That’s it for Markets Live today.
You can read a wrap-up of the action on the markets here.
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See you all again tomorrow morning from 9.
The Australian share market ended flat, clawing back early losses after stronger than expected retails sales and trade balance data buoyed sentiment.
But with lingering worries around the Ukraine-Russia tensions, investors lacked the resolve to send the local market higher.
The benchmark S&P/ASX200 finished 0.3 points lower at 5445.9, while the broader All Ordinaries gained just 2.4 points to 5459.7.
Investors were also still digesting the strong gains in February, when the market was boosted by a number of positive earnings surprises, traders said.
Retail sales in January, reported on Thursday, were surprisingly strong, jumping 1.2 per cent, with total retail spending reaching $22.925 billion, according to the ABS.
Taken as a sign that consumers were returning to the market, JB Hi-Fi shares jumped 2.2 per cent to $18.86.
“Seasonality issues deserve a word of warning,” Westpac senior economist Matthew Hassan said. "Pre and post-Christmas spending patterns have been shifting over recent years: the seasonal drop-off month to month has moved from –25 per cent a few years ago to –22 per cent
The dollar shot above US90¢ to its highest point this week, after the retail sales data and a much larger than expected January trade surplus of $1.43 billion were released.
Warren Buffett has cut the allocation to bonds at Berkshire Hathaway’s insurance units to the lowest in more than a decade as the company warns that low yields will hurt results.
Fixed-income assets made up 14 per cent of investments at the insurers as of December 31, according to the company’s annual report. The year-end figure has typically been 20 per cent to 25 per cent since 2002, according to Berkshire documents. The $US186.8 billion portfolio included $US114.8 billion of stocks.
Buffett has said low yields mean that insurers and other bond investors are holding ‘‘wasting assets’’. To counter that, he struck private deals for higher-paying securities and added equities. Berkshire also made acquisitions and invested in its railroad and energy utilities.
‘‘Our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for our endless gusher of cash,’’ Buffett wrote in his annual letter to shareholders, which was published March 1.
And here are the best and worst in the ASX 200 today.
Nickel and copper explorer Sirius Resources takes out top spot today. The WA-based company formerly (and rather hopefully) known as Croesus Mining, closed 8.8 per cent higher for no immediately discernable reason.
Leighton was up 5.7 per cent, while Carsales jumped 5 per cent on another Asian acquisition. AMP had a great day as well.
Acrux investors were in a selling mood, and the stock plunged 8.6 per cent.
It is all right for China to slightly miss the government's 7.5 per cent economic growth target this year as long as enough jobs are created, the finance minister Lou Jiwei says, stressing that a healthy labour market is more important.
Lou told a briefing at China's annual parliament meeting that the government has three broad economic policy goals each year: create jobs, control inflation and boost the economy. He said jobs are the most important of the three.
"Let's say for instance, this year's economic growth is not 7.5 per cent, but 7.3 per cent or 7.2 per cent. Does this count as around 7.5 per cent? Yes, it counts," said Lou, who was previously the chairman of China's sovereign wealth fund, China Investment Corp.
"Whether GDP growth is to the left or to the right of 7.5 per cent, that is not very important. What is important is job creation." China aims to create 11 million jobs this year, he said.
China has for years set annual growth targets to drive its centrally-planned economy. But these targets were mostly meaningless as they were always exceeded by the government in its pursuit of double-digit growth.
However, as China seeks to revamp its maturing economy and move it towards slower but better-quality growth, away from exports- and investment-driven expansion, the annual growth targets are taking on a new meaning.
Chinese leaders said yesterday that they are aiming to expand the economy by about 7.5 per cent this year. At the same time, the government declared a "war" on pollution, and promised to slow investment growth to a decade-low.Back to top
The market has managed to erase its early losses and finish the day on an even keel, with the ASX 200 on par with yesterday's close at 5445.9 and the All Ords managing a 2 point gain to finish at 5459.7.
Health care and telco were the two big underperforming sectors, down 0.8 per cent and 1.1 per cent, respectively.
IT and gold were up the most, both around 1.4 per cent.
Metals and mining led the market early, but failed to keep up with the late morning rally sparked by strong retail sales and trade data, and the sector finished flat.
Problems for McAleese Transport's Cootes unit are going from bad to worse, with the NSW government issuing a "show cause" for the company to justify why its trucks should remain on the road.
"I have lost confidence in this company as an operator of dangerous goods movements on NSW roads," the NSW Minister for Roads, Duncan Gaye said. "Cootes Transport has been a repeat offender and enough is enough.
"Roads and Maritime has given the company every reasonable opportunity to demonstrate it is worthy of operating in NSW but the company has so far failed to do so."
