Monday, September 30, 2013

Markets Live: Investors take shelter

5:08pm: That's all from us here at Markets Live. Thanks for being with us, we'll see you tomorrow.

Click here for a full wrap of the day's session

4:42pm: And for the quarter:

4:38pm: Here are the best and worst performers for the day from the ASX200:

4:33pm: Grab a tissue: new video has emerged of outgoing Microsoft boss Steve Ballmer bidding a very emotional farewell to a packed stadium at an annual employee meeting likely to be his last.

Ballmer, who is set to leave Microsoft within the year, told 13,000 Microsoft employees packed into a Seattle basketball arena on Thursday that the company will keep on innovating.

The chief executive, whose screeching and dancing at company events is the stuff of YouTube legend, stormed the stage to "Can't Hold Us" by Seattle rap/producer duo Macklemore and Ryan Lewis, and kept up his usual high tempo.

He departed to the strains of Michael Jackson's Wanna Be Startin' Somethin', the song played at Microsoft's first employee meeting in 1983. But it was his choice of (I've Had) The Time of My Life from the finale of "Dirty Dancing," that got him a standing ovation and "we love you" calls from the crowd.

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Video will begin in 5 seconds.

Steve Ballmer has time of his life

Microsoft Chief Executive Steve Ballmer took his farewell bow before thousands of applauding employees with a typically loud and emotional performance at his last companywide meeting.

PT1M8S 620 349 September 30, 2013 - 4:34PM

4:31pm:The Reserve Bank is set to be more vocal in its board statement tomorrow about the need for the Australian dollar to weaken further, says Barclays' chief economist Kieran Davies.

"I think it's possible that they'll toughen up their language about the currency tomorrow and have a comment in there saying that they'll be happy if it fell further to assist in the rebalancing of growth," Davies says. 

"They might even go as far as to have some easing language, similar to what they had in the minutes."

The RBA's board members are likely to be be displeased about the rise in the currency since its last meeting. The dollar was trading at around 90.03 US cents on September 3, but slowly edged higher before being pushed upwards following the US Federal Reserve's decision to delay a start to its stimulus tapering measures.

The currency reached a three-month-high in mid-September, and was buying as high as 95.24 US cents on September 19.

But the dollar has since slipped, and fell again today, along with other currencies considered "risky", amid growing fears of a US government shut down as lawmakers battle over the budget.

The currency was trading at 93.12 US cents, and was also being weighed down by a weaker-than-expected reading of Chinese manufacturing released today. 

4:18pm: Gold was the only sector to post gains, here's how the rest fared:

Consumer discretionary: -1.1% Consumer staples: -1.4% Energy: -2.3% Financials: -1.9% Materials: -1.6% Telecommunications: -1%

4:14pm: The market has closed heavily lower, the benchmark S&P/ASX200 fell 88.2 points, or 1.7 per cent, to 5218.9. The broader All Ords lost 84.6 points, or 1.6 per cent, to 5217.7.

4:04pm:Stockland Group has continued to rationalise its non-core office assets and raised $72 million from the sale of a site at 78 Waterloo Road, Macquarie Park, in Sydney's North West to CorVal on behalf of a club of wholesale investors.

The chief executive of commercial property at Stockland, John Schroder confirmed the sale was part of the strategy of ''actively'' managing assets through sales and recycling the funds raised elsewhere in the group's portfolio.

3:52pm:Rumours ANZ Bank is eyeing a bid for Hong Kong's Wing Hang Bank have been getting louder, according to the latest reports.

But what is actually know about this potential target?

A recent note from Morgan Stanley establishes some basic facts. WH Bank has a few large shareholders that have recently been approached to sell their stakes.

It has 2 per cent share of the market in loans and deposits, and 43 branches in Hong Kong. It also has 12 branches in Macau and 15 in mainland China.

Its return on equity is about 10 per cent - and the broker argues it is "well run" and likely to be an attractive target,

ANZ won't confirm or deny if they're looking at the bank, but some in the market say it would would be a good strategic fit.

