Markets Live: China weighs on shares

4:56pm: That’s it for Markets Live today.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

4:50pm: Local shares finally had a rise on Monday after a week of losses, led by a recovery in the mining and energy sectors but weighed down in the afternoon by investor nervousness around a plunging Chinese stock market.

Despite trading 1.4 per cent higher early in the day, with investors buoyed by a rebound in global commodity prices, the ASX 200 could only finish 0.2 per cent higher at 5309.1. The All Ordinaries also closed 0.2 per cent higher at 5290.1.

The Shanghai Composite was 6.7 per cent lower in late trade after China’s securities regulator cracked down on margin accounts to curb excessive speculation. Shares in Citic Securities and Haitong Securities were aggressively sold off after regulators suspended the companies from margin activities.

“China’s off 6 per cent and that’s the thing that really stands out,” said Morgans senior client advisor Alistair McCorquodale. ”That would translate back onto our market in preparation that the Europe tonight will be a little weaker on the back of that.

”We had good leads coming out of the overseas markets on Friday night. We were looking for a stronger day than ultimately what occurred.”

Shares in OzForex crashed 10.3 per cent after the international payments and foreign exchange services business said that Westpac would no longer be providing it banking services. The sell-off seems to have been inspired by trigger the failure of forex broking firms following the shock abandonment of the Swiss franc’s peg against the euro.

Macquarie Group were up 5.4 per cent to $58.25 after a profit upgrade, with the bank expecting its full-year profit to surge by between 10 and 20 per cent due to improved trading conditions and the lower Australian dollar.

Shares in Oil Search lifted 4.9 per cent to $7.49 after expansion of the giant PNG LNG project in Papua New Guinea took a step closer to reality. ExxonMobil and Oil Search have made a deal with the local government that would see a final investment decision on a third LNG processing train taken “as soon as possible”.

Medibank Private was up 2.2 per cent to $2.36 as “buy” recommendations continue to flow for the stock. Bell Potter slapped a 12-month price target of $2.63 on the shares, citing Medibank’s dominant market position, earnings transparency and potential for earnings growth – despite operating in a highly regulated and competitive market.

Other energy stocks also had a good day with improved global sentiment on the oil price. Santos was up 0.67 per cent to $7.54, Horizon Oil shot up 4 per cent to 13 cents, and Senex lifted 1.79 per cent to 28.5 cents.

4:40pm: There were some nice bounces among smaller energy and copper miners. As mentioned below, Macquarie enjoyed a bump after announcing a profit upgrade.

Super Retail Group was up strongly after a broker upgraded the stock to the equivalent of a “buy”.

OzForex was the worst performer after announcing Westpac would no longer provide banking services to the international payments firm. The stock plunged at the open, jumped almost all the way back, but then slid lower for the rest of the day to end 10.3 per cent lower.

Best and worst performers in the ASX 200 today.

4:28pm: Shares could only manage moderate gains after an early rally driven by resources stocks ran out of puff, with investors rattled by a sharply lower Chinese sharemarket and as losses among the big banks, Telstra and the supermarket owners weighed.

The ASX 200 and All Ords both gained 10 points, or 0.2 per cent, to 5309.1 and 5289, respectively. At one stage late morning the ASX 200 was 73 points higher.

Miners and energy shares provided the greatest boost. BHP was up 2.4 per cent, while Oil Search gained 4.9 per cent.

Macquarie jumped 5.4 per cent on a profit upgrade.

Among the drags were CBA, down 0.6 per cent, and Telstra, which fell 0.8 per cent. Woolies lost 1.4 per cent.

4:15pm: Stockbroker Charlie Aitken is taking a more upbeat view on the major Australian banks, saying the sector’s high dividends makes it a good bet in an environment of record-low yields.

With shares in the big four falling for much of the past week and extending their drops today, the Bell Potter director says the plunge in global bond yields means that the Australian banks appear to be “primed for total return outperformance.”

As yields on fixed-interest assets decline, alongside commodity prices, he argued that investors would inevitably have to take more risk to get the same level of return, and that meant looking at “bond-like” equities.

It comes after Australian 10-year government bond yields fell to a new record low of 2.56 per cent late last week.

Aitken has previously recommended stocks with strong potential for yield growth including AMP, Telstra, IAG and Wesfarmers but had been “underweight” on the major banks.

But after the recent plunge in bond yields, he argues the big four banks are attractive, citing forecasts for solid dividend growth (between 4.3 for Westpac and 6.7 per cent for CBA) over the coming financial year.

“With benign bad debts, [net interest margins] maintained, falling wholesale funding costs and quantified regulatory capital risk, the sector now looks primed for total return outperformance. Prospective dividend yield alone will support the sector at current share prices,” he told clients in his widely-read note “Ringing the Bell.”

Aitken now has a “buy” recommendation for ANZ and National Australia Bank, and is “mildly overweight” on the sector. He is “neutral” on the Commonwealth Bank, which has been the strongest performer of the banks in recent months, ahead of its half-yearly results next month.

Against this, other analysts say the banks face a tougher environment over the year ahead, because their bad debt costs are bound to jump from historic lows.

Fitch Ratings last week said that bank earnings growth was likely to be slowed in 2015 because credit quality would “weaken modestly” due to the soft economic environment. It also said fierce competition for customers would continue to squeeze profit margins, dragging on earnings growth.

Solid dividend growth should support banks in a low-yield environment, Charlie Aitken argues. Photo: Louis Douvis

4:08pm:“Don’t fight the Fed” – it’s been the clarion call for shareholders in recent years as the US central bank has poured liquidity into global financial markets, pumping up stockmarkets along the way.

