That’s it for Markets Live today.
You can read a wrap-up of the action on the markets here.
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See you all again tomorrow morning from 9.
A rally in the big miners was not enough to buoy the local stockmarket as local economic indicators indicated consumer sentiment is declining while housing finance trends are flat. Shares dragged lower with the biggest banks and retailers leading the losses.
The benchmark S&P/ASX 200 Index lost 29.6 points, or 0.6 per cent, on Wednesday to 5384.2, while the broader All Ordinaries Index shed 0.5 per cent to 5400.5. Local shares nose-dived at the open following a negative lead from offshore.
The major banks led the losses and an ABS report showed finance approvals for new dwelling held steady at around 27, 000 in January, falling shy of consensus expectations for a 0.5 per cent rise. The flat January reading followed a 1.9 per cent decline in December.
Investor sentiment took another hit from the news consumer confidence fell to a ten-month low in March. The Westpac consumer sentiment index fell 0.7 per cent this month. It was the third consecutive month the reading of consumer optimism declined and showed the post-election bounce in confidence has mostly faded.
Retail was the worst-performing sector, down 1.4 per cent. Food and liquor giant Woolworths fell 0.5 per cent to $36.45, while rival Wesfarmers, owner of Coles, lost 0.8 per cent to $43.11. Telstra Corporation was unchanged at $5.08.
Mining was the best-performing sector, up 0.3 per cent, as the biggest producers recovered despite a 2.6 per cent plunge in the copper price overnight.
Iron ore, meanwhile, added 0.2 per cent to $US104.90 a tonne, off an 8.3 per cent fall to an eight month low at the start of the week.
Among the blue chips:
- BHP: +0.2%
- Rio: +0.3%
- ANZ: -0.5%
- CBA: -0.7%
- NAB: -0.6%
- Westpac: -1%
- Woolies: -0.5%
- Wesfarmers: -0.8%
- Telstra: flat
And here are today's main winners and losers among the top 200:
Lend Lease fell 2.6 per cent to $11.31 this afternoon amid news of the fire at the Barangaroo construction site in Sydney (sitting in Pyrmont less than a kilometre away from the site we can attest it is big).
Barangaroo fire engulfs CBD in smoke
RAW VISION: A large fire at the Barangaroo construction site has forced the evacuation of nearby buildings and shrouded Sydney's skyline in thick smoke.PT1M19S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-34m82 620 349 March 12, 2014
The sharemarket has closed lower, led down by the big banks.
The benchmark S&P/ASX200 fell 29.6 points, or 0.5 per cent, to 5384.2, while the broader All Ords lost 28.8 points, or 0.5 per cent, to 5400.5.
Among the sectors, financials fell 0.7 per cent, energy lost 1.2 per cent, while materials added 0.3 per cent.
One of the world’s most respected investors has raised the alarm over a looming asset price bubble, calling out “nosebleed valuations” in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets.
Seth Klarman, the publicity-shy head of the $US27bn Baupost Group whose investment opinions have attracted almost a cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money.
While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’
“Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”
“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr Klarman wrote.
“On almost any metric, the US equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he wrote.
Toyota has agreed to increase base wages in Japan for the first time since 2008 as the nation’s largest carmaker heads for record profits.
The average Toyota Motor Workers’ Union member will earn 2,700 yen ($29) more in base pay per month, Japan’s largest company said today. Toyota also will pay an average bonus of 2.44 million yen ($26,000), the equivalent of 6.8 months of salary and the most in six years.
While a weaker yen has helped Toyota forecast a record 1.9 trillion yen profit for the year ending March 31, the raise is smaller than the union requested. Japan’s looming April sales-tax increase, its first in 17 years, will pose a challenge for domestic demand at companies Prime Minister Shinzo Abe has pressed to increase pay for workers.
“If the Japanese economy was more likely to continue to grow for another 12 months, we would see much more robust growth in wages,” Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.
Joe, stop frightening the punters, writes BusinessDay columnist Michael Pascoe:
What was a somewhat bemusing sidelight of politics and consumer confidence has now become serious: the government has so peeved Labor supporters that they've tipped the consumer confidence balance to negative.
