Australian shares end sharply lower, with miners leading the way down as commodity prices continue to sink.
- Surprise slide in buildings approvals
- Mining investment boom rolls on
- Perpetual profit halves on revamp costs
- Dollar dips as investors await Bernanke
5.23pm: That's it on this sad day for Fairfax...
Here's the evening wrap of today's session.
4.58pm: Britain's Barclays has named retail boss Antony Jenkins as its new chief executive, handing an insider the task of helping to repair the damage caused by a rate-rigging scandal.
Softly spoken Jenkins, brought in six years ago to turn around the British bank's credit card business, replaces Bob Diamond, who built up Barclays's thriving investment bank but resigned as chief executive in July after the bank admitted manipulating the Libor benchmark interest rate.
4.40pm: And here's how the blue chips fared:
- BHP: -2.3%
- Rio: -3.8%
- ANZ: -0.5%
- CBA: -0.6%
- NAB : +0.1%
- Westpac: -0.4%
- Fortescue: -1.6%
- Wesfarmers: -0.6%
- Woolies: -0.1%
- Telstra: +0.8%
4.35pm: Some of the major losers today include:
- Boart Longyear: -37%
- Ausdrill: -11.2%
- Arrium: -9.4%
- MIrabela Nickel: -8.3%
4.15pm: Losses were led by the materials sector, which slumped 2.8 per cent, and gold stocks, which plunged 4.3 per cent. Industrials lost 2.1 per cent, energy ended down 1.7 per cent, while financials held up well, slipping just 0.2 per cent.
The mining boom is not over.
Defensive sectors healthcare and telcos bucked the trend, rising 1.3 and 0.7 per cent respectively.
4.14pm: The market has closed. The benchmark S&P/ASX200 index lost 40.7 points, or 0.9 per cent, to 4315.7, while the broader All Ordinaries index fell 41.3 points, or 0.9 per cent, to 4340.2.
3.56pm: The iron ore price has captured the attention of the market and commodity traders around the world, says CMC Markets trader Ben Taylor:
- The falling iron ore price translates into falling terms of trade and therefore increasing the chances for further rate cuts by the RBA. Our dollar is taking its cue from the commodities spectrum as well as Australian bonds as they paint a weakening local picture.
- Comments by China’s largest listed steel maker that iron ore supply may rise while demand drops has fuelled the fire and has placed huge pressure on the likes of RIO, FMG and AGO.
- News that Twiggy Forest bought shares in FMG yesterday and rumours that he bought more today gave some relief to the stock under siege. With further downside forecast by many in the Iron Ore space we are however seeing clients interest in shorting the stock increase.
3.41pm: Lufthansa cabin crew members will strike beginning on Friday, German trade union UFO says, potentially disrupting hundreds of flights.
Germany's biggest airline will be given a six-hour notice period on strike targets and the timing of when the walkouts will begin, Ufo says on its website. The union says it hasn't decided yet on the exact locations and timing for the strikes. The dispute with Lufthansa could continue for a very long time, Ufo says.
3.35pm: Sellers of imported iron ore cargoes in China slashed price offers further today as benchmark rates fell to their lowest in nearly three years, extending a slump from early July caused by waning Chinese steel demand.
Since last month, iron ore prices have dropped by a third, or more than $US45 per tonne, as Chinese steel producers shunned cargoes amid falling steel prices, reflecting the slowdown in the world's No. 2 economy.
"If the steel sector keeps suffering, the iron ore sector will not see any rebound," says Henry Liu, head of commodity research at Mirae Asset Securities.
The most active rebar contract for January delivery on the Shanghai Futures Exchange slipped 0.2 per cent to 3438 yuan a tonne by the midday break, stretching its losing streak to a 14th day running.
3.18pm: Seven Group chairman Kerry Stokes has denied reports that he recently looked at buying into Fairfax Media.
“We did?,” he said when asked today at a press conference announcing the opening of a new $160 million NSW headquarters and training institute in Tomago, north of Newcastle. "We're not looking at buying Fairfax and there's no prospect that we would. In regard to their position, they have articulated what they think is their strategy going forward and we watch it with great interest.”
On whether Seven Group would sell its 25 per cent stake in Consolidated Media Holdings to News Corp, Stokes said "we’re still waiting to see the offer”.
Seven Group Holdings would gain $498 million if it sells its stake in Consolidated Media Holdings to News at $3.30 per share in cash
3.02pm: With commodity prices falling and short-sellers circling, Fortescue Metals boss Nev Power has sought to allay concerns over the miner’s cashflow position, while insisting he expects to see a rebound in iron ore demand within months.
