Commodity prices are still falling, according to the RBA’s latest commodity price index.
Preliminary estimates for February indicate that the index declined by 1.3 per cent in standard drawing rights (SDR) terms, after declining by 1.6 per cent in January (revised), the RBA says:
- The largest contributors to the fall in February were declines in the prices of iron ore and coking coal, which was partially offset by an increase in the price of gold.
- The prices of many rural commodities rose, while the base metals subindex fell in the month. In Australian dollar terms, the index declined by 2.2 per cent in February.
- Over the past year, the index has declined by around 12 per cent in SDR terms. The prices of most commodities in the index have fallen over this period. The index has risen by 1.8 per cent in Australian dollar terms over the past year.
That’s it for Markets Live today.
Thanks for reading and your comments.
See you all again tomorrow morning from 9.
The threat of war in Europe cast a pall over global financial markets that saw the Australian currency and sharemarket fall in tandem, but bargain hunting and rallies in gold mining and energy stocks helped trim losses in the afternoon.
The benchmark S&P/ASX 200 Index lost 20.5 points, or 0.4 per cent, on Monday to 5384.3, after earlier plunging as much as 1.2 per cent. The broader All Ordinaries fell 0.3 per cent to 5397.4. The mining sector led the losses amid fears of weaker demand from China and falling iron ore and coal prices.
Nervousness that instability in Ukraine might lead to increased volatility in global financial markets saw investors shift out of riskier assets, such as shares, and into assets traditionally considered safer such as gold and the US dollar.
At the local close the dollar was buying US89.14¢, down from US89.48¢ at Friday’s close.
“Recent events in Ukraine are a poignant reminder of the risks associated with emerging markets as an asset class,” Bell Asset Management chief investment officer Ned Bell said.
More worryingly for local investors is the risk of emerging market volatility triggering a more general bout of profit taking globally, he said. “Given the extended valuations in Australia and many developed global markets, all equity investors are susceptible to a minor correction.”
Russian markets have opened and it’s not pretty. The MICEX - Russia's stock market index - is almost 6 per cent lower in early trading.
The local market may have managed to trim its losses, following the regional trend, but while it still closed in the red the Kiwi bourse actually put on some gains and closed at a record high.
The NZX50 added 0.35 per cent to 5007.40, closing above 5000 points for the first time.
Market darling Xero, the accounting software company, led the day's gainers rising 3.4 per cent to $NZ41.50.
Investors drove up Infratil after it missed out on Transpacific's New Zealand waste management operations, which were sold to Beijing Capital Group for $880 million.
Air New Zealand extended gains to reach a six-year high after its results last week.Back to top
Time for the best and worst at close of trade, and gold miners remain the big winners today.
Adventure-wear retailer Kathmandu bucked the broad down trend and jumped 4.3 per cent for reasons unknown, while Transfield was also up.
The ASX 200 traded as much as 50 points down before regaining some of its losses from late in the morning on some positive economic data. The benchmark index closed 20 points, or 0.4 per cent, lower at 5384.3, while the All Ords dropped 18 points to 5397.4.
Gold miners was the best performing sector, up 5.9 per cent, while listed property gained 0.6 per cent (Westfield Group was up 1.3 per cent) and telcos 0.4 per cent, led by Telstra, which added 0.4 per cent.
The metals and mining sector suffered the worst falls, down 1.6 per cent, as uninspiring China manufacturing data over the weekend combined with a 2.6 per cent fall in BHP's share price as it traded ex-dividend.
The situation in the Ukraine is clearly the most pressing issue for markets and will trump all else this week, IG's Chris Weston says:
- Ultimately the market wants to know to what extent the West will impose economic sanctions on Russia if there is bloodshed and further deterioration.
- Importantly, Russia relies heavily on Western capital and investment, so either Vladimir Putin feels the West will not act or he doesn’t seem to care. With inflation running above 6% and growth under 2%, you would think the Russian central bank would be fairly concerned at the falling RUB, so the prospect of intervention would be increasing.
