Markets Live: Wesfarmers on the hunt
2:29pm: Nigeria has overtaken South Africa as Africas largest economy after a rebasing calculation almost doubled its gross domestic product to more than $US500 billion.
GDP for 2013 in Africas top oil producer was 80.22 trillion naira, or $509.9 billion, the Nigeria Bureau of Statistics said, up from the 42.3 trillion estimated before the rebasing. The new figure shrank Nigerias debt-to-GDP ratio to 11 per cent for 2013, against 19 per cent in 2012, statistics chief Yemi Kale told reporters in the capital of Abuja.
Most governments overhaul GDP calculations every few years to reflect changes in output, but Nigeria had not done so since 1990, so sectors such as e-commerce, mobile phones and its prolific Nollywood film industry - now worth 1.4 per cent of GDP, Kale said - had to be factored in to give a better picture.
Growing attention from foreign investors was forcing Nigeria to more accurately calculate its statistics, including GDP, Kale said, adding that the base year would now be recalibrated every five years, in line with global norms.
Nigeria, Africas most populous country with 170 million people, has been growing as an investment destination owing to the size of its consumer market and growing capital markets.
The jump in the official GDP figure ranks Nigeria as 26th biggest economy in the world, up from 33rd before the rebasing, Kale said. It comes at a time of rising investor interest in the African continents growth potential and expanding middle class. Upvotes:0 Downvotes:0 Copy Link
2:25pm: Prime Minister Tony Abbott says that after long-running negotiations with Japan a bilateral free trade agreement is now within our grasp.
Things are going very well indeed, Abbott said in a speech at a luncheon with business leaders in Tokyo.
Japanese media reported that PM Shinzo Abe and Abbott will announce the basic bilateral agreement later in the day, featuring cuts to Tokyos tariffs on Australian beef and Canberra ending its duty on cars. Upvotes:0 Downvotes:0 Copy Link
2:20pm: It’s time for Wesfarmers to look at acquisitions as war chest grows, writes Michael Smith in the AFR’s Chanticleer column ($):
The sale of Wesfarmerss insurance broking business adds another $1 billion to the conglomerate’s swelling coffers and will increase pressure on chief executive Richard Goyder to invest in growth or return more excess capital to shareholders.
The latest deal follows the $1.84 billion sale of its underwriting division to Insurance Australia Group (IAG), completing the company’s exit from insurance altogether. It is the biggest shake-up in the company’s portfolio since its $19 billion acquisition of Coles in 2008.
Goyder does not want to sit on a pile of cash and says he could use the proceeds to pay down debt. But with around $6 billion in debt on a market capitalisation of $47.8 billion, the company is already undergeared and some investors believe there are better things to do with the money.
Increasing shareholder returns through a special dividend or on-market buyback is an option but growing through acquisitions is a more attractive scenario.
After decades of strong growth, there is a danger Wesfarmers could stagnate. Coles’s turnaround under Ian McLeod, who has now been moved into a senior strategic role, has been impressive but growth is slowing and the company is still working to turn around Target.
One potential deal talked about in the market is doing something with explosives maker Orica, which is looking to sell its chemicals business.
Wesfarmers shares are up 1.4 per cent to $42.13.
Read more ($). Upvotes:0 Downvotes:0 Copy Link
2:12pm: RBA rate rises will burst the home owner bubble, Christopher Joye wrote in the Weekend AFR:
The single most important question buyers face today: what’s a credible assumption to make about mortgage rates over the five to 10-year horizon they typically hold a home, and what does that mean for the price they can afford to pay right now?
Adopting a realistic view about future borrowing costs, home values could easily fall by up to 20 per cent consistent with the conclusions yielded when we appraised prices using disposable incomes.
That’s a big deal: about one-third of all buyers with a mortgage have deposits less than 20 per cent of their property’s value. A surprisingly high one in seven buyers with a loan take on mortgages that exceed 90 per cent of their purchase price.
There are, therefore, significant numbers of new owners who would have their equity wiped out by price falls in excess of 10 per cent.
... But what would happen to house prices if rates normalised back to their long-term averages?
Since the RBA started targeting inflation using its cash rate in 1993, variable mortgage rates have averaged about 7.5 per cent.
