That's all for today - thanks everyone for reading. We'll be back Monday at 9am.
Have a great weekend!
The Australian M&A cycle is on it way back up, developing more steam even than in the US as a share of market cap, Morgan Stanley notes:
- On the basis of historical cycles, the M&A cycle could have further to run. Announced transaction values stand at 9.5% of market cap, which compares with the 1995-2007 average of 14.2% (trailing 12 month basis).
- Debt markets are supportive and investor focus is gradually shifting from yield to growth (supporting acquirers), which should push boards from ‘paying out’ to ‘paying up’.
- We think further momentum in M&A activity will be an incremental driver of market multiple expansion. M&A activity underpins asset values and growth expectations, which remain undemanding, while acting as a bridge for capital from a relatively expensive credit market.
- As our East Coast Recovery plays out over the next 12 months, we expect further support for balance sheet utilisation.
The surprise winner of the day was Qantas, as the airline ends the capacity wars. Shares jumped 4.7 per cent to seven-month high of $1.33.
Here are the other biggest winners and losers among the top 200 shares:
Australian shares have closed the week with a whimper, edging higher to post a modest gain for the week, as Telstra rises and rises.
The benchmark S&P/ASX200 index today rose 12.9 points, or 0.2 per cent, to 5492.8, while the broader All Ords added 12.2 points, or 0.2 per cent, to 5470.3.
Among the sectors, financials gained 0.5 per cent, while materials slipped 0.3 per cent.
For the week, the ASX200 rose 0.25 per cent, its third straight week of gains.
UBS equity strategist David Cassidy has taken a look at stocks that are expected to deliver decent earnings and has come up with a list that show some are vulnerable when compared to what they delivered in 2014.
The list he comes up with includes Sims Metal Management, Iluka Resources, Qantas Airways, GrainCorp, Myer Holdings, Navitas, Origin Energy, AGL Energy, WorleyParsons and Brambles.
He also takes a look at the big increase in profit margins that is expected, if the companies examined have a history of downward revisions to earnings per share, and where the broker’s earnings expectation is below what most others are forecasting.
Stocks that really stand out as a no-go zone on the earnings outlook include Cochlear, Coca-Cola Amatil and Treasury Wine Estates.
Looking ahead to what might hurt earnings, Cassidy believes there’s a few things that could go wrong:
- Lower commodity prices, in particular the iron ore price that this week reached it’s lowest level in almost two years, and softer capital expenditure in the resources sector are the two that really stand out.
- In addition, any leg up in earnings from the $A might not flow through given that it’s stubbornly high above US92c and if it doesn’t fall soon will become a headwind again.
The local economy is growing below trend but the housing sector is doing well, however “the federal budget, while not strictly a tight budget, is at risk of damaging consumer and business confidence although this risk is offset by the prospect of an ‘on-hold’ RBA into next year.’’
The owner of disgraced Chinese company Sichuan Hanlong, Liu Han, has been sentenced to death in his homeland, according to reports.
Han has been fighting murder charges in recent months after being accused of running a mafia style group based in the Chinese province of Sichuan.
Chinese media reported that a court in Hubei has sentenced Han and his brother to death.
There have been suggestions he could be executed before the weekend is over. The news comes after rumours in January that he may have been executed already.
Han rose to notoriety in Australia during 2011 and 2012, when Hanlong was accused of insider trading while trying to get a foothold in the local mining industry.
The company took a controlling stake in ASX-listed Moly Mines, and launched takeover bids for iron ore aspirant Sundance Resources and uranium aspirant Bannerman Resources.
Liu Han, former chairman of Hanlong Mining. Photo: Reuters
SABMiller, the world's second biggest brewer and which bought Foster's three years ago, has witnessed a 1 per cent sales decline for its flagship brand VB while its wider Australian beer portfolio overshot volume falls posted by the local beer market.
Releasing its full-year results in London overnight, SABMiller reported falling sales volumes in Australia for its top three local brands, blaming economic uncertainty, weak consumer sentiment and increased price competition for the set back.
The brewer had a 3 per cent volume decline, doing worse than the broader Australian beer segment which posted a 2 per cent fall over the same period.
