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Markets Live: Chinese data cheers (a bit)

Here's how the blue chips performed today:

  • BHP: +0.3%
  • Rio: +0.3%
  • ANZ: -0.5%
  • CBA: -0.2%
  • NAB: -0.3%
  • Westpac: -0.2%
  • Woolies: -0.4%
  • Wesfarmers: -0.5%
  • Telstra: -0.2%

And here are the main winners and losers among the top 200:




Australian banks will continue to benefit from low bad debts and a recovery in credit growth over 2014, Goldman Sachs analysts have predicted.

But after the sector's blockbuster share price increases of last year, the investment bank says the valuations of most of the big four banks remain ‘‘stretched.’’

With a housing market recovery tipped to drive stronger borrowing in 2014, Goldman analysts led by Andrew Lyons forecast 6.4 per cent growth in Australian bank cash profits for 2014.

The investment bank also upgraded its rating for Westpac from ‘‘hold’’ to ‘‘neutral’’, citing the potential for higher margins due to lower costs from term deposits.

Despite this, the report also said most of the sector appeared to be overpriced, after the ASX 200 bank index surged 22 per cent in the past year.

Figures compiled by Bloomberg also show the share prices of the Commonwealth, Westpac, NAB and ANZ are at their most expensive since before the global financial crisis.

Bloomberg said the banks traded at 2.1 times the net vale of their assets - the highest since 2007 and 75 per cent more than the MSCI World Bank Index.

market close

The sharemarket has closed slightly lower, but well off the day's lows after Chinese economic data, including GDP, retail sales, industrial production numbers, came in slightly above expectations.

The benchmark S&P/ASX200 index slipped 10.9 points, or 0.2 per cent, to 5295.0, while the broader All Ords lost 8.8 points, or 0.2 per cent, to 5307.6.

The market was buoyed by gains in the materials sector, which rose 0.4 per cent, while financials fell 0.3 per cent.


The Australian dollar has slipped back below 88 US cents, to 87.80 US cents, losing all of the  gainsit chalked up in the wake of the Chinese data dump.

NAB's co-head of FX strategy Ray Attrill says part of the weakness in the Australian dollar is driven by bullishness about the New Zealand and US economies:

  • The Aussie dollar is not by any means the weakest currency. It's trading about mid-pack in the G10, so to some extent it is still largely a US dollar story.
  • So it's easy to think that we are all rampantly bearish on Australia and the Australian dollar, but it's more of a case of the market still enamoured of New Zealand and is prepared to buy the US dollar despite the soft employment numbers we had two weeks ago.
  • Institutional investors and local companies have been buying Australian government bonds over the past days and weeks to take advantage of the weakening local currency.
  • The fact that we are seeing that are we are still struggling tells you just how the weight of speculative short money flow is still the overriding influence on the price.

Attrill says that short-term fair-value models of the Australian dollar in relation to metals prices, interest rate differentials and risk appetite are showing that the Australian dollar should be US3¢ or US4¢ higher, according to historical averages.


Keep an eye on EONIA (European money market rates) this week, which have spiked to thirty-four basis points, IG's Chris Weston recommends:

  • While thirty-four basis points doesn’t sound high, bear in mind this figure was at fourteen basis points a week ago and in theory should be lower than the central bank’s refinancing rate, which currently stands at twenty five basis points or 0.25%.
  • Any moves higher in this metric will feed into the idea that the ECB will need to increase liquidity and help loosen financial conditions, thus keeping the EUR fairly anchored.
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Gina Rinehart’s joint venture mining company has appointed a former Rio Tinto Coal senior executive as its new chief executive.

The India-Australia consortium GVK Hancock announced today that Darren Yeates, who had been Rio Tinto Coal’s chief operating officer and acting chief executive, would take over from outgoing managing director Paul Mulder.

Yeates, who had previously worked at Rio Tinto Iron Ore and Tarong Coal, said his immediate focus would be completing the Galilee Basin coal projects in Queensland.


