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.
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".
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.
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.
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.
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.
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.
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%
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”.
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.
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.
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.
"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.
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 interest in its Oakajee port and rail project in WA.
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.
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.
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.
Telstra's partnership with SNP gives it access to SNP's security monitoring network. Photo: Andrew Meares
Retailers beware: Households will struggle to up their spending this year if real wages continue to fall.
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.
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.
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.
Illustration: Michael Mucci.
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.
An early indicator of Chinese factory activity for the month of June has landed and it's stronger than expected, at 50.8.
The HSBC Flash PMI came rose to 50.8 from 49.4 in May, well ahead of consensus forecasts of 49.7.
The Aussie dollar, which traded up towards 94 US cents leading into the release, jumped through that level to 94.15 US cents.
Hoyts Group’s stand-alone video-on-demand service has been shelved with the company now due to hold talks with other media groups about collaborating on a streaming product ahead of a $700 million initial public offering.
The mooted video-on-demand service, which would allow consumers to stream films and programs online, had been in the pipeline for nearly two years and was originally flagged to launch in 2013, before being delayed until this year.
But high content costs have led to Hoyts Stream being suspended indefinitely.
It is believed Hoyts is unlikely to push ahead with the project on its own, with management due to meet with other media companies this week about a potential tie-up.
The Australian Financial Review reported that Hoyts had held preliminary talks with free-to-air broadcaster Seven West Media earlier this year.
Australia’s largest private equity firm Pacific Equity Partners owns Hoyts, which operates 43 cinemas across Australia and New Zealand as well as the Hoyts Kiosk DVD distribution chain and cinema advertising business Val Morgan.
Damian Keogh was promoted to chief executive of Hoyts in February after a successful tenure at the helm of Val Morgan and will the lead the company into the IPO, which is likely to take place around November.
The streaming product had been considered a key part of the sale proposition for Hoyts because video-on-demand is a potential growth area with a lack of dominant players in the local market.
Nine Entertainment Co had outlined plans to launch a streaming service to help spruik the company to investors ahead of a $2 billion float in 2013.
Hopes of a recovery in the iron ore price could be dashed by reports that a financing scandal has put the brakes on imports of iron ore and copper at key Chinese ports.
Just days after iron ore minnow Termite Resources shuttered its Cairn Hill iron ore mine in South Australia, reports in the Wall Street Journal suggest that banks are examining allegations that a Chinese trading company pledged metal as collateral to more than one lender.
Chinese traders have long used commodities such as iron ore and copper as collateral to borrow from overseas, thus avoiding both China's capital controls and its higher interest rates.
It is estimated that as much as 40 per cent of the iron ore sitting at Chinese ports is being used as collateral, and Goldman Sachs estimates $US100 billion ($106.5 billion) has been borrowed in this way since 2010.
While Chinese banks have been clamping down on the practice of borrowing using commodities for some months – this is one reason the iron ore spot price has fallen more than 30 per cent since the start of the year – the fraud allegations present a new issue.
There are reports a Chinese trading company has pledged iron ore as collateral to multiple counterparties. Photo: REUTERS
The federal Treasury has entered the debate over cigarette sales, publishing previously secret information that shows sales falling since the introduction of graphic health warnings and plain packaging.
The Treasury collects data on sales per stick in order to levy tobacco excise, but has until now withheld it from publication to protect commercially sensitive information.
Added to the Health Department's website quietly last week amid debate over the effectiveness of plain packaging, the Treasury data shows 3.4 per cent fewer cigarettes were sold last year than 2012. Plain packaging became mandatory on December 1, 2012.
The Treasury data is consistent with national accounts data that shows a decline of 0.9 per cent in the amount of tobacco and cigarettes sold between 2012 and last year. The national accounts show a further fall of 7.6 per cent in the three months to March after the first of a number of big increases in tobacco excise announced late last year.
The Bureau of Statistics bases the national accounts measure on a survey of households, whereas the Treasury collects information on every stick and pouch of tobacco sold.
The Treasury data suggests that, adjusted for population growth of 1.7 per cent, the number of sticks sold per person slid about 5 per cent between 2012 and last year.
The ABS data has consumption of tobacco the lowest ever recorded. Both measures conflict with industry claims that tobacco sales climbed by 59 million sticks or roll-your-own equivalents last year.
