Markets Live: Woolies drags

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.

Have a great weekend and see you all again Monday morning from 9.

analysis

Stocks rallied in February as company earnings looked to be improving for the first time in three years. The overall theme of this profits season was of modest growth over the six months ended December 31. A raft of companies said the outlook was improving, while others showed they are taking decisive action to curb costs.

The benchmark S&P/ASX 200 Index gained 215 points, or 4.2 per cent, during February to 5404.8, while the broader All Ordinaries Index added 4.1 per cent to 5415.4, as equity markets in the United States reached new highs.

Having rallied off a 3.3 per cent loss in January, the local benchmark index is now ahead 0.7 per cent for the year, and a number of equity strategists have lifted their targets for where the ASX will end 2014.

“The outlook heading into reporting season was optimistic and we haven’t been disappointed,” Goldman Sachs Asset Management head of Australian equities Dion Hershan said. “On balance earnings and the outlook have exceeded what were some fairly sombre consensus expectations.”

But the optimism generated by reporting season was tempered as a number of big employers, notably Qantas Airways and Toyota Australia, moved to slash staff and other costs. Then ABS data, released on Thursday, showed business spending declining when the consensus expectation was for an improvement.

“The weaker than expected December quarter capex report was probably the most interesting domestic data set for the past 18 months because it shows that record low interest rates are not having the effect the Reserve Bank of Australia intended,” BlackRock Australia head of fixed income Steve Miller said.

“The fear is that Australia is heading off an investment cliff.”

However Mr Miller said his international macro-economic outlook is broadly unchanged since January and the outlook for Aussie equities is still positive

Read more.

quote

For a Friday laugh, check out the hilarious post from Joshua Brown, who blogs from The Reformed Broker, titled "Everything is Awesome!", of which this in an extract:

Corporate profits are smashing records every quarter. And banks – the BIG banks – the “Systemic Six” just earned $76 billion in profits last year, just $6 billion shy of their credit bubble era peak. We’re their loyal subjects again, they won.

There’s a biotech bubble. It’s breathtaking. 11 of this year’s 14 best performing Russell 2000 stocks are biotechs, 7 of the top 8. The biotech index is up 20% since New Year’s Eve and 70% over the last 12 months. I’m not complaining. I’d rather see a biotech bubble than a social media bubble – the former cures illness while the latter causes it.

analysis

And here are the best and worst for today.

 

 

 

Best and worst performers in the ASX 200 today.
Best and worst performers in the ASX 200 today. 
market close

Shares have closed down for the day, and slightly weaker for the week.

The ASX 200 index declined 7 points, or 0.1 per cent, 5404.8, and the All Ords was 6 points down to 5415.4.

Softness among financial stocks was the biggest drag on the market, led by CBA which fell 0.7 per cent and QBE, which gave up some of its gains to slide 2.3 per cent.

Woolies was another anchor after it dropped 1 per cent.

Wesfarmers was up 0.8 per cent, while Jame Hardie jumped 6.1 per cent and Macquarie 1.1 per cent.

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china

The rout in China developers that sent valuations to record lows is spurring UBS Wealth Management and Templeton Emerging Markets Group to say it’s time to buy.

While some investors are concerned profit growth at developers will slow as banks curtail lending, UBS Wealth’s Kelvin Tay says tighter credit will encourage more disciplined spending and prove beneficial for the industry.

Templeton is buying real estate companies with lower debt levels and projects in larger cities such as Shanghai, where house prices climbed 18 per cent last month from a year earlier.

The Shanghai Property Index has fallen 12 per cent this year as borrowing costs rise and China’s local governments take steps to rein in home values. That left the gauge of developers valued at 1.1 times net assets, the cheapest since Bloomberg began tracking the data in 1998 and a record 25 percent discount to the MSCI All-Country World Real Estate Index.

“We found a couple of these very good, strong property companies focused on very key markets and we have invested in them,” Dennis Lim, a money manager at Templeton who helps oversee more than $50 billion in emerging markets, said from Singapore.

