Friday, October 4, 2013

Markets Live: Broad losses for ASX

4:43pm: That's all from us here at Markets Live, have a great long weekend.

We'll see you Tuesday, October 8.

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

4:36pm: And for the week:

4:27pm: Here are the best and worst performers from the ASX200 today:

4:25pm:A quick reminder that Markets Live will not be running on Monday October 7, but we'll be back the following day.

4:19pm: For the week, the ASX200 lost 99.1 points, or 1.9 per cent.

4:14pm: The market has closed lower, with the S&P/ASX200 falling 26.9 points, or 0.5 per cent, to 5208. The broader All Ords lost 26.1 points, or 0.5 per cent, to 5205.9.

4:01pm:Looking beyond short-term volatility that financial markets are experiencing amid political deadlock in the US, expectations remain for the global economy to continue to recover in 2014 after the US tussle is resolved, says JBWere executive director Mike Kendall.

"Europe looks like it is stabilising. Bernanke's tapering is in response to the US economy strengthening. China looks like its economic momentum is going to be a little bit better than the market was expecting, and that could be more positive for commodity prices than had been previously expected," Kendall says.

"The key themes will be stocks with exposure to the global recovery, so that's stocks with businesses that lie outside Australia.

"If you're in a super fund and yield and franking credits are important, a lot of the high-yield stocks have been very expensive. If you see a pull-back, there might be an opportunity to nibble at some of those, particularly for superannuation funds.

"And for people who may have more of an aggressive trading edge, some of the resource stocks might open up a bit of value that you can move into. But as always, you've got to pick your targets carefully."

3:44pm:Here's a bit of optimism from PIMCO's Bill Gross and BlackRock's Larry Fink - the US is not going to default and the US's debt stand-off will be resolved soon.

Gross, who runs the world's biggest bond fund, said a default is "not a realistic proposition".

The congressional dispute that has partially shut the US government will be wrapped up "very rapidly", says Fink, the chief executive of the largest money manager globally. The two spoke yesterday at an event in Beverly Hills, California.

Treasuries can emerge as a haven as the US debt limit approaches, Peter Fisher, a senior director at BlackRock and the company's former head of fixed income, says. 

For example, US government securities gained after Standard & Poor's cut the US' rating to AA+ from AAA in August 2011, he says.

3:20pm: Markets are nervous (as seen in the falls in the local share market and across the Asian region today) as the US government shutdown continues and the world's financial leaders, including the IMF chief Christime Lagarde warns against the US defaulting on its debt obligations.

But RBS Morgans senior trader Luke McElwaine says the Australian market has remained fairly robust despite the growing jitters around the world, and there could be buying opportunities for investors.

"Whilst we're cautious, we tend to see this as an opportunity rather than a sell-out. There's probably a decent rally on the back of this," McElwaine says.

"The reality is [the US political deadlock] will be resolved and our view is that commonsense will prevail.

"And there's some pretty good fully franked dividends on offer in November for ANZ, NAB and Westpac. So our view is that with improving business confidence, it's probably not a bad time to be buying some of the good quality companies, like the BHPs, that have been beaten up over the past 12 to 18 months."

3:02pm:Sunland shareholders will be slugged for up to $7 million in legal costs after the Gold Coast developer abandoned its High Court bid today to block the enforcement of a costs ruling by the Court of Appeal.

The back-down came just hours before Sunland was due to challenge the Victorian court's recent decision that it pay special costs because its arguments were "hopeless" and conducted in "wilful disregard of the known facts and law".

It's the latest defeat for the group in a more than four-year legal battle over a controversial $63 million waterfront property deal in Dubai involving Sunland and Australians Matt Joyce and Angus Reed. Joyce and Reed (in absentia) were recently found guilty of fraud and sentenced to 10 years' jail in Dubai.

Sunland's bid to recoup $14 million in damages from the men has been repeatedly frustrated in the Supreme Court and the Court of Appeal, which have handed down damning assessments of the conduct and reliability of Sunland and some of its senior executives.