Our analysis implies that if variable rates increase to between 6.5 per cent and 8.5 per cent (notably below the 2008 peak), house prices could fall by between 4 per cent and 21 per cent. This resonates with the experience in 2008 and in 2010-12. (The exact loss depends on the mortgage rate.)
But before the first hikes land, a few factors could push prices beyond even the maximum levels rationalised by historically cheap loan costs.
Read more ($)
Upvotes:1 Downvotes:0 Copy Link
1:41pm: Are we seeing the fundamentals catching up to the US tech space? IGs Evan Lucas asks in a note just out:I think the tech space is one of the more exciting sectors in the world, and I think it will be one of the most influential growth spaces of the next 15 years (along with agribusiness and energy). However, even rapid-growth plays need to support share prices with earnings, and I think we are seeing the development of a correction in this space as forward P/E routinely average over 35 times, and that will catch up as the Fed continues to slow QE and earnings are found wanting to price.
The question therefore becomes: are Australian growth tech plays facing the same issue? Lucas goes on:I think they are; I have been a great supporter of the Australian dot.com, info tech and communications spaces, and still believe they are well run companies with very solid growth stories. However, from a share price perspective, with valuations at over 30 times earnings and some possible slack in the market, these stocks are walking a thin line.Plays that have been star performers over the past year that look more than fairly valued included REA group, Seek, Carsales.com.au, Domino pizza and TPG Telecom. These are great companies with great prospect but are way overvalued - one misstep and the short play is on.Then there are those that are overvalued, overbought, overestimated and under-delivering, none more so than Xero. I understand the excitement behind this stock; cloud technology is certainly a clear technology of the future. However on Friday it reported negative earnings that doubled in the last 12 months, with a revenue stream totalling NZD$94 million. With a market cap of $4.4 billion ($NZ4.7 billion), that means XRO is trading at 50 times revenue. If ever there was a price multiple trap, XRO is it.
Is Xero our Zynga? The stock is overvalued, overbought, overestimated and under-delivering, says Lucas. Upvotes:3 Downvotes:0 Copy Link
1:29pm: And heres how our some our biggest tech stocks are faring after the Nasdaqs steep sell-off on Friday:Freelancer (FLN): -2.76% at $1.41 (forward P/E: 470x)Xero (XRO): -6.12% at $33.14 (no profit expected)Seek (SEK): -2.48% at $16.74 (31.9x)iiNet (IIN): -3.49% at $7.05 (17.07x)REA (REA): -5.5% at $46.06 (40x) Upvotes:1 Downvotes:0 Copy Link
1:16pm: Here are the best and worst performing stocks in the top 200 so far, and gold miner Newcrest is flying the flag, up 3.8 per cent, with Bradken up a similar amount.
Retirement villages developer Aveo Group figures in the top 10 after reaffirming that profits this financial year will be up on previous one, and cash flow will be better than expected.
Other end of the scale are tech, biotech and telcos, among others.
Best and worst performing stocks in the ASX 200 so far today. Upvotes:1 Downvotes:0 Copy Link
1:13pm: Asian bourses are trading lower, with telecommunication and technology shares leading declines after Wall Streets tech-heavy Nasdaq index took a major blow on Friday.Japan (Nikkei-1.3%)Hong Kong: -0.4%)Shanghai: holidayTaiwan: -0.4%Korea: -0.15%ASX200: -0.2%Singapore: -0.35%New Zealand: -0.8%
The tech slump is being felt mainly in Japan, where Nikkei heavyweight SoftBank is leading declines with a 4 per cent fall.
SoftBank shares have become very sensitive to moves in US tech stocks ahead of Alibabas IPO, which is expected to become one of the largest offerings in history. SoftBank holds around a 37 per cent stake in the Chinese e-commerce giant.
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12:57pm: Speaking of Kiwi property prices and the RBNZs LVR speed limits (see post at 12:30), theres been a bit of debate about its merits locally, but the RBA has pretty much ruled out using such a measure here, citing the fact that such a policy hurts first-home buyers most - a portion of the market which arent systemically important as far as the central bank is concerned.
But while unlikely, dont rule out the RBA wielding some sort of macro-prudential tool if the housing market continues to overheat, especially if the economy stutters.
