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Markets Live: RBA cuts rates to GFC levels

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Australian stocks are lower after the RBA cut official interest rates. Lew slams online GST | AUD moves higher | RBA cuts rates 25bp

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That's all from us here at blog central, we've enjoyed your company and hope to see you again tomorrow.

Click here for a full wrap of today's session.

The Christmas cheer that comes with a rate cut will not extend to pensioners, self-funded retirees and other older Australians living off their investments, the National Seniors lobby group said.

Michael O’Neill, the National Seniors chief executive, said more than one million people fall into this category and could be losing an amount equivalent to 25 per cent of a person’s wages.

‘‘Some pensioners might have $5000, $10,000 or $15,000 put aside in term deposits, so they are impacted through to those would might have substantially more than that and are totally reliant on it,’’ he said. 

‘‘So over the past 18 months, we’ve seen a reduction of about 1.75 per cent from about 6 per cent, so it’s over 25 per cent reduction in the interest rate on offer. So for people who are relying on that, it’s almost equivalent to comparing it with  people on a wage having a 25 per cent reduction on their wage.’’

There was no safety to be found in blue chip stocks today:

  • BHP: -0.8%
  • Rio: -0.2%
  • ANZ: -0.4%
  • CBA: 0.5%
  • NAB: -0.2%
  • Westpac: -0.5%
  • Fortescue: -2.4%
  • Woolworths: -0.4%
  • Wesfarmers: -0.9%
  • Telstra: -0.7%

Today's rate cut reflects the RBA's impatience with the housing market, writes BusinessDay's Michael Pascoe.

You could pretty much swap November and December around and not notice.

There was no smoking gun that demanded a rate cut last month and there's none offered to justify this month's, other than a subtle suggestion that the RBA was a little concerned about inflation last month and is less so today.

The bank is still saying the effect of previous monetary easing is yet to work its way through the system, so to read between the lines, it seems our central bankers have become a tad impatient about their lower interest rates stimulating demand, especially for new housing. Hence the latest trimming.

Click here for the full story.

The dollar edged up today even after the Reserve Bank of Australia cut its cash rate by a quarter point, a move so well discounted that it prompted a "buy on the fact" response.

The dollar initially slipped as low as $US1.0406 after rates were cut to 3 per cent, but quickly recovered to last fetch $US1.0447, up 0.3 per cent on the day.

"While the cut was as expected, a lack of an easing bias in the communiqué shot the AUD higher, and remains elevated," said Annette Beacher, head of Asia Pacific research at TD Securities in Singapore.

Traders said weak stop-losses around $US1.0450 were taken out and sent the dollar modestly higher.

Among the sectors, materials fell 1 per cent, gold miners dropped 20 per cent, energy lost 0.6 per cent and financials slipped 0.5 per cent. Health was the only sector to post gains, up 0.2 per cent.

The market has closed lower, weighed down by losses in the resources sector. The benchmark S&P/ASX200 dropped 27.9 points, or 0.6 per cent, to 4503.6, while the broader All Ords slipped 28.2 points, or 0.6 per cent, to 4511.8.

Westpac senior economist Matthew Hassan said the RBA may need to cut again in February to spur enough growth in the underperforming housing construction industry to help offset the drag on the economy from the mining sector, once the investment boom peaks in 2013.

‘‘So from our point of view a rate cut today and in February is very important for making sure dwelling construction is strengthening enough to offset the drag that is going to be coming from the mining sector,’’ he said.

But Mr Hassan said it could take between six and 12 months before Tuesday’s interest rate cut is felt by the housing market.

A group of negative economic figures in recent weeks made today's quarter of a percentage point rate cut by the Reserve Bank a fait accompli, writes BusinessDay's Mal Maiden.

Retail sales, company profits, housing and apartment starts, business confidence and investment intentions were all weak – and that throws the central bank's planning scenario for a smooth baton pass from a slowing resources sector to the rest of the economy into doubt.

Commodity prices are still strong compared with where they were before China's industrialisation boom triggered supply shortages from about 2003 onwards but they have fallen by an average of about 20 per cent in the past year as China's growth has slowed by about the same amount.

