5:16pm: That’s it for Markets Live today.
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5:15pm: Shares lost early gains to edge lower on Monday despite private surveys pointing to improvement in the labour market and construction sector.
The benchmark SP/ASX 200 Index and the broader All Ordinaries Index each edged down 0.1 per cent, on Monday to 5518.9 points and 5506.3 points respectively, with a boost from the continued flurry of corporate deal activity not enough to buoy the market.
Local shares opened higher but fell away with limited cues from offshore after equity markets in the United States were closed on Friday for the Independence Day holiday.
A raft of long-term investors are increasingly cautious about the market’s ability to keep pushing higher without a correction.
“The past year has been characterised by low and easing volatility, anaemic trading volumes, but on the whole, reasonable investment returns and an absence of crises,” Schroders head of Australian equities Martin Conlon said.
5:02pm:Investors should buy up the Australian dollar while it’s weak, with potential for appreciation as large sovereign investors look to top up Australian dollar positions.
That’s the view of Todd Elmer, Citigroup’s Singapore-based head of Group of 10 FX strategy, who thinks that the Reserve Bank of Australia’s jawboning – or verbal overtures – will have a diminishing effect over time.
Last week, RBA governor Glenn Stevens shocked traders with his assertion that the Australian dollar was more than a few cents overvalued.
The currency responded with a sharp drop of more than half a cent as he spoke.
The Australian dollar still hasn’t recovered, fetching US93.57¢ on Monday afternoon in a flat session.
4:46pm:Australia needs to establish a “permanent investigative body” to protect customers from dodgy financial advice, says Clive Palmer.
Mr Palmer says the regulator appears incapable of protecting bank customers, with the Commonwealth Bank fraud highlighting serious problems with the financial planning industry.
He said these problems are one reason why his Palmer United Party will not support the Abbott government’s amendments to financial planning laws.
Clive Palmer won’t support FOFA roll back
4:15pm: The SP/ASX 200 Index has snapped its three-day winning streak to close 0.1 per cent or 6.1 points lower at 5518.9.
Winners and losers at the close
2:59pm: Patersons Securities is highlighting its Top Four picks from ASX stocks with exposure to premium oil and gas ground in Texas:
■ Antares Energy: BUY
■ Lonestar Resources: HOLD
■ Sun Resource: SPECULATIVE BUY
■ Sundance Energy: BUY
2:33pm:The head of struggling clothing maker Pacific Brands has quit amid a boardroom battle about how to revive the company’s fortunes.
Pacific Brands, which makes Bonds and Sheridan sheets, said a search had begun to find a successor to John Pollaers.
“John’s decision to leave now has been driven by divergence between his views and those of the board regarding the best path forward for the company and its businesses,” chairman Peter Bush said in a statement on Monday.
2:31pm:Roy Morgan’s Business Confidence survey fell a further 6.2 points in June from May, suggesting businesses have not recovered from the blow dealt by the budget. “Business confidence is now 28.2 points (20.7 per cent) below the peak of 136.3 in October 2013 following the new government and the lowest level recorded since June 2012 when it was 105.4,” the survey said.
Roy Morgan business confidence
2:24pm: Citigroup has upgraded Nufarm to neutral from sell.
It is confident of a stronger balance sheet and sees a chance for “robust earnings growth” in 2014-15 – though not without risks including the prospect of an El Nino event. “The strong cash inflow we expect in 2H14 is only the first step towards full balance sheet rehabilitation,” the broker says.
Nufarm’s price target has been raised to $4.65 from $4.20.
El Nino could be a risk to winter crop production.
2:16pm: Credit Suisse has upgraded Myer to outperform from neutral saying it is cheap, has a good yield, and its financials are poised to improve.
It has also raised its target price to $2.40 from $2.25.
Myer valuation analysis
2:09pm:Credit Suisse has warned clients about a number of stocks they think are part of a crowded trade that could go pear shaped this reporting season.