As a result the company has 14 days to "take action in order to avoid suspension or cancellation of their rights to travel on NSW roads", he said.
In late trading, the shares were down another 6 per cent at 55.5 cents.
Let's see which stocks are hot and which are not in the eyes and spreadsheets of the broker analyst community.
The table below is based on Bloomberg figures and shows the lowest and highest rated stocks in the ASX 200.
The "consensus view" number translates as: 1 is a sell, 2 is an underperform, 3 is a hold, 4 is an outperform, and 5 is a buy.
Note that analyst recommendations are based on a 12-month view.
Worth noting that analysts overwhelmingly prefer Nine Entertainment over Ten Network.
BHP is among the 10 most popular names (Rio isn't far behind and rates a 4.3, or "outperform tending towards buy", you could say).
Of the banks:
- CBA scores a 2.7 - below a hold and clearly the outlier
- NAB a 3.7
- ANZ also 3.7
- Westpac a 3.5
Qantas is the 38th least popular (there are 37 stocks the analysts like less!) with a consensus rating of 2.8.
Looking ahead, the Bank of England and the European Central Bank are due to reveal their rate decisions later today.
The latter of the two that is likely to draw more attention given recent talk of another rate cut, but ECB chief Mario Draghi may have all the information he needs to do nothing on rates.
A month after saying he needs more data to make a decision, stronger-than-expected output and inflation and rising economic confidence might spare the European Central Bank president for now from radical steps such as negative rates.
With 40 out of 54 economists in a Bloomberg News survey predicting no change in the benchmark rate, attention has turned to whether Draghi will instead roll out plans to boost liquidity or stimulate lending.
Draghi has limited room left to steer the 18-nation currency bloc away from deflation, as the ECB’s key rate is just a quarter percentage point above zero. While other measures are on the table, including the release of cash linked to crisis-era bond purchases, his main scenario is to let the gradual recovery erode idle productive capacity and boost prices.
‘‘For now, the deflationary threat is insufficient’’ for the ECB to use its strongest measures, said Elwin de Groot, senior market economist at Rabobank. ‘‘We could well see a repeat of February, with ECB President Draghi adding more items to his checklist, and removing a few others, in order to buy extra time. However, it will be a very close call.’’
When Draghi said last month that policy makers ‘‘need to acquire more information’’ to analyse the ‘‘complexity of the situation’’ in the euro-area economy, his watch list included four bullet points:
- growth data from the end of last year
- the impact of turbulence in emerging markets
- credit supply to companies and households
- new economic forecasts prepared by the ECB’s staff
While the recovery remains fragile, GDP growth and other economic data in the past four weeks have been encouraging, while emerging markets have stabilised somewhat.
The ECB’s updated projections for euro-zone growth and inflation will be released today, including forecasts for 2016 that extend the central bank’s outlook to three years for the first time.
Enthusiastic followers of this blog will have noted the emphasis placed on an obscure Chinese solar company that is about to default on its bonds.
What's intriguing China watchers worldwide is that Shanghai Chaori Solar's inability to pay investors the full $16.3 million in interest payments they are owed, is that this would be China's first corporate bond default.
As we noted this morning, analysts at Bank of America got particularly excited, saying the growing risk of default by Shanghai Chaori Solar Energy Science & Technology may become China’s “Bear Stearns moment", prompting investors to reassess credit risks as they did after the US lender was rescued in 2008.
“We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start,” the strategists wrote in a note yesterday. During the US financial crisis, it took a year “to reach the Lehman stage” when investors began to panic and shadow banking froze, the strategists added.
However, in a classic case of the left hand not knowing what the right hand is doing, or perhaps of, ahm, Chinese walls at the investment bank, BAML’s economists took the opposite view to the house's analysts.
They agreed that Chaori was the first onshore bond to default in China. But the economists did not see its demise as being comparable to the failure of a financial institution.
In analysing the implications of a default, BAML’s economists said this was indeed a good thing because it would enable other debt to be priced better in China. There were regulatory implications too.
"Finally, we believe the Chinese government needs to improve its bankruptcy law and legal procedures to promote healthily growth of the corporate bond market, which has seen rapid growth to RMB8.7 trillion outstanding in January 2014 from only RMB800 billion at the end of 2007,” BAML’s China economists, led by Ting Lu, said in the (separate) report.Back to top
CommSec has taken a closer look at detailed household income and spending data, noting:
- Real consumer spending rose by 2.0 per cent (decade average 3.3 per cent) while total spending including inflation rose by 4.8 per cent (decade average 6.0 per cent).