- Money managers would have spent the weekend brushing up on their Russia/Ukraine/Crimea knowledge to impress clients, and now we are all political analysts again. However, in uncertain times the buyers will stand aside and the shorts come in in bigger size knowing it’s easy to move markets lower in this environment.
- Invariably many will be buying this dips, but on an index level I would stand aside and wait for clarity to develop as you know this market can go lower, very quickly, if geo-politics deteriorates and US data doesn’t show any signs of a pick-up.
“Our overall view of equities and company profits in this market phase is that they are prospering from a lack of prosperity,” writes Paul Brunker, equity strategist at JP Morgan.
Brunker points out that a weak economy can actually boost profits, as:
- Low rates push up valuations and lower corporate gearing costs;
- Companies facing revenue pressure turn to expense and capital productivity to support earnings and payouts;
- Labour and other costs such as rent stop rising as fast or go down; and
- In economies that are weakening relative to peers, a falling currency props up earnings.
This view is reflected in the biases that Brunker & co are seeking in their model stock portfolio, to whit:
- Exposure to non-AUD earnings (mining/energy plus, for example, Bluescope Steel, Aristocrat Leisure, and Brambles);
- A favourable movement in free cash generation from companies going ex-capex (major miners, Energy, Orica);
- Exposure to the asset allocation effect of low rates on demand for real assets, including an investor-centric pick-up in homebuilding: Lend Lease, Goodman Group, BlueScope Steel again;
- Cost reduction potential – Suncorp (a new addition to Brunker’s model portfolio), Sims Metal Mgt, Orora (newly added), BHP; and
- A less macro theme they look for is improvement in an industry’s market structure off a low base: Coca-Cola Amatil, Origin (retail), Sims Metal.
On the other side, Brunker’s team's main “underweights” are in:
- Yield-supported stocks which have become fully valued on other metrics (banks notably);
- Instances of "as good as it gets" market structure which might be peaking: food retail and telco sectors. This theme can also be applied to the banks, but “we would not want to pretend that competition is escalating sharply,” Brunker writes; and
- Also underweight office and retail REITs which face rent headwinds as tenants grapple with all aspects of the cost of doing business in Australia.
Brunker reckons the ASX 200 will finish the year at 5700.
The recent - and predicted further - plunge in the price of iron ore has prompted Citi to downgrade its earnings expectations for BHP Billiton and Rio Tinto this year.
The investment bank has joined Goldman Sachs in tipping the price of iron ore – Australia’s most lucrative export – to crash to $US80 a tonne within the next two years.
Citi analysts led by Clarke Wilkins downgraded their recommendations for BHP and Rio from buy to neutral, with share price targets falling from $39 to $38 and $80 to $74 respectively.
Wilkins forecast a 9 per cent fade in Rio’s earnings from 2014 to 2016, saying the lower iron ore prices would offset increased production and cost cuts.
- Iron ore is the dominant earnings driver for the sector and [the] only positive ray of light is that $US80 a tonne iron ore has already been priced in and/or multiples re-rate as long the expected decline finally happens.
BHP was rated neutral with gas price upgrades and diversification providing a ‘‘partial offset to iron ore and coking coal pain,’’ Wilkins says.
Fortescue Metals was also downgraded to neutral, with Citi’s price target for the stock falling from $6.70 to $5.90. Atlas Iron was downgraded to sell while the same recommendation was maintained for Mt Gibson.
Citi is forecasting iron ore to slip $US7 to $US113 a tonne this year, sliding to $US90 in 2015 and $US80 in 2016, before having a ‘‘modest rebound’’.
Wilkins says the main driver for Citi’s downgrade in the price of iron ore is producers flooding the market and ‘‘resilient’’ Chinese domestic production.