A recent note from Credit Suisses banking analyst team suggests that forcing banks to up the interest rate buffers in their loan approval calculations would be the most effective (and palatable) non-monetary tool available to the RBA. (Read more on this here at the AFR ($))
The central bankers and regulators at APRA are working behind the scenes to ensure banks arent loosening standards. And indeed, banks are feeling the heat.
Last week a senior ANZ exec has said that banks may tighten lending standards if a surge in Sydney house prices spreads to other capital cities in Australia.
“These price rises are there because of the very low level of interest rates and we need to be mindful of what’s going to happen as rates rise,” Philip Chronican, chief executive officer for ANZs Australian operation said. Upvotes:0 Downvotes:0 Copy Link
12:49pm: If any Australian stock can double up as a ready-made Rorschach test, it’s the National Australia Bank, the AFRs Karen Maley writes:
As UBS banking analyst Jonathan Mott noted in a research report on Friday, the bank always manages to split the market. “For the bulls, NAB is an asset play. For the bears, its lack of underlying growth is a problem”, he wrote.
So it comes as little surprise that there were two very different responses to last week’s announcement that NAB boss Cameron Clyne will retire in August, to be replaced by the head of the bank’s New Zealand operations, Andrew Thorburn.
There were no quibbles with the choice of Thorburn, who has notched up a solid 27 years in the banking industry. He’s also been at the helm of the NAB-owned Bank of New Zealand since 2008, where he’s overseen a strong rise in revenue, and a creditable reduction in costs.
Rather, the difference lay in what Thorburn’s appointment means for the NAB’s troubled UK banking assets.
Now the bulls are hoping that the robust economic recovery in the UK means that the NAB will be able offload its problem UK assets sooner rather than later.
But the analysts at Macquarie Private Wealth went one step further. In a research report last week they argued Thorburn’s elevation means that the bank is likely to speed up its divestment plans, which could result in capital returns for shareholders.
“With the announcement that Cameron Clyne will now retire, we believe that there will be no ‘sacred cows’ at NAB,” the analysts wrote in a research report. “This means, given both a new CEO and CFO, the divestment-balance sheet clean-up story will accelerate, releasing value for shareholders.”
But other analysts were more sceptical. As UBS’s Mott pointed out, “unfortunately, many of the challenges that NAB has been facing for several years remain and will need to be addressed by Andrew Thorburn.” NAB’s UK assets, “continue to dilute group returns”, while “NAB’s Australian banking operations have lost momentum, especially from a revenue perspective.”
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12:45pm: Coca-Cola Amatil is facing new competition in the soft drinks market – not from traditional rivals Pepsi or Schweppes but from trendy German bottler Bionade.
Bionade is taking advantage of the lack of innovation in the fizzy soft drinks market by adding an organic cola to its range and expanding into distribution channels dominated by CCA and Schweppes.
Part of Germany’s Dr Oetker food group, Bionade is the market leader in the “healthy” soft drinks category in Europe and sells about 500 million bottles a year, mainly in western Europe.
It has developed a cult following among German and Dutch expatriates since arriving in Australia a few years ago, but has a low profile in the mainstream commercial beverages market.
Karsten Knorr, director of Drinks Beverage Logistics, secured exclusive distribution rights two years ago and, through third-party distributors in each state, has been selling Bionade in health food stores and gourmet food shops. Now he is expanding and is in early talks with supermarket chains about stocking the beverage in health food aisles, differentiating it from sugary carbonated soft drinks such as Coca-Cola, Pepsi and Sprite.
Bionade, made from water, sugar, malt and natural flavours, is brewed like beer but is non-alcoholic and has one-third to one-fifth the sugar content of traditional soft drinks.
Bionade is brewed like beer but non-alcoholic. Upvotes:0 Downvotes:0 Copy Link
12:30pm: New Zealand house price growth slowed for a fourth consecutive month in March, as lending restrictions and rising interest rates weighed on the market, the government property valuer says.
Quotable Values (QV) residential property index rose 8.8 per cent in the year to March 31, compared with a 9.3 per cent annual rate in February. The index is now 12.6 percent above the markets previous peak in late 2007, with signs that activity was slowing in the biggest city Auckland, which had been driving national figures.