The broker believes that David Jones, Primary Health Care, Orica and Ansell are crowded short trades among the top 100 stocks, while The Reject Shop, Acrux and Buru Energy had been heavily shorted among the small caps.
And on a similar note, here’s markets columnist Phil Baker on when to abandon a crowded trade.
Per capita GDP for China, India and Japan
2:01pm: Some ideas from AllianceBernstein’s Hayden Briscoe who is a director of Asia Pacific fixed income on the three dark horses of the global economy.
He believes that even half-successful economic and financial reforms in China, India and Japan could “lead to a significant re-rating of the countries and the region as a whole”.
“Even now, these countries and Asia as a whole are more positive investment propositions than, say, Europe or other parts of the emerging markets, particularly Eastern Europe,” he writes, highlighting low inflation and reasonably priced bonds. Currencies should trade narrowly and interest rate settings open up plenty of attractive carry trade opportunities.
1:48pm: CommSec analyses the strongest growth of tourism inflows in 14 years:
“In just under four years, the annual number of Chinese tourists to Australia has doubled. And although the growth rate has slowed a touch in recent months, China will still surpass New Zealand as our primary source of tourists in around four years’ time. The other important development is that overall tourist arrivals are growing at the fastest pace in 14 years – no doubt boosted by the improvement in the global economy, and mildly weaker Aussie dollar.”
China set to surpass New Zealand arrivals
1:41pm:Waiting three months for the latest blockbuster movie to become available in stores or online could soon become a thing of the past.
PwC executive director Megan Brownlow said the film industry was looking at ways to reduce the cinema release window – the amount of time new movies spend at the box office – in favour of releasing them at retail stores and online sooner, as they struggle to maintain or grow industry revenues.
The wait between a cinema release and a DVD or online version is typically 90 and 120 days but Dreamworks chief executive Jeffrey Katzenberg said 98 per cent of films made 95 per cent of their box office revenue within their first three weekends at the box office.
PwC figures released Monday indicate spending at the box office in Australia will increase by a compound annual growth rate of 3.3 per cent over five years – from $1.1 billion in 2013 to $1.29 billion in 2018.
1:11pm:Japan’s biggest telecommunications player NTT is lobbying Telstra to become its biggest partner in a push to become a dominant player in Asia.
Telstra chief executive David Thodey has set Telstra the ambitious goal of reaping around 33 per cent of its net profit and revenues from Asia by 2020 onwards compared to the 3 per cent it currently stands at. Analysts believe this can only be achieved with major acquisitions or partnerships.
NTT Communications ICT chief executive Monte Davis told Fairfax Media that partnering with the Japanese giant was one of the only ways Mr Thodey could achieve his goal due to the lack of takeover options.
1:10pm: Some analysis from BusinessDay columnist Elizabeth Knight on the Wotif takeover:
“It started as a pioneering technology disrupter in the hotel booking space 14 years ago, but Wotif has already reached its use by date.
The next wave of global competitors have now disrupted it, leaving it little option other than to get out.
Under these circumstances the $703 million price tag being offered for Wotif by Expedia is generous enough but the shares were worth significant more than this a year ago.
The offer of $3.30 (which runs to a value of $3.40 if you can use the franking credits) represents a 30 per cent premium to the prevailing share price but doesn’t compare well with last year’s high of $5.63.
Over the past 18 months it has become increasingly evident that large accommodation sites have been more aggressively colonising the Australian market for online accommodation and airfares.”
Jordan Belfort promo
1:07pm: We noticed over the weekend that Jordan Belfort, the original Wolf of Wall Street, is taking his speaking tour to Hong Kong. Attendees must be at least 12 years of age.
12:35pm:National Australia Bank was upgraded to buy at Bank of America Merrill Lynch.
It is trading at a 14 per cent discount to its peers and it has underperformed by 10 per cent in the first half.
