Despite the confirmation that record low interest rates which have fuelled the markets rise over the past couple of years remain on hold, and improving manufacturing data out of China, stocks started the new financial year with a whimper.
The benchmark S&P/ASX 200 Index fell 0.37 per cent, on Tuesday to 5375.9, while the broader All Ordinaries Index fell 0.29 per cent to 5366.5.
Australian equities ended financial year 2014 up 12.4 per cent. At June 30, the market had a total value of $1.7 trillion, buoyed by $168 billion in growth from the top 200 companies.
On Tuesday, the Reserve Bank of Australia kept interest rates on hold at 2.5 per cent. The dollar spiked on the news. Continued low interest rates are expected to support shares in the months ahead.
"I can’t see a rate increase cycle any time soon, with a potential for rate cuts if necessary," said Avoca Investment Management fund manager John Campbell.
That's it for Markets Live today.
Thanks for reading and for your comments.
See you from 9 on Wednesday.
From Nomura on the RBA decision: "Overall, today’s decision to leave the policy rate unchanged was consistent with our view that the RBA has a neutral policy stance and is unlikely to change its policy rate any time soon. Today’s statement continues to show that the RBA has maintained its positive outlook on the economy, despite the expected drag from resources investment and public spending. However, given the continued decline in commodity prices, the RBA is starting to signal increasing discomfort that AUD is diverging too much from fundamentals."
The S&P/ASX 200 Index closed at 5375.9 points, down 0.37 per cent, or 19.8 points.
From BusinessDay columnist Malcolm Maiden: The Reserve Bank still thinks the Australian dollar is higher than it should be. Overall, however, it seems very confident that its decision to keep the cash rate on hold at 2.5 per cent for the 10th consecutive meeting is the right one.
The picture it paints of an economy slowly but methodically shifting from over-reliance on the resources boom to a more balanced growth model is essentially unchanged from a month ago, and so is the underlying positive message for the markets: central banks including our Reserve Bank are underwriting market prices with easy monetary policy, and there's no sign yet that they are about to put the brakes on.
Citigroup economist Paul Brennan deems the July policy statement "steady, considered and entirely uninteresting". That's honest.
He sees rates on hold until at least the middle of next year and argues "today’s largely unchanged statement indicates the RBA has a very high pain threshold, before it would seriously contemplate changing its policy guidance".
It is the fifth consecutive time the RBA has concluded on the same note and the 10th straight unchanged decision.
Comments from HSBC chief economist Paul Bloxham: "The Australian dollar is a broken shock absorber at the moment," he tells BusinessDay.
On the back of the strong Australian dollar, mining investment continues to dip; the price of iron ore has moved in a downward trajectory throughout 2014, down 30 per cent.
The Australian dollar has historically moved with falling commoditiy prices, 2014 has bucked that trend. "They are watching iron ore very carefully," said Mr Bloxham.
CommSec's take on the RBA decision to leave rates on hold at 2.5 per cent: "We believe that the preference of Reserve Bank officials is to stay on the interest rate sidelines for as long as possible, thus ensuring that the economy has a firm base to support a period of solid non-inflationary growth...
"There were few changes in the accompanying statement, highlighting the Reserve Bank desire for stability. There was a subtle change in the wording concerning the exchange rate: 'The exchange rate remains high by historical standards, particularly given the further decline in commodity prices and hence is offering less assistance than it might in achieving balanced growth in the economy'. Subtly, the Reserve Bank is trying to jawbone the currency lower."
Commsec analysis of RBA
CIMB has analysed Australia's performance against other world markets. The All Ords performed poorly in June, but trading at 15.4 times forward earnings, local stocks do not look as expensive as New Zealand or Canada.
How Australia's market fared against the world
Telstra’s high-stakes court battle with NBN Co could be the biggest case of telecommunications bill shock Australia has ever seen.
Telstra is suing NBN Co in the NSW Supreme Court over the $11 billion deal both parties signed in 2011. The original deal, which is currently being renegotiated, saw Telstra provide NBN Co the infrastructure it needed to connect millions of homes and businesses to the national broadband network.
At issue is a difference in opinion over when the deal began. Telstra believes the contract came into effect after the definitive agreement was signed in June 2011. NBN Co, meanwhile, claims it kicked in after Telstra shareholder and regulator approvals in 2012.
