That’s it for Markets Live today.
You can read a wrap-up of the action on the markets here.
Thanks for reading and your comments.
See you all again tomorrow morning from 9:00(ish).
Local shares fell after the United States Federal Reserve ignored investor nervousness about capital outflows from emerging markets and increased cuts to its monthly stimulus. Investor sentiment was further dampened after a private monthly survey showed China’s manufacturing sector deteriorated in January.
The benchmark S&P/ASX 200 Index fell 40.9 points, or 0.8 per cent, on Thursday with the broader All Ordinaries Index also losing 0.8 per cent.
Over the past week, central banks in Turkey, India and South Africa have lifted official interest rates to stabilise their currencies and rein in inflation worries ahead of the anticipated reduction in liquidity from the world’s biggest economy.
“The prospect of the end of cheap money in the West ... is forcing up the cost of capital across the emerging market asset class,” Fidelity Worldwide Investment global chief investment officer equities Dominic Rossi said. He expects emerging market volatility to spread to Brazil and Russia.
But Fiducian Group investment manager Conrad Burge said the market could be over-reacting. “Investors should bear in mind the Fed is still engaged in hefty quantitative easing while official US interest rates are close to zero. The Fed is unlikely to overdo its tapering and has made it clear it won’t raise rates until unemployment is well below 6.5 per cent,” Mr Burge said.
Here's a round-up of what's happening in sharemarkets around the region, where Japanese investors have taken a pasting after the yen surged higher overnight:
- Japan's Nikkei is down 3.1 per cent.
- Hong Kong's Hang Seng is 0.5 per cent lower.
- China's Shanghai Composite is down 0.4 per cent.
- The Thai benchmark index is down 0.9 per cent.
- Indonesia's Jakarta index is 0.7 per cent lower.
Struggling mobile phone maker Motorola is being passed on from Google to China Mobile for $US2.91 billion, which is much less than the search engine giant initially dished out.
But it's not looking like investors are liking China's biggest-ever tech deal, pushing down China Mobile shares more than 8 per cent to $HK10.06.
It is Lenovo's second major deal on US soil in a week as the Chinese electronics company angles to get a foothold in major global computing markets. Lenovo last week said it would buy IBM's low-end server business for $US2.3 billion.
The deal ends Google's short-lived foray into making consumer mobile devices and marks a pullback from its largest-ever acquisition. Google paid $US12.5 billion for Motorola in 2012. Under this deal the search giant will keep the majority of Motorola's mobile patents, considered its prize assets.
Shares of Google climbed 2.6 per cent to about $US1136 in after-hours trading. Google chief executive Larry Page said that Google would be best served by focusing on smartphone software rather than devices.
The purchase will give Lenovo a beach-head to compete against Apple and Samsung as well as increasingly aggressive Chinese smartphone makers in the highly lucrative US arena.
Last week, HSBC’s flash China manufacturing PMI coming in below 50 sparked a lively debate in the comments section of this blog over whether the reading indicates a contraction of the sector, or just a lower growth rate.
Today, after HSBC’s final manufacturing PMI also came in below 50, Michael Pascoe offers his take:
No, Chinese manufacturing didn’t contract last month. The base effect means a Chinese PMI a bit below 50 is consistent with industrial production growth of a strong 9 per cent or so.
Specifically in regards to manufacturing, here’s what HSBC actually said in its media release:
“Production levels continued to increase in January, extending the current sequence of expansion to six months. However, the rate of growth eased to a marginal pace.”
The report explains the index is an attempt to provide a single-figure snapshot of operating conditions in the manufacturing economy.
How do the HSBC economists describe today’s 49.5 score for January?
“This was down from 50.5 in December and signalled a marginal deterioration of business conditions faced by Chinese manufacturers."Back to top
We are in a funny old place right now in the capital markets, and it’s becoming ever more apparent that worked well in 2013 isn’t doing so in 2014, IG's Chris Weston notes on today's sell-off:
- The only area which seems to be showing the same sort of (negative) consistency in 2014 as it did last year is the emerging markets (EM) complex.
- Much of this region continues to get savaged despite the likes the of the Indian, Turkish and South African central banks trying to make the cost of money more expensive and raising interest rates. Trading the Turkish lira is near impossible right now, and after a descent spike higher in the currency, traders have simply said the structural and political imbalances are too compelling to ignore and reinitiated shorts again.
- Is EM the big issue that caused US stocks to plummet? Perhaps, but given US companies only make 5% of earnings from emerging markets it’s hard to really put this move on them, although semantics will always play a key role.
- Fed members aren’t day traders and when they see the market not far off all-time highs it wouldn’t have concerned them too heavily. The Fed is likely to cut the pace of QE by $10 billion a month going forward.
- China is also another real concern and while it looks as though it won’t be talking defaults of a certain wealth management product for a while, the bears are getting louder and louder.