As the accompanying graph shows from the demographic breakdown of the Westpac/Melbourne Institute consumer confidence index, Labor voters’ confidence has plunged below GFC levels.
Joe Hockey's constant negativity and dire warnings have scared them more than the Great Recession.
As the official commentary states, the overall consumer sentiment index this month is down by 0.7 per cent to 99.5. On top of a 3 per cent fall in February, the proportion of pessimists now exceeds that of optimists for the first time since last May.
By far the biggest movement over the past year has been in Labor voters – a collapse of 33.4 per cent down to 84.5 per cent. The 13.5 rise in coalition voters' outlook has not been enough to make up for the slide in recent months.
The government might not like the people who do not support it, but the economy needs them nonetheless – particularly when the opinion polls indicate their numbers are growing.
The New Zealand dollar will be looking to tomorrow’s Reserve Bank of New Zealand rate decision for direction cues, writes analyst David Ferranti from forex broker FXCM.
Given the central bank is widely-anticipated to hike interest rates by 25 basis points, traders may be more likely to react to the statement from RBNZ Governor Graeme Wheeler.
A firm commitment to future rate hikes would likely strengthen the Kiwi’s yield appeal and bolster demand.
The psychologically-significant 0.85 handle remains an important technical level for the NZD/USD.
Expectations of rate hikes is driving the Kiwi dollar up and up.
It is hard to avoid the drama that is currently enveloping our national carrier.
Every day we seem to read a new headline about Qantas' latest cost-cutting exercise, or pleas for government assistance. So you may be surprised to learn about one Australian airline that is still profitable, and hasn't asked for a single bailout.
Regional Express, or REX, is Australia's largest independent regional airline, and rose from the ashes of the Ansett bankruptcy. REX operates a small fleet of just over 50 planes and focuses on regional markets that are poorly served (or often not served at all) by its larger competitors.
In the first half of fiscal 2014 REX made a profit before tax of $5 million. Over the same period Qantas reported an underlying pre-tax loss of $252 million and Virgin Australia made a pre-tax loss of $49.7 million. In other words, this tiny regional airline was not only profitable, it made over $300 million more profit in the first half than Qantas and Virgin Australia combined.
Using fire at barangaroo fire as a sell signal on Lend Lease $LLC. Really people?! pic.twitter.com/L09ufrNHHP — Matthew J. Smith (@Matt_JS) March 12, 2014
The federal government has issued a record $7 billion 15-year bond – the government’s largest ever syndicated debt raising.
The April 2026 bond issue surpassed November 2013’s record $5.9 billion, 20-year bond issue, putting the government ahead of its debt funding run rate while extending the maturity of its debt.
The yield on the bond was 4.375 per cent.
The Australian Office of Financial Management, which manages the government’s debt issuance, has now raised $61.5 billion in the current financial year, just $13.5 billion shy of its stated $75 billion fund raising target.
The size of the deal could force the government to slow the pace of its bond auction, or could result in the government exceeding its $75 billion target.
Foreign investors were likely to be significant buyers, having increased their participation in long-term bond offers from about 20 per cent in 2011 to 60 per cent for the recent 2033 government bond.
International investors have bought $179 billion of the $210 billion of debt issued by the government between 2008 and 2013, according to UBS.
Regional markets are down across the board, with Japan the hardest hit:
- Japan's Nikkei is 2.2 per cent lower
- Hong Kong's Hang Seng is down 1.5 per cent
- Shanghai's Composite Index is 0.6 lower
- Taiwan's TAIEX has fallen 0.4 per cent
- Korea's KOSPI is down 1.4 per cent
- Singapore's FTSE Straits Times index is 0.6 per cent lower
- Jakarta's benchmark index is down 0.3 per cent
- Kiwi NZX 50 is down 0.2 per cent.
More on the misery index mentioned a couple of posts ago (and, yes, OK, Europe is not a country) - and just because we have the data and it's a shame to let a nice chart go to waste - here is Australia's annual CPI rate, unemployment, and the summation of them both - the misery index, which is at its highest since August 2011.
Australian economic "misery" is on the rise.