Last month, the Victorian Court of Appeal ordered Sunland to pay the costs of Joyce, Reed and other parties for the substantive appeal, costs appeal and a hearing to introduce "new" evidence instigated by the developer.

Sunland announced to the ASX today that the costs have been preliminarily assessed at $6 million to $7 million.

2:51pm: Along with listed investment companies trading at a premium, more signs of a ''fully valued'' market have emerged - this time with shares being placed at a premium by a market minnow.

You've probably never heard of Hub24, the former Findlay Stockbroking which then morphed into InvestorFirst, and is now trading as Hub24. It is focused mainly on a new managed portfolio platform.

Earlier in the year it placed a large number of shares at 60 cents a pop, and came back this week, placing shares at $1.30 each - a premium to its $1.25 share price.

Even so, demand was so strong it decided to up the size of the placement, issuing two tranches - an initial tranche of $7.6 million worth of shares and then a further $3 million, when it gets shareholder approval later in the month.

Expect to see a lot more placements and issues as brokers seek to profit from the money sloshing around, looking for a home now that interest rates are so low.

2:36pm: The US dollar has softened against a range of currencies, including the Australian dollar, as political negotiations over the shutdown continues and fight over the debt ceiling beckons. 

The Australian dollar has risen as high as 94.40 US cents today, its highest level since mid-September. It was buying 94.34 US cents.

But Commonwealth Bank currency strategist Peter Dragicevich says while the US dollar spiked higher during the 2011 debt ceiling stoush, he expects it to continue to soften this time round.

"This time round, you don't have the issues that you did have then around Europe, and the global economy is looking better. US dollar liquidity in the marketplace - given those banking and sovereign issues aren't there in Europe at this stage - [means that] we do think the US dollar will go the other way and soften and fall.

"So we could see the Aussie continue to drift higher."

At the same time, the fragile steps towards recovery that the US economy is making could be hit if the political battles are dragged out. This in turn could lead to the US Federal Reserve continuing to support easier monetary policy for a longer period of time, Dragicevich says.

"The Fed could make the case that it needs to provide more support for a longer period. We still think the Fed would begin to taper asset purchases in December, but if this situation keeps going and growth momentum in the US does slow, then it'll just be pushed out till next year. ... It'll just be a softer US dollar for longer."

2:19pm:Australia's sports authorities face fresh threats to their battle against race-fixing and match-fixing, with tax haven Vanuatu preparing to license a new wave of offshore bookmakers.

The move by the Pacific nation, which is heavily reliant on Australian government aid, comes as the racing industry prepares for its busiest time of the year.

Australian bookmaker John Dow jnr's website, Punting Pal, has already drawn the ire of the industry, with Racing Victoria referring the Vanuatu-licensed bookmaker to gaming authorities.

It is estimated that punters already bet $1 billion a year with offshore bookmakers.

It is an offence punishable by a maximum fine of up to $1.7 million a day for offshore bookmakers to offer bets to Australians.

The Australian Crime Commission is also concerned that match-fixing rings may use offshore services when fixing matches in Australia.

Read more

2:00pm: Help is at hand for the old-school Australian retailers having trouble competing amidst global restructuring, writes BusinessDay's Michael Pascoe.

They can move to France where the government is trying to make life more difficult for online shoppers.

While Harvey Norman chief, Gerry Harvey, is saying "I told you so" over Australian online shoppers spending more than $7 billion overseas in the last financial year, a bill has passed the French lower house to ban online book sellers (i.e. Amazon) offering free delivery or discounts on multiple purchases.

The BBC reports that the French left and right are supporting protection for the nation's 3,000 independent bookshops from the evil of consumers being able to buy a book more cheaply and conveniently.  As if agricultural protectionism wasn't costing the country enough, now book buyers will be forced to pay more than they have to for a good read - when they can find a shop that isn't closed for lunch.

The predictable reaction from the usual suspects here this week about our fondness for online shopping  -  another call to lower the threshold for GST on international purchases - received plenty of coverage, much of it unthinking.

