Business

Markets Live: shares advance two days in a row

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That's it for Markets Live today.

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See you again at 9 on Monday.

shares down

Despite a positive run on Friday, Australian shares moved modestly lower over the week amid soft domestic and disappointing Chinese economic data.

Global investors are also growing cautious as the company earnings season looms in the United States.

The S&P/ASX 200 Index and the broader All Ordinaries Index lost 0.7 per cent over the week to close at 5486.8 points and 5474.6 points respectively, as the big four banks dragged the bourse lower.

“Most international sharemarkets retreated over the last week on worries that problems at some European banks might spark a return of its debt crisis and nervousness about a possible correction in the US,” AMP Capital head of investment strategy and chief economist Shane Oliver said.

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budget

Some Friday commentary from BusinessDay columnist Michael Pascoe:

"The circus of the Australian Senate this week certainly provided entertainment for the masses, or at least the Canberra community.

But under cover of the noise and theatrics, a genuinely serious problem is starting to build for the nation.

It really doesn’t matter much if the carbon price was scrapped yesterday, next week or next month.

Given how much it’s costing Clive Palmer in dollars and Tony Abbott in reputation, the one sure thing is that it will go.

Yet to be seen is exactly what sort of amendment the Palmer United Party wants and what the government will accept – though it looks like the government will accept anything right now to fulfil its election chant of axing the tax."

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forecast

Here's some advice from The Australian Financial Review's markets columnist Phil Baker on how to spot a winning stock:

"For all its fancy jargon and complex theory, investing is about nothing more than making money in a sensible fashion. Those with the highest returns from the right strategy win.

But spotting winners isn’t easy. US stocks have outperformed over the past 12 months, but with Federal Reserve support looking as though it has peaked, along with their operating margins, the only avenue left for growth is mergers and acquisitions, which is stock-specific and not enough to push the Dow Jones or S&P 500 higher.

The US profit-reporting season is starting to take off and will be a major focus for investors next week, when more than 50 companies from the S&P 500 report their second-quarter numbers. Analysts polled by Thomson Reuters expect S&P 500 earnings to grow 6.2 per cent in the three months to June 30 – down from 9.7 per cent on January 1 – but up from 5.6 per cent in the March quarter."

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shares down

Here's an account of how the week traded.

Shares are down 0.7 per cent for the past five days, making it the worst week for equities in four weeks.

The week that was
The week that was 
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Farming

Now here's some depressing news: chocolate, the great mood lifter, is getting more expensive.

It's enough to leave a bitter taste in your mouth. The price of cocoa has soared close to three-year highs, surging 45.7 per cent since March last year, while cocoa butter - the main ingredient for chocolate, derived from the cocoa bean - has almost doubled, rising about 96 per cent.

Chocolate cravings across Asia, which is experiencing a rapidly growing middle class, have been linked to the price rise, with chocolate makers already passing on the cost to shoppers.

Upmarket confectionary maker Haigh's, which will celebrate its centenary next year, has increased the price of its products by an average of 3 per cent.

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market close

The S&P/ASX 200 Index closed 22 points higher or 0.4 per cent ahead to 5486.8 points.

Winners and losers at the close
Winners and losers at the close 
banks

Important developments at Commonwealth Bank of Australia, reports Colin Kruger.

"The Commonwealth Bank can’t be accused of appointing an unknown quantity to head the sweeping review of its wealth management unit’s compo process.

Liberal party favourite, and former High Court judge, Ian Callinan, has been appointed chairman of the independent review panel reporting to CBA chief, Ian Narev. 

It’s a deja vu for Callinan, who was brought in as an independent arbitrator five years ago by then CBA chief Ralph Norris to sort out the mess of its involvement in the collapse of financial adviser, Storm Financial."

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mining

JPMorgan has previewed the copper sector's second-quarter production reports and finds:

  • Prospect for weaker outcomes at PanAust (overweight) and an opportunity for the market to pose questions around the Guangdong Rising Assets Management (GRAM) offer. The broker separately thinks there is a "reasonable probability of a revised bid".
  • The focus will be on 2014-15 production guidance at Sandfire Resources (neutral)
  • Weaker quarter-on-quarter production at OZ Minerals (neutral) and need for clarity around the company's strategy for Carrapateena.
cars

CIMB has lifted its price target on Transurban to $7.97 from $7.29 and retained its add recommendation and top sector pick.

Acquisitions and expansion of its existing assets should pave the way for revenue growth in 2014-15.

Critical to CIMB's forecasts are a 5.1 per cent yield and 9 per cent dividend per share growth.

Transurban EBITDA waterfall chart
Transurban EBITDA waterfall chart 
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shares up

Deutsche Bank has initiated coverage on Scentre Group with a buy rating and $3.65 price target.

The broker this the market is not recognising the potential of Scentre's development and property management platform.

It also denounces the "myth" that deleveraging is an earnings growth killer, saying Scentre can roll-out its 2018 development pipeline and maintain gearing at current levels.

 

Scentre debt analysis
Scentre debt analysis 
money

MFS Investment Management has likened fund managers to goal keepers in their capacity to fall into a trap of "action bias" - moving for the sake of it.

