That's it for this week and month - have a great weekend.
The dollar has clawed its way back to just under 91 US cents, nearly half a cent above the day's lows.
The currency has still lost nearly six cents over the past six weeks, facing combined pressures of a nearing cut to the US central bank's stimulus and jawboning by top RBA officials.
However, the dollar's plight might be relieved next week, when the Reserve Bank decides on interest rate policy (Tuesday) and GDP growth data is released (Thursday).
"We expect data next week to be fairly positive and the Reserve Bank won't signal a rate cut so we don't see any impetus for the Aussie dollar to go below 90 cents," said Annette Beacher, head of Asia Pacific research at TD Securities in Singapore, who sees the Aussie at 92.00 US cents by the end of the year.
Economists widely expect the RBA will keep rates unchanged at a record low of 2.5 per cent. Financial markets see a very slim 8 per cent change of a cut on Tuesday. Swap market pricing implies 5 basis points of tightening over the next 12 months.
We mentioned Saputo lifting its stake in Warrnambool, so we should also note that Fonterra has increased its holding in Bega Cheese to 9.1 per cent, buying an additional 3 million shares. Stephen Mayne uses that to take a swipe at today's developments in Canberra:
Fonterra has bought 3m more Bega shares and gone to 9%. Wonder if Joe Hockey will ban that too: http://t.co/LKaoPVy9U8— Stephen Mayne (@MayneReport) November 29, 2013
For the week, the ASX200 fell 15.91 points, or 0.3 per.
For the month, it lost 105.5 points, or 1.9 per cent.
The market has finished lower, with the benchmark S&P/ASX200 falling 14.3 points, or 0.3 per cent, to 5320. The broader All Ords slipped 12.3 points, or 0.2 per cent, to 5314.3.
Virgin Australia chief executive John Borghetti has demanded the government offer it the same level of support as it plans to give Qantas in light of suggestions it will guarantee the national carrier’s debt.
Borghetti issued an open letter the federal government this afternoon in which he hit back at Qantas’s attempts to gain financial support from Canberra.‘‘If Australia truly wants a level playing field then any measures to support Qantas should be offered to Virgin Australia,’’ he said today. ‘‘This country needs at least two strong airlines’’.
Lashing out at recent comments from its rival, Borghetti said Virgin had ‘‘succeeded against the odds’’ against a ‘‘very dominant competitor’’ which was three times its size.
Borghetti also said any suggestion that Virgin’s major shareholders were ‘‘deliberately running our activities at a loss is absurd’’.
He also described suggestions that Virgin had access to cheaper levels of debt because of its shareholder register were also ‘‘false’’.
With the ASX lagging in November due to major banks going ex-dividend, a number of IPOs and earnings downgrades, investors will be hoping for a ‘Santa Clause’ rally.
“A lot of bank shareholders will get a nice Christmas present with some big dividend cheques hitting their doormats just before Christmas, so that will help, as people put that money back into the market,” says BBY private client advisor Henry Jennings:
- Banks will play their part, but they are unlikely to push much higher.
- The banks, although they’re not massively expensive, they’re not in bubble territory, they’re certainly not cheap, they’re pushing the boundaries of where they really should be on fundamentals.
- With iron ore holding at highly profitable levels, big miners like BHP, Rio and Fortescue are the obvious sources of growth.
- BHP, Rio and Fortescue have been throwing up a lot of cash, paying down debt. I suspect, the next leg, if it happens, will have to come from those stocks.
- I think by the time we work through December we should get some more confidence. Hopefully we’ll get that Santa Clause rally which should take us up to that 5600 level.
So what's going to happen with GrainCorp after the federal Treasurer blocked a full takeover by ADM?
PAC Partners agribusiness analyst Paul Jensz says while GrainCorp is in a good position, it's not in a strong position
- With the backing of ADM and the large amount of capital that they were putting into their storage and handling systems, they would have been able to invest through the cycle.
- The problem with a standalone business is that are they are really going to be able to do ... a $50 million investment program when there are lower volumes and lower cash flow and they are up against very large companies that can invest in those tough times. So it takes it to another level of risks."
ADM has to hold its 19.85 per cent stake in GrainCorp until the end of this year, and so will have some time to think about the next step. It has a provision where it could increase its shareholdings by 3 per cent every six months.
