Markets Live: Dollar, shares gain

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You can read a wrap-up of the action on the markets here.

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A late rally around the Asia Pacific region helped the Australian sharemarket overcome early losses to close broadly flat and consolidate at six-year highs.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each rose 0.1 per cent on Tuesday to 5543.3 points and 5534 points, respectively, as resources led the bourse amid a strong quarterly production report season.

Local shares slipped in early trade following falls on Wall St overnight. “Without any major news in the United States session investors again nervously eyed the unfolding events in eastern Ukraine,” Patersons Securities chief strategist Tony Farnham said.

But strength in major markets around Asia helped buoy local shares in the afternoon session. When the ASX closed China’s Shanghai Composite Index and Hong Kong’s Hang Seng were both more than 1 per cent stronger.

Mining was the best performing sector, up 0.7 per cent, despite a 0.6 per cent fall in the spot price for iron ore, delivered in China, to $US96 a tonne on Monday night. When the market closed Dalian iron ore futures trading in China was tipping a rise in the steel-making commodity overnight.

Resources giant BHP Billiton lifted 0.8 per cent to $38.51 ahead of releasing its quarterly production report on Wednesday, with most analysts forecasting a good result.

“The swing factor for BHP is its oil and gas focus and prices have been pretty good so that might actually assist in pushing the stock up a bit,” Anna Kassianos, senior resources analyst at Platypus Asset Management said.

Main rival Rio Tinto rose 0.7 per cent to $64.13, while iron ore miner Fortescue Metals Group added 0.9 per cent to $4.61.

Pengana Emerging Companies Fund portfolio manager Steve Black said he expected the iron ore price to stay below $US100 per tonne for the next 12 months, putting pressure on the smaller producers.

Australia’s biggest goldminer, Newcrest Mining, fell 0.3 per cent to $11.43, as the company vowed to vigorously defend a shareholder class action over its handling of continuous disclosure obligations in 2013.

Read more.


The Australian dollar recovered its losses from earlier this week after Reserve Bank Governor Glenn Stevens steered clear of talking down the currency in a major speech on Tuesday.

The Aussie started climbing back towards US94¢ when Mr Stevens started speaking at a charity lunch in Sydney on Tuesday. About 2.30pm it was fetching US93.85¢ after slipping below US93.70¢ in morning trade.

St George Bank economist Janu Chan said the spike stemmed from what Mr Stevens didn’t say, with his speech making no reference to the high currency.

Instead, Mr Stevens focused more on the efficacy of monetary policy following the financial crisis.

“He didn’t give much away for financial markets, interest rate policy or the cash rate to be honest,” Ms Chan said.

“But the fact that he didn’t mention anything about the currency could be behind the bounce.”

Westpac currency strategist Graeme Jarvis said traders would be eagerly awaiting the release of local and US inflation data on Wednesday, considering Mr Stevens’ speech offered nothing.

“After breathlessly awaiting Governor Stevens’ speech ... market participants were left firmly scratching their head after nothing of note eventuated,” Mr Jarvis said on Tuesday afternoon.

“He neither condoned nor tried to reign in current market pricing. Even the Australian dollar did not get a special mention with regards to its elevated-ness. I guess this week was always going to be about CPI [consumer price index] and now we are on deck to receive the US iteration tonight and our own tomorrow.”


It is worth about $13.3 billion and growing, but only four Australian companies have access to China's lucrative infant formula market.

That will change if the industry body representing infant formula makers in Australia and New Zealand gets its way.

Infant Nutrition Council chief executive Jan Carey is in Shanghai working with Chinese authorities to help ease the tough import restrictions Beijing introduced in May.

The new measures were aimed at slashing the number of foreign infant formula products that have flooded the market since the country's milk contamination scandal of 2008.

So far, Chinese authorities have whittled down the number of brands from more than 800 to fewer than 100, in an attempt to tighten food safety standards

Ms Carey said the regulations broadly meant those selling infant formula would need a closer relationship with milk processors. Many of the new restrictions focus on tracing the product from cow to can.

She said this "will have major implications for local producers", but welcomed efforts to increase Chinese confidence in Australian and New Zealand baby formula.

"The Infant Nutrition Council is committed to working with government to instill faith in the integrity of our industry," said Ms Carey, who is attending the world's biggest baby expo in Shanghai.

Already, more trans-Tasman companies are gaining regulatory approval – New Zealand-listed A2 Milk was given the green light to ship its Platinum infant formula on Tuesday.

