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The ASX 200 has ended the day 22 points, or 0.4 per cent higher at a few points short of 5000, but fell over the week by 65 points, or 1.2 per cent.
Mining (up 1.4 per cent over the five days) and energy names (up 2 per cent) were the best performers over the first official week of reporting season, which saw only a small trickle of profit numbers coming through. The metals and mining index jumped 2.5 per cent today, with gold miners especially well supported off the back of the overnight news that the BoE had cut rates and restarted QE. BHP climbed an impressive 3.7 per cent, and Rio 1.9 per cent. Energy stocks did well again.
The RBA took centre stage this week, cutting rates again by a quarter of a percentage point to a record low of 1.5 per cent. That didn't provide much support to the sharemarket, though, with banks selling off sharply in its wake, despite clawing back some of their margins by passing on only a portion of the cut to lenders. Three of the Big Four gained today, though: CBA added 0.7 per cent, Westpac 0.3 per cent, and ANZ 0.2 per cent. NAB eased 0.1 per cent.
The Aussie dollar also shrugged off the rate cut, and was last at 76.6 US cents.
Among the worst performers today were Iron Mountain, which fell 6.1 per cent, CYBG, down 2.7 per cent, and SAI Global, which lost 2.6 per cent. The best were Downer, up 5.9 per cent, Fortescue, which jumped 5.2 per cent, and Mantra and Seven Group, which both climbed 4.8 per cent.
Well, well, well.
Smaller banks have fallen into line with their bigger rivals, also cutting mortgage rates by much less than the Reserve Bank's 0.25 percentage point reduction.
Bendigo Bank said it would cut its standard mortgage by 0.1 percentage points, to 5.38 per cent.
ING Direct is cutting home loan rates by 0.12 percentage points, while Bank of Queensland said on Thursday evening it would cut rates by 0.15 percentage points for owner-occupiers and 0.1 percentage points for investors.
Wait until Malcolm hears about this. At this rate the Murrays bus to Canberra will be full of bankers with "sorry" cards.
AGL Energy is to set up what it says will be the world's largest "virtual power plant", using 1000 connected batteries installed in homes and businesses in South Australia to ease bottlenecks on the grid and help reduce price spikes.
Federal government funding will support the $20 million demonstration project, which will provide participants with discounted batteries supplied by AGL's partner Sunverge.
The solar-powered batteries that make up the power plant will be able to store 7 megawatt-hours of energy, with output equivalent to a 5 megawatt solar plant. The project is intended to help customers manage their energy bills while at the same time contributing to the stability of the grid.
"We believe it will demonstrate alternative ways to manage peaks in energy demand, contributing to grid stability and supporting the higher penetration of intermittent, renewable generation on the grid," said AGL managing director Andy Vesey in Adelaide, the city at the heart of South Australia's energy crisis.
Some $5 million of the project costs will be provided by the Australian Renewable Energy Agency, subject to conditions.
Experts in the industry have been forecasting that the concept of a "virtual power plant" would soon hit Australia's shares in the wake of pilot projects overseas, including one in Ontario by Canadian community energy company PowerStream.
The concept underscores the value of staying connected to the grid so households can send surplus power generated by their solar panels and storied in batteries back into the grid when needed.
ARENA head Ivor Frischknecht said the government wanted to encourage others in the private sector to also consider how they could use renewable energy technology to deliver electricity "around-the-clock" in South Australia, where the intermittent nature of wind generation has underscored the volatility of wholesale power prices.
He said the project could point to solutions to the "challenges" in South Australia's grid and reduce the risk of power shocks. It could also help ease constraints in the grid, displace expensive gas-fired power and add capacity to complement the interconnector with Victoria during peak demand periods.
The project is to be rolled out in three phases over 18 months. Customers taking part will be able to buy a discounted Sunverge battery system as part of the demonstration. AGL said that for those that generate enough surplus power, the payback period should be just seven years.
Despite this week's rate cut, the RBA today revealed that its economists forecast inflation to stay below target through to the end of 2018. Add in the fact the central bank is worrying about further risks to the economic outlook, and ANZ economists reckon that adds up to a "strong easing bias", and that – in extremis – unconventional measures are a looming possibility.
