Business

Markets Live: Iron-wrought rally

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.

need2know

Australian shares pushed ahead on Monday as a closely watched monthly survey indicated growth in Chinese factory activity is increasing for the first time in six months.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each added 0.6 per cent on Monday to 5453.3 points and 5432.7 points, respectively.

Local shares took a positive lead from offshore after Wall Street closed at record highs again and the spot price for iron ore, delivered in China, lifted 1.5 per cent to $US92.10 a tonne after the local market closed on Friday.

Shares are on track to end the financial year up more than 14 per cent next Monday.

"But top line revenue growth looks set to remain anaemic in 2015, meaning it will continue to be difficult for companies to achieve sustainable earnings per share growth in the next 12 months," Australian Ethical Investment chief investment officer David Macri warned.

In Monday's trade, Australian equities were further boosted by the release of the flash reading of the HSBC/Markit Purchasing Managers' Index for June, which rose more than expected from 49.4 in May to 50.8.

It is the first time this year the index has been above 50 - the level that indicates growth is speeding up - and the highest reading in seven months.

Mining was the best-performing sector, up 1.4 per cent, amid the better demand growth outlook from China. When the ASX closed, iron ore futures trading in China was tipping a more than 2 per cent jump in the spot price.

The biggest iron ore exporter Rio Tinto gained 2.6 per cent to $60, while resources giant BHP Billiton rose 1.4 per cent to $36.45. Fortescue Metals Group, Australia's third biggest iron ore producer, jumped 4 per cent to $4.39, despite New York research house Jefferies downgrading their recommendation from "buy" to "hold".

Read more.

analysis

Arrium leads a pack of iron ore miners who have recorded strong share price gains today in a bullish day for the bulk commodity.

Retirement village developer Aveo Group performed strongly as well.

Wotif.com was the worst performer.

Best and worst performing stocks in the ASX 200 today.
Best and worst performing stocks in the ASX 200 today. 
cars

Construction and development giant Leighton Holdings will be reimbursed up to $12 million for its failed bid to build the East West Link freeway under Melbourne's inner north.

The Napthine government has announced that Leighton had been dumped from the tendering process, with the bids to build the road reduced from three to two.

The surprise ejection of Leighton and its construction company John Holland leaves two consortia: one led by Lend Lease and another by Spanish infrastructure group Cintra.

Leighton's departure from the project comes ahead of Planning Minister Matthew Guy next week announcing his response to the planning hearings held in April to assess the road.

The new freeway will link the Eastern Freeway in Clifton Hill to CityLink and the Tullamarine Freeway via a tolled tunnel.

Treasurer Michael O’Brien said the bidding process for the road would deliver the best value possible for Victorian taxpayers.

The government plans to sign a contract with either the Lend Lease or Cintra consortium in October, just weeks before November's state election.

Read more.

market close

Shares have enjoyed a strong bounce from Friday's losses after investors cheered gains in the iron ore price and better than expected Chinese manufacturing data.

The ASX 200 and All Ords each rose 0.6 per cent to 5453.3 and 5432.7, respectively.

Mining stocks led the way, jumping 1.6 per cent as futures trading in China suggested another gain in the benchmark iron ore price tonight.

BHP was up 1.4 per cent, Rio 2.6 per cent and Fortescue 4 per cent.

The big banks pitched in as well, with Westpac and NAB the best with gains of 0.6 per cent, CBA was up 0.5 per cent but ANZ was flat.

Telstra, Woolies and Wesfarmers all rose.

Transurban was the biggest individual drag on the ASX 200, falling 0.7 per cent, while IAG and Oil Search fell similar amounts.

Gold miners were the only corner of the market to fall, down 0.1 per cent.

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politics
Federal Treasurer Joe Hockey has promised to 'name and shame' countries that fall behind economic growth targets.
Federal Treasurer Joe Hockey has promised to 'name and shame' countries that fall behind economic growth targets. Photo: Louise Kennerley

Australia has been accused of delaying global action on tax evasion by failing to sign an early information sharing agreement as part of its commitment to the G20.

The agreement, part of the OECD's new automatic exchange program, was endorsed by finance ministers at a G20 meeting in Sydney in February.

Australia is chair to the G20 and will lead discussions on tax evasion and profit shifting at meetings in Brisbane in November.

The exchange program will see tax authorities swap private information on bank accounts and other financial assets every year. It is seen as a key reform in the global crackdown on tax evasion.

Australia, which has traditionally taken a leading role in the fight against tax evasion, has yet to sign.

