That’s it for Markets Live today.
You can read a wrap-up of the action on the markets here.
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See you all again tomorrow morning from 9.
And here are the best and worst among the top 200 today.
Ainsworth is top of the pops with a 5.2 per cent return in a day when most stocks went backwards.
The list of cellar dwellers is mostly packed with mining names, except for the hardest hit name: Ten Network.
Great long-term chart on housing affordability, courtesy of Matthew Butlin, chair of the Victorian Competition and Efficiency Commission:
After being almost 40 points lower in early morning trading the ASX 200 has clawed back to within 6 points of yesterday's close, sparked by a positive reading from China's official manufacturing PMI.
The ASX 200 close of 5389.2 represents a 0.1 per cent fall in the benchmark index, while the All Ords eased 0.2 per cent to 5394.9.
BHP (up 1.6 per cent), Rio (0.5 per cent) and Fortescue Metals (1.1 per cent) saved shares from heavier losses but weren't enough to offset a broader downtrend - 132 of the top 200 finished down.
The biggest drags on the market was CBA, which fell 0.4 per cent, Telstra (-0.6 per cent), and Woodside, which dropped 1.1 per cent and led the energy sector to be one of the worst performers for the day.
Gold miners got whacked, trading 3.4 per cent down as a group, with Newcrest slipping 2.1 per cent.
Some China bond default talk coming up again: a small construction materials company has defaulted on an interest payment on 180 million yuan ($31 million) worth of bonds, a national newspaper says, a few weeks after China's first-ever domestic bond default.
Xuzhou Zhongsen Tonghao New Planking Co Ltd missed the interest payment on a high-yield bond issued last year, the 21st Century Business Herald reported.
A default by Xuzhou Zhongsen would be the first in China's high-yield bond market, which was launched in June 2012 in a bid to expand financing channels for small, private firms.
Sino-Capital Guaranty Trust Co Ltd had provided a guarantee on the bonds but declined to pay out, arguing that the guarantee had been issued by one of its local branch offices without head-office approval, the paper said, quoting an unnamed source.
Sino-Capital had sufficient funds to honour the guarantee, the 21st Century Business Herald said.Back to top
In case you missed it, late yesterday afternoon DEXUS Property Group said ratings agency Standard & Poor’s (S&P) upgraded its credit rating from ‘BBB+’ to ‘A-’.
DEXUS chief executive Darren Steinberg said: “This upgrade reflects our strong balance sheet, consistent operating performance and high quality property portfolio, which has been enhanced through the acquisition of the Commonwealth Property Office Fund (CPA).
In upgrading DEXUS’s rating, S&P noted that the CPA acquisition “strengthens DEXUS's business profile due to the expanded size and scope of its Australian-based office-asset portfolio, its solid asset quality, and its enhanced ability to offer its tenants a broader property portfolio,” and that the acquisition “has been funded by a combination of debt and equity and is within DEXUS's articulated financial policy”.
First New York's Attorney-General, next bestselling author Michael Lewis, now the FBI: high-frequency trading has come under attack:
Federal agents are investigating whether high-frequency trading firms break US laws by acting on non-public information to gain an edge over competitors.
The Federal Bureau of Investigation’s inquiry stems from a multi-year crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others.
Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to an FBI spokesman. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.
The FBI joins a roster of authorities examining high-frequency trading, in which firms typically use super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies.
New York Attorney General Eric Schneiderman opened a broad investigation into whether US stock exchanges and alternative venues give such traders improper advantages. He is examining the sale of products and services that offer faster access to data and richer information on trades than what’s typically available to the public.
US author Michael Lewis claims the US stock market is rigged in favour of high-speed electronic trading firms, which use their advantages to extract billions from investors, and has just published a book focusing on the topic, Flash Boys: A Wall Street Revolt.
Here's a chart from Moody's, showing how US companies have been using their cash over recent years.
