Markets Live: Global worries hold shares flat
Australian shares closed flat, unable to get much lift from data showing that China's manufacturing sector had improved somewhat in September but remained in contraction, underscoring worries about the global economy.
4.52pm: That's all from us here at blog central, thanks for joining us. We'll be back tomorrow from 9.30am, and a reminder that we will have the RBA's interest rates decision at 2.30pm, we hope to see you then.
4.45pm: Credit agency Standard & Poor have released a statement on Fortescue Metals:
"Fortescue's recently announced debt restructure removes the financial covenant pressure under its bank loan facilities.
Under our forecasts, the company's financial metrics will weaken over 2013 before increased production underpins an improvement in 2014 back to levels commensurate with the 'BB-' rating.
We think the weaker financial metrics in 2013 increase the company's vulnerability to lower ore prices, higher operating costs or delay in production ramp up.
As such, we have affirmed the corporate credit rating at 'BB-' and removed it from CreditWatch negative.
Nevertheless, the rating outlook is negative.
We also lowered our recovery rating on Fortescue's senior unsecured debt to '5' from '4', as the debt ranks behind the company's recent US$4.5 billion senior secured facility. As a result of the new facility, we have also lowered the rating on Fortescue's senior unsecured facilities to 'B+', from 'BB-'."
4.40pm: Here's a quick snapshot of how the blue chip stocks performed today:
- BHP: +0.24%
- Rio: flat
- ANZ: +0.16%
- CBA: +0.14%
- NAB: +0.19%
- Westpac: +0.36%
- Fortescue: +0.28%
- Woolworths: +0.31%
- Wesfarmers: -0.99%
- Telstra: -1.02%
4.26pm: European stock index futures pointed to a lower open, adding to the previous session's losses on mounting concerns over Spain's economic crisis and as data signalled further evidence of slowing growth in China.
Futures for Euro STOXX 50, for Germany's DAX and for France's CAC 40 were down 0.3-0.6 per cent.
In the US, futures for the Dow Jones and S&P500 indexes were down 0.1 and 0.2 per cent respectively.
4.15pm: Among the sectors, materials held the market up, adding 0.2 per cent. Financials and IT also rose 0.2 per cent, while Gold miners dropped 0.3 per cent. Consumer staples lost 0.2 per cent and energy fell 0.1 per cent.
4.12pm: The market has closed flat. The benchmark S&P/ASX200 added just 1.6 points, to finish at 4388.6, while the broader All Ords rose 2 points, to 4408.3.
4.00pm: DuluxGroup has extended its takeover offer to Alesco shareholders by two months after the building products and garage door maker finally accepted its $210 million bid.
DuluxGroup made a hostile takeover offer for Alesco in May which was due to expire today.
However, Alesco made an eleventh hour acceptance of the bid on Friday to ensure its shareholders would not miss out on an extra 27 cents per share dividend.
If Alesco had not agreed to the offer before the weekend, Dulux would have declared the bid unconditional and gained effective control anyway, with it already holding 55.7 per cent of its target’s shares.
Alesco shareholders would have missed out on a fully franked 27 cent a share special dividend, to be paid if Dulux lifts its holding in Alesco to 90 per cent.
Dulux said today in light of Alesco accepting the takeover bid it has extended the offer to December 7.
3.54pm: Newcrest Mining says it will vigorously defend itself against four legal challenges that threaten part of its $2 billion plans to build Australia’s largest underground mine.
Private explorer, Gold and Copper Resources (GCR) has sued Australia’s largest gold producer four times in two years in a David versus Goliath struggle.
The latest claim was lodged in the NSW Land and Environment Court last week.
It accuses Newcrest of extending a tailings dam at the Cadia East site on to land where no mining lease is held, along with a slurry pipeline and pumping station.
The companies share borders in the Cadia Valley in cental western NSW.
3.37pm: As we approach the close of trade for the day, here’s what IG Markets strategist Stan Shamu had to say about the day’s action:
- The local market is flat after a strong burst through 4400 earlier in a relatively quiet session on the participation front. Some feel the downside in the local market has been limited by the slim probability of a rate cut tomorrow.
- The RBA is still widely expected to keep rates on hold, but there has been a growing number of analysts in the 25 basis-point cut camp. There isn’t much in the RBA’s way preventing them from cutting, but a wait-and-see approach might be the route it decides to go with to see how the various stimulus packages around the world impact Australia. Should the RBA not cut, it’ll be interesting to dissect the statement with comments on the impact of the high Aussie dollar and whether or not it might act on it.