The LVR speed limits and the Reserve Bank signalling further interest rate hikes is likely to be contributing to a levelling off in the growth of property values in Auckland and for the first time in more than two years we are seeing a decrease in some areas of that market, said QV spokeswoman Andrea Rush.
Last October, the Reserve Bank of New Zealand imposed limits on how much banks can lend to borrowers with low deposits in an attempt to counter house price inflation.
The central bank went on to raise its cash rate last month by 25 basis points to 2.75 per cent and signalled further rate rises towards 5 percent over the next two years. Upvotes:0 Downvotes:0 Copy Link
12:19pm: Japan’s central bank will probably double purchases of exchange-traded funds in a second round of monetary easing under Governor Haruhiko Kuroda anticipated in coming months, a Bloomberg News survey of economists shows.
The Bank of Japan, which tomorrow is forecast to leave unchanged a 60 trillion yen to 70 trillion yen ($674 billion) target for yearly expansion of the monetary base, will increase annual ETF buys to 2 trillion yen in months ahead, according to a survey of 36 analysts. The bank could boost annual bond purchases by at least 10 trillion yen, with July most favored for a policy move.
While Kuroda pointed to the equivalent of trillions of dollars of financial assets the BOJ could buy before he took the helm in March 2013, the survey signals little change in tactics is likely.
Evidence of budding inflation expectations among Japan’s companies may restrain more ambitious plans, such as open-ended ETF purchases, even as the economy slows because of this month’s sales-tax increase.
“Kuroda doesn’t need to move as drastically as in April last year, when he was shifting the economy from deflation,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “By doubling the ETF buys, the BOJ can send a message that it’s there to take action when the economy weakens.”
Read more at Bloomberg. Upvotes:0 Downvotes:0 Copy Link
12:03pm: Weve been talking seasonal sharemarket performance recently, and here is a nifty chart from AMP Capital.
This from the asset manager’s head of investment strategy, Shane Oliver:
Past experience based on the seasonal pattern in shares tells us that while April is a strong month in Australian and US shares we often see a correction around mid-year that can start about May and continue into the September quarter.
In fact both 2012 and 2013 saw mid-year corrections of around 10 per cent in Australian shares and 12 per cent and 8 per cent respectively in global shares despite both years being solid for shares overall.
Something similar is likely this year and is behind our view that investors should allow for a 10 to 15 per cent correction at some point along the way this year.
A trigger could be rising worries about when the Fed will start to raise in interest rates as US growth recovers from its winter soft patch.
However, just as we saw in the last two years this would just be a correction in a rising trend as share market fundamentals remain favourable with reasonable valuations, improving earnings on the back of rising economic growth and easy monetary conditions helping entice investors to switch out of cash and into shares.
So any such dip should be seen as a buying opportunity. Our year-end target for the ASX 200 remains 5800.
Average monthly performance of the local and US sharemarkets since 1985. Source: AMP Capital. Upvotes:0 Downvotes:0 Copy Link
11:48am: Job ads in newspapers and on the internet rose for a third straight month in March, a further sign that demand for labour is picking up after a long fallow period.
A survey by ANZ showed total job advertisements rose a seasonally adjusted 1.4 per cent in March, from February when they had climbed a revised 4.7 per cent.
The average number of job ads per week was 132,925, from an upwardly revised 131,089 in February. That is down 2.7 per cent on March last year, but a big improvement from the middle of last year when the annual drop reached 18.8 per cent.
There is now clearer evidence that labour demand is strengthening, said ANZ chief economist for Australia Ivan Colhoun. Importantly, there has been strength in job advertising in some key industries, including construction, education and health.
Official employment figures for March are due on Thursday and median forecasts are for a modest rise of 5000 following a surprisingly large 47,300 increase in February. The jobless rate is seen staying at 6.0 per cent.
The ANZ job ads surveys correlation with employment has weakened over the last couple of years, in part due to firms using other methods of reaching job seekers such as social media.
…job ads have been rising for 5 consecutive months now in trend terms which has historically indicated that the next move in rates is up…— Warren Hogan (@anz_warrenhogan) April 7, 2014 Upvotes:0 Downvotes:0 Copy Link
11:43am: Some high frequency traders refer to retail investors trades as dumb-flow as its easier to detect in the market and use to their advantage, the AFR Weekend wrote in an article well worth revisiting on Monday:
High frequency trading – a practice involving super-fast computers alleged to have rigged the sharemarket – is costing large investors almost $2 billion a year, according to industry super funds who want the practice curtailed.