The PE discount has only been wider during NAB “disaster” scenarios, such as Homeside, and following three of those “disasters” NAB went on to outperform by 10 per cent over the following year.
BAML is neutral on CBA and rates Westpac and ANZ at underperform.
NAB price history and incidents
11:47am:Yellow Brick Road Holdings is in a trading halt.
It is going to announce an acquisition and capital raising.
11:41am: HSBC’s emerging markets index came in at 52.3 points in June up from prior 50.6 points the previous month.
It is the sharpest rate of expansion since March 2013.
HSBC analysis points to strong contributions from China, Russia and India.
China posted the sharpest increase in output for 15 months, while India saw the steepest expansion since February 2013. Russian private sector output stabilised, having fallen at the strongest rate in five years in May. Brazil, however, registered a further flat trend in activity,” the report says.
HSBC emerging markets index
11:35am:ANZ’s job ads rose 4.3 per cent month-on-month in June, retracing part of May’s large fall. Despite this recent softness, job ads are still 6 per cent higher than at the start of the year, suggesting labour demand has very gradually improved.
Chief economist Warren Hogan said: “ANZ’s view is that this improvement should continue to flow into moderate employment growth going forward, although we are unlikely to experience the strong rate of growth in employment seen in Q1.”
ANZ job ads
11:30am: Andrew Forrest-backed junior explorer Poseidon Nickel has bought the Black Swan nickel project from Russian mining giant Norilsk for an undisclosed sum.
Norilsk, the world’s largest nickel and palladium producer, flagged in September that it would sell its Australian assets.
Poseidon has been looking to restart its Mt Windarra nickel mine in the West Australian goldfields in the face of poor nickel prices and tight debt markets.
11:07am: We are intrigued by Morgan Stanley’s thoughts on the arrival of Coca-Cola Life in the Australian market.
The broker is staying underweight, even though Coca-Cola Amatil shares have underperformed by 40 per cent over the past 12 months, because the company is “strategically stuck” in MS’s eyes.
Coca-Cola Life is the first new Coke branded product launched since Coke Zero in January 2006.
It is due in this market perhaps as soon as this summer. “We think ‘Life’ will likely only provide a near term low-single digit bump to volume growth,” the broker warns.
Numbers behind the Australian diet cola market
10:57am: Growth in new home building activity pushed the construction sector into an expansionary phase in June for the first time in 2014, according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index.
The seasonally adjusted index lifted 5.1 points to 51.8 in June – its highest reading since November 2013. Readings above 50 indicate an expansion in activity.
The detached house building sub-index strengthened 2.2 points over June to 56.6, its tenth consecutive month of growth, “consistent with the general increase in new orders over this period”.
10:56am:Woolworths takeover target Country Road expects earnings before interest and tax to rise as much as 66 per cent to $100.9 million in the year ending June as it reaps the benefit of the Witchery and Mimco acquisitions in 2012.
In a trading update on Monday, Country Road forecast earnings before interest and tax between $92.9 million and $100.9 million for the year, 52.8 per cent to 66 per cent higher than the $60.8 million result booked in 2013, which included only 10 months’ contribution from Witchery and Mimco.
Earnings before interest, tax, depreciation and amortisation are expected to rise by between 41 per cent and 50.8 per cent to between $115.7 million and $123.7 million.
Country Road earnings have bucked negative sentiment around consumer spending
10:46am: A big part of Aristocrat’s strategy behind the purchase of VGT is contracts with tribal customers. It appears 40 per cent of gaming machines in the US are tribal, referring to the Native American customer base.
There is a capital raising attached to Aristocrat’s announcement comprising: a fully underwritten placement to institutional investors ($375 million), a placement to Ainsworth family shareholders of up to $30 million and a share purchase plan to all eligible shareholders in Australia and New Zealand. The Ainsworth Offer and SPP will be capped at $60 million.