The foreign exchange market is "unlikely to give RBA Governor Stevens a parting gift as he gives his final official speech next week," the economists say. (Stevens hands over the reigns to Deputy Lowe on September 17.)
"While the data pulse is softening and the RBA is easing, it is not enough to weigh against a weak US dollar trend," they write. "For the [Aussie dollar] to decline we will need to see either an exceptional US payrolls report [jobs data are out tonight] or a significant change in sentiment towards China."
And the RBA would consider "unconventional" measures (ie, QE) if things take a turn for the worse across a range of risks. The ANZ team continue:
With the RBA canvassing a larger number of downside risks to the outlook in the Statement on Monetary Policy – China, the labour market, the housing market and the exchange rate all rated a mention - we think that the RBA would be looking more closely at unconventional policy options if any of these risks materialise.
These options span the range of policies employed by the RBA's peers, although the RBA has made clear that negative interest rates aren't attractive because they pose problems for banks and put money market funds at risk. RBA Assistant Governor (Economics) Kent has emphasised that unconventional policies would be reactive to symptoms of economic stress and that the likelihood of using such options was "very remote", but we are much less sure given the cash rate is now close to the RBA's 1 per cent floor.
A storm's about to hit the global copper market, according to Goldman Sachs, which forecasts that the price may slump to $US4000 a tonne over 12 months as mine supply picks up, producers enjoy lower costs and demand growth softens.
"Company guidance and our estimates suggest that copper is entering the eye of the supply storm," analysts including Max Layton and Yubin Fu wrote in a note to clients. A drop to $US4000 would be a 17 per cent slump from Thursday's close on the London Metal Exchange.
Copper has lagged gains seen in other raw materials so far this year, especially zinc and nickel, which have benefited from forecasts for global shortages. For copper, there's been solid growth in global mine supply in the first half and that trend is expected to pick up in the coming quarters, according to Goldman.
"This 'wall of supply' is expected to translate into higher copper smelter and refinery charges and ultimately, higher refined-copper production, set against softening demand growth," Layton and Fu wrote. The metal is seen at $4500 a tonne in three months and $US4200 in six, they said, reiterating targets.
he metal used in pipes and wires has risen 2.7 per cent this year, while zinc has surged 40 per cent and nickel has advanced 20 per cent.
In July, Barclays said supply may exceed demand every year through to 2020. The month before, Stephen Higgins, who heads Freeport-McMoRan Sales Company, a division of the largest publicly traded copper miner, said more production has come on stream at a time demand growth in China has slowed.
For Goldman, the main expansion in mine supply through to the first quarter of 2017 is expected to come from the Grasberg mine in Indonesia, Escondida in Chile and Sentinel in Zambia, according to the report. Growth from Cerro Verde and Las Bambas in Peru may also contribute, it said.
To gauge the outlook for supply, Goldman tracks 20 companies that account for about 60 per cent of worldwide production, according to the report. These 20 raised output 5 per cent on-year in the first half of 2016, and are expected to increase that to as much as 15 per cent in the coming quarters, it said.
Europe's political elite may have missed the Brexit memo.
Six weeks since UK voters rebuked the ruling class by choosing to leave the European Union, the region's establishment has reacted by carrying on as before.
The revolving door of former policy makers joining the finance industry has spun again, with European Commission President Jose Manuel Barroso signing up with Goldman Sachs and former Bank of England Governor Mervyn King joining Citigroup. Meanwhile departed Prime Minister David Cameron is facing criticism for nominating numerous aides for honours, including his wife's stylist.
The perception of elite coziness risks further disenfranchising those backing Brexit, and peers across the continent who share the feeling of being left behind by the powerful and wealthy in the era of globalisation and financial crises. A potential upshot is more support for populist parties that tap into alienation such as the UK Independence Party or France's National Front.
"Anything that doesn't show government or public institutions in a good light merely confirms some of the attitudes that probably contributed to the Brexit vote," said Chris Roebuck, a visiting professor at London's Cass Business School and a former adviser to UBS. For some voters, "there is a group of people out there who aren't normal people like you or me, who have benefited since the financial crisis -- because they're an elite."
