That’s it for Markets Live for the week.
You can read a wrap-up of the action on the markets here.
Thanks for reading and your comments.
Have a great weekend and see you all again Monday morning from 9.
August company reporting season has provided enough good news to drive Australian shares up over seven consecutive sessions to a fresh six-year high.
As expected, company results delivered over the past week largely confirmed sluggish earnings growth in the past financial year. But many businesses expressed optimism about the year ahead. Some big names, including AMP and Wesfarmers, cheered investors with higher dividends.
The benchmark S&P/ASX 200 Index added 1.4 per cent to 5645.6 points, while the broader All Ordinaries Index advanced 1.5 per cent to 5640.5 points over the week. In the absence of any major economic news, a swag of full-year corporate results were in focus.
Australian shares are up 2.4 per cent since the current winning streak began on August 14, helped by a strong lead from the United States with the S&P 500 at an all-time high.
“Shares continued to move up over the past week helped by a combination of good economic data in the US, expectations that central banks will remain supportive and as geopolitics took a back seat. Good earnings results also helped boost Australian equities to a post GFC high,” AMP Capital head of investment strategy Shane Oliver said.
On Friday, the local sharemarket added 0.1 per cent. Oil and gas producer Santos was a highlight, adding 3.9 per cent to $15.16 per cent on Friday after announcing a bumper dividend. The stock rose 5.3 per cent over the week.
Energy was the best-performing sector over the week, up 3.6 per cent. Origin Energy lifted 5.6 per cent to $14.84 despite showing a weak full-year profit on Thursday as the company shared a more optimistic outlook for this year.
Financial markets data provider IRESS was the best-performing stock in the ASX 200 over the week, climbing 13.6 per cent to $9.97 after showing a 47.9 per cent pick-up in underyling annual profit on Thursday.
The big four banks diverged over the week. ANZ and Westpac led the market’s gains. NAB dipped after posting a disappointing quarterly trading update on Monday. CBA also declined. Telecommunications behemoth Telstra lifted 2.3 per cent to $5.71.
Ratings agency Standard & Poor's has raised its long-term corporate credit rating on Fortescue to 'BB+', from 'BB', with a stable outlook.
"The upgrades reflect our view that Fortescue has substantially improved its credit profile with its debt reduction, successful production ramp-up to 155 million tonnes per annum in the June 2014 quarter, and improving credit metrics," says Standard & Poor's credit analyst May Zhong.
Zhong believes the big reduction in the size of Fortescue's debt pile will improve its ability to absorb earnings volatility from weaker commodity prices.
Since November 2013, the company has prepaid $US3.1 billion of its debt, cutting its gross debt to $US9.6 billion at June 30, 2014, S&P notes.
And here are the best and worst performers in the ASX 200 today, with Mermaid Marine singing its siren song to investors today - up 6.9 per cent on its earnings announcement. Santos was the biggest name sitting next to a green bar, up 3.9 per cent.
At the other end of the scale are a bunch of iron ore miners.
Seven West media director David Leckie has resigned his post but will stay on as a consultant to billionaire Kerry Stokes' conglomerate.
"The new multi-year agreement builds on Mr Leckie's consultancy to the company over the past two years. Mr Leckie will consult to both Seven West Media Limited and Seven Group Holdings Limited (which has a 35 per cent shareholding in Seven West Media Limited)," Seven said this afternoon.
"With the new agreement, Mr Leckie has advised Seven Group Holdings Limited that today he resigns as a director on the board of that company."
Stokes said he welcomed Leckie's continued involvement with the company. "His track record of success is well-documented and our management teams continue to work closely with him in his consulting role," he said.
When Leckie was replaced by former Woodside chief executive Don Voelte in June 2012, Leckie agreed to an ''advisory and counsel role'' as well as a board seat on Mr Stokes' Seven Group Holdings, which controls Seven West.Back to top
Shares managed a seventh straight day of gains, with the ASX 200 up 1.4 per cent for the week after inching 7 points, or 0.1 per cent, higher to 5645.6.
The All Ords was up a similar amount for the day, closing at 5640.5.
Solid performances from ANZ, CBA and NAB underpinned the days gains, while Westpac joined BHP and Telstra limited them. Fortescue and Rio also fell as the iron ore price continued its downward slide.
Santos jumped 3.9 per cent on its profit announcement, which included a pleasant dividend surprise, while Asciano and Brambles added 2.8 and 1.1 per cent, respectively.
We got married in a fever, hotter than a pepper sprout,
We've been talkin' 'bout Jackson, ever since the fire went out.