The Treasury is believed to be going slow on the issue in order to have more time to consult with business. It is understood to be concerned about the cost of compliance, especially for Australia's big banks.

A spokeswoman for the minister for finance, Senator Mathias Cormann, declined to comment.

Transparency International, which advocates for greater sharing of information between countries, said it was disappointing that Australia had not yet become a signatory to the program given its leadership role at the meetings.

''It was a bit disappointing that Australia will no longer be an early adopter,'' Maggie Murphy, a senior program coordinator said.

Read more.

shares down

Medical device manufacturer ResMed is 1.8 per cent lower today at $5.52 after its NYSE-listed shares dropped 3.1 per cent on Friday.

The catalyst appears to be a notice received by the US Securities Exchange Commission in which chief executive Michael Farrell informed the market he sold nearly 3 per cent of his shares last week.

asian markets

Mixed news from the region's bourses...

  • Japan's Nikkei +0.1%
  • Hong Kong's Hang Seng +0.3%
  • Shanghai Composite +0.1%
  • Taiwan's TAIEX -0.4%
  • Korea's KOSPI +0.6%
  • Jakarta Composite +0.1%
  • Kiwi NZX 50 -0.4%
banks

Westpac’s network of regional lenders should be drastically reduced with up to 60 branches closed so the bank can benefit from substantial cost savings and improve its overall efficiency.

That’s the verdict of JPMorgan’s analysts who are in the midst of a wide-ranging three-part study of Westpac.

In this second instalment, the investment bank argues the regional brands should be confined to their local markets, so St George would be unique to New South Wales, BankSA the dominant brand in South Australia and Bank of Melbourne, which is still pursuing a 100-branch target, limited to Victoria.

JPMorgan analysts Scott Manning, Bharat Anand and Vineet Ahuja, say the benefits of this strategy outweigh the costs.

They point to the high number of duplicate branches in the Westpac empire. According to their research, 23 per cent of the bank’s branches operate within close proximity of each other, and “nearly half of these duplicate sites are less than 200m from the closest alternative Westpac-branded branch”.

JPMorgan questions whether this sprawling branch network represents a “convenient allocation mechanism to currently defray centrally generated costs”.

But the analysts point out that every day “a branch is open that doesn’t need to be, it is effectively payment of a ‘call option premium’ in anticipation of better margin or growth outcomes for the group”.

Most of the reduction targets are focused on the St George Bank network with 33 branches recommended for closure in Queensland, eight in South Australia and 12 in the ACT.

JPMorgan calculates the expense savings from the rationalisation could top $450 million and the scale of these changes would force a “radical rethink of the central cost model”.

dollar

The Aussie dollar has stayed on its post-China PMI high at 94.41 US cents.

This year's peak was on April 10 at 94.61 US cents, so watch out for some additional "technical" buying around the currency if it goes above that mark.

At this point, it's hard not to see the dollar going up another leg when overseas traders take over this evening, especially with iron ore futures pointing to another big jump in the benchmark price tonight.

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forecast

Early predictions on the themes that will dominate the upcoming reporting season are trickling in from the brokers' research teams.

Citi strategists Tony Brennan and Vivian Jiang told clients this morning that any nervousness heading into reporting season was not surprising considering the budget, weak iron ore prices and downgrades from retail stocks.

But they reckon it has been a quiet confessions season, reflecting the improved business conditions. However, that may just mean the confessions are running later than usual this year.

“The past couple of months do seem to have been tougher, not just slower consumer spending in Australia but the further slide in iron ore prices and, a bit earlier, disappointing growth in the US and Europe at the start of the year, when the Australian dollar was also rebounding,” the strategists told clients.

“Consensus earnings have been getting trimmed but Citi analysts still see risk of disappointment for quite a few stocks, in areas that are recognised as tough like retailing, media, engineering, and metals and mining, and for some others operating offshore.” 

That risk is centred on outlook statement and predicted 2015 financial year earnings.

Citi reckons forecast earnings for the miners could take a hit, although banks may be come upgrades. Overall, the bank is calling forecast market earnings to drop “perhaps a few per cent”.

“For industrial companies, analysts have had fairly strong growth forecast in most sectors in financial year 2015, expecting the long-awaited earnings rebound, after the subdued conditions since the global financial crisis,” the strategists said.

“As the focus shifts to FY15 during reporting season, companies and analysts are likely to be bringing earnings forecasts down, given the current conditions. For the large mining companies, recent iron ore prices are likely to get factored into forecasts more post the production quarterlies, when analysts do their commodity forecast updates.” 