But any sale process is likely to be competitive, given growing interest in family-controlled Chinese Hong Kong lenders.

"This is not a cyclical, but rather a structural issue, possibly prompting the families to be interested in stake sales," the note says.

3:49pm:Who has more to lose from a housing bust: Australia's largest insurer or the world's most expensive bank, Intelligent Investor's Nathan Bell asks:

Assuming property prices eventually fall 32 per cent, unemployment rises to 11.5 per cent and the official cash rate drops to 1 per cent, Commonwealth expects to lose only $1.9 billion from uninsured loans after collecting $2.1 billion of lenders' mortgage insurance, and that conservatively assumes that all loans 90 days in arrears trigger a claim.

That's just $4 billion of losses on a $373 billion mortgage book, or just over 1 per cent, and half of that is insured.

At this point shareholders of the big banks, who include virtually every Australian through their superannuation portfolios, will be feeling safe and secure. But there's a problem.

Read more

Vulnerable ... Australia's housing market.

Vulnerable ... Australia's housing market. Photo: Paul Rovere

3:34pm:ANZ Bank continues to aggressively expand its mortgage book at the quickest pace of the big four, as the lender pumps more capital into its Australian home loan business.

As ANZ, NAB and Westpac rule off their annual accounts on Tuesday, new figures from the Australian Prudential Regulation Authority showed ANZ's home loan book grew by 7.1 per cent in annualised terms during August.

This compared with 5 per cent annualised growth for the Commonwealth Bank and NAB, and 2.7 per cent for Westpac, according to analysis from brokers at Macquarie.

ANZ, the smallest home lender of the big four, signalled earlier this year that it would put more capital into the $1.2 trillion mortgage market as profit margins in its international business come under growing pressure.

As part of the push, the bank has lowered its standard variable mortgage rate to 5.88 per cent, equalling NAB as the big bank offering the lowest advertised rate.

Westpac, in contrast, has been consistently losing share in the lucrative home loan market this year, a trend analysts blame on its decision to offer the highest standard variable rate of the big four.

ANZ shares are down 1.8 per cent to $30.945.

3:19pm:Hedge funds' negative bets on European shares have tumbled to a level not seen since before the global financial crisis began in 2007, signalling their strongest conviction for years that the market will rise further.

It means long/short hedge funds, which bet on which stocks will rise or fall, have taken a strongly bullish tilt to take advantage of both a rising market and of the lower correlation among stocks brought about by continued monetary support by the US Federal Reserve.

According to data from Markit, the overall value of "short positions" or shares out on loan on the benchmark STOXX Europe 600 has dropped to $155 billion, its lowest since Markit started to monitor the data in mid-2006, and down from $180 billion two years ago.

Short sellers borrow securities and sell them, betting they will be able to buy them back at a lower price before returning them to the lender and pocket the difference.

When factoring in the 35 per cent rally in the STOXX 600 over the past two years, the overall value of shorted positions since September 2011 has tumbled by two-thirds.

"The muted borrowing demand today is the new reality. In this prolonged bull market, it has been hard for short sellers to bet against a rising tide," Alex Brog, director at Markit, said.

The hedge funds' bullishness means that for each shorted stock, there are 15 "long" positions, i.e. bets the market will rise. This compares with one short for 10 long positions in September 2011, at the height of the euro zone debt crisis, according to Markit data.

This represents a big change as not all funds have a mandate that allows them to take short positions.

3:00pm: So what should we make of the private sector credit data released today?

Westpac senior economist Andrew Hanlan takes a closer look at business credit, which rose 0.2 per cent in August, following a 0.4 per cent lift in July. In the 12 months to August, business credit grew by 1.4 per cent:

[The] 1.5 per cent bounce in business credit over the past five months in part reflects the impact of the lower Australian dollar, via foreign currency valuation effects. The bounce also reflects an improvement in access to credit over the past year, as reported by the RBA in their September Financial Stability Review. Business investment spending weakened over the first half of 2013 and plans for 2013-14 have recently been scaled back at a time of subdued demand and uncertainty ahead of the Federal Election. That said, we assess that household demand growth is beginning to improve, which will in time be supportive of business investment.