Atlas Iron managing director Ken Brinsden says the current volatility in the iron ore price will not deter expansion plans and the market should take a mid-term view of the commodity.
“There is a lot of day-to-day noise and headlines about China’s demise or extraordinary growth,” Mr Brinsden told The Australian Financial Review. “It fluctuates between two pretty amazing extremes. If you are prepared to look through the middle ground, it is still pretty healthy for natural resources.”
He joined other miners, including BHP Billiton and Rio Tinto, which sought to calm investors’ nerves this week after a 16 per cent fall in the iron ore price over the past three weeks.
BHP and Rio are sticking to forecasts that Chinese demand for steel would top 1 billion tonnes by 2025 or 2030, keeping demand strong for more than a decade.
Speaking at the Citi’s Australian Investment Conference in London, Mr Brinsden said the commodity on average sold for a strong price, which was delivering Atlas strong margins.
He said the market often overestimated the impact of a new wave of supply of iron ore because it did not hit the market as quickly as peopled expected. Analysts also often underestimated the impact of high-cost Chinese domestic production.
“People think about iron ore markets almost the wrong way around,” he said. “I think the market is grossly undersupplied and the way the Chinese get around that is plug in high-cost domestic production.”
Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages, reports Bloomberg.
That indicator is the “misery index”, which is a crude measure of economic hardship for a country’s citizens.
Multi-decade highs sounds bad for the Japanese, but at a reading of just five it hardly compares to the likes of Greece and Spain, where the index tops 25, on Bloomberg data.
In our list of 18 countries, Australia sits around the middle, with a reading of 8.7, between the UK and Canada – which sounds about right.
The concept behind the index is that the combination of a high rate of unemployment and increasing inflation is bad for the economy and society.
And – wouldn’t you know it – New Zealand scores better than us.
The misery index in 18 countries.
Morgan Stanley must be looking in wonder at the way the share price of Mermaid Marine is sinking.
The investment bank is underwriting Mermaid's share issue, which the company has proposed to part-fund a purchase of Singaporean assets.
Mermaid is going to shareholders with a 7-for-18 issue at $2.40 a share, which is to raise $217 million.
But with the shares trading this afternoon at $2.20, down 3.5 per cent, the underwriter is looking exposed.
NBN Co executive chairman Ziggy Switkowski says allowing TPG to compete with the national broadband network rollout could have an “economic impact of 5 per cent to 10 per cent”.
Mr Switkowski reiterated warnings at a Senate committee overseeing the rollout on Wednesday that allowing rival telecommunications companies to build their own fibre networks alongside the $41 billion NBN would have a “severe impact” on the government company’s ability to make money and pay back its debt.
The country’s fourth biggest telco revealed last year that it planned to connect fibre cabling to the basements of apartment buildings in capital cities, connecting 500,000 apartments across the country with faster broadband.
The plan, which would compete directly with the NBN rollout to 12 million homes and businesses, takes advantage of a loophole in the ‘cherry-picking’ policy introduced under the former Labor government and aimed at stopping other companies from competing with NBN Co.
Competitors Telstra and Optus have said they are similarly exploring fibre to the basement rollouts, potentially removing higher value customers which NBN Co needs to earn revenues on the project.
The former Treasury secretary and head of the last major review of the taxation system, Ken Henry, has warned the Abbott government urgently needs a tax and welfare package to head off an imminent budget crisis.
He said the changes would have to encompass all welfare payments, which includes disability support pensions, family tax payments, and employment benefits, because the entire system needed to be fixed.
Dr Henry said he was frustrated by the lack of progress on tax and welfare reform since his wide-ranging review of the taxation system in 2010 and tax reform did not appear to be a political priority.
The majority of recommendations in the Henry tax review were never implemented.
Experts are concerned that expensive welfare entitlements have been added to the budget in recent years and existing payments are too generous, including the age pension, which consumes almost 10 per cent of the federal budget.
"There will be a day of reckoning," Dr Henry told The Australian Financial Review.
He said the Abbott government's long-promised tax white paper – due to begin this year – would have to be "deep and broad" to make the tax system strong enough to sustain government spending.
The government has promised to take any major tax changes, including expanding the goods and services tax, to voters at the next federal election.