The speed advantage enjoyed by high frequency trading [HFT] had turned the sharemarket into an unlevel playing field, said Industry Super Australia, which has has asked David Murrays Financial Services Inquiry to tax the industry as happens in Europe.
A global debate about HFT has erupted following allegations by noted United States author Michael Lewis that the billion dollar profits made by the industry are coming at the expense of the rest of the market.
Zac May, head of policy at Industry Super Australia and a former Securities Exchange Commission staffer in the US, backed Lewis and called for a Tobin-style tax on financial transactions and rules to slow down trading speeds.
Industry super is focused on investing in companies and the real economy, he told AFR Weekend. Trading in microseconds has nothing to do with that, but it creates an opportunity for exchanges and HFT to clip the ticket between buyers and sellers.
Large institutional investors, concerned that HFTs faster computers are skimming profits from their own trades, routinely use complex algorithms to turn their own trades into much smaller parcels that cannot be detected by others in the market. The practice is never done by retail investors.
Several traders told AFR Weekend that as a result, retail investors buy and sell orders were often larger than institutional investors trades and were hence more lucrative to HFT - the above mentions dumb-flow.
ASX chief executive Elmer Funke Kupper said he was still scratching his head about the impact of HFT on retail investors in Australia.
There are highly liquid stocks that get handled twice when they could have been handled once, he said. Retail investors tend to miss out in this process. On a $10,000 order it may only be a few dollars, but multiplied by millions of transactions it adds up.
Heres the whole article
Retail investor trades are easier to detect and hence more lucrative for HFTs. Photo: IAN WALDIE Upvotes:2 Downvotes:0 Copy Link
11:29am: Speculators misjudged gold prices for a second time in three weeks, with the precious metal jumping back above $US1300 an ounce.
Just after the investors sold bullion holdings for a second consecutive week, a mildly disappointing US jobs report on Friday sparked the biggest rally in gold since mid-March.
Investors who were anticipating gold’s 2014 rebound would fizzle had reason to be confident at the start of last week. As US equities surged to a record, bullion slid to a seven-week low on April 1 as fewer traders saw the appeal of the haven asset.
Three days later, the payrolls data drove shares lower and bullion prices 1.5 per cent higher to $US1303.50 an ounce.
“There’s a lot of risk to these markets,” said Uri Landesman, the president of New York-based Platinum Partners. “There’s sort of a 50/50 chance we go to $US1400 or back to $US1200. It’s really a hard call to make. My gut feeling is that the equity markets turn down sometime soon. I think that gold could once again become a safe haven.”
Gold this morning is slightly higher at $US1304 an ounce. Upvotes:1 Downvotes:0 Copy Link
11:22am: Sure, Tesla looks expensive, Zynga ridiculous (take a look at post at 10:16am) - but for all the talk of froth in the US technology sector, it doesnt hold a candle to the late 90s/early 2000s bubble and burst, as the chart below shows.
Thats not to say it hasnt been significant. Close to 50 per cent gains in a couple of years is not to be sneezed at.
The Nasdaq during the tech bubble and burst versus now. Data source: Bloomberg Upvotes:1 Downvotes:0 Copy Link
10:52am: CIMB thinks Downer EDI’s re-rating has not captured the business’s near-term outlook, robust balance sheet, improved operational performance and higher-than-peer-average recurring work.
Analysts wrote in a note this morning that these factors will contribute to share price outperformance for the next nine months. Consensus net profit forecasts for fiscal 2015 of 3.8 per cent are also too low, they told clients.
Improvement in its balance sheet will continue to be key, aided by the release of working capital when the Waratah train construction project is completed. “We expect this to occur by August 2014, taking the balance sheet to a net cash position.”
CIMB has an “add” rating on the stock and has lifted it 12-month price target to $5.99, expecting a further re-rating. Upvotes:0 Downvotes:0 Copy Link
10:38am: The construction industry remains in decline but there are signs of improvement.
