That's all for today - thanks everyone for reading this blog and posting your comments.
We'll be back tomorrow at 9am.
Here's the evening wrap of today's session.
The slide in commodity prices that’s making life so difficult for Joe Hockey continued in November.
The budget bottom line has been hit by reduced revenue collections, and a big part of the reason for that is lower commodity prices affecting mining profits. The downturn continued in November, with the eleventh monthly fall in a row.
After the latest drop, 1.8 per cent in foreign currency terms, the Reserve Bank’s commodity price index is 19 per cent down from a year earlier and 40 per cent below the peak in July 2011.
The biggest contributors to the monthly fall were iron ore and oil, while prices for rural commodities and base metals rose during the month, the RBA said. And the RBA warned that spot market prices for iron ore, coking coal and thermal coal had been weaker than the prices used in the index.
Using these spot prices, the commodity price index would have been down by 2.7 per cent in the month rather than 1.8 per cent down. That signals further falls in the index when the spot market prices are reflected in prices received for exports.
It's been a very mixed day for the region's bourses, with the local market a clear underperformer:
- Japan (Nikkei): +0.7%
- Hong Kong: -2.1%
- Shanghai: +0.1%
- Taiwan: -0.8%
- Korea: -0.8%
- ASX200: -2%
- Singapore: -0.5%
- New Zealand: +0.1%
‘‘Concerns about disinflation and deflation are being fuelled by what we’re seeing in energy and commodity markets at this point in time,’’ Richard Gibbs, global head of economics at Macquarie, said in a Bloomberg TV interview. ‘‘Clearly the decision by the Saudis to not even countenance a cut in production has strong geopolitical undertones.’’
Some more scope to today's market slide:
ASX 200: 2nd-largest % fall of 2014. Largest 2-day % fall since Aug 3, 2011. Worst start to December in history pic.twitter.com/i2cFHRA1kN
— David Scutt (@David_Scutt) December 1, 2014
A director's interest notice filed to the ASX shows Medibank Private chief executive George Savvides, the man charged with arresting market share losses and engineering a turnaround, has topped up his personal stake in the company.
Savvides acquired indirectly a further 15,550 shares, taking his stake to 35,700. He paid almost $35,000 on-market, which works out to be roughly $2.205 apiece.
Remember, Medibank was offered to retail investors at $2 a share. Certainly this is not the full extent of Savvides' skin in the game - he has a well publicised incentive package that means he will also be granted performance rights worth $1.2 million in the company, as part of a $3 million pool of performance rights granted to the executive team.
The stock closed at $2.13 today, down 1.8 per cent for the session.
Medibank chief executive George Savvides has topped up his stake in Medibank. Photo: Mal Fairclough
Few sectors were spared in today's massive selloff, but oil and gas stocks were hit hardest. Here's an overview of how the blue chips and a few other stocks performed:
- BHP: -5.4% to $29.26
- Rio: -4.1% to $56.66
- ANZ: -0.8% to $31.66
- CBA: -1.1% to $79.80
- NAB: -1.4% to $32.15
- Westpac: -0.95% to $32.24
- Fortescue: -10.9% to $2.62
- Qantas: +4.7% to $2.01
- Telstra: -1.2% to $5.62
- Santos: -10% to $9.11
- Woodside: -4.3% to $34.20
- Oil Search: -8.5% to $7.29
The sharemarket has closed sharply lower, losing about $30 billion in value after energy stocks nosedived again on the back of the continuing slide in the oil price.
The benchmark S&P/ASX200 index fell 105.3 points, or 2 per cent, to 5207.7, posting its biggest slump since mid-October, while the broader All Ords fell 107.4 points, or 2 per cent, to 5190.7.
Among the sectors, energy plunged 6.4 per cent, materials crashed 4.9 per cent and financials lost 1 per cent.
Over the past two sessions, the energy sector has lost a whopping 13.6 per cent, leading to the overall market losing about $54 billion in value.
Well, amid all the gloom there is one clear winner: Qantas. Its shares are up a solid 12 per cent over the past two sessions, thanks to cheaper jet fuel prices.
Shares rose above $2.00 for the first time in three years today, closing at $2.01.
Finally something to smile about for Alan Joyce.
Two Sydney money managers have demanded about $23 million in fees for two years work investing Papua New Guinea taxpayer funds, some of which dropped in value by about $10 million.
And a company they directed also paid hundreds of thousands of dollars in a referral or introduction fee to a former PNG prime minister's son in connection with getting the deal to invest the funds.
The revelations have emerged from a row over $43 million of PNG government money that was squirreled away in a small country bank branch in Lismore in northern NSW.
The money is now the subject of a court case in NSW involving the money managers and Papua New Guinea's third-party motor vehicle insurer, which owns the money.
It has already sparked controversy in PNG with politicians raising concerns about how the $43 million fund, which belonged to the government-owned entity known as the Motor Vehicle Insurances Limited (MVIL), was sent out of the country in 2009.
The money was entrusted to private investment management company Woodlawn Capital, which is directed by Timothy James McNamara, 43, and Timothy Patrick Breen, 40.
Two Sydney advisers are seeking $23 million in fees for two years' work investing Papua New Guinea taxpayer funds.
Energy sector investors should brace for a tough time because there is a big question mark over how long it will take for supply to rebalance and where the crude oil price will eventually settle, Alphinity Asset Management portfolio manager Stephane Andre says.
