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Markets Live: Qantas flies high

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 fell as the penultimate day of the August company reporting season delivered some soft results, and official statistics showed the economy's transition from mining to non-mining led business investment is still struggling.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each lost 0.5 per centto 5624.4 points and 5621.3 points respectively. Surprisingly, Qantas Airways was the standout performer of the day. The stock flew ahead despite revealing a massive blow out in its annual loss.

Local shares took a soft lead from the United States. The S&P 500 idled at 2000.12 points on Wednesday night, after closing above 2000 points for the first time in the previous session.

Major markets around Asia fell in the afternoon session amid heightened geo-political risk as ongoing conflicts in Ukraine and Iraq-Syria escalated.

In local economic news, ABS data showed business investment was stronger than forecast - helped by a lift in outlays by services firms. June quarter capital expenditure rose 1.1 per cent . Consensus expectation was for a 0.9 per cent fall. The dollar got a spike from the news but shares remained depressed.

"The mix of the capex survey was encouraging, but we think the contrast between falling mining and improving non-mining investment might end up more stark," Barclays economist Keiran Davies said.

CIMB equity strategist Shane Lee said the capex data was disappointing overall, despite the better-than-expected headline result.

Qantas Airways lifted 7 per cent to $1.39, despite its turbulent outlook. The airline showed a much bigger than forecast $2.8 billion annual net loss, the biggest in its history, amid heavy write-downs on its fleet. The size of the loss approaches the $3 billion value of the company as measured by market capitalisation.

"Nothing was announced about what the company plans to do with its Frequent Flyer business. There is hidden wealth locked up in that division so Qantas is not a lost cause yet," Zurich Financial Services senior investment strategist Patrick Noble said.

"While there have been a few disappointments, overall August reporting season has delivered a pretty solid batch of results," Mr Noble said.

Read more.

Meanwhile, back with the Ukraine conflict, which investors seem to have largely forgotten and where Russian soldiers and weaponry appear to be crossing the border, Canada's joint delegation to Nato has this helpful chart for the former super power:




And here are the best and worst for the day, with Qantas flying high, followed by biotech Mesoblast.

At the other end of the scale is Buru Energy, which has given back some of its recent gains. Atlas Iron reported today and was sold down heavily, although it was a tough day all round for iron ore miners, with Fortescue also featuring among the worst.

Perpetual and Japara were also among the reporting companies leaving investors unimpressed.

Best and worst performing stocks for the day.
Best and worst performing stocks for the day. 

More than two thirds of you wouldn't touch Qantas shares with a barge pole, according to our poll we've been running since this morning.

Of the 8109 readers who have voted so far:

  • 18% say "buy: the shares look attractive at current valuations";
  • 14% say "hold: too early to jump in, but I'll stick with the shares I have"; and
  • 68% say "sell: I'm not going anywhere near the stock".


The broker analyst community isbetter disposed to the Flying Kangaroo: of the 11 analysts listed in Bloomberg, four say "buy", three say "hold" and four say "sell".

Those analyst ratings are before today's result, so that may change - we'll keep you updated.

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market close

Miners have weighed the heaviest on the market as the ASX 200 and All Ords drop around 27 points each, or by 0.5 per cent, to 5624.4 and 5621.3, respectively.

BHP fell 1.2 per cent and Rio 1.7 per cent, while Fortescue dropped 3.9 per cent as the iron ore price appeared set to tumble further.

The big banks also fell, aside from CBA which was broadly flat.

Energy was one of the worst performing sectors, as Woodside and Santos dropped 1.1 and 2.3 per cent, respectively.

Qantas was the story of the day, announcing its biggest ever loss but beating expectations on its underlying profit numbers, with the stock jumping 7 per cent.

QBE was up 1.1 per cent and Telstra 0.2 per cent after the two companies recently traded ex-dividend.


Dalian iron ore futures are still down 2.5 per cent, indicating further pressure on the price of the bulk commodity.

A fall of that size would take the spot price to around $US86 a tonne - its lowest in five years.

There's no direct link to the spot price - which gets updated once a day, later this evening - but as the following chart shows futures and spot price tend to move in the same direction.

That sinking feeling ... iron ore futures (white) and the spot price.
That sinking feeling ... iron ore futures (white) and the spot price. 