Joe Hockey said he's inclined to approve any proposals from ADM to increase its GrainCorp shareholding up to 24.9 per cent.
"If they want to get up to 24.9 per cent quickly, they have to have an extraordinary general meeting to do that in one swoop, so it's a complexity you don't need," Jensz says.
"It comes down to how fast ADM wants to grow in this region. If they think it's an imperative to grow fast in this region, then ADM can do it by themselves, or they can do it with Wilmar, where they have a 16 per cent stake in Singapore, and they have a 20 per cent stake here in Australia [in GrainCorp]."
The federal government has appointed key advisers to prepare for the sale of health insurer Medibank Private, increasing the prospects it might be announced in next year’s budget.
Finance Minister Mathias Cormann announced a scoping study panel that would report back in February so its findings could be considered ahead of the 2014-15 budget.
Lazard is the business adviser, Herbert Smith Freehills the legal adviser, Ernst and Young the accounting adviser while the Australian Government Solicitor is advising on probity matters.
The study will provide recommendations to government on all aspects of the proposed sale including method, timing, costs, regulatory issues and estimated proceeds.
The entity has previously been valued at $4.5 billion.
Here's the daily Warrnambool bulletin: Canadian dairy giant Saputo’s takeover of Warrnambool Cheese and Butter is moving ahead, with the overseas company now owning more than 9.6 per cent of its target.
Saputo is offering $9 for each Warrnambool share, and $9.20 if more than half of Warrnambool’s shareholders take up the offer.
The Canadian company now holds 9.65 per cent of Warrnambool shares, up from 4.8 per cent earlier this week.
Warrnambool shares are down six cents at $9.26.
Highlighting the Australian share market's poor performance this month, no major sector has posted gains.
The Australian market is heading for its first monthly loss since June, while many of its international counterparts are posting strong gains.
Major banks going ex-dividend, plus an array of IPOs taking cash out of the market are a contributing factor, says BBY private client advisor Henry Jennings.
“We’ve also had a lot of AGMs that have been less than stunningly impressive, especially from mining services. That hasn’t really helped sentiment.”
With financials being the major engine of growth on the ASX this year, a soft month for them was likely going to result in a loss for the wider market.
“We haven’t really seen resources stocks really pick up that slack in terms of the big ones like BHP and Rio, who have sort of been flapping around a bit this month.”
With just over an hour of trade left for the month, the ASX200 is down 1.9 per cent in November.
This is how it is stacking up against its global peers:
- Nikkei: +9.7%
- Hang Seng: +2.8%
- Shanghai: +3.9%
- South Korea: +0.6%
- Singapore: -1.1%
- FTSE100: -1.1%
- EuroStoxx50: +0.8%
- Dow Jones: +3.6%
- S&P500: +2.9%
The Business Council of Australia has called on the federal government to take steps to show the world that it does in fact welcome foreign investment, following Treasurer Joe Hockey's rejection of ADM's bid for GrainCorp.
"On the face of it, the Treasurer’s decision to reject ADM’s proposed acquisition of GrainCorp risks undermining the federal government’s statement that Australia is open for business," the chief executive of the BCA, Jennifer Westacott, said.
"It's crucial that, where possible, the government further details the competitive issues that it was concerned about and how this relates to the national interest test so it is clear to global investors what the unique circumstances of this case are.
"It is important this decision does not increase uncertainty in the global community about the rules of the game on competition and Australia’s policy settings on foreign investment generally."
Still controversial ... Lynas' Malaysian plant drew protesters to the AGM.
Rare earths miner Lynas Corp avoided a ''first strike'' by the skin of its teeth at today's AGM, with 24.6 per cent of votes against its remuneration report based on a poll.
Slightly more than 25 per cent of votes were against the report based on proxies voted before the meeting but votes from the floor got the company over the line.
The report included a $953,000 payment to Nick Curtis for resigning as CEO but remaining with the company as chairman, which proved as controversial as the company's recently operational processing plant in Malaysia which attracted vocal protests outside, and inside, the meeting.
Mining giant Rio Tinto owes a moral debt to the people of Gove, Prime Minister Tony Abbott says.
Abbott said the company’s decision to suspend alumina production at its Gove refinery in the Northern Territory was bad news for the 1500 workers, but that he understood the company hoped to offer them other jobs within the Rio group.