Worldwide crude oil producers are currently supplying an excess of around 1 million barrels per day, on top of the roughly 91 million to 92 million barrels that are consumed.
“The surplus is not huge by historical standards, but the market reaction has been very strong and has a lot of momentum,” Andre says.
Global oil supply has increased at a time when demand growth has been waning due to weaker global economic growth.
“To some extent investors will need to wait and see what OPEC does next and the oil cartel is not due to meet again for another six months, unless it calls and extraordinary meeting.”
“But while OPEC is producing around 30.6 million barrels a day, 600,000 barrels above its 30 million barrel per day quote, the real driver of oversupply is the increased supply from the US,” Andre says.
“The shale boom means that oil supply out of the US alone has increased more strongly than global demand growth so US supply will have to be cut for the commodity market to rebalance, but that could take six to 12 months”.
Over the coming year, those energy producers with less debt and more cash are in a better position to navigate through an extended period of lower oil prices.
“We have been reducing our energy positions over the past month but are still exposed to stocks with strong balance sheets like Woodside Petroleum and Oil Search,” Andre says. “Woodside could even become an acquirer of smaller producers with weaker balance sheets in the current market.”
If Woodside is unable to find any acquisition opportunities that are good enough, it could conduct a buy back of its own shares, Andre says.
Expect more swings in the oil market until it rebalances, a funds manager says. Photo: Getty Images
Electricity is the great big hidden tax, writes BusinessDay columnist Michael West:
If Denis Napthine had an extra $20 billion to spend he might have fared a little better over the weekend in the Victorian election. That's the size of the war-chest mooted by the NSW Liberal government as they head to the polls early next year, pledging to privatise the state's electricity networks.
Former premier Jeff Kennett did just that with Victoria's poles and wires two decades ago, fetching a handsome price and restoring the state's finances. Since then however, things have changed radically. Electricity prices have doubled in five years yet demand for electricity is actually in decline.
The rationale for selling state networks is twofold. Firstly, it delivers a wad of cash to fund public works. Secondly, privatisation is supposed to bring down prices for consumers by creating efficiencies.
It is clear however that privatisation has not delivered efficiency and decent prices for consumers. The Victorian experience shows customers have been stung just as hard as those in other states while a good chunk of the profits have gone to multinational parent companies in Hong Kong and Singapore.
Victoria moreover has a comparative advantage in pricing because it has tiny transmission distances – compared with other states – and a great big cheap source of generation in the La Trobe Valley.
So the efficiencies argument is spurious. How about the wad of cash rationale?
The NSW Auditor General released his report to Parliament a few days ago. Buried on page 12 of volume five is a very useful bit of information.
It is well known that the distribution and transmission companies — whose spending (a good deal of it "gold-plating") is responsible for more than half of the rise in electricity bills — pay enormous dividends to the state governments, or in Victoria's case corporations. In NSW in 2014, these dividends totalled $872 million.
Privatising electricity networks could fetch a handsome price.
Some readers have been asking why the local sharemarket has been hit so hard by the plunge in the oil price, underperforming many regional and global markets.
Apparently that’s not unusual, Citi says after having looked at past oil price spikes and how they affect global stockmarkets: the ASX tends to do worse than its peers when the oil price drops.
‘‘As one would expect, (oil producers) Russia, Norway, Canada and Brazil are amongst the markets with the highest correlations: they underperform when oil prices fall, and outperform when oil prices rise,’’ Citi notes, adding that it’s only looked at returns in $US, meaning a big portion of the out- or underperfomance plays out through the currency markets.
‘‘On the flipside, US and Japan seem to outperform the global benchmark when oil prices fall,’’ Citi continues. ‘‘We think this is partly because of the defensive nature of the US and Japanese equities. Japanese stocks are defensive in $US terms, as yen usually strengthens in a risk-off environment.
‘‘Japan also benefits from lower oil prices as it a big energy importer, especially after the earthquake and the shutdown of nuclear power plants.’'
Citi also notes that it’s expecting global economic growth to pick up next year, in line with rising global equity markets.
‘‘This suggests that the recent fall in oil prices is more supply, than demand related,’’ Citi says. ‘‘A demand related drop in the oil price would be more troublesome for global equities.’’
Here are some numbers on the scope of the carnage among oil and gas stocks: Australia's energy sector has suffered its biggest two-day loss since before the global financial crisis, wiping $12.3 billion from the sector’s market capitalisation, following OPEC’s refusal to cut oil output.
The S&P/ASX200 energy sub-index has slumped 13.4 per cent over the last two sessions, plummeting 1707.93 points to 11073.36 points. The market cap for the sector has plunged from $90.74 billion to $78.4 billion.
Some of Australia’s best-known shares have been pummelled. Santos shares have dropped 20.76 per cent over the last two trading days, pulling its market cap down $2.4 billion. Origin Energy shares have lost 10.8 per cent over the same period, wiping $1.6 billion from its market cap.
Woodside Petroleum shares are down 11.5 per cent since Friday with its market cap losing $3.6 billion. In the same period, Oil Search has fallen 13.4 per cent, Liquified Natural Gas has plunged 32.4 per cent and Karoon has dropped 15.8 per cent.
Since the decision by the Organisation of the Petroleum Exporting Countries last Thursday to keep oil output unchanged, Brent crude oil has slipped nearly 10 per cent to $US68.44 per barrel, putting this calendar year's drop in the benchmark oil price at 35 per cent.
