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.
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.
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.
And here are the best and worst for today.
Best and worst performers in the ASX 200 today.
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.
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.”
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.
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.
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.
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
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.”
And here are today's best and worst.
Best and worst performers in the ASX 200 so far today.
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.
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.
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.
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’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.
Here's a nifty chart courtesy of the Wall Street Journal, which breaks down recent announced job losses by sector and state.
Job losses by state and sector.
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.
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.
Japanese eco data is out: industrial production in January rose the most since 2011 and consumer prices maintained their gains, aiding the government’s efforts to wipe out deflation and drive a sustained economic recovery - but stocks are trading flat in Tokyo.
Output increased 4 per cent from the previous month, above economist predictions of a 2.8 per cent rise. Consumer prices excluding fresh food climbed 1.3 per cent from a year earlier.
Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda face the risk that gains under Abenomics will evaporate when a sales-tax rise in April weakens consumption.
Analysts aren’t convinced by the central bank’s projections for reaching 2 per cent inflation in a two-year timeframe, with Barclays not seeing the target being met until 2017.
‘‘Demand is likely to decline considerably after the sales-tax increase,’’ said Itochu chief economist Yoshimasa Maruyama. ‘‘The tax-rise may have a harsher impact on the economy than the government and BOJ predict.’’
The yen’s 10 per cent slide against the US dollar over the past 12 months has bumped up the cost of imported energy in a nation where all 48 operable nuclear reactors remain shut for inspections after the 2011 Fukushima disaster.
The overall consumer price index rose 1.4 per cent from a year earlier, while inflation excluding perishables and energy held steady at 0.7 per cent.
The Nikkei is swinging between small gains and losses, headed for its second monthly decline.
Woolworths boss Grant O’Brien believes the supermarket giant has not breached any promises made to the competition regulator last year over its fuel shopper docket scheme, and is sticking by its ‘bundled’ offer that is giving drivers 8 cents per litre discount at the petrol pump.
O’Brien also declared Woolworths was not the type of company that would ‘‘deliberately and intentionally’’ breach undertakings it has made to the regulator.
He also questioned the point of the competition watchdog clamping down on fuel discounts offered by Woolworths and Coles last year because of fears it was hurting smaller independent fuel retailers when independent petrol stations had actually grown their market share in 2013.
Unveiling Woolworths half-year result this morning, O’Brien said the retailer was given a clear indication from the ACCC that its fuel discount offer - that bundled together purchases at the supermarket with purchases at its petrol stations - was not a breach of undertakings made in December to cap fuel discounts at 4 cents per litre.
‘‘Our going in position, there was no grey,’’ O’Brien said.
However, he declined to comment if it had in writing a declaration from the ACCC that its bundled offer was in keeping with its December undertakings.
Woolies shares, meanwhile, are down 2.9 per cent at the day's low of $35.38, the biggest drag on the benchmark index.
Woolies vows to keep the petrol discounts flowing. Photo: Jim Rice
Songs and albums in digital rather than physical form continue to grow as Australians' preferred way to buy their music.
In a first, more than half the music bought in Australia last year was in a digital format rather than CDs, vinyl and DVD.
According to figures provided by the Australian Recording Industry Association, principally representing the record companies, digital sales brought in revenue of just over $192 million last year.
The problem for the music industry, as for publishers, print media and, soon enough, film and TV, is the growth in digital sales still does not come with a proportional growth in revenue to compensate for the decline in physical sales and their greater profit margins.
The main overnight event - which boosted US equities and the Australian dollar - was another parliamentary testimony by US Fed chair Janet Yellen, who made a few dovish but largely unspectacular comments.
Yellen said that the Fed “will likely reduce the pace of asset purchases in further measured steps at future meetings”. Her comments were generally perceived to be more dovish than her comments two weeks ago. Economic data were acknowledged to be soft but it was unclear how much could be put down to weather.
Her prepared testimony to the Senate Banking Committee was identical to the one given to the House two weeks ago. However, it was a comment in her Q&A that looks to have been responsible for a sell-off in the US dollar and also boosted stocks.
Yellen is quoted saying that “What we need to do……is try to get a firmer handle on exactly how much of that set of softer data can be explained by weather and what portion if any is due to a softer outlook”.
"In truth, her remarks fall into the category of ‘The Fed will do its job’ but clearly some detected signs of less than 100% commitment to maintain the pace of tapering at the next (March 20) FOMC meeting, even though the Fed chairwoman reiterated that a change in the tapering schedule requires a ‘significant’ outlook change," NAB notes.
Slightly more dovish ... Janet Yellen. Photo: Reuters
Paul Ramsay, chairman of Ramsay Health Care, is selling out of regional free-to-air television broadcaster Prime Media Group in a $96 million block trade with fellow major shareholder Seven Group Holdings not expected to increase its stake.
