July 18, 2012
Shares retreat for the first day in four as investors rue the lack of a clear strategy from the US Federal Reserve to reignite growth in the world's biggest economy.
4.28pm: That's just about it for today's Markets Live. We'll point you soon to the evening markets wrap.
Thanks for joining us again, and watch out for our return tomorrow at 9.30am AEST.
4.25pm: Casting an eye over the month of July, the big movers among the top 50 (up 1% so far) are:
Iluka off 22.7%
Fortescue down 10.6%
Rio off 6.6%
Newcrest 6.3%
BHP down 4%
On the up are:
Lend Lease 10.3%
Westpac 6.9%
Wesfarmer 5.3%
Telstra 4.9%
ANZ 4.2%
4.22pm: Other notable stocks included:
BHP down 2%
ANZ up 0.4%
CBA up 0.6%
NAB up 0.3%
Westpac up 0.4%
Qantas ended unchanged
4.18pm: Among the top 50, the biggest falls included:
Newcrest 3.8%
Fortescue 3.5%
Iluka 3.2%
Rio 3.1%
Santos 2.9%
The gains include:
Incitec Pivot 3.2%
Lend Lease 2.2%
Brambles 1.6%
CSL 1.6%
News 1.5%
4.15pm: Materials lost 2.1% to post the largest drop among the main sub-indexes. Energy stocks also lost 1.9%, while financials rose 0.2% and utilities 0.8%.
4.13pm: The All Ords lost 18.9 points, or 0.45% to 4156.4 points.
4.11pm: The benchmark ASX200 index registered its first drop in four days, losing 17.2 points, or 0.4%, to end the day at 4123.6 points.
4.06pm: Looking abroad while we await the closing figures:
Dow futures are off about a third of one per cent, while London futures are up about 0.2%
Economic news out tonight includes Bank of England minutes and the latest jobs claims in the UK.
In the US, there's housing starts and the often colourful Fed Beige Book (released at 4am, AEST, tomorrow).
3.59pm: Prices about to settle. BHP shares, it should be noted, touched as low as $30.12, not far from the $30.09 reached earlier this month. The stock has not been below $30 since March 2009.
3.53pm: As noted earlier, a 'big' North Korean announcement had markets in North Asia jittery earlier this afternoon (AEST).
Reuters cited seismic monitors showing there hadn't been any detectable shifts that might have been a nuclear weapons test.
We're happy to say it was just the announcement that new leader Kim Jong Un has taken the title of Marshal. We await title upgrades for his dead dad, Kim Jong-il and his dead grandfather, Kim Il-sung - Dearest Marshal, and Extremely Dear Marshal, perhaps?
South Korea's won. meanwhile, is down for a fourth day against the greenback, but only a modest 0.3% today; South Korean shares are off 0.7%, while much of the region's stocks are down too.
3.43pm: Actually, miners have really been crunched today. BHP is down about 1.8%, Rio is off 3.1% and Fortescue 2.9%.
That's despite more record output numbers, as noted earlier today, regarding BHP.
BusinessDay's Malcolm Maiden followed up with a commentary on why the output numbers and China may deliver a bounce to the miners' stock.
That bounce doesn't look likely to happen today. Mal also notes some extraordinary numbers:
BHP is aiming to extract 220 million tonnes of Pilbara iron ore a year by 2016, and 240 million tonnes after eliminating supply chain bottlenecks.
Rio produced 120 million tonnes of iron ore in the June half alone, and aims to get to 353 million tonnes a year by 2015.
In 2003 when the strength of China's boom was just becoming apparent they were each producing between 70 million and 80 million tonnes of iron ore a year.
Another way of putting it might be: how far will iron ore prices fall when the surge in supply from Australia and elsewhere hits the market?
3.29pm: As noted earlier in this blog, Asciano today revealed plans to cast off half their wharfies at their Sydney container port as automation takes over.