Mining company earnings are being squeezed by lower prices and rising costs and, as they delay or shelve some of their boom-time expansion plans, the expected peak of the investment phase of the resources boom has been brought in, to some time next year.

Click here for the full story.

And here's what CommSec's Craig James says on the jump in the dollar:

Lots of people are puzzled that the dollar actually rose despite the rate cut. ANZ currency strategist Andrew Salter's says the market may have misinterpreted some of the RBA comments as reflecting that it was coming to the end of its easing cycle:

  • There were a couple of lines in the statement that alluded to the RBA having put in place a large amount of stimulus in its easing cycle.
  • And that is obviously prima facie correct, and some in the market have extrapolated that to mean, incorrectly I think, that they’re looking towards ending their easing cycle.
  • The dollar surged following expectations in the market that the RBA would have issued a more dovish statement and that interest rates could have been eased by 50 basis points instead.
  • ANZ expects an easing bias in the forecast horizon.

Australia's rates are still one of the highest in the world despite the cut.

Countries such as the United States and Britain, where rates are near zero, have resorted to other steps to stimulate their economies such as buying large amounts of government debt.

More from Treasurer Wayne Swan, he says he expects the next set of economic growth figures to show a slight moderation.

But that doesn’t mean the economy won’t be resilient in the face of global volatility.

‘‘We’ve got the national accounts out tomorrow and I wouldn’t be surprised if we saw, you know, a slight moderation in growth,’’ Mr Swan told reporters in Canberra.

Markets are down 0.5 per cent now, accelerating losses since the RBA announcement. 

Another lender has moved. Online lender ING Direct passed on the full RBA cut and reduced its variable mortgage rates by 25 basis points, with the change coming into effect on December 24.

‘‘Our funding position has eased recently allowing us to pass on 25 basis points, however, the threat of elevated funding costs has not passed completely,’’ chief financial officer Glenn Baker said.

This follows Bank of Queensland trimming rates by 20 basis points.

 

Treasurer Wayne Swan says the central bank’s decision to cut the cash interest rate follows the federal government’s prudent management.

The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to three per cent, in a move that was widely expected by financial markets.

‘‘Today’s rate cut from the Reserve Bank is the early Christmas present that hard-working Aussies deserve,’’ Mr Swan told reporters in Canberra.

‘‘We’ve now had the equivalent of seven rate cuts over the past year and of course that’s been made possible by the government’s economic management, strong budget management and of course, contained inflation.’’

Here's a chart showing interest rate moves since early last decade:

Rates reaction. Su-Lin Ong, senior economist at RBC Capital Markets, pinpoints a key phrase in today's statement:

I think what's key for markets is the concluding statement where they have dropped the phrase 'policy is appropriate for the time being' and they're now suggesting settings are appropriate. It kind of hints that with cash down at historic low they're happy to see the full measures and how they impact and work their way through the economy.

We would argue the economy is clearly moving to a sub-trend pace. The cuts will help, we'll see how much is passed on by the banks, but given the weakness there's probably still scope for more.

Rates reaction. "(I) think they are still in the reluctant rate cutting mode," says Macquarie senior economist Brian Redican. 

"I think the urgency to actually find a replacement for mining investment has become quite acute. In 2013 there will be further aggressive rate cuts, although there is nothing in this statement that suggests that RBA is thinking along those lines."

First cab off the rank - Bank of Queensland has cut rates by 20 basis points, holding onto 5 basis points of today's cut.

More from Glenn Stevens:

  • Risks to the outlook are still seen to be on the downside, largely as a result of the situation in Europe, though the uncertainty over the course of US fiscal policy is also weighing on sentiment at present.
  • Around Asia generally, growth has been dampened by the more moderate Chinese expansion and the weakness in Europe.
  • Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past few months.
  • Looking ahead, recent data confirm that the peak in resource investment is approaching.As it does, there will be more scope for some other areas of demand to strengthen.

Here's our full story on today's rate cut. We're building it out with analysis and commentary so check back for the latest. Meantime, here's some of the thinking behind today's rates move.

