Sunday, September 15, 2013

Markets Live: Dollar jumps, ASX set for strong opening

11:01am: Here's an interesting yarn by the AFR on Wall Street's latest worry: Australian banks

Major banks' shares have surged this year to record highs, prompting several investors and analysts to speculate they are in bubble territory.

International fund managers and Australian companies attending an investment conference in New York last week were told that some big hedge funds were convinced the major banks were overvalued and would inevitably fall to more normal levels.

"I should warn you I was in London last week and one of the bigger questions I got was 'why the hell are the Australian banks performing so well?'" Bank of America Merrill Lynch chief global equities strategist Michael Hartnett told his bank's conference.

"There are a number of hedge funds that are short the Australian banks right now, trying to play on that demise of the emerging markets."

Mr Hartnett displayed a chart to the audience showing the market capitalisation of the Australian banks has swelled from 2 per cent of the global banking index to 14 per cent over the past decade.

10:57am: Here are the main winners and losers in the ASX200 this morning:

Winners and losers in the ASX200 this morning.

Winners and losers in the ASX200 this morning.

10:49am: Rare earths miner Lynas has widened its full year loss but has set the ambitious goal of becoming one of the the world's leading rare earths suppliers.

The company's full year loss grew to $107.4 million for the 12 months to June 30, from $102.6 million.

The company obtained its first pay cheque before the end of the fiscal year: a modest $900,000 for rare earths products but a symbolic first step.

Shares are up 4.2 per cent.

10:33am: Another asset rising on the Summers decision is gold, which is profiting from the drop in the US dollar.

Spot gold has recovered as much as 0.8 per cent to $US1336.40 an ounce this morning, after plunging 4.7 per cent last week. Gold for December delivery rose 1.6 per cent to $US1329.70 an ounce.

10:31am: Asian markets are also posting gains in reaction to news that Larry Summers has dropped out of the race to head the US Federal reserve.

While Japanese markets are closed for a holiday, MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.5 per cent and South Korea jumped 1.1 per cent.

Summers' surprise decision comes just before the central bank meets on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from the current pace of $US85 billion a month.

Markets had perceived Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale it back quicker than the more dovish Yellen, who is currently second in command at the Fed.

''It's quite positive for equities,'' says George Boubouras, chief investment officer at Equity Trustees. ''It puts Yellen back on the cards as the favourite. She's more aligned to retaining accommodative policy and not being as brash as Summers might have been.''

10:24am:Westfield Group will sell seven malls in the US for $US1.6 billion to an affiliate of Starwood Capital Group, the investment firm led by Barry Sternlicht.

Westfield is divesting the malls, which it deems non-core, to redeploy capital to other projects, it said in a statement to the Australian stock exchange. Westfield will retain a 10 per cent interest in the shopping centres, which will be managed by Starwood, it said.

Westfield is exiting lower-quality properties in the USto reinvest in higher-return assets and projects.

The company's shares are up 1 per cent.

10:14am: And shares are off to the predicted strong start, with investors cheered by the news that Larry Summers, the hawkish candidate for the Fed chairmanship, has decided not to run.

The benchmark S&P/ASX200 index has jumped 41.7 points, or 0.8 per cent, to 5261.3, while the broader All Ords has gained 40.6 points, or 0.8 per cent, to 5255.3, with both indices hitting new five-year highs.

Gains are across the board, with materials rising 1 per cent, financials up 0.7 per cent and gold stocks rallying 3.2 per cent.

10:06am: Fed vice-chair Janet Yellen might now be the leading candidate to replace Ben Bernanke, but so was Larry Summers until this morning.

There are a few other names being tossed around, including former Treasury secretary Tim Geithner.

Here's an overview of the main candidates.

Leading contender: Janet Yellen, vice chair of the Board of Governors of the Federal Reserve System.

Leading contender: Janet Yellen, vice chair of the Board of Governors of the Federal Reserve System. Photo: AP

10:03am: Some more on Summers pulling out of the race for the Fed's top job and why the move is being cheered by the markets, from Rivkin analyst Tim Radford:

Janet Yellen is now expected to be the successor of current Fed chair Ben Bernanke. And it's widely believed she will continue Bernanke's pro-growth policies, if not taking a more aggressive stance. By Summers pulling out of the race there is now a great deal of certainty over the future of US Federal Reserve monetary policy moving forward. Summers was the clear favourite within the White House, given his contribution in guiding the US economy through the global financial crisis under US President Barack Obama. But with growing opposition in Congress to the man that has been widely criticised and blamed for helping cause the 08/09 financial crisis due to his influence on deregulating the financial services industry, Summers has essentially been forced to pull out from the race.

9:55am:Britain's top companies have boosted cash holdings by more than a third in the past five years, opening the door to future acquisitions or bumper shareholder returns, research showed on Monday.

Gross cash holdings of FTSE 100 companies have risen by 42.2 billion pounds ($72.19 billion) since 2008, according to research by Capita Asset Services.

That leaves companies with a collective 166 billion pounds on their balance sheets, which would be enough cash to buy more than 8.5 per cent of the FTSE 100, or more than triple 2013's forecast dividend payout for the index.

While unlikely to be returned to shareholders in one fell swoop, the cash, accumulated and held onto in the fall-out from the financial crisis, could find its way back to productive usage as growth returns to the economy.

Following the crisis in 2008, companies diverted cash usually returned to investors or used for new business investments in order to shore up their balance sheets.

9:52am:Larry Summers feared an 'acrimonius' process if he went ahead with his bid to replace Bernanke, this coming after three Democrat Senators voiced their opposition to him last week. He is a controversial figure, having supported the deregulation of the banking indutsry while serving as Treasury Secretary under Bill Clinton.

He was also a key economic aide to Barack Obama, who oversaw the administration's response to the economic and financial crisis early in Obama's first term.

He withdrew his candidacy in a letter to Obama.

Out of the race: Larry Summers.

Out of the race: Larry Summers. Photo: Bloomberg

9:29am: The market is set to open stronger after the overnight news that Larry Summers has pulled out of the race to replace Ben Bernanke as Fed Reserve chairman.

The news saw the Australian dollar shoot up by over a cent, while Wall Street futures are projecting a gain of up to one per cent, which points to a strong start on the Australian sharemarket this morning. The SPI futures have not been updated, it is pointing to only a 10-point gain.

Here's what you need2know this Monday morning:

SPI futures up 10 points to 5238.
AUD fetching 93.42 US cents, 91.99 yen, 69.67 euro cents, 58.36 pence On Wall St (Friday), Nasdaq +0.1%, Dow Jones +0.5%, S&P500 +0.3% In Europe (Friday), Eurostoxx +0.2%, FTSE100 -0.1%, CAC, +0.2%, DAX 0.2%
Spot gold up to $US1326.95 an ounce Brent oil up to $US111.70 per barrel Iron ore fell to $US134.50 per tonne

9:26am: Good morning. Welcome to the Markets Live blog for Monday.

Contributors: Max Mason, Jens Meyer, Luke Higgs

This blog is not intended as investment advice

BusinessDay with agencies
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