Speaking at an industry lunch in Sydney, Power said it was ‘‘disappointing’’ to see the iron ore price drop ‘‘as quickly and as far as it has’’ and that it had forced the company to assess its funding options.
‘‘Of course we are constantly looking at what [the falling iron ore price] means for our funding and what we need to do in response to that."
The Fortescue chief executive said he expected the sharp decline in iron ore prices to be followed by a swift rebound, within a couple of months, to $US120 a tonne.
But he said a lot would ride on the Chinese government stimulating its economy once it was satisfied it had brought inflation and its overheated property market under control.
‘‘If we don’t see those cashflows coming from our iron ore sales we will turn to non-debt options to bring in extra funds,’’ Power said. ‘‘We can take on more debt, but we don’t think its prudent to do much more of that at the moment ... where we are right now, we are at peak debt – albeit a lot of is undrawn.’’
2.57pm: As the discussion over the fate of Australia's mining boom goes on, the numbers that came in today are still impressive: led by the resources sector, planned business capital spending for 2012-13 rose to a record $181.5 billion, equal to no less than 13 per cent of the GDP.
And capex growth of 3.4 per cent in the second quarter topped forecasts.
"The mining boom is not over," says Stephen Walters, chief economist at JPMorgan. "We've had some commodity price weakness so the price side of the boom is weakening but the investment side still looks very solid."
Still, the upward revision to the investment pipeline was less than earlier revisions, pointing to a slowing in the red-hot pace of spending that prompted some caution from economists for the longer-term outlook.
"At the start of mining booms you get surprised by how strong capex plans are and in the end, you get surprised by how quickly they go down," says Matthew Johnson, interest rate strategist at UBS. "The risk is they keep dropping but it's too early to tell."
2.27pm: Crude oil prices are also lower as supply concerns ease after Hurricane Isaac left production facilities in the US Gulf of Mexico relatively unscathed, analysts say.
New York's main contract, light sweet crude for delivery in October, shed 42 cents to $US95.07 a barrel and Brent North Sea crude for October slid nine cents to $US112.45.
Supply concerns arising from damage to facilities in the US Gulf from Hurricane Isaac proved unfounded and depressed prices, says Sanjeev Gupta, who heads the Asia-Pacific oil and gas practice at Ernst and Young.
"Most of the production facilities were shut down in advance of the storm, but early reports indicated fairly limited supply disruptions, thus taking some of the pressure off prices," he tells AFP.
2.19pm: Asian markets are lower after Wall Street closed flat in response to a mixed bag of US economic data, with trade cautious ahead of a speech by Federal Reserve chief Ben Bernanke.
Tokyo has eased 0.70 per cent, Hong Kong has fallen 1.20 per cent, Shanghai has lost 0.16 per cent and Seoul is down 1.26 per cent.
2.09pm: Mining magnate Gina Rinehart should not employ foreign workers if she genuinely wants Australians to be richer, north Queensland MP Bob Katter says.
Ms Rinehart caused a stir with her regular column in the Australian Resources and Investment magazine, saying those who are jealous of the wealthy should start working harder and cut down on drinking, smoking and socialising.
Mr Katter saus Ms Rinehart would be more believable if she did not want to import foreign workers for coal mines in Queensland’s Galilee Basin.
‘‘So thank you for your advice Gina, but this demonstrates the most burning question before the Australian people today: Are we going to give the 200,000 jobs that are coming with the coal expansion in the Galilee Basin ... and in iron ore to foreign workers as Gina Rinehart wants?"
1.57pm: Kingsgate Consolidated expects to produce more than 200,000 ounces of gold this financial year, after a big jump in profit and record sales. The market, however, has given the miner a collective thumbs down.
Kingsgate reported a net profit of $75.2 million for the year ending June 30, up 255 per cent from $20.9 million on the previous corresponding 12 months.
The company, Australia’s second-biggest gold producer behind Newcrest Mining, said revenue increased 100.7 per cent to $357 million.
The gold miner's shares are down 26 cents, or 5.2 per cent, at $4.73.
1.49pm: Toll road owner Macquarie Atlas Roads says it may be able to declare a distribution in early 2013.
The group posted a loss for the first half of the 2012 calendar year, due partly to its share of losses from its co-owned toll roads overseas
.The net loss of $75.2 million for the six months to June 30 was an improvement from its $106.4 million loss in the prior corresponding period.
Toll road companies often book accounting losses in the early stages of the life of their assets.