- Spending on medical services and cars has soared over the past year but fewer alcoholic drinks are being purchased and the share of spending being spent on gambling is the lowest in a decade.
- GDP per capita rose by 3.0 per cent in the year to December 2013, short of the 4.9 per cent average growth in the low inflation era but the fifth consecutive annual increase. Annual GDP per capita is $67,065.
- In 2013, household income rose by 2.9 per cent but disposable income grew faster, up by 3.7 per cent.
"Consumers are still spending but it is the ‘non-retail’ areas like health, utilities, cars, insurance, housing and education that are taking larger shares of the consumer wallet," CommSec chief economist Craig James says. "In large part, the changes in preferences reflect increases in real wages and wealth, the general improvement in the standard of living and changes in relative prices."
Fares on one of the busiest airline routes in the world between Sydney and Melbourne have risen by about 10 per cent from a year ago despite the bitter battle between Qantas and Virgin Australia.
Analysis by Macquarie Equities also shows that Virgin is charging about 10 per cent more for business class tickets than Qantas on the Sydney-Melbourne route. It indicates Virgin believes it no longer has to undercut Qantas in order to win over corporate flyers.
The two airlines have been engaged in a battle for lucrative business travellers for more than two years, but Virgin made clear last week that it would only now start to benefit from its efforts to reshape itself as a premium airline.
The Macquarie analysis indicates ticket prices for flights between the two cities in February and March are 10 per cent higher for both Virgin and Qantas than the same months last year. However, the battle between the two airlines is likely to keep a lid on major increases in fares.
Qantas has said it plans to boost capacity in the domestic market by 4 per cent in the second half of this financial year, which is typically a tougher period for airlines to make money.
Virgin changed tact last week when it decided against releasing forecasts for capacity in the second half, in an apparent attempt to side step its larger rival.
The Macquarie analysts said Qantas was focusing its flying to Sydney and Melbourne, where it has a critical mass, suggesting that ‘‘the capacity is built into the system to discourage further capacity introductions from Virgin’’.
In contrast, Virgin has increased its presence on routes to Perth with regional charter flights.
The analysts said the increase in ticket prices on the so-called golden triangle – Melbourne, Sydney and Brisbane – should be a positive for both Qantas and Virgin given its importance to their profitability.
Carsales.com.au will pay $126 million for 49.9 per cent of the online assets of South Korea’s largest automotive trading business SK Encar.
SK Encar also owns car dealership assets but Carsales will buy only the online assets, which will be transferred into a new entity called SK ENCARSALES.COM.
“The acquisition of a shareholding in SK ENCARSALES.COM is an important step in Carsales’ long-term growth and internationalisation, and solidifies Carsales.com as a global leader in automotive classifieds,” Carsales.com chief executive Greg Roebuck said.
“Korea is a developed market with strong growth fundamentals and very sophisticated technology take-up.
“The ability to partner with SK C&C in Korea makes this acquisition very attractive to us.”
The deal comes a day after Carsales announced it had lifted its stake in iCar Asia to 22.9 per cent for $7.2 million.
Carsales shares are up 5.6 per cent.
Here is a very handy bit of analysis by the ever impressive Annette Beacher, who heads up rates and forex strategy for TD Securities out of Singapore.
Beacher has read through each of the the RBA’s meeting minutes since the last rate cut in August, over which time “the RBA has had a juggling act in managing cash rate expectations and the value of the AUD”.
She has then identified the stock-standard comments that accompany the prevailing level of the Aussie dollar:
The RBA is of the view that the AUD at:
- $US0.80-85—is ‘preferable’ and a ‘fair deal’
- $US0.85-88—doesn’t draw comment
- $US0.89-90—the AUD is ‘at a high level’
- $US0.91-95—the AUD is ‘uncomfortably high’
“Failure to comment is now a trigger to rally, a situation that is likely to be unwelcome at the central bank,” adds Beacher.
Time to take a spin around the region's sharemarkets, and interesting to see that investors in mainland Chinese shares are unimpressed with the news coming out of the annual meeting of the National People's Congress going on at the moment.
- Japan's Nikkei up 0.4 per cent
- Hong Kong's Hang Seng up 0.2 per cent
- The Shanghai Composite down 0.6 per cent
- Taiwan's TAIEX up 0.7 per cent
- Korea's KOSPI is flat
- Indonesia's Jakarta Composite Index up 0.1 per cent
- The Kiwi NZX 50 up 0.6 per cent.
What we're spending more, and less on these days compared to 20 years ago:
Rising resource exports have driven the trade balance into a strong surplus and there's more coming, CBA economist Diana Mousina notes:
- The trade balance has now been in surplus for three consecutive months, after a continuous moderation in trade deficits over HII 2013. Rising resource exports and falling capital goods imports mean that trade surpluses are likely to continue over the near‑term.