Reserve Bank Governor Glenn Stevens said in a statement that while the full effects of earlier cuts were yet to be observed, ‘‘the board judged at today's meeting that a further easing in the stance of monetary policy was appropriate now’’.

‘‘This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time.’’

 

The sixth cut in the past 14 months was predicted by 20 of 28 economists surveyed by Bloomberg.

The rate matches the level reached from April-October 2009 that was the lowest since 1960.

The decision to ease the highest policy rate among major developed economies reflects Australia’s contained wage pressure and lower projected mining spending, as well as an unemployment rate at a 2 1/2-year high.

The ASX200 lost about 5 points in the minutes after the RBA decision was announced. It was headed for fresh intraday lows on the news. 

The Australian dollar rose more than a quarter of a US cent US cents cent after the central bank cut the cash rate to three per cent at its December board meeting.

The currency was trading at $US1.0424 at 2.29pm, just before the decision was announced, and rose to $US1.0455 by 2.31pm.

But it has since eased back below $US1.045.

The RBA cut rates by 25 basis points, the lowest since early October 2009, during the global financial crisis.

The previous interest rate move was a 25 basis point reduction in October this year.

The RBA has cut interest rates to 3 per cent, the lowest since 2009. 

Whitehaven Coal says a train derailment will interrupt shipments from the company’s Narrabri mine in NSW for at least another fortnight.

Trains will be unable to move coal between Narrabri underground mine and the Port of Newcastle after the track was damaged on November 28, Whitehaven said in a statement.

‘‘No date has yet been forecast by Australian Rail Track Corporation (ARTC) for completion of repairs to the track and the bridge, and investigations are still underway into the cause of the incident,’’ Whitehaven said.

The company said the track closure does not affect Whitehaven’s open cut operations or its Gunnedah Coal Handling and Preparation Plant.

Managing Director Tony Haggarty said Whitehaven was reviewing all options available to minimise the impact of the closure on its operations.

Speaking of building approvals, St George economists point out that despite the falls in October, an "uptrend is still in place". St George's Janu Chan says:

Monthly building approvals are notoriously volatile and we would urge caution against over-emphasising the downside of today’s results.  Looking through the month-to-month volatility, the upward trend in approvals is more apparent in NSW and Western Australia.

For the RBA to see its economic growth forecasts come to fruition it will most likely require (among other things) a lift in residential construction. Today’s results do not help the cause but an aggregate uptrend is in place. As the full impact of earlier RBA rate cuts and the likelihood of another take effect, we expect that the housing industry should see improvement as we progress through next year.

Following today's building approvals data, a new reports shows Australians are building the world’s biggest houses despite population increases putting housing availability in the nation’s cities at 100-year lows.

The State of Australian Cities 2012 report says the gap between population increase and housing supply has reached its highest level in a century.

The report a five-fold increase in housing close to the Sydney and Melbourne CBDs since 1986, compared to a doubling for homes on the outskirts of the two cities.

Despite this, the report finds Australians are building the largest houses in the world. The report highlights a decline in the number of new housing lots being produced, particularly in Sydney.

Just 30 minutes now, folks, until the RBA lets us all in on its rates decision.

It brings to mind a question for readers: do we all (including the business media) spend too much time and energy worrying about interest rates and the RBA? Or is our fixation justified?

"Another day, another batch of weak economic data," says CommSec's Craig James. In a note just a few minutes ago, he says:

Approvals to build new homes largely erased the previous month’s gains; the current account deficit rose again; and government spending slumped in the September quarter – recording the biggest quarterly fall in three years. The latest results add weight to the case for an interest rate cut.

The Federal Government is putting added pressure on the economy via its fixation on achieving a budget surplus within the next year. Certainly this is one factor that the Reserve Bank needs to take into account with today’s rate decision.

 

Now for some of today's winners on the ASX200:

  • Linc Energy: +4.83%
  • Myer: +3.76%
  • Macqarie Atlas: +3.38%
  • Graincorp: +3.22%
  • Cabcharge: +3.11%
  • Ten: +2.99%
  • Seven Group Holdings: +2.6%

A great Aussie entrepreneurial success story ... The founder of carsales.com.au started as a "software guy" and now runs a company worth $1.8 billion, writes Christopher Niesche.

