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.
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.
Warren Buffett at the Berkshire Hathaway shareholders' meeting in Nebraska at the weekend. Photo: Bloomberg
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.
Best and worst performing stocks in the ASX 200.
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.
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.
Analysts love Nine, hate Ten.
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.
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.
Caffeine shot ... coffee is surging this year, but still well below the 2011 highs.
Retail spending may have jumped sharply in January, but economists warn it is too early to say if the good times are back for retailers.
JPMorgan economist Ben Jarman says the figures are impressive but are surprising given the relativity weak jobs market and soft consumer sentiment. He says they may have been boosted by the timing of federal government payments, including the Schoolkids Bonus.
- Certainly the anecdotes we’ve heard from retailers have been that things were reasonable in January after a good Boxing Day to new year period.
- So we are a bit reluctant to say this is a return to the good old days of retail.
ANZ senior economist Felicity Emmett agrees the Schoolkids Bonus payments may have helped boost the figures.
- It does suggest there may have been some impact from those higher government payments.
- However, it also shows retail trade trending up quite convincingly as consumer confidence rises along with house and equity price rises.
- Consumers are feeling more confident with the economic outlook.
JB Hi-Fi has been the standout performer following the much stronger than expected retail sales figures released late this morning. It's shares are up 2.3 per cent post the announcement, while other stocks in its industry have had a more subdued reaction.
Early days, of course, but this does imply JB may be the best option for investors looking to play a rebounding consumer theme in the coming year.
Here's how each stock performed in the short period after the 11:30 ABS release:
- JB Hi-Fi: 2.3%
- The Reject Shop: 0.7%
- Harvey Norman: 0.6%
- Super Retail Group: 0.5%
- David Jones: flat
- Myer: -0.2%
Based on share prices responses, JB Hi-Fi looks most leveraged to a retail sales figures.
Shareholders in ALQ, the long time market darling for small investors known formerly as Campbell Bros, in two minds what to do with their holding following its recent profit downgrade, need look no further than to securities analysts for an unusually clear set of views.
At least nine brokers have either 'sell' or 'underperform' recommendations on the shares.
Count them: Macquarie, Deutsche, Goldman Sachs, Credit Suisse, UBS, JP Morgan, BBY, /Commonwealth Bank and Shaw Stockbroking.
Even if we've missed a few, it is rare for the analyst community to have such a uniform view on a stock.
Late last month, ALQ issued a profit warning, pushing the shares to long term lows. This morning, the shares were down another 1.8 per cent at $7.22.
The dollar has just jumped more than half a cent to the day's (and week's) high of 90.33 US cents on the back of the strong economic data.
The dollar this week.
Strong rise for retail sales: they rose 1.2 per cent in January, after a 0.5 per cent gain in December, and outperforming expectations for a 0.4 per cent rise.
The trade figures were also much better than expected, with the trade balance posting a $1.43 billion surplus - a 29-month high - after a revised $591 million surplus in December, and well above forecasts of just $100 million.
Troubled surfwear retailer Billabong faces a potential class action from investors hurt by the dramatic decline in the fortunes of the company.
Law firm Slater and Gordon says it is preparing a lawsuit against Billabong on behalf of hundreds of Australian and international investors.
The class action centres on Billabong's earnings guidance downgrade in December 2011, which caused a sharp decline in its share price.
Just four months earlier, the company had forecast strong earnings growth for the 2011/12 financial year.
Slater and Gordon senior associate Odette McDonald said the firm would argue Billabong engaged in misleading and deceptive conduct and failed to comply with its continuous disclosure obligations.
Now that the rush of the profit reporting season is out of the way, there is some time to go back and look at some other action in the market.
And with the play by Myer for rival department store operator David Jones, investment bank Citi, for one, reckons the deal won't fly.
It told clients this morning it puts "a low probability on a merger proceeding" between the two, largely due to the difficulty of agreeing on a price:
- Myer could only increase its previous offer by 3 per cent if it wants to share the synergies equally. That values David Jones at $2.83.
- There is at least 13 per cent share price downside for David Jones if the takeover premium built-in disappears.
Myer’s initial approach was a scrip offer of 1.06 shares for every DJ share, while the present share price differential requires a ratio of 1.26 Myer shares for each David Jones share, a 19 per cent increase in its offer. Citi says:
- The dilemma for Myer is that it will be passing on more than 50 per cent of the synergies if it increases its offer by more than 3 per cent (ratio of 1.09).