The S&P 500 is up a stunning 200 per cent since March 2009.

But analysts at French investment bank Societe Generale say that with QE over in the US and the Fed expected to lift rates off the floor around the middle of this year, investors have failed to similarly change gear.

“We are not fighting the Federal Reserve, while the market clearly is,” write the SG strategists, saying they “do not share the consensual bullish outlook on US equities, which are expensive, and face numerous headwinds”.

They expect that the S&P 500 index will suffer a poor performance in the first half of 2015, and expect the index to hit 2050 at the end of the year, slightly down for the year.

They go on to say:

• US equities are tired. The past five years have seen sub-normal growth and three QE programmes: the S&P has risen from 680 to more than 2,000. The next few years should bring above-normal growth but tightened liquidity conditions. The strengthening US dollar, significant damage to shale industry prospects and the first rate hike in 10 years should offset the strong US GDP growth already priced in at the start of the year.

• US equities are indeed expensive. Valuation expansion has gone to an extremely high level, rarely seen since 1871. We don’t believe in another phase of irrational exuberance. US equities nevertheless look cheap against dearly priced Treasuries and credit.

• Volatility is set to increase and probably become more volatile itself – the long period of ultra low volatility has ended already, forcing asset allocators to reduce the equity content of multi-asset portfolios. Strikingly enough, CFTC data currently shows super long positions on S&P500.

• Continue to prefer large to small. The relative outperformance of US small caps versus blue chips has been driven by liquidity conditions: relative performance is clearly showing a rational link to the Fed’s balance sheet. Although the market is fighting the Fed, expecting it to delay the rate hike, we aren’t: we recommend continuing to take profits on smalls caps concentrating investments in larger market capitalisations.

Investors didn’t fight the Fed on the way up, but they are on the way down, reckon SG analysts, who believe the S&P 500 will fall in 2015.

4:00pm: China’s efforts to cool the growth of margin trading may curb one of the biggest drivers of the nation’s world-beating equity rally: the use of borrowed money to buy stocks.

The following Bloomberg chart shows the amount of shares purchased on margin has surged more than tenfold in the past two years to a record 1.1 trillion yuan ($210 billion), or about 3.5 per cent of the nation’s market capitalisation. The Shanghai Composite Index has gained 37 per cent in that period, including a 58 per cent rally during the past 12 months that topped every other benchmark equity gauge worldwide.

The Shanghai measure tumbled as much as 6.5 per cent today, heading for the steepest retreat since August 2009, after China suspended three of the nation’s biggest brokerages from adding margin-finance accounts because of rule violations.

Citic Securities, the nation’s biggest listed securities firm, said today it raised the minimum requirement for opening margin accounts to 500,000 yuan from 300,000 yuan.

‘‘The jump in the outstanding values of margin trading in the short term does mean the risk is building up,’’ said Xie Weiyu, a strategist at Shenyin & Wanguo Securities in Shanghai. It may ‘‘become the major focus for the regulators to cool the market. If a correction starts, the magnitude will be bigger than the past few years.’’

The Shanghai and Shenzhen exchanges expanded the number of stocks available for margin trading to 900 from 695 in September.

Will the crackdown in margin lending put an end to China’s spectacular share rally?

3:48pm:Global airline profit margins are poised to expand significantly this year as a result of the falling fuel price, in part because only some of the gains are likely to be passed onto consumers in the form of lower airfares, according to a new Moody’s report.

The ratings agency said airlines were likely to use the windfall from the fuel price fall to reduce debt, purchase aircraft and increase returns to shareholders rather than to significantly grow their fleets to wage market share battles.

“We expect airlines in the mature markets of the US, Australia and, to a lesser degree, Europe to continue to balance capacity growth with passenger demand as part of their quest to earn acceptable financial returns,” Moody’s said in the report, which raised its outlook for the global industry to “positive” from “stable”.

Moody’s said the recent pull-back in capacity growth in the Australian market should help Qantas Airways and Virgin Australia Holdings report improved financial results this year. The ratings agency has maintained its Ba1 rating with a “negative” outlook on Qantas and its B2 rating with a “stable” outlook on Virgin.

Moody’s said operating profit margins for the global airline industry were poised to expand to 12 to 14 per cent this year from an estimated 8.5 to 9.5 per cent last year, in part because the fall in the oil price could bring $US35 billion of benefits to global carriers after the effects of hedging and the weakening of currencies against the US dollar.

Moody’s said operating profit margins for the global airline industry were poised to expand to 12 to 14 per cent this year from an estimated 8.5 to 9.5 per cent last year. Photo: AP

3:35pm: The Australian dollar is expected to hold relatively firm against a weakening euro and US dollar this week ahead of moves by the European Central Bank to announce up to €1 trillion ($1.41 trillion) in stimulus through a massive bond-buying program.

The local currency is trading at US82.03¢, down from Friday’s local close of US82.34¢, and down about 0.64 per cent against the common currency at 71 euro cents.

“The aussie is rising against the euro but that should be put into context because the euro is falling against everything,” said BT Investment Management head of income and fixed interest Vimal Gor.

The euro is down 5.5 per cent against the US dollar over the past month and about 17 per cent against the Swiss franc ahead of Thursday’s expected announcement by ECB president Mario Draghi to expand Europe’s quantitative easing (QE) asset purchase program to include corporate and sovereign bonds.

“The euro can be expected to weaken materially further going forward as the QE program in Europe is introduced. A very large scale of QE is required over the coming years to rescue the Eurozone and this will have ramifications on its currency,” said Mr Gor.