As mentioned a few posts ago, markets are bumping along at a 0.3 per cent loss for the day. Here are some of the heavier sliders to this point:

  • Mesoblast: -5.41%
  • Integra Mining: -4.67%
  • Coalspur Mines: -3.93
  • Lynas: -3.2%  

As predicted, the federal Treasurer is adding his voice to the RBA proceedings today:

Investors are holding back until the Reserve Bank of Australia (RBA) delivers its decision on the cash rate at 2.30pm, CommSec market analyst Steven Daghlian says.

‘‘There is not much going on ahead of the Reserve Bank’s decision this afternoon,’’ he said. ‘‘Most stocks are not doing much ahead of the rates decision.’’

The RBA is expected to deliver a rate cut of 25 basis points, taking the cash rate to 3.00 per cent.

‘‘There are plenty of reasons for the RBA to actually make a move rather than not,’’ Mr Daghlian said.

Health stocks are out in front on the AX200, with info tech and consumer discretionary both in the positive too. All other sub indices are down:

  • Utilities: -1.02%
  • Materials: -0.78%
  • Industrials: -0.55%
  • Energy: -0.54%
  • Financials: -0.19%

Stocks are trading close to the day's lows, down 0.3 per cent, but they're really just treading water ahead of the RBA's rates decision, CommSec market analyst Steven Daghlian says:

  • There is not much going on ahead of the Reserve Bank’s decision this afternoon.
  • Most stocks are not doing much ahead of the rates decision.
  • There are plenty of reasons for the RBA to actually make a move rather than not.
  • A cut is likely to boost stocks.

The company in charge of Australia's two biggest gold mines, American giant Newmont Mining, has joined the list of big miners to seek a change of leadership.

Newmont announced overnight that chief executive Richard O'Brien will step down after more than five years in the job, and will be replaced by an internal candidate, Gary Goldberg.

Newmont is the largest gold producer in the US, owns the massive Boddington mine in the southern parts of Western Australia and half of the Superpit in Kalgoorlie Boulder.

The banks, though, are signalling a full rate cut is not on the cards.

The Australian Banker’s Association says the Reserve Bank does not expect banks and other lenders to exactly match every cash rate movement.

'‘The Reserve Bank board takes into account what borrowers are actually paying in the marketplace for loans and what they are receiving on deposits when making their decision,’’ chief executive Steven Munchenberg says.

 

Prime Minister Julia Gillard has chimed in on the rates discussion, trying to exert some pre-emptive pressure on retail banks to pass on a likely interest rate cut, saying it will help families in the run-up to Christmas.

‘‘The banks should certainly pass on in full any interest rate reduction if it is made,’’ Ms Gillard told reporters in Melbourne. ‘‘It’s very close to Christmas ... we want to see families benefit from any interest rate reduction that flows today.’’

Prime Minister Julia Gillard

Prime Minister Julia Gillard Photo: Tamara Voninski

Paul Mazzola, the associate head of the school of finance at the University of Wollongong, has given us a breakdown on why banks might not be passing on a rate cut in full if it happens.

He says it is true that overall, funding costs for banks have gone up. But he also argues that banks have a "social responsibility" to the community and the country:

  • [Banks'] access to funding comes in by the way of two main forms, that is, retail deposits and overseas funding. Most of that overseas funding comes from markets like Europe, and Europe has had its problems, so as these markets contract, and the access to those traditional markets are relatively tight, those costs become higher.
  • On the retail deposit side, if you recall prior to the GFC, the term deposits that people would invest their money in were attracting about 200 basis points below the cash rate at the time. Now, those same term deposits, because banks are competing heavily to attract this funding, are paying 20 basis points, 0.2 per cent, higher. 
  • So the banks are willing to pay more relative to the cash rate now than before the GFC. That tells you that the banks are needing these deposits to increase the ratio of their retail deposit funding on their balance sheets and therefore are willing to pay more.
  • But at the same time, banks are managing their wholesale and retail funding better than they were, as seen in their significant profits. So, their justification for not passing on interest rate decreases from the RBA cash rate are lessening.
  • There is also another consideration for banks - that of social responsibility. While banks operate in the free market like any other business and can set the interest rate they want, they are also providing essential services to the community.