Citi says that depending on the success of Vale in finally being able to expand Brazilian production, Rio could take the title of the largest global producer.Back to top
Here are a few other commodity markets and their response to the Ukrainian crisis:
US crude oil for April delivery has jumped as much as $US2.06 to $US104.65 a barrel, the highest since September 23. The contract is currently up $US1.19 at $US103.78.
Brent crude hit a session high of $US111.24 per barrel, its loftiest since January 2, and was last up $US1.62 at $US110.69.
"Oil markets are reacting on the potential that the situation could worsen," says Ben Le Brun, a market analyst at OptionsXpress in Sydney:
- We don't see any fundamental impact on oil markets yet, and it is still very much sentiment driven.
- But I definitely suspect oil will move much higher, if it actually comes to war. US crude could easily surpass $US110 and a $US120 target is not out of the question.
Meanwhile, US wheat futures have rallied as much as 4.5 per cent to their highest since December 17 amid fears of disruptions to shipments from the Black Sea, one of the world's key exporting regions.
Chicago Board of Trade wheat for May delivery hit a session peak of $US6.29-1/2 a bushel, before curbing gains to trade at $US6.23-1/4, up 3.5 per cent.
"On the whole it does look like commodities are wound up for a bit of a spring," says Vishnu Varathan, market economist at Mizuho Bank. "Whether the Russian influence will spread beyond Crimea and whether we will find further fracturing in the Ukraine and the involvement of the NATO in some sense will determine exactly how far and how quickly prices can go."
Gold has gained more than 1 per cent on escalating geopolitical tensions as Ukraine mobilised for war after Russia bloodlessly seized Crimea.
Cash and US gold futures hit an intraday high around $US1345 an ounce, and is currently up 1.3 per cent at $US1344 an ounce, with the United States threatening to isolate Russia economically in Moscow's biggest confrontation with the West since the Cold War. Crude oil, which often dictates gold, hit multi-month highs.
"I think there's short-term support for gold because of the turmoil. I am looking to find out whether it will break a previous high of $US1361.60 touched in October last year," says Joyce Liu, investment analyst at Phillip Futures in Singapore.
"I think if that level is broken, it will greatly encourage more buyers to come into the market because there might be a potential reversal of trend. I will keep watching on gold prices and see if it will continue to rise and close that level."
In local dollars, gold has jumped back above $1500 for the first time since September, taking it within about $300 of all-time highs scaled in August 2011.
Dexus Property Group and partner Canada Pension Plan Investment Board are set to complete their takeover of Commonwealth Property Office Fund, the property fund managed by Commonwealth Bank, gaining ownership of $3.2 billion of office buildings managed by the trust.
The groups now control more than 2.1 billion shares in Commonwealth Property Office Fund, above the 90.1 per cent threshold needed to trigger a mandatory takeover.
It may have been the best earnings season in three years for profits, but there were more stocks with consensus analyst rating downgrades than upgrades over February.
On Bloomberg estimates, there were 69 companies where the consensus analyst recommendation was lower at the end of reporting season than at the beginning, 66 where the rating was higher and 65 with no change.
Of course, not all ASX 200 companies reported, but most did.
Bloomberg synthesises all analysts ratings on a company and gives each stock a score of 1 to 5. A score of 1 is equivalent to a consensus "sell" recommendation, a 2 is an "underperform", 3 is a "hold", 4 is an "outperform" and 5 is a "buy".
The table below shows that Aurora Oil & Gas went from a strong consensus outperform to now being a hold - down 1.2 points on the 5-point system to 3.2. That may have more to do with the price action over the month - the stock was up 53 per cent.
Wesfarmers is the biggest name - dropping 0.6 points towards underperform territory.
Carsales, QBE and Ramsay Health Care are among the top most upgraded names.
Norway's $840 billion sovereign fund, the world's biggest equity investor, has cut its investments in gold and coal miners due to environmental concerns and will review the entire mining sector this year, it said on Friday.