(There were reports recently about Keith Tantlinger, supposedly the inventor of the shipping container. The box effectively removed the bulk of the handling involved in shipping, and therefore, drastically cut the need for dock workers.)
In any case, BusinessDay's Matt O'Sullivan has just filed this reaction from Maritime Union of Australia to Asciano's plan:
The MUA accused the company’s management of resorting to the ‘‘mean and tricking ways’’ of the 1998 waterfront dispute when Patrick, then owned by businessman Chris Corrigan, sacked its workforce and attempted to replace it with non-union labour.
The union said today that it would consider ‘‘all its options’’, including strike action, in response to Patrick's decision.
‘‘This is an extraordinary sleight of hand tactic by Patrick’s management following a protracted 20-month wage negotiation,’’ the MUA’s deputy national secretary, Mick Doleman, said.
The union said the company had never discussed the use of technology to automate the straddle carriers, which shift containers from the docks to holding yards.
3.21pm: Meanwhile, miners are the big drag on the ASX200, with the materials sub-sector off 1.9% and energy stocks are down 1.8%.
Financials, though, are holding up yet again, rising 0.25% at the moment.
CBA continues to be a stock of note. CBA shares are up again today, touching a fresh 17-month high of $55.60. It's now eased back a bit to $55.21, but is still up 0.6% on the day at that price.
(If it rises above about $55.70, it would be at levels not seen since May 2010.)
3.15pm: The Aussie dollar continues to hover above the $US1.03 mark.
The chance of a rate cut on August 7 by the RBA remains about a 4-in-10 prospect, in other words unlikely.
The dollar is also not far off its latest record against the euro, buying 83.9 euro cents. It touched 84.09 euro cents in the early (AEST) hours of this morning.
2.58pm: Close readers of this blog know we've highlighted how global food prices have started to climb lately.
This item just in from BusinessDay's Chris Zappone shows how local food prices are about to rise too: Higher food prices headed to a shop near you.
Won't need to worry about the carbon tax as a reason to lift prices, it seems.
2.40pm: Regional lender Bank of Queensland says it remains well capitalised, with a strong funding and liquidity position despite Moody's Investor Service downgrading its credit rating.
BoQ managing director Stuart Grimshaw says Moody's largely attributed the downgrade to the weak state of the economy in south-east Queensland as well as depressed property market and the earnings challenges faced by all regional banks.
''These are challenging times for all banks impacted by the changing environment in which we operate,'' Mr Grimshaw says. While the bank was disappointed with the downgrade to Baa1 from A3 on its senior unsecured debt, there has been a reduction in expensive government guaranteed debt through recent buybacks and a $450 million capital raising earlier in 2012 that brought its capital adequacy in line with its peers, he says.
Moody's reaffirmed the bank's short-term rating at Prime-2 and the outlook on all ratings was Stable.
2.27pm: Gold prices are staying put above $US1580 an ounce after dropping in the previous session after the Bernanke comments disappointed gold bugs.
"We suspect that the short-term outlook for the precious group will be somewhat lower from here," says Ed Meir, an analyst at INTL FCStone in a research note.
"While easing may be expected, investors are still saddled with the uncertainty of not knowing exactly when such an order will be given."
Spot gold is little changed at $US1581.64 an ounce after losing about half a per cent on Tuesday.
Gold has gained about 1 per cent so far this year, after posting a 10-per cent rise in 2011 on safe-haven flow as investors fretted about the eurozone debt crisis and a US debt ceiling crisis.
2.18pm: Ford's decision to axe hundreds of jobs has union officials pushing for fewer job cuts, while governments continue to defend big bailouts for the ailing car industry.
Unions say they had expected redundancies amid a decline in large-car sales, but workers were shocked when Ford announced 440 jobs would go.
''Our members are gutted out here. There's no doubt about that,'' Australian Manufacturing Workers Union assistant state secretary Leigh Diehm says.