‘‘The people who I feel very sorry for are those who have bought homes and businesses in Gove on the expectation of a very vibrant, ongoing, continuing economy and who are now in a very difficult position,’’ the Prime Minister told reporters in Adelaide. ‘‘I think these are the people Rio does have a moral debt to, if not necessarily a legal debt.’’
BankSA has named the head of its small business and commercial banking divisions, Nick Reade, as its new chief executive.
The South Australian lender made the appointment after managing director Jane Kittel was named general manager of customer experience in Westpac’s financial services division.
Prime Minister Tony Abbott says he has not seen a specific proposal on the future of Qantas, but wants the airline to be ‘‘strong and continuing’’.
Treasurer Joe Hockey has called for a national debate on whether to loosen the airline’s foreign ownership rules after Qantas called for urgent changes to remain competitive.
Abbott said no specific proposal had come forward, but there were some basic principles that should be upheld.
‘‘Qantas is a great Australian icon and the government wants to see a strong and continuing Qantas,’’ he said. ‘‘And what we want to see is a strong and competitive aviation sector here in Australia.’’
Now isn’t a time for blame, rather for trying to save East Arnhem Land following Rio Tinto’s decision to suspend operations at its Gove alumina refinery, federal MP Warren Snowdon says.
Mr Snowdon on Friday said the NT and federal governments could have done nothing further to change Rio’s decision, noting the company’s $1 billion Gove refinery loss since 2007 and its $700 million capital spend.
‘‘They’ve made some pretty poor decisions over time,’’ Mr Snowdon said.
‘‘But there’s not much point blaming people. We need to try to get the best possible outcome for the region.’’
He said it was important to understand what the closure will mean for the provision of services such as health, education, transport, infrastructure, freight and retail - because that would have flow-on effects from Nhulunbuy to the whole region.
‘‘You’re pulling the guts out of the community and we need to be contemplating how to provide jobs now and into the future,’’ Mr Snowdon said.
He said there was a danger of a mass exodus from the town if people couldn’t find job security.
The planned launch of a series of gas export projects in Queensland means NSW is facing gas shortages within five years, as is Queensland.
The forecast, by the Australian Energy Markets Operator, the body which manages the energy market, comes as gas prices are set to skyrocket due to the start of the east coast exports.
The forecast shortages also comes amid concerns over allowing coal seam gas mining in NSW and Victoria, which could ease shortfalls.
The export projects will consume up to 250 terajoules a day of gas in Queensland and approximately 50-100 terajoules of gas redirected from NSW by 2019.
The looming shortages in NSW could be addressed by upgrades to pipelines which would enable more gas to travel from the Bass Strait to NSW or by tapping gas locked in coal seams, the report said.
Foreign companies will have to factor in some level of political risk when they consider investing in Australia following the blocking of the ADM bid, PAC Partners agribusiness analyst Paul Jensz says.
The GrainCorp case adds another level of complexity for overseas investors "that no matter how economic rational a decision might be and how they appease the stakeholders, there is a political layer that is a little bit tough to predict":
- [It] places a bit of a discount and a bit of uncertainty around the investment in agriculture in Australia.
- Companies try and deal with external risks as well as they can. Australia has been seen as a political stable, sensible place to put capital. You've got to pay a lot of money for assets here.
- You go to the Black Sea and the capital costs are a third of what they are here but there are a lot of political risks. Whereas here, you pay a premium for capital, a premium for assets and part of that premium is that you are quite sure about what's going on.
- That surety has not totally been dismissed, but it's been challenged.
Joe Hockey’s decision to block Archer Daniels Midland’s $3.4 billion takeover of GrainCorp is nakedly political, writes BusinessDay's Malcolm Maiden:
International investors now know that while Treasurer Joe Hockey and Prime Minister Tony Abbott have declared that Australia is open for business, it is not open for business if the business proposal worries cliques within the Coalition: Nationals leader Warren Truss and deputy leader Barnaby Joyce led the campaign against the deal.
Hockey said the Foreign Investment Review Board was divided about the national interest implications of the takeover, and ADM certainly was a late mover, bidding after two other foreign takeovers in the industry for a business that would have roughly doubled foreign ownership of grain handling to about 70 per cent.
