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.
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.
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...
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.
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.
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.
Poll: What time should the Markets Live blog start?
- 9.30am is fine; gives me enough time ahead of the market's open.
- 9am would be better; I'd prefer more time for preparation (and comments)
- Even earlier than 9am (if possible)
- Don't care
Total votes: 736.
You will need Cookies enabled to use our Voting Feature.
Poll closed 24 Jan, 2014
These polls are not scientific and reflect the opinion only of visitors who have chosen to participate.
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.
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?
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:
China's nominal GDP growth now less than half its pre-financial crisis level. Check out the chart: pic.twitter.com/RxbA0JMmS2— Tom Orlik (@TomOrlik) January 20, 2014
Aussie spikes, materials stocks back up. Hugs and kisses all around #ausbiz— Peter Esho (@PeterEsho) January 20, 2014
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.
The Chinese data is out, and it's pretty much on target with expectations (which isn't that unusual in China...):
- GDP (Q4, YoY): +7.7%
- Industrial Production (December, YoY): +7.7%
- Fixed Asset Investments (December, YoY): +19.6%
- Retail Sales (December, YoY): +13./6%
Nintendo is under pressure to exit the game consoles business after reporting disappointing sales of its Wii U unit, as a shift in demand by casual players slices into profit.
Nintendo fell 15 per cent to 12,445 yen, the biggest intraday plunge since 2011, at 9.34 am in Tokyo trading.
On January 17 Nintendo forecast a surprise operating loss for the year ending in March, and cut its forecast for annual sales of the year-old Wii U by more than two-thirds.
President Satoru Iwata should concede defeat with the Wii U, shut down production and open up Nintendo’s iconic software characters such as Zelda and Super Mario to the smartphones, tablets and consoles that have made a shambles of his strategy, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. Nintendo should exit hardware altogether, Pachter said
Broker CLSA is painting 2014 as a “rebound” year for Westfield Group, which is facing gathering opposition to the proposed split of its international and Australasian businesses.
After a disappointing 2013 – both Westfield Group and its satellite vehicle, Westfield Retail Trust (WRT), underperformed the broader index by a wide margin – CLSA anticipates growth will improve over the next 12 months because of asset sales and a more buoyant retail sector.
However the broker’s listed real estate analysts claimed the shopping mall behemoth “may have to sweeten” the terms of its break-up.
Under the deal, Westfield’s Australian and New Zealand businesses and properties will be merged with WRT, creating a new vehicle, called Scentre. However, a number of shareholders are marshalling to oppose the move, arguing the cost of the tie-up is excessive.
CLSA has upgraded WRT to a "buy" with a $3.52 price target, equating to a 22 per cent rise in the stock. This figure does not take into account an improved offer to for the Scentre deal.
JPMorgan has sounded another warning on Australia’s beleaguered flag carrier, Qantas, arguing the airline will continue to rack up losses until 2016.
In a research note issued this morning, the US investment bank has reiterated its “underweight” ranking on the company and cast doubt on the impact of potential debt reduction strategies such as the easing of government ownership restrictions.
According to the analysts, the constant drive by Virgin to expand its domestic market share leaves Qantas’s core profit centres under attack.
The bank predicts the airline will report an underlying pre-tax loss forecast at $289 million on February 27, which equates to the higher end of management’s $250 million-$300 million guidance.
The analysts argued that even if the government eased the restrictions or even guaranteed new debt, such measures would make little inroad into the company’s “current difficult operating environment”.
She also argued that selling a minority stake in Qantas’s lucrative frequent-flyer programme may be earnings dilutive and said selling its domestic terminals would be preferable and could potentially rake in $1 billion.
The Australian economy is set to be much tougher in the coming year or two than it has been in recent years, writes HSBC Australia chief economist Paul Bloxham in the AFR, one of the more bullish local economists.
First, the booming mining sector, which had been a key driver of Australia’s growth, is set to slow significantly this year. Investment in the sector is expected to fall, as fewer new projects get started and some of the larger ones are completed.
Second, while we expect global growth to accelerate this year, it might be less helpful for Australia than previous global upswings. This is because the lift in global growth is expected to come from the advanced economies led by the United States, and we think this is unlikely to translate into a significant recovery in growth in Asia.
Nonetheless, with local policy settings already loose, we expect Australia to post solid, but not stellar, growth in 2014. We see further modest downside risk to the Australian dollar and also expect growth to recover enough, and the currency to remain low enough, to obviate the need for the RBA to cut rates further.
Our main case is that the central bank may need to lift rates before the end of the year.
The key challenges are for the new government. Australia’s reform agenda has been stymied in recent years and productivity growth has slowed.
A misstep with fiscal policy is a key risk to this year’s growth outlook.