Australia's biggest milk processor, Murray Goulburn, and the world's No.1 dairy exporter, New Zealand's Fonterra, were granted approval in May.

Read more.

Foreign infant formula sales have soared in China.
Foreign infant formula sales have soared in China. Photo: Sim Chi Yin

Here are the best and worst among the top 200 today.




Best and worst performers in the ASX 200 today.
Best and worst performers in the ASX 200 today. 
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market close

Shares have managed to wobble higher, if only just, with miners providing the bulk of the support.

The ASX 200 added 3 points and the All Ords gained 5 points to 5543.3 and 5534, respectively.

BHP - up 0.8 per cent - and Rio - 0.7 per cent - were the biggest contributors to the market.

Banks were mixed.

Woolworths was the biggest drag on the market after it fell 0.6 per cent, while Wesfarmers declined 0.3 per cent.

After materials, utilities were the best performing sector, gaining 0.4 per cent.


David Jones chairman Gordon Cairns has revealed that South African retailer Woolworths would have “walked away” from a $2.2 billion takeover proposal for Australia’s oldest department store chain if it were forced to pay more than $4 a share.

Mr Cairns, who took the David Jones chair a week before Woolworths made its initial approach, has defended the board’s decision to recommend the $4 a share offer.

ASIC, which threatened to stymie the deal at a Federal Court hearing last week, believes David Jones shareholders should have received a share of the multi-million “collateral benefit” that Woolworths  offered ragtrader Solomon Lew to secure his support for the David Jones scheme of arrangement.

And at a scheme meeting earlier this month, several David Jones shareholders accused the board of selling them short by failing to take into account the retailer’s iconic status and the value of its property assets.

However, in his first on-the-record interview since Mr Lew emerged on the scene and threatened to block the deal, Mr Cairns said Woolworths only agreed to pay $4 a share after gruelling day-long negotiations in mid-March.

“We didn’t arrive at $4.00 because the other side were poor negotiators or because I was a poor negotiator,” said the former chief executive of brewer Lion Co.

“There was a robust and at times vigorous discussion,” Mr Cairns told Business Day.

 “In the negotiations they made it clear to me that $4 was a walk away price - that wasn’t their first price by the way, that was their final price,” he said.

“I’ll leave it to you to surmise how the David Jones shareholders would have felt if having been offered $4 a share  dollars they weren’t able to take advantage of it -  I would have been publicly hung and drawn in George Street!

Read more.

David Jones chairman Gordon Cairns (left) with CEO Paul Zahra.
David Jones chairman Gordon Cairns (left) with CEO Paul Zahra.  Photo: Louie Douvis

Prominent investor Mark Carnegie has teamed up with fixed income broker FIIG to create Alternate Debt Services, which will link high-growth companies with private debt from investors chasing yield.

MH Carnegie & Co, Mr Carnegie’s venture capital and private equity fund, and FIIG, which has been arranging bonds for small caps, both say they have identified a “market gap” where borrowers are too risky for bank loans or simple corporate bonds but are not risky enough to produce the returns of more than 20 per cent demanded by Mr Carnegie’s equity funds.

ADS will structure and arrange high yielding debt (senior, junior and mezzanine), hybrids and preferred equity, offering investors returns of 10 per cent to 20 per cent.

Mr Carnegie said there was “a huge amount of demand for on both sides” for borrowing and lending in this range, a market that has “essentially has been seeded to the prop desks of all sorts of hedge funds”. This was due to the conservatism of the big four banks, said Mr Carnegie, who suggested their lending is restricted to safe and easy situations and that the majors are not willing to experiment or try something different.

“The way I describe commercial bank lending in Australia is finance in the missionary position,” Mr Carnegie said.

Mr Carnegie, who on Tuesday was also continuing the fight to break up Brickworks and Washington H. Soul Pattison after an unfavourable tax ruling and opining about the presidential election results in Indoensia given his investments there, revealed to The Australian Financial Review he is also keen to target the $27 billion of bank profits recently identified by Macquarie analyst Mike Wiblin as being up for grabs by competitors to the major banks willing to try to new things.

“Australian banks have made a tonne of money and they just haven’t felt like they have needed to chase [risks with 10 to 20 per cent yields],” Mr Carnegie said.

Read more.

