Markets Live: TWE high on Pernod

That’s it for Markets Live for today and 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, see you all again Monday morning from 9.


Despite shares edging higher on Friday, the local market declined over the past week. May trading got off to a negative start as investors question whether the biggest bank stocks can continue to rise and the biggest miners come under pressure from falling iron ore prices.

The benchmark S&P/ASX 200 Index lost 1.4 per cent, over the past week to 5458.1, while the broader All Ordinaries Index also shed 1.4 per cent to 5438.8, as local shares declined despite a buoyant lead from the United States where the Dow Jones Industrial Index hit a fresh record.

After the US Federal Reserve continued to reduce its stimulus and provided a more upbeat outlook, investors were expecting the non-farm payrolls data due to be released tonight local time to show 220,000 new jobs were created in April.

"The result could be even higher, but even if the critical jobs data comes in below expectations at this stage the Fed is going to stay true to the course of its tapering program," BlackRock Australia head of fixed income Stephen Miller said.

The ASX200 and the All Ords both added 0.2 per cent on Friday as three of the big four banks lifted and investment bank Macquarie Group rose 0.9 per cent to $58.70 after reporting a bigger than expected 49 per cent jump in annual profit but not lifting the dividend as much as analysts had hoped. Macquarie posted a 2.8 per cent gain for the week.

Read more.


And here they are, best and worst for the day.

Treasury Wine tops the list, although the steam came out of the shares after both the company and Pernod Ricard denied talk of the latter buying the former's US wine assets.

Transfield Services got a boost after the company confirmed it's in the process of raising money to refinance debts.

Best and worst performing stocks in the ASX 200 today.
Best and worst performing stocks in the ASX 200 today. 
market close

Banks led the way back into the black after the market traded underwater for most of the session, as investors ended up rewarding Macquarie for a solid full-year profit result.

The ASX 200 clawed back early losses and enjoyed a late rally to close 9 points higher for the day at 5458.1, while the All Ords gained 8 points to 5438.8.

CBA, ANZ and Westpac all closed between 0.5 and 0.8 per cent higher, with NAB the only one of the Big Four to lose ground, sliding 0.4 per cent. Macquarie closed 0.9 per cent higher after investors initially sold the stock down.

Along with NAB, BHP was a drag on the market, dropping 0.6 per cent. Coca-Cola fell 1.5 per cent.

Energy stocks traded lower as a group after Woodside fell, while gold miners also fell, led by Newcrest Mining.


US drugmaker Pfizer has raised its offer for AstraZeneca to 50 pounds a share, adding that the British drugmaker is reviewing the proposal.

AstraZeneca earlier rebuffed a proposal valuing it at just under $US100 billion, or 46.61 pounds per share.

In a letter to PM David Cameron, Pfizer also vowed that 20 per cent of the combined company's total R&D workforce would be in Britain if the deal goes ahead.

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Pernod Ricard chief executive Jean-Christophe Coutures says the company hasn’t been in talks with Treasury Wine Estates.

'‘Last week we announced the acquisition of Kenwood Vineyards in the US. We have not been in talks with Treasury Wine Estates or looking to acquire any further wine assets in the US market at this time,” Coutures says.

Treasury Wine shares soared as much as 14 per cent today after the Australian reported Pernod Ricard was interested in buying its US assets. TWE earlier today also said it hadn’t been approached by the French beverages giant.

Despite the denials, shares closed 6.5 per cent higher at $4.09.


Here’s what to look out for next week, courtesy of AMP Capital’s chief investment strategist, Shane Oliver:

  • In the US, expect a modest increase in the non-manufacturing ISM index (Monday) and a decline in the March trade balance (Tuesday). Fed Chair Yellen will deliver a Congressional testimony on Wednesday.
  • The ECB (Thursday) may unveil further monetary easing in response to weak bank lending, deflation risks and the still strong euro. However, this is more likely to take the form of more interest rate adjustments rather than quantitative easing as the ECB does not appear to be ready for the latter just yet.
  • Chinese export growth (Thursday) is expected to return to positive territory after the weakness of recent months but imports are expected to remain subdued. Inflation data (Friday) are expected to show a fall back in CPI inflation to 2.1% and continued falls in producer prices.
  • In Australia, the Reserve Bank (Tuesday) is expected to leave interest rates on hold for the eighth month in a row. The RBA is expected to reiterate that a period of stability in interest rates is appropriate. The RBA’s quarterly Statement on Monetary Policy (Friday) is likely to reiterate the same message.
  • On the data front in Australia, expect to see a 2% rise in building approvals (Monday), another solid trade surplus (Tuesday), a slight rise in retail sales (Wednesday), a slight 5000 fall in employment (Thursday) after three months of good gains and a bounce back in unemployment.