Despite talk that the corporate sector is failing to invest in productive assets - part of the rationale of the "jobless recovery" - capex of $US869 billion in 2013 "represented a record high", write the Moody's analysts.
They do note that 51 per cent of this spending was coming from the energy and utility sectors - the latter perhaps more likely to be in maintaining rather than building new productive assets or hiring people.
And others analysts have noted that corporate profit growth has outstripped growth in corporate investment in recent years, and expressed disappointment that it's not as strong as it should be at this point in the cycle.
Still, not exactly evidence of a "capex strike" in the US.
Most Australians want to retire at 57, a survey finds, which is 13 years earlier than experts warn the country can afford as the population ages.
When recruitment firm Randstad asked nearly 10,000 people about their ideal retirement age, most said 57, and fewer than a third said they were happy to work past the age of 62. If the experts are right, many of respondents in the survey are headed for extreme disappointment.
As the population ages, there are fewer working-age people to support the growing ranks of elderly who require health services and aged care.
Already the government has announced the age of eligibility for the pension will be progressively increased to 67 between 2017 and 2023.
And outfits like the free-market think tank, the Grattan Institute, and the government’s policy adviser, the Productivity Commission, have called for a lift in the retirement age to 70, with the latter estimating a saving of $150 billion over 50 years as a result.
Some economist reactions to the RBA's rates decision flowing in:
RBC Capital Markets senior economist Su-Lin Ong
- No great surprises, no change, neutral bias intact, the discussion over macro policy is very similar to last time, about stronger consumption, housing construction and all the rest.
- Most of us were looking for any discussion over the currency given what looks to be an RBA watering down of its jawboning effort in the last week or two ... all they've done is to largely repeat that the currency remains high by historic standards, and they've added a new bit suggesting the lower currency should help in the rebalancing but to a lesser extent given its recent increase.
- It's a bit of tacit acknowledgment that there's not much the RBA can do about the exchange rate. To have said absolutely nothing new on the exchange rate would have been a green light for it to go a lot higher, but adding that small line has just sort of capped it for now.
CBA chief economist Michael Blythe
- The bottom line is that, given what they're saying, it's not surprising they've opted for a period of stability in interest rates. We think with a bit more inflation risk and with a bit more upside growth risk the Reserve Bank is talking about, there's certainly no more rate cuts and the next move should be up. We're sticking with our November call for that.
JPMorgan economist Tom Kennedy
- There's not too much that's materially different today to what we saw in March. But for some reason the RBA does seem more comfortable now with a high Aussie dollar. It has previously described that as uncomfortably high. Now they just refer to it quite blandly, saying it remains high by historic standards.
- What it suggests is that the currency is more closely aligned now with the commodity prices and the terms of trade, whereas in the past few months perhaps the dollar was above where commodity prices were.
St George chief economist Hans Kunnen
- It is balanced. They noted the soft patch in China, they noted the negative impact of the slightly higher dollar, and they noted the unemployment rate has raised a touch further. But at the same time, they've said there's solid expansion in housing construction, and that was the main positive.
- It's steady as she goes, keep an eye on China, the currency is still weaker than it was a year ago, down 11-odd per cent, that will be a positive.
- They think inflation is under control and they're signifying no change for a while. They think in the current setting will get them the growth they want by year's end.
Reacting to what it calls ''market speculation", BHP has just reiterated on the ASX that it is focused on portfolio simplification, but not denying our reports that it is considering a spin-off of non-core assets:
"We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximise value for BHP Billiton's shareholders. Any course of action remains subject to detailed review and an assessment of alternatives.''
As reported, BHP is considering spinning off non-core assets including aluminium, nickel and bauxite in a transaction that could create a new $20 billion resources company that would be handed back to shareholders.
Multiple sources close to the process said no final decision had been made and stressed the project had been running for more than a year without a conclusion.
But they said the work "had gathered momentum" with senior BHP executives leaning towards spinning off the company with potential listings on the Australian, London and South African stock exchanges.