I'm goin' to Jackson, I'm gonna mess around,
Yeah, I'm goin' to Jackson,
Look out Jackson town.
Equities have drifted higher, with a cautious tone prevailing as investors look ahead to the central bankers meeting in Jackson Hole, Wyoming, and Janet Yellen’s speech, IG's Stan Shamu notes:
- It seems the market is broadly expecting Yellen to remain fairly dovish, focusing on measures of labour market slack that support continued policy accommodation. In such a case, we might see a stall in the USD rally, followed by a reversal in most of the key currency pairs.
- However, any shift away from her usual dovish stance could be a game changer and lead to further USD strength in the near term, bearing in mind yesterday’s minutes showed a switch to a modestly hawkish view. The key from the minutes was the fact the Fed views the labour market as improving more rapidly than expected. This could lead to a revision in the ‘underutilisation’ of the labour market view.
- If Yellen comes in dovish ‘as expected’ but doesn’t go above and beyond what we already know, this could lead to a sell-the-fact affair in equities. A likely scenario is we’ll see equities extend gains initially before profit taking kicks in.
- At the same time, any signs of a shift in Yellen’s tone away from her usual views is likely to be construed as moderately hawkish. In this case, equities are likely to come under pressure anyway. As a result, there is a good chance equities are in for a near-term pullback but this certainly doesn’t mean it’s the end of the rally.
And here's the probably best known version of Jackson, sung by Johnny Cash and June Carter.
Qantas will look to cut costs in its international division by re-timing some of its flights to the US so that its aircraft spend more time in the air and less on the ground.
It also plans to bolster its dominant position in the trans-Pacific market by adding more flights from Melbourne to Los Angeles and Sydney to Santiago.
The airline has said it will cut $1 billion - or one-third - of the controllable costs in its international division over the next three years. Only about $200 million of those savings have been outlined to date.
Qantas International chief executive Simon Hickey said the airline was introducing a new approach to aircraft utilisation to take advantage of market opportunities. The company has already increased the hours flown by its A380s and its 737s in the domestic division through schedule changes this year, such as retiming its Melbourne-Dubai-London flights.
"Aircraft are one of our biggest fixed costs, so we continue to look for opportunities across our network to generate revenue and increase services for customers," Mr Hickey said.
The adjustments to the trans-Pacific schedule announced on Friday will result in one of its two Sydney-Los Angeles flights shifting from a morning to an evening departure. Qantas will also add three weekly flights from Melbourne to Los Angeles departing in the evening on Wednesday, Friday and Sunday from January 21.
By this morning around half of the top 200 companies who are reporting this season had done so. But more like three quarters by market cap.
Citi have produced this useful summary of where we're at. As you can see, top line sales as measured by sales and EBIT have come in below expectations, as have net profits and earnings per share.
The fact that profits have come in closer to forecasts than sales have looks thanks to more aggressive cost control, as EBIT margins have improved.
Two thirds of reporting companies reported earnings per share in line with forecasts, according to Citi.
Nostalgia aside, the old BHP doesn't exist, writes BusinessDay columnist Michael Pascoe:
It has been an easy and tempting line: the restructuring of BHP Billiton announced this week was something of a demerger of the old BHP and old Billiton.
Too bad it's wrong.
There's a surface appeal to the notion, particularly for any journalist who must regularly type "BHP Billiton". How nice if the spin-off was called Billiton and the remaining core company became just BHP again – it would save eight letters.
And, with the exception of the NSW south coast coal, the spin-off has a Billitonish flavour – the South African stuff, aluminium, bits and pieces. But the retained core isn't the old BHP.
The old BHP has long since ceased to exist.
It's a fair observation from someone who was there at the time of the merger that much of the present commentary on the demerger is simply wrong.
The transformation of the company has been so vast that there is no old BHP.
At the time of the merger, steel was one of the largest business units, petroleum was primarily in the North Sea, Rio was the dominant resources company and BHP had comparatively little access to overseas capital markets.
My source used the analogy that it is like looking at a catalytic converter and saying nothing has happened because the catalyst is about the same.
I'm still digesting that, but I think I almost know what's meant.
Assessing the merger of BHP and Billiton isn't as simple as saying it was assets A, B and C from here and D, E and F from there.
It also was a mechanism for genuinely internationalising what was the Big Australian, both its structure with the dual listing and its management, board and outlook.Back to top
Australia's big four banks and AMP have moved to beef up educational standards for financial planners as they struggle to stem a crisis of confidence in the advice industry.