And his outlook for markets:

While investors should allow for more volatility in share markets, including the likelihood of a significant correction around mid-year, the broad trend in shares is likely to remain up.

Share market fundamentals remain favourable with reasonable valuations, improving earnings on the back of rising economic growth and easy monetary conditions helping entice investors to switch out of cash and into shares. So any dip should be seen as a buying opportunity.


Does the Economist magazine know something Warren Buffett’s retirement plans that we don’t?

First there was this, note the throw-away line “he retires 3 May” – an error?:

Then today there was this:

That tweet refers to an article in which the Oracle of Omaha “declined to be interviewed” about the “next 50 years” for Berkshire.

Maybe the Economist is having a punt on an announcement. After all, it's not a shot in the dark - everybody is talking about it.

The FT lists succession issues as topics for questions number one and two they would ask Buffett at this weekend’s Berkshire Hathaway annual general meeting. The suggestions are that Berkshire’s insurance chief Ajit Jain is the logical successor to run the conglomerate in Buffett’s absence.

Fairfax Media’s Jonathan Shapiro – who will be at this weekend’s festivalsums it up thusly:

“The more controversial topics the meeting will address relate to the transition to the post Buffett/Munger future. At 83 and 90 years old the pair – who have spent 49 years in charge of Berkshire – are as sharp-witted as ever, perhaps thanks to a diet of cherry Coke and peanut brittle. But the older they get, the more they are quizzed about their succession plan.”

We'll just have to wait and see.


The growing trend away from fossil fuel investments has taken a local twist, with hundreds of customers of Australia's four major banks said to be set to close their accounts in protest against funding of coal and gas projects in an action organisers say threaten up to $120 million in investment.

The initiative, organised by activist investment group Market Forces and climate campaigner, represents an extension of the fossil fuel divestment movement that has taken hold in northern Europe and threatens to remove major investors from the share registers of BHP Billiton, Rio Tinto and other major Australian-listed companies.

While the origins of the movement are rooted with ethical investors, it is increasingly taking hold among mainstream investors, with Norway's huge government owned pension fund in the process of considering a fossil fuel divestment strategy.

In a further sign of the trend, London Stock Exchange-owned FTSE Group and the world's largest fund manager BlackRock earlier this week announced plans to launch an index that tracks the performance of stocks specifically excluding those linked with fossil fuels.

trading halt

Transfield Services has “noted” the recent run-up in its share price – 15 cents over the past five trading days to $1.05 – and in a statement to the ASX confirmed it is “currently engaged in refinancing activities… as previously outlined during its February 2014 results presentation”.

The company is proposing to “approach the high yield bond market” in the US, “as well as certain persons outside the United States”.

The company says the money will be used to “restructure [its] existing debt package”, and that this is “expected to be finalised next week”.

“More information will be provided at that time.”

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world news

It’s interesting to see just how eerily quiet all asset classes are right now, IG's Chris Weston comments on the lack of volatility in markets:

  • This week, EUR/USD for example has traded in a 114 pip range, which is a slight expansion from last week’s 70 pips range, which in itself was the narrowest weekly range since the inception of the EUR in 1999. Last week USD/JPY had its narrowest range since January 2012, while GBP/USD since 1988. The US 10-year treasury has traded in a 23 basis point range since the start of January – the tightest range over the time frame since 1978, while the S&P 500 can’t shake its 1840 to 1880 range.
  • It feels like something has to give and perhaps the spring has been pulled back too far, but what is likely to cause a sizeable pick-up in range expansion and volatility?
  • A black swan could still cause it, but issues in China, Japan and Europe are widely known and not likely to cause a sizeable risk off move at this stage. Perhaps tensions in Ukraine could be the trigger, with news flow today taking a turn for the worse, centring on government military operations in Sloviansk.
  • If history is to be our guide, these periods of ultra-low volatility (when seen in all asset classes) are usually a strong pre-cursor to a big pick up in volatility.