Shares in oil and gas giant Santos have plunged more than 20 per cent in just two sessions. Photo: Robert Garvey
As you can see from a recent post, Santos has sold off harder than Oil Search and Woodside. Analysts at UBS explain why:
• Santos is the most sensitive to the oil price due to a combination of its high debt level and the lowest margin production versus its peers. The decision to refinance some of its debt with a 50% equity credit Euro hybrid in our view highlights that Santos (STO) is concerned about its credit rating in a low oil price environment.
• While Oil Search (OSH) also has relatively high debt: a) it is project debt (for PNG LNG) and not corporate debt, so STO is likely to want to protect its corporate credit rating whereas OSH has no credit rating at the that level; and b) OSH is over the capex “hump”, whereas STO has one more year to go in LNG investment ($2.7bn in 2015).
The UBS team also weigh the implications for the large cap stocks if oil stays lower for longer:
• For Woodside (WPL), the company is considered essentially ex-growth, so it should continue to generate positive free cash flow down to $US35/bbl. It's difficult if not impossible for Browse FLNG to be approved if oil prices stay below $US90/bbl, in our view. On the positive side, the lower oil prices should result in more M&A opportunities appearing on the market; WPL could pick up an attractively priced asset under these circumstances.
• For Oil Search, LNG expansion still looks possible at $80/bbl oil, but OSH's debt level could hamper any plans for a more aggressive growth strategy.
• Santos looks likely to be hardest hit if oil prices stay low for more than 18 months, with increasing risk of asset sales (at the wrong time of the cycle) or a dilutive equity raise if its investment grade credit rating comes under pressure. On the flipside, STO should rebound fastest if/when oil prices recover; remember the forward curve shows Brent back at $US87/bbl in 2018.
Finally, where to from here?
• We [the UBS analysts] expect further oil price volatility; it's hard to pick the bottom, but we could be in for a period of sustained low prices. We prefer OSH ahead of STO and WPL.
• Among the small caps we think Drillsearch looks undervalued, and Karoon Gas for those with a risk appetite.
The stockmarket is being pounded by the selloff in oil and gas stocks, with the ASX200 down 1.8 per cent, which translates into a drop of around $28 billion in the market's value, or more than $50 billion over the past two sessions.
All sectors are in the red today but nowhere is the plunge more severe than in the energy sector, which has dropped a massive 6.5 per cent.
Oil isn't the only commodity under pressure: iron ore futures in China have fallen, ending a three-day rally after surveys showing the country's manufacturing activity slowed to multi-month lows, further evidence of weakness in the world's second-biggest economy.
The surveys gave investors another excuse to sell risky assets and the commodities sell-off continued, with oil extending a months-long rout and copper sliding to its weakest since 2010.
The HSBC/Markit China Purchasing Managers' Index hit a six-month low of 50 in November and a separate government reading put the PMI at just above 50, the lowest in eight months.
Iron ore for May delivery on the Dalian Commodity Exchange is down 1.2 per cent at 479 yuan after falling to 470 yuan earlier.
Demand for spot iron ore cargoes in China was lean as winter slows construction activity, trimming steel consumption, traders said.
"The temperature dropped very fast this weekend in Shanghai and it's even colder in the northern part of China. We're getting feedback from mills that sales remain weak," an iron ore trader in Shanghai told Reuters.
Benchmark 62 per cent grade iron ore for delivery to China's Qingdao port was up 1.9 per cent to $US71.32 a tonne on Friday.
Meanwhile, copper has tumbled to its lowest in four-and-a-half years, tracking the drop in oil prices as global crude supply looked set to overwhelm demand.
"The bearish pall continues, there's nothing you can point to that good (economically) at the minute," said analyst Daniel Morgan at UBS in Sydney.
Morgan said that copper prices were likely to find buying support at current levels. "Below $US3 a pound ($US6600 a tonne) we tend to see more opportunistic buying in China," he said.
Three-month copper on the London Metal Exchange fell to $US6230.75 a tonne, its lowest since June 2010, before trading at $US6265 a tonne, down by 1.4 per cent and adding to losses of 3.1 per cent in the prior session.
Looks like the recent relief for the iron ore price could be short-lived. Photo: Reuters
Energy stocks have been pummeled today, continuing Friday's sell-off.
Energy stocks are crashing and burning today - the worst hit, LNG Ltd, has lost a quarter off its market value today alone. Most are backing up some heavy losses from Friday.
The big names aren't immune, either, as this table shows: Woodside has lost around 10 per cent over a couple of days, and Santos more like 20 per cent.
Oil prices are continuing to slide, with US crude falling more than $US2 to a five-year low today, while Brent futures have touched a fresh four-year low, extending a steep sell-off after OPEC decided not to cut production last week, keeping markets well supplied.
Brent hit a low of $US67.90 a barrel, the lowest since May 2010, and is currently down 2.4 per cent at $US68.48 a barrel. US crude was at $US64.70 a barrel, down $US1.45 after earlier slipping to an intraday low of $US64.10, the lowest since July 2009.
Both US crude and Brent have fallen for five straight months, oil's longest losing streak since the 2008 financial crisis.
US crude tumbled to near $US64, dragging Brent down below $US70, after Saudi Arabia's oil minister told fellow OPEC members last week that they must combat the US shale oil boom.
"They (OPEC) can get by at $US60 a barrel, but that price would knock out a fair whack of the competition - much US shale oil for example - as well as put investment in future capacity growth firmly on the back-burner," ANZ analysts said in a note.
"They're playing the long game, banking that others can't."