 

The iron ore price will weigh on earnings outlooks for next financial year, reckons Citi.
The iron ore price will weigh on earnings outlooks for next financial year, reckons Citi. 
legal
Doubts confirmed: The ACCC has found 'Victoria Honey' breached labelling laws on account of not being 100% honey.
Doubts confirmed: The ACCC has found 'Victoria Honey' breached labelling laws on account of not being 100% honey. Photo: Daniel Sprague

The consumer watchdog has acted on a company selling what it claimed was honey but which in fact "was mainly comprised of sugars from plants including corn and sugar cane".

The ACCC has stung (sorry) Basfoods with a fine of $30,600 for misrepresenting its "Victoria Honey" product as being, well, honey.

The story was flagged by Fairfax Media earlier this month.

"Basfoods has provided an enforceable undertaking to the ACCC in which it has admitted that its conduct contravened the ACL," the ACCC said in a statement.

"Basfoods has undertaken to only sell product as honey if it is entirely produced by honey bees, and to regularly test its products, including honey."

Basfoods will also publish a range of corrective notices, the regulator said.

"Victoria Honey" is one of four products identified by the Australian Honey Bee Industry Council as potentially breaching labelling laws amid claims it isn’t made from honey.

iron

After the spectacular failure of the $US6.5b funding deal to finance the stalled Oakajee port and rail project in WA, the iron ore hopeful Padbury Mining is back with an ASX announcement where it claims "investment interests in Padbury have emanated from China, the Middle East and Korea".

"It is proposed to progress those discussions in China and Korea by way of meetings to be undertaken later this month/early July," the company said, adding that it "remains committed to the development of the Oakajee Port and Rail Project".

Somewhat surprisingly, some investors are ready to take a chance on the shares, adding 0.05 of a cent - or 16.7 per cent - to 0.35 cents.

After a previously announced deal collapsed (along with the share price), iron ore junior Padbury reckons it has lots of ...
After a previously announced deal collapsed (along with the share price), iron ore junior Padbury reckons it has lots of interest in its Oakajee port and rail project in WA. 
earnings

Gas utility Envestra has confirmed year to June earnings will come in at ‘‘around $150 million’’ which is at the top end of its forecast range, with unseasonably warm weather through the start of winter capping the upside.

That compared with earlier guidance of a net profit of $145-150 million for the year, it said.

The updated figure is before taking into account any abnormal factors, including the impact of any unseasonal weather on gas volumes sold in the final weeks of the financial year.

Envestra has been the subject of competing takeover bids, first from pipeline owner and operator APA Holdings and, more recently, from Chinese investor Cheung Kong group, which is already a shareholder in the company.

Envestra is in dispute with Cheung Kong Industries over the payment of the 3.5c a share final dividend.

Envestra has brought forward the date for paying the dividend until July, rather than the usual payment during August, which could fall outside the Cheung Kong bid period, so that it would not be paid.

Cheung Kong is offering $1.32 a share, which the Envestra independent directors have decided to back.

Envestra shares are down 0.2 per cent to $1.36.

analysis

A quick peek at the best and worst among the top 200 so far today shows iron ore miners are enjoying some healthy share price gains.

The iron ore price jumped 1.5 per cent to $US92.10/tonne at the end of last week, and futures trading in China suggests another big move up tonight when the benchmark price is up.

Best and worst so far today: Iron ore miners are on a tear as the commodity's price looks set to gain again.
Best and worst so far today: Iron ore miners are on a tear as the commodity's price looks set to gain again. 
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Telco

Fresh from news over the weekend that Google has bought security monitoring group Dropcam (thereby cementing its image as the ultimate "Big Brother" in the eyes of many), now this...

Telstra is understood to have spent between $40 million and $60 million to buy into SNP Security's back-to-base alarm and security camera business.

The deal will see Telstra and SNP, which is Australia's third-largest security company, form a new subsidiary called TelstraSNP Monitoring that will provide customers with monitored security.

Telstra said it was also investigating the possibility of giving customers the ability to watch their pets at home via video cameras.

SNP's existing tens of thousands of monitored security customers, who purchase CCTV monitoring and alarm systems from the company, will be moved to the new joint venture.

Telstra will own slightly more than 50 per cent of the TelstraSNP Monitoring but its day-to-day operations will largely be managed by SNP staff, Telstra business group managing director Will Irving said.

"The market for back-to-base alarms in Australia is potentially very large because a lot of business use them but only to a smaller degree than we think is possible," he said. "There's phenomenal growth in video technology and the ability to do analytics on video plus a whole range of other monitoring and telemetry.