Myer chief Bernie Brookes plans to stay at the helm for “a few more years” and has reaffirmed that the chain will next year return to profit growth for the first time in five years as department stores enter a "prettier patch.”

“I plan to be here for a few more years ... I didn’t sign on just for the David Jones merger,” said Mr Brookes, who cancelled his retirement plans in February and signed on for an indefinite term.

Premium department stores have been losing market share to specialty retailers and mini-majors for more than 15 years, but Mr Brookes is confident the trend in Australia will reverse, pointing to the “playbook” written by US and UK department stores such as Nordstrom, Macys and John Lewis, who are enjoying strong sales growth.

 “No matter how we look at it I think it’s the start of a prettier patch for department stores - we’re starting to see that in our numbers and we’re excited about next year,” he said. “I’m increasingly comfortable that department stores will gain market share over the next few years.”

Mr Brookes has also played down the threat from mini-major and fast fashion retailers such as H&M, Zara, Uniqlo, Sephora and Williams-Sonoma, who are forecast to open about 250 stores over the next few years, snaring as much as $2 billion in sales.

Mr Brookes says international chains will struggle to find suitable stores in key locations such as the Sydney and Melbourne. When they do find flagship stores, they take the place of dozens of smaller specialty retailers.

Myer chief executive Bernie Brookes is staying with the retailer.
Myer chief executive Bernie Brookes is staying with the retailer. 

GMO co-founder and guru Jeremy Grantham has released his latest quarterly letter and it’s a fascinating one, worth reading in full.

As per usual, Grantham writes on bubbles – how long they can last, and at what point they can be expected to pop.

Cutting to the chase – Grantham sees the US sharemarket as overvalued, but reckons that, thanks to the “Greenspan-Bernanke-Yellen put”, the S&P 500 will push out to 2250 before it collapses, or a good 35 per cent above where it stands now.

The 2250 figure quoted above is equivalent to two standard deviations from the long-run average, a handy, if arbitrary, indicator for Grantham that a bubble has reached epic proportions.

He believes that if the market has learned one thing, it’s that the Fed won’t stop bubbles inflating, but it will be there to catch the speculators when they fall – and so investors will chase the market higher.

“And although nothing is certain in the market, this is exactly what I believe will happen,” writes Grantham.

He then has his best guesses for the next two years:

  1. That this year should continue to be difficult with the February 1 to October 1 period being just as likely to be down as up, perhaps a little more so.
  2. But after October 1 the market is likely to be strong, especially through April and by then or in the following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 2,250, perhaps by a decent margin.
  3. And then around the [US] election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up.
Online sales

LinkedIn has suffered a first-quarter loss as the online professional networking service ramped up its investments in projects aimed at attracting more users on the lookout for better jobs and career advice.

Despite the setback, the results announced overnight surpassed the analyst projections that sway investors. LinkedIn has cleared Wall Street's financial hurdles in all 12 of its quarters as a public company.

Nevertheless, LinkedIn has fallen out of favour with investors amid concerns about the company's rising expenses and slowing revenue growth.

LinkedIn's stock slipped $US5.83, or 3.6 per cent, to $US155.39 in Thursday's extended trading after the latest numbers came out. The shares are about 40 per cent below their all-time high reached last September.

The Mountain View, California, company lost $US13.4 million ($14.50 million), or 11 US cents per share, during the first three months of the year. It marks LinkedIn's largest quarterly loss since going public in May 2011. It earned $US22.6 million, or 20 US cents per share, at the same time last year.

LinkedIn added another 19 million accounts during the period to end March with 296 million users.

Total pages views - a telling indication of users' interest in an online service - reached 11.5 billion during the quarter, up from 11.1 billion at the same time last year. The page-view volume, also exceeded the final three months of last year, an encouraging sign after user engagement had waned in the previous two quarters.

asian markets

Here's how the rest of the region is doing today:

  • Japan (Nikkei): -0.3%
  • Hong Kong: +0.5%
  • Shanghai: closed
  • Taiwan: +0.8%
  • Korea: -0.2%
  • ASX200: -0.1%
  • Singapore: -0.3%
  • New Zealand: +0.4%

‘‘The US non-farm payrolls data due later today will be in focus as investors look for direction,’’ says Tim Radford, a strategist at Rivkin Securities. ‘‘While earnings have been relatively good, concerns remain over slowing economic growth in China.’’