Not everyone is supporting a rate cut. Some members of the ‘‘Shadow Board’’, a mix of nine economists and academics at the Centre for Applied Macroeconomic Analysis at Australian National University, support leaving rates unchanged.

‘‘Overall, the Shadow Board strongly supports leaving rates unchanged in December at 3.25 per cent, with around 55 per cent weight,’’ the shadow board said in a statement. ‘‘A decrease to 3.00 per cent receives approximately 30 per cent weight.’’

Preferring a cut to 3 per cent are Paul Bloxham, chief economist for HSBC in Australia and New Zealand, and Bank of America-Merrill Lynch chief economist Saul Eslake.

‘‘Although many of the academics see weakening inflationary pressures over the next six months, most prefer a slower path of adjustment for interest rates. Longer term, several experts anticipate that rates will have to rise,’’ the board said. 

Take a look at all their predictions here.

This year's interest rate cuts didn't do much for building approvals in October, according to new ABS data. Australian residential building approvals fell 7.6 per cent to 12,540 units in October. Forecasts were for a decline of 1.6 per cent.

This compares to an upwardly revised 13,575 units in September, seasonally adjusted. In the year to October, building approvals were up 14.5 per cent, the ABS said.

Here's a thought:

Australia’s current account deficit widened to $14.9 billion in the September quarter, seasonally adjusted.

This followed an upwardly revised  deficit of $12.369 billion in the June quarter, the Australian Bureau of Statistics (ABS) said. The median market forecast was for a deficit of $14.6 billion in the September quarter.

The deficit on goods and services in chain volume terms (adjusted for price changes) increased $490 million, which would add 0.1 percentage points to growth in the September quarter measure of gross domestic product (GDP), the ABS said.

Interesting piece from our MySmallBusiness section ... In a post-GFC economy, co-ops have become one of the fastest growing modes of business, and the "rock stars" are emerging within three main sectors, writes Claire Dunn.

Toro Energy will have a change of leadership around the time its controversial uranium mine proposal wins its final government approval, with its new leader to have strong experience in environmental management.

Toro announced today that Dr Vanessa Guthrie will replace incumbent Greg Hall on February 8, after Mr Hall decided to join copper producer Hillgrove Resources as chief executive.

Toro shares have risen 1 cent to 11.5 cents in early trading this morning.

Mr Hall will remain a board member of Toro, which is hoping to develop Australia's next uranium mine near the Western Australian town of Wiluna.

With the fiscal cliff debate in the US still looking like its got a way to run, the Chicago Board Options Exchange Volatility Index, known as the VIX, climbed 4.9 per cent to 16.64 yesterday, the highest close since November 15.

The gauge, based on US stock option prices, reflects expected market volatility and tends to rise during a period of financial stress, according to the CBOE’s website.

It hit a high point for the year in early June of 26.6 but has been fairly stable throughout 2012, perhaps reflecting the gradual improvement in US economic conditions. Although, with this recent rise, it looks like the cliff debate may be starting to worry investors. 

Australia’s dollar has edged higher in morning trade following a three-day decline amid predictions the nation’s central bank will lower the benchmark interest rate today.

‘‘We are expecting them to cut by 25 basis points,’’ Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company, said of a decision by the RBA. It was recently buying $US1.0429, up from $US1.0418 early today.

‘‘That’s been keeping a bit of lid on the Aussie.’’

Resources reporter Peter Ker notes that gold miner Oceanagold has been one of the big improvers of 2012, and is now is seeking to raise $93 million in a share placement to institutions.

The deal, which is open until December 18, will offer the shares to Citigroup and Macquarie at $3; a discount of close to 10 per cent on the last traded price of $3.27.