Read more

1:45pm:Is the market over-bought (or in broker speak ''fully valued'')?

One quick ready reckoner is to look at the share prices of some of the listed investment companies.

Take Australian Foundation Investment Co, the grandfather of the sector.

At the end of September, its net asset backing (pretax) was $5.40 a share, yet the shares are changing hands at $5.74.

In other words, sharemarket investors are willing to pay more for AFI shares than they are worth, judging by the sharemarket value of its holdings.

Listed investment companies trading at a premium is a sure sign of a market that is over-bought, since investors are literally willing to pay over the odds to get into the market.

Other 'LIC's trading at a premium to their asset backing include Mirrabooka, Djerriwarrh and Australian Leaders.

1:32pm: ForexCT head of research Steven Dooley said traders have, so far, been fairly calm in the face of the US government shutdown.

''Really, it's been a waiting game,'' he said.

''Sometimes you see calamity from Washington cause markets to sell out risk instruments like equities and the Aussie dollar, but it hasn't really come to pass this week.

''It looks like markets are looking through the near term in the hope that a resolution will happen before the debt ceiling deadline.

''It's been a funny old week when there's been so much hoo-ha coming out of Washington, but really we've been trading in a tight range.''

1:25pm: If there's one certainty amid all the uncertainty about the US government shutdown and impending debt ceiling fight, it's that there is going to be a period of volatility in the markets.

So what should Australian investors do?

Credit Suisse equity analyst Damien Boey says investors should be looking at buying bonds or bond proxies. While it still seems unlikely that the US government would default on its debt, the political tussle would still lead to a growth shock for the world's biggest economy, he says.

"You will see a growth shock because there will be fiscal austerity resulting from this any way we cut this, and so slower growth is usually consistent with lower bond yields." Bond yields move inversely to prices.

Bond proxies such as consumer staple companies, utilities, telcos, some REITs and other stocks that are not too cyclical in terms of their earnings stream, he says.

Looking at investments from a currency point of view, Boey advises focusing on gold and larger-cap resources stocks.

"Larger-cap resources stocks are trading at a considerable discount to earnings as it stands, so even if commodity prices fall, they can absorb that. More than that, they have room to be re-rated from a valuation perspective."

1:14pm: Fish farmer Clean Seas Tuna plans to raise up to $6 million via a share offer, to fund the increased production of yellowtail kingfish.

Clean Seas says it will offer shares at a 20 per cent discount to the volume weighted average price for the five trading days prior to and including the offer's closing date.The new shares will have a maximum price of 3.2 cents per share.

Shares in Clean Seas were 2.8 cents, or 40 per cent, lower at 4.2 cents.

1:07pm: An interesting note in Twitter's IPO filing to the United States Securities Exchange Commission deep down on page 66, it looks like we'll be seeing more a few more jobs here in Australia.

In order to increase our international advertising revenue, we plan to invest in our international operations.

In the near term, we plan to increase the size of our sales and marketing support teams in Australia, Brazil, Ireland and the Netherlands, and we plan to extend our self-serve advertising platform to countries outside of the United States.

Read the SEC filing here

1:00pm: Here's a quick glance around the region:

Nikkei: -0.4% Hang Seng: -0.5% Shanghai: +0.7% Taiwan: +0.1% South Korea: -0.3% Singapore: -0.2% New Zealand: -0.2%

12:52pm: Wondering what's coming up next week? Check out the business calendar from October 7-11.

And this seems an opportune time to remind you all we will not be running a Markets Live blog on Monday. Even lowly blog eds get a long weekend.

12:43pm:Casinos operator Echo Entertainment is ready to start upgrading its Gold Coast casino as soon as the Queensland government decides on the future of gambling facilities in Brisbane.

Echo operates the Treasury casino in Brisbane, the Jupiters casinos on the Gold Coast and in Townsville, and The Star in Sydney. Echo's casino in Brisbane's heritage Treasury building has reached its capacity, and Echo wants to relocate and enhance its gaming infrastructure in a new large tourism precinct in the city being planned by the Queensland government.

