five-year highs of $57.80.
Macquarie shares eye five-year highs.
Here are the other top winners and losers in the ASX200 this morning.
Metcash is taking another hit after its 10 per cent plunge on Friday, on the back of a profit warning.
Kathmandu shares are up 11 per cent at $3.44, posting their biggest jump in six months on the back of strong earnings.
The net result was in line with market forecasts (and would have been higher if not for the New Zealand dollar's strength) but once again demonstrated the resilience of the outdoor clothing and adventure wear market.
Investors seem particularly impressed with growth in Australia, where increased market penetration helped Kathmandu deliver 6.6 per cent same-store sales growth, following a 9.6 per cent increase in the same period last year. In New Zealand, same store sales rose 3.2 per cent compared to a 1.3 per cent increase in the first half of 2013.
Kathmand also managed to lift gross margins and costs were well controlled.
The local sharemarket has opened weaker, with losses across the board.
The benchmark S&P/ASX200 index is down 25.4 points, or 0.5 per cent, at 5312.7, while the broader All Ords has lost 24 points, or 0.4 per cent, to 5330.
Among the sectors, energy is down 0.7 per cent, materials have lost 0.2 per cent and financials are off 0.4 per cent.
Cybercrime is a systemic risk and could be the next 'black swan' event, the head of Australia's corporate regulator says.
Advancements in technology had led to a "significant growth" of cybercrime and had an estimated global cost of $110 billion a year, the Australian Securities and Investments Commission chairman Greg Medcraft told the regulator's annual conference in Sydney this morning.
Medcraft said each cyber attack was estimated to cost an Australian firm about $2 million.
"Cybercrime is a systemic risk and is potentially the next black swan event," Medcraft said, adding that a cyber attack could spread quickly and have a "very dangerous effect" on the financial system.
Medcraft also repeated ASIC's push for tougher penalties to combat corporate misconduct, saying tough penalties had a "very powerful deterrent effect".
"Often it is a situation where it's a fear versus greed equation," Medcraft said. "The public expects ASIC to take strong action against wrongdoing ... we need penalties that set the right behaviour."
The next 'black swan event': ASIC chairman Greg Medcraft says cybercrime is growing significantly. Photo: Ben Grubb
The Australian dollar is continuing its show of resilience, hovering around 91 US cents this morning, despite the 'risk-off' mode on Wall Street.
The Aussie is currently fetching 90.91 US cents after rising as high as 91.11 US cents, regaining all of its losses in the wake of Fed chair Janet Yellen's press conference early Thursday morning (Sydney time), in which she surprised markets by suggesting US rates could be lifted as early as April next year.
The test today for the dollar will be the HSBC flash China PMI. If the manufacturing data comes in weaker than the expected reading of 48.7 that could weigh on the currency.
However, IG's Evan Lucas reckons any China-related downturn in the currency will be only temporary as traders focus more on rates differentials:
- The AUD has been rather resilient of late around commodity-sensitive macro data.
- Currency traders continue to concentrate on central bank differentials rather than future material impacts, and with the RBA on hike watch the AUD is likely to hold at this level for the foreseeable future.
The dollar over the past month.
China will again be the focus of trade today as the HSBC flash manufacturing data is released at 12.45pm, IG's Evan Lucas writes in a note aptly named 'Same market dilemmas remain':
- The concerns around China’s growth are likely to remain over the coming weeks as the slowdown in orders over the winter months and Chinese Luna New Year filter out.
- The growing concern around collateral stock piles is also likely to remain a market dilemma over the rest of March and into April, as questions still remain around defaults and cutting losses which could see market dumping.
- The iron ore price has stabilised at around $US110 a tonne, however Chinese domestic steel prices have continued to slide after a brief relief rally in mid-March after MySteel reported steel that demand at the back-end of February increased solidly as the summer months forward contract picks up.
- The fact that the HSBC flash data is expected to remain in contraction, meaning China hasn’t seen expansion in 2014 (having seen January and February and now possibly March below the 50 mark) will only increase expectations of commodity price issues.
In company news this morning, sales in Australia remain the key factor in driving growth for Kathmandu, as the dual-listed Kiwi retailer looks to build on a 11 per cent jump in net profit.
The resilience of the outdoor adventure category helped boost its net profit by 10.7 per cent to $NZ11.4 million ($10.7 million) in the six months ended December 31 from the year-earlier period.
First-half sales jumped 10.5 per cent, buoyed by 14.8 per cent growth in sales in Australia. Growing market penetration helped deliver a 6.6 per cent rise in organic sales, adding to the 9.6 per cent jump in the previous period, the company said.
Australia made up 61.4 per cent of Kathmandu sales, while New Zealand totalled 37.2 per cent. UK sales made up 1.4 per cent.
US stocks slipped on Friday, as investors booked profits in momentum names heading into the weekend, wiping out early gains that had pushed the S&P 500 to an intraday record high.
The S&P 500 lost momentum after hitting an all-time intraday high of 1883.97, with biotechs among the primary decliners. Biogen Idec, down 8.2 per cent at $US318.53, and Gilead Sciences, down 4.6 per cent at $US72.07, were the two biggest drags on the S&P 500. The Nasdaq biotech index fell 4.4 per cent.
US lawmakers have asked Gilead to explain the $US84,000 price tag of its new hepatitis C drug Sovaldi, which is encountering resistance from health insurers and state Medicaid programs.
"They've been selling them - the techs in particular, as well as the biotechs, even more particular there. Obviously, it's a momentum sector, and all the momentum names are getting smacked around," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "When you see the momentum names coming out like they are now, that is telling you they are lightening up here."
Investors continued to monitor geopolitical issues after President Vladimir Putin signed laws completing Russia's annexation of Crimea. Russia's MICEX stock index fell 1 per cent after a US decision to slap sanctions on Putin's inner circle.
The Australian share market looks set to open lower, following Wall Street’s fall on profit taking and continuing caution over the Ukraine crisis.
What you need2know:
- SPI futures down 21 points to 5307
- AUD at 90.94 US cents, 93.00 Japanese yen, 65.93 Euro cents and 55.21 British pence
- On Wall St, S&P500 -0.3%, Dow Jones -0.2%, Nasdaq -1%
- In Europe, Euro Stoxx 50 +0.3%, FTSE100 +0.2%, CAC +0.3%, DAX +0.5%
- Spot gold rises at $US1334.69 an ounce.
- Brent oil at $US106.92 per barrel
- Iron ore is at $US110.70 per metric tonne.
What’s on today
Flash PMI data from China, the US and Europe
Stocks to watch
On Friday, Metcash shares posted their biggest fall since February 2005 after the wholesaler said it would reduce its dividend payout to fund almost $700 million of capital investment over the next five years.
Deutsche Bank has a “buy” recommendation on WorleyParsons and a 12-month price target of $19.81 a share.
Hartleys Research has a “speculative buy” on Sheffield Resources and a 12-month price target of $1.33 a share.
more in this morning's need2know