“Everyone talks about a housing bubble in China but it’s not one homogeneous country.”

money

ANZ Bank chief executive Mike Smith has sold $17.3 million worth of shares in the bank, and will use some of the money to fund a property purchase.

Mr Smith sold the 545,000 ANZ on Friday last week, documents lodged today with the ASX show.

"The sale of ordinary shares by Mr Smith was undertaken to provide for personal taxation payments to the Australian Taxation Office, to reflect a family transfer of ANZ shares and to assist with a long-term property purchase in Australia," the bank said in a statement.

After the sale Mr Smith still holds 932,826 ANZ shares - worth $30 million at today's shares price.

He has a further 856,320 in performance rights.

Mr Smith is the highest-paid bank boss in Australia, despite ANZ's market capitalisation being smaller than the Commonwealth Bank and Westpac.

In 2013, his total remuneration rose to $10.4 million.

The sale comes as ANZ shares trade near record highs. Today's price of more than $32 compares with an all-time high of $34.06 reached at the end of 2013.

 

forecast

Yesterday we showed that as QE wanes the Aussie dollar is growing increasingly dependent on fundamentals, such as Chinese growth (the post at 2pm uses the iron ore price as a proxy)

This time we have a chart which does the same, this time showing how as the fortunes of developed and emerging sharemarkets diverge, Australia's (in US dollar terms) is following the latter.

Which means a full recovery in local shares likely requires more evidence of a Chinese growth recovery.

Aussie shares (green) are following the fortunes of emerging market shares, rather than developed markets.
Aussie shares (green) are following the fortunes of emerging market shares, rather than developed markets. 
Farming

Soaring dairy commodity prices and a weaker Australian dollar have helped Victorian dairy group Warrnambool Cheese & Butter more than double its half-year profit to $31.3 million.

For much of the past six months WCB, which is the nation’s oldest and fourth-largest dairy producer, was the subject of a dramatic three-way takeover battle between Canada’s Saputo and locals Murray Goulburn and Bega Cheese.

The Canadians emerged victorious and now hold 87.9 per cent of the register. WCB chief executive David Lord said the takeover battle has not distracted management from its strategy and conceded this may be the company’s last result as an ASX-listed entity.

The only thing keeping WCB listed is its major customer Lion, a subsidiary of Japanese food and beverages giant Kirin. Lion owns a 10 per cent stake in WCB and is trying to leverage its shares to negotiate a better terms for its cheese supply contract with WCB.

A team of Saputo executives, presumably including chief executive Lino Saputo Jnr, are flying out to Australia in March and may look to kick off negotiations with Lion during the visit.

analysis

As we stumble, groaning, towards the end of reporting season, Credit Suisse has whipped up a quick summary of the profits updates, which can be summed up as "mixed".

"In aggregate, companies have beat on profits, reported in-line dividends but have missed on free cash-flow," writes the broker's strategist, Hasan Tevfik (see chart).

"Companies have tried hard to keep their dividend hungry investor-base happy. In many cases this is the self-managed super funds who now own more than 16 per cent of the Aussie equity market."

"For example, only 22 per cent of companies missed on DPS [dividends per share], while 35 per cent missed on EPS [earnings per share], but a considerable 50 per cent missed on FCF [free cash flow]."

"We applaud companies attempting to keep their shareholders happy. However, we hope they are not spreading themselves too thinly."

Gimme dividends, or gimme death
Gimme dividends, or gimme death 
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gold

The London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.

Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behaviour and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”

This report follows a study cited in the Financial Times which echoed these concerns. The FT article, which may have been pulled by the newspaper from its online version, according to blog Zero Hedge, said:

Global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.

The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day in a process known as the “London gold fixing”.

Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behaviour”.

“[This] is indicative of panel banks pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.

Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”

 

analysis

And here are today's best and worst.

Best and worst performers in the ASX 200 so far today.
Best and worst performers in the ASX 200 so far today. 
Food

Retail Food Group has flagged further acquisition opportunities and reinforced its full-year guidance of 15 per cent profit growth after the company produced a record half-year profit of $17.3 million.

