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Markets Live: Horror day for shares

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.

Have a great weekend and see you all again Monday morning from 9.


The biggest daily drop since mid-March wiped out the Australian sharemarket’s gains for the week, but fund managers remain broadly optimistic local companies are set to deliver much anticipated earnings growth this reporting season.

After losing 1.4 per cent, the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each ended the week 0.5 per cent lower at 5556.4 points and 5569.9 points, respectively.

Shares fell while the dollar sunk to a two-month low, in reaction to a global sell-off.

In Europe on Thursday night, concerns about Argentina’s bond default, weakness in the Portuguese banking system, and the impact of sanctions against Russia all hurt sentiment. In the United States, volatility returned as Wall St suffered its worst day since April. The S&P 500 shed 2 per cent after wage costs spiked while corporate earnings results were mixed.

Closely watched US non-farm payrolls data, due out late Friday night Australian time, were expected to show employment steady at 6.1 per cent.

Baillieu Holst partner Richard Morrow is tipping a mini-correction in global equities over the next couple of weeks, but he expects the local market to continue to fare better than the US and Europe as company reporting season meets forecasts.

“Consensus expectations for the ASX200 predict earnings per share growth of between 5 to 10 per cent seem very reasonable,” Mr Morrow said.

But results season delivered yet another early disappointment on Friday as ResMed revealed a fourth-quarter sales slump in its key US market. Shares in the medical device manufacturer dropped 5.8 per cent to $5.23.

Read more.


And here are the best and worst for the day.

Bloomberg tells us that Lynas has had its worst two-day drop in five years, while investors reacted positively to Kathmandu's announcement that full-year earnings would come in 10 to 15 per cent lower than the previous year.

Best and worst performers in the ASX 200 today.
Best and worst performers in the ASX 200 today. 

If you're heading out to dinner this weekend, wow your date/friends with your inside knowledge on how restaurants use the humble menu to steer you towards certain meals... 

Tricks of the menu trade. Source: MarketWatch
Tricks of the menu trade. Source: MarketWatch 
market close

A horror day of trading has erased the week's gains, putting investors on tenterhooks leading into the start reporting season proper on Monday.

The ASX 200 slumped 77 points, or 1.4 per cent, to 5556.4, while the All Ords retreated 76 points, or 1.3 per cent, to 5547.6.

In the end only 14 of the top 200 names could manage any sort of gain, as shareholders took the opportunity to lock in profits ahead of an uncertain reporting season.

Banks and miners - the two sector heavyweights - both dragged on the market. Westpac was the single biggest detractor after it fell 1.6 per cent, while the other three majors dropped by between 1.1 and 1.2 per cent.

CSL was among the biggest losers, dropping 3.6 per cent.

BHP fell 0.7 per cent and Rio 1.5 per cent.

Among the short list of winners was Myer, which increased 3.1 per cent, and Kathmandu, which provided an earnings update and jumped 3.3 per cent.

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world news

Large Russian companies are moving some of their cash holdings to Asian banks as the latest sanctions from the US and the EU have raised fears that Russia could eventually be completely shut out of US dollar funding markets.

Megafon, the country’s second-largest mobile phone operator, said on Thursday that it had converted 40 per cent of its cash reserves into Hong Kong dollars at Chinese banks, with the remaining 60 per cent being held in roubles.

Sources close to Norilsk Nickel and Novatek said the nickel producer and Russia’s second-largest natural gas producer had also started moving some of their foreign exchange holdings out of the dollar.

“We are getting a lot of requests now to help customers move into Hong Kong dollar,” said a senior banking working on trade finance and cash management at a large western bank in Moscow. “First it was mainly from US dollar to euro, and now it is increasingly to the Hong Kong dollar.”

Analysts and bankers said the moves reflected heightened worries among the country’s oligarchs over escalating sanctions. “It is quite surprising that Megafon, a domestically focused company, chooses to place such a large chunk in Hong Kong dollars. It means that they are looking at the worst-case scenario,” said Charlie Robertson, global chief economist at Renaissance Capital. “Such an ‘Iran-style’ scenario is quite unlikely, but there is a sense of concern over it.”