Mr Ramsay is selling his 30 per cent holding in Prime at a 9.4 per cent discount to the last closing price of 96¢, with UBS running a bookbuild for institutional shareholders.
“Paul has built a fabulous media company over recent years and we’ve turned it into a real powerhouse in regional broadcasting,” Prime chief executive Ian Audsley told The Australian Financial Review.
“At the same time his healthcare business has grown exponentially. It consumes more of his time, effort and consciousness and logically that’s a business he want to focus on.”
Mr Ramsay's stake in Ramsay Health Care is worth about $3.4 billion.
Funtastic, a wholesaler of toys and assorted other fun products, has requested a trading halt pending “a market update on results and a potential asset divestment,” the company said in an ASX announcement.
On February 12 Funtastic received a “please explain” letter from the ASX after its shares fell by more than a quarter over a few weeks.
The Challenger Diversified Property Group (CDI), which owns and manages an $867 million portfolio of office, retail and industrial assets, has reported a fall in net profits of $5.6 million to $15.2 million for the six months to December 31.
The group’s revenue was hit during the year by a dip in net property income from its $504 million office portfolio, which is 93 per cent leased.
We continue to reposition the portfolio with the objective of enhancing CDI’s future earnings, which includes taking an active approach to leasing,” said fund manager Trevor Hardie.
The share price – last at $2.49 – continues to trade at a discount to its net tangible asset value of $2.71 per unit.
Normalised profit was $23.9 million with earnings per unit increasing by 4 per cent to 11.1 cents per unit.
Unitholders received a distribution for the six months of 9.2 cents per unit, up 7 per cent on 2012.
The fund reaffirmed normalised earnings (22.3 cents) and distribution per unit guidance (18.5 cents) for the 2014 full year, a dividend yield of 7.4 per cent.
Ever heard of the mistress trade? High finance illustrates that for married men who stray there are two kinds of money, the FT's Gary Silverman writes:
Recent developments in the New York financial world serve as a reminder that for a certain class of men – married ones who misbehave – there are really only two kinds of money. There is money their wives know about – and money of which their wives know nothing at all.
The first category – conventional matrimonial money, or what divorce lawyers call “community property” – has its uses. It can be employed to buy homes and cars, cover college costs and country club fees, and endow hospital facilities, concert halls and food banks for the poor.
But it is entirely inappropriate tender for what could be called transactions of transgression. Married men who want to fool around seriously – to support a mistress, say – need to finfor d funds that exist outside the purview of their significant others, or run the risk of hearing from their attorneys. (I would have mentioned married women in this context if I knew of any living this way, but I don’t.)
The unfortunate result is that cheating can beget more cheating. Several big business scandals of recent years in the US have involved executives skirting the rules at their own companies so they could secure the sort of special-purpose financing that a wealthy married man needs to pursue other women in peace.
This state of affairs in corporate America came into focus again late last week when a well-known New York investment banker named Frank Perkins Hixon was arrested by federal agents on insider trading charges. A veteran of Credit Suisse and Lazard, Mr Hixon had worked most recently at Evercore Partners, which has said it fired him “for cause” in January.
The local market as measured by the ASX 200 index has opened 21 points higher, or 0.4 per cent, to 5432.3, and the All Ords is up 20 points to 5441.1.
Metals and mining is the strongest performing sector early, up 1 per cent, with BHP 0.9 per cent higher and Rio 1.7 per cent.
Woolworths has raised its full-year earnings forecast after topping market expectations with an underlying first half net profit of $1.32 billion, up 6 per cent for the period.
The supermarket giant said it was now slating full-year profit after tax for continuing operations to increase by 5 to 7 per cent for fiscal 2014, against earlier guidance of a 4-7 per cent growth range.
However, the strong first half profit was blemished by earnings declines at its Big W merchandise chain and more losses for its Masters hardware chain which remains mired in red ink. Masters loss of $71.9 million was worse than some analysts had expected.
Woolworths said its first half profit was up 14.5 per cent to $1.32 billion, or up 6 per cent based on continuing operations and before significant items. The company posted revenue of $31.8 billion for the first half, up 3.8 per cent.
Citi had forecast a first-half net profit of $1.3 billion, growth of 6.3 per cent, Goldman Sachs had pencilled in a first-half profit of $1.34 billion.
Woolworths has declared an interim dividend of 65 cents per share, up 4.9 per cent.
Japan will be one to watch in Asia today with a raft of economic releases set to hit the wires.
"USD/JPY dipped below 102, but has since recovered a bit of ground," IG's Stan Shamu notes. "The Nikkei is pointing mildly higher at the moment, but considering several releases are due before the market open then this could really go either way."