Hockey still had the final call on the bid, however, and in his announcement he didn't serve up compelling reasons for coming down against it.
The grain industry needed more time to transform itself after being deregulated in 2008, he said, and industry participants and growers in eastern Australia where GrainCorp stores, transports and exports grain in particular had ‘‘expressed concern that the proposed acquisition could reduce competition and impede growers’ ability to access the grain storage, logistics and distribution network’’.
The dollar has just plumbed the day's low of 90.56 US cents, its lowest in nearly three months.
The currency has been under pressure since governor Glenn Stevens raised the possibility of intervention last week, but today's sell-off has been linked to the Treasurer's rejection of ADM's bid for GrainCorp.
‘‘’The ADM decision added some pressure to a weakened Aussie after Stevens recently referred to intervention,’’ says Westpac forex strategist Robert Rennie. ’’It’s a concern when you consider the importance of foreign direct investment flows.’’
The currency has fallen steadily over the past six weeks, losing six US cents since October 25.
The dollar over the past three days.
Chris Corrigan, a key figure in the 1998 waterfront dispute, has resigned from the board of James Packer’s Crown Resorts.
Mr Corrigan has been a member of the casino operator’s board since 2007.
No reason was given by Crown for the resignation.
Mr Corrigan was in charge of Patrick Corp during the 1998 waterfront dispute in which Patrick tried to sack thousands of unionised workers, but was overruled by the High Court.
Crown shares are down 0.5 per cent at $16.90.
The Australian government has sold $800 million of March 15, 2019 Treasury bonds.
The Australian Office of Financial Management (AOFM), which conducts bond auctions on behalf of the government, said the bonds were sold for a weighted average yield of 3.5060 per cent.
The sale attracted bids totalling $3.323 billion, giving a coverage ratio of 4.15.
The Graincorp decision by the federal government "raises questions about the extent to which Australia is really 'open for business' in the way that the Prime Minister said on election night", chief Australian economist for Bank of America Merrill Lynch, Saul Eslake, says.
Eslake says that the decision has been a litmus test for how the new federal Coalition government would respond.
"The impact is fairly clear - that this is a government in which the National Party's influence is greater than its numbers would suggest," Eslake says.
"It underscores the concerns I expressed in our public research before and immediately after the election about the likely malign influence of the National Party on economic decisions under this government, and the possibility that this government could turn out to be less like the Howard government in its first two terms and more like the Fraser government, another government in which the Country Party as it was then called exercised a malign influence than would be good for Australia.
"The risk as I've identified for a long time with this government is that while there are some genuine economic liberals in it, like Hockey, Turnbull, Robb and Sinodinos, that the risk always was that they would be outweigh when it came to key decisions by the National Party and Tony Abbott and other economic conservatives in the present government."
Almost half the investment returns made by Australian savers over the past five years has gone on management fees.
This extraordinary finding, from funds manager Chris Brycki, is based on a study of 497 managed funds; and it mirrors what is going on in superannuation.
Over the past five years, the pace of this gravy train has only been quickened by industry lobbying and government favours.
The Australian Securities and Investments Commission provided the big retail funds with exemptions from having to disclose their fees in their marketing materials.
That was five years ago, after lobbying from the peak super fund body - then called IFSA (Investment and Financial Services Association) and now FSC (Financial Services Council).
The Brycki research of the actual fees charged by the wrap platforms showed the average management cost of a balanced fund at 1.91 per cent. The basic management fee that is: before any establishment fees, contribution fees, exit fees, switching fees, performance fees, financial planner fees and buy/sell spreads.
In dollar terms, the fee-take from the funds managers is more jarring. Jordan Eliseo, chief economist at ABC Bullion, calculates - assuming $150,000 as a starting salary for a couple earning the average salary of $70,000 each - and rounding up the $140,000 to $150,000 - super contribution over life would be $830,000 and fees $338,000.
"Industry funds are in bed with the big investment managers": Chris Brycki. Photo: AFR
Graincorp shares have plunged 26.3 per cent to $8.30 upon their resumption of trade.
Prior to the rejection of the ADM bid by the Federal Treasurer, GrainCorp last traded at $11.20.
Before the ADM bid was lodged in late October last year, GrainCorp was trading at around $8.70 a share.