Smaller lenders are making an aggressive push into the market for fixed-rate home loans, with new figures showing non-major banks pinched a significant number of new customers from the big four last year.
The jump has come as competition the fixed-rate market continues to heat up, with the National Australia Bank the latest lender to cut fixed rates in an attempt to win new business.
Figures from mortgage broker AFG today show smaller lenders’ share of new fixed-rate loans surged over 2013, from 13.6 per cent in February to 38.2 per cent in December. ING Direct and ME Bank had the biggest market share of the smaller lenders in December, with 7.4 per cent and 7.2 per cent, respectively.
Separately, NAB said it would drop rates on its three and four-year fixed loans, giving it the lowest or equal-lowest rates for these products among the big four banks.
NAB’s latest change will take the interest rate on its four-year fixed loan to 5.44 per cent, which the bank says is its lowest point since 1993. Its three-year loan has been cut to 5.14 per cent, equalling the Commonwealth Bank’s pricing.
Smaller lenders are successfully pushing into the market for fixed-rate home loans.
The key local economic data out this week will be the fourth-quarter inflation figures published on Wednesday.
Economists are expecting the CPI measure to rise by 0.4 per cent in the three months to December after a 1.2 per cent rise in the third quarter.
Year-on-year consumer prices are forecast to lift by 2.4 per cent in 2013, up from 2.2 per cent in the previous corresponding period - well within the RBA's inflation target.
As we noted earlier, the TD Securities-Melbourne Institute inflation gauge, which was released earlier today, points to a slightly higher inflation result than is currently tipped.
But Barclays chief economist Kieran Davies said it was also important to note that the gauge relationship with the official data has become much looser over recent years.
"For [the fourth quarter], the mid-month version of the gauge points to a 0.5 per cent rise in the CPI (in the third-quarter, it pointed to a 0.6 per cent increase, while the CPI rose by 1.2 per cent)," Davies says in a note.
Investors continue to pull money out of bonds funds and into equity funds
Investors globally continue to pull billions of dollars out of bond funds and plough the cash in equity funds.
Dubbed "the great rotation", this move from fixed interest into shares began in the middle of last year, coinciding with the announcement that the US Fed's Ben Bernanke's announcement that a reduction in the central bank's quantitative easing program - the so-called "taper" - was on the cards.
It has since accelerated.
As QE scales back, long rates rise, and bond prices fall, hurting bond fund returns. Investors have responded by swapping fixed interest for equities.
Meanwhile, reports Bank of America-Merrill Lynch, there have been 12 straight weeks of emerging market equity redemptions, which is equal to the longest outflow streak in 11 years.
Leading economist Saul Eslake has issued a damning assessment of Australian housing policy of the past 20 years, saying government self interest has led to the worst affordability problem since the end of World War II.
In a personal submission to a senate inquiry into affordable housing entitled ‘50 years of failure’, Mr Eslake, who is also Bank of America Merrill Lynch chief economist, said that housing stock had grown at a slower rate than the population in the past 10 years, for the first time since the early 1950s.
This was despite mortgage interest rates having been substantially lower.
The overall home ownership rate fell by 5 percentage points to 67 per cent at the 2011 census, its lowest figure since the 1954 census.
“Politics – more than any other single factor – means that Australians are likely to have to live with a dysfunctional housing system for a long time yet to come,” Mr Eslake said.
Government policies including cash assistance to first-time home buyers and negative gearing had only served to inflate the demand for housing whilst doing next to nothing to increase the supply and therefore made affordability worse, he said.
More on Paladin, one of this morning’s big movers.
Managing director John Borshoff said he was "delighted" to complete the sale, which he said would "largely be applied to debt reduction".
Deutsche had speculated last week that Paladin would need to conduct an equity raising within six months had today's sale not been achieved.
The sale has not yet been approved by China's National Development and Reform Commission, but Mr Borshoff said those approvals were expected by mid year.
The NDRC is the same organisation that hampered Hanlong group from taking over Sundance Resources in recent years.
If 2013 was a good one for investors in the big banks, it was particularly kind for those with money in National Australia Bank, the AFR notes.
Shares in NAB rallied 39 per cent in 2013, ahead of ANZ, which gained 29 per cent, and Commonwealth Bank and Westpac, which were up 25 per cent.
A sound performance in Australia, improving results from its problematic British-based business and a sense that NAB shares presented better value than the other banks after years of under-performance drove the gains.
As investors weigh up their holdings in the big four in 2014, the question is whether NAB can repeat the performance this year and for many analysts, the swing factor could be the bank’s business in Britain.