The data kicks off with manufacturing PMI followed by household spending, CPI, unemployment rate, industrial production, retail sales and housing starts.
"Investors will be looking for signs that Abenomics is gaining momentum ahead of the sales tax hike kicking in in April," Shamu says.
Property developer Finbar Group has entered into a trading halt pending the announcement of a "significant development approval", due to be announced by the end of today.
Woodside has signed a sales agreement with Korea Gas Corporation for a maximum supply of up to around 2.2 million tonnes of liquefied natural gas over a three-year period, starting in April 2014, the company has announced in a statement to the ASX.
The gas will be “primarily be sourced from previously uncommitted volumes from the Woodside-operated Pluto LNG plant,” said the company, and the agreement is subject to a number of conditions and approvals.
Resurgent housing construction in the US has pushed James Hardie’s third quarter profit to $US43.7 million ($48.76 million) from $US26.7 million in the same period last year as the fibre cement maker declared a special dividend of 28¢ to commemorate its 125th anniversary.
Net operating profit for the nine months ended December 31 increased to $US286.3 million from $US115 million in the previous year.
James Hardie chief executive Louis Gries said the third quarter result for the US and European segments both continued to reflect higher volumes and higher average net sales prices.
“We continue to see improving conditions in the US housing market, which led to the increases for the quarter and nine months,” he said.
Analysts have been busy looking at Qantas’ earnings numbers and cost-cutting plans and say the struggling former giant may be forced to sell more assets in the second half to avoid an equity raising as its gearing climbs due to weak market conditions and high redundancy costs.
Credit Suisse analyst Nicholas Markiewicz says Qantas’ operating cash flows this financial year could fall to $200 million – the lowest-ever level – in a scenario that would see the airline’s gearing climb to 45 per cent from 35 per cent at the end of the last financial year. The $200 million figure compares with $1.8 billion of operating cash flow last year.
- We believe Qantas will either have to raise equity, pursue terminal/lease sales or list a portion of the Frequent Flyer business until cost outs [cost cuts] kick in.
Credit Suisse has also cut the stock to an underperform (from neutral) with a 97 cent price target.
Markiewicz says Qantas’s plans to cut $2 billion of costs over a three-year period have been “underwhelming” and will largely serve just to prevent regular cost inflation.
UBS analyst Simon Mitchell agrees, saying much of the gains would be eaten away by underlying inflation. He notes Qantas claims to have achieved $4.5 billion of cost reductions since 2003:
- Lower competition in both domestic and international would be a key catalyst for the stock, but there are no signs of this in the near term.
CIMB analyst Mark Williams believes the cost reduction program, including 5000 job losses, is “credible”. But he says the cut to 15 per cent of the workforce raises execution risks because of union involvement:
- We think much will come down to the revenue environment over the next two to three years as Qantas cuts costs.
Peripheral bonds are on the march. Spanish and Italian bond yields are, remarkably, at their lowest levels since 2006!
While much of the fall in yields reflects a "risk on" move in global markets, European bonds are particularly attractive as expectations that the ECB may resort to some form of quantitative easing to ward of deflation fears.
Australian 10 year bonds are at 4.05 per cent this morning - US 10 year bonds are yielding 2.64 per cent.
Spanish (orange) and Italian bond yields are at their lowest since 2006
“SELECT HARVESTS’ PROFITS GO NUTS”
(Sorry, we had to say it.)
Select Harvests is experiencing an almond-led recovery with the company expecting profit to continue to be driven from its nut division.
Lead by pre-tax earnings from the group’s almond division which surged 106 per cent to $25 million in the first half, the company turned its fortunes after a $19.5 million loss in the first half last year, which was caused by a $27.9 million write-down of an almond project in Western Australia.
The company announced a fully franked interim dividend of 11 cents per share, up 267 per cent, payable on April 24.
Strong global demand, supply constraints in California due to drought and a weakening Australian dollar will all help Select Harvests add to the $18.4 million profit it reported in the six months to December.
Pre-tax earnings for the group’s food division rose just 1 per cent to $4.028 million, impacted by the loss of margin private label contracts.
Virgin Australia has slumped to an $83.7 million first-half loss as it bears the cost of a battle with Qantas and its budget offshoot, Jetstar, in the domestic market.
Revenue rose almost 6 per cent to $2.2 billion for the half.
Virgin chief executive John Borghetti said the airline had been hit by significant growth in capacity, weaker economic conditions and the cost of the carbon tax.
He pointed out that the country's aviation industry had made a first-half loss for the first time in two decades.
''However, Virgin Australia continued to increase its proportion of domestic revenue from the corporate and government market segment,'' he said. ''We remain on track with our consistent strategy.''