Crown Lager declined reflecting both a strong prior year comparative and price compression from imported brands, the company said. Carlton Draught was impacted by its exposure to the more depressed on-premise channel.
However, SABMiller said its strategy to restore the core portfolio and build a winning competitive position resulted in strong volume growth of Carlton Dry and Carlton Mid.
This strategic shift also included a greater focus on its premium and craft beer brands, which was paying dividends.
Quick afternoon quiz: which OECD country has the highest corporate tax?
The perhaps slightly surprising answer is revealed in the following chart, and may explain why companies from that country have been particularly creative in their tax avoidance techniques. Think 'Double Irish Dutch Sandwich' ...
Much of the good news appears to be priced into the Australian dollar at the moment, and longer-term valuation signals suggest revising the lower end of the range down, Westpac notes.
The bank’s economists say it’s likely the dollar will move closer to the 90 US cent level by year end, because of:
- Improving US data/ higher yields
- Softer commodity prices
- Weaker Chinese data pulse
- An RBA very much on hold.
"In the short term, the outcome of first-quarter capex (capital expenditure) and GDP plus the May data will be important drivers," Wespac says and adds: "The ECB outcome next month will be important too, as another wave of QE would be supportive for the A$."
"However, our overall bias remains to sell strength in the A$."
Thai stocks have dropped 1.6 per cent to their lowest in nearly two weeks, a day after the army chief seized control of the government in a coup.
The benchmark SET index closed up 0.16 per cent on Thursday before the military announcement, with foreign outflows continuing for a third straight session after the imposition of martial law on Tuesday.
Thailand's army chief, General Prayuth Chan-ocha, seized control of the government in a coup late Thursday, two days after declaring martial law, saying the military had to restore order and push through reforms after six months of turmoil.
A Thai soldier stands guard at a checkpoint after a curfew started at 10pm on May 22, 2014 in Bangkok, Thailand. Photo: Getty Images
Iron ore, pummelled by brisk supply and a weak Chinese steel market, is headed for a sixth straight weekly fall in what would be its longest losing streak since May 2012 and is at risk of sliding further.
The raw material's fall to a 20-month trough below $US100 a tonne this week helped revive buying interest for spot cargoes in top consumer China, but a sustained weakness in Chinese steel prices kept purchases in check.
The price needs to fall below $US90 to squeeze out some suppliers and "balance the market," said an iron ore trader in China's eastern Shandong province. "That's the only way I can see for iron ore to recover since China's steel market is not doing good," he said.
Iron ore for immediate delivery to China gained 30 cents to $US98.80 a tonne on Thursday, not far above Monday's $US97.50 which was the lowest since September 2012. It’s so far down about 2 per cent for the week.
At the current price, top miners from Australia and Brazil are still making money given their cash cost of as low as $US20 a tonne. But miners elsewhere, including those in China where many spend around $US100 a tonne, are now at risk of being shut out of the market.
Some more good news for Greece: Fitch has upgraded its credit rating to 'B' from 'B-' and gave it a stable outlook, citing the government's better fiscal track record.
That's still in junk territory, with a 'high credit risk', but it's at least showing signs of recovery, as the economy bottoms out, according to Fitch.
Fitch is the most upbeat so far on Greece, as the other big ratings agencies, S&P and Moody's, rate Greece a notch lower.
Fitch also lifted the issue ratings on Greece's senior unsecured foreign and local currency bonds to 'B' from 'B-'. The country ceiling has been raised to 'BB' from 'B+' and the short-term foreign currency IDR has been affirmed at 'B', it said.
Greece in April returned to the bond market, selling 3 billion euros worth of five-year bonds that were eagerly snapped up by investors happy with a yield of just 4.95 per cent - just two years after the country nearly crashed out of the eurozone.
Continued sluggish economic growth in the Eurozone, coupled with negligible inflation (running at 0.7 per cent vs the European Central Bank target of 2 per cent) means that further significant monetary easing is on the cards, Bell Potter strategist Peter Quinton told clients today.
"We expect the ECB to lower its policy interest rate again in June and then turn to quantitative easing of around €1000 billion, equivalent to 10 per cent of the Eurozone’s gross domestic product, in the second half of calendar 2014," he said.