OceanGold shares were worth $1.70 in May, but have risen strongly in the second half of the year as investors realise the company was likely to prove the doubters wrong and bring the Didipio project in the Phillipines into production.

The share price hit $3.54 in October and last traded at $3.27. Here's our recent profile of Oceanagold.

Retail reporter Eli Greenblat writes that billionaire Solomon Lew has warned that the Australian economy has "run out of time" over the issue of the $1000 get free threshold for purchases made over the Internet with Australian jobs at businesses at risk.

"My message to the government is that we have all run out if time. Change needs to be made right now and if the government needs any further proof of what's at stake I have one word for them - JOBS!" Mr Lew said. More soon.

Myer is due to hold its AGM on Friday and could be one of the beneficiaries of a decision by the RBA to cut rates today. Its shares are 1.88 per cent higher to $2.18.

But today's gain comes after four days of losses. Before trade opened this morning, Myer shares had lost 5.4 per cent since last Tuesday. 

Bell Potter senior adviser Stuart Smith said the strong prospects of some more interest rate relief from the central bank prior to Christmas had supported the market in early trade, extending gains from a positive finish on Monday.

‘‘It certainly looks like we should have an interest rate cut and we will get it,’’ Mr Smith said.

 

The big banks are mixed in early trade:

  • CBA is 0.18% higher to $60.92
  • ANZ is flat at $24.69
  • NAB is 0.45% higher to $24.40
  • Westpac is 0.08% lower to $25.54 

The blue chips are showing mixed returns in a flat market. We'll take a look at the big miners first:

  • BHP is 0.35% lower to $34.42
  • Rio is 0.2% higher to $58.66
  • Fortescue is 0.53% lower to $3.74

Now for the early sliders on the ASX200:

  • Beadell Resources: -3.86%
  • Bathurst Resources: -2.9%
  • Mineral Deposits: -2.62%
  • Boart Longyear: -2.41%
  • Alumnina: -1.94%

Stockland shares are largely unmoved after the company this morning warned its earnings will fall by 15 per cent if the Victorian market fails to show any improvement. As we noted earlier, the company said there had been no change in the Victorian housing market since October, and it appears unlikely any improvement will be seen soon.

That will lead to Stockland’s earnings per share in the 2012/13 year falling by 15 per cent, the lower end of its previous guidance.

It's shares are 0.1 per cent higher to $3.40.

With markets flat despite negative leads, here are the best-performed companies on the ASX200 in early trade:

  • FKP Property Group: +3.57%
  • Linc Energy: +2.76%
  • Adelaide Brighton: +2.49%
  • Transpacific: +2.13%
  • Cabcharge: +2.07%
  • Myer: +1.88%

You may have noticed we've had a makeover. Hope you like it. We think it's a bit tidier and easier to read. Drop your thoughts into the comment field.

Also, if you want to have your say on whether the RBA will cut rates today, drop your views into the comments field too. Will they? Won't they? Will they go 50 basis points. Why should they? 

The interest rate futures market is fairly certain there'll be a 25 basis point cut today. Accroding to Credit Suisse data, here's this morning's pricing:

  • Today: 90% chance of a 25bp rate cut 

It opened yesterday at 83 per cent, up from a 58 per cent chance on November 26.

 

A quick look now at how the various sectors on the ASX200 are performing:

  • Materials: -0.29%
  • Health: -0.22%
  • Industrials: -0.05%
  • Energy: +0.27%
  • Consumer discretionary: +0.2%
  • Financials: +0.09%

The Australian share market has opened slightly lower after a fall on Wall Street caused by weaker than expected manufacturing activity in the US.

The benchmark S&P/ASX200 index is down 4.6 points, or 0.1 per cent, at 4,526.9, while the broader All Ordinaries index is down 4.7 points, or 0.1 per cent, at 4535.3.

On the ASX 24, the December share price index futures contract was 12 points lower at 4538 with 6271 contracts traded.

More on interest rates. Just as the ABA comes out with a familiar position on rates day, so the politicians have a well-worn stance to add to the mix. 

Finance Minister Penny Wong said the federal government expected the banks to pass on the cuts, if they happen, to their customers.