The airline has reported a pre-tax loss of $50 million, which excluded $18 million in losses from Tigerair Australia – in which it has a majority stake – and $50 million in other expenses. The carrier had almost $900 million in cash, up from $580 million at the end of June.
Virgin has shied away from giving guidance about how much capacity it plans to pump into the market this year, citing the ''competitive environment''.
The airline's decision to play its cards close to its chest comes a day after Qantas revealed that it will accelerate its growth in the domestic market by as much as 4 per cent in the second half.
Airline industry profitability since 1992. Photo: Virgin Australia
One from late yesterday worth keeping an eye on this morning when shares resume trade: Oil Search will spend $US900 million acquiring expansion options for the PNG LNG project as the venture moves closer to start-up.
Oil Search said it will acquire a 23 per cent stake in the Elk/Antelope gas discoveries, which the Canadian based InterOil has been seeking to develop. At the same time, the PNG government will buy 149.3 million Oil Search shares at $8.20 a share which will help to fund the acquisition.
This comes as the PNG government is to transfer an existing 14.7 per cent Oil Search shareholding to the International Petroleum Investment Corp, an arm of the Abu Dhabi government, under an earlier funding agreement.
The PNG government had sought to reacquire the IPIC holding, but the decision was taken to place shares with the government.
Oil Search swatted away accusations it was forced into a sale of some 10 per cent of the register to the Papua New Guinea government. But some investors remain unconvinced, the AFR's StreetTalk is writing:
PNG has always been loath to relinquish a stake in the Australian-listed company, which is headquartered in Port Moresby, and it was widely assumed the government would shell out about $1.6 billion to repurchase a bond controlled by the Abu Dhabi government known as IPIC. That note converts to equity next month at a strike price of $8.55.
However, it appears PNG was knocked back by IPIC and a number of investors fear the politicians then forced the hand of Oil Search.
The company’s chief executive, Peter Botten, flatly denied this interpretation. Yet this circular shareholder structure is highly unusual. Here’s how it works: UBS will extend a $1.2 billion loan to the PNG government so it can buy close to a 10 per cent stake in Oil Search.
This loan will then be sold down in a structure known as a delta hedge to existing and new investors. Effectively, this cash provides collateral to the UBS loan. Under the terms of the deal, investors can access $672 million of stock, and informed sources said the book was multiple times over-subscribed on Thursday evening.
Oil Search then uses the money from the placement to the government to acquire a stake in the InterOil Elk-Antelope project, which is regarded as the largest gas find in the Pacific Island nation in two decades.
Here's a list of companies reporting today:
- Aurora Oil & Gas
- Harvey Norman
- James Hardie
- Medusa Mining
- Retail Food Group
- Select Harvests
- Virgin Australia
On Wall Street, the S&P 500 closed at a record and ended in positive territory for the year after Federal Reserve chair Janet Yellen said harsh weather seems to be to behind recent US economic softness.
That gave some relief to investors who supported the view that heavy snowstorms and unusually cold weather - and not worsening fundamentals - were to blame for weak US employment, retail sales and other data. But there was also some speculation, Yellen may slow down the pace of stimulus taper.
The advance lifted the S&P 500 above its 2013 year-end closing level of 1848.36, which has served as resistance in recent sessions.
"The market was worried. She could have excluded weather and perhaps talked more about the soft patch," said Quincy Krosby, market strategist at Prudential Financial. "I think she gave the market some comfort that she thought it was probably mostly due to weather-related issues."
The Dow Jones rose 74.24 points, or 0.46 per cent, to end at 16,272.65. The S&P 500 gained 9.13 points or 0.49 per cent, to finish at 1854.29, surpassing its previous record closing high set on January 15. The Nasdaq Composite .IXIC added 26.869 points or 0.63 per cent, to close at 4,318.933.
For the year, the S&P 500 index is now up 0.3 per cent.
The day's economic data added to the positive tone, with orders for long-lasting US manufactured goods excluding transportation and a gauge of business spending unexpectedly rising in January.
Local stocks are poised to open higher after Wall Street rallied on positive US economic data and comments from US Fed chair Janet Yellen.
Here’s what you need2know:
- SPI futures up 24 points at 5420 at 8.45am AEST
- AUD at 89.65 US cents at 8.45am AEST
- On Wall St, S&P500 +0.49%, Dow Jones +0.46%, Nasdaq +0.63%
- In Europe, Euro Stoxx 50 -0.42%, FTSE100 +0.16%, CAC -0.01%, DAX -0.76%
- Spot gold up $US1.28 to $US1331.92 an ounce
- Brent oil down 66 US cents to $US108.86 per barrel
- Iron ore flat at $118.00
What’s on today in economics data:
Australia: private sector credit
New Zealand: building permits; ANZ business confidence
Japan: consumer price index; industrial vehicle production.