Wednesday, July 17, 2013

Markets Live: ASX inches higher

2:17pm: The reorganisation of the NSW power sector has moved up a notch with the planned sale of the national electricity meter arms of Ausgrid and Endeavour Energy.

The state government is seeking to complete the sale of the power generation sector.

The proposed sale comes hard on the heels of the industry regulator the Australian Electricity Markets Commission calling for metering activities to be sold off from the energy distributors as part of a broader industry overhaul.

It also comes as Victoria's metering sector is set to become contestable from 2015.

At present, energy distributors own the metering assets, but the door is to be opened to new players.

These changes will pave the way for the likes of Macquarie Bank to move in, since it is a significant participant in this sector in the UK already.

2:00pm: The high price of land is inhibiting the amount of houses being built, the nation's housing industry says.

According to figures from the Housing Industry Association (HIA), there was a 4.3 per cent increase in land sales for the March quarter.

This has slowed from an increase of 11.9 per cent recorded in the December 2012 quarter, HIA chief economist Harley Dale said today.

''Residential land sales have displayed only modest upward momentum,'' he said.

Mr Dale said land sales were a key indicator of new homes being built.

In the March quarter, the median value for residential land in capital cities rose by 3.2 per cent to $225,781.

''Land prices continue to find record highs,'' Mr Dale said.

In regional Australia, the median value was $155,807 after a 0.7 per cent rise.

Tim Lawless from real estate firm RP Data said incentives for first home buyers to build could help increase the number of houses being built.

''Lower interest rates are clearly encouraging broadly improving housing market conditions and hopefully this recent momentum can continue,'' he said in a statement.

1:41pm:Deutsche Bank sold the most structured notes tied to Bank of China's debt in two years after the lender's default risk spiked amid the nation's worst interbank funding crisis in at least a decade.

The $30 million of five-year securities, issued July 11, are the largest offering tied to the bank since a $100 million deal in May 2011, according to data compiled by Bloomberg.

Interbank funding costs jumped last month as China's monetary authority refrained from using open-market operations to address a cash crunch in the economy as it tries to crack down on shadow banking. That raised concern bad loans may surge and hurt bank earnings. Five-year credit default swaps on Bank of China climbed to 198 basis points on June 25, the highest in 11 months, according to data provider CMA.

1:29pm: And now of the sliders on the ASX50:

Newcrest: -3.66% Brambles: -1.77% Toll: -1.33% Woolworths: -1.28% IAG: -1.18% Amcor: -0.89%

1:28pm: Looking now at the best performed companies on the ASX50 at lunchtime:

Aurizon: +3.42% Mirvac: +2.48% Iluka: +2.38% Santos: +2.08% Fortescue: +2.02% Goodman Group: +1.67%

1:21pm: China's been trying to moderate the rise in property prices in the country. But how successful has the central government been?

TD Securities said in a research note today that property prices cooled in June, reflecting the success of some of the government's measures to curb growth.

"Beijing has had the largest correction, not too surprising since that province adopted the most stringent controls on home ownership. Don't forget that these controls were targeting frothy first tier cities, not the less-wealthy provinces," TD Securities Head of Asia-Pacific Research Annette Beacher said.

"Our take on this is that the government is not slashing growth at all costs, but is merely choosing where growth comes from. Hence housing construction is still poised to be a consumer of labour and commodities.

"The frothy property market of early 2013 is clearly slowing to more moderate levels. The combination of price and loan  controls, as well as curbing excessive credit growth are clearly working to cool this sector, without piercing any bubble or creating negative fallout elsewhere."

China's largest trading partners, including Australia, have been worrying about a growth slowdown, which is expected to hit exports to the country.

1:03pm:Drugmaker Pharmaxis says a simplification of access to its cystic fibrosis drug Bronchitol could help increase its trial rates in Australia.

Pharmaxis said its application to lift the restrictions on the use of the drug under the Australian government's Pharmaceutical Benefits Scheme were approved yesterday.

"That means they have changed the wording of the PBS listing for Bronchitol, removing the requirements for patients to demonstrate a 10 per cent increase in an improvement in lung function in order to continue PBS reimbursements," Pharmaxis chief executive Gary Phillips said in an investor call today.

"The clinics will find it a lot easier to manage, and I think it will remove what has been a major hurdle for the trial of Bronchitol in Australia."

Pharmaxis said in its quarterly investment briefing today that sales growth in Australia was disappointing, in part blaming the low rates of trial.

At the same time, the Australian pharmaceutical company reported a strong uptake of Bronchitol in German clincis.

Shares in Pharmaxis fell as much as 10.8 per cent today. They were trading 8.11 per cent lower at 17 cents.