The fund, which grew by $200 billion in 2013 alone and owns about 1 percent of all global stocks, exited its investments in 27 gold and coal miners in 2013 and cut its stakes in others. The wider sector review potentially heralds one of the biggest changes since it was set up as a sovereign wealth fund in 1998.
"There is environmental damage by definition," Chief Executive Yngve Slyngstad told Reuters. "It does not mean that we are selling out of the sector. We are concentrating our investments on the companies that we think are continuing this activity in a more sustainable way."
The fund, which was also a big buyer of government bonds in the fourth quarter, is known as the oil fund because it invests Norway's surplus oil wealth.Back to top
After last week's negative shock of Q4 capex (and 2014/15) intentions, today's Q4 GDP partials were clearly better – as stocks will make no impact, and there was a broad (moderate) recovery across sales, profits and wages, UBS notes:
- Hence we stick to our +0.7% q/q (2.5% y/y) forecast (ahead of trade and public data tomorrow).
- Positively the Jan/Feb activity data also posted a broad recovery, adding to evidence of a turning point in job ads, which should over time see some stability in the labour market.
Here are the details for the economy buffs:
- Real private non-farm inventories were weaker than consensus, but broadly as we expected, falling 0.5% q/q in Q4 (UBS -0.4%, mkt 0.0%, after -0.5%); albeit made no contribution to GDP (UBS: 0.0%pts, after -0.4%pts).
- Meanwhile, real sales (production) picked up to 0.7% q/q, the fastest in over 2 years (after 0.4%, 1.0% y/y).
- On the income side, the nominal wages bill (income) lifted 1.1% q/q – the fastest in a year – contrasting flat jobs and lower hours (after 0.5%, but still low at 2.8% y/y).
- Nominal profits (GOP) recovered a further 1.7% q/q (UBS: 0.0%, mkt: +2.0%, after +4.3%), and rebounded 10.7% y/y – the fastest since 2010 – but Inventory Valuation Adjustment (IVA) implies much stronger (GOS) growth on a GDP basis of ~5% q/q.
Q4 GDP figures are due on Wednesday.
Most of the regional markets are trading now, with Tokyo stocks hit the hardest as the yen strengthens amid a flight to safe-havens:
- Japan (Nikkei): -2.3%
- Hong Kong: -0.5%
- Shanghai: -0.1%
- Taiwan: -0.9%
- ASX200: -0.7%
- Singapore: -1%
- New Zealand: -0.2%
‘‘The immediate concern for markets is the possibility of escalation (in Ukraine),’’ says Ric Spoone, chief analyst at CMC Markets. ‘‘While most consider it unlikely that the West will be drawn into this conflict other than diplomatically, some hedging and de-risking of portfolios is not unusual in these situations.’’
Overall, markets are off their early lows, as Chinese shares hold up:
After an early plunge 'risk' is recovering as Chinese equities bounce. A touch complacent but that's been markets for the past 3 years.— David Scutt (@David_Scutt) March 3, 2014
CommSec has crunched the numbers of this earnings season (138 companies reported half-year earnings and 27 full-year results) and says it's very surprised by the strength of a "stellar profit-reporting season":
- Overall 129 of the 138 companies (93.5 per cent) that reported half-year results produced a profit – a result that is simply hard to beat. And 90 companies (65.2 per cent) actually recorded an improvement in profits in the six months to December 2013 on a year ago – the best since the 2009/10 financial year.
- Revenue grew by 4.8 per cent to $323.1 billion while expenses grew by 2.1 per cent to $255.7 billion, leading to a 19.0 per cent lift in net profit to $36.5 billion. And average earnings per share rose by 7.0 per cent.
- Cash holdings soared by 35 per cent to $87.3 billion (around 2.4 times current profits) with a number of companies using some of the proceeds to lift dividends. Dividends rose by 7.2 per cent.
- However the results tend to be distorted by a small number of large companies. To get a better sense of underlying profitability, results for BHP Billiton, Commonwealth Bank, Telstra, Wesfarmers, Twenty-First Century Fox and News Corp were removed from the sample.