He added that even if the Aussie holds up against the US dollar in the short term, it should weaken beyond that.

“The US dollar is embarking on a massive bull-rally that could see it strengthen over 50 per cent over a number of years, this is worrying for growth and inflation everywhere else,” he said.

Deflation will add pressure on the ECB to move aggressively and take large-scale action. Photo: Bloomberg

3:24pm:China seems to have spoilt the party a bit with the Shanghai Composite dropping over 6 per cent as brokerage stocks stumbled after China’s securities regulator cracked down on margin accounts, sparking nervousness, IG’s Stan Shamu says:

Citic Securities and Haitong Securities shares were aggressively sold off after regulators suspended the companies from margin activities. While this is putting a dent in equities in the near term, the intentions seem good as officials continue to reign in reforms and curb excessive speculation. Developers are also struggling as China’s property prices remain a big source of concern.
The ASX 200 was around 1% firmer in early trade, but has since shed most of this gain with weakness in China contributing to the reversal. The energy space is feeding off the bounce in oil prices with gains with solid gains for Santos, Oil Search and AWE.

Here’s how the region’s bourses are doing this afternoon:

Japan (Nikkei): +0.6%
Hong Kong: -1.1%
Shanghai: -6.3%
Taiwan: +0.4%
Korea: +0.9%
ASX200: +0.15%
Singapore: +0.3%
New Zealand: +0.4%

3:04pm: We mentioned last week that there are many Polish borrowers who would be feeling the pinch after the Swiss franc depreciated sharply as the country’s central bank abandoned its efforts to keep a lid on the currency.

Polish lenders had 131 billion zloty ($US35 billion) of Swiss-franc mortgages on their books as of the end of November, or 46 per cent of total home loans, Bloomberg reports, quoting data from the country’s financial-market supervisor.

Just as a matter of interest, in the 1980s Australians had their own taste of borrowing in a foreign currency that offered much lower interest rates, only for borrowers to be burnt following a big move in exchange rates. As the Uni of Sydney’s Evan Jones explains:

The major banks (the NAB reluctantly) began offering loans denominated in foreign currencies (FCLs) to non-corporate borrowers in the early 1980s. This thrust followed from the perceived threat of new institutional lenders, regulatory quantitative lending restrictions and the prospect of making tidy profits in a new sphere. Enhanced profits were to be achieved not least from higher margins, tax minimisation strategies and (as it transpired) under-the-table expropriations from borrowers. The major currencies used were Japanese yen (JPY), Swiss francs (CHF) and the US dollar (USD).

Domestic interest rates were soaring – the rate on a bill facility went over 20%, payable up front – whereas interest rates on some foreign currencies (especially the CHF) were much lower. The catch was the exchange rate between the AUD and these currencies. If stable, the FCL seemed like a great idea – as some borrowers said at the time, ‘too good to be true’; and thus it proved to be. But hardly anybody at the time (save for a couple of academic specialists) had a clue as to likely movements, including the small number of supposedly specialist staff in the banks. And of course, the AUD was not floated until December 1983 (it had been officially devalued significantly in March 1983, a foretaste of likely future movements).

However the AUD soon devalued against the JPY and significantly against the CHF. 1985 was the year of truth. An FCL borrower in CHF would end up owing a principal totalling more than twice what s/he had borrowed, against which a lower interest rate now paled into insignificance.

Worry and then panic set in amongst the bank lenders. Ultimately the dominant concern of the banks was how to minimise their own losses and impart the responsibility of risk-taking to the borrowers. Thus there gradually ensued litigation in the courts in the late 1980s and early 1990s with the borrowers consumed for years with their losses.

2:44pm:Smokers trying to quit their habit are often motivated by the promise of shaking off their horrible, hacking cough but, in a cruel twist, in the early days off the fags they find their cough gets worse.

However, local drug developer Invion may have uncovered a breakthrough for aspiring quitters. Interim data for its early clinical trial successfully showed that the drug nadalol reduced markers of inflammation of the lungs that is associated with the rattly cough.

The hope is that nadalol can be used in conjunction with smoking cessation aids like nicotine patches to help smokers kick the habit.

So far in the trial, the drug has been given to about 20 patients on a range of quit smoking programs who have either a chronic cough or chronic obstructive pulmonary disease [COPD] and who have previously tried to quit smoking but failed. An equivalent number of patients were given a placebo.

Phlegm samples taken from patients who had tolerated the maximum dose of the drug for four weeks showed nadalol inhibited inflammation and reduced mucus production.

The result pleased investors in the $24 million company, which is looking at a range of drugs to treat respiratory conditions. Invion’s share price has surged 18 per cent to 5.2¢.

It is crucial to note, however, that the data is interim and the trial has some way to run.

Invion chief executive Greg Collier said the interim data was important because it gives the company confidence to push ahead with clinical trials of an inhaled version of nadalol for the treatment of other respiratory diseases such as asthma, COPD and cystic fibrosis.

2:14pm:Chinese stocks have tumbled, led by brokerages, after regulators took measures to rein in margin trading at three of the nation’s biggest securities firms.

The Shanghai Composite index is down 5.2 per cent. Citic Securities and Haitong Securities, two of the brokerages targeted by regulators, fell by the 10 per cent daily limit.

The penalties have raised concern that policy makers are trying to curb a surge in stock purchases using borrowed money, after outstanding margin loans jumped to 1.08 trillion yuan ($US174 billion) as of Jan. 13 from about 400 billion yuan at the end of June. The Shanghai Composite index has jumped 61 per cent during the past 12 months on record volumes as individual investors piled into the market.