ADM has a 20 per cent stake in GrainCorp and the Federal government has said it will allow the US grains group to raise its stake to 25 per cent.
The Graincorp decision by federal Treasurer is a unique one and can't be used as a precedent for future acquisitions, Morningstar senior analyst Peter Rae says.
"There was probably a greater chance that it would have gone through, but there has been a lot of pressure brought to bear on the Treasurer from his Coalition partners and so on balance they've decided not to approve it.
"They've actually approved the Saputo takeover of Warrnambool Cheese & Butter so I think you just to look at each on a case-by-case basis and given that Graincorp holds some pretty strategic assets and pretty strong share of the east coast grain-handling infrastructure, there was a lot of pressure brought to bear too from the growers and other interested stakeholders.
"I don't think it means it's going to affect future takeovers. As the Treasurer pointed out in his release, this is only one they've knocked back since they've been in. I think in this case you can't extrapolate into any future acquisitions. You have to look on it on a case-by-case basis."
We here at Markets Live are proud to say BusinessDay journalists Chris Vedelago and Adele Ferguson were amongst the winners at last night's Walkley Awards for excellence in journalism.
The pair exposed systemic wrong doing at the Commonwealth Bank's financial planning arm, which put hundreds of retirees' savings into high-risk products, without permission, and ASIC's inability to protect consumers.
Here's a quick snippet of the original article:
When a group of Commonwealth Bank employees agreed to meet in October 2008, they settled on the Buena Vista Hotel in Sydney's Mosman, a place they could huddle incognito to hatch a plan that would change their lives forever.
By the end of the lunch, the men had agreed to become whistleblowers, using the pseudonym the "ferrets" to tip off the corporate regulator about the goings-on at CBA's financial planning arm, specifically one of the bank's top financial planners, Don Nguyen, who had worked for the bank since 1999.
Five years on, one of the whistleblowers is dead after passing away in his sleep at 35. The second, the ringleader, has agreed to go public to warn of the perils of being a whistleblower after leaving the bank earlier this year. The others still work in the industry but want to remain anonymous to avoid the backlash of being a "dobber".
Savings house: the 'money box' headquarters of CBA in Sydney. Photo: Sahlan Hayes
Qantas is privately pushing the government to give it the financial support the national carrier needs to ensure it has access to debt from global markets at cheaper rates.
As it faces a pre-tax loss this year reaching into the hundreds of millions of dollars, Qantas has been canvassing the possibility of the government guaranteeing its debt, and thereby securing its prized investment-grade credit rating. The latter is vital to the airline gaining debt at cheaper rates than its rivals.
During the global financial crisis, the government guaranteed Australian banks' borrowings to global investors.
Qantas was tight-lipped yesterday about what it wanted from the government after chief executive Alan Joyce conceded it was "not realistically achievable in the current Parliament" to change laws which limit foreign ownership in the airline at 49 per cent.
Qantas shares are up 0.6 per cent at $1.232.
Graincorp will start trading again at 11.40am.
Pre-market orders indicate there will be a slump of around 30 per cent.
As the drums roll for National Australia Bank's annual meeting on December 19, the spotlight will turn to the issue of board renewal, including the bank's chairman Michael Chaney, Adele Ferguson writes:
The talk in investment circles is that Chaney is carefully considering his future at NAB, which would not be a surprise given he is the longest-serving chairman in the banking sector - he has sat on the board for nine years and served as chairman for eight of those.
Chaney has been discussing tenure with investors in the lead-up to next month's annual meeting. The talks come as each of the other big four banks have all seen a change at the very top in the past few years.
However, Chaney has been telling investors he expects to see through a full 10 year term. This will take him through to 2015.
NAB chairman Michael Chaney. Photo: David Mariuz
The Treasurer's decision to reject ADM's bid for GrainCorp likely came down more to a sense of national pride surrounding Australian assets among voters than it did economic or food security concerns, says AMP chief economist Shane Oliver:
- At the end of the day, a lot of these things come back to the politics of perception, that we’ve got to keep it Australian owned. That is politics. It’s not economics and it’s not military security either.
- The government would still have had the power to act, if necessary, on security issues relating to the port or grain stocks regardless of whether the assets were foreign or locally owned. That grain is still being produced in Australia and, ultimately, if there is a war, the federal government can intervene to make sure it stays in Australia.