12:48pm: The director of Woolworths' loss-making hardware start-up Masters has defended the overly optimistic sales and earnings forecasts set down for its new business, but admitted a failure to understand the hardware business.

Addressing analysts in the wake of Woolworths being forced to blow out its projected losses for Masters in its first five years, chief executive Melinda Smith said the company failed to grasp the seasonality of hardware and acknowledged she didn't know a lot about the structure of the business when it began.

"We didn't know a lot about this business when we set the budget for financial 2013," she said.

"We didn't know a lot about the seasonal curves," she added. "We didn't have the right stock in some instances."

Woolworths shares are down 1.6 per cent at $33.16.

12:37pm:Australia's benchmark 10-year government bond yield dropped to a one-month low before Federal Reserve Chairman Ben Bernanke begins a second day of testimony following remarks that signaled no imminent exit from stimulus that has helped inflate asset prices across the world.

''Australian bonds yields are following US Treasuries lower and also reflecting concern about Chinese growth and the RBA, given rising unemployment in Australia,'' said Damien McColough, the head of fixed-income research at Westpac.

Australia's 10-year bond yield fell nine basis points, or 0.09 percentage point, to 3.66 per cent after touching 3.65 per cent, the least since June 20. The three-year rate fell five basis points to 2.65 per cent.

12:24pm: Ratings agency Standard & Poor's has reaffirmed Australia's AAA-rating, citing the country's "significant fiscal and monetary policy flexibility, economic resilience, and public policy stability".

"We believe these factors provide Australia with a strong ability to absorb large economic and financial shocks, as was demonstrated during the global recession in 2009," S&P's credit analyst Craig Michaels said. 

"Moderating these strengths are Australia's high external imbalances, dependence on commodity exports, and high household debt." 

S&P said much of Australia's economic risk comes from its dependence on trade with China.

"If demand for Australia's resources were to weaken sharply, this could lead to a range of disorderly dislocations in its economy, including in its labor and property markets. 

"However, while robust demand for its commodities continues--from emerging Asia, and particularly China - we believe Australia's economic prospects over the forecast period will remain favourable."

In May, Moody's ratings agency reaffirmed Australia's AAA-rating after the release of the federal budget.

12:11pm:Average new home prices in China's 70 major cities in June rose 6.8 per cent from a year earlier, according to Reuters calculations based on official data published on Thursday, marking the sixth straight month of year-on-year increases.

In month-on-month terms, prices rose 0.8 per cent in June, easing from May's gains of 0.9 per cent, according to the calculation.

China's near four-year-old campaign to temper home prices has been partly undone by strong demand and short supply, and by a rush of efforts by local Chinese governments to sell land to raise revenues.

The National Bureau of Statistics said new home prices in Beijing rose 12.9 per cent in June from a year earlier, compared with May's year-on-year increase of 11.8 per cent. Shanghai's prices were up 11.9 per cent in June from a year ago, versus 10.2 per cent annual growth in May.

12:01pm: The Australian government has sold $1 billion of Treasury notes that mature on October 25, 2013.

The Australian Office of Financial Management (AOFM), which conducts bond auctions on behalf of the government, said the notes were sold for a weighted average yield of 2.4824 per cent.

The sale attracted bids totalling $6.266 billion, giving a coverage ratio of 6.27.

11:51am: Looking at the US, American Express says its net income grew 5 per cent in the second quarter as cardholder spending increased, boosting revenue for the card issuer.

The latest earnings released on Wednesday beat Wall Street expectations, but its 4 per cent increase in revenue fell short.

Shares of the New York-based company slipped more than 1 per cent in aftermarket trading.

American Express cardholders tend to be more affluent than other credit card users, which is one reason the company has done well as the US economy has gradually improved since the recession.

This year, the economy is showing more robust signs of growth, with employers having added an average 202,000 jobs the past six months, up from 180,000 in the previous six.

The housing market is also gaining strength.

And consumer confidence last month hit the highest level since January 2008, according to the Conference Board.

That's made consumers feel wealthier and more willing to spend - often using credit cards to do so.

Unlike Visa and MasterCard, which only process transactions, American Express issues its own cards.

When cardholders charge more on their Amex cards, the company earns even more in interest income and a variety of fees.

Spending by holders of American Express cards grew 7 per cent during the April-June period to $US237.7 billion ($258.51 billion), reflecting gains in the US and abroad.

While cardholder loans grew 3 per cent to $US63.1 billion from a year earlier.

That helped drive overall revenue up 4 per cent to $US8.25 billion from about $US8 billion - just shy of the $US8.3 billion, on average, that Wall Street had been expecting, according to FactSet.