"A goalkeeper is expected to act. In the case of a penalty kick, the norm is to dive. A scored goal is perceived to be less disappointing when it follows action, which is the norm. Innate self-confidence, years of training and the crowd’s expectations further contribute to this suboptimal decision. 

"If the goalie dives, then he feels that he did his best to stop the ball, and so does almost everyone else. On the other hand, a scored goal is perceived to be worse when it follows inaction, which is a deviation from the norm...

"Portfolio managers can often fall into the same trap of action bias — trading frequently, with confidence that this action adds value."

The truth is, it doesn't. "An awareness of this action bias may help them recognize that inaction can be an optimal strategy."

legal

Australian singer Megan Washington has won a significant settlement from Qantas after the airline misused a video of her performing I Still Call Australia Home at a corporate event.

The ARIA award-winning artist took legal action against the airline last year, seeking $500,000 damages for its alleged unauthorised use of a recording of her singing at Qantas' 90th anniversary party.

The airline then used the video on its website, YouTube channel, and during in-flight entertainment.

Ms Washington said the use raised issues of copyright and her reputation.

The use of the video also potentially breached the agreement between Ms Washington and the airline over the performance.

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Qantas has settled with Megan Washington
Qantas has settled with Megan Washington Photo: Louie Douvis
rba

Over at The Australian Financial Review, Mark Mulligan reports on subtle changes in the interest rate outlook:

Sluggish economic growth and crimps on household spending could force the Reserve Bank to cut interest rates as soon as September, according to one of Australia’s leading economists.

Goldman Sachs’s head of portfolio strategy Tim Toohey said wage and others pressures on household incomes, slower mining export growth and a long lag before new growth drivers kick in could force the RBA’s hand within months. The bank forecasts a 25 basis point cut in the cash rate to 2.25 per cent.

Goldman Sachs is the first financial house to break away from the pack, with most banks now forecasting a rate rise some time next year, after retreating from earlier predictions of a cut in 2014. Commonwealth Bank of Australia is sticking to its forecast of a rise this year.

However, a raft of downbeat indicators this week – including higher unemployment, stubbornly weak consumer sentiment and spending and mixed signals from business – could force some of them to reconsider.

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power

Electricity prices could be headed for a decline in real terms in NSW for the first time in living memory, with the industry regulator flagging a reduction could be in order thanks to a decline in interest rates and slowing spending by the big network owners such as Ausgrid and Endeavour Energy.

The signal comes at the start of a new regulatory regime which is aimed at preventing "gold plating'' of the network following a period of massive spending which has rivalled the $30 billion-plus cost of the national broadband network.

The NSW government-owned network companies - Ausgrid, Endeavour Energy and Essential Energy - have applied to raise prices around 2.2-2.4 per cent a year over the next five years, a little less than the expected rate of inflation.

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legal

Commonwealth Bank of Australia has appointed the former High Court judge Ian Callinan as chairman of the independent review panel it was forced to establish in the wake of a damning Senate committee report last month.

Mr Callinan, who begins his work with the bank today, will initially advise the bank's chief executive Ian Narev on designing the compensation program “to ensure it fulfils its primary objective of supporting affected customers and guaranteeing an independent review of their cases,” CBA said.

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housing

Australia's housing boom is cooling off, but the market remains strong, as home loan approvals held steady in May.

There were 52,092 approvals in the month, compared to 52,071 approvals in April, the Australian Bureau of Statistics said on Friday.

That was better than the 0.5 per cent fall in housing finance commitments that economists were expecting.

The figures were another sign that the housing market is taking a break after a year of strong growth, said ANZ head of Australian economics Justin Fabo.

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ASX

Here's how the All Ordinaries are going.

All Ordinaries winners and losers mid-session
All Ordinaries winners and losers mid-session 
Takeover

Roc Oil’s biggest shareholder, Allan Gray, has failed in a challenge to the company’s planned $800 million merger with Horizon Oil. He had argued a loophole in listing rules allowed such deals to happen without investor consent.

Fund manager Allan Gray, which owns 19.9 per cent of Roc, called an extraordinary general meeting in Sydney on Friday in a bid to change Roc’s constitution and allow Roc investors to vote on the Horizon transaction.

Under ASX listing rules, one company can buy another with its shares without getting approval from its own shareholders.

While the resolution required the support of 75 per cent of Roc’s register, only 46 per cent of proxy votes cast backed the proposed change, with 53 per cent of votes cast against the constitutional change.

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gold

Safe haven buying has spurred gold to highest in more than three months amid renewed fears about Europe's banking system.

The precious metal surged 1.1 per cent in overseas trade on Thursday night to $US1339.20 an ounce, bringing the gains for the year to date to 11.26 per cent, according to Bloomberg.

Concerns about the heath of a top-listed Portuguese bank appeared to be the catalyst for the spike, sparking fresh fears about a looming banking crisis in the euro zone.

Espirito Santo Financial Group, the largest shareholder in Portugal's Banco Espirito Santo, suspended trading in its shares and bonds, citing "material difficulties" at parent company ESI.

Rivkin chief executive Scott Schuberg said: "once again the Europeans are getting worried about the health of those large-enough-to-matter economies that have required assistance in the past", citing Portugal, Ireland, Italy, Greece and Spain.

But Mr Schuberg said the rise in gold was not a "convincing break".

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