From Friday, a number of major Russian state banks and development banks are barred from selling new bonds or equity with a maturity longer than 90 days to EU nationals and companies, under sanctions that expand partial restrictions from US capital markets to European ones.

Megafon is controlled by Alisher Usmanov, Russia’s richest man who has ties to the Kremlin. Vladimir Potanin and Oleg Deripaska hold stakes in Norilsk Nickel. All three oligarchs as well as their companies have so far escaped sanctions.

Read more at the FT.


The international appetite for euro-zone financial assets that underpinned the local currency the past two years is beginning to erode.

While broad data showing real-time flows into and out of the region’s stocks and bonds are hard to find, strategists point to items such as US exchange-traded funds, which pulled $US1.1 billion from European assets this month, the first outflow since April 2013.

Bonds of Italy and Spain that yielded as much as 7.05 percentage points more than Treasuries two years ago now pay less than their US counterparts, diminishing their appeal.

The result is the euro’s biggest monthly loss since February 2013, and Morgan Stanley said this week selling the 18-nation currency remains the surest bet in the developed world. Rather than a cause for concern, the European Central Bank may see weakness in the euro as a welcome development as it tries to avoid deflation and spur exports to boost the economy.

“The euro is under pressure,” Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London, said. “Portfolio flows have started to slow down into Europe as yield differentials have come right down.”

Read more.


Woodside Petroleum shareholders have rejected a proposed $US2.68 billion buyback of shares from Royal Dutch Shell even after chairman Michael Chaney poured cold water on hopes for an equal access share buyback should the resolution be defeated.

Some 28 per cent of eligible shareholders voted against the controversial resolution, meaning the required 75 per cent approval wasn’t achieved, Woodside reported this afternoon.

Proxy voting ahead of the meeting in Perth had already signalled the resolution would fail.

Speaking ahead of the shareholder vote, Mr Chaney said an open access buyback wouldn’t achieve the key aim of the selective buyback, an “orderly” reduction in Shell’s stake in Woodside to less than 5 per cent.

He said it would “involve less certainty” on the price and quantum of the buyback.

Mr Chaney said a defeat of the Shell buyback resolution would be “not a disaster by any means” for Woodside, which would go on to consider capital requirements and other capital management options.

But several shareholders and analysts have been pushing hard for Woodside to consider an equal access buyback should the Shell buyback be rejected.

The Australian Shareholders Association’s Stephen Mayne tweeted on Friday that if Woodside refused to carry out an equal access buyback, he “wouldn’t be surprised if another EGM was called re board composition.”

Woodside shares have fallen 1.7 per cent to $41.78.

Woodside Petroleum shareholders reject Shell buyback. Woodside chairman Michael Chaney
Woodside Petroleum shareholders reject Shell buyback. Woodside chairman Michael Chaney Photo: AFR

Welcome to Vollywood,” say Bank of America-Merill Lynch's global chief investment strategist, as higher rates and higher growth should herald higher volatility in the coming months.

But the US bank’s strategy team is far from bearish – their base case is that “2014 marks the beginning of the end of the post-GFC era as stronger US-led global growth finally induces a “good” rise in interest rates and a “safe” departure from this weird world of maximum liquidity and minimal volatility”.

That “weird world” is clear for all to see in their chart below.

The analyst then list three potential catalysts for a jump in volatility – even if temporary:

1. A “macro event” causes a “rate shock”. It could be a blockbuster US payroll figure (“a la February 1994”) or signs that housing, bank lending, or small business activity in the US is “finally in a self-reinforcing upswing”. The warning signs are a big US dollar rally, “a bear steepening of the yield curve” and a breakdown in the relationship between bank stocks and bond yields – that is, higher yields and weaker banks.

2. A financial event causes a “credit shock”. The catalysts would be the forced selling of assets that have attracted too much money in a zero rate environment. Such “zero rate trades” in high yield, peripheral European debt and emerging market debt. Warning signs are fund redemptions, especially in corporate bonds.