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More cities in China are experiencing property price declines, Nomura notes:

According to the China Index Academy, a private data vendor, 45 of the 100 cities surveyed in April experienced month-on-month property price declines, up from 37 cities in March.

This was mostly driven by declines in tier 2 cities, where the share of cities with falling prices jumped to 46% in April from 25% in March. The share rose to 46% from 42% in tier 3 and 4 cities, and remained at 25% in tier 1 cities.

Nomura concludes:

  • These weakening prices reinforce our view that the property sector passed a turning point in Q1 and will weaken through the rest of 2014.
  • We maintain our view that the property sector is China’s top economic risk. As leading indicators, such as sales and new starts, dropped significantly in Q1, we see risks of a sharp correction in this sector taking place in 2014.
  • We expect the weak property sector to act as a drag on investment and lead to GDP growth slowing to 7.1% y-o-y in Q2 from 7.4% in Q1.
  • We maintain our view that the government will have to loosen monetary policy by cutting the reserve requirement by 50bp in Q2. We believe the likelihood of an interest rate cut in H2 is rising, although it is not yet part our baseline view.

Treasury Wine Estates has tried to defuse market speculation Pernod Ricard is interested in its US assets, which sparked a rally in the shares this morning.

In a statement, Treasury denied being approached by or being involved in talks with Pernod Ricard.

Shares are currently up 6.1 per cent at $4.075 after earlier jumping as much as 14 per cent.

Analysts have relentlessly run the numbers on the Treasury Wine Estates company, arguing that, among other actions, the struggling US business should be sold. It would be worth in the billions of dollars.

However, new Treasury Wine Estates boss Michael Clarke has stated that the US wine business was an integral part of the company and was not up for sale.


We are in a colossal bubble once again, the London Telegraph’s Ambrose Evans-Pritchard writes in a blog post:

It is worse than 2008 on many indicators, though the epicentre of risk is ever more concentrated in sovereign debt, especially the debt of those countries without a central bank (you all know who I mean).

Today’s chart from Andrew Lapthorne as Societe Generale is remarkable. It tracks the nominal yield on a classic mix of different assets held by funds. The return on SG’s Quality Index is close to an all-time low of 2.4 per cent (though this of course pick up pre-deflation fears, as well as speculative mania).

He says there has been a rotation out of momentum stocks – ie, the US tech sector – and into value stocks and those with high dividend yield. That is not as comforting as it sounds.

“Is this yield and value-orientated positioning reflecting a more cautious outlook? So far we doubt it. April also saw the largest junk bond issue of all time, and corporates continue to issue large quantities of debt at incredibly low yields.

"So despite the US Federal Reserve continuing to taper and the back up in US bond yields … the yield on a global asset portfolio is close to where it was this time last year.

It was a similar message in Neil Mellor’s morning note from Bank of New York Mellon. The euro sovereign markets have gone mad. (Note that Irish 10-year yields are nearing US Treasury yields – the global benchmark price of money – and Spain is not far behind).
Borrowing costs are back to 2008 levels, yet the debt burdens are massively higher, and still rising.

Here's the whole post



EDs: Apologies for the long time between posts - we have been having some Friday afternoon IT issues.


The $3.3 billion stake in private hospital operator Ramsay Health Care owned by the company’s late founder and chairman Paul Ramsay will be transferred to the Paul Ramsay Foundation which will “be of enduring benefit to the Australian community.”

The billionaire, Australia’s 11th-richest person, passed away at his home in Bowral on Thursday night after a short illness. The details of the 78-year-old’s wishes, which related to his 36.2 per cent stake in Ramsay, were announced to the market by the company today.

The Foundation is administered and controlled by Ramsay deputy chairman Michael Siddle, as well as Peter Evans and Tony Clark. The trio have had a long-term association with  Ramsay and are also directors of the company. Ramsay never married and had no children. He is survived by two siblings.

Ramsay was a very private man and the main activities of his charitable foundation are not widely publicised. In December 2011, Ramsay donated $300,000 to the actor Kevin Spacey to support his foundation’s work in supporting arts education.

Ramsay’s Foundation is listed as a ‘major donor’ in the 2008 annual report of Parent Infant Family Australia, a non-profit organisation supporting vulnerable families during run by the official welfare agency of the Catholic Church CatholicCare.

The announcement will quell speculation among Ramsay shareholders and the wider market about the future of the cornerstone stake. Although the announcement leaves room for some shares to be sold, the implications of this are not expected to be very significant.

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