Aristocrat will take the market lead in tribal gaming
10:32am:Commonwealth Bank will continue to use sales targets as a key incentive for branch staff bonuses, sparking union criticism it is persisting with a conflicted pay model that promotes a sales culture.
The move comes as the bank’s chief executive, Ian Narev, has dismissed suggestions CBA has suffered reputational damage as a result of the scandal that involves misselling of financial services products and in some cases fraud.
“Of course, there are going to be some customers who when these things happen don’t want to deal with the bank. At the moment, we’re not seeing that at any discernible level, but we never, ever take these things for granted,” Mr Narev said on Channel Nine’s Financial Review Sunday program.
CBA chief Ian Narev Photo: Louise Kennerley
10:29am:Gaming machine maker Aristocrat will buy United States group Video Gaming Technologies in a $US1.3 billion deal designed to give Aristocrat a greater presence in the key tribal casino market in North America.
The cash deal, which will also see Aristocrat refinance its debt facilities into a new $1.4 billion debt package, is expected to be completed by the end of the first half of 2015. Aristocrat says it will provide earnings per share growth in the low-to-mid teens.
“The strategic and financial benefits are compelling for Aristocrat shareholders,” chief executive Jamie Odell said in a statement to the ASX.
10:20am:Expedia will buy Wotif.com for $703 million.
Wotif shareholders will get $3.06 cash per share; plus a fully franked 24-cent special dividend paid by Wotif. A 10-cent value has been attributed to the franking credits.
10:12am: The SP/ASX 200 Index has opened 8 points higher, which means if gains can be held shares will be up for four consecutive sessions.
We will keep an eye out for ANZ job ads data at 11:30 AEST.
Winners and losers at the open
10:06am:Deustche Bank has also taken a look at ResMed, downgrading the sleep technology company to hold. The price target is $US52 a share, unchanged.
See an earlier post for Morgan Stanley’s valuation analysis on ResMed and the divergence in views on its outlook.
10:00am:CIMB has downgraded Emeco to hold in spite of a reduced chance of a capital raising.
“The operating environment remains sombre, with limited opportunities in Australia being tempered by competitive pricing and the potential of increased supply from adjacent players,” the broker says.
It has also cut its price target to 19 cents which is a 70 per cent discount to book value.
“Whilst corporate interest cannot be ruled out, we note that debt remains high and the free-cash-flow potential in the business has reduced in a post debt re-fi environment.”
Forecast changes from CIMB
9:48am:Macquarie Group chief executive Nicholas Moore appears to have missed out on the opportunity to acquire 42,712 performance shares (which are similar to deferred stock bonuses) because he failed to meet the award criteria.
9:39am: Morgan Stanley has looked at ResMed exploring the wide dispersion of valuation outcomes that justify a price anywhere between $US33.94 a share to $US61.33 a share.
On the optimistic side, “There is the potential for home sleep testing to achieve 60 per cent of US volume resulting in a mix shift to higher-margin APAP machines,” the broker writes. But a bear case could be supported by reduced prices for masks, lower US unit growth and disappointing Medicare outcomes on rebates.
Bull to bear valuation analysis
9:26am:Anton Tagliaferro’s Investors Mutual is set to launch the Australian markets’ first listed investment company (LIC) exposed to stocks outside the 20 largest companies on the ASX.
The company, to be known as QV Equities, is among a wave of listings of investment companies seeking to capitalise on the $500 billion self-managed superannuation fund sector, which has built large, overweight exposures to high-yielding major bank stocks and Telstra shares.
“A lot of people are investing direct which means they are bypassing fund managers,” Mr Tagliaferro told The Australian Financial Review. “But a lot of advisers we talk to said [we shouldn’t] do a ‘me too’ LIC with National Australia Bank, BHP, Westpac and Telstra.”
Mr Tagliaferro, founder of the $4.9 billion equity manager Investors Mutual, lists Amcor, Ansell and Orica as quality ASX listed stocks outside the top 20.