The claimed 0.3 per cent increase is said to be sourced from data analysis firm InfoView, although the data behind it has not been released.
Australian Council on Smoking and Health president Mike Daube said the Treasury data was clearly more reliable than unpublished industry figures.
Plain packaging: Newly released data shows cigarette sales have fallen. Photo: Angela Wylie
Echo Entertainment has signed a deal with two Hong Kong groups to help it develop its proposed casino and hotel project at the Queens’s Wharf site in Brisbane.
The shares are up 3.7 per cent to $3.20 on the news.
Echo told the ASX that it has signed a binding memorandum of understanding with Chow Tai Fook Enterprises and Far East Consortium that will see echo contribute 50 per cent of the capital to the development of the project under a long-dated gaming operator agreement.
CTF and FEC would then contribute 25 per cent each, and will also jointly take on the residential and “related” component of the broader Queen’s Street Wharf project.
It is expected the development will have a $1 billion project cost. Echo’s great rival, James Packer’s Crown Resorts, has also been shortlisted by the Queensland government as a bidder for the project.
Echo already operates casinos in Brisbane and on the Gold Coast, but it is limited in how if can redevelop its Brisbane property, which is housed in a heritage-listed building.
“Echo is delighted to work in partnership with two significant Asian-based partners and the government to develop and submit and proposal for the Queen’s Street Wharf site, which will deliver major investment in tourism infrastructure including a world class integrated resort to Brisbane,” Echo chief executive Matt Bekeir said in a statement.
The deal would appear to reduce the number of rivals Echo faced in the race to win the Queen’s Street Wharf by one, as CFT and FEC had been shortlisted as a bidder for the project by the Queensland government in late May.
The boss of supermarket giant Wesfarmers has backed fresh calls for bigger cuts to made to the corporate tax rate, amid concerns that living standards and jobs could be at risk if Australia continues to fall behind Asia and the developed world in attracting big business.
The corporate tax rate, at 30 per cent, has not been changed in 14 years and is now higher that the 24 per cent average of members of the Organisation for Economic Co-operation and Development (OECD).
Richard Goyder, chief executive of Wesfarmers, which owns Coles and chair of the B20 advisory group, said Australia risks putting its business and economic credentials at risk by not being more competitive on tax.
"If Australia's tax rate is uncompetitive and it's increasingly uncompetitive, then capital will flow to other markets and we won't get the investment in productive assets that will improve economic growth and the creation of jobs and wealth creation in Australia," he told the Nine Network's Financial Review Sunday program.
He added that while the majority of Wesfarmers' business was Australian based, the company would need to look offshore if it's to continue to grow.
"The jurisdictions off shore that will be attractive to us will be ones where there's economic growth and an attractive investment criteria around tax rates," said Mr Goyder.
Former Coles boss Ian McLeod, who will soon take up a new strategic role at Wesfamers, has previously indicated that expanding offshore was an option for the company.
Shares have started the week on a bright note, with the big banks and miners pushing up the main indices 0.4 per cent in early trade.
The ASX 200 is 23 points higher at 5442.2, while the All Ords is 21 points up at 5422.7.
All sectors aside from the gold miners have recorded gains.
BHP is 0.6 per cent higher and Rio 1.3 per cent. Fortescue has added 2 per cent after iron ore jumped on Friday night.
The banks are all up by between 0.2 per cent (ANZ) and 0.5 per cent (NAB and CBA).
Metcash is up 2.9 per cent to $2.85 after recording a drop in full-year profits that was not as bad as analysts had expected.
Ten has gained 7.1 per cent to 26.25 cents on reports that private equity is eyeing off the embattled broadcaster (see below).
Resmed is the biggest drag on the market, down 2.5 per cent early.
May data confirmed that China's economy is beginning to accelerate this quarter after a sluggish first three months, writes JP Morgan’s Stephen Walters, ahead of an early indicator of factory activity out late this morning.
Industrial production growth picked up, supported by improving exports, retail sales, and the government's pro-growth measures that have lifted infrastructure investment. By contrast, overcapacity and property market adjustments remain weak links.
As a result, manufacturing investment slowed in May to the weakest pace since November 2006, real estate investment decelerated back to its weakest pace since August 2012, and house prices reported the first sequential decline in two years. Whether the sources of lift are sufficient to offset these intensifying drags remains the biggest uncertainty faced by the Chinese economy.