The total value of housing finance commitments was flat at the start of the year, with the number of loans granted at a seasonally adjusted 51,054. Analysts had expected it to rise by 0.5 per cent, ABS figures released this morning showed.
Meanwhile, despite recent disquiet about housing affordability and the influence of foreign investors on the local market, first home buyer activity made a slight comeback in January from last year's record lows.
The proportion of first home buyers edged up slightly to 13.2 per cent in January, above November's record low of 12.3 per cent, the ABS reported.
In January last year, first-home buyers made up 15 per cent of the amount of all dwellings financed.
At the same time, the figures showed that housing finance continued to be driven by investors and upgraders as low interest rates boost the residential property sector.
"Record numbers of cleared auctions and solid gains in home prices all point to further growth in finance commitments and housing credit in 2014," ANZ's property analysts said.
"NSW is leading other states in housing finance growth by a considerable margin, reflecting the heat experienced in the Sydney home sales market."
Housing credit continues to climb in 2014.
Super-fund owned ME Bank has become the latest lender to cut its fixed rate home loans, reducing its three-year fixed rate by 10 basis points to 4.74 per cent.
It is the latest sign of competition in lending, with several major banks also offering cash to new customers.
ME Bank chief executive Jamie McPhee argued ongoing low rates were "fairer" than such perks, and suggested borrowers do the sums on which loans offered the best value.
“A fairer approach is to attract customers by giving them a long-term saving on their home loan, not just a short-term cash back sweetener at the start,” Mr McPhee said.
Chevron Corp, the second-largest US energy producer by market value, reduced its 2017 production estimate and said it will sell $10 billion in assets during the next three years.
Chevron lowered its production forecast by 6.1 per cent as it slows US natural gas drilling and higher crude prices reduce its share of production in some nations, the company said during a presentation to analysts in New York.
The company now sees output equivalent to 3.1 million barrels of crude a day from a previous estimate of 3.3 million. Last year Chevron pumped the equivalent of 2.6 million barrels a day.
Lower-than-expected US gas prices prompted the company to curtail some drilling in Pennsylvania’s Marcellus Shale gas formation, said chairman and chief executive officer John Watson. New discoveries and acquisitions only added enough oil and gas to reserves to replace 85 per cent of the company’s production last year, according to data compiled by Bloomberg.
Chevron is spending $39.8 billion this year on gas-export terminals, offshore crude platforms and other capital projects to reverse a three-year drop in production. Chevron is alone among the world’s three-largest energy companies in forecasting a production increase this year.
“Our growth strategy remains intact, though some things have changed,” CEO John Watson said. Higher crude prices will also have a negative impact on output under production agreements in some nations that curb a company’s share as prices escalate, he said.
With nervousness about the near term outlook for the China economy, is it time to also worry about Japan?
From April 1, Japan will raise its consumption tax (its equivalent of our GST) to 8 per cent from 5 per cent, which has resulted in some consumption, mostly of larger capital items such as cars and the like, being brought forward.
The last time Japan hiked the consumption tax - in 1997 it raised the tax from 3 per cent to 5 per cent - it threw its economy into reverse, although at that time other restrictive spending policies were also implemented. Additionally, the Asian economy was under pressure in the wake of the Asian currency crisis.
In a note to clients, Citi reckons that much of the present optimism within Japan that it will withstand any slowdown if consumption weakens once the tax is raised, may be misplaced.
Even so, with the central bank, the Bank of Japan, already pumping a massive amount of liquidity into domestic money markets to try to revive the economy, the investment bank reckons the authorities will be quick out of the box to man the pumps if a slowdown does eventuate.
Britain has just carried out one of the greatest victimless crimes in modern financial history. It is in effect wiping out public debt worth 20 per cent to 25 per cent of GDP – on the sly – without inflicting serious macroeconomic damage or frightening global bond markets.
Governor Mark Carney more or less acknowledged that the Bank of England will never reverse its £375 billion of Gilts [UK government bonds] purchases. Quite right too.
This follows comments by Deputy Governor Charlie Bean yesterday that the Bank will "only contemplate selling back Gilts once the recovery is on a firm path." He admitted that some holdings may never be sold.