- There might also be a revision of tone on capex spending by the miners after we’ve recently seen big project cuts in the sector. Arrium has surged 22% on the back of the rejected takeover which values it at around 75 cents per share. Most analysts feel the offer is highly opportunistic and looks to take advantage of ARI’s struggling share price. Recent falls in iron ore prices and some cash outflows on capex had left ARI looking quite strained.
3.19pm: Here’s an interesting article from the Washington Post on virtual markets within video games:
‘‘Inflation can be a headache for any central banker. But it takes a certain type of economist to know what to do when a belligerent spaceship fleet attacks an interstellar trading post, causing mineral prices to surge across the galaxy.
Eyjólfur Guðmundsson is just that economist. Working for the Icelandic company CCP Games, he oversees the virtual economy of the massively multiplayer video game Eve Online. Within this world, players build their own spaceships and traverse a galaxy of 7,500 star systems. They buy and sell raw materials, creating their own fluctuating markets. They speculate on commodities. They form trade coalitions and banks.’’
3.07pm: India's manufacturing activity growth in September held steady compared with August, supported by a pick up in export orders and output, a business survey showed, but an increase in inventories could hurt growth in the future.
The HSBC manufacturing purchasing managers' index (PMI), which gauges the business activity of India's factories but not its utilities, held steady at 52.8 in September from 52.8 in August, which was a nine-month low.
Still, the index has remained above 50, which divides growth and contraction, for more than three years.
2.52pm: Australia’s dollar touched its lowest point in more than a year against its New Zealand peer before the Reserve Bank of Australia holds a policy meeting tomorrow.
The dollar touched NZ$1.2469, the lowest since September 2011, before trading at NZ$1.2493, 0.1 per cent lower from the close on September 28.
2.44pm: The Australian dollar is slightly down against all the major currencies: trading at $US1.0342, 80.53 Yen, 80.7 euro cents and 64 pence.
2.19pm: Banks will face intense pressure to pass on the full value of any interest rate cut if the Reserve Bank moves the cash rate this week, with the big four in a more comfortable position today than when they refused to match official cuts in the past.
As investors tip a two in three chance of a 0.25 percentage point cut at tomorrow’s Reserve Bank board meeting, the banks’ use of volatile wholesale funding markets has fallen well below previous peaks.
Some $81.4 billion in debt will mature and need to be replaced in the year ahead, NAB figures show, with Westpac facing the largest funding task.
This compares with the estimated 12-month funding task of $100 billion which faced the banks earlier this year, when they failed to pass on official rate cuts in full.
As banks have weaned themselves off wholesale debt, the cost of borrowing from global investors has also fallen significantly in recent months. The Reserve Bank last week said overseas funding costs were at their lowest since mid-2011.
2.04pm: Let's have a look at some of the notable movers for the day, here's the best and worst performers among the top 50 companies on the ASX:
1.44pm: Never in Glenn Stevens’s six years as governor of the Reserve Bank of Australia have credit-market investors and economists disagreed more on the future of the nation’s interest rates.
Traders are pricing in an 83 per cent chance the central bank will cut its overnight cash-rate target by a quarter percentage point to 3.25 per cent tomorrow, swaps data compiled by Bloomberg show. That conflicts with 19 of 28 economists who say Stevens will leave borrowing costs unchanged.
The RBA should cut now to stop monetary easing elsewhere fueling Aussie dollar gains that threaten growth, said Hideo Shimomura of Mitsubishi UFJ Asset Management. The currency rose 6.3 per cent against the US dollar since May 31, even as the mining boom waned and economies from China to Europe deteriorated.
1.24pm: Markets, meanwhile, are breaking even on the day despite a burst into positive territory before the release of today's China PMI data. The ASX200 is flat after climbing as much as 0.56 per cent higher.
1.19pm: BusinessDay's Malcolm Maiden takes a look at the Arrium takeover offer from Posco. He writes that it is almost certainly only the first exchange:
Noble, Posco and the Korean investment funds that are also involved in the takeover attempt will surely return with an improved proposal. The one that Arrium chairman Peter Smedley said this morning had been rejected by the Australian group's board was too low and too conditional to get to first base. BlueScope Steel's managing director Paul O'Malley will be watching very closely indeed. Full story.
1.11pm: The currency was trading at $US1.0338, down from $US1.0456 on Friday.
IG Markets institutional trader Chris Weston said the HSBC purchasing managers’ index (PMI) from China - a key measure of manufacturing activity - was a key factor for the Aussie dollar on Monday.
‘‘We had the Chinese HSBC data which had both positive and negative elements,’’ he said.