For those who came in late (and as an excuse to run our poll below for the last time), Qantas reported a monster loss this morning (a cool $2.84b). Yet as we approach the close, the airline's share price is 7.3 per cent higher.


The big number looks impressive but there is the alchemical art of accounting involved. Most importantly, as part of a broader review of its business, Qantas wrote down the value of its international fleet by $2.6 billion.

What that means is, the statutory loss of $2.8 billion does not represent a cash loss to the company, rather it is a paper loss in the value of its assets. It is a bit like when the value of your house goes up, or down, your wages and your bills do not move.

That said, in terms of the money in and out the door, Qantas was still in the red. The underlying loss of $646 million again looks like a big number, and it is, but, crucially, it was better than some had expected.

And for the first time in a long time, chief executive Alan Joyce said investors could expect an underlying profit in the first half of this financial year. That declaration came with a pretty hefty caveat of  "no material worsening in competitive environment, including global economic conditions, market capacity growth, fuel prices and FX rates".

Read more.


Credit Suisse analysts have kept their “outperform” recommendation on Prime Media, noting the company offers a strong yield and is a potential takeover candidate.

Prime Media reported a “robust” 2014 financial year “in the context of a difficult trading environment” with revenue up 1.2 per cent to $260 million and EBITDA increased 3.4 per cent to $64.8 million, “broadly in line with consensus”.

“Prime Media offers pure exposure to Seven West Media’s quality TV content,” the Credit Suisse team writes in a research note to clients this morning. “Whilst we expect advertising conditions to remain subdued in 2015 financial year, and have lowered our forecasts as a result, we see Prime Media as a well positioned business over time.”

Credit Suisse sees the high dividend yield as “sustainable” and the potential for the abolition of the audience reach rule in current financial year 2015 “which should be a positive catalyst for Prime Media.”

The stock is up 0.2 per cent today and down 1.7 per cent year-to-date at $1.03.

trading halt

Perth-based mining services play MACA Limited is up to its old tricks, raising equity so it can pay a fully franked special dividend to shareholders.

Broker Hartleys was in the market for MACA on Thursday, seeking to raise $58.5 million at $1.95 a share in a placement to institutional and sophisticated investors.

The offer was priced at a 7.4 per cent discount to the volume weighted average price on Wednesday, once adjusted for the 7.5¢ a share final dividend.

But the special kicker is a 25¢ a share fully franked dividend, which MACA said it would declare on Monday September 1 and pay to all shareholders.

That includes investors buying into the placement.

It’s an unconventional move by the mining services company, but MACA has form with such deals.

It ran a similar raising in February, picking up $59 million new equity and declaring a 30¢ a share special dividend.

The $440 million MACA is likely to tell shareholders the special dividend was designed to release franking credits while the placement would maintain balance sheet capacity for growth.

MACA shares went into a trading halt on Thursday morning. Its broker was calling for bids into the placement by Friday afternoon.

The deal comes after MACA reported revenue up 25 per cent to $595.4 million for the year to June 30, and earnings up 18 per cent to $138 million.

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US news

There’s been a bit of excitement around the S&P 500 hitting 2000 points for the first time this week, but according to blogger Scott Krisiloff the US market marked another major milestone this week:

If you count March 6, 2009, when we rallied from an intraday low of 666, as the first day of the bull market, Tuesday marked the 2000th calendar day of our current bull. How fitting then that Tuesday was also the day that the S&P 500 closed above 2000 for the first time.

At 2000 days old our current bull market is now the fourth longest US bull market since 1928.  Since then, the only bull markets that have lasted longer were in 1974-1980 (2,248 days), 1949-1956 (2,607 days) and 1987-2000 (4,494 days).

Adding those bull markets together, the market has existed in a more extended bull market than this one on 3,349 calendar days—a little more than 10 per cent of the time.

Here's more

Bull run: 2000 points after 2000 days.
Bull run: 2000 points after 2000 days. 

Australia’s great boom in oil and gas investment is already past its peak and is firmly on the wane, with a lack of new projects on the horizon amid persistently high costs, according to consultancy EnergyQuest.

Investment in the sector peaked in the last quarter of 2013, but several new LNG projects are now nearing completion, with four set to begin production in the next 12 months, the consultancy noted in its latest quarterly report.