The Bank has come a long way from the early days of QE when any such suggestion was treated as an outrageous smear. There was a mantra that helicopter money requires a hoover afterwards to vacuum it up.
But in a deflationary world there is no clear imperative to do so. The Bank can sit on its Gilts forever. These can be switched in zero-coupon bonds in perpetuity. The certificates can be put in a drawer and left to rot. The debt is eliminated in all but name.
If and when inflation starts to pick up again – not imminent – the Bank can raise interest rates to prevent overheating. Indeed, it is better to do this than unwind QE because this restores rates quicker to equilibrium levels, a boon to savers and a healthy brake on property speculation.
Can there really be such a thing as a free lunch in economics? We will never be able to prove it either way, but on balance it looks like the answer is yes.
Paladin Energy's share prices has withstood the sell-down of the Newmont 5 per cent stake in the company this morning reasonably well, trading down 5.6 per cent at 52.5c, after its recent run up.
Newmont said the Paladin stake was non-strategic, with the sale raising $US24 million.
With its shares down 27 per cent over the past year, and with a new chief executive in place, maybe the sell-off is overdone, at least that is the view of Citi when looking at Coca-Cola Amatil.
It reckons the shares are worth $14.60, which is well north of where they are trading today at $11.26.
Citi's analysts see a series of reasons why Coca-Cola Amatil is worth a look from the fact that it is the cheapest Coke bottler, with its gross margin of 43 per cent in line with other bottlers with price rises that are not out of line with food inflation.
"Recent poor results and the appointment of a new managing director has provided an attractive buying opportunity for investors," Citi told clients in a note this morning.
"Earnings will bounce back from short term price competition and FY13 de-stocking. The new managing director is expected to re-base Coca-Cola Amatil’s earnings. However, this appears priced in.
"Coca-Cola Amatil has gone from trading at a 10 per cent premium to Coca-Cola Enterprises (its closest peer) a year ago to now trading at a 20 per cent discount."
As a result, it reckons the shares are a "buy".
Russia may have the military muscle in its confrontation with Ukraine, but investors are betting on the smaller economy.
Ukraine's benchmark index is up over 30% on the year (20% in dollar adjusted terms), while Russia is down almost 20%, reports analytics firm Bespoke Investment Group.
"The divergence began right when protests heated up in late February, and it has continued as Russia has moved into the Crimea region."
"It's hard to gauge how the Ukrainian crisis will evolve, but money talks, and the action we've seen in the Russian and Ukrainian stock markets since the crisis began indicates that investors are betting on a better environment for business in Ukraine and a worse environment in Russia."
Investors are prepared to bet on Ukraine over Russia.
Asciano chief executive John Mullen says he can see no signs of a sustained economic recovery in Australia, with volumes in ports and rail businesses remaining soft, although demand for coal is at record levels.
Speaking on the sidelines of Citi’s Australian Investment Conference in London, Mr Mullen said he was baffled by flat growth in the container terminals business, which defied positive news coming out of the retail and housing sectors.
“It has been flat now for a couple of years. That is puzzling as we are still a consuming nation, we are still an island, our manufacturing industry is not taking up the slack, we are importing,” Mr Mullen told The Australian Financial Review.
“We are hopeful we will see a lift sooner rather than later but there is no evidence to support it. That is why we are taking more cost measures. You don’t want to die waiting.”
European investors hungry for a clearer indication of which way the Australian economy is headed have been seeking out Mr Mullen in London, as Asciano is highly leveraged to economic performance.
His cautious tone reflected sentiment by other chief executives sitting down with more than 100 investors in London this week. While the mood was more positive than a year ago, Australian companies said they were not yet convinced that a full recovery was close.
Telstra has lost its case against the Australian Competition and Consumer Commission and several rival internet service providers in the Federal Court over whether the regulator had jurisdiction over its financial contracts.
Vocus Communications and several iiNet subsidiaries took Telstra to the ACCC when they disagreed over an increase in the prices charged to access facilities including telephone exchanges.
Telstra in turn took all the parties to court and claimed the ACCC did not have jurisdiction over the matter.