- The results for the remaining companies show aggregate revenues rising by 4.2 per cent, offsetting a 2.5 per cent lift in expenses or costs. Aggregate profits were up by 32.9 per cent. Cash levels rose by 11.6 per cent while dividends lifted by 6.6 per cent.
- The outcomes were even stronger when it came to cash holdings and dividends. Of the 138 companies, 50 lifted cash holdings from end-December 2012 to end-December 2013. But clearly those 50 companies that have lifted cash levels have done so decisively, with aggregate cash holdings up 35 per cent to $87.3 billion.
- Shareholders are benefiting from the good conditions. Aggregate dividends were up 7.2 per cent compared with the previous year. Significantly more companies lifted interim dividends (76 companies) than those that cut (19 companies). And 22 companies left dividends unchanged while 21 didn’t produce a dividend at all.
CommSec says it expects total returns on Australian shares to grow by around 8-10 per cent in 2014, after 19.7 per cent growth in 2013, taking the ASX200 to 5700-5800 points by end 2014.
King coal is here to stay, says the world’s top energy forecaster.
Australian coal producers “definitely” have a rosy future once they get over current pricing and cost woes, Fatih Birol, chief economist of the International Energy Agency, said.
“People have been wrong many times saying that the time of the coal is passed, is over,” Dr Birol told The Australian Financial Review via telephone interview from Paris. “[But] we have seen that the coal is still growing strongly – unless there are some regulations [to slow its growth].”
Dr Birol, architect of the IEA’s World Energy Outlook, said such regulations were not yet in force in developing Asia – the fastest-growing market for coal, natural gas and other forms of energy.
He said about 70 per cent of new power plants under order from utilities in China, India and south-east Asia were coal-fired, many of them “sub-critical” – or not of the most efficient modern design. Sub-critical power stations use up to 15 per cent more coal than the most modern ones, locking in higher carbon dioxide emissions.
Coal-fired power plants had a powerful competitive advantage over natural gas in the region, generating power at less than half the cost of gas, Dr Birol said. Gas-fired power still costs 2.2 times as much as coal-fired power.
While regular people have been placing bets for who’ll pick up the gold statues for best actor and actress at the Oscars in a couple of hours, CMC Markets movie buff Colin Cieszynski has been working out the odds for which media companies are likely to pick up share price gains.
Bookmakers are tipping 12 Years a Slave to take out the 2014 Oscar for best picture, which would be good news for the film’s backer and distributor - dual-listed 21st Century Fox.
“Winning at the Golden Globes or BAFTAs can help to boost box office and DVD revenues for films. With the granddaddy of them all, the Academy Awards aka The Oscars, being held this week, we ask whether award ceremonies have any impact on the share prices of movie studios,” Cieszynski says.
Having compared the historical performance of Best Picture winning studios over the past 15 years Cieszynski concluded that Oscar winners do get a halo effect in the market.
“On average the studio most closely associated with the Oscar winning film has outperformed the sector by 1.7 per cent, with the winner outperforming the group in 9 of the 15 years,” he says.
So what stocks could get an Oscar boost in 2014?
This year, five studios associated with public companies are in the running for best picture. Warner Brothers (Time Warner), Columbia (Sony), and Paramount (Viacom) each have two entries while Fox, (21stCentury Fox) and Universal (Comcast) have one.
This year’s best picture nominees are:
- 12 Years a Slave Fox, 21stCentury Fox
- American Hustle, Columbia (Sony)
- Captain Phillips, Columbia (Sony)
- Dallas Buyers Club, Universal (Comcast)
- Gravity, Warner Brothers (Time Warner)
- Her, Warner Brothers (Time Warner)
- Nebraska, Paramount (Viacom)
- Philomena, Weinstein
- Wolf of Wall Street, Paramount (Viacom)
Back to top
And here's our Oscars live blog for all the latest on who's won what on and off the red carpet.