While NAB’s Clydesdale and Yorkshire banks in the UK have been a weight on the group’s share price performance for some time, improving economic conditions in Britain are raising the prospect that NAB could finally sell the businesses this year in a move that would likely be welcomed by most investors.
“NAB remains committed to its plan to sell the UK franchise, but not at any price,” Macquarie analyst Michael Wiblin says in a report. “Given an improving UK macro [economic environment], it may well be that it can get a better price this year.”
But as JPMorgan analyst Scott Manning points out, much of NAB’s business in the UK is based in the north of England and Scotland, where the economic recovery is less evident.
Here's a bit more on the Australian dollar and why it slipped to a new 3½-year low early Saturday. It fell as low as 87.64 US cents on Saturday morning and was buying 87.73 US cents early today.
"It's really the run that we saw last week where the US dollar tracked up from its post-payrolls slump and that's been a key catalyst that's weighed on for the Aussie," says Commonwealth Bank currency strategist Peter Dragicevich.
The key economic data set to determine the direction of the Australian dollar today is the spate of Chinese data released at 1pm AEST. The data will include four-quarter GDP, retail sales, industrial production and fixed asset investment.
Dragicevich says the bearish attitude of the market means that even if the China data comes in better-than-expected, the possible bounce in the Australian dollar would be unlikely to be sustained.
"Conversely if the data does disappoint, it will give further impetus to keep the Aussie under downward pressure," he says.
As mentioned, uranium miner Paladin energy and gold miner Silver Lake Resources are early winners, with shares in both companies up over 11 per cent.
A raft of other gold miners are in the top performers, with the All Ords gold index surging 4.8 per cent.
Super Retail Group has regained a smidgen after its big sell-off last week.
Forge shareholders have had another rough morning, and the flight from consumer discretionary names continues: Domino's Pizza, Aristocrat Leisure, Echo Entertainment, and JB Hi-Fi are all lower.
The best and worst performers this morning.
A private gauge of inflation jumped by the most in almost three years in December driven largely by higher prices for food, petrol and tobacco, perhaps suggesting some upside risk for official data on inflation due later this week.
The TD Securities-Melbourne Institute's monthly measure of consumer prices rose 0.7 per cent in December, from November when it increased by 0.2 per cent.
The annual pace accelerated to 2.7 per cent, from 2.4 per cent, and into the upper half of the Reserve Bank's long-term target of 2 to 3 per cent.
The government measure of consumer prices (CPI) is due on Wednesday and any surprise on the high side would likely dampen speculation about another cut in interest rates from the RBA.
However, much of the jump in the TDMI gauge in December was due to one-off influences, including an unseasonably large 5.8 per cent spike in prices for fruit and vegetables and higher taxes on tobacco. Petrol also climbed 5 per cent in December, after falling the two previous months.
Shares in gold miner Silver Lake Resources are up 13.4 per cent after releasing a production report for the December quarter.
The company upgraded its guidance for full-year production from 180,000 to 200,000 ounces of gold to 205,000 to 220,000 ounces of gold. Silver Lake produced a little over 151,000 ounces in the most recent financial year to June 30.
The price of the yellow metal has stabilised at around $US1250/ounce after the steep falls last year, and investors have re-rated gold mining stocks in recent weeks.
Paladin Energy shares are up 10 per cent this morning, to 61 cents, after the uranium miner completed a crucial asset sell-down over the weekend.
Paladin confirmed this morning that it had completed a sale of a 25 per cent stake in its flagship Langer Heinrich mine in Namibia to a subsidiary of China National Nuclear Corporation.
The sale will generate $US190 million for Paladin, which has been facing severe balance sheet pressures on the back of weak uranium prices.
Paladin shares rose close to 13 per cent on Friday, after the miner announced it had refinanced several debt facilities.
The stock could continue that surge this morning, with the Langer Heinrich sell down being eagerly awaited for more than eight months.
The ASX 200 has started the trading week ever-so-slightly lower.
Mining stocks have started the way they finished on Friday, bucking the early trend to post some gains.
Gold stocks are up almost 1 per cent.
The VIX, or volatility index, is a widely tracked US indicator of fear in the market - the higher the number the greater the levels of panic.
Right now the VIX suggests investors aren't very worried about anything. Its current read of 12.4 is about as low as it's been in the past five years. It got as high as 80 at the peak of the GFC.
The index is calculated based on the market price of options used to protect against large moves in the sharemarket.
Its low reading now could be a sign of complacency among investors.
The VIX "fear index" is trading at low levels
Here are five top bets that currency hedge funds are pursuing for 2014 (no surprise to see the short Aussie dollar bet in there):
1. Long dollar versus yen.
Now the Federal Reserve's tapering of its bond-buying programme has finally begun, the move is likely to boost the dollar as investors are attracted to higher Treasury yields. And with the Bank of Japan expected to provide even more stimulus this year, hedge funds expect this trade to keep on delivering.