''The reality is, there was an expectation with large-car sales being down there was going to be some sort of redundancies ... but nowhere near that amount was expected.''
2.12pm: Asian markets are mostly lower after US Federal Reserve chief Ben Bernanke warned of a further slowdown in the US economy and a "frustratingly slow" rise in employment.
Hong Kong is down 0.71 per cent, Seoul has eased 0.89 per cent, Shanghai has lost 0.18 per cent, but Tokyo has gained 0.21 per cent by the break.
2.02pm: An Australian company has been contracted to maintain 2800km of New Zealand rail track and the government is being accused of selling out NZ workers.
NZ First leader Winston Peters has revealed that KiwiRail has awarded the contract to Australian rail grinding company Speno.
‘‘This is exactly the sort of maintenance work that should be carried out by KiwiRail using New Zealand labour, not by a foreign company that will take its profits offshore,’’ he says.
‘‘This backhanded move to use an Australian company over KiwiRail’s own staff is insulting.’’
1.47pm: Domestic labour will be favoured in the hunt for more than 5000 workers for Chevron’s $US29 billion ($28.23 billion) Wheatstone gas project in Western Australia, the state government says.
WA Commerce Minister Simon O’Brien saya Chevron and lead contractor Bechtel intended to fill as many positions as possible within Australia.
‘‘I congratulate Chevron and Bechtel for taking this action at a time when there is considerable discussion about resource project proponents, and their attitude to the use of Australian workers,’’ Mr O’Brien says.
1.40pm: ‘‘It’s a bit of a tug of war taking place between the mining and energy players and the financials, and unfortunately the miners are winning,’’ says Commsec market analyst Steven Daghlian.
1.21pm: You'll not be surprised to learn the North Korean announcement will not have a material impact on sharemarkets in the north Asia region or beyond, say analysts.
‘‘The announcement shows Kim Jong Un is taking more power, which should have limited impact on financial markets here,’’ said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities in Seoul.
‘‘Still, market players were nervous when alerted about it, showing the North Korean risk persists.’’
South Korea's KOSPI index fell modestly at 1pm upon the announcement then recovered the loss almost immediately.
1.11pm: The Aussie dollar has continued to enjoy the surge that began on Tuesday during the morning trading session. It was recently buying $US1.0304, roughly in line with this morning's levels.
‘‘The market is in a quiet buoyant mood after the big downturn of last week and has now reached the highs of two weeks ago,’’ said Easy Forex currency dealer Tony Darvall.
With no major data releases coming out of Australia or Asia during the afternoon it is expected that the Australian dollar will continue to trade strongly.
‘‘The market is still keen to buy the Aussie, and its likely to go higher rather than lower,’’ Mr Darvall said. ‘‘Going forward the risk events are coming out of Europe, but the Euro is continuing to support the Aussie dollar.’’
1.05pm: The North Korean news: you can be the judge of how earth-shattering this is. North Korean has given the official title of Marshal to leader Kim Jong Un, completing his control over the state and military, North Korean media reported on Wednesday.
The decision to make the young leader the highest ranked military officer was made on Tuesday and came after the country's top general was sacked on Monday.
12.52pm: BREAKING North Korea will issue "an important report" at noon local time, its state news media said on Wednesday.
"An important report will be issued in the DPRK at 12:00 (local time) Wednesday," KCNA news agency said in a single-line dispatch. No further details were given by the reclusive state, although the last time the last time the agency used this wording was when leader Kim Jong-il died in December.
The statement caused financial markets in Seoul to fall sharply.
12.43pm: While we're on the subject of miners, Rio just touched a 52-week low. At 12.26pm, the company's stocks hit $52.63, down more than $30 from its 52-week high of $83.33 on 26 July, 2011. It has since climbed back to $52.87, but remains 2.83 per cent down for the day and 12.3 per cent down for the calendar year.