9:20am: Some highlights from The Australian Financial Review’s Street Talk column this morning:
8:53am: It’s the great Australian summer dream: owning a tiny shack on the coast close enough to the beach to taste the seaspray. But those areas are now among the worst hit by mortgage stress.
Small beachside towns in Victoria, NSW and Queensland have featured prominently on the latest mortgage delinquency list released by Fitch Ratings.
While suburbs in Sydney’s west and Melbourne’s north-west remain among the hardest hit by mortgage stress, so do the areas where people take their holidays.
In NSW the central coast was the named the state’s worst-performing region for borrowing arrears for March, with 2.08 per cent of borrowers in arrears.
8:50am:David Jones has reached out to its small shareholders, seeking support for the proposed $2.2 billion acquisition by South Africa’s Woolworths.
The department store operator has bought ads in newspapers across the country, urging shareholders not planning to vote to send in their proxy votes backing the deal by Saturday.
The move suggests David Jones directors are taking no chances in securing shareholder backing for the acquisition, given uncertainty about how retail magnate Solomon Lew plans to vote his 9.9 per cent.
David Jones has focused on small investors for support Photo: Andrew Quilty
8:46am: Miner BHP Billiton is confident it can ”close the gap” with iron ore arch-rival Rio Tinto on margin per tonne within a few years.
And it is likely to develop the $20 billion outer-harbour project at Port Hedland rather than expand its inner-harbour operation if it moves to produce beyond its current annual run rate target of 270 million tonnes.
BHP president of iron ore Jimmy Wilson says the miner is trailing Rio on margin per tonne, and ”our desire absolutely is to close that gap”.
He said the miner would never be in a competition with Rio on volumes but stressed ”where we would like to compete is on the cost of production side, more importantly, the margin per tonne that we make”.
”While we are marginally behind Rio at the moment, we’ve got to back the fact that we are going to eliminate that gap in the foreseeable future,” he says.
”What is the foreseeable future? I’d be disappointed if it took more than a couple of years.”
8:45am:Australian shares are expected to climb higher when market trading gets under way this week, confounding many traders who think that stocks are expensive and the market is on borrowed time.
”We haven’t had a correction in almost two years now,” said Watermark Funds Management chief investment officer Justin Braitling. ”It is unheard of to have a market advance without some sort of a correction for such a long period.”
The local market is tipped to gain 13 points, or 0.2 per cent, on Monday, according to the SPI Futures. The benchmark SP/ASX 200 rose 1.47 per cent last week to 5525 points, after managing close to a 13 per cent return over the course of the financial year to June 30, 2014.
”Corporate profits remain key to driving equity markets onward and upwards from what are in most places all-time highs,” said Threadneedle chief investment officer Mark Burgess.
8:41am:Macquarie Group’s private wealth unit stands accused of having similar ”systematic problems” to that at Commonwealth Bank of Australia, and for not co-operating with the Senate committee that delved into unethical adviser practices.
Inquiry chairman Labor senator Mark Bishop and committee member John Williams are calling on the corporate regulator to open a thorough investigation into the Macquarie unit to ensure it is complying with an enforceable undertaking it was dealt in January last year. They also want the Australian Securities and Investments Commission to extend the undertaking, which was due to end after a final assessment in January 2015, to ensure wide-ranging compliance deficiencies are fixed.
Senator Bishop likened the ”systematic problems” that existed within CBA to those that existed with Macquarie, but noted that CBA’s customers consisted of a much broader cross-section of the community. He was also critical of Macquarie’s engagement with the committee.
Focus shifts to Macquarie Group in financial planning scandal Photo: Louie Douvis
8:34am: Good morning and welcome to Markets Live.
Your editor today is Vesna Poljak.
The blog is not intended as investment advice.
Markets Live: Even Wotif can"t keep ASX"s winning streak alive