2:50pm:Warren Buffett's Berkshire Hathaway is poised to get more than $US2 billion in Goldman Sachs  stock through warrants acquired during the depths of the 2008 financial crisis.

Berkshire may receive about 13.2 million shares in New York-based Goldman Sachs, according to an agreement that uses the average closing price on the 10 trading days through today to calculate Buffett's stake. The bank's shares closed at $US159.85 last week.

Goldman Sachs turned to Berkshire in 2008 to bolster capital and shore up market confidence when shares plunged following the collapse of Lehman Brothers. Buffett, Berkshire's chairman and chief executive, invested $US5 billion for a preferred holding and got warrants to buy $US5 billion of stock for $US115 a share.

''Buffett used his position as a white knight and his reputation to prop up an institution at a time of crisis,'' said Richard Cook, co-founder of Cook & Bynum Capital Management. ''Goldman Sachs is almost certainly better off for it, even though it was very expensive. And certainly Berkshire shareholders are better off.''

White knight ... Warren Buffett

White knight ... Warren Buffett Photo: AP

2:40pm: And here's the confirmation: the heavy workload of host Alan Kohler has put paid to ABC TV's Sunday morning business show, Inside Business, after 12 years on air.

The ABC said Inside Business would broadcast for the last time on December 1.

''It's been tremendously rewarding presenting Inside Business for the past 12 years, working with some wonderful people at the ABC and interviewing Australia's CEOs, some of them many times,'' Kohler said in a statement released by the ABC. ''But it's time now to reduce my workload so I'm afraid it must end, although I'm keen to continue working with ABC.''

Kohler, who also works for News Limited, is to continue presenting his finance segment during the ABC's flagship 7pm news bulletin.

2:27pm: Looks like it's curtains for Inside Business:

2:25pm: Paul Krugman has written a stinging column on the politicking in Washington, saying "default deniers" in the Republican ranks are risking another financial crisis:

A temporary government shutdown — which became almost inevitable after Sunday's House vote to provide government funding only on unacceptable conditions — wouldn't be the end of the world.

But a US government default, which will happen unless Congress raises the debt ceiling soon, might cause financial catastrophe. Unfortunately, many Republicans either don't understand this or don't care.

First of all, hitting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession.

Beyond that, failure to raise the ceiling would mean missed payments on existing US government debt. And that might have terrifying consequences.

Why? Financial markets have long treated US bonds as the ultimate safe asset; the assumption that America will always honour its debts is the bedrock on which the world financial system rests. In particular, Treasury bills — short-term US bonds — are what investors demand when they want absolutely solid collateral against loans.

Read more: Rebels without a clue

2:19pm: One of Michael Pascoe's "doves" (see 1.54pm) who are hoping the RBA will reinsert its easing bias into its statement tomorrow is TD Securities head of Asia-Pacific research Annette Beacher:

Although the RBA is widely expected to keep the cash rate at 2.5 per cent tomorrow, it would be ''prudent'' if the October statement referred to an easing bias, Beacher said this morning:

We expect tomorrow's RBA board meeting to be a lively one, debating the repercussions of the US Federal Reserve failing to deliver the well telegraphed tapering of bond purchases, and contrasting low overall inflation and rising unemployment with rising house prices and signs of a pick up in credit appetite. We believe the prudent path is to reintroduce an easing bias in the accompanying communique to send the message that the RBA board is prepared to continue supporting the transition from mining to non-mining growth.

2:09pm:Online retail spending growth stalled in August, reflecting mixed business conditions for some parts of the sector.

National Australia Bank's online retail sales index fell by 0.1 per cent in August, seasonally adjusted. In the year to August, online sales were up 9.6 per cent to $14.2 billion.