AMP triggered the stampede on Thursday morning when it became the second of the major advice networks to unveil an upgrade to educational standards, which are currently less demanding than those required to be a hairdresser, along with a new complaints process.
By the end of the day, NAB, which owns advice group MLC, emerged as the institution setting the highest bar, saying its financial planners will be required to have a university degree and hold Certified Financial Planner (CFP) accreditation by 2017.
Westpac has also brought forward plans to lift education among its planners and embrace the CFP standard, a process that the bank said had been in train for several weeks.
And an ANZ spokeswoman said that while the bank did not currently require CFP accreditation, "we are moving to mandate this and are looking at how we will transition to this standard".
The contest for the educational high ground follows scandals at CBA and Macquarie and came on the day the head of the financial system inquiry, David Murray, turned up the heat on the sector, saying the industry needed to "build trust with their own customers".
Mr Murray, himself a former chief executive of CBA, has also criticised the "vertical integration" model in the industry, where advisers largely recommend the investment products of their own organisation.
Australian miners may whine about the minerals resource tax - but at least they don’t have fears of the Ebola virus affecting production and boosting costs to contend with.
Overnight in the UK, African iron ore mining minnow London Mining warned of ‘‘Ebola-related costs’’ of $US1 a tonne, due to a raft of safety measures it has been forced to implement such as monitoring the health of staff and visitors, restricting visitors and personnel coming from Ebola affected areas, all of which are weighing on productivity.
The returns on CBA's latest hybrid issue are way too low, Christopher Joye writes on the AFR:
So retail investors have to wrap their heads around another mind-bogglingly complex bank “hybrid” in the form of Commonwealth Bank of Australia’s perpetual “Perls VII” security, which has a range of difficult-to-price risks that convert it into equity – or write it off altogether – in various downside scenarios.
While the British government has temporarily banned the sale of these products to punters, mums and dads in Australia are expected to pour more than $2.5 billion into Perls VII. (There are some differences between Australian and UK hybrids that make the latter even riskier.)
The latest generation of bank hybrids, in contrast to predecessors, have been expressly designed by regulators to serve as “loss-absorbing” equity capital at the worst possible times to mitigate the likelihood of banks going bust and / or drawing on the public purse.
Notwithstanding this, I have tried hard to rationalise jumping on the Perls VII bandwagon. After all, the annual margin of 2.8 per cent above the bank bill rate, which translates to a total dividend of 5.45 per cent, seems appealing relative to term deposit rates.
At the same time, the Perls VII return looks miserable compared to the dividend yield on CBA shares, which is 7.7 per cent (grossed up for franking), or about 5 per cent above the bank bill rate.
This disconnect between the returns between two investments – bank hybrids and bank shares – which are both treated as equity by regulator the Australian Prudential Regulation Authority (APRA), is the purest expression of the funding cost arbitrage bankers are exploiting.
US department store stalwart Sears Holdings announced Thursday that it had lost nearly $US1 billion in the first six months of the year.
The company has been bleeding money for several quarters as its leadership tries to transform the business from a traditional retailer into a more targeted company that relies on loyal shoppers, who are offered personalised deals.
Members of its free Shop Your Way rewards program accounted for 73 per cent of quarterly sales, the company said Thursday, and its online sales in the quarter grew 18 percent from the period a year earlier.
Nonetheless, rewards for the company have not materialised.
Sears Holdings, which owns Sears and Kmart stores, lost $US573 million in its second quarter and $US975 million during the first half of the year.
The company's quarterly revenue declined to $US8.01 billion, from $US8.87 billion in the period a year earlier.
The company's chief executive, Edward Lampert, a hedge fund magnate whose investment acumen was once compared to that of Warren Buffett, called the performance unacceptable and sought to assure investors that he was committed to reversing the retailer's fortunes.
Part of Lampert's plan for Sears includes closing underperforming stores. The company reported that it had closed about 95 stores this year, out of about 130 locations it previously said it would close. Once those stores are shuttered, the company will have about 1,900 US Sears and Kmart big-box stores.
Not much action on the market this afternoon, but the ASX200 is still on track for a seventh straight day of gains and a weekly rise of 1.6 per cent.
"What the market has been particularly bolstered by is the market capital return to shareholders, be it increased dividends, special dividends, or buybacks," says Tony Russell, senior equities adviser and stockbroker at Morgans.
"In a climate of low interest rates, investors have really warmed to that."
Among companies reporting today, Santos has soared 3.8 per cent to $15.15, its highest since November 2013, after the oil and gas producer beat forecasts with a 3 per cent rise in first-half core profit.