Oil-producing countries from Iraq to Nigeria are revising their 2015 budgets to reflect lower prices.
Iran refrained from protesting against OPEC's decision to retain its production ceiling to maintain group solidarity, even though the move will not benefit all members, Iranian oil minister said in local media reports.
Slower than expected growth in China's manufacturing sector may add further downward pressure on oil. China's official Purchasing Managers' Index (PMI) slipped to 50.3 in November, a government study showed, lower than analysts' forecast at 50.6.
"It's not too bad a miss, but probably won't help (oil) too much," Ric Spooner, chief analyst at CMC Markets in Sydney said. "It's best not to try to pick bottoms at this stage."
The oil price slide (white line) is weighing heavily on the stocks of local energy producers such as Santos (green) and Woodside (purple).
Watch out SMSFs: you're a soft target for regulators, warns BusinessDay columnist Michael Pascoe:
It seems the regulators are increasingly torn about tapping the real estate investor brakes – they like talking about a touch of the macroprudentials, but keep backing away from actually doing anything.
The signs are that if they are going to act, they will want to keep the target small and the fallout limited. And that makes a case for a return to speculating that self-managed superannuation funds could have their borrowing powers restricted.
Indeed, a reason for the regulators holding fire could be hope that the Murray Financial System inquiry will load and aim the gun for them.
The SMSFs have plenty of enemies when it comes to their ability to gear into real estate.
The APRA-regulated super funds, retail and industry, hate it and want it stopped outright. The cynical might suggest that's because they are losing members to the SMSF side as their main argument seems to be that it tilts the playing field away from them.
The Murray interim report specifically asked for submissions on restoring the general prohibition on direct leverage of superannuation funds. APRA's reply left no doubt about where it stands on the issue:
"APRA has long had reservations about extending the ability of superannuation funds to borrow and was reluctant to facilitate relaxation of the borrowing rules, which took place in 2007, to accommodate instalment warrants.
The SMSFs have plenty of enemies when it comes to their ability to gear into real estate. Photo: Viki Lascaris
The battle for Australian food and liquor spending remains dominated by Coles and Woolworths but the threat of low-cost players such as Aldi and Costco nibbling away at market share, as they have done in Britain, remains a real threat.
This throws up further challenges for third player Metcash, owner of IGA, as it embarks on a five-year transformation plan. The wholesaler has made improving its fresh food offer to independent grocery retailers a priority in its strategy.
While it is early days for chief executive Ian Morrice’s turnaround plan, the wholesaler’s disappointing earnings guidance highlights the challenges ahead.
Metcash needs to invest heavily to cut grocery prices but it is doing so in an environment of deflation, rising utility costs and discounting in key areas, such as fuel, by its rivals. Australian consumers are also pickier than ever about price. That makes it hard luring away shoppers from the major supermarket chains.
Metcash is a company in transition and Morrice has made no secret of the fact there is still more pain to come after a decade of growth. Former chief Andrew Reitzer is credited for Metcash’s huge growth since 1998 when sales quadrupled. But Morrice is now the one trying to fix the structural and competitive issues which have finally caught up with the company.
Australian consumers would be well-served by ensuring Metcash’s survival and transformation into a third pillar in the supermarket space. Getting there is another issue and despite the differences between the Australian and UK supermarket industry, there is a real threat that price-conscious shoppers will increasingly go to discounters such as German retailer Aldi, which has built a network of more than 300 stores in less than 14 years.
Roy Morgan Research says Aldi, which is now preparing to expand in Western Australia and South Australia, has 10 per cent market share, overtaking Metcash, which has a 9.5 per cent share.
Paul Mallam, the nominee of billionaire Bruce Gordon on the board of Ten Network Holdings has resigned suddenly from the board of the broadcaster, dealing a further twist to the takeover auction for the company – the initial deadline for which ends on Tuesday evening.
In a statement to the ASX on Monday, Mr Mallam thanked the board and management and said that it had been "a great privilege working with them during the past four years, particularly during a challenging period".
"I would like to pay tribute to my fellow directors, who have addressed the issues facing the company in a disciplined and cohesive manner," Mr Mallam said.
"I also have nothing but praise for the focus and commitment of management and staff of Ten. Pleasingly, their efforts have repositioned the network and created a more competitive platform for 2015," Mr Mallam said.
His praise for fellow directors hints at a possible disagreement between Mr Mallam and Mr Gordon, who is Ten's largest shareholder. Mr Gordon could not be reached for comment at the time of writing.
The Australian Financial Review reported on Monday that Discovery Communications and Foxtel are preparing to lodge a joint takeover offer of between 25¢ and 30¢ a share for Ten Network Holdings amid signs that Mr Gordon is supportive of Foxtel taking a stake in the struggling broadcaster.
Resigned: Ten director Paul Mallam. Photo: Dominic Postiglione
Qantas shares have broken through the $2-mark for the first time in more than three years as a major slump in oil prices bolsters investor enthusiasm for airline stocks worldwide.
Three months after Qantas declared it was over the worst in the wake of a $2.8 billion net loss, shares in Australia’s largest airline surged as much as 11 per cent – their biggest one-day gain since August last year – in early morning trading, hitting their highest level since June 2011.
They've since given up some of the gains but are still up a healthy 6.3 per cent at $2.04.
Analysts at Citi have also joined other brokers in upgrading their earnings expectations for Qantas. The broker has raised its recommendation on Qantas from ‘‘neutral’’ to ‘‘buy’’.