It’s inflation week in Australia and while the official quarterly inflation data is not released until Wednesday, the release of the monthly TD inflation gauge provides a useful backdrop in setting the inflation landscape, CommSec economist Savanth Sebastian notes:

  • The December reading of 0.7 per cent was surprisingly high and lifted the annual rate to 2.7 per cent. The overall headline measures look concerning however as the TD report highlights it tends to be a “seasonally strong month” for the inflation gauge.
  • Overall inflation is pretty much under control at present. However given the falling Australian dollar, the big unknown is to what extent imported inflation lifts over coming months. Domestic inflation has been on the high side over the past year and the Reserve Bank will be looking closely at the transition between domestic and imported inflation.
  • We expect a relatively subdued quarterly increase of 0.4 per cent for headline inflation and 0.6 per cent for underlying inflation in the December quarter. Overall inflation looks likely to remain well inside the Reserve Bank’s 2-3 per cent target band in the quarter; however it may just be that the low point for inflation has been reached.
Coppo report no more...
Coppo report no more... 

Richard Coppleson, one of the country’s best known institutional stockbrokers and publisher of the ubiquitous afternoon market report, will retire from Goldman Sachs at the end of the week, the AFR's StreetTalk column reports.

Coppleson informed colleagues and clients of his pending retirement when he returned to work from holidays today. Goldman Sachs chief executive Simon Rothery and co-heads of equities Brendan Lyons and David Acton announced the move in an internal memo soon after.

Coppleson leaves after 12 years on the firm’s trading desk. He is best known in the market for producing an afternoon market report, which circulates through much of the institutional investment community soon after the stockmarket closes each afternoon.

The veteran was inducted into the Australian Stockbrokers Foundation’s hall of fame in 2011.


Another one on China, as we have been today following the release of December quarter economic data, here's a non-consensus view.

Chinese GDP growth has slowed from 12 per cent a year to 7.5 per cent or so over the past three years, yet imports from Australia (primarily iron ore) have accelerated over the same timeframe, point out economists at TD Securities (see chart below).

And when Australia’s newly-expanded LNG capacity comes on stream, gas imports will be added to the mix.

Subsequently, the analysts at TD Securities believe that China’s slowing growth profile does not necessarily dampen demand for hard (and soft) commodities.


Chinese imports from Australia have continued to rise even as China's economy has slowed.
Chinese imports from Australia have continued to rise even as China's economy has slowed. 
The table was put together by The Economist, based on the data in the study.
The table was put together by The Economist, based on the data in the study. 

If you think your job is safe, think again. Advances in technology mean that even highly educated workers will begin to feel the pinch of the digital revolution, with close to half of US jobs at risk of ‘'computerisation'’ on the next 20 years.

Machines and computer programs have always taken routine and repetitive tasks from the employment market, but increasingly sophisticated artificial intelligence could result in a new wave of job losses.

‘‘Occupations that require subtle judgement are also increasingly susceptible to computerisation,’’ write Dr Carl Frey and Dr Michael Osborne from the University of Oxford in their study The future of employment: How susceptible are jobs to computerisation? ‘‘To many such tasks, the unbiased decision making of an algorithm represents a comparative advantage over human operators.’’

Dr Frey and Dr Osborne also note the irony that algorithms, created by computer software designers, are putting IT workers out of work.

Of the 700 jobs analysed, telemarketers, sewers, watch repairers and library technicians are among the jobs most at risk, with a 99 per cent chance they will be computerised.

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Meanwhile, gold is extending its (slow) recovery, hitting $US1259.96, its highest since November 20.

The precious metal is up 4.75 per cent so far this year, easily outperforming most sharemarkets.

"A lot of our clients are still holding onto gold as a risk-event hedge," says Danny Laidler, head of ETF Securities' Australia and New Zealand business. "I think the worst of the outflows is behind us. We think there is a greater potential for modest gains (in gold prices) this year than for a downside risk."

Prices were finding a floor near $US1200 as that was close to the cost of production, he added.


Staying in China, the Shanghai Composite has fallen below 2000 points for the first time since last July, but selling pressure seems to be limited.

The market has been heading south since early December, falling from above 2200 points on fears of a credit crunch and amid worries of an economic slowdown.

‘‘Investors’ sentiment is cautious only toward China, while they are bullish on the US and European economies,’’ says Alex Wong, a Hong Kong-based director of asset management at investment bank Ample Capital. ‘‘The China data is slightly positive as a whole, because people were afraid a deeper slowdown would mean a hard landing. Anything below GDP growth of 7.5 per cent would have accelerated the bearish sentiment.’'