11:39am:The ASX200 has backed away from the 5008 mark, hit soon after trade opened, and seems content with a gain of about 0.2 per cent for the moment.

The All Ords is now trading at 4978, also a gain of 0.2 per cent.

11:31am:Business conditions and confidence weakened last quarter amid greater pessimism in the mining sector, a private survey has found.

Business confidence fell from the first quarter of this year as fears about falling equity and commodity prices took hold, while a weakening Australian dollar and lower interest rates failed to boost sentiment, NAB's quarterly business survey released this morning found.

The business confidence index fall from 2 in the first quarter to minus 1 in the second quarter. 

Business conditions also softened, and were particularly poor in the mining, manufacturing and retail sectors. The index slipped from minus 3 in the first three months of this year to minus 4 last quarter.

"The services sectors continue to outperform all other industries, but even these appear to have been adversely affected by weakness elsewhere," NAB said.

"Conditions weakened across all states in the quarter with the exception of NSW. Weakness was particularly evident in WA, where the mining slowdown is gaining traction."

The survey found that business spending intentions improved but were still softer than the last two years.

11:28am:The Australian dollar held near a week high before Federal Reserve Chairman Ben S. Bernanke begins a second day of testimony following remarks that signaled no imminent exit from stimulus.

''The market has initially taken Bernanke's comments as a little bit dovish,'' said Emma Lawson, a Sydney-based foreign- exchange strategist at National Australia Bank.

''Given the market is so short the Aussie and people have been very bearish, there is some room for consolidation and a short-term move higher.''

The Australian currency traded 0.2 per cent lower for teh day at 92.16 US cents after touching 92.92 US cents yesterday, the most since July 11. It was trading at 92.6 US cent early today.

11:24am:Tokyo stocks have opened 0.21 per cent higher following a bounce on Wall Street after reassuring comments from the Federal Reserve chief on the future of the US stimulus program.

The benchmark Nikkei 225 index on Thursday was up 30.21 points at 14,645.25.

The early gains were in line with a modest rise in US shares overnight as the Dow Jones Industrial Average added 0.12 per cent to 15,470.52.

11:14am:Billabong stocks are continuing to rise today, lifting up to 10.45 per cent following a 34 per cent gain yesterday. Shares were trading at 36 cents about 10.50am.

Morningstar analysts said despite the refinancing deal, there was still too much uncertainty surrounding Billabong.

"We retain our view that uncertainty surrounding the future value of Billabong remains extreme and as such as do not publish a fair value estimate for the company," the analysts said.

"We advise investors to look at other companies which can offer more predictable and sustainable returns for shareholders."

Deutsche Bank analyst Michael Simotas said overall, the Billabong deal was a positive outcome as:

it provides 18 months reprieve on the debt delivers a highly experienced and incentivised CEO signals Altamont's faith in the value of the brands the dilution will only occur if the stock is trading above current levels

But Mr Simotas said Deutsche Bank had not yet revised its estimates as the deal still required shareholder approval.

10:57am: IG Markets strategist Stan Shamu says the local market was optimistic following Dr Bernanke's testimony.

''I think the markets found his comments a little bit dovish,'' he said.

''They found dovish the fact that he said the Fed could actually increase (measures) if the conditions don't improve much further.''

A slight weakness in the US dollar also helped the local market get off to a good start on Thursday, Mr Shamu said.

''The market has taken that in its stride,'' he said.

Mr Shamu said he believed slower growth in China was helping the Australian dollar.

''China has been a bit of a mixed bag recently.''But we're now getting accustomed to getting disappointing data from China.''

10:55am: Australia's largest listed rail company, Aurizon, plans to shave more than $230 million in costs from its business over the next two years, in a move which will include job cuts and property sales.

The company formerly known as QR National also disclosed that it had hauled almost 194 million tonnes of coal in the year to June, which was within its latest guidance.

In February, Aurizon lowered its forecasts for the amount of coal it expected to haul for the year to between 192 million tonne and 195 million tonnes.

Shares in Aurizon rose 2.5 per cent to $4.50 in early trading on Wednesday.

Aurizon announced that it will strip out $100 million in so-called ''support costs'' over the next two years – up to $60 million of which will come from lowering its labour bill.

The reduction in labour costs will come from laying off an undisclosed number of workers, staff leaving of their own accord, outsourcing work and reducing the hiring of contractors.

10:54am:The corporate regulator has hit UBS Securities Australia with a $30,000 fine for breaching market integrity rules.

The penalty relates to an order for Betashares Gold Bullion, an exchange-traded fund, placed by UBS for a client on December 16, 2011 at an incorrect price.

The error forced the value of the shares to decrease 99 per cent from $15.56 to $0.165.