EnergyQuest principal Graeme Bethune said that Australia’s highest quality gas fields are already under development, and costs needed to be reduced to ensure that the lower-quality fields had a chance of being commercialised.

“Unfortunately there are few signs yet of moderating labour costs,” Dr Bethune said, noting that wages costs in construction rose by 2.9 per cent in the June quarter from a year earlier, well ahead of national wages growth of 2.6 per cent.

“This makes it an even greater challenge to develop lower quality fields that are inherently more expensive,” he said.

Some costs are easing, however, because of a significant fall in new work for engineering and construction companies that were operating near capacity last year.

EnergyQuest noted that the news on exploration is more encouraging, with Chevron making gas discoveries in the Carnarvon Basin off Western Australia, while ConocoPhillips and Santos have found liquids-rich gas in the Browse Basin further to the north. Apache last week also made an exciting discovery in the little-explored offshore Canning Basin.

“While investment in new projects is falling, spending on exploration is holding up at historic highs of around $4 billion a year and achieving good success,” Dr Bethune said.

Meanwhile, oil and gas production in the 2013-14 year reached a record, rising 1.6 per cent to 533.9 million barrels of oil equivalent, the report said.


Peabody Energy has pulled the $150 million sale of its Wilkie Creek coalmine to former billionaire Nathan Tinkler, saying his Singapore-based company Bentley Resources "was unable to meet its obligations" to close the deal.

Mr Tinkler had hoped to turn around his fortunes with the Wilkie Creek acquisition.

Bentley Resources initially made a non-refundable payment for the mine, in Queensland's Surat Basin, as part of a deal valued at $150 million in cash and debt.

But Peabody said the TInkler outfit could not meet its closing obligations.

It comes after Mr Tinkler's thoroughbred racing empire, Patinack Farm, was seized by retail billionaire Gerry Harvey earlier this month.

Peabody mothballed Wilkie Creek in October.

Peabody says it is "evaluating its alternatives" for the Wilkie Creek mine.

Read more (to come).

Nathan Tinkler: The former billionaire had hoped to stage his business comeback with the Wilkie Creek acquisition.
Nathan Tinkler: The former billionaire had hoped to stage his business comeback with the Wilkie Creek acquisition. Photo: Nic Walker

The strongest demand at Australian bond auctions in a decade reflects yields in a sweet spot: more stable than those in the US and higher than those in Europe.

A sale of $500 million in three-year debt this month drew bids for seven times that amount, the most since 2004, government data show. A $200 million auction of four-year inflation-linked notes was similarly oversubscribed and today’s $500 million offering of five-month bills went to just two buyers.

Australian bonds are the world’s best performers during the past three months, including currency gains.

RBA governor Glenn Stevens has said he plans to keep interest rates on hold as he protects two decades of uninterrupted economic growth. In Europe, which is facing the threat of deflation, bond yields have plunged to records, curbing demand for the securities. US Federal Reserve policy makers are considering raising interest rates, fueling speculation Treasury prices will fall.

“The Australian economy is not strong compared to the American economy but not weak compared to the European economy,” said Hideaki Kuriki, a bond trader in Tokyo at Sumitomo Mitsui Trust Asset Management. “And the yield level is high,” he said.

Australian benchmark 10-year notes yielded 3.3 per cent as of 12 p.m. in Sydney, falling from 4.24 per cent at the end of last year. That compared with yields of 2.35 per cent in the US and 0.91 per cent in Germany.

Demand for Australian assets has pushed the local currency up 5 per cent in 2014, the biggest gain among Group of 10 currencies against the greenback. The Aussie traded at 93.62 U.S. cents in Sydney and touched a three-week high after government data showed investment unexpectedly rose last quarter.

“The danger is that the Aussie weakens against the US currency as the Fed starts to raise rates,” said Wontark Doh, Seoul-based head of overseas fixed-income investment at Samsung Asset Management, South Korea’s largest private bond investor.

“Last year we sold our positions in Australian government bonds,” he said.

Aussie bonds - the world's best performers over the past three months - are in a "sweet spot".
Aussie bonds - the world's best performers over the past three months - are in a "sweet spot". Photo: _ta'_

If you've been glued to the screen trawling through the nitty gritty of the reporting season, there's no reason why you would have caught up with the numbers released mid-week by Kenmare Resources, which Iluka has been running the rule over the past several weeks now.