''Rates of growth were particularly weak in daily deals and fashion, and muted in personal and recreational goods, homewares and appliances and toys and electronic games,'' NAB chief economist Alan Oster said.

Online sales represent 6.3 per cent of traditional retail spending in Australia. The ABS will release retail sales data for August tomorrow.

1:58pm:In the rough and tumble world of oil and gas juniors, investors are actively avoiding exploration risk but that doesn't mean there isn't room to make big returns – just look at the 30 per cent rise in Neon Energy last week, and Buccaneer Energy's shares which have more than doubled in the past three months or so.

The reason for explorers not enjoying the same level of investor support can in part be traced back to the shale gas revolution, which only started in earnest less than 10 years ago, according to Canaccord Genuity's energy analyst Johan Hedstrom:

"Only five years ago a share price normally had a run up as drilling commenced, but now that's not the case. There have been too many disappointments and most investors have lost money punting on exploration wells.

"The game changer has been shale gas revolution, which has taken away much of the exploration risk, and replaced it with engineering and completion risk. Investors would rather punt on this than wildcats, where the track record has been patchy."

Read more in our Small Caps column

1:54pm: The cheer squad a-wishin' and a-hopin' for another Reserve Bank interest rate cut is nothing if not persistent, even if they're reduced to advising the RBA to pretend to want to trim rates again, writes BusinessDay's Michael Pascoe.

Too bad the squad is ignoring pretty much all the available evidence pointing to the central bank leaving monetary policy right where it is.

Even the cheer squad doesn't expect the RBA board to move rates at its meeting tomorrow, which is why the doves are just pleading for the bank to reinstate an explicit easing bias instead. There would be a little problem with that though: it would destroy the RBA's credibility.

It's a fairly simple matter to read the minutes of the September meeting and then ask: what has changed since September 3 and has that change made looser monetary policy more or less likely?

Read more

Video will begin in 5 seconds.

Rate cut? No way, RBA

There is a considerable cheer squad calling for another interest rate cut from the Reserve Bank, but even they do not expect anything to happen tomorrow. Michael Pascoe reports.

PT4M16S 620 349 September 30, 2013 - 2:07PM

1:42pm:Online retail spending growth stalled in August, reflecting mixed business conditions for some parts of the sector.

National Australia Bank's (NAB) online retail sales index fell by 0.1 per cent in August, seasonally adjusted.

In the year to August, online sales were up 9.6 per cent to $14.2 billion.

''Rates of growth were particularly weak in daily deals and fashion, and muted in personal and recreational goods, homewares and appliances and toys and electronic games,'' NAB chief economist Alan Oster said.

Online sales represent 6.3 per cent of traditional retail spending in Australia.

The Australian Bureau of Statistics will release retail spending figures for August tomorrow.

1:28pm: The Reserve Bank has rejected claims governor Glenn Stevens has not told the truth about his knowledge of allegations of corruption against the bank.

The central bank has also admitted a visit to Iraq by staff of one of its note-printing subsidiaries - the subject of the corruption allegations - was ''ill-advised''.

But the RBA says the company's effort to sell plastic banknotes to Iraq, in violation of United Nations sanctions, was suspended and no notes were ever provided.

Mr Stevens has previously told a House of Representatives' economics committee the RBA board didn't learn of allegations of corruption involving Note Printing Australia (NPA) until they were made public in 2009.

Brian Hood, a former NPA executive, has told the ABC and Fairfax that Mr Stevens' testimony ''wasn't the truth'', and the RBA knew of the allegations in 2007.

''The governor has always answered questions in parliamentary proceedings fully and truthfully,'' the RBA said in a statement today

''There have been lengthy hearings on these matters at which the relevant committees have been able to thoroughly examine the issues.''

The RBA also said today the reports of NPA staff visiting Iraq have been public knowledge for four years.

1:14pm: A reversal of expectations of China's growth has propelled Australia's share market to its seal its best quarter in four years.