3. A geopolitical event that causes a “growth shock”. The analysts believe this “unlikely” unless the event involves China and/or the conflict in the Middle East pushed energy prices to “recession-inducing levels”.

The analysts sum up thusly:

“Concerns of a correction in stocks and equities may be a little too widespread for 'The Big One'. Nonetheless we are witnessing two classic signs of an impending correction: fatigue of “leaders” (eg high yield, small cap, banks) and a rally in “laggards” (e.g. Japan, China).

“And the underperformance of [high yield] bonds relative to [investment grade] bonds is telling traders not to be too greedy in equities in August.”

This year could be the last for this "weird world of maximum liquidity and minimum volatility", reckon BoA/ML global ...
This year could be the last for this "weird world of maximum liquidity and minimum volatility", reckon BoA/ML global strategists. 

Hong Kong stocks dropped, with the benchmark index set to end an eight-day winning streak, amid a rout that saw a gauge of worldwide equities slump the most in six months.

The Hang Seng Index fell 0.5 percent to 24,628.44 at the midday-trading break in Hong Kong.

The measure yesterday capped its best month since September 2012. The Hang Seng China Enterprises Index of mainland shares, also known as the H-share index, sank 0.9 per cent to 11,025.52.

“We were at a very high level, which causes a snowballing effect during phases of decline,” said Alex Wong, asset-management director at Ample Capital. “In Asia, if we see one or two exciting earnings we will stabilize again. Right now, people are cautious and nervous.”

An official gauge of the nation’s manufacturing industry released today rose to 51.7 in July from 51 the previous month. Analysts had expected an increase to 51.4. A final reading of factory activity from HSBC Holdings Plc and Markit Economics rose to an 18-month high of 51.7, while missing the preliminary figure of 52. Levels of 50 or higher signal expansion.

The H-share gauge entered a bull market this week after rising more than 20 per cent from its March low. China’s economy began to show signs of strength as policy makers bolstered growth by accelerating infrastructure spending, cutting reserve requirements for some banks and loosening property curbs.

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UBS has raised its price target on Aurizon to $5.80 from $5.50 and lifted its rating to “buy” from “neutral” amid expectations the rail operator will sell a stake in its Queensland coal network to pay for its expansion in the West Pilbara.

A sale of 49 per cent of Aurizon’s networks business could raise between $1.7 billion and $2 billion, according to the bank.

“Management has flagged selling a minority stake in the Queensland coal network as a potential funding mechanism for the West Pilbara iron ore project which would effectively re-activate a process originally commenced in 2013 and later put on hold as expansion projects were shelved.”

UBS estimates a $2.8 billion equity investment will be needed in the West Pilbara Infrastructure Company, which will build port and rail networks.

Aurizon plans to take a majority stake in the infrastructure company after teaming up with China’s Baosteel to buy iron ore and coal miner Aquila Resources.

trading halt

Struggling mining services business - one of many - Ausdrill has entered into a trading halt as it prepares to release details of an "expected impairment charge" in relation to its June 2014 financial year earnings, the company said in a statement.

The shares fell 5.2 per cent yesterday and were another 2.3 per cent lower heading into the halt, at $1.07.

They will return to trading by the start of trading on Tuesday at the latest.


National Australia Bank's new chief executive Andrew Thorburn has made key changes in the reshuffle that accompanies his arrival in the job, but key roles have also been reconfirmed in the management structure he inherited from outgoing CEO Cameron Clyne.

Thorburn moved quickly to get the changes in place on his first day in the CEO job. The new management team reported for work on Friday at 7.30am. His restructure is also significant for changes that haven't been made, however.

Gavin Slater has been confirmed as head of personal banking, which built mortgage market share under Clyne's leadership with aggressive pricing on rates, and cuts in bank fees.

Andrew Hagger has also been confirmed as the boss of NAB's wealth division including MLC, and Craig Drummond, a key hiring of Clyne's, has been confirmed as the group's top finance and strategy executive.