But with this stimulus coming at a time when the global economy is on the mend, this will throw further fuel on the equity fire, he argues.
"Since the global financial crisis, the seven quantitative easings by the US Federal
Reserve, the Bank of England, and the Bank of Japan have generated an average
domestic share market return of 24 per cent. However, these previous QEs were generally delivered against the backdrop of severe economic fragility and depressed share markets.
"Any QE by the ECB would be in very different circumstances — the
Eurozone economy is already improving, albeit slowly, and the European share market is already up 57 per cent from the September 2011 low point — so the accompanying share market gain is likely to be well below 24 per cent, say around 15 per cent," he said.
"To put all of this into the proper context, the European share market accounts for a fairly hefty 25 per cent of the global share market so it would make a meaningful direct contribution to further gains in the global share market as well as an indirect positive contribution through the lifting of investor sentiment in other regions."
At least one veteran investor has his doubts re Telstra's mooted expansion into Asia:
Into Asia, out of Asia, into Asia. Hi ho, hi ho, I can smell advisers making a lot of dough. As for shareholders ? pic.twitter.com/bOMTUpfez7— Peter Morgan (@psimpsonmorgan) May 23, 2014
Japan's sharemarket is is posting more strong gains, extending yesterday's rally. Here's how the rest of the region is doing:
- Japan (Nikkei): +0.95%
- Hong Kong: -0.05%
- Shanghai: flat
- Taiwan: +0.25%
- Korea: flat
- ASX200: +0.3%
- Singapore: +0.2%
- New Zealand: +0.5%
‘‘US economic indicators announced yesterday confirmed a recovery,’’ said Juichi Wako, a Tokyo-based equity strategist at Nomura Holdings. ‘‘The rise in US long-term bond yields will support a weaker yen, which in turn is likely to bolster Japanese stocks.’’
The Australian and New Zealand dollars have found a tentative footing today following a recent steep decline with the Aussie poised to show the largest weekly drop since January.
The Aussie edged up to $0.9244, from $0.9222 in early trade, but off a peak of $0.9274 set Thursday.
It has shed 1.3 percent since Monday, having failed to sustain gains after China, Australia's top export market, posted better-than-expected manufacturing activity on Thursday.
Dealers said the Aussie's fall was largely due to positioning.
A Singapore-based trader at a European bank said the Aussie could face more downside pressure next week as the US dollar is starting to show mild momentum following encouraging economic data.
The Aussie has been stuck in a tight $0.9203-$0.9410 range since mid-April.
The currency trimmed losses against the yen at 94 yen , though it was still on track to show a 1 per cent decline for the week. It touched a two-month low of 93 yen Wednesday.
The New Zealand dollar was firm at $0.8567, not far from an offshore low of $0.8551 and hovering close to a four-week low of $0.8538 hit earlier this week.
An ongoing slide in global dairy prices and a sluggish Aussie have dimmed the kiwi's appeal as investors have trimmed bets for more strength in the currency, which have been building in past months.
The strong nearly 10 per cent rise at the debut for Spotless, Australia's biggest float in almost four years - with about $1 billion worth of stock on issue - will encourage other private equity firms considering even larger listings, such as that of TPG and Carlyle owned healthcare provider Healthscope.
It is also likely to encourage the federal government which has said it plans to float health insurer Medibank Private in a listing expected to fetch $4 billion.
Private equity firm Pacific Equity Partners took Melbourne-based Spotless private in August 2012 after buying it for $723 million. After the float, the company had a market capitalisation of $1.9 billion.
"It listed at the bottom of its range so that could be one reason" for the strong debut, Lonsec senior client adviser Michael Heffernan says. "They're looking for something that's got a bit of grunt to it and is not priced over the odds."
The IPO market is heating up as the sharemarket trades around record levels following five years of erratic performance.
Shares in the company with the No. 2 Australian float of the year behind Spotless, mortgage insurer Genworth Mortgage Insurance Australia are trading at $2.94 on Friday, compared with their $2.65 issue price, having listed on Wednesday.
After three years of spending cuts in the wake of the global mining boom’s $US250 billion capital investment spree, investors including Pengana Capital scent companies are looking to re-open their chequebooks.