Virgin Australia, which is an illiquid stock, also rose 3 per cent to 43 cents in early trading. Air New Zealand, Singapore Airlines, Etihad and Richard Branson’s Virgin Group control more than 80 per cent of its register.
The surge in Qantas share price mirrors that of airlines around the world after oil prices dropped below $US65 a barrel for the first time since May 2010.
The spot price for jet fuel prices in Singapore have slumped 28 per cent to $US86.76 a barrel since early August. Oil prices have been sent into a tailspin since the Organisation of the Petroleum Exporting Countries decided on Thursday not to reduce their production quotas.
While the falling oil price has bolstered investors’ enthusiasm for airlines, Qantas chief executive Alan Joyce and his counterpart at Virgin, John Borghetti, have sought to temper expectations in recent weeks of the gains to their airlines’ earnings from the slump in fuel prices.
The airlines’ hedging of fuel prices means they are often locked in at higher levels for the short term.
Taking off ... Qantas shares top $2 for the first time in more than three years. Photo: Reuters
Growth in China's factory sector slowed more than expected in November, a government study has showed, underlining the challenges facing the sector as manufacturers fight rising costs and softening demand in a cooling economy.
The official Purchasing Managers' Index (PMI) slipped to 50.3 in November from October's 50.8, but remained above the 50-point level that separates growth from contraction on a monthly basis.
Analysts polled by Reuters had forecast a reading of 50.6, while the consensus forecast according to Bloomberg was 50.5.
The local sharemarket has bounced on the slightly disappointing numbers - perhaps on hopes of further stimulus from Chinese authorities.
The Aussie dollar continues to wallow, now at US84.34 cents, after selling down to a new multi-year low of US84.26 cents following the subdued inflation numbers from TD Securities at 10am AEST.
China's economy grew 7.3 per cent in the third quarter of this year, its slowest pace since the global financial crisis, and risks missing its official annual target for the first time in 15 years, adding to concerns the world's second-largest economy is becoming a drag on global growth.
After months of more modest stimulus measures, China cut interest rates unexpectedly on Nov. 21, stepping up efforts to support the economy as it heads towards its slowest expansion in nearly a quarter of a century, saddled under a mountain of debt.
The SMH's Ross Gittins explains why Joe Hockey's budget has flopped so badly:
Who could have predicted what a hash a Coalition government would make of its first budget? If Joe Hockey wants to lift his game in 2015, as we must hope he will, there are lessons the government - and its bureaucratic advisers - need to learn.
The first and biggest reason the government is having to modify or abandon so many of its measures is the budget's blatant unfairness. In 40 years of budget-watching I've seen plenty of unfair budgets, but never one as bad as this.
Frankly, you need a mighty lot of unfairness before most people notice. But this one had it all. Make young people wait six months for the dole? Sure. Cut the indexation of the age pension? Sure. Charge people $7 to visit the doctor, and more if they get tests, regardless of how poor they are? Sure.
Charge people up to $42.70 per prescription? Sure. Lumber uni students with hugely increased HECS debts that grow in real terms even when they're earning less than $50,000 a year? Sure.
What distinguished this budget was that even people who weren't greatly affected by its imposts could see how unfair it was to others.
Unfairly sacked Treasury secretary Dr Martin Parkinson is right to remind us we have to accept some hit to our pocket if the government's budget is to get out of structural deficit. But any politician or econocrat who expects to get such public acquiescence to tough measures that aren't seen to be reasonably fair needs to repeat Politics 101.
The poorest do most to close the government's budget gap.
NBN Co has published its first plan for the rollout of the National Broadband Network under the Coalition government's multi-technology model which is aiming to hit a further 1.9 million homes by the middle of 2016.
The ambitious schedule points to the confidence that NBN Co chief executive Bill Morrow expects to finalise a successful renegotiation of its $11.2 billion with Telstra over the use of its copper network in the near future.
Mr Morrow has previously said that he expects the deal will be finished by Christmas and ready for regulators to approve in 2015.
The plan is to install the NBN in 1.9 million more premises over the next 19 months includes 419 cities, towns and suburbs at an average of 100,000 premises per month.
Mr Morrow conceded that some people would be disappointed that they are not included in the rollout to June 2016, but that the NBN will be available for everyone by 2020.
"Over the past year, we have carried out successful trials of a range of new technologies, revised our build processes and are renegotiating our partner agreements. As a result of this work, we are able to provide forecasts that reflect the next phase of our network build," Mr Morrow said.
"It is these forecasts that will enable our customers, the telephone and internet service providers, to be able to start planning the delivery of services over the NBN to these communities."
NBN Co's plan is to install it in 1.9 million more premises over the next 19 months includes 419 cities, towns and suburbs at an average of 100,000 premises per month. Photo: Glenn Hunt
Inflation stayed subdued in November. Source: TD Securities
A private gauge of Australian price pressures stayed subdued in November as a drop in petrol helped offset a jump in fruit and vegetables, a benign inflationary backdrop that offers scope for interest rates to remain at record lows.
The TD Securities-Melbourne Institute's monthly measure of consumer prices edged up 0.1 per cent in November, following a 0.2 percent rise in October.
The annual pace of inflation slowed to 2.2 per cent from 2.3 per cent, and was still near the floor of the Reserve Bank of Australia's (RBA) long-term target band of 2-3 per cent.
Notably, prices for tradable goods and services edged up by only 0.1 per cent in the month and 2 pe rcent for the year, suggesting declines in the Australian dollar were having only a limited impact on inflation as yet.