King, who once railed against "incompetent and greedy" bankers, has become a senior adviser to Citigroup, the Financial Times reported last week. Barroso's role as an adviser to Goldman Sachs drew a rebuke from France's President Francois Hollande, who called it "morally unacceptable."
The French leader knows only too well about criticism of the elite. Less than a week before his Goldman comments, satirical magazine Canard Enchaine published revelations of the 9,895-euro ($US10,958) a month salary paid by the French state for his hairdresser, more than the wage of a European Parliament member.
The competition watchdog will run a fine-tooth comb through Australia's communications market to ensure there is enough competition to allow new entrants and to encourage investment.
ACCC chairman Rod Sims announced a study into the communications market at an industry dinner on Thursday evening.
"We recognise the communications sector is one that all Australians have an interest in, and one that facilitates economic growth. Importantly, the study will also allow the ACCC to consider a wide range of interrelated issues that have been raised by the sector and that go to the proper functioning of the market," he said.
Telecommunications companies have previously raised concerns about competition problems in the industry, but would probably not be expecting a market study, Mr Sims told Fairfax Media.
It will give the regulator a chance to examine whether network capacity can meet consumer demands and access to dark (unused) fibre. The study will also examine over-the-top communications markets, such as social media and marketplaces.
"This is a high-level look that allows us to raise our eyes to look at the broader trends in the industry, which we cannot do when we are narrowly focused on a declaration inquiry," Mr Sims said, adding it would give the ACCC the chance to ask itself if it was regulating appropriately.
The ACCC has previously run market studies on door-to-door selling, which led to some court action, the private health insurance sector, the new car retailing industry, and the cattle and beef markets. It has also done a study into the East Coast Gas market.
The ACCC expects to complete the communications study by the end of 2017.
There are "encouraging signs that global policymakers are finally moving towards greater fiscal stimulus", CBA economist Elias Haddad says. "Encouraging", Haddad says, because "the prospect for more government infrastructure investment is supportive of global economic activity".
More government spending of this type would reverse a multi-year trend – public investment as a percentage of GDP has been on the decline (see chart).
Haddad highlights a few developments on that front:
1) Canada's government presented in March a fiscal stimulus package totalling about 1.1% of GDP over 2016 and 2017.
2) Japan's government just passed a supplementary budget stimulus package for the current fiscal year worth 0.9% of GDP.
3) The UK's new prime minister, Theresa May, pledged to abandon the previous government's goal of achieving a budget surplus by 2020 and boost infrastructure spending. This will significantly reduce the large fiscal drag projected to hit UK economic activity over the next few years.
4) In the US, both Presidential candidate Hillary Clinton and Donald Trump have called for more investment in infrastructure. In her campaign platform, Clinton pledged to spend $275 billion (1.5% of GDP) over five years on new infrastructure. Trump was short of specifics but described his infrastructure spending plan as a "trillion dollar rebuilding plan".
5) Infrastructure spending in China has been rising for the past several years and currently accounts for about 11% of GDP (chart 3). This trend is intact considering that the Chinese government announced in May plans to invest almost 7% of GDP into transport infrastructure over the next three years.
Haddad quotes IMF calculations, which suggest the effect of public investment on advance economies' output is greatest in the current macroeconomic backdrop of accommodative monetary policy and low economic growth - which is where we find ourselves now.
He adds that "this will continue to favour the recovery in commodity prices and underpin the [Aussie dollar] via an improvement in Australia's terms of trade".
The Australian dollar shrugged off this week's interest rate cut, as global factors, including the search for yield amid ultra low interest rates proved the bigger influence on its direction, and analysts see little impetus for it to move lower.
The dollar last fetched just shy of 76.5 US cents, trading a touch higher following the RBA's monetary policy statement.
"The RBA is principally seeking to reverse the appreciating Australian currency so as to improve domestic competitiveness on exports and services," said David Clark, investment manager at Cameron Harrison. "An exchange rate of US68¢ would give the RBA the additional domestic economic support it cannot otherwise achieve through relative interest rates."