As more and more economic data from our biggest trading partner points to growth stabilising rather than nosediving, the ASX's big miners are reaping the benefits, economists say.

The S&P/ASX 200 Index is heading to finish the September quarter up 10.7 per cent, its best result since 2009.

This is despite there being a federal election, which historically pushes the market sideways, uncertainty about the fate of the US Federal Reserve's stimulus program, and a possible default of the world's biggest economy.

St George Bank economist Janu Chan said above all, China had fuelled optimism on the local bourse.

ANZ head of commodity strategy Mark Pervan agreed, saying during the middle of the year it was widely expected that Chinese growth for the full year would disappoint, particularly after soft readings in both its official and HSCB manufacturing data.

''But as is the case, China has this ability to reignite growth,'' Mr Pervan said. ''I think we are starting to see a little bit more momentum in some stimulus roll out in China. The PMI reads have also been consistently better in the past two months.''

The best and worst performers on the ASX200 for the quarter.

The best and worst performers on the ASX200 for the quarter.

12:59pm: While we're at it, here's a look around the region, revealing most markets are in the red,  amid concerns over a possible US government shutdown and Italy's political crisis:

Japan (Nikkei): -1.7% Hong Kong: -1.1% Shanghai: +0.5% Taiwan: -0.7% Korea: -0.6% ASX200: -1.25% Singapore: -0.75% New Zealand: -0.8%

Japanese markets are also still up 8 per cent this month, but investors are wary ahead of an announcement on the government's economic growth and tax strategy.

"Hedge funds are shorting recent gainers to lock in profits ahead of a big day tomorrow, when the prime minister will deliver his long-awaited decision," says Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.

12:50pm: Today's weak credit data has little implications for near‑term RBA policy action, CBA economist John Peters says in a note:

On balance, the modest growth in credit indicates that the very low level of interest rates is yet to spark a significant rebound in credit growth and business investment activity. It is clear that the post‑GFC business cycle still emphasises debt reduction by households and businesses even with historically low interest rates. It would appear to follow that asset price inflation from an extended period of low interest rates is still only a modest risk. Therefore, any RBA decision around potential cuts to the cash rate is likely to focus on the path of the AUD, the next CPI (due 23rd October), and labour market data (next print due 10th October) outcomes, rather than insipid credit growth.

12:45pm: Chinese stocks, on the other hand, are posting healthy gains ahead of a weeklong shutdown of the nation's markets.

The Shanghai Composite Index is up 0.5 per cent, with volumes 34 per cent lower than the 30-day average for this time of day.

Markets will be shut October 1-7 for National Day holidays.

Stocks pared gains after HSBC's manufacturing gauge rose less than analysts forecast in September.

The Shanghai index has risen 9.1 per cent since June, poised for the biggest increase since the three months ended September 2010. The index trades at 8.6 times projected earnings for the next 12 months, compared with the five-year average of 12.6 times.

12:33pm: Today's a bit of a downer for an otherwise strong quarter, which has seen the ASX200 rally more than 11 per cent. Today's falls have brought the quarterly gains back to a still impressive 10 per cent:

The ASX200, year to date

The ASX200, year to date

12:27pm: Australian shares are still sliding, down 1.3 per cent now in their biggest one-day drop since early August, as investors fret over looming US fiscal deadlines.

All major sectors are posting heavy losses, but a lift of around 1 per cent in gold prices has helped cap broader losses as investors seek safe-havens, driven by a possible shutdown of US government operations. Newcrest has climbed 1.7 per cent while Medusa Mining rallied 2.5 per cent.

"The Australian share market is trading around fair value following recent strong gains," said Andrew Doherty, head of equities at research investment firm Morningstar, in a note to clients.
"The Australian economy is softening but the platform is in place for mild recovery during 2014, helped by low interest rates and improving consumer confidence."

Elsewhere, China's factory sector expanded at a slower rate than expected, further dampening sentiment on the local benchmark index.