- If all the synergies went to David Jones, Myer could offer a 1.37 scrip ratio. This would be another 9 per cent rise from current levels, but a worthless transaction for Myer shareholders.
Food for thought.
Myer bid for David Jones won't succeed, Citi reckons. Photo: Wayne Taylor
Five banks at the centre of London's gold trade have been sued in New York for manipulating prices, in the latest accusation of fraudulent collusion in the global finance hub.
A class-action suit was filed by US gold futures and options trader Kevin Maher against Bank of Nova Scotia, Barclays Bank, Deutsche Bank, HSBC, and Societe Generale, all involved in setting the London Gold Fix, a twice-daily benchmark price used as a reference for trade in gold and gold derivatives.
The suit, lodged in the federal district court in New York late on Monday, alleges that since at least 2004 the banks worked together to manipulate the prices of gold and gold derivatives contracts.
Maher cited recent studies and analyses, published and unpublished, that indicate gold prices "have been manipulated by and during and around the times of the Gold Fix".
Maher also alleges that some regulators and the banks themselves have investigated possible fraud in the way the Gold Fix works, with one, Deutsche Bank, deciding in January to withdraw from the panel which sets the price.
The lawsuit comes after wide-ranging official probes into manipulation of the crucial Libor London interest rate benchmark, and foreign exchange rates, by traders at large banks.
Societe General called the Gold Fix suit "groundless" and said, in a statement to AFP, it would contest the accusations.
Bank of Queensland’s credit rating has been upgraded, in a change the regional lender says will help it compete with its bigger rivals.
Moody’s this morning lifted its rating on BoQ to A3 from Baa1, citing the bank’s moves to strengthen its balance and lift credit quality by offloading bad loans.
Chief executive Stuart Grimshaw argued the change would partially reduce the funding cost gap between it and the Commonwealth Bank, Westpac, NAB and ANZ.
The major banks’ credit ratings have been upgraded because of their ‘‘systemic importance’’ - and smaller lenders argue this gives them an unfair advantage because they can borrow money from investors at lower rates.
In 2012, Bank of Queensland became the first Australian bank to post a loss in 20 years, caused by exposure to soured loans in the Sunshine State.
But it has undergone a campaign to cut costs and improve its book by working through problem loans, a process also assisted by a stronger property market. It also tapped investors for $450 million in early 2012, in a further move to clean up its balance sheet.
Moody’s analyst Frank Mirenzi said the bank was now benefiting from these decisions.
BoQ shares are up 0.3 per cent at $12.31, while the big banks are all between 0.1 and 0.5 per cent lower.
Treasurer Joe Hockey has indicated his first budget will be far less tough than had been believed, saying he will ensure cutbacks bite only slowly.
Arguing he can set out a credible longer-term path to surplus, the Treasurer declared on Wednesday that the May budget can promote a stronger growth projection and add potentially thousands of jobs.
"You need trend growth of 3 to 3.25 per cent to start to get unemployment down," he told a Canberra news conference. "That is a core focus of what we're trying to achieve."
Greeting Bureau of Statistics figures showing growth through the year to December of 2.8 per cent, Mr Hockey said his budget would now set its sights significantly higher.
Asked whether growth of that order was a realistic target , Mr Hockey said: "If we can get some reforms through, I think it is."
Reforms needed to "grease the wheels" of growth include abolishing the carbon and mining taxes, re-establishing the Australian Building and Construction Commission, winding back new regulations governing financial planners and refocusing government spending on the productive areas of the economy, especially infrastructure.
The government will introduce bills to abolish what it says are more than 8000 redundant laws and regulations on a special US-style ''repeal day'' set down for March 18.
Call it "iDodge": Apple's Ireland-based subsidiary, through where the majority of the tech company's profits are redirected, paid less than 50 cents in tax for every $1000 of income.
Apple has shifted an estimated $8.9 billion in untaxed profits from its Australian operations to a tax haven structure in Ireland in the last decade, an investigation by The Australian Financial Review has found.
Last year Apple reported pretax earnings in Australia of only $88.5 million after it sent an estimated $2 billion of income from its Australian sales to Ireland via Singapore, where Apple negotiated a secret tax deal in 2009.
The Financial Review has obtained 10 years worth of financial accounts for Apple Sales International, the secretive Irish company at the heart of Apple's international tax arrangements, which reveal the mark-up Apple charges for intellectual property on its products around the world.