In summary, some divisional leadership roles have changed and some haven't, but the divisions themselves have not been restructured. The organisational structure that Cameron Clyne presided over has been implicitly endorsed.

Read more.


Billionaire James Packer is in talks to develop a Las Vegas Strip resort on land once occupied by the New Frontier Hotel & Casino, according to people with knowledge of the matter.

Packer bought a piece of a loan backed by the property and is negotiating a potential deal with other creditors including Oaktree Capital Group, said the people, who asked not to be identified because the talks are private. Oaktree purchased the debt at a discount after plans by Israeli businessmen Nochi Dankner and Yitzhak Tshuva to build a Plaza casino resort there stalled, according to the people.

A deal would mark Packer's return to Las Vegas after losing almost $US2 billion ($2.15 billion) during the credit crisis in a series of ill- timed North American casino investments, including Fontainebleau Resorts and Cannery Casino Resorts. Packer is the biggest shareholder in Crown Resorts Ltd., which jointly owns Melco Crown Entertainment. Melco runs casinos in Macau, China, and Packer could bring a network of Asian gamblers to the proposed venture.

No deal between Packer and Oaktree on the New Frontier site has been completed and talks could still fall through. Packer owns less than 10 per cent of the debt, according to one of the people.

Alyssa Linn, a spokeswoman for Oaktree, declined to comment, as did Karl Bitar of Crown.

Read more.

Sin City return: James Packer is rumoured to be in talks to develop a resort on the Las Vegas Strip.
Sin City return: James Packer is rumoured to be in talks to develop a resort on the Las Vegas Strip. Photo: Rob Homer

When is a contract not a contract? When it is with a power company, it seems.

The industry's regulator has decided that your power supplier can raise charges whenever it decides, rejecting a plan from a consumer group to force utilities to comply with the terms of a contract.

Electricity suppliers have been accused of seeking to entice new customers by offering attractive deals on two- or even three-year contracts – except the small print gives the supplier an opt-out, the ability to raise prices when it wants.

As a result, a consumer who has shopped around to find a plan that suits them can find the prices have changed even before they receive their first bill.

This prompted the Consumer Utilities Advocacy Centre to seek to have power companies blocked from being able to unilaterally change fees and charges. It went to the industry's regulator, the Australian Energy Market Commission, asking it to act.

But the regulator decided not to, preferring instead to ask retailers to be upfront about any changes.

''Energy retailers must tell consumers if prices can change during the term of their retail contracts, and provide clear product disclosure details on when they will notify customers about price changes,'' commission chairman John Pierce said.

''We're pretty disappointed,'' Consumer Action Law Centre chief executive Gerard Brody said. ''We wanted product standardisation and to make shopping around worthwhile.

''We hoped for increased certainty around the market.''

Read more.

Electricity companies appear to be able to opt out of contracts.
Electricity companies appear to be able to opt out of contracts. 
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shares down
Short sellers are gearing up for reporting season.
Short sellers are gearing up for reporting season. 

CBA analyst Nizar Torlakovic notes aggregate shorts position increased “significantly” to 1.24 per cent of the S&P/ASX 200 market capitalisation between July 18 and July 25. In terms of actual dollar value of shorts, this represents an increase of $1.4 billion.

“The weekly increase is one of the larger increases we’ve seen and it appears short sellers are positioning for more negative surprises in the coming reporting season,” Torlakovic writes in a research note to clients on Friday. “Two-thirds of the companies in the S&P/ASX 200 experienced additional shorting over the week.”

The largest increase in shares sold short were Flight Centre, Papillon Resources, Skilled Group, Kingsgate Consolidated, Kathmandu, Arrium and Fortescue Metals Group. The most covered stocks were Wotif, Southern Cross Media Group and AGL Energy.

Fortescue had the largest dollar value increase in short position ($193 million additional shorts). Since May 22, Fortescue’s short position increased by 75 per cent and is currently at 8.1 per cent of issued shares. Fortescue is now in the top 20 shorted stocks by percentage of shares short sold.