1.37pm: Here's a tweet from IG Markets analyst Chris Weston citing JP Morgan:
JP Morgan - FMG would need to secure $2.3b in additional funding if spot iron ore prices, currencies hold for foreseeable future #ausbiz— Chris Weston (@ChrisWeston_IG)
1.27pm: The dollar, meanwhile, is lower at $US1.0325, down from $US1.0372 and CMC foreign exchange dealer Tim Waterer says there have been heavy falls in iron ore prices in the past 24 to 48 hours.
That weakness in iron ore prices has been affecting the Australian materials sector at the moment and the Australian dollar is, in turn, feeling the affects of that,'' Mr Waterer says.
''Iron ore (prices) fell another five per cent last night. That continued iron ore weakness is starting to take its toll on the Australian dollar and that's what's contributing to it being one of the underperformers in the currency market this week.''
1.15pm: The chief executive of Australia's biggest transport company, Toll Holdings, has told staff an incident in which senior executives simulated sexual intercourse with a donkey while wearing aprons depicting penises "marred the reputation" of the company.
Female Toll workers were offended by the incident, which occurred during a team-building meeting in early June, and say it reflects a culture of sexism, bullying and harassment within the male-dominated company, Ben Butler reports.
1.08pm: A gas explosion at a coal mine in China has killed 19 miners and trapped dozens more, state media reports.
The Xiaojiawan coal mine in Sichuan province’s coal-rich Panzhihua city was hit by an explosion on Wednesday evening with 152 miners inside, Central China Television (CCTV) says.
Rescuers recovered the bodies of 16 miners who died from carbon monoxide poisoning, the TV station says.
Three other miners died at a hospital after being pulled to the surface, and 28 miners remain trapped.
1pm: In further bad news for local miners, China’s biggest listed steelmaker says global demand for iron ore will not grow and could even drop in the second half of 2012 compared with the first six months, with supply also rising.
Global seaborne supply of iron ore would rise by more than 50 million tonnes in the second half from the first half, Zhang Dianbo, head of purchasing at Baosteel, has told an industry conference.
12.52pm: Burrell Stockbroking advisor Jamie Elgar says the flow-on effect generated by falling iron ore prices is putting pressure on the resource sector, while market movement in the next few days is likely to be determined by comment by the US Federal Reserve in Jackson Hole.
The dramatic fall in iron ore prices over the last week has kept not only the iron ore stocks weaker, but also other stocks in the sector as well. Although this can all change very quickly,’’ Mr Elgar says.
‘‘Today the larger resource stocks like BHP and Rio Tinto are down, and mid-tier resource stocks are getting hit badly as well the banking sector showing a little bit of weakness.
‘‘At the moment the market is fairly quiet as it waits to see what happens tomorrow and over the weekend.’’
12.40pm: One investor who is using the carnage among mining stocks to reinvest is Andrew 'Twiggy' Forrest, who snapped up 20 million shares in Fortescue yesterday and is rumoured to have bought another 4 million this morning.
Fortescue shares still down 2.8 per cent today, and 42 per cent since mid-March.
12.31pm: The bond market, meanwhile, is rallying and pricing in a cash rate of 2.5 per cent by mid-2013.
12.27pm: The building approvals figures show recent interest rate cuts haven't been enough to restore faith in the housing market, AMP chief economist Shane Oliver says:
- It would suggest interest rates are low enough to stabilise the sector but are not yet low enough to offset the weak confidence potential home buyers and home builders have.
The Reserve Bank cut the cash rate by half a per cent in May and a quarter of a per cent in June to its current level of 3.5 per cent. However, Oliver says weakness in the housing and construction sectors is unlikely to persuade the RBA to cut again.
- It will look at the whole economy and at this stage its still fairly comfortable with the rest of the economy.
12.07pm: And following that rather pessimistic tweet, one of the most popular stories on the website today is Peter Martin's write-up of boutique advisory firm Variant Perception's report on Australia - the unlucky country (which we mentioned in the blog yesterday): Warning: after boom it'll be Dutch and go. More than 220 comments on that one already.
12.03pm: Interesting tweet by the Wall Street Journal's James Glynn:
Mining now accounts for 50% of growth in the Australian economy, 70% of exports and has created 75% of the jobs...Is that going pfffffffft!
11.59am: A large majority (70%) of respondents to today's ASX poll said the market will close lower, but only about one-fifth predicted a loss of more than 1 per cent.
11.57am: The plunge in buildings approvals was driven by the volatile multi-unit sector, which declined 40.5 per cent in the month, JPMorgan economist Tom Kennedy says:
- The decline is large but it normalises the longer-term trend which has been soft but not disastrous.