An increased contribution from its Crust Gourmet Pizza and Pizza Capers business helped the 18 per cent jump in profit. The company’s pizza chains increased to 24.9 per cent of the group’s total pre-tax earnings.

RFG purchased Crust in late 2012.

Other brands, including Donut King, Brumby’s Bakery and Michel’s Patisserie also continued their strong contribution to profits.

Total revenue for the business rose 7.7 per cent to $64.6 million.

RFG also increased its interim dividend 13 per cent to 10.75 cents per share, fully-franked, to be paid on April 9.

eco news

Lending growth figures released this morning were distinctly ho-hum, according to the experts.

Credit data for January confirmed a modestly faster pace of credit growth, writes RBC economist Michael Turner.

The main driver remains the housing market – most notably the investor cohort – but there continue to be tentative signs of improvement in the business sector.

These data in their simplest sense should be taken as signs of policy working – that is, the price of credit has come down so demand for it is picking up. It has taken some time (and a large reduction in borrowing rates) for this to occur with the high level of the exchange rate and low level of confidence probable causes for this.

But these data sit well with the RBA’s newly adopted neutral bias and will likely be welcomed.

Markets were little changed.

 

budget

Global factors, including a prolonged lethargy of the US dollar, will ensure the Australian dollar remains above US80¢ for the next three years, according to the chief economist of global asset management firm and fixed income specialist, PineBridge Investments.

The high local dollar will continue to challenge manufacturers in the country for the next few years, PineBridge’s chief economist, Markus Schomer, said during a visit to Sydney.

“Over the next few years you’ll see a structural weakening of the $A to restore the export competitiveness,” he says. “Unfortunately you are at the beginning of the phase where there’s still manufacturing leaving Australia rather than coming to Australia.”

New York headquartered PineBridge manages $US73.5 billion, mostly in fixed income and alternative assets on behalf of institutions globally.

But Schomer describes predictions such as Deutsche Bank’s recent US66¢ outlook as overly optimistic. He suggests that “something else has to happen on the other side of the trade” for the Australian dollar to push below US80¢ – namely, a rising US dollar.

“It won’t be before the US starts raising rates that the $A will really start moving – without the US dollar moving it’s very hard for currencies to start weakening against the US,” Schomer says.

Read more at Smart Investor.

 

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retail

Furniture, bedding and home entertainment retailer Harvey Norman has posted a flat 3.6 per cent increase in half-year net profit to $117.45 million as its business faced a tough trading environment characterised by modest growth in consumer spending.

The retailer also put out its sales results for the six months to December 31 this afternoon, reporting that global like-for-like sales from its stores had gained 4.9 per cent to $2.99 billion for the period.

At its flagship Australian store network, like-for-like sales rose 3.3 per cent while total sales (which includes new store openings) rose 1.4 per cent.

Harvey Norman said sales in January this year were flat. It said like-for-like sales for January 2014 rose by only 1.4 per cent on last year. Global like-for-like sales in January were 3.9 per cent above for the same month last year.

Harvey Norman said its profit before tax for the first half of fiscal 2014 was $159.6 million, up 60.4 per cent, while net profit was 36 per cent better at $111.4 million. Excluding the effects of the net property revaluation adjustments, the net profit after tax for the half year was $117.45 million, an increase of 3.6 per cent over the previous period.

Revenue for the half was $2.99 billion, up 4.9 per cent.

HVN shares lost more than half of today's gains after the earnings were posted and are up 0.6 per cent at $3.15.

china

China’s central bank is forecast to double the yuan’s trading band in the coming quarter as policy makers loosen exchange-rate controls to promote greater usage of the currency in global trade and finance.

Of 29 analysts surveyed by Bloomberg News in the past week, 20 predicted a move in the April-June period, while four said they expect a revision in March. There were four forecasts for a change in the third quarter and one for the final three months of the year. The People’s Bank of China allows the yuan to diverge a maximum 1 per cent from its daily reference rate and 21 analysts in the survey saw the limit climbing to 2 percent in the next adjustment of the trading band.