This week's June flash PMI is expected to improve just modestly but remain below 50, tracking our forecast for a still-soft 6.8% annualized real GDP gain this quarter. Despite these modest disappointments on growth, policy is likely to stay status quo: no substantial easing but instead a reliance on targeted and fine-tuned pro-growth measures.
ACCC chief Rod Sims. Photo: Michael Clayton-Jones Photo: Michael Clayton-Jones
The head of the consumer watchdog has warned that competition policy needs to be reinvigorated, with governments increasingly failing to make competition central to the privatisation of public assets.
As a result, the federal government needs to ensure the present review of competition policy, the so-called Harper review, is used to both strengthen competition policy as well as to help reinvigorate so-called ''micro-economic reform'', ongoing changes to government policy to revitalise the economy.
''Australia has lost a lot of its pro-competition culture that it gained from the 1990s National Competition Policy. Clearly we need 'Hilmer Mark II', as the current Harper review is styled,'' Australian Competition and Consumer Commission chairman Rod Sims will say at Monday's State of the Nation Conference organised by CEDA.
Effective competition policy depends on using competition and other incentives to boost productivity, effective competition laws and creating processes and institutions that continually foster competition. In particular, the present approach to the privatisation of public assets raises particular concern, Mr Sims will say.
''Where governments are increasingly failing is in how to privatise,'' Mr Sims will tell the conference.
Australia is forecast to be among the three fastest-growing economies in the developed world this year, making it harder for the central bank to convince currency investors it isn’t about to raise interest rates.
The RBA must differentiate itself from its counterparts in New Zealand and the UK, which have signalled their economies may need higher borrowing costs, according to Westpac.
Australia’s record-low benchmark rate hasn’t stopped foreign-exchange markets driving its dollar up 1.8 per cent in the past month, the best performing Group-of-10 currency ahead of the kiwi and the pound.
Gross domestic product will expand 3.1 percent in 2014, according to economists surveyed by Bloomberg News from June 12 to June 17, up from a previous forecast for 2.8 percent. New Zealand is predicted to grow 3.2 percent and the U.K. 3 percent.
“There’s a huge amount of investment that’s going to fall away in the second half of this year, something that the UK and New Zealand don’t really share with Australia,” said Michael Turner, a debt and currency strategist at Royal Bank of Canada. “If they want to be credible on any kind of jawboning on the currency, they’re going to have to shift back toward an easing bias,” he said, referring to the RBA.
“What we saw in the minutes was the beginning of a debate within the RBA to talk to the uncertainties -- which is their word -- of how much low rates were working to support domestic demand,” Westpac’s Rennie said. “We are going to see further concerns of that expressed in the July 1 policy statement.”
Ten Network Holdings has attracted the interest of private equity firms that are weighing offers for the troubled free-to-air network amid potential changes to key programming contracts and media ownership laws.
It is believed United States media investor Providence Equity Partners has begun running the numbers on a potential bid for Ten's equity and debt in a move likely to be encouraged by the company's board and management.
Sources close to the process said the company behind MasterChef Australia and Offspring had retained long-term adviser Citi as well as legal firm Gilbert + Tobin to provide the commercial network with strategic advice.
Providence executives visited Australia earlier this month to meet media companies including Ten, which reported a profit downgrade on Wednesday.
The sources said Ten directors believed the embattled company would stand a better chance of surviving if it was "taken private". Ten's weak ratings and revenue over the past four years have left it open to an opportunistic bid by parties who believe there is still value in the third commercial free-to-air licence.
While contact between Providence and Ten was described as "preliminary", the sources said there "was a lot of work going on behind the scenes with a number of parties to try to make something happen at Ten".
Key catalysts for a formal bid include changes to the media ownership laws that would make it easier for Ten to merge with a regional affiliate or rival company, as well as new program supply deals.
Cost cutting: It is understood Ten executives, led by executive chairman Hamish McLennan, are attempting to renegotiate expensive supply deals with US studios CBS and Fox. Photo: Peter Braig
Metcash’s net profit fell 17.9 per cent to $169.2 million as the food, liquor and hardware wholesaler embarked on a five-year transformation plan aimed at reversing a drop in grocery earnings and securing the long-term future of independent retailers.