“Regulators are concerned that shares have run too hard, too fast,” said Hao Hong, a strategist at Bocom International Holdings in Hong Kong. “They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.”

The nation’s two biggest listed securities firms and Guotai Junan Securities were suspended from lending money and stocks to new clients for three months, the China Securities Regulatory Commission said on its microblog on Jan. 16 after the market closed.

The regulator punished nine other securities companies for offences including allowing unqualified investors to open margin finance and securities lending accounts, it said.

“China is trying to rein in over-bullishness in the stock market as moves have been exaggerated,” Pauline Dan, Hong Kong-based head of Greater China equities at Pictet Asset Management, said. “Investors will have to wait and see until this volatility settles. They don’t have a fundamental reason to stay long since government policy is driving the market.”

China is scheduled to release data tomorrow that’s forecast to show the economy grew in the fourth quarter at the slowest quarterly pace since 2009.

Commuters ride on a bus at dusk in Wuhan, China. The nation’s gross domestic product growth probably slowed to 7.2 percent in the October-to-December period, according to the median estimate of a Bloomberg survey. Photographer: Tomohiro Ohsumi/Bloomberg

2:07pm: Trading in troubled education services provider Vocation has been halted ahead of an earnings update. The announcement will come either today or tomorrow, with the shares set to return to trading on Wednesday morning at the earliest.

In an ASX statement just before the market opened, the company said the trading halt was also “to complete certain financial reviews which are currently in progress”.

Vocation shares fell 9 per cent on Friday to 25 cents.

1:58pm:Petrol prices remain on the way down. According to the Australian Institute of Petroleum, the national average price of petrol fell by 4.0 cents per litre last week to 115.7 cents a litre – the lowest in 5½ years. Prices have now dropped for eight straight weeks.

Petrol prices continue to fall with the drop of 24 cents a litre over the past seven weeks, the biggest drop for an equivalent period in six years, CommSec chief economist Craig James notes:

There were larger falls in smaller capital cities last week as they played catch-up to the larger cities. And there were big falls in petrol prices in some regional centres. But interestingly the gap between the regional and metropolitan unleaded petrol price was 14.2 cents a litre last week while the gap was 2.2 cents for diesel. The gap between wholesale and retail diesel prices was 23.4 cents and the gap between wholesale and retail unleaded prices was 12.2 cents.
More and more service stations are selling E10+unleaded below $1.00 a litre. And while these prices are enticing, motorists need to monitor whether prices of other grades of fuel are falling to the same extent. Still, low petrol prices on signboards are positive for consumer confidence. And low petrol prices are indeed putting more spending power in consumer pockets.
The wholesale petrol price has fallen 39c a litre from October highs while the retail price has fallen around 34c. So there is scope for pump prices to fall a little further. Global crude prices rose sharply on Friday, suggesting that prices could be starting to settle.

<img src=”http://images.theage.com.au/2015/01/19/6177709/1_petrol-620×349.jpg” alt=”

” itemprop=”image”/>

1:43pm: Wondering what are the big risks for investors in 2015? Wonder no more, here are Morgan Stanley’s top six:

• Risk #1: US bond yields rise sharply, rapidly reconnecting with fundamentals. US yields have tracked Europe and Japan lower, but the strong US economy, diminishing spare capacity, Fed forward rate guidance and valuation all point to upside risk. Rising US yields would pressure Australian bonds and yield stocks.

• Risk #2: The impact of the oil price collapse is underestimated. Energy consumers will enjoy a substantial “tax” cuts, worth up to 2.5% of GDP in the US, and it’s a major positive for developed markets. On the other hand, lower prices are a major challenge for non-diversified producers like OPEC and Russia – financial and political risks will remain elevated.

• Risk #3: The Reserve Bank restarts an easing cycle. Given below-trend growth, rising unemployment, low inflation and constrained policy options, the onus for navigating the post-resources boom transition falls on the RBA. Signs of a moderation in housing may increase the RBA’s freedom to cut rates. Rate cuts would be a major market positive, and help consumer discretionary stocks.

• Risk #4: The Eurozone slips into deflation. The double-dip recession, high unemployment, and low starting point put the Eurozone perilously close to deflation. A weaker Euro and aggressive ECB should help contain this risk. Abundant ECB liquidity should be positive for risk assets.

• Risk #5: The Fed jawbones and then lifts rates sooner than expected. The strong US economy and falling spare capacity may lead the Fed to act, should dovish market expectations persist. This would drive a market correction, but strong growth would then push the US market higher.

• Risk #6: An emerging markets crisis. A strong US Dollar and Fed tightening have historically been negative for EM. Consistent with this, fund outflows are currently occurring. That said, currencies, policy and rates have moved to pre-emptively adjust. India, Indonesia and Turkey appear less risky. On the other hand, Russia and Brazil remain vulnerable.

1:13pm: The euro-area economy is back in the cross-hairs of investors.

It’s a familiar place for the currency bloc, which spent the past five years struggling for growth, the faith of investors and even its very existence. The latest concerns, that failure to break political logjams dumps the region back into recession and crisis, are propelling the continent back up the worry list of investors, executives and policy makers heading to the World Economic Forum’s annual meeting in Davos.

A Greek election in six days may hand a slice of power to a party gunning to renegotiate the austerity on which the nation’s bailout is based, potentially serving as a preview for votes in Portugal and Spain and reviving talk of a euro exit.