“The reduction in spending plans will be rolled back, without a doubt, perhaps we’ll start to see this in the second half of the year,” said Tim Schroeders, who helps manage about $1.1 billion in equities at Pengana, including BHP Billiton and Rio Tinto.
“I suspect the austerity ethos had a limited shelf-life to begin with.”
Commodities outperformed equities and bonds in the first quarter and Glencore Xstrata this month said the outlook for its main products is positive, as industry debt levels plunge and cash flow forecasts gain. Glencore Xstrata, BHP and Rio are among companies who championed austerity after prices plunged and the industry was hit by $US60 billion in writedowns.
A substantial increase in new equipment purchasing is slated to start from 2016, according to Citigroup’s first- quarter mining survey. That year, net debt at Rio, the world’s second-largest mining company, is set to touch a 10-year-low of $US5.1 billion, while Glencore Xstrata may be the lowest since 2009, according to RBC Capital Markets
The austerity drive is generating bumper free cashflow forecasts. Free cash flow at BHP, the world’s biggest miner, is projected to rise to $US11.6 billion in fiscal 2016, an 8-fold increase on fiscal 2013 levels, according to Macquarie Group, and Rio’s will more than double to $US10 billion.
“Many investors believe that in 2016 miners will ramp up capex because they’re more concerned with growth than free cash flow yields,” Timothy Huff, a London-based analyst with RBC, said by phone.
Teasury Wine Estates shares have jumped on reports China's Bright Food is considering a takeover bid for the company.
The shares are currently up 4.5 per cent at $5.16.
News of another mooted buyer follows recent speculation, denied by Treasury Wine, about interest in the US division from Pernod Ricard and Constellation Wines.
Persistent talk about a takeover – Bright Food was linked to the company in 2011 – has sent the stock into overdrive over the past week, even though management signalled a potential downgrade to earnings.
On Tuesday, Treasury said it had rebuffed a takeover bid from US private equity firm Kohlberg Kravis Roberts worth $4.70 per share.
Spotless Group (code SPO) has made its debut on the ASX at $1.75, a nice jump on the IPO price of $1.60.
It's eased back a little in the minutes following its midday debut to $1.735, equivalent to an 8 per cent gain.
The bad news from the mine services sector is showing no sign of abating, with Lycopodium warning the market it now expects a year to June net profit of $4 million, well short of the earlier forecast of $9.5 million, thanks to a second half loss of $2.3 million.
To put that profit into perspective, it compares to a net profit of $22.5 million earned in the year to June, 2013.
It blamed the continued deferral of work, the competitive landscape, declining contract opportunities and redundancy costs of $3.6 million as it downsizes its operations.
The shares were off 0.3 per cent at $2.90.
Despite the pain caused in some sectors by an El Nino weather event, insurer Suncorp is one likely beneficiary, according to Bell Potter, which could trigger further special dividends.
Drier weather reduces the likelihood of floods and storms, which tend to be costly for insurers, while the rise in the prospects for bushfires is real enough, these tend to cost insurers less, it argues.
In this environment, the continued rise in the excess capital on its balance sheet should be good news for shareholders, Bell Potter analyst T.S. Lim says in a client note today.
"Excess CET1 capital was $1.1 billion (88cps) in December 2013. This is up from $801 million (62cps) at the end of 2H13 and when a 20cps special dividend was declared on top of a 30cps final dividend." he says
"We believe Suncorp is well placed to do [something similar again] in August and the dividend composition could take the form of a 20-25cps special dividend on top of a 40cps final dividend (35cps in 1H14)."
This excludes the capital benefit from Basel II accreditation that could further increase excess CET1 capital by $500 million (39cps), he argues.
In late morning dealings Suncorp was ahead 1.3 per cent at $13.62.
Local investors are inherently leery of companies out to hitch their future to Asia's growth prospects, given the corporate graveyard is littered with examples where local ambition has come asunder on the reality of the difficulty of carving out a share of that growth.
Yet so far this morning, investors have taken to Telstra's latest push to generate as much as one third of earnings from Asia over the next five years, via acquisition and organic growth, marking its shares up a notch on the news.