Echo also wants to deliver a world-class development on the Gold Coast.

''Our new plans for developing Jupiters Hotel and Casino Gold Coast are well advanced, such that we would be in a position to commence our proposed development on the Gold Coast immediately upon receiving certainty about our development proposals for Brisbane,'' Echo said in its annual report released on Friday.

''We are committed to investing in the expansion of our Gold Coast property and ensuring additional tourism infrastructure is available at Jupiters Hotel & Casino Gold Coast in time for the 2018 Commonwealth Games.''

Shares in Echo were down 1 cent, or 0.4 per cent, to $2.75.

12:32pm:Another Sydney housing boom? Not so fast, says APM's Andrew Wilson.

So here we go again. The housing market bubble bandwagon is up and running  – but this time it's a crazy boom not a scary bust that is being predicted by some for the Sydney housing market next year.

The reality more likely is that the Sydney housing market is about as close to a boom next year as it was to the bust that was widely predicted for last year.

Read more

12:23pm:The chances of another interest rate cut this year are getting more and more remote after two of Australia's biggest banks altered their forecasts.

Westpac now forecasts the Reserve Bank of Australia will reduce the cash rate by a quarter of a percentage point in February and again May in 2014. It had previously predicted cuts in November and February.

Earlier in the week, National Australia Bank pushed out their forecast of a November rate cut to February.

Westpac chief economist Bill Evans said improving consumer and business confidence means that a third rate cut this year would not be needed.

"The recent boosts to business and consumer confidence in anticipation of the expected election result raise the possibility of much more buoyant domestic demand in 2014 than our own forecast," he said.

Read more

On hold: More interest rate relief for homeowners could be a while away.

On hold: More interest rate relief for homeowners could be a while away. Photo: Paul Rovere

12:14pm: Forget the dreaded housing bubble or what the current interest rates are, the answer to why you don't have enough savings for a house deposit could be in your cupboard.

A UK survey has revealed women will spend more than $57,800 on shoes in their lifetime – almost $3400 more than the 10 per cent deposit needed for an average $544,000 mortgage in Australia.

Read more

11:57am: The Leighton files have a new addition - an exclusive about embattled former Leighton CEO Wal King and what he did with the company credit card.

Wal King repaid $40,000 worth of unauthorised expenses – including trips to Madrid, a $780 meal at Sydney's Rockpool restaurant and stays at luxury hotels – that he billed to a company credit card in the weeks after he had left the construction giant.

A Fairfax Media investigation can also reveal a small number of senior Leighton staff were so concerned by a $6 million consultancy awarded to Mr King upon his 2011 departure that external legal advice was sought to determine if it might have breached Australian corporate laws that apply to retirement benefits.

Read more 

11:48am: Bloomberg thinks Oz Minerals is ripe for the picking.

OZ Minerals Ltd has fallen so far that it offers potential suitors decades of Australian copper production at the world's cheapest valuation.

After its shares plunged 76 percent in less than three years, and a slump in copper prices prompted a writedown on its only producing mine, the Melbourne-based company is now valued at $1.2 billion, one third below an appraisal of its two mines by Macquarie Group. Excluding cash, no peer trades lower relative to earnings and only one is cheaper relative to reserves, according to data compiled by Bloomberg.

The company's Carrapateena project is slated to produce copper for more than 20 years once it reaches production, while its current working mine, Prominent Hill, could yield the metal until 2019, Macquarie said. Glencore Xstrata, Anglo American, and a venture formed by the former head of Xstrata, Mick Davis, are among possible buyers, said Morningstar.

"As a package, OZ Minerals, in terms of their projects and their prospects, is very attractive," Peter Esho, Sydney-based chief market analyst at Invast Securities Co., said by phone. "There's been a destruction in shareholder value and that's what makes it a prime takeover target."

OZ Minerals Chief Executive Officer Terry Burgess said in an e-mailed response to questions that the company "would always consider any offer that provided value to our shareholders." Any deal would need to recognise efforts to lower costs and the potential of development projects, he said.