“Short sellers seem to be positioned for weak results from Resmed and Flexigroup,” Torlakovic says.


Woodside's extraordinary general meeting is underway in Perth, where shareholders will vote on whether to approve the $US2.7 billion share buyback from major stakeholder Shell.

The results of proxy voting yesterday suggested that the selective buyback would fail, with large institutional shareholders, including big super funds, objecting to what they saw as preferential treatment being granted to Shell, with the allotment of franking credits of particular concern.

Woodside has told shareholders at the EGM that the deal won't proceed unless there are "very significant votes" in favour today, reports Bloomberg.

Woodside shares are 2.1 per cent lower at $41.63.


Strength in the upper end of the housing market prompted a property price bounce throughout July.

But a lack of affordability at the lower end of the market meant the number of homes selling is still below peak levels.

Overall, RP Data figures released today showed the market is still fragmented across the capitals.

RP Data research director Tim Lawless said despite July’s price up-tick, recorded after the market was more subdued in May and June, capital gains had eased from the peak conditions recorded last year.

In the past six months, capital city dwelling values moved 3.7 per cent higher compared with the peak rate of growth of 7.2 per cent, which was recorded over the six months ending November last year.

Mr Lawless said growth in mortgage demand had eased over a similar timeframe, suggesting buyer demand may be being dampened by rising affordability hurdles and low rental yields in the largest cities.

Sydney prices were up 1.5 per cent for the month and 2 per cent for the quarter, while year-on-year prices have risen 14.8 per cent.

Melbourne prices bounced back strongly in July, up 3.7 per cent and 1.8 per cent for the quarter. Year-on-year, Melbourne prices rose 11 per cent.

RP Data has tracked a rise in $2 million-plus sales in Sydney and Melbourne, but high-end activity has been more muted in the other capitals.


JPMorgan has downgraded Australia’s biggest annuities provider, Challenger, to “underweight” following concerns about investment spread margins, capital intensity and default risk concerns.

The US bank’s analyst Siddharth Parameswaran argued that the capital intensity of the annuities giant could provide a “bid drag” on product economics. At the same time, spreads have compressed and will likely drag margins down further for some time, he argued.

The broker is also cautious about default risks. While some of these concerns might be overstated, “we think [Challenger] is more risky for shareholders than an investment in banks and potentially even [Genworth]”, he argued.

Parameswaran also reckons the company’s valuation also appears stretched.

“At 2.7x NTA the valuation appears very stretched once one considers the spread and levered nature of the returns being generated,” Parameswaran said.

Challenger’s benefits include growth thanks to government legislative changes, limited competition, and a strong funds management business.

Challenger shares are 2.2 per cent lower at $7.90.


iiNet’s newly confirmed chief executive David Buckingham wants to make the broadband provider a bigger player in the business technology and mobile service markets while boosting its field teams to help improve the national broadband network’s rollout.

Mr Buckingham outlined iiNet’s new five-year business plan in his first interview since taking over the top job at the Perth-based internet service provider, which boasts about 1 million broadband subscribers and a market capitalisation of $1.23 billion.

iiNet could double its broadband customer base to almost 2 million users by 2019 as the NBN reaches completion if the plan is successful.

He said 70 per cent of the company’s efforts would be dedicated to making its traditional broadband business larger while the rest would go into “exploration type” activities like expanding its Techii field teams, which help households set up their home computing and entertainment networks.

It would also spend 12-18 months fixing its technology systems to make launching new products easier.

“On our technology systems I use the analogy that we’ve bought three houses and shoved all the furniture into two,” he said. “We’re bumping into chairs and tables all the time and could throw away a few.

“The next two to three years will be about hammering our core growth objectives . . . which are better sales and marketing to drive metropolitan and NBN market share, pushing the small business market, clearing debt and getting the furniture into the two houses.”

iiNet chief executive David Buckingham.
iiNet chief executive David Buckingham. 
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