12:06pm: Even the world's fourth richest person, Warren Buffett, has his eyes glued to the screen as  the eagerly awaited final episode of Breaking Bad airs in the US right now.

But the 'Oracle of Omaha' and Walter White fan is just as stumped as everyone else in wondering what's going to happen to the main character:

11:59am: While other gold companies take their write-downs and their falling profits, Tribune Resources has just handed down a 152 per cent lift in annual net profit to $27.7 million.

Tribune and its sister company Rand, are two of the biggest holders of bullion in the southern hemisphere.

If Tribune sold all the gold it produced instead of holding it, it would have delivered a profit of more than $60 million - its gold inventory increased by 28,000 ounces to 112,000 ounces during the year. It is sitting on $40 million worth of gold.

Tribune and Rand don't like to make a song and dance about their profits. Rand's $7 million profit slipped through late on Friday and Tribune did not break out a separate profit announcement to the ASX, it merely filed an annual report this morning.

How they like to hide it ....

Here's more on the two companies, from an analysis earlier this year.

11:50am: The dollar took a bit of a dive on the data, falling nearly three-tenths of a cent to the day's low of 92.88 US cents.

11:48am:HSBC's China manufacturing PMI is in, and it's a rare miss: the final reading came in at 50.2 in September, just above last month's 50.1 but well below an expected 51.2.

Still, the data should support financial markets and comfort investors eager to see China's economy stabilise, even if the revival is likely feeble and perhaps even short-lived.

Qu Hongbin, an HSBC economist, said stronger manufacturing growth was driven by firms replenishing their stocks, albeit slowly.

"Growth is bottoming out on Beijing's mini-stimulus," Qu said, noting however that growth in domestic demand was unchanged from August.

11:40am:OZ Minerals has poured cold water on rumours that Glencore Xstrata is preparing a takeover bid, confirming that it has received no contact from the Swiss giant.

London media speculated over the weekend that Glencore had built a ''secret'' 10 per cent stake in OZ, which mines for copper and gold in South Australia.

Local pundits were initially dubious about the story, given that Glencore is in the process of deferring scores of new mines around the world, and a sizeable chunk of the value in OZ relates to its undeveloped assets.

Shortly after 11am, OZ told the market that it had no knowledge of Glencore building a stake, nor of Glencore mounting a takeover.

''The company advises it has not received a substantial shareholder notice from Glencore nor has OZ Minerals been approached by Glencore in regard to any proposal,'' said OZ in a statement.

OZ shares are up 3.3 per cent, well down from an early rise of 6.7 per cent.

11:36am:Credit growth in the private sector has remained subdued in August, despite expectations that a busy property market would fuel increased borrowing.

Private sector credit rose by 0.3 per cent in August, softer than the 0.4 per cent growth in July and August, Reserve Bank figures released today show.

Credit was up 3.4 per cent in the 12 months to August.

11:29am:China's CITIC Pacific said it was moving into the initial production phase at its $8 billion iron ore project in Australia, following years of delays at one of China's costliest offshore mining developments.

Already some four years behind schedule and billions of dollars over budget, commissioning of the first of the project's two production lines has been going on since July, CITIC said in an e-mailed statement.

The project, one of the largest of its kind undertaken by a Chinese entity outside China, has been marred by legal disputes. It has yet to generate any returns six years after CITIC Pacific bought the rights from Australian tycoon Clive Palmer, prompting Beijing to take a much more cautious approach to approving foreign mining investments.

The cost of the project has swelled to almost $8 billion from $2.5 billion.

11:04am: Ahead of the release of private sector credit figures for August at 11.30am, let's take a look back at how the July figures fared.

Total credit rose by 0.4 per cent in July after a 0.4 per cent lift in June, RBA figures show. In the year to July, total credit grew by 3.2 per cent.

At the same time, housing credit rose 0.4 per cent in July, bring the growth in the 12 months to July to 4.7 per cent. 