11:41am:The Australian government has sold $800 million of July 21, 2017 Treasury bonds.

The Australian Office of Financial Management (AOFM), which conducts bond auctions on the behalf of the government, said the bonds were sold for a weighted average yield of 3.0694 per cent.

The sale attracted bids totalling $3.315 billion, giving a coverage ratio of 4.14.

11:28am: The Australian housing market is gaining momentum, according to the latest clearance rates and measures of property prices.

But Westpac senior economist Matthew Hassan says that despite the headline numbers, there remain questions over the scope and degree of a pick-up in the housing market, and whether and how well it can be sustained.

Here are some interesting issues he raises:

Auction activity only captures a portion of the market and is heavily skewed towards Sydney and Melbourne All dwelling price measures exhibit significant volatility and seasonality.  The bottom line on prices is that a pick up looks likely but a few more monthly readings and corroboration from other measures is needed to confirm the pace of growth. There are headwinds that are yet to fully impact with some markets facing a significant increase in the supply of new dwellings (Victoria, Western Australia) and the mining downturn yet to play through fully to housing (Western Australia, Queensland). While activity has strengthened over the last three months, current conditions are still a world away from the booms that have seen overheating in the past. In 2003 for example, the value of housing finance approvals rose 37 per cent per annum for three years and prices increased 63 per cent.

11:13am: Deutsche Bank research analyst Craig WongPan has taken a look at Leighton Holdings and the key implications for the building firm following the Fairfax Media investigation on alleged bribery claims.

He recommends a hold on Leighton and notes that its Australian operations are unlikely to be affected given that the allegations were linked to overseas contracts.

"In our view the key implications are reputational damage and impairment of the Iraq receivable. We do not believe LEI's Aus operations will be materially affected as they are managed separately  from where the kickbacks occurred," WongPan writes in a research note.

"With the stock trading broadly in line with our TP we retain a Hold. ... We assume reputational damage reduces our offshore revenues by 20 per cent."

11:01am: Supermarket giant Woolworths has announced it will phase out the sale of eggs from caged hens by 2018 in a move that has frustrated the egg industry.

Woolworths has also committed to no longer using caged eggs as an ingredient in their home brand products and to label the chicken stocking density on Woolworths brand free range eggs.

But Victorian Farmers' Federation egg group president Brian Ahmed says the move will be costly for farmers and is upsetting for the egg industry.

''We have invested in new cage systems that meet industry requirements and now, five years later, they want to ban cages with no compensation for farmers,'' Mr Ahmed said.

Mr Ahmed said farmers would be forced to change their systems to continue to be a part of the egg industry.

''These cage farmers have not had enough time to get a return on their investment on upgrading their cage systems. It will be very costly for them,'' he said.

Mr Ahmed said it was important to give consumers choice and free range eggs may be unaffordable for some.

Woolworths shares have opened 0.6 per cent lower at $34.82.

10:43am:Australia's bonds were the worst performers for international investors in the past six months and economists forecast further losses as economic recoveries at home and abroad accelerate.

Government securities due in more than a year dropped 10 per cent from March 31 through September 30 in US dollar terms, the biggest loss of 26 bond markets, based on data compiled by the European Federation of Financial Analysts Societies and Bloomberg. 

Positive bond returns over the next six months will be overwhelmed by currency declines for investors overseas holding almost 70 percent of Australia's debt, Bloomberg surveys of economists show.

Manufacturing is improving in Australia and its chief trading partners, China, Japan and the US. The Federal Reserve is preparing to reduce the amount of money it pumps into the economy, raising speculation the move will buoy the US dollar, even though a government shutdown may delay the decision.

"The taper is inevitable at some point in the next quarter or so," said NAB's head of market research Peter Jolly. "That will be a spur to the US dollar. Australia as a bond market for foreigners will be on the back burner."

Foreigners held 69 per cent of Australia's outstanding debt in the second quarter, down from a record 76 per cent a year earlier, government data show.