But the Federal Court flatly rejected Telstra's case in a judgement that took less than two minutes to deliver.
Superannuation’s fat cats are here to stay, says SMH’s economic editor Ross Gittins:
A few weeks ago, when I offered my list of our top 10 economic reforms of the past 40 years, I was surprised by the number of people arguing I should have included compulsory employee superannuation in the list. Really? I can't agree.
It is, after all, merely a way of compelling people to save for their retirement. That's probably no bad thing in principle, countering our all too human tendency to worry excessively about the here and now and too little about adequate provision for our old age.
But compulsory saving hardly counts as a major reform. I suspect some of my correspondents see it as a boon for workers because it extracts a benefit from employers over and above the wages they're paid. If so, they've been misled by appearances. Economists are in no doubt it all comes out in the wash: that when the government obliges employers to contribute to workers' retirement savings, the employers eventually make up for it by granting smaller wage rises than they otherwise would have.
It's true that compulsory super contributions - and the subsequent earnings on them - attract tax concessions, being taxed at a flat rate of just 15¢ in the dollar. But while upper income-earners do disgracefully well out of these concessions, people on incomes around the average gain little advantage, and those earning less than $37,000 a year gain nothing. Hardly sounds fair to me.
My other reservation about compulsory super is the way it compels employees to become the victims of the most shamelessly grasping, overpaid industry of them all: financial services. These are the people who made top executives and medical specialists feel they were underpaid.
When others are fearful, time to be greedy; and so it is with mining stocks now, reckon strategists at JP Morgan.
“We see the sell-off in mining stocks as a buying opportunity in a range-bound sector,” they wrote in a note to clients yesterday, as they upgraded the sector to “overweight” by adding Rio Tinto to their model portfolio.
“Stress in the Chinese steel industry is creating an inventory cycle in iron ore. But final demand should have the last word, and we see no evidence of a more serious problem in the most commodity-sensitive parts of China’s economy.”
Other metals and mining stocks in JP Morgan’s model portfolio include BHP, Bluescope Steel and Sims Metal Management.
How high is high? Not high enough for investors in Flight Centre, according to Bell Potter, which reckons Flight Centre shares are worth as much as $57.01, even after its sustained rise from around $45 just a year ago.
With the annual growth in short term international travel departures rising 7 per cent in January, Flight Centre "remains ideally positioned to leverage off any acceleration in international travel" given that selling international holidays to domestic travellers remains its key earnings driver, the broker told clients today.
The shares are down 2.3 per cent at $53.24.
Australian consumers are increasingly worried about their jobs and the economic outlook, with the growing gloom expected to hurt their spending decisions.
Consumer confidence has failed to buck the trend of the past months, extending its drop to 99.5, from 100.2 in February.
The dollar hardly reacted but is trading near the day's low of 89.59 US cents.
The survey of 1200 people by the Melbourne Institute and Westpac showed the index of consumer sentiment fell a seasonally adjusted 0.7 per cent in March from February, when it had fallen by 3.0 per cent.
The index reading of 99.5 was the lowest since May last year, and it was down 10.0 per cent over the past 12 months. The fall below 100 means pessimists now exceed optimists.
"The run of 'bad news' around the motor vehicle industry, other manufacturers and Qantas has clearly rattled consumers," said Westpac senior economist, Matthew Hassan.
In the wake of yesterday’s fall-back in key NAB business survey indicators, there will be some focus on what the Westpac/MI consumer confidence reading shows (due in 15 minutes).
Sentiment has fallen for three straight months, with February’s 100.2 reading well below the 105.3 average of the past 10 years.
An hour later we see January housing finance approvals. The consensus estimate is for a 0.5 per cent rise, but both ANZ and NAB are expecting drops.
"The headline number does not include the (strong) investor segment so should remain fairly muted, flat m/m after -1.9% in Dec, but not altering the basic picture of a strong housing market," Westpac economist Sean Callow says.
Shares have opened lower, with the ASX 200 lower by 16 points, or 0.3 per cent, to 5397.6 in early trading, and the All Ords down by a similar amount to 5413.3.
Losses have been spread across the sectors, with only consumer staples and gold miners in the black.