It disclosed a rise in its June half net loss to $US32 million, from $US10.2 million a year earlier on revenue of $US81.2 million, up slightly from $US79.3 million.

And it's been to its bankers, cap in hand, for a rejig to its debt repayment schedule given slumping prices for ilmenite and rutile.

On these numbers it is hard to see Iluka rushing in ...

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US news

A number of US banks, including JPMorgan Chase and at least four others, were struck by hackers in a series of coordinated attacks this month, according to four people familiar with a continuing investigation into the crimes.

The hackers infiltrated the networks of the banks, siphoning off gigabytes of data, including cheque and savings account information, in what security experts described as a sophisticated cyberattack.

The motivation and origin of the attacks are not yet clear, according to investigators. The FBI is involved in the investigation, and in the past few weeks a number of security firms have been brought in to conduct forensic studies of the penetrated computer networks.

According to two other people briefed on the matter, hackers infiltrated the computer networks of some banks and stole cheque and savings account information from clients. It was not clear whether the attacks were financially motivated, or they were collecting intelligence as part of an espionage effort.

The intrusions were first reported by Bloomberg, which indicated that they were the work of Russian hackers. But security experts and government officials said they had not yet made that conclusion.

Read more.

JPMorgan Chase & Co is one of a number of US banks hit by what authorities say are co-ordinated cyber attacks.
JPMorgan Chase & Co is one of a number of US banks hit by what authorities say are co-ordinated cyber attacks. Photo: Reuters

Here's Greg Fraser over at Kimber Capital's take on the Qantas numbers:

  • The Qantas result today confirmed why we don’t like airlines as an investment.
  • Alan Joyce was asked to compare the QAN result to this week’s Air New Zealand result and he said it was 'apples and oranges'. Perhaps he could have modified that by saying it was “apples and lemons” after QAN’s $646m pretax loss compared to AIR’s NZ$357m pretax profit!
  • The kiwis are feeling smug enough about keeping the Bledisloe Cup but they can certainly show QAN how to run an airline.
  • QAN wasn’t helped by the 9.5% increase in seats into and out of Australia last year, but it contributed to that problem itself through its JV with Emirates.
  • QAN also staunchly defended its domestic market share against the Virgin onslaught aimed at knicking some of QAN’s 80% corporate market share. That resulted in QAN admitting $566m of the pretax loss was due to yield and load factor decline due from market capacity growth running ahead of demand!
asian markets

The Nikkei and the ASX200 are leading losses across the region, in what is otherwise a bit of a mixed session:

  • Japan (Nikkei): -0.5%
  • Hong Kong: +0.15%
  • Shanghai: -0.2%
  • Taiwan: _0.2%
  • Korea: +0.3%
  • ASX200: -0.5%
  • Singapore: +0.4%
  • New Zealand: +0.05%

‘‘There’s still an underlying trend of earnings growth, it’s just a matter of how much you want to pay for it,’’ says UBS strategist David Cassidy. ‘‘The market is fully valued and the argument for equities everywhere is that they are cheap versus interest rates. If you compare things to 10-year bond rates or cash rates, things look okay and that’s how the world’s working at the moment.’’


NBN Co chief executive Bill Morrow says the company could cut high-speed broadband plans to save costs if the Vertigan Review’s broadband predictions come true.

The Vertigan Panel’s cost benefit analysis used forecasts by Communications Chambers, that predicted 50 per cent of Australians would only need 15 megabits per second in 2023 and that only 0.01 per cent of households would need 48 megabits per second or more.

NBN Co’s profitability could be at risk if the predictions come true and customers avoid buying the more expensive and higher speed products.

Morrow said it was up to the federal government to change the national broadband network’s technologies to match the forecasts.


More pain ahead for iron ore miners: Dalian futures are down 1.6 per cent at 632 yuan, pointing to continued pressure on the bulk commodity's price.

The iron ore spot price fell another 0.8 per cent overnight to a fresh two-year low of $US88.20 a tonne, chalking up its eight straight session of losses.

Local iron ore miners are facing some headwinds today, after a surprisingly strong session yesterday.

Fortescue is down 3.5 per cent at $4.16, trading close to the day's lows. Rio has dropped 1.25 per cent to $633.33, BHP is down 0.8 per cent at $37.02 and Atlas Iron has fallen 3.7 per cent to 59.25 cents.


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