In morning dealing it was up 0.5 per cent at $5.39, holding hear the high of $5.40.
Trekking through the wilderness, the weird and wonderful sounds of the jungle can be at times overwhelming and frightening.
But that's nothing compared to the terror of a sudden and deafening hush. It suggests something nasty may be stalking amongst the foliage.
“By just about every available measure, the markets appear intensely relaxed about the future,” write analysts at S&P.
Measures of sharemarket volatility – global Vix indices – are as low as they were during the salad days of 2007, and near historic lows generally.
Locally, the Aussie Vix, which has a shorter history, is also approaching record lows, as the chart below shows.
And it’s not just sharemarkets:
“The credit markets too remain unperturbed,” the S&P analysts write. “With Portugal successfully exiting its bailout program earlier this month, concerns over the Eurozone became – for now – a matter for historians.”
“The most notable thing in the financial markets today is the absence of anything notable: volatility has collapsed to near-historic lows,” comments the Economist. “Bond volatility is creeping closer to the historic lows reached a year ago, just before the taper tantrum.”
That's all well and good if investors are relaxed because all is hunky-dory in global economies and markets, but that is demonstrably not the case.
The US is dragging itself out of deep recession, the European Central Bank is sufficiently worried about deflation that may expect some significant monetary easing when it meets next week, and the usual worries around China's property and shadow banking sectors bubble away.
Instead, it's likely that asset markets look calm thanks to the stupefying effects of continued monetary easing and zero interest rates.
It's quiet... to quiet. The Aussie volatility index is near historical lows.
The world's biggest sovereign wealth fund has emerged on Goodman Fielder’s register just one week after Wilmar and First Pacific secured a recommendation from the Goodman board for their $1.37 billion takeover for the food group.
According to an ASX filing, Norges Bank, the investment manager of Norway’s massive sovereign wealth fund, has built up a 5.06 per cent stake in the maker of Wonder White bread and Meadowlea margarine.
Last Friday, Singapore oils trader Wilmar and Hong Kong investment group First Pacific raised their bid to 70 cents a share from 65 cents a share, with a 1 cent dividend to be paid to Goodman shareholders as a sweetener.
The Asian bidders heaped pressure on Goodman by demanding a decision and access to due diligence by 8pm Friday night and by securing partial sell-downs from Goodman’s two biggest shareholders Perpetual and Ellerston into the offer.
Norges Bank Investment Management manages the 5110 billion kroner fund ($920 billion) generated from Norway’s extensive oil wealth. The fund has investments in 82 countries and around 8000 companies, or 1.3 per cent of the world’s listed companies.
Auckland-based adult education provider Intueri Education Group commenced on the New Zealand Stock Exchange this morning and within its first 30 minutes had climbed to 17 per cent, boding well for its dual ASX listing at 1pm.
Intueri Education Group is the largest non-government provider of adult and vocational training in New Zealand.
On Friday morning Intueri confirmed that following the equity raising it has finalised three acquisitions outlined in the prospectus: Quantum Education Group, Quantum Corproate Training, and Learntree Limited.
Intueri's most companrable locally listed peer, Vocation Limited has climbed 16.5 per cent to $2.93 this week amid excitement about the sector.
Shares in the offer closed early on Wednesday 21 May and were priced at $NZ2.35 ($2.18). The institutional bookbuild closed a fortnight earlier on May 7, 1 day after the final offer document was made available on May 6.
Institutional investors took 73.2 million shares, while 1.6 million shares were allocated under the broker offer, and 297,873 shares under the executive offer.
The float is a spin-out from private equity firm Arowana International, which has retained a 25 per cent stake. Among the free-floated stock the largest manager will be New Zealand Central Securities Depositary with 17.6 per cent, followed by National Nominees with 11.7 per cent.
Ian Levy is betting that the loss of China’s largest bauxite supplier will mean big gains for Australian producers of the ore used to produce aluminum.
China, the biggest base-metals user, saw bauxite imports plummet after a January ban on shipments by Indonesia, which sought to limit ore sales to spark investment in higher-value domestic smelting.