‘‘The new orders component was the lowest in about three and a half years, but you could make the argument that PMI data is stabilising.’’
The PMI reading for September showed a slight rise to 47.9, up from 47.6 in August, although it also indicated that Chinese manufacturing had contracted for a seventh consecutive month.
1.09pm: Wondering what the week has in store? Michael Pascoe has you covered.
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12.51pm: Here's a quick look at how major markets around the region are performing:
- Nikkei(Japan): -0.8%
- Shanghai: +1.45%
- Taiwan: -0.72%
- South Korea: +0.38%
- Singapore: -0.45%
- New Zealand: -0.05%
12.35pm: Speculation that a potash project in Canada has leapt ahead of major Australian projects in BHP Billiton’s order of preference have been reinforced by new documents released by the mining giant today.
BHP is hosting big investors at its Escondida and Spence copper mines in Chile, and has used the occasion to release a new briefing paper on its base metals business.
The documents discuss the future of two of the “mega-projects” that BHP has among its expansion options: Australia’s Olympic Dam, and Canada’s Jansen potash expansion.
Today’s briefing paper describes the outlook for potash as “attractive”, and says that work designing the Jansen project and obtaining government approvals was continuing apace.
The documents said BHP is “well placed to meet growing potash demand” and states that “final investment decision remains subject to board approval”.
But the briefing paper revealed a cooler attitude toward Olympic Dam’s vast deposits of copper, gold, uranium and silver, with the company declaring that “an investment decision is far from imminent”.
Since deferring an investment decision, BHP had decided to go back to the drawing board and find cheaper alternative methods of developing the mine, and BHP said today those studies would need to be “extensive”.
12.20pm: The dollar has been on the defensive as concerns over global growth, uncertainty about Europe's debt and this morning's Chinese PMI data weighed on investor sentiment. Just after noon the dollar was 0.4% lower at $1.0338.
12.15pm: Paperlinx has appointed actuary Michael Barker as its new chairman, replacing Harry Boon who stepped down in September following a board exodus. Paperlinx shares were up 0.1 cent, or 1.64 per cent, at 6.2 cents
12.10pm: Woolworths has joined the growing list of companies who are cutting ties with Alan Jones.
12.07pm: The big miners are also performimg well.
- BHP is 0.45% higher at $33.29
- Rio Tinto is up.08% at $53.41
- Fortescue is 0.29% ahead at $3.50
11.55am: The market was less than impressed with China's PMI data, with the ASX200 falling from a high of 4411.4 at 11.22 to 4388.2 half an hour later.
11.50am: The banks are doing OK this morning:
- CBA is 0.16% higher at $55.86
- ANZ is up 0.4% at $24.85
- NAB is up 0.39% at $25.29
- Westpac is up 0.36% at $24.94
- and Macquarie is 0.81% higher at $28.69
11.28am: Mercedes-Benz Australia has joined the list of companies to withdraw all advertising and marketing associated with controversial 2GB radio host Alan Jones, writes Mark Hawthorne.
The German luxury car maker and its network of NSW dealers is believed to spend hundreds of thousands of dollars each year advertising with 2GB, which is part-owned by Jones.
Mercedes-Benz Australia spokesman David McCarthy said the decision to withdraw all advertising was "made with immediate effect due to the inappropriate remarks made by by Alan Jones".
11.27am: Newcrest Mining says legal claims made against it last week by a junior mining company have no merit. Newcrest said it would vigorously defend all four actions brought against it by junior explorer “Gold and Copper Resources”, one of which was reported this morning in the Australian Financial Review. The legal claim described this morning relates to a claim that Newcrest has used land for its Cadia East expansion that is not fully permitted.
11.19am: China’s manufacturing contracted a second month for the first time since 2009 but the rate of contration eased, a government survey indicated, increasing pressure for measures to reverse a deepening economic slowdown.
The Purchasing Managers’ Index was 49.8 in September after a 49.2 reading in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with the median forecast of 50.1 in a Bloomberg News survey. More soon.
Today’s data and a decline in a similar gauge released Sept. 29 add to signs that growth is at risk of reaching a 22- year low as the ruling Communist Party prepares to begin installing a new generation of leaders next month. The central bank has held off from adding to interest rates cuts in June and July, partly on concern housing prices will rebound, Chen Yulu, a People’s Bank of China academic adviser, said last week.
11.12am: Looking at why the local market has bucked the negative leads today, Lonsec senior private client advisor Michael Heffernan said rising commodities values overnight and hopes for a Reserve Bank rate cut have lifted stocks in a day with overall low volumes.