"I will be the chair of the new entity and Tom Roche SNP Security's managing director will be the initial MD of the joint venture ... It's not a precise 50-50 joint venture."

Telstra customers will now be offered bundled alarm products as part of their existing phone and internet services.

Read more.

Telstra's partnership with SNP gives it access to SNP's security monitoring network.
Telstra's partnership with SNP gives it access to SNP's security monitoring network. Photo: Andrew Meares
retail
Retailers beware: Households will struggle to up their spending this year if real wages continue to fall. Source: ...
Retailers beware: Households will struggle to up their spending this year if real wages continue to fall. Source: BoA/Merrill Lynch 

Households are expected to come under further pressure this year, slashing spending as the unemployment rate rises and the federal budget eats into disposable incomes, a prominent economist says.

The forecast belt tightening comes after a sharp dive in consumer confidence following the release of the Abbott government's first budget in May.

And Bank of America Merrill Lynch chief economist Saul Eslake said "don't expect a consumer revival soon''.

Retailers have already began to feel the pressure, with a dozen announcing profits and sales downgrades in the past month after retail spending plummeted to a 10-month low.

''It is difficult to envisage a scenario in which consumer spending growth would recover strongly to an above average growth rate,'' Mr Eslake said.

''The federal budget has taken away from household incomes and sapped sentiment and this has exacerbated an already challenging environment.''

Mr Eslake said he expected consumer spending to slow to be ''significantly below average'' this year with ''only a modest improvement in 2015.

Adding to frugality, the recovery in the housing market had delivered an acceleration in credit growth, catapulting the household debt to income ration to 149 per cent.

The high debt levels made households more vulnerable and exposed to higher interest payments when rates ''do eventually, and inevitably, move higher'', he said.

''In an environment of elevated household leverage, a preference for debt management and savings will ... persist with consumers remaining prudent.''

The preference to save follows a cut in real wages, with wage growth slipping below the cost of goods and services in the 12 months to May.

Read more.

world news

Central banks are planning to cut their exposure to longer-term debt to protect themselves from losses when the Federal Reserve ends its bond-buying this autumn, increasing the risk of instability in global markets.

The majority of respondents in a survey of reserve managers who control assets worth $US6.7tn, or more than half of central banks’ total reserves, said they were likely to adjust their portfolios in preparation of tighter monetary policy.

As the UK and US embark down the path back to more normal interest rates, big changes in asset holdings by other central banks around the world would heighten the risks of market disruption.

The survey of 69 central bank reserve managers, polled in May by Central Banking Publications and HSBC, suggested many have already started to move into riskier assets, such as equities. That trend looks set to continue, with just under half of those polled saying they could envisage buying shares or exchange traded funds. Others said they would cut the duration of their bond portfolios.

As the global economy shows some signs of returning to health, the Fed and other advanced economy central banks, such as the Bank of England, have started to consider tightening monetary policy. The prospect of higher interest rates have raised fears that a 30-year bond market rally is drawing to a close and that prices will fall in the years ahead.

Read more at the FT.

ross-gittins

Are economists ethical? asks BusinessDay columnist Ross Gittins.

Short answer: no more than most. Long answer: well, it's not something they think about much.

The question of ethics is starting to raise its head among economists, both overseas and in Australia, particularly in NSW. It's an issue the Sydney branch of the Economic Society is likely to start debating in the next few months.

The issue is arising as more economists find ways to sell their services to big business for big bucks. Business is attracted by the status, expertise and authority economists bring, and is willing to pay for it.

Various aspects of conventional economics make economists susceptible to such transactions. Almost all economists believe in the market system and believe that the bigger the economy grows the better off we are. So they have an inbuilt sympathy with business and its objectives.

They believe self-interest is a good thing because it's what motivates a market economy. It should never be a bad thing because it's held in check by countervailing market forces.

And there's a belief among economists that their discipline is ''positive'' rather than ''normative''. It's a ''value-free'' description of how the economy actually works, not a statement of opinion about how it should work.

It's because of this belief that, for example, many economists take no account of the implications of their recommendations for the way income is distributed between rich and poor. That's a ''value'' question they aren't qualified to comment on and so leave to others, such as politicians.

Read more.

Illustration: Michael Mucci.
Illustration: Michael Mucci. 
dollar

Currency traders have reacted to the robust Chinese flash PMI figures by bidding up the local dollar.

As a reminder, a PMI reading of above 50 means that growth in manufacturing activity is quickening, and vice versa.

The Aussie has jumped against the US dollar off the back of strong Chinese manufacturing data.
The Aussie has jumped against the US dollar off the back of strong Chinese manufacturing data. 
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