Indonesia supplied 68 per cent of China’s purchases in 2013, so the race is on to fill the void as demand grows, said Levy, the chief executive officer of Australian Bauxite, which will open its first mine late this year.
Commodity exports from Australia, already the world’s largest producer of bauxite from mines owned by Rio Tinto and BHP Billiton, tripled in the past decade as China’s economy became the world’s second-biggest, boosting imports of everything from coal to copper. While China stockpiled about a year’s supply of bauxite before the ban, Australia is already boosting output and exports to records, government data show.
“The number one beneficiary is Australia,” said Ivan Szpakowski, a Shanghai-based analyst at Citigroup. China’s “inventories will run out eventually, and when we start getting into the fourth quarter of this year, and especially as we move into 2015, this will become a major issue,” he said.
Chinese demand will help spur a 34 per cent jump in Australian bauxite exports to 16.8 million metric tons in the year ending June 30, the government estimates. Australia, which became the largest supplier to China in March, shipped 1.02 million tons to the country in April, customs data show.
China’s supply concerns may help push prices higher, according to Australian Bauxite.
“This is something that right now isn’t especially on the market’s radar,” Citigroup’s Szpakowski said. “It’s going to become a very big issue.”
The benchmark index has peaked above 5500 in a positive start to the final day of the trading week, before settling at lower levels.
The ASX 200 is at 5495.5 and the All Ords at 5473 - both around 15 points, or 0.3 per cent, higher.
The big banks are leading the charge, offset by some weakness among miners and energy names.
Westpac is the best of the banks, up 0.7 per cent, while Woodside is the biggest drag, trading 0.8 per cent lower.
James Hardie is 1.7 per cent lower while gold miner Regis Resources has dropped 5.3 per cent on an operational update.
Moody’s has downgraded St Barbara’s credit rating from B3 to Caa1.
In an announcement to the ASX, the gold miners said “there is no change to its existing debt arrangements as a consequence” of the ratings agency’s action.
Investors may have been expecting worse – the stock is up 2.6 per cent to 20 cents, even as its peers’ shares lose ground in early trade.
Australian growth expectations have firmed a touch and US forecasts have edged lower – and the AUD is up 5 cents, admittedly from a starting point of consensus negativity, JPMorgan equity strategist Paul Brunker notes:
- We think of this as a bear rally not an uptrend, but either way it is a reminder that for equity portfolios the AUD is the strongest link from local growth to stock performance.
- There is not much market cap with strong leverage to the domestic cycle and most of it is complicated by industry and company issues.
- If the local economy does exceed our expectations and accelerate, we see more potential pain in overseas exposure than we see gain in local exposure.
- Bulls on local growth should make sure that they have trimmed non-AUD earners.
Another iconic Australian brands falls to foreign marauders!
The private equity owners of Peters Ice Cream have entered into exclusive negotiations with French ice-cream giant, R&R.
The iconic brand is expected to sell for over $400 million, in a move that appears to spell the end of alternative plans for a sharemarket debut.
The sale price equates to a valuation of about eight times next year's forecast EBITDA.
Despite a recent ramp up in preparations for a float of Peters Ice Cream, a listing now looks a remote prospect.
Over the past month, Pacific Equity Partners have met fund managers in Australia and Asia to gauge the level of appetite for the brand behind icy treats, Billabong, Drumstick and Connoisseur.
PEP stepped up the pressure this week, asking institutional investors to cough up for the business or risk being frozen out in favour of a trade sale.
PEP bought Peters in August 2012 for about $300 million, and hopes to secure a deal by June 30.
A marketing presentation shown to fund managers showed that Peters is the market leader in the grocery division of the nation's $2.3 billion ice cream industry.
The company's pro forma revenue is projected to rise from $269.3 million in 2014 to $290.3 million in 2015.
R&R is owned by French private equity firm PAI Partners.
Sweet deal: Peters Ice Cream is expected to sell for over $400m. Photo: Supplied
Telstra chief executive David Thodey has embarked on a major repositioning of the company towards Asia, stating he wants one-third of the company’s profits to come from overseas in the next five years and that big acquisitions are an option.
In an interview to mark his fifth anniversary as chief executive, Mr Thodey laid out his growth plan for Telstra and quashed speculation he would be leaving the company.