Meantime, European Central Bank President Mario Draghi, the man who defused the turmoil in 2012, is trying to craft the cross-border consensus needed for full-blown quantitative easing as the threat of deflation hovers over the region and governments resist overtures to do more.

“The politics of Europe is so much more problematic even though the economics look better,” says Ian Bremmer, founder and president of the New York-based Eurasia Group. “Everywhere you look politically, bottom up, inside out, outside in, Europe is bad this year.”

That’s a reversal of fortune from last year when Draghi was telling Davos delegates that he anticipated signs of a “dramatic” improvement in his economy’s health, and German Finance Minister Wolfgang Schaeuble declared the crisis over.

For a sign of the renewed concern, look no further than the euro, which turned 16 years of age this month and is trading at its lowest in more than a decade against the dollar.

The currency’s downward slide was compounded by the Swiss National Bank’s surprise decision on Jan. 15 to scrap its currency cap on the franc, sparking turmoil in markets. The euro fell more than 3 percent last week, the biggest weekly drop in more than two years.

Illustration: michaelmucci.com

12:35pm: TD Securities has lowered its inflation expectations for the year ahead and no longer expects the RBA to raise rates in 2015 following a flat reading for the TD-Melbourne Institutes inflation gauge in December.

TD’s head of Asia-Pacific research, Annette Beacher, expects the official CPI numbers for the December quarter (out Wednesday week) to be “a soft report all round“.

“We see headline inflation rising by only 0.3 per cent in the quarter, to be 1.8 per cent higher than a year ago, while we forecast underlying inflation to rise by 0.45 per cent in the quarter, for an annual rate of 2.1 per cent,” Beacher writes in a report this morning. “We now expect underlying inflation to track around 2-2¼ per cent until year end, a lower trajectory than we previously assumed.”

Beacher argues that the recent turmoil in markets over recent days will likely leave the RBA “on the sidelines until the smoke clears”.

“Market turmoil also tends to dampen consumer and business sentiment, and these bear close watching,” Beacher writes.

“In a change of view, this very low inflation environment allows the RBA cash rate to remain at 2.5 per cent for much longer, and we no longer expect a rate hike this year.”

Beacher adds: “However, we remain unconvinced that cash rate cuts are the solution, rather we call on the government to announce a well-targeted infrastructure package, taking advantage of the current favourable funding conditions, to boost growth and jobs”.

The TD Securities-Melbourne Institute inflation gauge was subdued in December, prompting TD to lower its inflation forecasts for the year ahead.

12:18pm:Business confidence has taken a battering over the Christmas period according to the latest national survey from the Australian Chamber of Commerce and Industry, and many owners are feeling pessimistic about the year ahead.

According to ACCI chief executive Kate Carnell, readings on profitability are the worst seen in the 23 years the survey has been running.

“Business owners are feeling pretty grim at the moment after a fairly bleak Christmas period. We saw a glimmer of hope in the middle of the year with a slight upturn in conditions, but that has now been reversed,” Ms Carnell said.

“Generally speaking, the climate for investment is terrible at present and businesses don’t see much need to expand their capacity.”

Ms Carnell called on the Parliament to help restore business confidence by undertaking “productivity-enhancing structural reforms” and urged the Reserve Bank of Australia to cut interest rates beyond their current historic lows.

The report for the December quarter 2014 shows index readings for business conditions, profitability and sales all fell during that period and are in negative territory. Index readings for national economic conditions and climate for investment remained at a level indicating contraction.

According to the report, businesses also are looking for the unemployment rate to increase and the GDP growth rate to fall. Of the businesses surveyed more expect interest rates will rise rather than fall.

The top ten constraints on investment listed by the businesses include insufficient demand, business taxes and charges, and federal government regulations.

11:59am:Ten Network and its adviser Citi will resume negotiations with bidders for the troubled broadcaster this week with Discovery Communications and Foxtel in pole position with a 23¢ a share joint offer.

Rival bidders believe Discovery and Foxtel, whose offer price is higher than the other three players, are effectively preferred joint bidder, although sources close to Ten deny this.

Citi could call for a second round of bids, although bidders were concerned about the poor financial state of the company after entering its data room and one offer is believed to have been pitched as low 15¢ a share.

Foxtel slashed its original offer from 26¢ share to 23¢ after conducting due diligence. Its offer is in cash and shares in an effort to persuade investors who wish to keep a holding to approve the offer if it is agreed.

Citi’s attempt to conclude the auction by December 19 failed and the process has been on hiatus since, with leading directors and bankers from different sides overseas on vacation.

Alternative offers were made by from New York-based fund manager Anchorage Capital Group, US special purpose acquisition vehicle Silver Eagle and American TV network turnaround specialist Saban Capital Group.

Ten shares last traded at 20.5 cents, unchanged for today.

At least one other bidder is under the impression that Citi and Ten’s independent directors are keen to work out a deal with Discovery and Foxtel in the coming weeks. Photo: Michael Clayton-Jones

11:39am:Rio Tinto is tipped to reveal on Tuesday it has sold more stockpiled iron ore than expected, to bolster its balance sheet ahead of a highly anticipated round of cash returns next month.

It comes as Rio chief Sam Walsh sent an email to staff last week urging them not to be “distracted” during what was set to be a “tough” 2015, a thinly veiled reference to unwelcome suitor Glencore.

The iron ore giant reports its December quarter production numbers tomorrow, which provide some insight into what to expect at its full-year results next month. Rio’s financial year ends on December 31. All eyes will be on shipments of iron ore – which make up about 90 per cent of Rio’s earnings.