‘‘I don’t think any customers find the non passing-on of rate cuts a good thing,’’ she said on ABC Radio this morning.

We can expect to see the Treasurer putting in his 0.2 cents this afternoon should the RBA decide to lower rates.

US food processing giant Archer Daniels Midland Company (ADM) has increased its offer for grains marketer and maltster GrainCorp to $2.78 billion.The new offer is up from the $2.68 billion Graincorp rejected as too low in November.

‘‘The GrainCorp board will review the revised proposal and will advise the market in due course,’’ the company said in a statement. ADM has also increased its holding in Graincorp to 19.9 per cent after buying an additional five per cent stake on Monday.

That would mean it would pay about $2.25 billion to buy the rest of Graincorp’s shares. The new offer is for $12.20 per Graincorp share, up from the previous offer of $11.75.Graincorp shares last traded at $11.94.

Just looking at the China iron price, it has now slipped or been flat on 10 out of the last 11 trading days. Overnight, it lost 30 US cents to $US115.30, and is down from $US122.80 on November 19. 

It's fair to say 2012 has been a rollercoaster for the bulk commodity. It opened the year just below $US140 a metric tonne before peaking at $US149.40 on April 13. It then sunk to $US86.70 on September 5, before recovering through to the middle of late November.

But it now appears to be rolling off that recent peak. It will interesting to see if it settles at or just below current levels, which many believe to be a natural floor in the price of iron ore.

If you're just tuning in, for a comprehensive look at this morning’s business news check today’s need2know. Here are this morning’s key market numbers:

  • SPI futures were 16 points lower at 4534
  • The $A is higher at $US1.0419
  • In the US, the S&P500 was 0.47% lower at 1409.49
  • In Europe, the FTSE100 rose 0.08% to 5871.24
  • China iron ore lost 30 US cents to $US115.30 a metric tonne
  • Gold fell $0.29 to $US1716.80 an ounce
  • WTI crude oil rose 14 cents to $US89.05 a barrel
  • Reuters/Jefferies CRB index was flat at 298.98

A rates decision brings certain things with it. One is the standoff among the big banks about announcing how much of a rate cut, if any, they will pass on. Then there are the days, sometimes weeks, before we learn about their decision. And then there is the justification for holding onto a slice of it. And in recent times that’s been explained by funding costs.

The Australian Bankers' Association CEO Steve Munchenberg is already out on the hustings softening up the ground for his constituents. He said higher funding costs meant banks would not always pass on cuts to the Reserve Bank cash rate.

‘‘The Reserve Bank understands the cash rate is just one component of the true cost of banks’ funding and therefore does not expect banks and other lenders to exactly match every cash rate movement,’’ he said in a statement.

He said while the RBA has reduced the cash rate by 150 basis points in the past year, the major banks cut standard variable home loan rates by an average of 115 basis points because they faced funding cost pressures not passed on to their customers.

‘‘Banks are facing higher funding costs mainly due to the competitive rates being paid on deposits. Prior to the GFC, term deposits were priced on average 200 basis points below the cash rate. Now, they are 20 basis points above the cash rate,’’ he said.

He’s just doing his job, of course.

Some analyst rating changes for today:

  • Chorus cut to 'underweight' at JPMorgan
  • SMS Management raised to 'strong buy" at BBY
  • ASX raised to 'neutral' from 'sell' at Citigroup
  • Super Retail rated 'new neutral' at Nomura

 

Not much news around on the companies front today. Premier Investments holds its annual general meeting in Melbourne, and you can find a full list of today's AGMs here.

This morning, property group Stockland warned its earnings will fall by 15 per cent if the Victorian market fails to show any improvement. The company said there had been no change in the Victorian housing market since October, and it appears unlikely any improvement will be seen soon.

That will lead to Stockland’s earnings per share in the 2012/13 year falling by 15 per cent, the lower end of its previous guidance of a fall in earnings per share in the range of 10 to 15 per cent.

Stockland’s residential chief executive Mark Hunter said market uncertainty and a lack of consumer confidence were continuing to present challenging market conditions, particularly in Victoria.

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