Metals and mining and financials have been the worst affected, both down 0.4 per cent, with BHP, ANZ and NAB leading the market lower - all down 0.6 per cent.
Fortescue has enjoyed a bit of a bump, gaining 0.8 per cent.
After the recent falls, several key markets have now fallen to benchmark chart support levels, CMC chief market analyst Ric Spooner notes:
- The big iron ore stocks BHP, Rio and FMG are all now trading in the vicinity of their 200-day moving averages. Copper has declined to long term trend line support dating back to late 2011.
- It would not be a surprise to see bargain hunters getting involved around current levels. After all most analyst valuations for the big resource stocks have already factored in lower iron ore prices.
- However, if key markets do fall clearly below this support in coming days, it will suggest markets are developing real concerns over the potential for deeper seated problems in China.
The Australian dollar dipped below 90 US cents overnight, closely following copper's plunge - unlike the previous session when the local currency shrugged off the brutal sell-off in iron ore.
Following copper’s slump, which is rumoured to be because of deleveraging, the Australian dollar dropped from 90.51 US cents to as low as 89.62 US cents.
Concerns of global growth and stability are beginning to rise and investors look to park money in safer assets, trader say.
Copper, which is reportedly being used as collateral in finance deals in China, has tumbled in the last few sessions. Since Friday, the metal has lost 8.4 per cent, falling to its lowst since July 2010.
Globally there has been a shift away from riskier assets, with the Aussie falling victim to the perceived strength of the US dollar.
Going down in unison - copper and the dollar.
Analysts at Credit Suisse have released a bullish note on OrotonGroup, saying the recent weak trading update represents a “low point in earnings” and that they see the potential for earnings to double in five years.
They reiterate their “outperform” rating and a target price of $4.65.
“We see the potential for EBIT to grow from the $13-$14 million expected in FY14 to $25-$35 million in five years,” write the analysts, citing the following reasons:
- They expect Oroton Domestic operations to maintain earnings given its mature profile;
- Oroton International is likely to breakeven and generate a profit as stores mature and the brands gain traction;
- GAP has the potential to generate $3 million from 10 stores in five years (and that’s conservative, they reckon); and
- “Brooks Brothers provides the most interesting opportunity in our view,” they write. “The brand has delivered solid initial results and appears well placed in the market (particularly in mens casualwear). 25 stores in five years appears reasonable. $12 million EBIT appears sound (implying $6m for Oroton).
Catalysts for the share price will be the performance of Brooks Brothers and GAP, they write.
US stocks fell overnight, with selling picking up late in the session, as investors cashed in some of the recent market gains, but the S&P 500 finished less than 1 per cent away from a record high set last week.
The Dow Jones fell 67.43 points or 0.4 per cent, to 16,351.25, the S&P 500 lost 9.54 points or 0.5 per cent, to 1867.63 and the Nasdaq Composite dropped 27.26 points or 0.63 percent, to 4,307.188.
Indexes had swung between gains and losses in the first half of the session, as the lack of major corporate earnings or market-affecting data kept trading directionless, but they closed near the day's lows, perhaps spooked by the late drop in the copper price.
"We just hit highs on Friday so people have a lot of profits here. They're just taking some money off the table," said Frank Lesh, futures analyst and broker at FuturePath Trading. The selling "is orderly, there is no rush for the exits," he said.
Federal prosecutors in New York are examining whether General Motors is criminally liable for failing to properly disclose problems in some vehicles that were linked to 13 deaths and led to a recall last month, according to a source familiar with the investigation. GM shares fell 5.1 per cent to $US35.18.
Vocus Communications has been granted a trading halt by the ASX pending an announcement of a capital raising via a placement to “sophisticated/professional investors”.
The stock will return to trading by Friday 14 at the latest.
Online comparisons business iSelect has announced the appointment of Alex Stevens as its new CEO.
Former CEO Matt McCann resigned from iSelect after disagreeing with the board on strategy.
Stevens most recently was MD of Fonterra Brands Australia, and before that CEO of PepsiCo Australia and New Zealand, the company said in a statement.