The directors of Perth-based mining services supplier Coventry Group have fired their first salvo in response to activist investors demanding $25 million in shareholder capital be returned through fully franked dividends who have threatened to roll the board.
Coventry Group has proposed returning $21 million through a series of five, 11¢ per share, fully franked dividends scheduled over the next 13 months.
Coventry Group’s proposal comes two weeks after activist investor Gabriel Radyzminski’s Sandon Capital Investments, in co-operation with West Australian retail entrepreneur Lorna Dorsett, launched a share raid on the company.
Here's the Australian dollar's reaction to the RBA statement.
Australian dollar advances
The Australian dollar has risen to US94.44 cents in the wake of the RBA announcement. It said of the currency: "The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy."
The Reserve Bank of Australia has left interest rates unchanged at 2.5 per cent.
Andy Murray's 2013 Wimbledon win underpinned a 26 per cent spike in British exports of tennis equipment, the Guardian reports. Mostly these were consumed by Belgium. Growing volumes of British strawberry exports were mostly bound for the Netherlands.
These revelations have come from the UK trade and investment department which also highlights a surge in demand for British cricket balls (up 438 per cent to £256,000). Unsurprisingly, most of them ended up in Australia.
Andy Murray urges himself on after winning a point against Spain's Roberto Bautista. Photo: AFP
We highlighted yesterday that Argentina was on the cusp of defaulting on its debt. It has emerged that Argentina has earned a 30-day grace period in which it can strike a deal with its hedge fund bondholders or take bold and potentially unpopular measures.
Argentina has $US539 million sitting with Bank of New York Mellon, but the bank does not want to violate court orders by releasing the funds. A judge had already ruled Argentina cannot make the payment that was due on Monday without also paying out a group of aggrieved hedge fund bondholders.
If you followed the extraordinary story of Dov Charney's time as CEO of hipster outfitter American Apparel, the latest twist is something else.
The New York Post reports that Charney is looking for a way back into the company which ousted him, calling for a special meeting to regain control.
American Apparel shares fell 15 per cent in the US on the news.
Ousted American Apparel founder Dov Charney Photo: Getty
Grocery giant Woolworths has fallen foul of two of the country’s most powerful lobby groups after it admitted it was trialling the use of nursing and pharmacy graduates to offer blood pressure, cholesterol and other health checks to its customers in stores.
The retailer confirmed to the ABC that it was hiring pharmacy students, as well as newly graduated nurses and pharmacists for a trial across six stores in New South Wales and Queensland.
The move has angered the Australian Medical Association and the Pharmacy Guild of Australia. The two lobby groups, for general practitioners and pharmacists respectively, are used to fighting with each other but this time they have both hit out at Woolworth’s plan.
After decades of isolation, the United States is set to become a major player in the global trade of ultra light oil as recent government export approvals attract interest across the world.
Following rulings disclosed this week, US companies can now export the light, gaseous petroleum known as condensate after a forty-year ban, giving them access to needy markets in Latin America and Asia and potentially threatening the dominance of other established producers in the Middle East and Africa.
Companies are ready to ship condensate from some of the United States' massive oil and gas fields within weeks. By the end of the year, as much as 300,000 barrels could be exported each day, according to analysts at Citi in New York, a timely event as Asian countries increase capacity to import and exporters elsewhere face headwinds.
From State Street Global Advisors:
May saw SSGA's Market Regime Indicator post its ninth consecutive weekly reading of "euphoria".
The three factors - implied volatility on equities, risky debt spreads and currencies - are all at or close to their floors.
"Just because the market is taking on more risk in this period, does not mean we do...
From a tactical perspective, we have positioned the portfolios with a tilt to benchmark unaware equity strategies over their index-aware counterparts. We favour developed over emerging equities and whilst we continue to do so, we have started to buy back into emerging to reduce our underweight. Improving fundamentals in this asset class mean we will monitor it closely over the next few months, particular for further positive catalysts such as economic growth and earnings relative improvement."
State Street Market Regime Indicator
Ahead of the RBA's July meeting: The end of the housing boom, the high level of the Australian dollar, iron ore exports and struggling consumer confidence will be at the top of the list of priorities for the Reserve Bank board when it meets today to decide official interest rates.
All 29 economists surveyed by Bloomberg believe that the RBA will keep the cash rate on hold at 2.5 per cent.