Mark Paton (left) from FIIG Securities with Mark Carnegie.
Mark Paton (left) from FIIG Securities with Mark Carnegie.  Photo: Getty Images

The ABS will publish its quarterly inflation update tomorrow, with economists almost evenly divided on whether the data will come in slightly above or below the RBA’s own expectations. 

Most see the quarter-on-quarter headline figure in the consumer price index (CPI) at between 0.5 and 0.6 per cent, equating to an annual rate of just below or above 3 per cent

This range is partly based on implied forecasts by the RBA, whose monetary policy has been built on inflation targeting since the 1990s. 

However, the RBA is more concerned about the underlying inflation rate, which accounts for seasonal factors and other variations from quarter to quarter. 

The central bank expects this to come at around 2.7 per cent year-on-year, comfortably inside its target band of between 2 and 3 per cent.

Analysts say that although the annual pace of headline CPI may have lifted above the top of the RBA’s target band in the second quarter, underlying trends point to moderation in the second half of this year and into 2015.

This is due to “subdued domestic demand, upward pressure on the unemployment rate and continued weak wages growth”, Macquarie Wealth Management said in a note.

It says regulated increases in items such as health insurance, tobacco excise and postage stamps would be the main drivers of the second-quarter spike, offsetting quarterly declines in the price of petrol, holiday travel and pharmaceuticals.

Currency markets have already priced in the chance of an interest rate cut by the RBA, and only a much lower-than-expected CPI figure would put heavy downward pressure on the dollar

Read more.

Health insurance could be one factor driving inflation in the second quarter.
Health insurance could be one factor driving inflation in the second quarter.  Photo: Nic Walker

CBA analyst Michael Peet has initiated coverage on Ingenia Communities Group with an “overweight” recommendation and 64¢ price target.

CBA joins broker's BBY and RBS Morgans in placing a buy equivalent on the stock.

Peet notes Ingenia’s expansion into the over-55s active lifestyle segment has increased its exposure to the fast-growing subset of seniors, active retirees and downsizers. In 2011, 5.5 million Australians (26 per cent of the population) were aged 55 and over.

The ABS estimates this segment will grow at double the rate of the overall population to 8.8 million people (31 per cent) by 2030.

“Despite the recent rise in property prices, housing affordability is at a 12-year high driven by record low interest rates and rising household income, according to the HIA-CBA housing affordability index,” Peet writes.

“In our view, this belies the situation facing many retirees on the aged pension, which represents the majority of Ingenia’s manufactured housing estates (MHE) target-market home-buyers.”

Peet says there is a significant opportunity for Ingenia to play a key role in the consolidation of the MHE market, noting the 10 largest players in the MHE sector control less than 5 per cent of the market.

“Access to capital will be a key determinant of who will capture a larger share of this growing market and we believe Ingenia is well placed to be a major player in the consolidation.”

Ingenia shares last traded at 50.25c, down 0.5 per cent today.

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Uranium prices have halved since the nuclear disaster in Fukushima yet nuclear power, promising colossal quantities of clean energy, remains attractive to power hungry economies.

One of the obstacles to industry growth is the cost and waste generated by the enrichment process.

But a small Sydney-based company may have found a solution to it. With a share price down 65 per cent in the past year, this is one of the best intelligent speculations on the ASX.

After it is mined, native uranium cannot simply be plugged into a power plant to generate energy. The concentration of a key isotope needs to increase. Most of the world’s uranium is enriched using centrifuge technology, which separates isotopes by spinning gas in tubes. It’s a costly, capital intensive and complex process.

Silex Systems’ enrichment technology uses lasers, a process which is far cheaper to build and run. Best of all, the company itself owns a royalty on the technology and doesn’t have to spend a cent on building expensive facilities.

The technology is a tightly held state secret, said to be the only privately held technology to be classified as such, which makes researching its efficacy difficult. The laser technology is however claimed to be up to 16 times more efficient than existing centrifuge technology (an industry dominated by just four firms).

We have no way of knowing how cheap laser enrichment will ultimately be, which means its success is uncertain. But it’s also why the potential payoff could be huge.

Read more.

Under tsunami warning ... the troubled Fukushima Dai-ichi nuclear plant at Okuma, northern Japan.
Under tsunami warning ... the troubled Fukushima Dai-ichi nuclear plant at Okuma, northern Japan. Photo: AP
asian markets
Keeping the peace: Susilo Bambang Yudhoyono, centre, with presidential candidates Prabowo Subianto, left, and Joko Widodo.
Keeping the peace: Susilo Bambang Yudhoyono, centre, with presidential candidates Prabowo Subianto, left, and Joko Widodo. Photo: AP

Indonesia is set today to declare Jakarta Governor Joko Widodo winner of the closest presidential election in a decade, with police and politicians calling for calm after his opponent flagged a potential challenge.