Analysts at broker CIMB reckon there are several reasons to invest in Dick Smith, noting “negative perceptions around the private equity exit, stock overhang and lack of trading history have created a buying opportunity”.
“In addition, we think the cycling of a major clearance event in December has clouded potential improvements in underlying sales momentum,” the analysts write in a research note to clients.
Looking into financial 2015, CIMB’s team highlights the company has rolled out several initiatives to grow underlying sales on a sustainable basis “including a reworked staff incentive structure, a refined marketing program and category management opportunities”.
Cost savings are still coming through, “particularly in the entertainment category”, thanks to head office cost reductions, supply chain savings and lower forecast management bonuses.
“Reflecting these opportunities, our FY15 forecast for cost of doing business to sales drops to 18.5 per cent (down 30 basis points).”
Dick Smith continues to target a further working capital release as it pushes out vendor terms in New Zealand.
“Factoring this in, and a FY15 dividend at the top of the targeted range (from 60 per cent to 70 per cent), we forecast a year end closing net cash balance of $55 million.”
Broeren has an “add” recommendation and has increased his FY15 earnings per share 8 per cent to 22¢ and the price target to $2.70 from $2.40.
Here's the full RBA statement:
At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth. China's growth remains generally in line with policymakers' objectives, though it may have slowed a little in early 2014. Commodity prices have declined from their peaks but in historical terms remain high.
Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding, though for some emerging market countries conditions are considerably more challenging than they were a year ago.
In Australia, the economy grew at a below trend pace in 2013. Recent information suggests slightly firmer consumer demand over the summer and foreshadows a solid expansion in housing construction. Some indicators of business conditions and confidence have improved from a year ago and exports are rising. But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.
The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. It will probably rise a little further in the near term. Growth in wages has declined noticeably. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth is slowly picking up. Dwelling prices have increased significantly over the past year. The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.
Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.
In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.
BHP shares have enjoyed a bit of a lift - now up 1.7 per cent to $37.11 - following a Fairfax Media scoop that the Big Australian is planning on slimming down via some major asset sales.
The Reserve Bank has left the cash rate unchanged at 2.5 per cent.
The dollar has spiked to 93.04 US cents after the central bank said "the exchange rate remains high by historical standards", a fairly mild form of jawboing that doesn't impress markets much.Back to top
The market appears to be betting big on engineering contractor UGL being unsuccessful in selling DTZ property arm, a CBA analyst opines, with 12.2 per cent of UGL stock short as at March 25.
“The second part of that bet appears to be the potential for an equity raising, something we had considered in May 2013, but looks contingent on an unsuccessful DTZ sale,” Brownette writes in a research note.
UGL will narrow the field of potential buyers of DTZ to about half a dozen this week as it accelerates efforts to either sell the business or spin it off into a separately listed entity.
It is understood interest has stemmed exclusively from private equity players, with the Texas-based buyout firm TPG widely viewed as the strongest contender.
Raising equity is not a certainty, CBA’s analyst says.
“The market appears to not only be betting that DTZ will not be sold, but also appears to be betting on a large equity issue.”
The shares are trading 3.5c down to $6.985. This time last year they fetched north of $10 each.
Australia's exposure to China is growing, making us more vulnerable to a slowdown, UBS economists Scott Haslem and George Tharenou write in a note:
- Despite a slowing in China’s annual GDP growth from 9-10% in 2010-11 to 7-8% in 2012-13, Australia’s exports to China have recently re-accelerated to be up 30% over the past year, led by resources (almost 90% of our goods exports to China).
- More interestingly, Australia’s penetration into China has increased sharply, with our (export) share of China’s imports up from 4% to almost 5% over the past year. This follows a 17yr period to 2007 when Australia’s exports remained relatively steady at 2½% of China’s imports, before jumping to average 4% in the 4yrs to 2012.