UBS mining analyst Glyn Lawcock is tipping Rio will easily beat its sales guidance of 300 million tonnes for the full year, clocking at least 304 million tonnes. Deutsche Bank mining analyst Paul Young is forecasting it will come in almost on par, at 301 million tonnes. Rio has said it would sell 5 million tonnes of stockpiled iron ore in the 2014 year, but Mr Lawcock said the miner was likely to better that, with 8 million tonnes.

“We believe Rio will beat this [stockpile guidance] to release cash from the balance sheet and assist in increasing returns to shareholders,” Mr Lawcock said. “In my view there is probably 15 to 20 million tonnes of surplus inventory sitting in the Rio Tinto portfolio of iron ore, before the expected drawdown of 8 million tonnes.”

Taken at last year’s average iron ore price of $US97 a tonne, selling about 8 million tonnes of stockpiled ore would net Rio about $US800 million, depending on when the ore was sold.

Mr Lawcock stressed that the main takeaway from this week’s quarterly result will be “if they do sell good volume, they that means they would have brought in good cash, which is why the management team is confident they can materially lift returns to shareholders in 2015”.

Rio is pursuing Rio is pursuing aggressive growth in iron ore – the first stage of its expansion to 290mtpa was completed in May last year – and it is well on its way to its targeted annual rate of 360mtpa. – the first stage of its expansion to 290mtpa was completed in May last year – and it is well on its way to its targeted annual rate of 360mtpa.

BHP reports quarterly production numbers on Wednesday while junior miners Fortescue and Atlas Iron report on Thursday.

Rio Tinto reports December quarter production numbers tomorrow. Photo: Supplied

11:25am: More on the OzForex overreaction this morning (see post at 10:39).

A Westpac spokesman has said the bank was ending its relationship with OzForex reluctantly, and the move was influenced by increasingly tough regulatory requirements.

“As we have previously indicated, the increasing need to satisfy international counterparties from a risk perspective and our own compliance requirements has led us to take the reluctant decision to withdraw from offering remittance services to OzForex,” the spokesman said.

“Domestic and global banks are finding it increasingly difficult to provide banking and payment services to remittance operators due to the Australian and international regulatory landscape and the compliance requirements on the banking industry.”

11:17am:Expansion of the giant PNG LNG project in Papua New Guinea is a step closer, after ExxonMobil and Oil Search agreed a timeline toward development with the local government.

The deal would see a final investment decision on a third LNG processing train taken “as soon as possible” but no later than “the end of 2017”.

Under the terms of the memorandum of understanding revealed today, the PNG LNG partners (Exxon, Oil Search, Santos and a number of PNG and Japanese investors) will supply gas fired power to PNG and conduct debottlenecking of the existing two trains at PNG LNG.

The partners, excluding Santos, will have their licence over the P’nyang gas field renewed, and that field appears likely now to provide foundation gas into the third train if developed.

Oil Search boss Peter Botten said he was delighted that Exxon had agreed to the deal.

“This agreement meets the needs of all stakeholders,’’ he said.

While development of the first two trains has been successfully completed with first production occuring in 2014, the path toward development of the third train has be murkier.

A third train at PNG LNG was originally slated for 2011, but timelines have repeatedly slipped, with Oil Search boss Peter Botten suggesting in October that an investment decision could come as early as 2016 if there was cooperation with neighbouring operations.

PNG LNG is considered to be one of the most financially robust of the new generation of LNG export projects in Australasia.

Shares in Oil Search are 3.8 per cent higher at $7.41.

Oil Search boss Peter Botten…“This agreement meets the needs of all stakeholders.’’ Photo: Nic Walker

11:08am: Here’s a more fulsome report on Macquarie’s profit upgrade, which has pushed the bank’s shares up 4.9 per cent this morning to $58.02:

Macquarie Group expects its full-year profit to surge by between 10 and 20 per cent due to improved trading conditions and the lower Australian dollar.

Australia’s fifth-largest bank reported a net profit of $1.27 billion in the last full year. The updated guidance, released to the market before trading began on Monday, suggests profit for the 12 months to March 31, 2015, will be in the range of $1.40 billion to $1.52 billion.

Macquarie chief executive Nicholas Moore said at the half-year result in November the full-year 2015 result would be “slightly up” on the previous year.

Macquarie has been buoyed by higher global equity capital markets (ECM) volumes; the bank is one of three lead managers on the mammoth Medibank Private float.

Mergers and acquisitions and debt capital markets deal volumes are also higher. Macquarie’s fixed income, currencies and commodities (FICC) unit posted improved income in the first half.

Macquarie said on Monday the final profit number would depend on the completion rate of transactions. It also cautioned that its short-term outlook remains subject to market conditions, foreign exchange, the cost of the bank’s “continued conservative approach” to funding and capital, along with potential regulatory changes and tax uncertainties.

Macquarie will update the market with an operational briefing on February 17.

Macquarie posted a 35 per cent increase in net profit to $678 million for the six months ended September 30. The group’s annualised ROE was 12.5 per cent as at September 30, up from 8.7 per cent a year earlier.

Macquarie said it expects its net profit for the year to March 31 to be between 10 and 20 per cent higher than the $1.265 billion profit it recorded in 2014. Photo: Louie Douvis

11:04am: It may have been fashionable to decry the rush for scrip in Medibank Private as investors paying over the odds, but “buy” recommendations continue to flow, this time from Bell Potter, which has slapped a 12-month price target of $2.63 on the shares.

