Markets Live: Stocks regain ground

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 9:30.


US news

Looking to tonight, comments from Chicago Fed president Charles Evans (due to speak at 04:50) will be interesting, says IG Market’s Chris Weston.

“We have heard a raft of hawks of late, which has been positive in so much that a number of Fed members are looking past the weak December payrolls report.”

“However Charles Evans, while not a voter this year, has been a key voice of the Fed of late and is on the dovish side of the scale.”

“His comments could really solidify the view that the December payrolls report were a one-off and largely weather effected.”



So much for the age of thrift, Aussies are getting back into debt - good news for the banks.

Consumer and business lending is growing at the fastest pace since the global financial crisis as record low interest rates trigger a recovery in personal loans.

Personal financing improved for two consecutive months for the first time in almost a year, official data shows.

"We have just had the first back-to-back gains in personal lending since January and February last year," Commsec economist Savanth Sebastian told AAP.

"It's still early days but encouraging to see a lift in consumer borrowing."

Personal loan levels rose by 0.6 per cent in November to $7.925 billion, Australian Bureau of Statistics figures show.

Total lending finance - which includes personal loans, home mortgages, business lending and lease financing - grew by 23.1 per cent in the year to November, marking the fastest annual pace since January 2008, during the early days of the GFC.



Speaking of Oz Minerals, fancy some beaten-down bluechips?

Invast's chief market analyst Peter Esho has identified his top six contrarian picks for 2014, including a couple - Newcrest Mining and Oz Minerals - that have already shown some very early signs of a turnaround.

Esho admits that some of the stocks "might raise some eyebrows" but he stands firmly behind them. He points to BlueScope Steel as an example of how a beat-up blue-chip stock can reward the brave.

It was one of the worst performing stocks in 2012, but gained 64 per cent in 2013.

For the brave: Invast's top contrarian picks for 2014
For the brave: Invast's top contrarian picks for 2014 
shares up

No surprise that Oz Minerals is the best performer today, with a less heralded performer, uranium miner Paladin Energy, also up strongly off the back of solid quarterly production figures.

Gold miners led the charge downwards, while Wotif and Echo Entertainment shareholders had a day to forget.

Jan15 best and worst stocks at close
Jan15 best and worst stocks at close 
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market close

The ASX has clawed back some of yesterday's losses to finish 0.6 per cent higher for the day.

BHP was down 0.6 per cent after asset management giant BlackRock announced it reduced its ASX-listed holding in the miner. Rio Tinto was up 1.6 per cent, with analysts expecting Rio to tomorrow announce a big boost to its quarterly iron ore production. 

Cyclical sectors consumer discretionary and IT were up 1.5 per cent each.

Gold stocks were the exception to a broad uptrend, finishing down 2.7 per cent as a group.



The Australian dollar is threatening to drop below 89 US cents, trading at 89.14 US cent as it moves further away from yesterday's highs of 90.58 US cents.

The dollar was pushed down overnight after US retail sales came in better than expected, strengthening the greenback. Tighter money market conditions in China put further pressure on the dollar this afternoon.

But this year's weak start to commodity prices has also been weighing on the dollar, Westpac currency strategist Jonathan Cavenagh says.

The iron ore price has slipped below $US130 per tonne over the past day, its lowest level since July. Iron ore has already fallen by 3.5 per cent this year.

"The trend in that price is obviously very important for Australia's terms of trade story," Cavenagh says. "It looks as if we've still got a very strong iron ore export story, but on the price side of things, as with most other commodity prices, we haven't got off to a great start this year. So our overall commodity price index, which includes bulk commodities, is down. That trend has probably left the market happy to sell the Aussie above 90 US cents."

Another factor weighing on the Australian dollar in recent weeks has been the rise in the New Zealand dollar on the back of its strengthening economy.

"We saw a move up to $NZ108.50 but the better data out of New Zealand reversed a lot of that," Cavenagh says. "So certainly some of the weakness in AUD/USD reflected AUD/NZD selling and we also saw a bounce in EUR/AUD and GBR/AUD on the cross basis. It seems [when you] get a better environment of US data, generally what you will see is the Aussie dollar underperforming the crosses."


Privatisation, like so many Australian policy issues, often seems more the province of ideology than disinterested analysis, Michael Pascoe comments on the latest privatisation debate:

Some statement of belief will surface, cause a squall of claim and counter claims, and then blow over until the next time. Cue Rod Sims and a bunch of economists, never mind cautious politicians.

But a more sustained storm is brewing over our rich pickings – for all our capitalist ways, Australia has one of the world’s highest levels of government non-financial assets as a percentage of GDP. And whatever the federal government might get up to, state governments around the nation are facing increasing fiscal challenges that mean they won’t be able to afford to sit on lazy assets.

When the roof has a hole in it, the kids need shoes and you have to buy seed to plant the next crop, there’s no place for retaining the family silver.

Among OECD nations, Japan is out in front of us with government-owned assets equal to about 120 per cent of GDP. We score silver with governments holding roughly $1.5 trillion worth – the equivalent of our gross national product.