A rate cut would prevent the housing boom from ending prematurely, said Morgan Stanley analysts.
Japan has delivered an encouraging Tankan survey outcome, coinciding with the positive mood out of China today. Bloomberg reports that Japanese companies increased their investment plans more than forecast, at 7.4 per cent.
Economists were expecting a 6 per cent lift in spending intentions.
Japan's Nikkei 225 Index is up 1.35 per cent.
Supermarket chain Coles had admitted threatening suppliers with sanctions such as refusing to stock new products and blocking access to sales forecasts when they declined to pay extra rebates to participate in a new supply chain program.
In its 34-page defence of unconscionable conduct allegations by the Australian Competition and Consumer Commission, Australia's second largest food and liquor retailer has made more than 98 "admissions."
These admissions include using formalised scripts to sell the benefits of participating in the new supply chain program and 'escalating' recalcitrant suppliers up the Coles management chain when they resisted.
But Coles has rejected allegations by the ACCC that it contravened Australian Consumer Law by acting unconscionably, using misleading information and applying undue influence to force suppliers to participate in the program.
Macquarie Group continues to outstrip its bank rivals with gross loans and advances up 4.9 per cent in May, equating to 58.7 per cent annualised loan growth mainly driven by mortgages.
While it still has a smaller loan book than Bank of Queensland, Macquarie is catching up fast, according to the latest data from APRA.
In the year to the end of May, gross loans and advances grew 46.2 per cent to $23.5 billion from $16 billion a year earlier compared to Bank of Queensland’s $28.6 billion, which was flat on the previous year.
The big four banks all largely recorded mid to high single digit annualised loan growth in May, with Westpac growing more quickly than the industry average after deliberately lagging for some time.
Macquarie chief Nicholas Moore said in May the company wanted to see its mortgage book return to pre-global financial crisis levels of about $25 billion, up from $17 billion currently.
In the year to the end of May, gross loans and advances grew 46.2 per cent to $23.5 billion from $16 billion a year earlier Photo: Louie Douvis
The retail empire of former BRW Rich Lister Jan Cameron, the founder of outdoor clothing chain Kathmandu, has collapsed for the second time in less than two years.
Ms Cameron’s private company, DSG Holdings Australia Pty Ltd, which operates more than 140 Crazy Clarks and Sams Warehouse discount variety stores, has gone into receivership.
Here's Domain editor Stephen Nicholls on the mixed signals in house price data:
"After RP Data released their May figures showing the biggest drop in the nation's house prices in five years, a friend rang to say he wanted to sell his apartment.
"It looks like it's all over," he said. "If I try to sell now, I might still get a reasonable price."
The May monthly figures showed 1.9 per cent drop in home values across the nation's capitals. There was a fall of 1.1 per cent in Sydney and a massive 3.6 per cent in Melbourne. Real estate agents were baffled because the auction market was still going gangbusters. Auction clearance rates - usually a very accurate baromoter of house prices - had actually strengthened in May.
But CommSec chief economist Craig James was quoted saying "Home prices couldn't lift forever". The Federal Budget was blamed. RP Data's Tim Lawless said it was "seasonal factors".
Just as well I managed to talk my friend out of it. On Tuesday morning, RP Data released its June figures."
The Australian sharemarket has bounced on the back of the encouraging China PMI result.
ASX 200 index reaction to China PMI
Here's some more analysis of the positive China PMI data just out:
ANZ says it is the first time that both the official China PMI and the HSBC reading of Chinese output have come in above 50 points (the expansionary level) since December.
"The rise of both PMIs suggests that the growth momentum has been picking up due to the recent pro-growth policies, including increasing the infrastructure investment and accelerating the budgeted fiscal spending. The rising G3 demand and intra-Asia trade flows have provided positive impetus as well.
In the meantime, the high-frequency data showed that the crude steel output continued to increase in the past two months, consistent with improving sentiment indicators.
"Combining these factors, we believe that China’s GDP growth in Q2 will likely come in above 7.5%, compared with 7.4% in Q1."
Chinese manufacturing expanded the most this year during June, with the closely watched monthly PMI coming in at 51 points. The May result was 50.8 points.
More analysis on house prices, this time from St.George, ahead of the RBA decision today:
Dwelling prices rebounded 1.4 per cent in June, partially recovering from a 1.9 per cent decline in May.