‘‘By maintaining or modestly improving its underwriting margin, Medibank can achieve consistent growth in operating profits, although reported earnings will be impacted by volatility of investment returns – as is the case with our forecast for FY15e,’’ the broker told clients today.

‘‘The combination of its dominant market position, earnings transparency and potential for earnings growth warrant a premium to the market for this stock, however, the business operates in a highly regulated and competitive market.

‘‘For these key reasons there is a ceiling on its ability to drive growth in earnings.’’

The shares are up 16 per cent since listing in late November, and up 0.7 per cent today at $2.33.

11:02am: Banks are slicing interest rates on popular online savings accounts, as competition for deposits wanes and costs are pushed up by new regulations.

Major lenders including ANZ, Westpac, and HSBC have cut various rates on online saver products this month, continuing the recent trend of falling returns for people with cash in the bank.

The reductions of up to 20 basis points are part of a series of cuts to the interest rates paid on high-interest online savings accounts recently, with rates trimmed across more than 30 online saver products since December.

It comes as the industry competes less fiercely for deposits, and as new rules make it more costly for banks to offer certain types of deposit products.

Online savings accounts, which often pay customers “bonus” rates of interest and have minimal or no fees, have been a key tool used by banks in the battle to attract deposits.

However, new figures from RateCity show that more than 30 online deposit accounts from a wide group of lenders have cut interest rates since December.

A little under half of these cuts have occurred this month, when new liquidity standards took effect.

While rates are constantly being changed in response to competition, RateCity analyst Peter Arnold said this was significantly more changes than during earlier months last year.

The largest banks to reduce their rates were ANZ, Westpac, HSBC and Dutch online giant RaboDirect, alongside a range of small banks, credit unions and building societies.

Major lenders say banking costs are being pushed up by new regulations. Illustration: Chris Pearce.

10:39am:Shares in OzForex crashed by as much as 14 per cent this morning after the international payments and foreign exchange services business said that Westpac would no longer be providing it banking services.

The dramatic early reaction to the announcement appears to have been a case of trigger happy investors selling first and asking questions later amid the febrile atmosphere created by the failure of forex broking firms following the shock abandonment of the Swiss franc’s peg against the euro.

“As a result of the Westpac decision, OzForex will move all the services currently provided by Westpac to other banking counterparties,” the company said in a statement. “The board and executive team are confident this will not interrupt ongoing provision of services to its clients.”

OzForex shares are now trading 4.8 per cent lower at $2.58.

10:31am: The sharemarket has enjoyed a solid open, with broad-based gains led by surging miners and energy stocks.

The ASX 200 is up 45 points, or 0.8 per cent, at 5343.7, while the All Ords is 43 points higher at 5321.5.

BHP has climbed 4.3 per cent and Rio 2.6 per cent. Oil Search has jumped 5 per cent, while Woodside is 1.1 per cent higher and Origin 2.1 per cent.

Macquarie is up 5.4 per cent on a profit upgrade, and the big banks are also higher.

Safehavens such as listed property trusts and utilities are lagging.

10:00am: At Telok Ayer station, in the beating heart of Singapore, the air rings thick with humidity and wealth. It grips your hand, making every step a fight against the tide.

It’s here that 161 years ago Chinese migrants founded the island’s first Confucian school for would-be merchants and officials – a seed that survived the boot of colonialism to become a beacon of commerce in the region.

But today, Telok Ayer also serves as base camp for Telstra’s multibillion-dollar push into the Asian region. On the 22nd floor of PriceWaterhouseCooper’s tower sits the telco’s expanding office – English and Mandarin ring out across the sales floor while aqua-colour conference pods with names such as “Endeavour” act as portals to home offices in Melbourne and Sydney.

As the Asian century enters its fifteenth year, Fairfax Media gained access to senior executives and analysts from India to Singapore with a simple question in mind: will Australia’s telcos find the profits they need to survive in the region or waste billions of dollars failing?

Many of Telstra’s shareholders are wary of making big investments in the region. The company this week hit highs not seen since mid-2001 thanks to a mix of prudent management and a record return of money back to shareholders amid tough global conditions for many other blue-chip companies.

But the promise of Asian riches remains the long-term prize for Telstra as traditional cash streams threaten to dry up.

“There’s no doubt at all that we want to drive more growth for Telstra in Asia, we want to be more Asian-centric,” Telstra global enterprise service group executive Brendon Riley says.

“We’ve got a very specific view of what we want to do country by country, and we’ve also got organic and acquisitive ways to generate that growth.

“So it’s about putting all of that together and executing it with a degree of ferocity.”

Telstra’s chief financial officer, Andy Penn, spent much of this week as part of Australia’s trade delegation to India.? Photo: Luis Enrique Ascui

9:36am:Macquarie Group expects to lift its full year profit by up to 20 per cent after receiving a boost from the the lower Australian dollar and improved market conditions.

The investment group on Monday lifted its full-year guidance, saying it expects its net profit for the year to March 31 to be between 10 and 20 per cent higher than the $1.265 million profit in recorded in 2014.

Macquarie had previously said it expected the full-year result to be slightly higher than last year’s profit.

The group said the upgraded guidance was the result of a lower Australian dollar and improved trading conditions.

Macquarie last year lifted its net profit 49 per cent to its best result in six years thanks to improved conditions and a one-off $228 million gain from the disposal of its stake in Sydney Airport.

9:34am: Global equities fund managers are bracing for increased volatility in their portfolios and revisiting their currency hedging strategies after the Swiss National Bank stunned the world when it abandoned its cap on the Swiss franc.