Turning to the roosters and the feather dusters for the day, as mentioned gold miners shone in what was a pretty dark day for shareholders.
Navitas was up 2.2 per cent after its interim profit results pleased investors.
One of the bigger stories of the day was the plunge in Treasury Wine Estates, which didn't exactly shock the market with another earnings downgrade, but confirmed investors' fears. The stock returned from a trading halt to lose a fifth off its market capitalisation.
Another wave of selling smashed Forge Group, it was down another 17.1 per cent after falling close to 9 per cent yesterday.
Downer EDI, Skilled Group, REA Group and Village Roadshow all dipped, while Drillsearch and Senex gave up some of yesterday's gains.
This from Phillip Coorey at the AFR:
Up to 3000 jobs in Victorian Goulburn Valley are at risk after the federal government decided against contributing $25 million towards a restructure of SPC Ardmona.
In a win for Prime Minister Tony Abbott, Treasurer Joe Hockey and other economic dries in the government opposed to industry assistance, the cabinet rejected a submission by Industry Minister Ian Macfarlane that the Commonwealth contribute the money.
The decision follows that made late last year to cut General Motors Holden adrift and has angered the Nationals as well as Liberal MP Sharman Stone, who fought for the cannery which is in her electorate.
Dr Stone issued final pleas via twitter on Thursday as cabinet met and she described the decision as a “no brainer’’.
SPCA’s parent company Coca Cola Amatil had been seeking $25 million from each of the Commonwealth and Victorian State governments and was prepared to put in $90 million of its own. In return, it consolidated its three factories into one and developed new exports and products.
HSBC Australia has cut its home loan variable rate from 5.34 per cent to 4.75 per cent for new customers borrowing above $100,000, even as the Reserve Bank is forecast to keep the cash rate on hold over the next few months.
The bank also lowered its two, three and four-year rates for "Premier" customers to 4.79 per cent, 4.99 per cent and 5.39 per cent respectively.
The new rate, which came into effect earlier this week, means the bank offers one of the lowest home loan rates in Australia, alongside other mortgage providers such as loans.com.au, the National Australia Bank's UBank and the Bank of Queensland.
Stocks have closed lower, with the S&P/ASX 200 down 0.8 per cent to 5188, with the All Ordinaries down a similar proportion to 5199.40.
Gold and telecommunications were the two only brights spots among the market sectors while the big banks were the biggest drag, with ANZ, CBA, NAB and Westpac all around 1 per cent lower for the day.
Gold stocks were up 1.5 per cent.
Telstra was up 0.6 per cent to $5.13, while Westfield Group was one of the better performing blue-chip stocks, finishing 1.2 per cent higher to $10.15.
BHP shares lost 0.5 per cent to $36.69, while Rio finished flat at $65.80.Back to top
Analysts have thrown out a stern warning to holders of stocks in engineering and construction, saying 2014 is likely to be even tougher for the beleaguered segment than last year.
Morgan Stanley believes there is a risk that management teams within a handful of companies in the segment are still too optimistic about the second half of fiscal 2014 and market recovery leading into the upcoming reporting season.
The investment bank singles out Monadelphous Group, Leighton Holdings, Transfield Services and UGL as potentially carrying the most risks.
While Morgan Stanley notes it is perhaps tempting to look back at 2013 and the profit warnings that characterised it, and think the worst is over, the research note goes on to say declining capital expenditure signifies the worst may still be ahead for some of these companies.
“Although investors remain bearish towards the industry if these macro headwinds play out as we expect over the next three years, we believe investors may continue to be surprised on the downside,” the note states.
Today’s profit downgrade by Treasury Wine Estates bolsters the current class action against the company, law firm Maurice Blackburn says.
Today’s announcement raises questions of transparency about the company’s operations, says Maurice Blackburn managing principal Ben Slade, who will lead a shareholder class action against TWE funded by Bentham IMF.
“TWE’s announcement this morning suggests that continuous disclosure requirements may not have been complied with. We are confident that the company’s shock $190 million downgrade announcement in July last year was indicative of such a breach. It may have happened again,” Slade said.
“If our investigations reveal that TWE has been less than frank with the market, our class action will be expanded to claim for the losses suffered today.”
Slade said investors and shareholders had a right to be fully apprised of the true state of a company’s finances at the earliest opportunity.
With Aristocrat Leisure now trading at a discount to the All Industrials index – excluding financial stocks – UBS has upgraded the gaming machine provider to “buy”.
The broker reckons Aristocrat Leisure is a strong investment case given its long-term growth in global gaming markets, high barriers to entry from licensing requirements and exposure to improving US consumer trends.
UBS has increased its net profit forecasts by 11 per cent for the 2014 financial year, and increased its earnings estimates for 2015 by 13 per cent. It means the brokers forecasts are now 9 per cent above consensus for 2014 and 12 per cent above for 2015.