- In the June data, we only had a small decline (in multi-units). So I think today's result was more a normalisation.
- If you look at today's data, all the weakness was concentrated in high density developments.
11.50am: Some sighs of relief over the capital expenditure data on the other hand:
Good result all round for CAPEX so far, building and equip up. No sign of broad based project withdrawal.
11.47am: Comments coming in on the weak building approvals:
"Clearly the residential construction side remains pretty soft to say the least,” says Commonwealth Bank chief economist Michael Blythe.
11.42am: On the positive side, the most recent estimate for mining investments this financial year is $119 billion, down just 0.2 per cent from the March quarter estimate, indicating that the investment boom is still continuing.
11.39am: That's the third weaker than expected housing reading this week, after new home sales (down 5.6% in July), construction (down 0.2% over the quarter, led by a 2.4% fall in residential construction) and now building approvals (down 17.3% in July).
11.38am: Stocks have also plumbed the day's lows on the weak economic data, down 1.1 per cent.
11.33am: Unsurprisingly, the dollar slipped on the weak building approvals number, hitting the day's low of $US1.0318, from $US1.0327 before the data.
11.31am: Today's main economic data is out: private capital expenditure rose 3.4 per cent in the second quarter, lower than the 6.1 per cent rise in Q1 but coming in higher than predictions of a 3 per cent rise.
Building approvals, on the other hand, slumped 17.3 per cent in July, month-on-month, and fell 10.6 per cent over the year. That's way worse then expected.
11.28pm: Meanwhile, the Aussie fell as low as $US1.0321 this morning, its lowest in five weeks. Against the euro it's fallen as low as 82.31 euro cents, its lowest in eight weeks.
11.26am: The reason for the bloodbath among the iron ore miners is the steep decline in the iron ore price, which fell another $US4 overnight to around $US90. That's a loss of about 10 per cent - just this week.
Here's a chart showing the recent dramatic drop in the iron ore price to its lowest since late 2009:
11.22am: And here's how some of those iron ore miners are doing today:
- Rio: -3.7%
- Fortescue: -3.3%
- Atlas Iron: -5.1%
- Mount Gibson: -4.7%
- Gindalbie Metals: -5.4%
- Arrium: -5.4%
10.59am: Rivkin Securities analyst Tim Radford said the plunge in iron ore prices was dragging down the market and could continue.
“Iron ore is getting hit pretty hard at the moment,” he said. Mr Radford said Fortescue was getting targeted by hedge funds short selling the miner’s stock.
“There could be further downside for iron ore companies in the short term, given the amount of pessimism that’s emerging in the iron ore sector with concerns over future demand from China. We could definitely see further downside there.
“The issue is China has increasing stockpiles and their supplies could be quite high for the next months to a year. We could see this dampening in the iron ore spot price for some time year which is very concerning for Fortescue metals in the short term.”
10.50am: The Boart Longyear outlook has not been missed by investors. Despite the company lifting first half net profit by 32 per cent, chief executive Craig Kipp said the mining industry was in a state of flux and pointed to a very uncertain period ahead. He said:
Global uncertainties like the European debt, decreasing growth in China, restrictive financing conditions, and the upcoming US elections are driving our mining customers to be more cautious with their capital and direct it to their higher quality assets.
10.44am: Global toll road owner Macquarie Atlas Roads has posted another first half loss due to falls in the value of its investments.
Macquarie Atlas Roads made a net loss of $75.2 million in the six months to June 30, an improvement from its $106.4 million loss in the previous corresponding period.
The company has interests in six toll roads in the United States, United Kingdom, Germany and France. Macquarie Atlas Roads was formed from the 2010 restructure of Macquarie Infrastructure Group into two separately-listed toll road firms.
10.39am: On the Fortescue share price, it's down about 6 per cent for the week so far. It traded as high as $4.57 three weeks ago and is down from $6.08 on 22 March.
By comparison, iron ore changed hands at $US145.20 on March 22 but hit $US90 in overnight trade.
10.34am: Big losses among the miners today. Fortescue is being hammered as the iron ore price shrinks:
- BHP is 2.17%% lower to $32.05
- Rio is 3.52% lower to $48.76
- Fortescue is 3.3% lower to $3.53
10.29am: Markets are now down 0.9 per cent for the day and it's the mining and resources sector leading the plunge:
- Materials: -2.38%
- Industrials: -2.25%
- Energy: -1.53%
- Utilities: -1.25%
- Info tech: -1.25%
10.23am: Alongside Boart Longyear, here are the other major sliders on the ASX200 in early trade:
- Imdex: -14.55%
- FKP Property Group: -12.43%
- Ausdrill: -8.02%
- ALS Ltd: -7.94%
- NRW Holdings:-7.75%
10.18am: Boart Longyear shares have plunged 32 per cent, or 75 cents, to $1.63 after warning that profit was weak in the second half. The shares traded at almost $22 just as the stockmarket peaked in late 2007.