Housing credit has been in focus amid talk of a bubble in the housing market. But while housing prices have been rising rapidly in recent months, credit growth is still considered low compared to its historic levels.

10:56am: It seems as if US politicians keep jumping from one crisis to the next, often to the detriment of the people they represent.

With a looming government shutdown - around 2pm tomorrow Australian time - the US is once again bickering over things that were once standard measures.

Confused about what it all means? We've got you covered with 10 critical questions about a US government shutdown.

Why might the US government shutdown?

Because in recent years US politics has become so divided that it has proved impossible to pass a budget through Congress. Instead, a stop-gap funding measure called a "Continuing Resolution" or "CR" for short, has been passed to keep the government funded. The current CR runs out at midnight on Monday and as yet there is no agreement to pass a new one.

Just checking, but is the CR the same as the debt ceiling?

No. The Debt Ceiling is an entirely different and potentially far more serious issue. This is the upper limit of money the US government is allowed to borrow. It is set by Congress. The US treasury estimates that the current ceiling will be exhausted on October 17.

Read more

10:52am: Toy and confectionery business Funtastic has lifted its full year profit by 34 per cent, though a weak retail environment continues to weigh on the company.

Funtastic made a net profit of $13.96 million in the year to July 31, up 17 per cent on the previous year. The profit included a $3.3 million gain made from a renegotiation of the amount it paid for a license to manufacture and distribute certain Lego stationery products.

''Given the difficult retail conditions, it is pleasing to report improved earnings, despite some sales declines domestically,'' chief executive Stewart Downs said.

The company said recent changes to the business, including its ownership of brands, would make it a more stable and predictable business.

Shares have jumped 6.9 per cent to 15.5 cents.

10:52am: Gold sector has been a strong performer today.  Newcrest shares are up 36 cents, or 3.1%, to $11.83 in early trade.

10:41am: Here's how the sectors have opened:

Materials: -1% Financials: -1% Consumer staples: -0.9% Gold +2.3% Energy: -1.2% Health: -1.2% Industrials -1.3%

10:37am:Tokyo stocks tumbled two per cent in opening trade as the dollar fell against the yen on concerns over a US budgetary impasse.

The benchmark Nikkei 225 index lost 299.46 points to 14,460.61 in the first few minutes of trade this morning.

10:33am:Inflation remains soft in Australia, rising 0.2 this month to take the yearly gauge to 2.1 per cent, TD Securities-Melbourne Institute monthly report released today has found.

The latest headline reading leaves inflation at the bottom end of the Reserve Bank's 2 to 3 per cent target band and gives the RBA room to cut the cash rate further if needed.

The trimmed mean rose by 0.2 per cent, and was 2.4 per cent higher than from a year ago.

Annette Beacher, the head of Asia-Pacific Research at TD Securities, says she expects headline inflation to lift by 0.6 per cent in the September quarter, and be 1.6 per cent higher than a year ago due to favourable base effects.

She adds that underlying inflation was forecast to grow by 0.5 per cent in the quarter for an annual rate of 2.1 per cent.

"We expect underlying inflation to remain in the bottom half of the RBA's 2 to 3 per cent target band through to year end, although early signs of a pass-through of the weaker currency into imported prices are apparent and bear close watching," Beacher says.

10:25am:Shares in OZ Minerals have jumped more than 6 per cent after a British newspaper reported that Glencore Xstrata is considering a takeover offer for the Australian copper miner after acquiring up to a 10 percent stake.

The Mail on Sunday said OZ Minerals has appointed UBS as a defence adviser.

Glencore, OZ Minerals and UBS all declined to comment to Reuters on the report.

OZ Minerals shares last traded up 5 per cent at $4.63, valuing the company at $1.4 billion.

10:11am: The market has opened lower, with the benchmark S&P/ASX200 sliding 32.1 points, or 0.6 per cent, to 5274.8. The broader All Ords has dropped 31.1 points, or 0.5 per cent, to 5271.1.