12.31pm: This is becoming the markets story of the day. BHP delivers a positive production update and its stock, along with other miners takes a battering. Why so? In recent trade, BHP’s stock was 59 cents, or 1.92 per cent, down to $30.20. Rio Tinto was even worse off, down by 3.1 per cent.
OptionsXpress market analyst Ben Le Brun said the unwillingness of resources companies to pay decent dividends meant investors appeared unwilling to hold their stocks.
‘‘It’s an interesting share price reaction, the dividend yield play in terms of banking and the financial sector is alive and well at the cost of holding reassures and materials stocks,’’ he said.
‘‘I can’t see any downgrade in terms of earning guidance from any of these brokers on the back of production numbers and they are still effectively selling everything they’re digging out of the ground.
‘‘But you could probably point to the cautious outlook in terms of commentary reinforcing investors fears at the moment about Europe and a slowing China.’’
12.17pm: A lack of detail on US actions to counter a gloomy economic outlook in a Congressional testimony by Federal Reserve chief Ben Bernanke has sent crude prices down, analysts say.
New York's main contract, light sweet crude for delivery in August, shed 26 cents to $US88.96 a barrel and Brent North Sea crude for September delivery is down 60 cents to $US103.40.
Crude markets were discouraged by Bernanke's address to Congress on Tuesday, which contained no clear indication of a new round of quantitative easing or any additional Fed action to jumpstart the US economy.
"While a QE3 announcement was never really on the cards, markets were hoping to get a clearer insight into what sort of conditions would prompt more Fed intervention," IG Markets says in a report.
"Sadly all Bernanke did was to repeat what he's said previously and reiterate his frustrations about the US economy's slow recovery. Not comments really worth getting out of bed for."
12.11pm: Cotton producer Namoi Cotton Co-operative says several parties have expressed interest in becoming ‘‘cornerstone’’ investors in the company.
Namoi Cotton chairman Stuart Boydell has told shareholders at the company’s AGM at Wee Waa in NSW that the first stage of a plan to recapitalise the company through a capital injection from a cornerstone investor had been completed.
A number of interested parties had received an information memorandum in the first stage, he says.
‘‘Following a robust, competitive market process, an encouraging number of parties have now requested the opportunity to conduct further due diligence on Namoi Cotton, with potential for these parties to submit firm offers.’’
12.06pm: At noon, the ASX200 is down 11.6 points, or 0.3 per cent, at 4129.2 while the dollar is steady at $US1.0311.
11.58am: Shares in Gerard Lighting Group have soared more than 25 per cent after the company recommended shareholders accept a $186 million takeover offer from Lighting Group Australia.
Shares in Gerard are up by 20.5 cents, or 25.47 per cent, at $1.01. Gerard says it has entered into a scheme implementation agreement with Lighting Group for the $1.05-a-share offer.
The offer price represents a 40 per cent premium to the company’s closing price of 75 cents last Friday, the last day the stock traded before it entered a trading halt on Monday.
11.53am: NAB's two British lenders have joined the UK financial watchdog’s compensation scheme for businesses who were mis-sold interest rate hedging products.
The move comes after NAB’s Clydesdale and Yorkshire banks held talks with the UK Financial Services Authority (FSA) in relation to its review of the sale of interest rate hedging products to small-and medium-sized business.
The FSA has already completed a review with Britain’s four biggest banks - Barclays, HSBC, Lloyds and Royal Bank of Scotland - after they admitted in June to mis-selling interest rate hedges to small and medium-sized businesses.
11.48am: More bad news on the jobs front... the Mark Bouris-chaired technology company TZ Ltd has slashed its workforce as part of wide-ranging cost cuts to avoid an imminent cash crunch, Michael Evans reports.
TZ, which produces smart technology security systems including for PIN-protected lockers, missed out on a tender to supply parcel lockers to Australia Post in May.