The AiGroup/HIA Performance of Construction Index rose 2.0 points to 46.2 in March. The index remained below the 50 level that separates expansion from contraction but the rate of contraction was milder than in February.
Further signs of recovery in commercial construction and consolidation of recent gains in the house building sector were outweighed by a further decline in engineering construction and apartment building, Ai Group director of public policy Peter Burn said.
‘‘As is the case with the broader economy, the rebalancing of the construction sector as mining-related activity slows still has a considerable way to go,’’ Burn said.
The new orders sub-index rose 8.8 points to 48.3 points, still showing contraction, but at the slowest rate of decline so far this year. The decline of engineering construction also moderated, with that measure rising 5.8 points to 45.5 points.
Commercial construction grew, albeit at a slower rate than in February, with that sector’s activity sub-index declining by 3.4 points to 56.5 points. Upvotes:1 Downvotes:0 Copy Link
10:33am: Wesfarmers is set to exit the insurance industry completely as the company agreed to sell its insurance broking and premium funding subsidiaries for $1 billion to global broking group, Arthur J. Gallagher.
Wesfarmers expects to book a pre-tax profit of between $310 million and $335 million from the deal.
The sale will include the OAMPS business in Australia and the UK, and Crombie Lockwood in New Zealand. The premium funding operations comprise Lumley Finance and Monument Premium Funding in Australia and New Zealand.
The announcements come after Wesfarmers struck a separate deal with IAG last December. IAG received the green light from the Australian competition regulator for the $1.84 billion deal, which will see the insurance giant snap up the insurance underwriting division of Wesfarmers.
The two sales will see Wesfarmers leave the insurance industry completely. Wesfarmers expect to post pre-tax proceeds of around $3 billion, and a pre-tax profit of around $1.01 billion to $1.085 billion from the deal.
Wesfarmers shares are up 0.4 per cent at $41.745.
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10:29am: No surprise to see the ASX 200 down in early trading by 24 points, or 0.4 per cent, to 5398.8, although the drop was less than futures trading was pricing in.
The All Ords is 26 points lower, or 0.5 per cent, to 5402.9.
Worst hit are consumer discretionary names, which are down 1.4 per cent as a group, with companies like 21st Century Fox, Dominos, and Ardent Leisure leading the falls in the sector.
The banks and the big miners are down, joining the 153 names to be in the red this morning.
Gold miners have enjoyed a bit of a boost, up 1.8 per cent in aggregate. Newcrest Mining and Regis Resources are up 1.8 per cent and 2.5 per cent, respectively. Upvotes:1 Downvotes:0 Copy Link
10:22am: St Barbara is in a trading halt while the gold miner assesses damage to the Gold Ridge Operations arising from the flood disaster in the Solomon Islands, as first announced to the market on 3 April 2014, the company has said in a statement to the ASX.
The trading halt will be in place until the earlier of the commencement of normal trading on Wednesday, 9 April 2014, or until the release of an announcement in respect of the above matter. Upvotes:0 Downvotes:0 Copy Link
10:16am: We’ve taken a look at just how much some US tech stocks have got beaten up over the past weeks since their March highs.
The following table shows that it’s mainly the Internet 2.0 shares that have come under pressure, while some of the established tech giants in the Nasdaq have actually posted gains.
Despite the recent falls, forward P/Es (price-earnings ratios, third column in the following list) are still remarkably high for the next-gen internet stocks (and for Amazon):
Yelp! – 32.9% - 142.96xTesla -16.7% - 132.81xFacebook – 21.2% - 44.93xTwitter -20.8% - 1960.90xNetflix -25.9% - 72.43xZynga -27.5% - 381.82xLinkedIn -20.6% - 103.71xApple -2.4% - 12.42xGoogle -10.7% - 20.43xMicrosoft +5.8% - 14.74xYahoo -13.6% - 21.28xAmazon -14.7% - 79.99xCisco +6.4% - 11.43xIntel +6.8% - 13.86xEbay -8.9% - 18.09x
Upvotes:3 Downvotes:0 Copy Link
10:02am: Banks may tighten lending standards and buyers turn cautious if a surge in Sydney house prices spreads to other capital cities in Australia, according to ANZs Australia chief, Philip Chronican.
‘These price rises are there because of the very low level of interest rates and we need to be mindful of what’s going to happen as rates rise,’’ Chronican says.