An expansion would lend weight to China’s pledge to allow its currency to trade more freely and address US criticism that the exchange rate is kept artificially weak to protect Chinese exports. The PBoC included an “orderly” broadening of the yuan’s band among its 2014 policy goals on February 19, while lawmakers will hold annual meetings from next week to decide on major economic policies.

“Yuan internationalisation is the PBoC’s top priority and 2014 is a critical year,” said Shen Jianguang, an economist at Mizuho Securities Asia. “China usually implements reforms after the legislature meetings, so the second quarter is a good window for band widening.” 

The yuan overtook the Swiss franc to become the seventh most-used global payments currency in January, Society for Worldwide Interbank Financial Telecommunications said yesterday.

The yuan has lost 1.1 per cent this month in Shanghai, leading declines in Asia and falling below the PBoC’s reference rate. The spot rate lost 0.06 per cent yesterday to close at 6.1284 per US dollar, 0.1 per cent weaker than the fixing, which was cut 0.05 per cent to 6.1224.

 

analysis

Here's a nifty chart courtesy of the Wall Street Journal, which breaks down recent announced job losses by sector and state.

You can see the interactive chart here.

Job losses by state and sector.
Job losses by state and sector. 
gas

Shale takeover target Aurora Oil & Gas has posted a near-doubling of full-year profit, thanks to a surge in revenues driven by higher production.

Net profit jumped 98 per cent to $US116.4 million ($129.88 million) and revenues soared 91 per cent to $US562.8 million as a result of a rapid increase in output in Aurora’s acreage in the prized Eagle Ford shale region of southern Texas.

This month, Aurora attracted a $1.84 billion cash takeover bid from Canada’s Baytex Energy, which completed a $C1.5 billion ($1.5 billion) equity raising this week to support its acquisition. Aurora’s directors have backed the offer of $4.10 a share, which is still to be examined by an independent expert before a vote by Aurora shareholders.

Aurora has hired Grant Samuel to assess the offer and a report is expected within weeks.

Aurora shares fell as much as 5¢, or 1.2 per cent, to $4.15 on the result.

They surged 56 per cent the day the Baytex deal was announced and have traded close to the offer price ever since, amid lingering speculation whether Aurora may attract a higher offer, despite the chunky premium.

iron

Executives at the world’s largest iron ore producer, Brazil’s Vale, are bullish on the price of the bulk commodity, after revealing EBITDA rose 50 percent in the December quarter to $6.64 billion, beating estimates.

Vale sees almost no risk for iron ore sales volumes and prices, although 2014 is unlikely to show prices as high as in 2013, Jose Carlos Martins, the company's head of ferrous metals, said on a conference call with investors on Thursday.

Vale is working with a "nearly 100 percent chance" of meeting output targets for iron ore during the next two years, he said. He added that ore quality will again become a defining element in pricing, helping boost the value of Vale's high-grade iron ore in China, its main market.

Executives also said that market conditions make it difficult for iron ore to fall below $110 a tonne. Iron ore averaged $134.86 a tonne in the fourth quarter, 12 percent more than the average a year earlier.

Even if it fell below $110, the fall would be brief, and Vale's costs mean it will still earn a healthy profit. It's ash cost of mining is about $21 a tonne, on an FOB basis, a measure that does not include transport costs.

Analyst Garret Nelson said in a note to investors on Thursday that there is evidence that steel mill shutdowns in Hebei province, China's main steel region, because of pollution could slow iron ore demand and cause prices to fall below current levels of 118.00, one of the lowest levels in nearly eight months.

That combined with new output from Australia could keep the outlook for iron ore prices low, hurting Vale's share price, Nelson wrote.

Vale's Martins said that he has seen little evidence that pollution concerns in China, Vale's biggest market, are cutting back on mills' demand for ore, the main ingredient in steel.

Read more at Reuters.

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