The global thematic of ultra low interest rates versus the still relatively high interest rates at home is also underpinning the strength in the currency. Overnight the Bank of England cut its key interest rate for the first time since 2007, while expanding its quantitative easing, rejoining its fellow developed markets in moving back into an easing cycle.
"Governor [Mark] Carney did say that he is not a fan of negative interest rates and that the UK's lower bound lies just above zero," ANZ economists said in a note.
"But the move adds to the global super low interest rate complex and should continue to support demand for higher yielding assets."
That of course includes the Australian dollar. CBA currency strategist Elias Haddad said the BoE move, sending bond yields lower, ensures the Australian and New Zealand dollars will remain a "magnet" for yield-seeking foreign capital.
"Even if the Fed hikes in December, even if interest rate differentials narrow further in the US, the Aussie dollar will continue to be supported because of foreign flows into higher yielding assets including Australia," he said.
While this may prevent it from falling much further, Mr Haddad said it was unlikely the Aussie would shoot higher anytime soon. The currency is entrenched in a longer term cyclical downswing, rather than in an appreciating cycle. CBA is expecting another cut by the RBA in November, following the release of the third quarter inflation data, with a year end target of US73¢ for the currency.
Financial markets are currently pricing in around 50 per cent chance of a rate cut in November. Mr Clark said the 25 basis point cut in August would not be enough for the RBA to achieve its objective.
"If delivering a lower currency is the objective (and we have thought this for the last 18 months) then in relative terms to the US economy we doubt 25 basis points will be sufficient," he said.
"To get to the RBA's target measure of inflation of 2 per cent it will arguably require bigger cuts in the cash rate to at least 1 per cent."
The Reserve Bank says a rate cut will create "room for even stronger growth" as the inflation rate is set to remain below its target range and risks in the housing market abate.
The bank left its forecasts of growth and inflation unchanged from May in its latest Statement of Monetary Policy document – three days after the central bank chose to cut the cash rate by a quarter of a percentage point to 1.5 per cent.
With data confirming little change to its outlook for inflation and unemployment, the RBA said that "while the prospects for growth in economic activity are positive, there is room for even stronger growth".
Australian GDP growth was better than expected in March, the RBA said. But this was a result of unusually favourable weather conditions, which boosted resource exports, and the bank expected its previous forecasts to hold.
Crucially, its inflation forecasts, which were lowered substantially in May, and showed no return in measured inflation to above its target during its forecast period, which extends to the end of 2018.
The upward pressure on the inflation rate from a decline in the Australian dollar since early 2013 was offset by domestic factors such as slow wage growth and competition in the retail markets, and is expected to "persist for some time".
The Reserve Bank also took comfort that another rate cut would not aggravate risks to financial and economic stability by further inflating house prices as property values had only risen modestly this year and growth in home lending had slowed.
"All this suggests that the risks associated with high and rising household sector leverage and rapid gains in housing prices have diminished."
The policy document devoted considerable attention to the property market – as price increases were not matched by higher rents – with rent inflation at multi-decade lows while vacancy rates in most cities had returned to their long run average levels.
With the Reserve Bank leaving its forecasts unchanged and offering little by way of language about their intentions, the statement could be interpreted as broadly neutral with regard to future rate moves.
The forecasts do however factor in the market expectations of interest rates, which imply a 50/50 chance of another cut before the year-end.
Virgin Australia has posted a full year net loss of $224.7 million, after taking charges related to fleet simplification and other efficiency activities.
The airline says underlying profit before tax for the year ended June 30 rose to $41 million, an improvement on the previous year's $49 million loss.
Australia's second biggest carrier had flagged the expected numbers last month, after posting a net loss of $228 million for the final three months of the 2015/16 fiscal year.
"While there are costs associated with implementing these activities and initiatives, these are outweighed by the significant, ongoing future savings that will be delivered," chief executive John Borghetti said.
"Based on current business performance, the group's positive momentum is expected to continue. However, due to market uncertainty, we are unable to provide further details at this time," the company said. Virgin re-affirmed it's "on track to meet FY17 targets".