That should reassure RBA that it can keep rates unchanged at 2.5 per cent at its monthly policy meeting on Tuesday. Rates have not moved since August last year and are considered certain to stay on hold this month.
Monday's survey showed price rises for fruit and vegetables, newspapers, books and stationery and garments added the most to inflation in November. That was offset by falls for petrol, holiday travel and accommodation and games, toys and hobbies.
The various measures of underlying inflation also remained restrained.
The trimmed mean rose 0.1 per cent in November, following a matching increase in October. The annual pace ticked down to 2.4 per cent from 2.5 per cent.
Inflation excluding fuel, fruit and vegetables increased by 0.2 per cent in the month, and ran at just 2.0 perc ent for the year.
Prices in the non-tradables sector were muted with annual inflation holding at 2.4 per cent, well off a high of 3.4 percent earlier in the year.
Metcash shares are trading at their lowest in over 11 years after crashing 13.8 per cent this morning following its half-yearly results announcement.
The stock last traded at $2.25, implying an estimated P/E for FY15 of 9.7. Woolies is on a comparable P/E of 15 and Wesfarmers 19.
Few stocks have been hit harder by the iron ore price than Atlas Iron.
Atlas Iron shares have dropped 85 per cent this year and the market says the company is now worth only $166 million, down from as much as $3.5 billion in 2008 and $1.1 billion at the start of this year.
UBS analysts reckon Atlas Iron breaks even when iron ore is $US77 a tonne, and the company has moved quickly to cut costs. However with iron ore at $US69.25 a tonne, UBS says Atlas Iron cash flow negative on an all-in basis.
But the analysts have decided to call the bottom, underpinned by its view that the iron ore price may have found its floor.
The analysts upgraded Atlas to “neutral” from “sell” this morning.
“Although we note AGO is still not without risk given it has net debt and is not generating free cash flow at today’s iron ore price,” the broker told clients.
“Given our long-term price outlook of US$75/dmt cfr, we believe AGO needs to dig deeper and find further cuts if it is to survive what we see as the new paradigm for iron ore. A world in which supply is now adequate to meet demand over the medium term, and prices trade more in line with marginal cost, rather than on an incentive price basis.”
Atlas Iron shares are down 2.8 per cent to 17.5c.
Capital city house price growth continued to slow in November, with only Sydney, Brisbane, Perth and Hobart showing any month-on-month advance, according to the latest report from CoreLogic RP Data.
Nationally, prices slipped 0.3 per cent, although this masked growth of 1 per cent in Sydney, 0.9 per cent in Perth and small advances in Brisbane and Hobart.
For the three months to the end of November, national price growth was 0.8 per cent, while the year-on-year change was 8.5 per cent.
The slowdown, the result of a deluge of new-build dwelling stock, fatigue on the part of investors and first home buyers, and broader concerns about the economy is likely to continue into next year, according to CoreLogic RP Data's senior research analyst Cameron Kusher.
"Our view is that we'll still see growth next year, over the next 12 months, but again it's going to continue to slow," he said. "We can't continue to grow that much above income growth [at round 2 per cent ] for all that long."
He said Sydney and Melbourne would continue to lead the way, although unaffordability, tightening rental yields, and an a pick-up in interest in cheaper cities among investors and owner-occupiers would crimp growth rates considerably.
"We see Sydney growing probably somewhere between 5 and 7 per cent over the next 12 months, and Melbourne at around 2 or 3 per cent," said Kusher.
Source: RPData
The sharemarket has opened slightly lower, led down by miners, energy stocks and Metcash after a profit warning.
The benchmark S&P/ASX200 is down 2.3 points at 5310.7, while the broader All Ords has slipped 3.1 points to 5295.0
Among the sectors, energy has slumped 1.1 per cent on the back of another slide in the oil price, materials have lost 1 per cent, while financials are up 0.3 per cent.
Metcash has tumbled 8.8 per cent to $2.38, after it flagged full-year earnings that miss analyst estimates as it reports "signs of a sales led recovery" in a challenging trading environment.
BHP and energy heavyweights Woodside, Santos and Oil Search are weighing the most on the benchmark index, while Westpac and Wesfarmers are offering support.
The local sharemarket slumped nearly 4 per cent in November, driven lower by a big plunge in the energy sector.
With the ASX200 now below where its started the year (-0.7 per cent), is it time for the end-of-year rally we've been seeing over the past years?
Poll: The ASX had a miserable November, but will fortunes change in December sparking an end-of-year rally?
- Yes: buyers will come roaring back, driving the ASX200 above 5500 points.
20%
- Kind of: we'll see some volatility but by the end of the month the ASX will be a bit higher than now.
27%
- Not really: upward swings will be followed by more selling to drive the ASX below 5300 points.
22%
- No: No: the sell-off will if anything accelerate, taking the ASX200 towards and possibly below 5000 points.
31%
Total votes: 1872.
You will need Cookies enabled to use our Voting Feature.
Poll closed 5 Dec, 2014
Disclaimer:
These polls are not scientific and reflect the opinion only of visitors who have chosen to participate.
UGL will update investors “as soon as it can” on any write-downs related to the contractor’s troubled Ichthys power project in Darwin, new chairman Kate Spargo has said.
Investors remain uncertain over the outlook for UGL’s new stand-alone engineering business following the sale of property group DTZ in November and a warning the company could book write-downs on a $550 million power plant contract for the Northern Territory’s Ichthys gas project.