10.17am: The benchmark S&P/ASX200 index is down 20.6 points, or 0.47 per cent, at 4335.8, while the broader All Ordinaries index is down 20.5 points, or 0.47 per cent, at 4361.
10.12am: Materials stocks are leading markets lower with an early loss of 1.7 per cent. Industrials are down 1.24 per cent and energy stocks are down 0.6%.
10.09am: Back to the iron ore price for a moment. It fell 4.75 per cent overnight, or $US4.50, to $90.30 per metric ton. That's the 10th straight day of losses, and the 18th day out of 19 that the price has slipped.
10.06am: Early take - shares are 0.3 per cent lower as markets open.
10.03am: The big miners are having a rough start to the day after the iron ore price fell to close to $US90 overnight. Fortescue is down 4.4 per cent early and BHP stocks are 1.5 per cent lower.
9.53am: Australian bond futures prices are higher amid speculation that another round of economic stimulus for the United States is looking more unlikely.
At 8.30am AEST the September 10-year bond futures contract was trading at 96.915 (implying a yield of 3.085 per cent), up from 96.895 (3.105 per cent). The September three-year bond futures contract was at 97.410 (2.590 per cent), up from 97.400 (2.600 per cent).
9.49am: The reason investors have been so coy this week is of course the US Fed meeting due to kick off in Jackson Hole, Wyoming, today (US time).
To help with their deliberations, policymakers got some fresh data on the health of the US economy overnight. GDP data showed the US economy fared slightly better than initially thought in the second quarter, but the pace of growth remained too slow to shut the door on further monetary easing from the Federal Reserve.
And the Fed's Beige Book delivered a similar message. It found the US economy continued to grow gradually in July and early August, but manufacturing activity was softening in many areas of the country,
9.44am: Two more earnings reports:
- Drilling major Boart Longyear has lifted its first half net profit by 32 per cent but has provided a negative outlook for the mining industry for the rest of the year.
- Regional broadcaster Prime Media Group says the television advertising market is currently showing few signs of growth after it posted a slender rise in full year net profit.
9.41am: Air New Zealand beat estimates as annual profit fell 12 per cent, and forecast pre-tax earnings to more than double in 2013.
Net profit fell to $NZ71 million ($55.48 million) in the 12 months ended June 30 from $NZ81 million a year earlier, the company said.
That beat the consensus analyst forecast of $NZ44.5 million. Stripping out the impact of unrealised movements in derivatives for its hedge exposures, earnings fell 16 per cent to $69m. Pretax profit gained 21 per cent to $NZ91 million.
9.39am: A major restructure and weak share market conditions have contributed to a 57 per cent profit fall for fund manager Perpetual.
Perpetual made a net profit of $26.7 million in the year to June 30, down from $62 million the previous year. The result included $16.2 million in costs of its restructure, which has resulted in job losses and asset sales.
Underlying net profit, which excludes items related to the restructure, was $67.6 million, down seven per cent from $72.9 million in the previous year.
9.35am: We'll start with earnings news. Global property developer Lend Lease has forecast higher earnings after unveiling a near two per cent rise in net profit for its 2012/13 financial year.
Lend Lease unveiled a net profit of $501.4 million for the year to June 30, up from $492.8 million in the previous year.
It said the result had been hit by property investment revaluations of $5.8 million. Excluding the effects of those revaluations, the group's operating profit rose 4.5 per cent to $507.2 million.
Chief executive Steve McCann said the group was well placed to deliver earnings growth in the 2013 financial year.
9.32am: Another night of hesitant trade offshore has given Australian shares weak leads. Broadly speaking, Wall Street was up fractionally while Euro stocks eased. The dollar is weaker too. For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key market links:
- SPI futures are 10 points lower at 4342
- The $A is lower at $US1.0353
- In the US, the S&P500 rose 0.08% to 1410.49
- In Europe, the FTSE fell 0.56% to 5743.53
- Gold fell $8.80 to $US1660.90 an ounce
- WTI crude oil fell $1.40 to $US94.93 a barrel
- Reuters/Jefferies CRB index rose 0.21% to 307.12
9.30am: Hi folks. Welcome to the Markets Live blog for Thursday.
This blog is not intended as investment advice
BusinessDay with agencies