Oil prices have eased in early trading, but remain well above this week's lows as traders covered short positions after profiting from sharp declines since June.
US West Texas Intermediate (WTI) crude was fetching $US41.81 per barrel, down 12 US cents from their last close but still up over 6 per cent from their low for the week on Tuesday.
International Brent crude was trading at $US44.16 per barrel, down 13 cents, but also more than 6 per cent up from Tuesday.
Traders said that oil markets were still under pressure from overproduction in crude and also refined products, which has left onshore storage tanks filled to the rims and triggered the chartering of some tankers to store unsold fuel.
Price rises earlier in the week were driven in large part by traders cashing in on short positions that profited from a more than 20 per cent price fall in oil between June and early August, they added.
"Oil prices rallied despite little fundamental data. However, with CFTC data showing investors increased their shorts positions the most ever for the week ending 26 July, this suggests a short covering rally," ANZ bank said.
Woolworths and its advisers are in overdrive as they work towards a hardware divestment outcome - either ahead of or at - the embattled company's earnings announcement late this month.
The clock is ticking as the company reports in less than three weeks. The risk to that preferred scenario for Woolworths and Citigroup is that further delays occur, meaning investors will demand a substantive update on August 25.
We are already some weeks on from final bids being lobbed on July 18 in the auction for larger format business Masters and Home Timber & Hardware.
Multiple parties are still understood to be the fray for the the Home Timber & Hardware unit including Metcash; Anchorage Capital Partners, which missed out on buying Mitre 10 in 2009; a syndicate led by two former HTH executives; and Blackstone Group, which is bidding for both Masters and HTH.
A consortium of big-box retailers backed by property group Charter Hall has offered to buy Masters.
The ACCC has given the green light for Metcash to bid for Home Timber & Hardware and merge it with Mitre 10, creating a $2.2 billion hardware wholesaler.
Woolies shares are flat so far today at $23.56.
The ASX has been buoyed in early trade thanks to the latest intervention from a major central bank, this time the Bank of England.
Miners are leading a broad rally in the benchmark top 200 index, which is up 24 points, or 0.4 per cent, at 5500 points.
BHP is 2.3 per cent higher as the company is helped along by a bounce in the oil price, which has boosted energy stocks. Rio is up 0.7 per cent and Fortescue 2.6 per cent, while South32 has advanced 0.5 per cent. Gold miners are enjoying news of more global QE, with Newcrest 1.6 per cent up.
The banks are enjoying support (at least from investors): CBA and ANZ are 0.8 per cent up, while NAB has added 0.4 per cent and Westpac 0.1 per cent.
Suncorp is up 1.7 per cent.
At the other end of the ledger, Iron Mountain's 6.3 per cent drop is weighing on the index, while Orica is off 2 per cent and Incitec Pivot 2.1 per cent. CYBG investors are not impressed with the BoE announcement, or perhaps it was the effect on the pound (weaker): the stock is 2.9 per cent lower.
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The Bank of England shows QE is a tough habit to kick, writes IG analyst Angus Nicholson:
The most important development overnight is the high expectations for global monetary and fiscal easing are steadily being met. Japan has announced both fiscal and monetary easing, the UK has announced monetary easing and Chancellor Phillip Hammond has indicated that fiscal easing is likely to be announced in his "Autumn Statement".
With China likely to keep the fiscal taps operating at high levels throughout the second half of this year as well, and the possibility of fiscal spending in the EU to buttress some of the Brexit fallout, the bounce we have seen in commodities does make more sense. The Bloomberg Commodities Index was up 0.4 per cent, and the Aussie dollar and Kiwi dollar were up 0.5 per cent and 0.3 per cent, respectively.
I feel this is a key development many of the bearish forecasts on the Aussie dollar are overlooking. Even though the RBA is likely to steadily cut interest rates to a terminal level of 1 per cent, the global return to fiscal stimulus will continue to support the nascent revival in industrial commodities. There is a decent chance the AUD retests US$0.78 in the coming months, the likelihood of which would be considerably supported by the moderating trend we are seeing in US data of late.