UGL’s share are trading at 10-year lows with many analysts reluctant to recommend the stock until the company provides more information on how large the write-downs are likely to be and whether any other projects are in trouble.
Ms Spargo, who replaced Trevor Rowe as chairman at UGL’s annual general meeting in November, said she planned to be “transparent and open” with shareholders and the company would provide more information on the Ichthys project as soon as it could.
“There is no point in updating the market with information that’s not correct or not as accurate as we can get it,” Ms Spargo told The Australian Financial Review.
Analysts have forecast UGL will make a loss in fiscal 2015 due to write-downs on the Ichthys project, with RBC Capital Markets expecting a net loss of $57 million.
UGL’s new chief executive, Ross Taylor, started last week and is reviewing UGL’s projects and processes.
UGL’s stock price dropped 15 per cent on November 6 after it revealed the Ichthys power plant, a 50-50 joint venture with United States engineering group CH2M Hill, was facing almost $200 million of cost blowouts.
Metcash’s first-half underlying net profit fell 9 per cent to $101.7 million as the grocery, liquor and hardware wholesaler cut grocery prices and spent more on marketing to drive sales growth.
Weaker sales in food, grocery and liquor were offset by higher sales from convenience, hardware and automotive supply, sending group revenue up 1 per cent to $6.6 billion in the six months ended October 31. The result fell short of market consensus forecasts of about $105.7 million.
EBIT from food and grocery, which accounts for 74 per cent of group profit, fell 18.4 per cent to $119.2 million.
Same-store wholesale grocery sales slipped 1.5 per cent, but retail scan sales rose 0.9 per cent and convenience sales gained 8.8 per cent (7.4 per cent on a same-store basis) lifting total food and grocery revenue 0.5 per cent to $4.5 billion.
In liquor, EBIT rose 6.9 per cent to $24.9 million despite a 3.6 per cent fall in sales to $1.48 billion.
Metcash is investing more than $40 million this year into reducing grocery prices by about 3 per cent as part of a five-year transformation plan aimed at securing the long-term future of the wholesaler and independent grocery retailers.
After trials earlier this year, the Price Match program was activated in 425 IGA stores by the end of October.
Metcash is also working with independent grocery store owners to improve store formats and increase the space allocated to fresh food.
“Six months into the transformation plan we remain very encouraged by initial indicators – implementation was later than planned (but) the program is now gaining momentum,” said chief executive Ian Morrice.
Analysts say the strategy is a step in the right direction but will come at cost to earnings. For every 1 per cent price investment Metcash expects a 3.3 per cent increase in sales. But Deutsche Bank has estimated that every 1 per cent reduction in price will reduce Metcash’s food and grocery earnings by about $122 million.
Metcash cut its interim dividend from 9.5¢ to 6.5¢, in line with forecasts, to help fund the increased investment.
Metcash is cutting prices as part of a five-year transformation plan, but it comes at a cost to earnings. Photo: Kitty Hill
There was more bad news for the struggling mining services companies last week when Fortescue on Friday (after market close) announced it would halve its spending on projects in the 2015 financial year - slashing its capex budget from $1.3 billion to $650 million.
Fortescue shareholders may or may not welcome the news, but watch out for the share prices of the miner's contractors, including Leighton, Downer EDI, Macmahon, and Transfield.
Fortescue’s exploration budget has been savaged. Photo: Reuters
Today is the first day retail investors who applied for Medibank shares through its website can sell their holdings.
Many might be thinking of taking quick profit given the number of naysayers criticising the price and growth prospects, but hese arguments sound familiar to those used against QR National float, analyst Brendon Lau notes on Livewire:
- Cries that QRNational was priced for perfection and complaints about its mediocre growth were commonly echoed in 2010. The only real earnings growth avenue for QRNational was cost cutting. Sounding familiar yet?
- The “kinder” comments were QRNational is an infrastructure stock with inflation-like returns. The less tactful told me that it isn’t worthy of an infrastructure play. Its rail tracks give it a “safe feel” but its “rolling stock” says different.
- But those that bought QRNational would be grinning. Not saying MPL will travel on same track, but decision to sell or hold shouldn’t be based on current criticisms.
- There needs to be a FRESH reason to dump MPL. The things to look for is whether MPL can find new growth. This might include acquisitions, new channels or new markets.
Sell or hold? Today is the first day retail investors can trader their shares. Photo: Glenn Hunt
An official of the Saudi oil company at a rig near Howta, Saudi Arabia. Photographer: John Moore/AP Photo
Saudi Arabia and its OPEC allies’ firm stand against cutting crude output to slow the plunge in oil prices has set the energy world on a painful course that will leave the weakest behind, from governments to US wildcatters.
A grand experiment has begun, one in which the cartel of producing nations -sometimes called the central bank of oil - is leaving the market to decide who is strongest and how to cut as much as 2 million barrels a day of surplus supply.
Oil patch executives including billionaire Harold Hamm have vowed to drill on, asserting they can profit well below $US70 a barrel, with output unlikely to fall for at least a year. Marginal producers in less profitable US shale areas, as well as countries from Iran to Russia and operations from Canada to Norway will see the knife sooner, according to analyses by Wells Fargo & Co., IHS Inc. and ITG Investment Research.
“We’re in a very nerve-wracking environment right now and will be for probably the next couple of years,” Jamie Webster, senior director for global crude markets at IHS, said. “This is a different game. This isn’t just about additional barrels, this is about barrels that are going to keep coming and keep coming.”