Widodo, known as Jokowi, is leading the count against former general Prabowo Subianto after polls showed them neck-and-neck before the July 9 vote. Prabowo’s team has said it’ll file a police report against the General Elections Commission, known as the KPU, for proceeding with the count after it called on July 20 for a delay and questioned the validity of the vote.

Streets in the capital Jakarta were quiet this morning with a visible police presence near the KPU headquarters. Prabowo, 62, has three days to challenge the results once they are announced, something he said he will do if his legal team gathers the evidence to do so.

“A legal challenge of the results is virtually inevitable, on actual or trumped-up allegations of electoral fraud,” Jeffrey Neilson, the Indonesia coordinator of the Sydney Southeast Asia Centre at the University of Sydney, said. “It is difficult to conceive a scenario where he now placidly accepts electoral defeat after being so close to the reins of power,” he said, referring to Prabowo.

Ensuring a calm transfer of power is crucial for Indonesia as it seeks to assure investors the nation’s most divisive presidential election won’t erode democratic and economic progress since dictator Suharto’s removal in 1998. A legal challenge of the results would mean a month of uncertainty for voters and investors in the world’s third-largest democracy, where growth slowed to the weakest pace since 2009 in the first quarter.

The benchmark Jakarta Composite Index is down 0.2 per cent today.

Read more at Bloomberg.


Glenn Steven's speech at the annual Anika Foundation charity lunch has been released (presumably he is speaking it now) and it looks pretty anodyne.

No mention by the RBA governor of the currency. The missed opportunity to talk the Aussie down has been taken as a buy signal by some traders, who have bid the unit up around a fifth of a US cent.

The focus of Stevens' talk is the efficacy of monetary policy following the GFC.

He does a Q&A after, so that may provide more grist for investors.

The Aussie has gained a little after RBA governor Glenn Stevens' chose not to "jawbone" the currency at his ...
The Aussie has gained a little after RBA governor Glenn Stevens' chose not to "jawbone" the currency at his much-anticipated speech. 
“The [global] economic recovery has been based on low interest rates, then crisis and then bounce-back from the crisis ...
“The [global] economic recovery has been based on low interest rates, then crisis and then bounce-back from the crisis ... none of that is sustainable.": Adrian Blundell-Wignall. 

Australia’s public and private sectors should be teaming up in renewable energy projects to drive the diversification away from mining exports, according to Australian economist Adrian Blundell-Wignall.

Mr Blundell-Wignall, who is special advisor on financial markets to the Secretary-General of the OECD, said the end of the country’s mining investment boom and softening commodity prices gave urgency to the development of new growth engines for the Australia economy.

Public-private partnership investment in infrastructure, including green energy generation, was part of the answer, he said. Projects could be funded using financial instruments that were attractive to long-term investors such as superannuation funds and insurance companies.

“The [global] economic recovery has been based on low interest rates, then crisis and then bounce-back from the crisis,” he said.

None of that is sustainable. The next leg of the recovery has to be investment. You have to have longer-term investment picking up and one of the areas in which you need long-term investment is green energy and other things that are structurally good. “

The Paris-based Mr Blundell-Wignall is in Australia to host a fund-raising event today for the Anika Foundation, set up after the death of his daughter in 2004 to fund research into depression among teenagers. 

Read more.


At [US pharmacy chain] CVS, a 100-tablet package of store-brand [or generic-brand] aspirin costs you $US1.99. Bayer aspirin is three times that much. Nonetheless, millions of people end up buying Bayer. When it comes to headache remedies, salt, sugar and hundreds of other important products, many people choose national [name] brands even when a cheaper store brand is at hand.


For the first time, we have solid answers, thanks to a study by Dutch economist Bart Bronnenberg of Tilburg University and three colleagues from the University of Chicago. They found a simple correlation: The more informed you are, the more likely you are to choose store brands.

Pharmacists, for example, are especially likely to buy store brands of headache medicines. Chefs are far less inclined to select national brands of salt and sugar than are non-chefs who are otherwise demographically identical.