Mr Bouris assumed some of the responsibilities of the chief executive after that announcement, which coincided with the departure of chief executive John Wilson who has not been replaced.
Mr Bouris, who is also the executive chairman of wealth management company Yellow Brick Road, writes a weekly advice column for BusinessDay and hosts the reality TV show, The Apprentice, where he is known for dismissing staff with the "you're fired" catchphrase.
11.40am: Australians are now spending $20 billion a year on the private label products of the major supermarket chains like Coles and Woolworths and this is set to increase another $10 billion over the next five years as cost of living concerns squeeze household budgets, Colin Kruger reports.
"The recessive economic climate has been a strong driver of private-label growth," said IBISWorld general manager Karen Dobie.
"Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands."
11.24am: We've made some phone calls on what's pushing mining stocks lower. CommSec market analyst Steven Daghlian says there is no particular catalyst for the decline, but that weak commodity prices and low trading volumes are contributing to the drag on miners.
“Commodity prices were mostly weaker yesterday. Most base metals have pulled back and I think that’s been part of the reason here,” he says.
Mr Daghlian says that this time of year is typically a quiet time for investors, with European holiday season underway and Australian school holidays recently ending.
He says the mining sector has underperformed the market – now down about 14 per cent since the start of January, compared to the overall market, which is 1.4 per cent higher. By contrast, defensive sectors like consumer staples and health care have been the strongest performers in that time.
“Investors are remaining a bit edgy until something really significant is announced … I think if we were to see some sort of surprise announcement (from the US Federal Reserve overnight) it could’ve been a different story today for miners.”
11.17am: Aussie stocks are now approaching a loss of 0.5 per cent, but the majority of voters in this morning's poll predicted a small gain for the day. It's still early days, but 32 per cent of voters forecast a gain of up to 0.5 per cent for the ASX200. Twenty per cent predicted a loss of up to 0.5 per cent. The 20 percenters are in the box seat in the moment. Only 5 per cent said the market would fall up to one per cent for the day. Full results here.
11.13am: Looking at the leading index survey again, Westpac chief economist Bill Evans said the growth rate is the fastest since September 2011 and it will improve in the latter half of 2012 and into early 2013.
‘‘That profile presumes further interest rate relief through the second half of 2012 although the current disposition of the monetary authorities appears to be to sit tight for the next few months,’’ Mr Evans said.
‘‘Apart from mining, other sources of spending - residential housing and business investment were soft and reliably in line with the signals from the Leading Index in 2011.’’
11.08am: Australian economic conditions are at their strongest in 10 months and are expected to improve as the central bank further stimulates the economy, says a new survey.
The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was at 1.6 per cent in May, well below its long-term average of 2.6 per cent.
10.59am: Here's a ray of sunshine on an otherwise down day. The big banks are enjoying another positive session:
10.55am: As markets touch new lows for the day, IG Markets analyst Cameron Peacock says trade is subdued following yesterday's strong rally.
‘‘We really rallied quite unexpectedly yesterday. We’re about where we should be,’’ Mr Peacock said. The local market would be "choppy and unpredictable" ahead of the local earnings season.
10.50am: Some fresh analyst rating changes for this morning:
10.43am: As markets tip back into negative territory, here's an update on how the various sub indices on the ASX200 are performing:
10.34am: Looking now at the performance of the big miners in a broadly flat market:
10.26am: Well, after a slight dip at the open, stocks are fighting back. There's a mixed bag of companies at showing solid gains on the ASX200 so far:
10.22am: The materials sub index is providing some serious drag for the market today. It's down 1.1 per cent, with energy stocks the next biggest decliners, down 0.6 per cent. Here are the biggest sliders on the materials sub index:
10.15am: In early trade, the All Ordinaries index is 8 points lower, or 0.2 per cent, to 4167.3, while the benchmark S&P/ASX200 is 7.5 points lower, or 0.2 per cent, to 4133.3.