Investors punished oil producers on Friday, as Hamm’s Continental Resources fell 20 per cent, the most in six years, amid a swift plunge in crude to below $US70 for the first time since 2010. Exxon Mobil declined 4.2 per cent. Talisman Energ, based in Calgary, was down 2.7 per cent after dropping 14 percent the day before.
A production cut by the 12-member OPEC would have been the quickest way to tighten the world’s oil supplies and boost prices. In the US, output is expected either to remain flat or rise by almost 1 million barrels a day next year, according to the Paris-based International Energy Agency and ITG.
Read more at Bloomberg.
Swiss voters overwhelmingly rejected proposals on Sunday to boost gold reserves and impose strict new curbs on immigration, averting a potential nightmare for policymakers struggling with a popular backlash against the country's open borders.
The referendums are part of a recent flurry of initiatives under Switzerland's model of direct democracy that have threatened to undermine the non-EU member's reputation for stability.
They reflect a growing public view that Switzerland is under siege from foreign workers eroding its Alpine culture and from trading partners who have insisted in recent years that the Swiss dismantle their business model based on banking secrecy.
"The result of both today's gold and immigration referenda show that the Swiss public want to pursue a coherent international economic policy and do not want to create new tensions with their EU neighbours," said Reto Foellmi, Professor of International Economics at the University of St. Gallen.
The "Save our Swiss gold" initiative, proposed by the right-wing Swiss People's Party out of concern the central bank has sold too much of its gold in the past, was rejected by 77 per cent of voters, said Swiss broadcaster SRF.
The measure would have compelled the Swiss National Bank (SNB) to boost its gold reserves to 20 per cent of its assets from around 8 per cent currently, and banned it from ever selling the metal, threatening its ability to defend a 1.20 euro cap on the Swiss franc imposed at the height of the euro crisis.
The SNB welcomed the result with the refrain that it would continue to defend the cap, buying unlimited quantities of foreign currency and take further measures immediately, if necessary.
Spot gold was holding just below $US1,167 an ounce on Sunday, down 3 per cent this year.
The measure would have compelled the Swiss National Bank (SNB) to boost its gold reserves to 20 per cent of its assets from around 8 per cent currently, and banned it from ever selling the metal,
The Australian dollar hit a new 4 ½-year low after Swiss voters rejected a vote to require the Swiss National Bank hold at least 20 per cent of its assets in gold.
In early Monday trade, the local currency touched US84.49¢, its lowest point since June 2010. It has since recovered to US84.68¢.
In anticipation of the result of the Swiss referendum gold slumped more than 2 per cent on Friday to $US1167.15 an ounce and has now taken the Australian dollar with it, National Australia Bank senior economist David de Garis said.
On Monday, China’s official manufacturing PMI and HSBC’s China manufacturing PMI are scheduled for release at 12pm and 12.45pm respectively, the results may have a sway over the direction the Australian dollar takes for the afternoon.
It is a macro packed week for the Australian economy, with the Reserve Bank of Australia board meeting on Tuesday, gross domestic product on Wednesday and retail sales on Thursday and on Friday, US time (early Saturday morning in Australia), the US Labor Department releases its November labour force report.
The European Central Bank will also meet later this week with interest in whether president Mario Draghi will announce further stimulus plans, Mr de Garis said.
The Aussie dollar is taking a pummeling as commodity prices fall - this time it was gold. Photo: Glenn Hunt
Local shares are poised to extend their losses on the continuing bleak outlook for oil and other commodities ahead of a slew of central bank meetings this week.
Here's what you need2know:
• SPI futures down 0.8 per cent, or 44 pts, at 5294
• AUD at 84.69 US cents, 100.80 Japanese yen, 68.14 Euro cents and 54.25 British pence
• On Wall St, S&P 500 -0.3%, Dow flat, Nasdaq +0.1%
• In Europe, Euro Stoxx 50 +0.2%, FTSE flat, CAC +0.2%, DAX flat
• Spot gold down 2% to $US1167.41 an ounce
• Iron ore adds 1.9% to $US71.32 per metric tonne
• Brent oil down 3.4% to $US70.15 per barrel
What’s on today:
• Australia: Company operating profits and inventories for Q3 at 11:30am AEST – both inputs into Q3 GDP; TD Securities November inflation gauge at 10:30am; RP Data CoreLogic home prices November at 10am; AiGroup manufacturing index
• China official manufacturing PMI at midday, and HSBC version at 12:45
• US ISM manufacturing PMI
Stocks to watch:
• First day retail investors can sell Medibank shares
• Metcash half-yearly profits
• A block trade of 5.1 million shares in BC Iron crossed post-market close on Friday, representing a 2.6% stake, on Bloomberg calcs.
• Fortescue cuts capex estimates for FY15 to $650m from $1.3b
• Mount Gibson: majority of workers at Koolan Island stood down, shares suspended pending further details
• Orica and Technology One trade ex-dividend
• PEP sells 9.5% stake in Spotless at $1.92 each, reports AFR. PEP is the company’s biggest shareholder, with 30.4% stake
• UBS has a “sell” on Monadelphous Group and a 12-month price target of $9.90 a share, down from $12.10 a share previously.
• JPMorgan has a “neutral” recommendation on Cardno Limited and cut the price target to $4.33 a share, from $6.75 a share previously.
Good morning and welcome to the Markets Live blog for Monday.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
BusinessDay with wires.
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