2. Short Australian dollar versus US dollar or New Zealand dollar.
After a huge bull-run in the wake of the credit crisis that took it well above parity with the U.S. dollar, hedge funds have rushed to short the Aussie in the belief it will suffer as China's demand for commodities cools.
3. Long sterling versus the euro.
The pound was one of the surprise packages in the second half of last year as the UK's economic resurgence brought forward expectations of an interest rate rise.
4. Long dollar versus the Canadian dollar.
Another very popular bet with hedgies, this has paid off as the “loonie” hit a four-year low last week, after data showed the country unexpectedly shed jobs last month.
5. Long Mexican peso versus emerging market currencies.
Managers are split on the outlook for emerging market currencies as they try to assess the impact of Fed tapering.
But many like the Mexican peso, thanks to the country's strong growth and improved credit rating.
Australia’s largest banks are trading at the most expensive levels since before the GFC on bets a mortgage lending recovery will allow them to increase dividend payouts.
Shares of the Big Four led by CBA have rallied more than 30 per cent since November 2011 when the central bank began the first of eight interest-rate cuts to bolster economic growth. The lenders trade at an average of 2.1 times the net value of their assets, the highest since 2007 and a 75 percent premium over the MSCI World Bank Index, data compiled by Bloomberg show.
Investors are betting bank profits will increase - despite an economic slowdown following an end to the nation’s mining boom - as record-low borrowing costs allow lenders to stoke demand for mortgages and boost dividend yields that are already the highest in the developed world. Australian banks account for six of the eight highest dividend yields in the 91-stock MSCI gauge, beating overseas rivals from HSBC to Wells Fargo, the data show.
“The Australian banking sector is going to continue to show nice earnings growth,” Alex Tedder, a New York-based fund manager who helps oversee about $18 billion in stocks including Commonwealth Bank shares at American Century Investments. “Yields are still fairly high and you’ve got a good setup for creating sustained dividend growth that will continue."
Today's main focus will be on China's data dump, with GDP, industrial production and retail sales among the numbers investors will be watching for clues on the health of the world's second largest economy.
After key guidance figures came in weak and amid the ongoing China pessimism, IG's Chris Weston says the GDP figure is likely to be interpreted as bad for local resources stocks - even if it beats expectations. He has two reasons:
- If the figure beats expectations of 7.6%, the comments from markets are likely to suggest the PBoC has further room to clamp down on speculative lending, and can further rein in shadow banking to continue slowing China’s economy to a more sustainable level. This means growth and the demand for imports will slow and this will affect resource nations.
- If the GDP figure comes in-line or below expectations, it could lead to the market describing the number as a sign China is slowing at a greater rate than expected; this could show that China isn’t in as healthier shape as expected and growth will further deteriorate. However, it is unlikely the PBoC or the central government are going to intervene with stimulus or a looser monetary policy as it is looking to slow China to a rate it believes it is sustainable.
Both I believe are overhyped; the market is looking to poke holes in anything that shows signs of sustainability from China, Weston adds.
- However, I believe China is moving on a perfectly sustainable path; GDP moving to 7% to 7.5% over the coming years is perfectly acceptable, industrial production is holding and retail sales are increasing. China is moving towards a consumption nation and this can only be seen as a good thing from a resource-rich nation such as Australia, as the demand for commodities will remain.
- The ‘boom’ (the rapid rise of China) is ending, but sustained demand is just as important to the Australian economy longer term. Today’s release is important to gauge the trading sentiment of 2014, however it is also important from a longer-term sustainability perspective; an in-line result I believe is the best results as it shows the current macro levers from the PBoC and the central government are working and are moderating China as planned and expected
The Aussie has had a poor weekend, trading lower still after Thursday's big jobs-inspired sell-off.
It's broke below US88 cents last night and has been there since.
It's now trading at US87.7 cents.
Enjoy your cheap imports, online shopping and overseas travels while you can.
Australian shares are expected to open flat or slightly lower after a mixed lead from Wall Street.
Here's what you need to know:
SPI futures down 2 points
AUD fetching 87.77 US cents, 64.81 euro cents, 91.36 yen, 53.46 pence
In Europe, Eurostoxx 50 +0.1%, FTSE100 +0.2%, CAC +0.2%, DAX +0.3%
On Wall St, Dow Jones +0.3%, S&P500 -0.4%, Nasdaq -0.5%
Spot gold up 0.9% to $USUS1254.05 an ounce
Brent oil up 0.7% to $USUS106.48 per barrel
Iron ore down 0.8% at $US127.30 per tonne
The TD inflation gauge for December is to be released.