10:06am: The Australian share market is expected to remain cautious today amid a possible shutdown of the US government - the first since 1996 - as lawmakers stand-off over the budget.

The local market, which has been trading at five-year-highs, was unlikely to reach a new record today, says JBWere executive director Mike Kendall.

"Clearly, the risk level's risen, and generally ... you are going to see markets be a bit more cautious and a bit more defensive.

"There's lots of cash on the sidelines. The RBA could cut rates but I don't think there are too many expecting it tomorrow, so the market doesn't look like it is set to go racing deeper into record territory."

Kendall says any downturn in stocks could be softened by investors waiting to return to the market if there is a pullback.

"The commodity prices will probably ultimately dictate the level of movement in the market," Kendall adds.

"The commodity prices weren't too bad over the weekend, so that might keep our market a little bit more supported than we might see in other regions."

9:56am:A shutdown of the US government could reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists are put on temporary leave without pay ("furloughed").

Mark Zandi of Moody's Analytics estimates a three-to-four week shutdown would cut growth by 1.4 points. Zandi projects a 2.5 per cent annualised pace of fourth-quarter growth without a shutdown. A two-week shutdown starting October 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to Macroeconomic Advisers.

A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product.

The combined prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending.

"What we have is a political and not economic maelstrom," said Bernard Baumohl, chief global economist at Economic Outlook Group. "What everyone is watching right now is if the uncertainty is affecting consumer and business psychology, that they are postponing spending until they get more clarity about what's going to happen in Washington."

9:49am: Securities lending is back. And Australia's super funds, charged with looking after members' retirement savings, are in on the action.

The controversial practice, in which stock is temporarily transferred from its owner to another party, faded during the global financial crisis but is making a comeback, as risk appetite increases and sharemarkets rise.

Peter Martin, chairman of industry body the Australian Securities Lending Association, estimates the market to be worth a healthy $15 billion to $25 billion a year.

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9:39am: The Australian dollar is trading below 93 US cents this morning amid growing certainty of a US government shutdown. The dollar was trading at 92.99 US cents about 9.30am today. It was buying 93.15 US cents at the close of last week's trade. 

The shutdown, which is now seen as highly likely while US lawmakers continue to tussle over the budget, has seen the US dollar strengthen across the board and weigh on risk currencies like the Australian dollar, ANZ currency strategist Andrew Salter says.

Salter says the key question was how long the shutdown would last for. 

"The question for financial markets is what US government services get affected and what affect that has on the US economy," he says.

"To what extent does the chance of an actual financial default on US liabilities to foreigners actually grow over the next couple of days? If that were to happen, that would be more of a problem for markets."

9:33am: Time is running out for the US to avoid a government shutdown, and Wall Street is bracing itself for the impact.

With the S&P at all-time highs, market falls could be dramatic.

"A shutdown is just one domino; if it falls, it will cause a series of unknowns, and those unknowns are impossible to quantify," said Adam Sarhan, chief executive of Sarhan Capital In New York.

"The immediate shock could be 200 Dow points, could be 1,000 Dow points. Those moves may be exaggerated at first, but if things aren't resolved quickly that could just be the start.

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9:25am: The Australian market looks set to open lower after falls on Wall Street as the prospect of a US government shutdown looms.

What you need2know:

SPI futures down 13 points to 5,296.
AUD fetching 93.16 US cents, 91.15 yen, 69.11 euro cents, 57.79 pence On Wall St, Nasdaq -0.2%, Dow Jones -0.5%, S&P500 -0.4% In Europe, Eurostoxx -0.1%, FTSE100 -0.8%, CAC flat, DAX flat
Spot gold added 0.9% to $US1336.65 an ounce Brent oil drops 0.5% to $US108.63 per barrel Iron ore falls 1.4% to $US131.90 per tonne

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9:25am: Good morning. Welcome to the Markets Live blog for Monday.

Contributors: Jens Meyer, Max Mason,, Luke Higgs

This blog is not intended as investment advice

BusinessDay with agencies
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