‘‘We’ve already put in a buffer over and above current interest rates to allow for the fact that the borrower might have to be repaying in a higher interest-rate environment. So one of the tools is to increase the buffer.’’
Home loan competition is intensifying with bigger discounts and larger loans doled out by lenders to gain share, he said.
‘‘Macquarie Bank, through its venture with Yellow Brick Road., has had a measurable impact,’’ Chronican said. ‘‘The emergence of securitisation means lenders who were previously finding it difficult are more confident.’’
Macquarie more than doubled mortgages in the year to February 28, according to data from APRA. Upvotes:1 Downvotes:1 Copy Link
9:51am: When self-described “computer geek” Benjamin Glasson decided to cash in on his 2000 shares in caravan maker Fleetwood, he carefully checked the $3.02 share price to make sure he was getting a good deal.
Satisfied that his order could be filled at the high price, he asked his broker CommSec to make the trade. When CommSec came back to report the deal, he was surprised to learn that although 1200 of the shares were sold on the ASX for $3.02, the other 800 shares were on-sold on alternative stock exchange Chi-X for $3.01.
More persistent than your typical punter, Glasson pored over the exchange transaction records and was shocked to uncover some suspicious behaviour.
It seemed that another fast moving trader had sold 800 Fleetwood shares to the ASX in the same second as Mr Glasson but before his order could be fully filled. The sale of the retail investor’s remaining 800 shares were diverted to Chi-X where they were bought for $3.01. Most likely, a high frequency trader intercepted Mr Glasson’s order to the ASX, sold 800 Fleetwood shares to the ASX ahead of him, before buying them back on Chi-X for 1¢ cheaper, making an $8 profit.
“I contacted CommSec and they just said it is the ‘best execution rule’,” Mr Glasson said. “I thought about complaining but it just became too hard. I thought it is only $8 so I will just write-it off and not worry about it, no one is going to take any notice,” the Master of Biostatistics student said. “I know they view retail investors as suckers but it just doesn’t seem right,” he said.
One Australian fund manager, with more than 20 years’ trading experience, told The Australian Financial Review, that he noticed strange price moves as he attempted to sell a small parcel of shares through the Nabtrade platform.
The share orders are part of what insiders have labelled “dumb flow” because it is so easily detected by other sophisticated traders in the market.
Read more ($). Upvotes:2 Downvotes:0 Copy Link
9:47am: Reports that the European Central Bank is running simulations involving a 1.4 trillion euro bond buying program is preparing speculators for lower bond yields and healthier stock markets for the region, says Rivkin chief executive Scott Schuberg:Theres a lot of buzz about how 5-year Spanish government bonds are now offering investors a lower return (yield) than that of the 5-year US Treasury bond.While it is true that this is a dramatic recovery from the default risk that was priced in to Spain back in mid-2012, the US proved that a vicious debt-to-GDP ratio and high unemployment can be put aside in regard to valuations and pricing when a desperate central bank starts creating new money and buying its own bonds.The EURUSD currency pair has fallen from its recent two-and-a-half year highs of around US$1.40 back to US$1.3694 presently, and the euro has come off its 4-year high versus the Australian dollar (EURAUD), a combination of the potential for euro devaluation and recent Australian dollar strength.So why is the European Central Bank doing this? Theyre extremely worried about deflation. The Bank has been constantly criticised for reacting too slowly to the GFC, and the threat of deflation is probably the most severe one since the PIIGS (Portugal, Ireland, Italy, Greece, Spain) bond markets looked like imploding in 2012.So speculators are probably right to start loading up on Eurozone bonds and shorting the euro, but is the bureaucracy that is the European Central Bank read to roll out something huge? Well soon see. Upvotes:0 Downvotes:0 Copy Link
9:32am: Telstra chief executive David Thodey has admitted the companys meteoric mobile subscriber growth will start to drop off over the next 12 months amid rising competition from rivals SingTel-Optus and Vodafone Australia.
But analysts believe the company will continue to enjoy strong earnings and profit growth thanks to a new round of cost-cutting and recent asset sales.
Telstras mobile service division is one of the companys most important units and generated revenues of $4.9 billion in the first half of 2013-14 alone. The number of customers using Telstra mobile services grew by 739,000 during the period to hit 15.8 million subscribers.