He will start March 31 and start a handover from interim CEO David Chalmers.
iSelect shareholders have lived through “interesting times” since the business listed in June: the company missed its revenue forecasts, its CEO resigned, it was investigated by ASIC and it suffered a first strike at its inaugural annual meeting.
Copper tumbled to the lowest levels in nearly four years overnight as investors and speculators intensified selling because of worries about Chinese demand and liquidation of inventories used for finance deals.
Three-month copper on the London Metal Exchange closed down 2.6 per cent at $US6475 a tonne after touching a low of $US6469.75, its weakest since July 2010.
Some traders cited news that a Chinese company, Baoding Tianwei Baobian Electric, had its bonds suspended from trading after losing 5.23 billion yuan ($US852 million), according to Xinhua news agency.
This caused further worries after last week's unprecedented domestic bond default by another Chinese firm, Shanghai Chaori, which implied that even high-yielding debt will no longer carry an implicit state guarantee.
More defaults on shadow-banking credit would strike at the heart of copper financing deals.
"More defaults will come, which is concerning to people who have been China bulls. And there's really no (copper) demand at the moment in China. The imports were so high at the start of the year so fabricators don't need to restock," said analyst Andrey Kryuchenkov at VTB Capital.
A US copper user said Chinese buyers have baulked at taking delivery of thousands of tonnes of copper scrap.
"We're hearing customers are cancelling orders in China. The Chinese are already attempting to sell scrap in the international market," he said.
Further downside in LME prices was expected after copper broke below support at $US6602 a tonne, the low of June last year.
"There is still room to fall. You have broken below that significant support, so the next support you could argue is $US6200," Kryuchenkov added.
Copper cops a drop.
The recent slide in iron ore prices was "inevitable", with a price above $US100 a tonne still too high, the head of China's biggest-listed steel maker Baoshan Iron & Steel (Baosteel) says.
China's steel sector, buyer of around two-thirds of global seaborne iron ore supplies, faces huge challenges this year, with demand weak and the government desperate to close outdated and polluting mills.
With many mills now unable to keep producing due to falling prices, mounting losses and credit restrictions, He Wenbo, chairman of Baosteel, said iron ore prices that have lost more than a fifth of their value this year had further to fall.
The strength of prices in the last few years had caused "injury" to the steel sector and to China, He of Baosteel said.
Iron ore for immediate delivery to China fell 8.3 per cent on Monday, the largest one-day percentage fall in 4-1/2 years, to $US104.70 a tonne, before stabilising at $US104.90 on Tuesday, according to data compiled by The Steel Index.
Big iron ore suppliers such as Rio Tinto, BHP Billiton and Vale have been counting on sustained increases in Chinese demand to justify their big capacity expansion plans. But He of Baosteel said China's steel output could stop growing by as early as 2018.
Baosteel is forecasting China's apparent steel consumption would rise 3 per cent to 750 million tonnes this year, but total production was actually getting close to its peak:
- We are predicting that demand is likely to continue rising until 2018 or 2020, but I think by that time it will be the peak for Chinese steel production and it won't rise any further.
- Over the next 10 years, from the continued increases, then stopping, then a probable fall in production, crude steel production will stay at around 700 or 800 million tonnes, which is still a huge amount.
Local shares are set to open lower, coming under pressure from mining stocks, including heavyweights BHP Billiton and Rio Tinto, sliding on worries about cooler Chinese demand for copper, coal and iron ore.
The copper slump led to a sharp sell-off in the Australian dollar, breaking below the 90 US cent level.
- SPI futures down 25 points at 5390
- AUD at 89.74 US cents, 92.4 Japanese yen, 64.8 euro cents and 54.04 pence
- On Wall St, S&P500 -0.5%, Dow Jones -0.4%, Nasdaq -0.6%
- BHP's US listed shares down 1.6%, Rio's down 0.8%
- In Europe, Euro Stoxx 50 flat, FTSE100 -0.1, CAC -0.5%, DAX +0.5%
- Spot gold up 0.6% to $US1348.15 an ounce
- Brent oil up 0.3% to $US108.42 per barrel
- Iron ore up 0.2% to $104.90 per metric tonne.
- Copper slides 2.6 per cent
More in this morning's need2know