10:29am:Samsung Electronics estimated its July-September earnings rose 25 per cent to a record $10 billion as a strong recovery in memory chip prices helped counter a slowdown in the South Korean company's smartphone business.

The maker of the Galaxy S4 said its third-quarter operating profit likely increased to 10.1 trillion won ($10 billion). The guidance, released ahead of full quarterly results due out by October 25, was better than the average forecast of 9.96 trillion won in a poll of 34 analysts by Thomson Reuters I/B/E/S.

The South Korean firm estimated its third-quarter sales rose to 59 trillion won, versus a market forecast of 60 trillion won.

Samsung, which has reported record earnings every quarter since 2012 except the first three months of 2013, is expected to post another round of record earnings in the current quarter as chip prices extend their gains.

10:17am: Shares in construction giant Leighton Holdings have fallen in early trade, shedding 32 cents or slipping 1.82 per cent to $17.22, following a second Fairfax Media report on bribery claims in relation to international projects.

Yesterday, Leighton Holdings stocks closed 10.4 per cent lower to $17.54, the biggest daily slide since April 2011. The slump wiped $688 million off Leighton's market capitalisation.

But shares in Germany's largest construction company, Hochtief, which owns 56 per cent of Leighton, recovered overnight after falling 7.9 per cent in Frankfurt trading the day before.

Hochtief shares closed 1.92 per cent higher to 61.35 euro.

10:12am: The market has opened sharply lower, with the benchmark S&P/ASX200 falling 37 points, or 0.7 per cent, to 5197.9. The broader All Ords slipped 35.8 points, or 0.7 per cent, to 5196.2.

9:59am: Wall Street is starting to get jittery about the partial US shutdown, with stocks falling overnight.

The broad-based S&P 500 fell 0.9 per cent, the Dow Jones dropped 0.9 per cent and the Nasdaq was down 1 per cent.

Jack Ablin, chief investment officer of BMO Private Bank, said swings of 400 and 500 points occurred during the last big fight on the debt ceiling in 2011.

"As we close in on the deadline, we could see heightened levels of volatility," he said.

Read more

9:50am: Twitter has announced the details of its IPO, saying it hopes to raise $US1 billion.

The company will trade under the symbol TWTR, the filing said, without indicating on which exchange the stock will be bought and sold.

Twitter's moneymaking potential has minted the company with an estimated market value of $US10 billion, based on the appraisals of venture capitalists and other early investors.

The IPO could value it higher or lower. PrivCo analyst Sam Hamadeh says he expects Twitter to aim for a market value of about $US15 billion when it prices its IPO.

Read more

9:40am: As the partial shutdown in the US continues and the debt ceiling looms, the US Treasury warned Congress it is placing the global economy at risk of another GFC.

"A default would be unprecedented and has the potential to be catastrophic," the Treasury said.

"The negative spillovers could reverberate around the world."

"Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

IMF chief Christine Lagarde also weighed in, saying the US needs to sort the situation out as soon as possible.

"It is mission-critical that this be resolved as soon as possible," Ms Lagarde said in a speech.

"Failure to raise the debt ceiling ... could seriously damage not only the US economy but the entire global economy."

Read more

9:27am: The Australian market looks set to open lower after Wall Street suffered hefty losses as the US partial government shutdown continued and worries climbed that the nation may default.

What you need2know:

SPI futures down 24 points to 5,204.
AUD fetching 94.01 US cents, 91.45 yen, 69.01 euro cents, 58.17 pence On Wall St, Nasdaq -1%, Dow Jones -0.9%, S&P500 -0.9% In Europe, Eurostoxx -0.6%, FTSE100 +0.2%, CAC -0.7%, DAX -0.4%
Spot gold flat at $US1316.05 an ounce Brent oil down 0.5% to $US108.65 per barrel Iron ore flat at $US131.40 per tonne

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Good morning. Welcome to the Markets Live blog for Friday.

Contributors: Max Mason, Luke Higgs

This blog is not intended as investment advice

BusinessDay with agencies
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