"We expect Australian dwelling prices to continue to post gains, as low interest rates and firm population growth support demand. However, a flood of new residential buildings, affordability constraints and less attractive rental yields for investment should continue to limit growth in house prices.
"A path of more sustainable house price growth is in prospect and we expect house prices to grow at a more moderate pace than earlier this year and late last year. This should leave the RBA content to leave official cash rate settings on hold for the remainder of the year."
St.George analysis of house prices
News from Computershare:
The global share registry has forecast a $US40 million fall in net profit for the 2014 financial year following a major review of its business.
In August 2013, the company reported a 9.2 per cent fall in net profit to $157 million for the 2013 financial year.
The write-down comes as longstanding CEO Stuart Crosby prepares to hand over to new chief executive Stuart Irving, who has said the company would recognise where its acquisition-led growth strategy has not worked.
The reduction is due to the closure of Digital Post Australia, a joint venture with Zumbox offered via Australia Post and the sale of a German marketing business, Pepper, at a loss.
Henderson Group is charging ahead 24 hours after its acquisition of Geneva Capital Management, a US equities manager of small and mid-cap stocks. Geneva has US$6.3 billion under management and is billed to boost earnings per share in the first full year of ownership.
Investors have pushed Henderson stock up 3.3 per cent to $4.44 on Tuesday.
In UK trading overnight the shares rose 1.9 per cent.
Read more about the $US130 million-plus deal here
Investors do not like Ansell's after-market announcement from Monday where it revealed a corporate restructure, including planned asset sales.
Key points are:
Earnings per share at the low end of its previously announced guidance range for FY14 of US$1.10 to US$1.16, before restructuring charges, which reduce EPS by US80 cents.
$US124 million in write downs, before tax.
Ansell shares are down 2.9 per cent to $19.25.
More analysis on 2013-14's winners and losers.
The Australian benchmark, the S&P/ASX 200 ended the financial year 12.35 per cent higher at 5395.7 points - the highest the market has been since mid 2008. Solid returns for Australian shares saw $168 billion added to the value of the top 200 companies, taking the total to $1.7 trillion.
The return builds on a gain of around 16 per cent last financial year and comes as many market experts predict that the new financial year will cement three years of double digit returns in the wake of the financial crisis.
The top five included four resource companies Northern Star (115%) and Western Areas, (99%), Independence Group (92.5%) and Aquila Resources. Domino’s Pizza was the only non-mining company with a strong gain of 97%.
The worst performers included three resources companies such as Paladin Energy (-66%), rare earths company Lynas Corp (-65.3%) and Regis Resources (-43.3%). Retailer The Reject Shop (49.3%) and travel group Wotif.com (46.4%) were also in the bottom five.
The S&P/ASX 200 Index has kicked off the 2014-15 financial year with a limp 9.5 point advance.
The Australian dollar is trading at US94.21 cents.
Ansell is the key laggard, down 4.3 per cent in early trading.
Evolution Mining is ahead 3.6 per cent.
The ANZ-Roy Morgan weekly consumer confidence index declined 0.3 per cent last week.
Confidence is 9 per cent lower than at the end of April; but around 6 per cent higher than a month ago.
ANZ says: "The bounce we have seen so far has not been large enough to make us comfortable that the deterioration in confidence is transitory. We would need to see confidence recover at least another 5 per cent over the next few months to suggest that the non-mining recovery remains on track.
"ANZ now forecasts household consumption growth to remain moderate this year, before improving next year as the non-mining recovery gathers momentum."
Interesting move from carsales.com. The group will acquire a 50.1 per cent interest in motor finance business Stratton Finance it revealed in an ASX announcement.
Carsales CEO Greg Roebuck said: “It’s a natural fit with the carsales business. We see great opportunity to introduce stratton across our range of verticals in addition to the presence it currently has in automotive. stratton’s large database of new and used car buyers is of obvious value, however we see significant potential in the provision of quality affordable finance and insurance products to our ever growing private to private customer marketplace.”
Carsales paid $60.1 million.
Supermarket chain Coles has categorically rejected Australian Competition and Consumer Commission allegations that it engaged in unconscionable conduct to force smaller grocery suppliers to pay additional rebates to fund a new supply chain program.