“I’m really enjoying myself. I love my job. I’m pretty happy where I am at the moment,” Mr Thodey told The Australian Financial Review.
“I would like to think at least a third of our revenues and profits came from offshore by some period out to 2020 and beyond. That’s a reality that the company has got to face.”
It is the first time Mr Thodey has provided such a target for Telstra’s offshore aspirations, which are primarily focused in Asia. And it’s an aggressive target.
Telstra International now accounts for only about 1 per cent of the telco’s $10.3 billion earnings, according to analysts. About 3 per cent of its revenues come from its overseas activities.
Mr Thodey, who turned 60 this month, is one of the country’s more modest chief executives, preferring to drive a Toyota Corolla while running Australia’s seventh biggest company. It’s a stark contrast to his predecessor, Sol Trujillo, a controversial leader who hogged the limelight.
Mr Thodey has spent the past five years steadying Telstra after the rollercoaster ride with Mr Trujillo and cementing the telco’s dominance in Australia, particularly in mobile phones, as its competitors Optus and Vodafone have flailed.
Now, Mr Thodey said it’s time for Telstra to enter “a whole new growth period” to position it as a global technology company.
Ailing Treasury Wine Estates appears to have gained another suitor even though buyout giant KKR was shown the door.
The brusque dismissal of KKR’s highly conditional $3 billion bid, equating to $4.70 per share, led some in the market to conclude the winemaker will retain its relatively lucrative US arm on the expectation its more robust performance will turbocharge earnings growth across the group.
However, it seems interest in Treasury Wine is far from subsiding.
The AFR’s Street Talk column understands the Chinese-owned food group, Bright Food, is weighing a potential offer.
News of another mooted buyer follows recent speculation, denied by Treasury Wine, about interest in the US division from Pernod Ricard and Constellation Wines.
Persistent talk about a takeover – Bright Food was linked to the company in 2011 – has sent the stock into overdrive over the past week, even though management signalled a potential downgrade to earnings.
New Treasury Wine boss Michael Clarke has repeatedly quashed hopes of a partial sale of the group, insisting publicly that the US wine business is an integral part of the company.
But the company’s determination to soldier on amid challenging conditions in both the Australian and Chinese wine markets has not deterred KKR.
The buyout firm is understood to be closing in on a debt package for Treasury Wine, with some in the market predicting the company will eventually gain access to due diligence.
In 2011, Bright Food denied it had any potential interest.
Turkey's central bank surprised markets with its first rate cut in a year overnight, weeks after Prime Minister Tayyip Erdogan called for rates to fall - reviving questions about political pressure on the bank.
The bank said "decreasing uncertainty" and an improvement in risk-premium indicators prompted the 50-basis-point cut in its one-week repo rate to 9.5 per cent. Yields on Turkey's two-year bond slid to a six-month low after the announcement.
Economists said expectations that the European Central Bank would loosen policy and that the US Federal Reserve would not raise rates anytime soon had given Turkey room for manoeuvre. The cheap global liquidity that has helped it finance its current account deficit looks set to continue for some time.
But the timing of the rate cut, after inflation rose more than expected in April, caught many by surprise. Analysts had expected a reduction only after headline inflation started ticking lower in the second half of the year.
The bank kept its overnight lending rate at 12 per cent and overnight borrowing rate at 8 per cent.
"This was a politically driven rate cut, facilitated by the marked improvement in sentiment towards Turkish and emerging-market assets over the past few months," said Nicholas Spiro, head of Spiro Sovereign Strategy in London.
"Today's rate cut looks and feels like the start of a slippery slope for a central bank still struggling to conduct a credible and transparent monetary policy and at a time when sentiment towards emerging markets still remains fragile."
Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.
Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said.
Renzi, 39, is committed to narrowing Italy’s deficit to 2.6 per cent of GDP this year, a task that’s easier if output is boosted by portions of the underground economy that previously went uncounted. Four recessions in the last 13 years left Italy’s GDP at 1.56 trillion euros ($2.13 trillion) last year, 2 per cent lower than in 2001 after adjusting for inflation.