- The decision is unlikely to discourage foreign investment in Australia. History tells us these decisions are few and far between. I doubt that it’s going to stop foreign investors from looking at other Australian companies in the future.
Here's how the sectors have opened:
- Consumer discretionary: -0.2%
- Energy: -1%
- Financials: -0.2%
- Telecommunications: -0.1%
- IT: -0.4%
- Materials: +0.5%
The GrainCorp news is going to be bad news for shareholders, says Shannon Rivkin, a director at Rickin Securities.
"The problem now of course is the recent numbers from GrainCorp look pretty scary, so my feeling is a downside on GrainCorp is a lot lower than what it was trading at before this was announced."
The benchmark S&P/ASX200 index is up 3.2 points, or 0.06 per cent, at 5,337.5, while the broader All Ordinaries index is up 3.1 points, or also 0.06 per cent, at 5,329.7.
In a shock to absolutely no one, reactions are, well, mixed, from both sides of politics on the news of the GrainCorp sale being blocked.
Great call by Treasurer Joe Hockey - proud to be part of a team that stands up for Australia's national interests.— Barnaby Joyce (@Barnaby_Joyce) November 28, 2013
Shadow Treasurer Chris Bowen was not as enthusiastic, saying that Mr Hockey's decision showed that "the greatest obstacle to foreign investment in Australia is the Cabinet".
"This was the first big test for Mr Hockey and his claim that Australia is open for business – and he has failed," Mr Bowen said. "The pre and post-election bravado about free markets and Australia being open for business has given way to the reality of an openly divided and dysfunctional government."
The rejection of the ADM bid for GrainCorp now puts the spotlight on two other foreign takeovers before the Foreign Investment Review Board, both from China.
One is the bid by the parent company of Yancoal to buy out minority investor interests.
The other is the bid by the Chinese government arm State Grid to acquire a large part of the Singapore Power equity held in its Australian electricity and gas businesses.
The deadline for concluding this transaction was recently extended to December 31.
The Australian dollar slipped slightly but has remained trading around 91 US cents this morning following the federal Treasurer Joe Hockey's rejection of Archer Daniels Midland's bid for Graincorp.
Overnight, the local currency shed most of its gains following the better-than-expected capital expenditure intentions, which pointed to early tentative signs that the non-mining sectors of the economy could start to fill the gap left by a peak in resources investment.
The currency rose as high as 91.49 US cents last night but fell to 90.83 US cents early this morning.
With one day left of trading in November, the Australian dollar has shed more than 4 per cent of its value this month, the biggest monthly loss since June.
Mining giant Rio Tinto will suspend alumina production at its Gove refinery in the Northern Territory where 1,500 people are employed.
Rio Tinto said it would focus on its bauxite operations after determining the refinery was no longer a viable business in the current market environment. Rio Tinto will now work on the scope and phased timing of THE suspension, it said in a statement.
The battle for GrainCorp looks to be over, with Treasurer Joe Hockey blocking the sale of the grain handler to US company Archer Dennis Midlands.
The Treasurer called an early morning press conference in Sydney on Friday, at a time when both markets in the US and Australia were closed.
Mr Hockey said the bid was one of the "most complex" cases to come before the Foreign Investment Review Board.
‘‘For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest,’’ he said.
‘‘Based on all the available information, I have now made that decision.’’
This comes after ADM enhanced its takeover offer of GrainCorp earlier this week, promising an extra $200 million investment in GrainCorp's grain storage and handling network.
I made a call in the national interest": Joe Hockey explains his decision to block the GrainCorp. Photo: Rob Homer
What you need2know today:
- SPI futures up 2 points to 5,354.
- AUD fetching 91.09 US cents, 93.12 yen, 66.96 euro cents, 55.75 penceWall St (closed for Thanksgiving); Wednesday's close: S&P500 +0.3%, Dow Jones +0.2%, Nasdaq +0.7%
- In Europe, Eurostoxx +0.3%, FTSE100 +0.1%, CAC +0.2%, DAX +0.4%
- Spot gold rises 0.5% to $US1243.84 an ounceBrent oil slips 0.4% to $US110.86 per barrel
- Iron ore gains 0.3% to $US136.40 per tonne