Underlying group net profit fell 10.9 per cent to $250.1 million in the 12 months ending April and underlying earnings per share fell 13.2 per cent to 28.3¢, in line with the company’s 13 to 15 per cent guidance in March.
Group earnings before interest tax and amortisation fell 11.7 per cent. While earnings from liquor distribution, the Mitre 10 hardware business and automotive rose, earnings from the core food and grocery distribution business fell 19.5 per cent as it struggled to maintain sales and margins were squeezed by higher costs.
The bottom line result included one-off costs of $54.0 million and a $10.5 million charge for discontinued Franklins stores.
Metcash cut its full-year dividend by 33.9 per cent to 18.5¢ a share, in line with a strategy to preserve cash to reinvest in price reductions, stores and supply chain restructuring. Its final dividend was cut from 16.5¢ to 9¢.
The Australian dollar has drifted lower after jumping as high as 94.32 US cents early over the weekend as investors await the release of key Chinese economic data.
The local currency was trading at 93.77 US cents, down from 94.06 cents on Friday.
The Australian dollar rallied well above 94 US cents last week following the US central bank's downbeat view of the world's largest economy.
But the currency was unable to maintain its highs and drifted lower, Bank of New Zealand strategist Kymberly Martin said.
"On Friday night, we tried to push above 94 US cents and there was resistance so we've dropped back to where we are today," Ms Martin said.
All eyes would now be on HSBC's Chinese June manufacturing figures, to be released 11:45 this morning, she said.
"The market consensus is for a marginal improvement from 49.4 in May to 49.8 in June, so anything at that level or above would probably be quite positive for the Australian dollar," she said.
"Any weakness would probably have a negative impact on the currency."
Analysts expect Metcash today to report a 14 per cent fall in underlying earnings per share to 28¢ and underlying net profit to $231 million, in line with the company’s 13 per cent to 15 per cent guidance in March.
While earnings from liquor distribution, the Mitre 10 hardware business and automotive are expected to rise, earnings from the core food and grocery distribution business are expected to fall about 21 per cent as the division struggles to maintain sales.
JPMorgan expects food and grocery margins to fall 91 basis points to just 3.23 per cent – less than half those at Woolworths – because of operating deleverage, higher operating costs and gross margin compression from reducing inventories.
Metcash is investing about $40 million in reducing grocery prices by about 3 per cent to make the IGA network more price competitive with the major chains.
Metcash is hoping that lower prices will drive higher volumes and help independents regain market share.
Analysts say this move is a step in the right direction.
However, Deutsche Bank has estimated that every 1 per cent reduction in price would reduce Metcash’s food and grocery earnings by about $122 million.
Five-year plan: The food, liquor and hardware wholesaler embarked on a transformation aimed at reversing a drop in grocery earnings and securing the long-term future of independent retailers.
Local shares appear set to open slightly higher after Wall St ended the week higher and iron ore jumped, ahead of key China manufacturing data out late this morning.
Here’s what you need2know:
- SPI futures up 10 points to 5390
- AUD at 93.77 US cents, 95.75 Japanese yen, 68.97 Euro cents and 55.08 British pence
- On Wall St, S&P 500 +0.2%, Dow +0.2%, Nasdaq +0.2%
- In Europe, Euro Stoxx 50 -0.4%, FTSE +0.3%, CAC -0.5%, DAX -0.2%
- Iron ore adds 1.5% to $US92.10 per metric tonne
- LME copper 3-month up 1.4% to $US6820 a tonne
- Spot gold down 0.4% to $US1314.85 an ounce
- Brent oil slips 0.2% to $US114.81 per barrel
What's on today:
- China: HSBC Flash manufacturing data at 11:45am
- US: Existing home sales at midnight
Stocks to watch:
- Private equity firm considering potential bid for Ten Network: AFR
- Former Xstrata CEO bid for BHP's nickel assets rejected: reports
- Leighton is targeting a quick sale of its John Holland unit: AFR
- LNG Corp: PetroChina and the company held talks over Fisherman's Landing project: AFR
- Metcash reports FY earnings
- M2 Telco may buy Infratil's Lumo for $300m: AFR
- Indian state-run group said to consider bid for Rio's Benga project