10.12am: BHP is not the only big miner down early. Rio has slipped 1.6 per cent and Fortescue is down 3.1 per cent. The overall market is down only 0.2 per cent at this stage.
10.10am: BHP shares are down nearly one per cent in early trade following the June quarter production update. They have slipped 29 cents, or 0.94 per cent, to $30.50.
10.06am: Early take - shares flat as the market opens.
9.59am: Following the Bernanke comments, financial markets are less confident of a rate cut at the next RBA meeting on August 8. According to Credit Suisse data, there is now a 45 per cent chance of a 25 basis point rate cut in August, down from about 60 per cent early yesterday.
9.56am: Asciano has this morning announced it will axe 270 jobs in 2014 after completing a multi-million dollar expansion of its container terminal at Port Botany in Sydney.
Asciano says the expansion project will increase capacity at the port to meet current trade growth forecasts. The company says employees affected by the job cuts will be provided with employee assistance and support programs including training, financial planning and career transition assistance.
9.54am: Looking at where the Aussie market is headed today, CMC Markets strategist Michael McCarthy says local shares are expected to open slightly higher, with investors unswayed by the US Federal Reserve’s weak assessment of the US economy overnight.
‘‘I don’t think there were many expectations of QE (quantitative easing) built into the local market, we certainly haven’t seen any evidence that that’s driving the investors who are buying at the moment.’’
Mr McCarthy forecasts a half per cent gain in intra-day trading.
‘‘Yesterday...it was a build over the course of the day with a little bit of selling at the end so we may see a similar sort of day particularly as the index has held above some key technical levels,’’ he says.
9.47am: The Australian dollar has been a benficiary of the uncertainty in the US, reaching reached a six-week high on commentary from the US central bank. At 7am, the Australian dollar was recently trading at $US1.0317 - its highest point since early May. It closed yesterday at $US1.0297 US cents at 5pm.
Westpac New Zealand senior market strategist Imre Speizer said that comments from US Federal Reserve chairman Ben Bernanke had nudged global equity markets higher, despite his initial rejection of near-term quantitative easing (QE3), or economic stimulus measures.
‘‘If you drill into the price action immediately after Bernanke, the Aussie dollar fell sharply, because he disappointed on QE3,’’ he said.
9.42am: Investors hopeful of a clear indication of where the US Federal Reserve stands on more support for the US economy did not get one last night when Chairman Ben Bernanke offered few new clues about whether the US central bank was closer to a fresh round of monetary stimulus.
Bernanke told the Senate Banking Committee the US economic recovery was being held back by anxiety over Europe's debt crisis and the path of US fiscal policy.
The Fed boss did, however, say the central bank was considering a range of tools it could employ to help the economy but he hewed closely to the message of watchful waiting that the central bank's policy panel delivered in June.
9.39am: But the BHP update came with a few caveats. BHP warned that due to a long-running labour dispute which is nearing a resolution its metallurgical coal business in Queensland state had suffered "significant margin compression."
The company said that while an agreement had been reached with unions at the mine, further work was underway to finalise local mine site details. Meanwhile, aluminium production slumped 21 per cent in the quarter to 248,000 tonnes as potline capacity in South Africa remained curtailed after an unplanned outage early in 2012.
The company also warned that its 2012 earnings would take a $US265 million ($A259.49 million) hit related to outstanding copper sales. More here.
9.35am: We'll look at Ben Bernanke's words in a moment. First up though, BHP shares will be in the spotlight today after the company flagged a five per cent rise in 2013 iron ore production following a bumper result for the June quarter. The result delivered a 12th consecutive record in BHP's annual iron ore production for the year to June 2012.
BHP shares added 0.83 per cent in US trade overnight. Rio shares slipped 0.34 per cent on Wall Street.
9.32am: For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key market links:
9.30am: Good morning folks. Welcome to the Markets Live blog for Wednesday.
This blog is not intended as investment advice
BusinessDay with agencies