UBS increased its 12-month price target to $5.20. Shares are currently trading at around $4.34.
And here's an (edited) extract of ASIC's response to the "history's biggest unsolicited card mailout" story:
“The type of cards distributed by Qantas and Velocity ... do not give any access to a deposit account, or to credit, when they are sent to the consumer.”
“When the card is sent to a consumer, the stored value card component of the card is completely inactive and only capable of use following an application by the consumer and the consumer subsequently loading value onto the card.”
“The risks (including financial risks) for the consumer in being sent one of these cards are low and are certainly much lower that the risks involved where a credit card or debit card linked to a deposit account, such that the card can immediately be used to access the consumer's funds, is sent to a consumer.”
Qantas and Virgin Australia have embarked on the biggest mail-out of unsolicited debit cards in the country’s history, sending MasterCards and Visa cards to up to 12 million frequent flyer program members.
There is more than one catch to this unique event however. Not only are the cards unsolicited – a tactic which appears to breach federal payment card laws – but, in the case of Qantas, they are being sent to customers as young as 16 years of age.
According to an investigation by Nathan Lynch, Thomson Reuters’ head regulatory analyst, lawyers and consumer groups have expressed alarm over the mail-out, saying it is likely to contravene consumer protection laws.
But there is another catch: ASIC has provided the airlines with a “no action” letter, effectively shielding them from legal action under Section 12DL of the ASIC Act.
The purpose of this legislation is to protect consumers from purveyors of unsolicited credit and debit cards.
Back to top
Treasury Wine’s profit warning has triggered a share sell-off that leaves it vulnerable to predators, analyst say.
Treasury could be a cheap takeover target for Chinese buyers looking for a foothold in Australia, or a private equity firm seeking a turnaround project. It could also be tempted to sell off some of its underperforming US assets.
"I think some of its US assets are vulnerable but I think its also a difficult market to be selling wine assets into," says Bell Direct analyst Julia Lee. "It would very much be a buyer's market ... any sale we see of assets could also result in write-downs."
Shares are currently down 19.6 per cent at $3.66.
That currency chart from 1.26pm showing the appreciation of the yen gives you a reason why Japanese stocks are tanking so badly today, easily underperforming the rest of the region:
- Japan (Nikkei): -3.3%
- Hong Kong: -1.5%
- Shanghai: -0.8%
- ASX200: -1.05%
- Singapore: -1%
- Jakarta: -1.2%
- New Zealand: -0.8%
The Fed ‘‘decided to proceed with stimulus reduction as the market expected, weakening currencies in emerging nations,’’ says Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. ‘‘Investors are tending to avoid risk and aren’t focusing much on the strength of the US economy. Global share markets are likely to be in a correction phase for a while.’’
If you think Wall Street is still the first address to list a stock, think again. As the following chart shows, US stock markets have been in secular decline for several decades now. In fact, there are now fewer listed companies in the US than at any time way back to 1975.
Qantas has cancelled three of its return A380 flights from Melbourne to London via Dubai over the next two months for lack of demand as it works to return its loss-making international business to a break-even position within 18 months.
A Qantas spokesman said it was not unusual for airlines to reduce the number of flights on some routes during quieter periods.
“In the case of the UK and Europe, things tend to slow down in winter,” he said. “These cancellations represent 1.5 per cent of our total services to London in February and just over 3 per cent in March.”
Here's a good chart showing that while emerging market currencies have slumped against the US dollar this month, the Japanese yen has been on the rise.
The yen strengthened again overnight amid further wobbles among emerging market currencies - in particular the Turkish lira (purple), the South African rand (orange), the Russian ruble (yellow) and the Hungarian forint (green), which we have featured in the chart below.
Turkey saw all its gains in the lira wiped out just a day after its extraordinary tightening of monetary policy. Meanwhile, the South African Reserve Bank's rate rise saw the rand plunge to its lowest level against the US dollar in five years.
"Emerging markets are a big risk for the Australian dollar at this point, because the volatility that we are seeing across global asset markets is forcing investors to reduce their exposure and say Aussie," Citi currency strategist Todd Elmer says:
- If you look at the developments overnight, there had been some expectations that we would see some signs of attentiveness from the Fed to the developments in [emerging markets].
- But we didn't get anything from the Fed to suggest that they were watching the developments more closely and I think that has not been a reassuring sign to the market, so we probably are going to continue to see some pressure moving forward.
- The volatility in emerging markets could persist: These aren't questions that are going to be answered in a day or two. These are longer-term questions and I think it is legitimate for investors to expect some fall-off from the very gradual move from the Fed towards tighter policy.
- The extensive liquidity that the Fed had been pumping into the global economy had been a big driver of the strength that we have seen over the past several years from emerging markets.