Australia-based fund managers that invest in global equities are split about how they should position their portfolio after the sudden news that the franc would no longer be capped at 1.20 per euro. The news sent markets into chaos and skyrocketed the value of the safe haven currency up 30 per cent on Friday.

Patrick Farrell, chief investment officer at BT Financial Group, said Swiss francs and stocks might not make up a large part of a balanced global equities portfolio, but the change would hasten the depreciation of the euro which will leave a bigger impact on investments.

Mr Farrell said BT’s global equities strategies were protected by currency hedging, which lessens the effects of wild swings in currency markets. “What this [uncapping of the franc] creates is a lot more currency volatility which will feed into different asset classes,” he said.

“As a fund manager, you need to keep an eye on the cascade effect over the next couple of weeks – that’s going to be a bigger dynamic for your portfolio,” he said.

Swiss shares tumbled around 10 per cent following the news last Thursday, recording the steepest one-day fall in at least 25 years.

For some who invest in Swiss companies, the sudden meteoric rise of the Swiss franc is not a bad thing. Perpetual fund manager Garry Laurence, who manages a global equities fund, said he still made money on the jump in the franc’s value despite the Swiss sharemarket falling 10 per cent following the news. “Marked to market to any other currency, you actually make money from the rise despite the market there falling – the rise in currency value was more significant than the market fall.”

The fund invests in one Swiss company, which makes up around 3 per cent of the portfolio. “The real question now is predicting where the Swiss franc will settle,” he said.

“As a fund manager, you need to keep an eye on the cascade effect over the next couple of weeks – that’s going to be a bigger dynamic for your portfolio.”: Patrick Farrell, chief investment officer at BT Financial Group. Photo: Nic Walker

9:16am: The local market is set to begin the week on a high led by a recovery in the energy sector after global oil and gas leaders defied the fall-out from the Swiss currency shock to rally strongly.

A closely watched reading of consumer confidence in the Australian economy on Wednesday will shape the outlook around interest rates after a bullish jobs report last week dented the case for further easing by the Reserve Bank of Australia.

A 5 per cent rise in the price of crude oil stoked optimism that the battered energy sector is close to addressing its oversupply problem and spurred buying by oil producers on Friday night. The rise in the commodity price to $US48.69 a barrel for WTI crude was supported by the International Energy Agency’s view that prices could recover and its reduction of output estimates for the United States, Canada, Colombia and Russia.

Futures prices suggest the benchmark S&P/ASX 200 Index will open 1.5 per cent higher from Friday’s close of 5299.2 points.

On Wednesday, the Westpac-MI consumer sentiment survey for January is to be released. The last reading for December matched the lowest level recorded for the survey since August 2011, and added to the case for interest-rate cuts.

Westpac’s economists theorised that lower petrol prices and the reduction in the unemployment rate might lift confidence this month, however macro-economic concerns and the commodity price rout may outweigh any optimism. The RBA meets in two weeks for the first time since early December.

The 10-year Australian Commonwealth government bond is yielding 2.55 per cent, close to its lowest ever.

Meanwhile, experts are divided over whether the bond market is sending out a false signal as yields test fresh record lows. The bond-market action is a negative signal for the economy.

Credit Suisse Sydney-based strategist Damien Boey said: “As you look at the way forecasters are changing their rate forecasts, a lot of people are moving to rate cuts as rates get lower and lower.

“The bullish view is that you have extremely low interest rates in the US, Europe and Japan and it’s only natural that investors in those sorts of countries would want to start investing and getting a bit of yield in countries like Australia,” he said. Such buying would drive yields lower.

“The bullish view is that it’s just about fund flows and you don’t need to worry about this.”

Cause for optimism: Crude oil prices have risen slightly. Photo: Jessica Shapiro

9:07am: Local shares are poised to open higher, taking their cue from Wall Street, where shares rallied in relief that US consumers remain optimistic about the outlook and as energy shares advanced on a stronger oil price.

Here’s what you need2know:

• SPI futures up 76pts at 5307.

• AUD at 82.17 US cents, 96.62 Japanese yen, 71.13 Euro cents and 54.28 British pence

• On Wall St, S&P 500 +1.3%, Dow +1.1%, Nasdaq +1.4%

• Note: Wall St will be closed on Monday in the US for a holiday.

• In Europe, Stoxx 50 +1.4%, FTSE +0.8%, CAC +1.3%, DAX +1.4%

• Spot gold up $US17.70 or 1.4% to $US1280.45 an ounce.

• Brent oil up $US1.71 or 3.5% to $US49.98 per barrel.

• Iron ore is flat at $US68.61 per metric tonne

What’s on today:

• Australia: TD Securities inflation index, December new motor vehicle sales

• UK January house prices.

Stocks to watch:

• Woodside: contractor to Chevron’s Gorgon LNG said to be preparing to cut 770 jobs, reports the Oz; JPMorgan has a neutral recommendation on Woodside and a $35.06 price target.

• JB Hi-Fi cut to neutral v outperform at Credit Suisse

• Primary Health raised to buy from hold at Morningstar

• Super Retail raised to outperform v neutral at Credit Suisse

• Dexus raised to overweight v neutral at JP Morgan

• GPT cut to neutral v overweight at JP Morgan

• Panoramic Resources shares halted pending announcement on Lanfranchi nickel project

• Scentre cut to underweight v neutral at JP Morgan

• Deutsche Bank has a buy recommendation on News Corporation and a $23 price target.

9:07am: Good morning and welcome to the Markets Live blog for Monday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

BusinessDay with wires.

Markets Live: China weighs on shares

Submit a Comment Cancel reply

Pulmonary Rehab News