“Even if the impact is hard to quantify, it’s obvious it will have a positive impact on GDP,” said Giuseppe Di Taranto, economist and professor of financial history at Rome’s Luiss University. “Therefore Renzi will have a greater margin this year to spend” without breaching the deficit limit, he said.
A spokesman for the Finance Ministry declined to comment on the new system.
The change in methodology will also bring research and development and arms into the GDP calculation. R&D, now considered investment spending, was previously excluded because it was classified as an intermediate cost.
Two days after declaring martial law, Thai Army Chief Prayuth Chan-Ocha announced on national television alongside senior military officials that he was seizing control in order to restore peace. It is the country’s 12th military coup since 1932.
Overseas investors pulled $408 million from Thai stocks since martial law was declared early on May 20, according to exchange data, helping send the benchmark SET Index in Bangkok down 0.7 percent this month.
In Ukraine, fighting flared anew four days before a presidential election, with 16 people killed near a checkpoint in the deadliest clash for the military since the secession campaign began after Russiaannexed Crimea.
Russia’s Micex Index slid 1.2 percent, declining for the first time in five days after rising to a three-month high, as investors sought more details of OAO Gazprom’s $400 billion accord to supply gas to China. The energy company’s shares dropped 1.9 percent.
US stocks climbed with emerging-market equities, while the yen weakened, as gains in manufacturing gauges in America and Chinaboosted confidence in the world’s biggest economies. The Thai baht slid versus the dollar after the army staged a coup.
The S&P 500 climbed 0.2 percent to 1,892.54, after earlier climbing to within two points of a record. The MSCI Emerging Markets Index added 0.9 percent to a six-month high. Japan’s currency depreciated 0.4 percent, the most in two weeks, to 101.78 per dollar. The Thai baht, the worst-performing currency in Asia in May, weakened 0.3 percent versus the greenback.
China’s preliminary purchasing managers’ index exceeded estimates, suggesting that the economy is stabilizing. A slowdown for euro-area manufacturers strengthened the case for the European Central Bank to ease policy.
The Markit Economics preliminary index of US manufacturing increased more than estimated in May as output accelerated. Existing home sales climbed in April for the first time in four months, data showed. Data showed jobless claims increased more than estimated in the week ended May 17.
“It’s a grindingly slow, gradualistic uptrend of the US economy,” David Young, chief executive officer of California-based Anfield Capital said.
“We absolutely, positively must factor in the vast amount of liquidity looking for an interesting home. As a result, ‘sell in May and go away’ has been proven wrong, because where else are you going to go?”
“The China manufacturing data is good news,” said Jacques Porta, who helps oversee $780 million at Ofi Gestion Privee in Paris. “The message from the Fed minutes - that there will be no rate increase soon - was also reassuring.”
Local stocks are poised to open slightly higher after Wall Street edged up on positive factory data.
Here's what you need2know:
- SPI futures up 11 points to 5499
- AUD at 92.27 US cents, 93.87 Japanese yen, 67.56 Euro cents and 54.69 British pence
- Wall St, S&P500 +0.2%, Dow Jones +0.1%, Nasdaq +0.6%
- In Europe, Euro Stoxx 50 flat, FTSE100 flat, CAC +0.2%, DAX +0.2%
- Spot gold gained 0.2% to $US1294.78 an ounce
- LME three-month copper rose 0.6% to $US6875 per tonne
- Iron ore added 0.3% to to $US98.80 per metric tonne
- Brent oil is flat at $US110.48 per barrel
What's on today:
- China conference board leading economic index for April is due midday AEST
Stocks to watch:
- Deutsche Bank has upgraded Treasury Wine Estates from “sell” to “hold” with a price target of $4.70 a share
- CBA is considering an acquisition in China (AFR)
- Dexus cut to neutral v underperform at Credit Suisse
- F&P Healthcare full-year net profit rises 26 per cent to $NZ97.1 million
- James Hardie rated new underperform at BBY; price target $12.74
- Spotless expected to start trading today
- Telstra is targeting a third of its profits to be from Asia (AFR)
- Bright Food is weighing up a bid for Treasury Wine (AFR)
- Investment banks are preparing ReitreAustralia IPO (AFR)