Read more


Surging electricity usage due to the extremely hot weather in southern Australia may result in blackouts as power generators struggle to cope, with large industrial users such as Alcoa’s Portland aluminium smelter expected to see supplies cut for a time.

Along with the intense heat, power supply in Victoria has been hit by unplanned cuts to output at some power stations, with one of the units at Loy Yang believed to be not generating at the moment.

The extreme heat, coupled with supply disruptions has prompted Australian Energy Markets Operator to warn of possible cuts to power supplies across South Australia and Victoria.

‘‘A combination of intense weather, high electricity consumption and some unplanned outages on the generation network has triggered the potential for load shedding to occur in parts of South Australia and Victoria,’’ AEMO said in a statement.

It has warned of possible cuts to supplies since late morning in Victoria, to avoid unscheduled blackouts due to extreme demand levels.

asian markets

It's a strong day around most of the region, with China once again swimming against the tide:

  • Japan (Nikkei): +1.7%
  • Hong Kong: +0.3%
  • Shanghai: -0.6%
  • Taiwan: +0.7%
  • Korea: +0.3%
  • ASX200: +0.5%
  • Singapore: +0.6%
  • New Zealand: +1%

Helping the better mood overall, the World Bank upgraded its forecast for global growth this year by two tenths to 3.2 per cent, and predicted a faster pace for both 2015 and 2016.

While it trimmed forecasts for some developing nations, including China, growth as a whole was seen accelerating to 5.3 per cent this year.

"The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries in the months ahead," said the bank's chief Jim Yong Kim.

Data from China showed new bank lending and money supply growth missed forecasts for December, suggesting the central bank's efforts to tap the brakes on credit expansion to contain debt levels are gaining traction.


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British online fashion retailer Asos says growth slowed in Australia and the US, two key markets, taking the shine off a big jump in Christmas sales.

Asos, founded in 2000 by current chief executive Nick Robertson, has been a success story in British retailing with its fast-changing fashions appealing to internet-savvy twentysomethings and attracting fans including US First Lady Michelle Obama and singer Rita Ora.

Its shares have more than doubled over the last year, giving it a market value of 5.8 billion pounds, only 2 billion pounds less than the 130 year-old Marks & Spencer, Britain's biggest clothing retailer.

"Though the impressive UK outcome should certainly be seen as reassuring, some people will be fretting about the overseas slowdown," independent retail analyst Nick Bubb said.

Growth in Asos's Rest of World (RoW) division, which includes Australia, Russia and China, slowed to 19 per cent from 26 per cent. Robertson said the segment was being dragged down by Australia.

"On a like-for-like basis because of the Australian dollar we are about 15 per cent more expensive than we were this time last year," he said.

world news

Star Australian fund managers Magellan have warned of the fat tail risks of the Federal Reserve’s unwind of extreme monetary policy.

In its semi-annual update to investors, Magellan said that the build up of $US2.4 trillion of excess deposits of US banks with the central bank could have catastrophic consequences.

“We continue to view the major current investment risk as what will happen when the Fed ends QE,” Hamish Douglass, CEO and portfolio manager, wrote in his semi-annual update to investors.

The fund sees two scenarios. The first is the more likely one of an orderly unwind of quantitative easing which results in the 10-year US bond rate rising to 4.5 per cent to 5.5 per cent over the next two and a half years. 

But Douglass refuses to rule out the possibility that the Federal Reserve botches its exit from QE and loses the confidence of the market.

“In this environment, it is not unthinkable that US 10-Year Treasury yields could hit 8 to 10 per cent over the next one-and-a-half to two-and-a-half years. We note that US 10-year bonds peaked at over 8 per cent in the last bond market crisis in 1994.”

“The bad news is that a rapid rise in the treasury yield is likely to cause massive market dislocations and increase global systemic risk.

“We could see large and rapid falls in asset prices, major moves in currency markets and massive global monetary flows.”

“Furthermore, liquidity could be rapidly withdrawn from certain emerging markets, possibly triggering an event similar to the 1997 Asian crisis.”

Again, not Douglass's base case, but it's obviously worrying him enough to say something about it.


The chief economist of the country’s biggest mortgage lender has blamed central banks for policies which inflame property prices and are set to fuel another year of debate about a possible housing bubble collapse.

Commonwealth Bank chief economist Michael Blythe says demand, which has been driven by rapid population growth and limited housing supply, is set to intensify as record low interest rates, courtesy of central bank policies, make buying more affordable but in turn fuel even higher house prices.

“Concerns about a housing 'bubble' have lifted in tandem with dwelling prices,” Blythe says in a note to CBA clients:

  • The risk of a speculative price overlay highlights the concerns about rising investor interest in the housing market.
  • But investor interest is a rational response to the environment created by central banks. Their actions have encouraged a search for yield, lifted risk appetite and created an environment where asset prices rise.
  • Concerns about the housing market are a focus for central bankers and dinner party conversationalists alike.

OZ Minerals is soaring after an upbeat production report. The shares are up a whopping 13.5 per cent, and have been as much as 20 per cent higher.

That is great news for shareholders that have persevered with a stock that was one of the worst performers last year when it shed 54 per cent.