"The fact that overseas markets weren't too bad and commodities were in the green I think is giving our resources stocks a bit of a spur," he said.
"The market seems to be generally positive," he said. "That could be also on the expectation that rates are to be cut tomorrow."
All the banks have risen, as well, said Mr Heffernan, which suggests that investors are hoping for lower interest rates.
11.08am: The fallout from Alan Jones' controversial comments about the prime minister is starting to cost his employer, radio station 2GB, money. Challenger Financial Services has withdrawn its sponsorship of the shock jock's show, and new is filtering in that other corporate heavyweights are also considering backing away. More soon.
11.03am: Arrium shares are sharply higher after resuming trade. They have jumped almost 30 per cent, or 15 cents, to 69.5 cents after the company announced it had knocked back an offer from Korean steel giant Posco to buy all Arrium shares at 75 cents.
The company rejected the offer, labelling it "opportunistic".
10.57am: Just a few minutes ahead of the China PMI data, here's a story from the UK where British financial firms saw an unexpected drop in business in the third quarter and are cutting jobs to rein in costs, according to a survey published today.
Some 30 per cent of financial firms saw business volumes rise during the period, compared with 49 per cent reporting a fall, the survey by the Confederation of British Industry and accounting and consultancy firm PricewaterhouseCoopers found.
The net decline comes after nine consecutive quarters of growth.
"The financial services sector has faced a tough quarter, with sales volumes unexpectedly falling and average costs rising, thus denting profits. Sentiment about the business situation also continued to fall," said Matthew Fell, the CBI's director for competitive markets.
10.53am: Markets are now 0.3 per cent higher in a stronger-than-expected start to the week.
IG Markets market strategist Stan Shamu said the market would be watching for Chinese manufacturing figures due out on in a few minutes, following the release of weak manufacturing figures in the US on Friday.
‘‘Spain’s ratings watch is limiting the upside, with everyone trying to figures out what’s happening and growth concerns continue to hamper progress,’’ he said.
10.49am: The big miners are trading ahead of the market, with only Rio below the breakeven point:
- BHP is 0.39% higher to $33.17
- Rio is 0.04% lower to $53.34
- Fortescue is 1% higher to $3.52
10.36am: Back to inflation for a minute. Price rises in fruit and vegetables, travel and automotive fuel were the main contributors to the September result, offset by falls in rents, footwear and audio visual and computing equipment and services.
Underlying inflation, which excludes volatile monthly price movements, remained flat in September, with an annual rise of 2.4 per cent - within the RBA’s target range of two to three per cent.
TD Securities head of Asia-Pacific Research Annette Beacher said headline and underlying inflation should remain subdued in the September quarter.
‘‘We forecast headline inflation to increase by 0.8 per cent, to be 1.4 per cent higher than a year ago,’’ she said.
‘‘Underlying inflation should increase by 0.5 per cent in the quarter, lifting the annual rate slightly from 2.0 per cent to 2.1 per cent.’’
Ms Beacher said there seemed to be little impact from the carbon tax evident in price rises.
10.34am: Local stocks are now pushing into positive territory. The ASX200 is now 0.1 per cent higher after starting about that much lower. Not a huge agin to start the week, but given the softness of this morning's leads, not a bad early return.
10.30am: The second major piece of local economic data is out for today.
Inflation in September stayed low, giving the Reserve Bank of Australia (RBA) scope to cut its interst rate again - although they are not likely to do so on Tuesday, a survey says.
The TD Securities-Melbourne Institute Monthly Inflation Gauge rose 0.2 per cent in September, after a rise of 0.6 per cent in August.The gauge said inflation grew 2.4 per cent in the year to September. More soon.
10.25am: Looking at how the sub indices on the ASX200 are performing early:
- Info tech: +0.19%
- Financials: +0.19%
- Materials: +0.03%
- Consumer staples: -0.6%
- Consumer disc.: -0.39%
- Telecoms: -0.36%
- Health: -0.29%
10.21am: Arrium shares are in a trading halt until 11am. They last traded at 54.5 cents.
10.16am: A consortium including Korean steel giant Posco has tried to take advantage of low iron ore prices, lodging a takeover bid for Arrium, the company previously known as OneSteel.
Arrium has rejected the offer which sought to buy all Arrium shares for 75 cents per share: about 20 cents higher than Arrium's closing price on Friday.
Posco was joined in the bid by commodities trader Noble group, Korean pension funds and several other Korean investors.
Arrium changed its name from OneSteel earlier this year in a bid to reflect the company's increasing focus on exporting iron ore. Full story.