The Australian Securities and Investments Commission said the company's failure to stop the trade being placed on the market was due in part to "human error".

It comes days after Credit Suisse was hit with a $95,000 fine for failing to detect a false order placed on its automated trading system.

10:36am: Billabong shares have followed a 34 per cent gain yesterday with a 5.97 per cent gain in opening trade. Here are the other early risers on the ASX200:

Boart Longyear: +11.61% Emeco Holdings: +9.26% NRW: +6.54% Horizon Oil: +4.79% Independence Group: +4.64% Mount Gibson: +4.62% Atlas Iron: +3.93%

10:32am: So how did economists react to US Federal Reserve chairman Ben Bernanke's testimony overnight?

Nomura economists said Mr Bernanke's message was more consistent and nuanced than other recent "communications", which reassured markets.

But they said some issues, "such as the criteria for winding down asset purchases and how decisions on asset purchases and interest rates are related", remain rather ambiguous.

"There is a tension in his remarks on the criteria for slowing the pace of asset purchases. In some places he speaks about 'cumulative progress towards our objectives', while in other places he talks about the motivation of asset purchases being to 'increase the near-term momentum of the economy'.

"Second, there also remains a potential inconsistency between the argument that any reduction in the pace of asset purchases is 'data dependent' and the argument that decisions about asset purchases are independent from decisions about interest rates."

What did you think of Mr Bernanke's testimony? Drop your views into the comments section.

10:30am: Energy giant Woodside Petroleum has suffered a fall in sales revenue due to the temporary closure of one of its facilities.

The company says sales revenue was down six per cent to $1.35 billion in the June quarter, compared to the same time last year, due to lower oil volumes as a result of maintenance work at its Vincent offshore production, storage and shipping facility.

Meanwhile, production was down 8.6 per cent compared to the previous quarter as a result of planned maintenance at its Pluto LNG Plant and North West Shelf Gas Plant, as well as an unplanned shutdown at the Pluto plant.

Production has since resumed at the Pluto plant.

10:28am: Sector by sector now on the ASX200:

Info tech: +1.27% Industrials: +0.94% Materials: +0.55% Financials: +0.55% Telecoms: +0.34% Utilities: -0.24% Health: -0.39% COnsumer staples: -0.52%

10:20am:Australian stocks have gained in opening trade.

The ASX200 has topped 5000 with a 0.5 per cent gain of 24.9 points, while the All Ords is 24.3 point higher, or 0.5 per cent, to 4990.8.

10:08am: In local news this morning, Woolworths has admitted that its original plans for the nationwide roll out of its hardware chain Masters were optimistic, with the retailer forced to rein in its forecasts saying actual losses for the start up hardware business would be greater than anticipated.

Woolworths said this morning it had forecast Masters to record an EBIT for 2012-3 of a loss of $119 million but that should now blow out to a pre tax loss of $157 million.

Releasing a statement to the Australian Securities Exchange this morning, Woolworths said the higher losses were due to overly optimistic sales budgets, relatively higher wage costs for new store openings and lower margins due to the sales mix.

Woolworths is still forecasting however that Masters will break even during financial 2016, assuming now more moderate growth in sales per store and improvements in gross margins.

It said Woolworths expect the losses for financial 2014 not to exceed this year's levels.

10:04am:US stocks rose after Federal Reserve Chairman Ben Bernanke said the Fed's policy on tapering its bond-buying program was not on a ''preset course.''

The gains came after Bernanke reiterated, in testimony to a House of Representatives committee, that the Fed would likely scale back the bond-buying program later this year, but only if the economy improves.

''I emphasise that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,'' Bernanke told the lawmakers.

The market's leading indices traded in a narrow band during and after the testimony, reflecting that Bernanke's testimony yielded no major surprises, analysts said.

''It's more of the same,'' said Bill Lynch, director of investments at Hinsdale Associates. Bernanke is ''pretty much repeating the same thing as last week.''

10:02am: For a comprehensive look at this morning's business news, check today's need2know. Here are this morning's key markets numbers:

SPI futures are 23 points higher at 4963 The $A is steady at 92.33 In New York, the S&P500 was 0.28% higher at 1680.91 In Europe, the FTSE100 added 0.24% to 6571.93 China iron ore added $US1.40 to $US130.40 a metric tonne Gold fell 1% to settle at $US1,278.80 an ounce WTI crude oil added climbed 48 cents to $US106.48 a barrel Reuters/Jefferies CRB index lost 0.18% to 287.96

10:02am: Apologies for the late start this morning, but we're up and running now.  Welcome to the Markets Live blog for Thursday.

Contributors: Thomas Hunter, Max Mason

This blog is not intended as investment advice

BusinessDay with agencies
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