In other words, national brands are succeeding largely because of consumer ignorance.

Read more at Bloomberg.

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Shares in Western Areas were up as much as 5 per cent to a more than two-year high after the company beat its nickel production guidance for fiscal 2014.

Australia's fourth-largest miner of the metal, which is used in stainless steel manufacturing, said it produced 28,686 tonnes nickel in the year ended June 30, 1,686 tonnes ahead of guidance.

World nickel prices have gained 36 per cent so far this year, supported by Indonesia's ban on exports of nickel ores.

Western Areas shares were fetching $5.21, up 4.9 per cent, after hitting a high of $5.22 earlier, the loftiest since May 2012. 

US news

US Federal Reserve researchers said they see a “number of reasons to be optimistic” about improvement in the US labour market after a “sizable decline” this year in long-term joblessness.

The Fed board economists, in a post on the central bank’s website, cited a shrinking proportion of people unemployed for more than six months, greater stability in the labor-force participation rate and an increase in the ratio of employment to population.

“The fight against unemployment during the recent recovery has been mainly one of bringing down the long-term unemployment rate,” according to the Tomaz Cajner and David Ratner, economists at the central bank.


The directors of curtain manufacturer Kresta are advising shareholders to accept a $27.7 million takeover bid from a company owned by its managing director.

In a target statement released to the ASX, the directors of Kresta not associated with the deal recommended the company’s shareholders accept an offer to purchase existing shares for 23¢ cash each.

The company told investors “significant work” was needed to complete the restructure of the struggling blinds business, which was locked in a losing battle for market share against cheaper, foreign-made imports.

“As such there is a risk that this may not be done effectively and in a timely manner,” the company said in justifying its recommendation.

The company also warned that if shareholders did not accept the takeover it would need to undertake a capital raising exercise, and existing shares would be diluted.

Kresta’s board was blindsided by an offer last month from managing director Xianfeng Lu’s Hong Kong-based Suntarget Trading Company to acquire the company.

Suntarget is a subsidiary of APlus, a Mainland China-based textiles company started by Mr Lu in 2003. APlus was listed on the Shenzhen stock exchange in 2011 and has a market capitalisation of around 1.4 billion Yuan ($240.5 million).

Last week Suntarget, which along with shares held by Mr Lu and his wife, owns 22.8 per cent of Kresta shares, lodged an unconditional offer to immediately purchase all remaining shares.

Suntarget’s offer is well ahead of Kresta’s June 6 trading price of 16.5¢, but since the company flagged a possible takeover its shares have rallied and traded to the 23¢ bid price on Monday.

The directors said the offer provided certainty to shareholders. Suntarget in its offer said Kresta’s operations in Australia would remain unchanged, retaining the company’s employees and assets.

It also said it intended to continue Kresta’s Australian manufacturing operations.


His boots were caked with mud when Thomas S. T. Gimbel, a long-time hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him.

Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.

He is the man on the ground for a group of investors — including New York’s biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company.

Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $US14 billion invested in farmland, according to the data provider Preqin.

But in the latest twist, a small but growing group of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.

Farmland Partners and the Gladstone Land Corporation, two real estate investment trusts that also own and lease farmland, are already trading on the Nasdaq stock exchange.

For now, American Farmland is a private company, and its founder, D. Dixon Boardman, is pitching the vision to Wall Street. Corn, cotton, lemons, walnuts, avocados: If it grows in the ground and has an attractive income stream, he is peddling it.

“It’s like gold, but better, because there is this cash flow,” Mr. Boardman said. The income stream comes from the rent farmers pay American Farmland and also often includes a share of the revenue from the crops.

Read more at the NYTimes.

Steve Fessler of Prudential Agricultural Investments, left, shows Thomas S. T. Gimbel the harvest on a farm in ...
Steve Fessler of Prudential Agricultural Investments, left, shows Thomas S. T. Gimbel the harvest on a farm in Watsonville, Calif.Credit Peter DaSilva for The New York Times 
trading halt

Silex Systems is in a trading halt to enable the company to “confirm proposed changes to the commercialisation arrangements in relation to its SILEX laser-based uranium enrichment technology,” the company said in a statement to the ASX.

The shares will resume trading when an announcement is made or by market open on Thursday.

The five-year share price chart looks pretty ugly for Silex Systems, which has entered into a trading halt.
The five-year share price chart looks pretty ugly for Silex Systems, which has entered into a trading halt. 
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