10.08am: In early trade, the All Ordinaries index is 2.7 points lower, or 0.1 per cent, to 4403.6, while the benchmark S&P/ASX200 is 2.4 points lower, or 0.1 per cent, to 4384.6.
9.57am: Australian bond futures prices are slightly lower ahead of a meeting of the Reserve Bank of Australia (RBA).
At 8.30am AEST, the December 10-year bond futures contract was trading at 97.060 (implying a yield of 2.940 per cent), down from 97.110 (implying a yield of 2.890 per cent) on Friday. The December three-year bond futures contract was at 97.620 (2.380 per cent), down from 97.640 (2.360 per cent).
9.54am: Further adding to the feeling of weakness surrounding local markets today, the Australian dollar has weakened by almost a full US cent on continuing worries about Spain, and expectations that the Reserve Bank of Australia (RBA) will cut the cash rate.
At 7am AEST, the currency was trading at $US1.0365, down from $US1.0456 US cents on Friday.
Westpac New Zealand senior market strategist Imre Speizer said that Spain continued to dominate headlines over the weekend.
‘‘There were rumours of a downgrade, which didn’t eventuate, and disappointment that they hadn’t requested a bailout,’’ he said.
9.51am: Looking at where stocks could move today, IG Markets analyst Chris Weston said the market will open lower but may be volatile because of a lack of liquidity linked to public holidays in all states except Victoria and Tasmania.
"It's going to be an interesting day purely because the event risk is high yet the liquidity is going to be extremely poor," sid Mr Weston.
"We expect to hear from Moody's today," he said, with a "pretty good" chance the ratings agency will downgrade Spain to 'junk'.
But the most important numbers for local traders will be the Chinese manufacturing PMI numbers due at 11am AEST.
"We're scratching around for signs of stabilisation in the Chinese market," said Mr Weston.
However, surprises from any quarter could move the market today. "If you do see an extreme miss or beat [in data or events], then you could see some very exaggerated moves in the market," he said.
9.47am: The centrepiece of this week's economic calendar is tomorrow's RBA rates decision. And expectations for a cut are softening. A Bloomberg survey of 24 economists predicts rates will be left on hold at 3.5 per cent. Interest rate futures give a 25 basis points rate cut a 66 per cent chance, according to Credit Suisse data.
9.42am: Also due out today:
- TD Securities/Melbourne Institute inflation gauge for September
- Dun and Bradstreet business expectations survey
And this week in local economic news:
- Tuesday: RBA interest rate decision for October, RP Data-Rismark House prices for September
- Wednesday: AiG performance of services index for September, HIA new home sales for August
- Thursday: ABS building approvals for August, ABS retail sales for August
- Friday: AiG performance of construction index
9.39am: And now for the first piece of local data today. A high Australian dollar and reduced mining activity have produced a further contraction in the manufacturing sector, an industry study finds.
The Australian Industry Group Australian performance of manufacturing index (PMI) fell 1.2 points to 44.1 in September - with readings below 50 showing contraction. The report showed a concerning trend for weakness in new manufacturing orders - which fell for the seventh consecutive month, down 4.8 points to 44.3.
9.35am: We've got a reasonably busy day of economics data ahead, despite most of Australian being on holiday. (All states except Victoria and Tasmania have got the day off.) We'll look to China first, where fresh data yesterday showed the nation's economy almost certainly suffered a seventh straight quarter of slowing growth, with a new private sector survey of factory managers revealing a near year-long decline in business activity and a fresh fall in export orders in September.
The HSBC China Manufacturing purchasing managers index (PMI) showed overall factory activity shrank for an 11th consecutive month in September. Another reading of Chinese manufacturing, from the China Federation of Logistics & Purchasing, is due at 11am AEST.
9.32am: For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key market links:
- The SPI was 19 points lower at 4365
- The $A was trading at $US1.036
- In the US, the S&P500 lost 0.45% to 1440.67
- In Europe, the FTSE100 lost 0.65% to 5742.07
- China iron ore was flat at $US104.20 a metric tonne
- Gold lost 0.4% to $US1773.90 an ounce
- WTI crude oil added 34 US cents to $US92.19 a barrel
- RJ/CRB commodities index aded 0.64% to 309.30
- Australian business calendar: October 1-5
- Wall St week ahead: Bulls eye Spain, Bernanke and jobs
9.30am: Good morning all. Welcome to the Markets Live blog for Monday.
Contributors: Thomas Hunter, Max Mason, Richard Hughes
This blog is not intended as investment advice
BusinessDay with agencies