That said, we will see the RBA's Statement of Monetary Policy released today, which is likely to provide some downside risk to the Aussie's overnight gains.
Government bonds rallied, while the pound slid against major peers, after - as we all know - the Bank of England cut its key lending rate for the first time in more than seven years. US stocks and the greenback traded in tight ranges as investors awaited Friday's jobs report.
Sovereign debt from the UK to Germany advanced with Treasuries after the BoE delivered what Governor Mark Carney called "exceptional" stimulus to preempt the effects of Brexit. Sterling fell the most in four weeks as credit markets strengthened.
The S&P 500 Index churned at a level less than 1 per cent below its all-time high, while the dollar continued to trade within its narrowest band in more than a week. American crude oil rose past $US41 a barrel, extending its rebound from near four-month lows.
The BoE cut growth forecasts for the UK by the most ever as policy makers unveiled a stimulus package aimed at containing the fallout from the British vote to leave the European Union. While the pound retreated and bonds jumped, other assets showed little reaction to the widely expected move, with investors switching their focus to next session's update on US non-farm payrolls. Economists expect the report will show continued improvement in the labor market, a key factor for the Federal Reserve, which is mulling whether to stick to its plan to continue tightening policy in 2016.
"Tomorrow's employment number is the catalyst for the market - that's what is going to rule the pricing trends over the next few weeks," said Jim Davis, regional investment manager at the Private Client Reserve of US Bank. "We really need to see some economic growth in order to have more assurance that we're going to have growing earnings in the second half of the year."
The Bank of England said it would cut its main interest rate to its lowest point ever and expand other measures to bolster Britain's economy over concern that the country's decision to leave the European Union could weigh on growth.
The move comes at a time of widespread uncertainty about the longer-term impact of the vote to leave the bloc, known as Brexit. It is unclear what Britain's future trading relationship will be with the European Union and, crucially, how much access London's prized financial services industry will have to the Continent. The referendum also unleashed a summer of political turmoil that led to a new government and to questions about the new leadership's economic policies.
The short-term impact, however, has been largely negative. In the weeks since the vote, the pound has fallen sharply, and stocks in a number of sectors, including banking and construction, have been under pressure. Several real estate funds suspended withdrawals as investors tried to pull out their cash, fearing a slowdown in the British property market.
Surveys in recent weeks also indicated that consumer confidence,services output and purchasing-manager sentiment had plummeted. The International Monetary Fund has cut its growth forecast for Britain's economy, which had been one of the region's strongest since the financial crisis.
"There is a clear case for stimulus, and stimulus now, in order to be there when the economy really needs it - to have an effect when the economy really needs it," governor Mark Carney told reporters on Thursday.
The central bank's Monetary Policy Committee voted unanimously to lower its benchmark interest rate to 0.25 per cent, the lowest level in the bank's 322 years. The rate had been at 0.5 per cent since March 2009.
Carney also signalled Thursday that the committee could cut rates further this year, but he ruled out the possibility of negative interest rates.
Positive start in store for local shares as investors await the release of the RBA statement on monetary policy.
Here's what you need2know:
- SPI futures up 17 pts or 0.3% to 5452 at about 7.15am Sydney time
- AUD at 76.26 US cents, 77.20 Japanese yen, 68.55 Euro cents and 58.14 British pence
- On Wall St, Dow flat, S&P 500 flat, Nasdaq +0.2%
- In Europe, Stoxx 50 +0.7%, FTSE +1.6%, CAC +0.6%, DAX +0.6%
- Spot gold +0.3% to $US1361.70 an ounce
- Brent crude +2.7% to $US44.25 a barrel
- Iron ore -3.5% to $US59.50 a tonne
What's on today:
- RBA statement on monetary policy at 11:30am AEST
- US jobs data and trade figures
- Canadian unemployment rate and trade data
Stocks to watch:
- Virgin Australia full-year results
Good morning and welcome to the Markets Live blog for Friday.
Your editor today is Patrick Commins.
This blog is not intended as investment advice.
BusinessDay with wires.
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