- The largest increase in exports in January was in the non‑rural goods category, driven by higher resource exports (+3.2%). The depreciation in the Aussie dollar is positive for Australia’s key bulk commodity exports which are priced in US dollars.
- On a rolling annual sum, exports to China were 37.3% of total goods exports which is the highest level on record.
- Resource exports will continue to dominate the trade story to China. But, service exports will also be an important. Tourism is the third biggest export earner and education is the 5th largest.
- As the majority of LNG projects finish construction (around 2015), there will be a significant rise in export volumes. Thereafter, iron ore exports will move in the same direction. Large trade surpluses are part of the scenario where we may ultimately switch from current account deficits to surpluses.
Funding of Mermaid Australia's net $450 million purchase of marine assets of Singapore's Jaya looks to be problematic, with the shares trading at a discount to the $2.40 rights issue.
The purchase is to be funded via a $100 million instituional placement, which has already been completed, while raising a further $217 million via a rights issue at the same $2.40 price.
But with Mermaid shares trading at the moment $2.27, raising the funds from shareholders may prove to be problematic, which could put the underwriter, Morgan Stanley in the spotlight.
It may be hoping for a rebound in the Mermaid share price before the rights issue expires in a fortnight or so.
Qantas has begun a management reshuffle that will result in a former Tigerair boss Andrew David being parachuted into a key role running the day-to-day operations of its domestic and international businesses.
So far, those in the most senior rungs at Qantas have held onto their jobs despite a muted investor response to its $2 billion cost-cutting program – including the axing of 5000 jobs – and the airline failing to convince the Abbott government to agree to a debt guarantee or an unsecured $3 billion loan.
But internal documents obtained by Fairfax Media show Qantas' flying operations – the engine of its business – will now report to a single chief operating officer who will oversee both domestic and international operations. It will result in Qantas Domestic chief operating officer Matt Lee leaving the airline in just over a week.
His counterpart at Qantas International, Peter Wilson, will lose his title but have oversight of the airline's commercial airline licence and help David to move into his new role by the middle of the year.
The collapsing of the two roles into one comes after Qantas shelved plans to split its international and domestic flying operations into separate units with their own air operator's certificates – or licence to fly.
Qantas insists it will maintain the separate structures but has ''put on hold'' its application to apply for a separate air operator's certificate for the domestic operations as a ''conservative measure to limit the amount of operational change as we move along the transformation process''.
Is the morning latte about to get more expensive? Arabica coffee futures surged above $US2 per lb for the first time in two years overnight, on heavy investor buying as concern about crop damage from a drought in top grower Brazil continued to fuel the volatile market.
ICE second-month arabica futures vaulted 16.95 cents, or 9.1 per cent, to $US2.0240 per lb, closing above the key psychological $US2 level for the first time since March 5, 2012. The session's steep gains were extended in the final 18 minutes of trade when 12 per cent of the day's volume traded.
Investor buying poured into the volatile market, which saw its biggest monthly gain in nearly 20 years in February, and is by far the strongest 2014 performer on the Thomson Reuters/CoreCommodity CRB Index.
Christian Wolthers, of Florida-based coffee importer Wolthers Douque, forecast in a morning report that Brazil's upcoming 2014-15 crop would reach 47.7 million 60-kg bags "at best" due to drought damage. He projected that 2015-16 will produce only 40-42 million bags due to lower branch growth and less fruit production.
"When we look at Brazil in the next harvest year (2014-15), we could be in a higher price structure," says Edward Bell, a senior commodities analyst at the Economist Intelligence Unit.
Arabica coffee prices have surged 77 per cent so far this year, fuelled by concerns over the crop impact of the unseasonably dry weather in Brazil. Coffee futures markets are carefully tracking Brazilian weather reports and data, gauging the extent of damage to crops.
"The limited rains in Brazil have made the size of this year’s crop a moving target,’’ says Robbert Van Batenburg, a director of market strategy at Newedge Group. ‘‘It’s not easy to just turn on the switch and start producing more.
‘‘Once you have a commodity like this running away, you then get roasters coming in to hedge their needs,’’ he says. ‘‘This is also attracting a lot of speculative money.’’
But it's not only coffee that's being driven up by drought in Brazil, sugar, another of the Latin American country's top crops, rose to a four-month high. May raw sugar on ICE closed up 0.49 cent, or 2.8 per cent, at 18.23 cents a lb, after touching a four-month peak of 18.28 cents a lb.