We maintain our forecast that China’s growth will moderate to around 7.2% this year on the premise that the growth target would be lowered to 7% in the final two years of the 12th five-year plan in order to allow room for structural reforms and to address the problem of overcapacity and outdated capacity, especially in heavy industries, ANZ economists write in a note on today's data:

  • This growth outlook suggests that inflationary pressures remain manageable this year. However, non-food inflation, especially rental costs, could pick up amid the rising property prices, somewhat adding pressure on the CPI inflation.
  • The central bank is likely to maintain the current policy environment, but will continue to enhance its liquidity management operations. The undergoing de-leveraging process in Chinese commercial banks suggests that liquidity conditions may not improve much.
  • However, the PBoC will need to address the rigid exchange rate system to restore policy consistency.
  • Capital inflows will continue to add appreciation pressure on the RMB, and we forecast that the RMB will  reach 5.98 against  the US dollar by the end of 2014. The key risk surrounding this forecast is whether China will encourage private capital outflows in 2014.

A question for our readers: what time should the Markets Live blog start each morning? Please take a moment to answer the poll.

Right now, we're starting the blog at 9.30am, but in the past we've had a few readers asking us to start a bit earlier. Before we throw any of our scarce capacity at an earlier starting time, we'd like to make sure there's enough reader interest to justify hassling our bosses.


The Australian dollar has strengthened slightly to around 88 US cents after China's annual growth figures beat expectations. So what can we take away from the reaction on the currency markets?

"It's not a bad sign, even though the GDP headline was only 0.1 of a per cent better than consensus," Westpac senior currency strategist Sean Callow said of the slightly bounce in the Australian dollar:

  • It's encouraging that there are people willing to buy the Aussie on the upside surprises in key data. But we suspect that the gains will be limited and maybe even unwound because the mood towards the Aussie for the most part is still pretty gloomy.
  • [In the details of the data], the numbers for December only were not particularly flash. Industrial production for December was 9.7 per cent versus 9.8 per cent forecast. The fixed asset investment was a little bit below as well.
  • So there are some signs that there's just a little bit of softening in momentum into the year-end, which we had already been picking up.
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Gone: Henrique de Castro.
Gone: Henrique de Castro. Photo: AP

It's hard to shed too many tears for Henrique de Castro, who was fired last week as Yahoo's No.2 executive.

All told, de Castro will walk away with at least $US88 million ($100 million) and as much as $US109 million for his 15 months of work, according to an analysis of his pay by the compensation research firm Equilar. (The exact amount depends on whether he receives his full performance award for 2013 and assumes that he wasn't fired for cause or lying on his resume.)

Even by Silicon Valley standards, his pay was stratospheric. In fact, in 2012, he was the eighth-highest-paid executive in the region, making more money than his boss, Marissa Mayer, according to Equilar.

Which raises a question: what were Yahoo's board members thinking when they agreed to hire him in October 2012?

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asian markets

Here's how the rest of the region is doing after the Chinese economic figures:

  • Japan (Nikkei): -0.55%
  • Hong Kong: -0.4%
  • Shanghai: -0.15%
  • Taiwan: +0.2%
  • Korea: +0.2%
  • ASX200: -0.4%
  • Singapore: -0.5%
  • New Zealand: -0.2%

‘‘We’ve not had a fantastic start this year,’’ says Vasu Menon, vice-president for wealth management research at Oversea-Chinese Banking Corp. ‘‘Asia is facing economic headwinds. China is trying to engineer an economic slowdown to ensure more sustainable economic growth. We’re likely to see more volatility in the coming weeks as the US earnings season gains pace.’’


Shell’s Arrow Energy coal seam gas venture in Queensland is set to cut potentially hundreds of jobs as speculation mounts that the proposed LNG project will be a casualty of reined-in spending by the oil major.

One source told the AFR up to 600 jobs would go, representing half of the workforce. Another put the figure at 400 jobs out of the 1200 employed at the venture, which is half-owned by PetroChina.

Arrow today confirmed it has carried out “a review of staffing levels as it manages costs.” It said it “remains focused on finding additional value and reducing overall costs.” A spokesman wouldn’t give the numbers of jobs to be lost.

The statement comes amid media reports that managers in Arrow are travelling to regional centres in Moranbah and Dalby to kick off the job reductions.

Some reactions on Twitter to the Chinese data dump:


The Australian dollar has risen above 88 US cents after the release of the Chinese economic data.

The local currency rose as high as 88.02 US cents after the release of the figures, up from the day's low of 87.57 US cents.

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