In a 34-page defence filed in the Federal Court in Melbourne on Monday, lawyers for Coles rejected key claims by the ACCC, which launched legal action in May, alleging that Coles used unfair tactics and misleading information to force about 200 suppliers to pay additional and ongoing rebates to participate in the program known as Active Retail Collaboration.
Highlights from The Australian Financial Review's Street Talk column today:
This from Chanticleer columnist Tony Boyd this morning on Commonwealth Bank of Australia:
It will be a gutsy move, but CBA chief executive Ian Narev can this week take a leadership position in financial advice.
He can use the black mark against the bank’s financial planning division as a catalyst for adopting the highest standards of professionalism in financial planning in Australia.
All he has to do is pick up on the 10 point industry transformation plan published by Financial Planning Association chief executive Mark Rantall in response to the Senate Economics Committee report released last week.
Westpac's push to claw back share in the $1.3 trillion mortgage market appears to be bearing fruit, after its home loan book grew more quickly than the industry average last month.
A key priority for Westpac in recent months has been to narrow the gap between its loan growth rate and that of rivals, so that it is no longer losing share in the lucrative mortgage market.
Latest figures published on Monday show the bank made substantial progress in May, as the annual pace of credit growth across the economy rose to its highest level in five years.
But although Westpac has now caught up to the industry average for one month, it is still expanding at a slower pace than ANZ Bank, which has the smallest exposure to the housing market of the big four.
Westpac's home loan book expanded at an annualised pace of 8 per cent in the month, slightly quicker than the industry average or "system" pace of 7.8 per cent, according to analysis of Australian Prudential Regulation Authority figures by Macquarie's Mike Wiblin. It compares with Westpac's growth of 6.8 per cent in April.
Here's some Qantas analysis from business columnist Elizabeth Knight:
The Labor Party's weekend announcement that it would soften its stance on Qantas ownership restrictions suggests shadow transport minister Anthony Albanese may be girding his loins for another round of public debate on the need for some kind of government leg-up for the airline.
It's probably no coincidence his concessions have been heralded towards the end of a financial year in which the airline's performance has continued to deteriorate and on the eve of the matter being put to the Senate.
Stranger still, it coincides with speculation in the industry that Qantas may be set to release a loss much larger than anticipated.
Following a $250 million loss in the first half of the year the current analyst consensus is for a loss of around $700 million on an underlying basis. On top of this they are expecting about $200 million-$400 million of one-off losses - most accounted for by the cost of making 2200 jobs redundant by June 30, 2014. This would boost the airline's statutory loss to more than $1 billion. Some analysts have this number as high as $1.2 billion.
Superannuation fund members are on track to be the beneficiaries of a second consecutive year of double-digit returns, thanks to soaring equity markets.
The average balanced retirement fund is expected to record a rise of about 13 per cent for the 12 months to June 30, following a 16 per cent gain in the previous year. A rise of 13 per cent would be striking by industry standards.
The returns were driven by a 12.4 per cent lift in the benchmark S&P/ASX 200 Index over the past financial year which closed monday at 5395.7 points, with technology stocks and the banks the best performing sectors.
Figures from research house Chant West show that since 1993 the average balanced scheme has only returned more than 13 per cent on six occasions.
Here's what you need to know:
Local stocks are poised to edge higher, though investors may await the RBA’s meeting outcome before making too many fresh bets.
What you need2know:
• SPI futures up 12 points to 5366
• AUD at 94.31 US cents, 95.52 Japanese yen, 68.87 Euro cents and 55.10 British pence
• On Wall St, S&P 500 -0.1%, Dow -0.2%, Nasdaq +0.2%
• In Europe, Euro Stoxx 50 flat, FTSE -0.2%, CAC -0.3%, DAX +0.2%
• Spot gold up 0.8% to $US1326.83 an ounce
• Brent oil down 0.8% to $US112.44 per barrel
• Iron ore slips 1.2% to $US93.80 per metric tonne
• LME three-month copper up to $US7017 a tonne
What’s on today
Australia: The Reserve Bank of Australia’s board holds its monthly meeting on interest rates and is scheduled to make its decision known at 2:30pm AEST; RP Data-Rismark June home prices; Australian Industry Group June PMI;
China: June manufacturing PMI; China June HSBC Manufacturing PMI;
US: June auto sales.