"Newspapers have had lots of stories about tax avoidance by Microsoft and Google and Apple, but there are hardly any numbers," said University of Sydney senior lecturer of taxation law Antony Ting, who has published a review of Apple's tax arrangements.
"Now, for the first time, there are numbers for the profits that escaped from Australian tax."
Apple, one of the world's most successful firm, pays hardly any tax. Photo: Getty Images
Credit Suisse has taken a look at the global implications of the conflict in Crimea and comes to the following conclusions:
- Limited impact on global growth. Russia is only 2.9% of global GDP ($2.2tn in 2014, on IMF estimates), with the Ukrainian economy accounting for a further 0.4% of global GDP. Russian imports from the US and Euro area are $11bn and €87bn, respectively (or 0.7% and 4.6% of total exports, accounting for less than 0.1% and 0.9% of GDP). So in itself, it is hard to see the Ukrainian crisis having a significant impact on global growth.
- Germany is probably the most heavily impacted major developed market. While only 3% of its exports go to Russia (1.3% of GDP), the IEA estimates that 50% of German oil imports come from Russia as well as 39% of its natural gas imports (35% of Italian gas is imported from Russia). Given Russia's reliance on its energy-related export revenues (discussed below), it seems unlikely that it would seek to cut off supplies.
- Could the oil price rise sharply? We doubt it. Russia produces 11mbd of oil (or 11% of total global supply, as of January 2014) and 650bcm of natural gas per year (or 19% of the global total, of which 180bcm are exported, as of 2012). Yet, it clearly needs the associated export revenues: its current account surplus has fallen to 1.6% of GDP (down from 7% in 2008), with a current account deficit excluding oil at 15% of GDP, while its government budget balance has slipped into deficit last year (at 0.6% of GDP), with 50% of government revenues coming from energy-related taxes and levies
- We stick to our overweight of equities, and maintain our year-end target of 1,960 on the S&P 500. The US equity risk premium remains elevated at 6.5% on consensus EPS estimates (and 5.2% on our numbers), compared to a post-1900 average of 3.2% and our target ERP of 4.7%.
- We think that the main threat to global markets is China, where product price deflation risks pushing nominal GDP growth close to historic lows. Furthermore, in our view it has the third biggest credit bubble of all time, the biggest investment bubble of all time and real estate investment as a proportion of GDP at the same level as during the peak of the cycle in Ireland and Spain.
- We note that Russia's price to book is now 0.64, the same level it reached at the trough of the Lehman's crisis.
Australia's iron ore industry has been boosted by resilient Chinese growth data, but the mood has been tempered by confirmation that China will continue closing down ageing steel capacity.
BHP and Rio Tinto fell in overnight London trading and have opened around 1 per cent lower in early ASX trading, while Fortescue is up 0.6 per cent.
Chinese Premier Li Keqiang revealed 27 million tonnes of Chinese steel capacity would be cut in 2014, on the same day he said China's economic growth would continue at close to 7.5 per cent.
The latter is good news for Australia's iron ore miners, after recent speculation that Chinese growth data may come in softer than 7.5 per cent. But the steel cuts have confirmed China will not be deterred from its mission to close parts of its manufacturing industry that do not meet environmental standards.
UBS analyst Tom Price said the cuts would affect a small amount of the steel industry, which has an official production capacity of 1.04 billion tonnes.
''Twenty-seven million tonnes is really a drop in the ocean given they have got more than 1 billion tonnes of capacity,'' he said.
''They are showing the good intention of cleaning the industry up, but I don't think it is going to happen this week or this year, it is probably going to happen over several years.''
The ASX 200 has dropped 19 points in early trading, or 0.3 per cent, to 5427.4, while the All Ords is 17 points down at 5440.1.
Metals and mining and energy sectors are among the hardest hit, falling 0.8 per cent, while health care and IT are lower by a similar proportion.
Gold miners are up 0.9 per cent as a group, while consumer staples (up 0.1 per cent) and listed property (flat) have also bucked the trend of a falling market.
Nickel climbed to a nine-month high overnight on persistent worries about an Indonesian ban on ore exports and after China's leaders affirmed a solid growth target for the year ahead.
Three-month nickel on the London Metal Exchange hit a high of $US15,345 a tonne, its highest since June last year, but pared gains to close up 0.8 per cent at $US15,270.