Atlas Iron has dropped 5.5 per cent to 64.75 cents after warning it would book around $25 million in impairment charges for the 2014 financial year after selling its stake in Shaw River Manganese, some tenements and office space in a move to cut costs.
A handful of stocks have also gone ex-dividend, with Fairfax Media sliding 1.1 per cent, Domino's down 1.7 per cent, and casino operator Echo Entertainment falling 2.8 per cent.Back to top
It was only a few weeks back we noted biotech stock Sirtex had topped $1 billion market cap. Now, with its shares up another 2.9 per cent at a new peak of $21, it is knocking on the door of a $1.2 billion capitalisation.
Is it overbought?
Earlier in the week, we mentioned Baillieu Holst had lifted its price target to $26 from $21 as Bell Potter raised its target to $21.98.
Also worth pointing out is Goldman Sachs, with a ‘neutral’ stance, as has Macquarie, which told investors this week it ‘‘remain strong believers in SRX's technology, the growth potential of the company and the impressive execution thus far by management’’.
‘‘With the company trading on 38.5x next year's earnings and ahead of our valuation, however, we stick with a Neutral recommendation.’’
Still, Moelis is more upbeat, maintaining its ‘buy’ call.
Sirtex shares have rocketed 80 per cent since the beginning of the year.
Telstra chief executive David Thodey says call centre jobs across a range of sectors will not exist in five years thanks to the internet and smartphone applications.
Thodey told ABC Radio’s Jon Faine in Melbourne that he understood the “enormous costs” to local communities caused by taking away call centre jobs.
Telstra made 1600 positions redundant in the 12 months ending June 30.
“More and more you’ll use an application on your phone and you’ll use the web to interact with us so the future of call centre jobs is less in the future,” he said. “In reality Jon [Faine] these jobs will not exist in five years.
“If you think about how you interact with the bank today you don’t go into the bank branch that often. And that’s going to be the truth about many of the traditional service related jobs – it’s going to be more and more digitally done.”
Thodey also said Telstra had created a net addition of 400 extra Australian jobs in the past 12 months in different business areas.
Nathan Tinkler's pursuit of a $150 million coal mine in Queensland may have taken another turn for the worse but the fallen tycoon refuses to raise the white flag, even after the seizure of his thoroughbred racing empire, Patinack Farm.
According to sources Mr Tinkler has shifted his focus to Western Australia and intends to use a shell company registered in that state to engineer the acquisition of Peabody Energy's Wilkie Creek asset.
As Fairfax Media reported last month, the former billionaire skipped a partial payment for the coal mine at the end of June.
Peabody then extended the deadline until the end of July. However it's understood Mr Tinkler, who now lives in Singapore, failed to meet this second payment hurdle.
Theses successive breaches add to the gathering gloom enveloping the reclusive mining entrepreneur, who has been caught in a downward spiral since June 2013, when a slump in coal prices hastened a dramatic unravelling of his multi-billion dollar empire.
Google has no plans to take on the nation's big banks in payments by launching its "digital wallet" in the domestic market, says Australian managing director Maile Carnegie.
Unveiled to much hype in the United States in 2011, Google Wallet sought to replace credit cards by allowing customers to pay for purchases with their smartphones.
But while some local start-ups are eyeing payments services, a market dominated by banks, Ms Carnegie on Thursday said this was not a high priority for the technology giant.
She said Australia rather was one of the world's most innovative markets for digital financial services, leaving few obvious gaps for the company to fill.
"I have no plans to launch it in Australia," Ms Carnegie said at a Trans-Tasman Business Circle lunch in Sydney.
"My job is to really look and say, 'what are the big problems or opportunities to solve in Australia?' and there are much more exciting things on my plate."
The S&P500 may be at record levels, but the chart below shows that over the past 14 years (since 2000) there are a number of asset classes that have performed much better, at least in the US.
Topping the list - which comes courtesy of the Novel Investor website - are actually REITs, which have beaten all other asset classes in eight of the past 14 years (including 2014 to date), despite some severe slumps during the GFC, posting an annualised return of 12.9 per cent.
Next best asset class is emerging markets stocks, followed by high-yield bonds, while large caps stocks, as measured by the benchmark S&P500 index, come a disappointing sixth with an annual return of just 4.3 per cent.
The article on Novel Investor comes with a nice table that shows the ranking of each asset class in individual years too.
In case you're wondering: the AA (Asset Allocation) portfolio is made up of 15% large cap stocks, 15% international stocks, 10% small cap stocks, 10% emerging market stocks, 10% REITs, 40% high-grade bonds, and annual rebalancing.Back to top