This was in stark contrast with the 606,000 subscribers that left Vodafone Australia over the same period and the 134,000 users who left Optus in the 12 months ending December 2013.
Mr Thodey told The Australian Financial Review he was pleased with the companys strong performance in the mobile space and that the company had won market share against its rivals.
I still remain optimistic over the next two to three years there will continue to be growth, he said. [However], no we wouldnt expect the same sort of level [of subscriber growth].
My view on the market firstly is that there will continue to be growth in the market as people use wearables and some will have SIM cards in them.
However a Bank of America Merrill Lynch research analyst told clients in a note that Telstra would enjoy strong overall growth thanks in part to its program of cutting costs and staff numbers.
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9:19am: Qantas’ largest shareholder, Franklin Resources, has again left pundits wondering what the large group of fund managers is thinking after boosting its stake to 18.66 per cent from 17.48 per cent.
A substantial shareholder notice filed on Monday shows Andrew Sisson’s Balanced Equity Management is among the Franklin affiliates which has raised its stake in Australia’s largest airline.
(Sisson played a key role in sinking the Macquarie-led private equity bid for Qantas in 2007.)
The group of fund managers has raised its stake substantially over recent months as the airline embarks on one of its biggest cost-cutting programs in its history. Franklin’s stake was just 12.17 per cent in December.
Qantas closed up 0.5 cents at $1.145 on Friday.
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9:16am: The big news for the end of last week was US non-farm payrolls, which posted gains of 192,000 in March, below “street” estimates of 206,000.
The US unemployment rate was steady at 6.7 per cent as the participation rate (or the number of people in the working age population looking for work) rose from its recent lows.
The payrolls growth was solid, but it was not indicative of rapidly improving growth in the aftermath of weather disruptions in previous months. Nevertheless, the report sparked a rally in government bond yields and a sharp decline in equities (led by the tech sector).
The repercussions of those market moves are set to be felt in Australia when the market opens this morning.
Writing on the US jobs data, here’s Matt Sherwood from Perpetual:
“There certainly was a mixed reaction to the US labour market report. In the end it was a nothing report – payrolls rose and unemployment was unchanged, but the results were marginally below street estimates and continued to show that the US recovery, while better and more sustainable, remains sub-trend as the unwinding of the debt excesses and a continually cautious US corporate sector means growth remains stuck around 2 per cent so far in 2014.
“Growth will improve when the unwinding of the US inventory cycle occurs mid-year, but while the size of the US labour force has increased by nearly two million workers since 2007, the total jobs created has declined by 400,000.
“This suggests that any move by the US Fed is likely to be modest even though inflationary pressures are expected to rise from a very low base in the months ahead.” Upvotes:0 Downvotes:0 Copy Link
9:06am: A wave of selling on Wall Street on Friday appears set to wash over local shares at the open after US investors rushed to dump frothy tech stocks.
Heres what you need2know:SPI futures down 41 points to 5381 at 8.45am AEST on MondayAUD at 92.90 US cents, 95.91 Japanese yen, 67.83 Euro cents and 56.05 British pence at 5.50am Monday AESTOn Wall St, S&P500 -1.3%, Dow Jones -1%, Nasdaq -2.6%In Europe, Euro Stoxx 50 +0.7%, FTSE100 +0.7%, CAC +0.8%, DAX +0.7%Spot gold up to $1303.64 an ounce s at the openBrent oil rises to to $US106.72 per barrel openIron ore steady at $US115.70 per metric tonne
Whats on today:Australia: AIG Construction Index; ANZ job ads; ABS tourist arrivals
Stocks to watch:Goldman Fielder raised to neutral from underperform at Credit Suisse; price target of 53cRBC Capital Markets has upgraded Atlas Iron to “outperform” from “sector perform” with a 12-month price target of $1.30 a shareDeutsche Bank has a “buy” recommendation on Lend Lease and a target price of $13.00 a share after the company hosted an investor tour of Barangaroo South and Barangaroo Headland ParkStocks set to trade ex-dividend today: Harvey Norman, Nufarm, SDI
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9:06am: 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. Upvotes:0 Downvotes:0 Copy Link