- Few countries or regions have managed to lift their share of China’s imports over the past decade.
- Firstly, this is good story for Australia. The 30% y/y growth in the value of Australia’s exports to China reflects the fact that volume growth (~32% y/y) is offsetting what has to date been a relatively modest fall in overall commodity prices.
- Even as commodity prices are forecast to fall further, there’s still a large volume response to come over the next few years (across coal, iron ore and LNG), which will continue to underpin Australia’s growth and income.
- The ongoing penetration of Australia’s exports to China, relative to Brazil, India & Russia, likely reflects Australian resources producers’ favourable position on the cost curve and reliability of supply growth.
- Secondly, without doubt, Australia is becoming more exposed to China’s economic cycle, given our exports to China are now 7% of our annual GDP growth. This places a strong onus on policy makers – as we venture out the risk/reward frontier with China – to ensure Australia has monetary and fiscal policy levers ‘on hand’ to replenish domestic income if and when China experiences a sharp downturn.
BHP is considering spinning off non-core assets including aluminium, nickel and bauxite in a transaction that could create a new $20 billion resources company that would be handed back to shareholders.
It is understood a team advised by investment Goldman Sachs and using the name “project river” is working on a number of strategic options for non-core businesses including a demerger and individual asset sales.
Multiple sources close to the process said no final decision had been made and stressed the project had been running for more than a year without a conclusion.
But they said the work “had gathered momentum” with senior BHP executives leaning towards spinning off the company with potential listings on the Australian, London and South African stock exchanges.
It is understood there are also still deliberations about what assets would be included in any sale or demerger process if it were to go ahead.
Shares are up 2 cents at $36.49, after earlier slipping to $36.14.
The explosive claim by acclaimed business author Michael Lewis that the world’s largest stock market is “rigged” by high-frequency trading has sent Wall Street into a flux of chatter, self reflection and, in some cases, denial.
‘‘The United States stock market, the most iconic market in global capitalism is rigged ... by a combination of the stock exchanges, the big Wall Street banks and the high-frequency traders,” Lewis says.
Larry Kudlow, an economist and well known US financial market commentator, says Lewis is exaggerating by calling the market rigged:
- There are imperfections, and Mike Lewis, who is a very bright guy, has fingered some of these imperfections.
- I never like to blame the technology, because somebody is always going to come up with a better mouse trap.
High-frequency trading advocates have strongly refuted the Lewis claims. They argue high-frequency trading is supporting other investors by adding liquidity, price discovery and depth to the share market.
Peter Nabicht, senior adviser to the Modern Markets Initiative trade group and former chief technology officer at high-frequency-trading firm Allston Trading, says the game is not rigged in the favour of professional traders who employ HFT:
- Rather, they work hard to compete with each other to bring liquidity to the markets, benefiting average investors.
But does holding stocks for a split second really support capital formation in equity marks?
Echo Entertainment, Crown, Lend Lease and Chinese giant, Greenland Holdings, have lodged formal expressions of interest for building a new casino at the Queens Wharf development in Brisbane.
Deputy Premier Jeff Seeney told state parliament 12 companies had paid $100,000 to lodge their formal interest, with six consortiums interested in the Brisbane development and another six keen on building a new integrated casino development in regional Queensland.
Echo Entertainment, which owns Brisbane’s only casino, the Treasury, will take on James Packer’s Crown for a possible second casino in the Queensland capital, following their battle for market dominance in Sydney.
Other consortium bidding for the new Brisbane casino licence, including a Far East Consortium/Chow Tai Fook Enterprises joint venture, construction company Lend Lease, SKYCITY Entertainment Group and the Chinese company Greenland.
In a twist, Packer will be going up against a Hong Kong billionaire who is linked to his joint venture partner in Macau. Packer’s Crown and Lawrence Ho each own 33.6 per cent of Melco Crown, which operates casinos in Macau and is developing a casino in The Philippines.Back to top