But the sharp rise in the share price is painful for the legion of short-sellers that are betting against the stock.

It is difficult to speculate on the drivers behind market moves, but this could very well be a vicious short squeeze as short-sellers scramble to cover their positions on Wednesday.

OZ Minerals is one of the most shorted stocks in Asia. A list compiled by Markit had it among the 25 most shorted stocks last year.

Read more ($).



Offshore analysts are notably more bearish on the Aussie sharemarket than local investors, and a good example of that is a piece of research on Australia from French investment banks titled "Good things don't last forever".

The bank's strategists forecast the ASX 200 will finish the year 4.6 per cent lower to 5000, and will trade around 5100 by June.

They give three reasons why they're not keen on Aussie stocks:

  1. The Australian market follows commodity prices and "the short-term outlook for commodities remains weak due to the general slowdown in developing economies and in particular to the slowdown of Chinese growth. They also believe that "Chinese commodity-intensive infrastructure spending growth will be moderate going forward".
  2. The Aussie dollar is "highly overvalued" on long-term measures, and vulnerable to, again, a China slowdown. And stocks will be hurt by a currency correcition.
  3. The big attraction of Aussie stocks - their dividend yield - will become less attractive as global bond rates rise.


On that last one, equities have become steadily less attractive against bonds over the past year or so. The chart below shows this, with the horizontal line dividing prices where equities are cheap (above) or expensive (below) against bonds.

Think of it like a relay race: can Mr Market make a successful hand-off from dividends to earnings growth, or will he drop the baton?

Aussie equities still look cheap versus bonds
Aussie equities still look cheap versus bonds 
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Here's a quick analyst's take on the fall in the Australian dollar and the World Bank's China forecast:

"The overall report from the World Bank is still reasonably positive on the global outlook, but the fact that they are bringing their forecasts into line with the rest of the market around 2014 GDP growth for China, I think that's starting to probably help to weigh on sentiment a little bit further," Westpac currency strategist Jonathan Cavenagh said.

"From that perspective, it's very much a case of the market revisiting themes around slowing Chinese growth and better growth in some of the big major economies. Given the [Australian dollar] very close association with the China economic story, that's starting to feed into negative sentiment."



Credit rating agency Fitch Ratings has warned that a weakening economy and increased competition will create a more challenging environment for Australian bank profits.

Profit growth is likely to be modest at best – due to higher impairment charges and net interest margin pressure from strong loan competition, partially offset by moderately higher credit growth and a reduction in funding costs,” said the report, released today.

“Cost management should remain a key focus for the Australian banks. Wealth management and measured expansion into Asia provides earnings diversification for the larger banks.

The report described the challenges facing Australia’s banks as manageable with strengthening funding positions offsetting a slight deterioration in asset quality as the

The agency, however, warned that a sudden and severe slowdown in China, a decline in underwriting standards as banks compete aggressively for loans and disorder in the capital markets that impedes on access to funding could threaten its stable outlook on the banking sector.

Read more.


world news

Here's a bit more from the World Bank's report.

The global body said it expected global growth to rise from 2.4 per cent last year to 3.2 per cent this year.

Growth is then projected to stabilise at 3.4 per cent in 2015 and 3.5 per cent in 2016, "with much of the initial acceleration reflecting stronger growth in high-income economies".

"Growth appears to be strengthening in both high-income and developing countries, but downside risks continue to threaten the global economic recovery," World Bank Group president Jim Yong Kim said in a statement.

"The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries in the months ahead."

The World Bank said that while the world's economies appeared to be "finally turning the corner" five years after the financial crisis, growth would be vulnerable to a rise in global interest rates and the US Federal Reserve's wind-back of its unprecedented stimulus program this year.

Read the press release here.



In what is proving a popular column, Nathan Bell in BusinessDay has taken a big swing at Qantas and its boss, Alan Joyce:

"If one could locate the epicentre of shareholder unfriendly management, Alan Joyce would be standing atop it, middle finger raised at all beneath him."

He also warns off value investors who might be tempted to pick up shares in the devastated stock, saying that "even with a more considered and well-executed strategy, Qantas, like almost all airlines, is a poor business".

Read more.



Qantas chief Alan Joyce has thrown everything to get relief for the struggling airline.
Qantas chief Alan Joyce has thrown everything to get relief for the struggling airline. Photo: Louie Douvis

The Australian dollar has fallen slightly on the back of a World Bank report that forecasts China's growth to moderate as the world's second-largest economy moves away from investment-driven expansion.

The local currency, which already fell almost a cent overnight after encouraging US retail sales data, eased another quarter of a cent to 89.46 US cents after the report from the global body was published about noon today.

The World Bank said it expected Chinese GDP to stay flat this year at 7.7 per cent before slowing to 7.5 per cent over the next few years, "reflecting deleveraging and less reliance on policy-induced investment".

"The region is vulnerable to risks of disorderly unwinding in Chinese investment and abrupt tightening in global financing conditions," the World Bank added.

"Commodity exporters are also vulnerable to sharper than expected declines in commodity prices."


The Aussie dollar has taken a turn downwards
The Aussie dollar has taken a turn downwards 
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