Nickel's rally was partly driven by short position holders buying back positions, said analyst Leon Westgate at Standard Bank in London.
"Open interest remains elevated, however those positions are perhaps now coming under pressure given the latest price move, the impact of Indonesia's ore ban and additional concerns over Russia," he said in a note.
Russia is the home of the world's biggest nickel-producing company, Norilsk Nickel.
In Indonesia, around $US500 million a month in ore and concentrate exports have stopped since President Susilo Bambang Yudhoyono in January imposed mining rules, including the mineral ore export ban, to force companies to build smelters and process raw materials in the country.
Tsingshan, China's largest stainless steel and nickel pig iron producer, has said that while it has built up 8 million tonnes of ore stocks, sufficient supply for one year, "others are in a more precarious position with smaller players scrambling for material", according to a research report from Macquarie.
Rio Tinto chairman Jan du Plessis has made good on his promise to inject more mining experience onto his company's board, with two new faces set to join the miner in the next couple of months.
The lack of mining experience on the Rio board was highlighted after Rio wore tens of billions of dollars worth of impairments on failed acquisitions over recent years, and Mr du Plessis told the company's AGM in May last year that at least two new faces would be added to overcome the weakness.
The new directors will be Simon Thompson, a geologist by training, and Anne Lauvergeon, who was originally a mining engineer before becoming a high profile director on many large French companies.
Interestingly, Rio named only one departure from the board, Vivianne Cox.
That will fuel speculation that Mr du Plessis' time as chairman may be drawing to a close within the next year, after close to five years in the chairman's role.
The competition regulator has given steel giant BlueScope Steel the green light on its $23.1 million acquisition of OneSteel’s sheet and coil distribution assets from Arrium.
The ACCC said it would not oppose the deal after accepting an undertaking from BlueScope to sell its sheet and coil processing assets in Western Australia.
OneSteel was spun out of mining behemoth BHP Billiton in 2000, and OneSteel is now one division of iron ore miner and mining consumables company Arrium.
The OneSteel distribution assets are closely aligned with BlueScope’s existing business and are expected to generate efficiencies to help lower the cost of servicing customers in Australia.
When the proposed acquisition was announced in October last year, BlueScope said it expected to incur integration costs of about $7 million.
There are three ASX 200 companies trading ex-dividend today:
- Oil Search
- Northern Star
Something China watchers are getting a bit excited about is a looming corporate default and what it might mean for the how credit investors view and price Chinese debt.
Hong Kong-based analysts at Bank of America are 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 U.S. 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.
The maker of solar cells said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow.
Chaori’s potential failure to pay investors would mark the first bond default in Asia’s largest economy, highlighting the strain in China’s $4.2 trillion bond market after a trust product issued by China Credit Trust was bailed out in January.
Billionaire investors George Soros and Bill Gross have drawn parallels this year between the situation in China now and that in the US in the run-up to the 2008 financial crisis.
US private employers added 139,000 jobs in February, shy of economists' expectations, and gains in the previous month were revised lower, a report by a payrolls processor showed overnight.
The data once again is clouded by harsh winter weather.
"As you head to Friday's payroll report, you are looking at another month of weather effect," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
"It still suggests things are improving but it's hard to gauge the exact strength of the job market. Things should look less distorted in March and April. Spring is make or break time for (the) economy."
The ADP figures come ahead of the government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.
The government report is expected to show a gain in overall non-farm payrolls of 150,000 for last month, based on a Reuters poll of analysts, and a rise in private payrolls of 154,000.
Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.
Local stocks are poised to open lower off a mixed lead from Wall Street.
Here's what you need2know this Thursday:
- SPI futures down 12 points at 5441 at 8.45 AEST.
- AUD at 89.85 US cents, 53.70 British pence, 91.91 Japanese Yen and 65.43 Euro
- On Wall St, S&P500 flat, Dow Jones -0.2%, Nasdaq +0.1%
- In Europe, Euro Stoxx 50 flat, FTSE100 -0.7%, CAC -0.1%, DAX -0.5%
- Spot gold up $US5.33 to $US1339.80 an ounce
- Brent oil down $US1.06 to $US108.24 per barrel
- Iron ore down $US0.10 to $US116.70
What's on today in economics:
- Australia: trade balance, retail sales
- Tonight in Europe, policymakers at both the European Central Bank and the Bank of England will hold separate meetings.