That's it for Markets Live for today.
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See you all again Monday morning from 9.
Australian shares closed down for the fourth week in a row after the European Central Bank failed to extend its monetary stimulus program and investors piled out of the big banks.
Oil surged higher throughout Friday, giving energy stocks a boost, but the number of companies going ex-dividend this week kept pressure on shares, which traded sideways for most of the week before slumping on Thursday and finishing the week in the red.
The benchmark S&P/SX 200 Index and the broader All Ordinaries Index each fell 0.8 per cent over the five sessions to end at 5339 points and 5440 points, respectively.
Shares sold off despite GDP data on Wednesday which confirmed Australia's 25 years of uninterrupted economic growth. The Reserve Bank of Australia kept interest rates at 1.5 per cent on Tuesday and the meeting marked the last of Governor Glenn Stevens who will be replaced by Philip Lowe.
Instead it was gathering global gloom that appeared to hold sway over the ASX this week, amid increasingly hawkish US Federal Reserve rhetoric, which US equities largely shrugged off but which led to wobbles on other indices around the world. The local benchmark is now down 4.5 per cent since the beginning of August compared to a 0.5 per cent rally in the S&P 500.
"It's been a funny time for the market," said Michael McCarthy, senior market analyst at CMC Markets. "Calm on the surface, but boiling below the surface there's been a fair bit of share price movements."
Shares in Origin Energy leapt 5.5 per cent on Friday to $5.41 after new chief executive Frank Calabria, who replaces Grant King, confirmed that he will continue the company' focus on reducing debt and lifting shareholder returns.
Defense and ship builder Austal enjoyed a solid share price lift on Friday following the successful delivery of its second high speed support vessel to the royal navy of Oman. Shares bounced 5.4 per cent to $1.62 on the day.
Bank shareholders should take a gander at what's on offer overseas, writes one of your Eds:
What do already low and falling rates mean for bank profitability? Nothing good, investors and economists have largely decided.
This has been mostly a worry for overseas jurisdictions – particularly in Europe and Japan where rates are negative. But the last RBA cash rate cut to 1.5 per cent in early August seems to have marked an inflection point in what lower official borrowing costs mean for our major lenders.
This week Credit Suisse analysts took a stab at looking what would happen in the unlikely – but not inconceivable – case that the RBA pushed its cash rate target towards zero. They estimated the major banks' earnings would fall by 9 per cent on average, with ANZ's annual profits likely to fall 13 per cent and NAB a mere 4 per cent.
It's just another worry for bank shareholders, who are already fretting over soft credit growth and more regulatory constraints and costs.
But if the rates trend is moving against our banks, in the US the impulse is heading the other way. And while the market is obsessed with the threat posed by climbing global rates on asset prices, there may be opportunities. Consider this: a one percentage point rise in US rates would add 20 per cent to Bank of America's earnings, says Wingate Asset Management's Chad Padowitz.
And you don't need to wait for rates to go higher (or lower), you just need to see that conversation among investors change. This is where valuations come in. Globally, banks are generally not liked. They were at the heart of the global financial crisis and, to varying degrees, continue to carry the weight of that blow-up. Citigroup, for example, is a shadow of its former self, with a share price a tenth of what it was in 2007. Bank of America stock fetches 85 per cent less than it did pre-GFC.
Food prices in August rose to their highest level in 15 months as advancing dairy and palm oil markets outweighed weakness in grains, which have been depressed by prospects of bumper harvests in key growing regions.
The UN Food and Agriculture Organisation's monthly food price index climbed 1.9 per cent from the month before and almost 7 per cent from August 2015 — the highest level since May last year, with dairy, vegetable oils and sugar leading prices upwards.
Food prices, which have been falling for the past few years on plentiful supplies and favourable weather patterns, seem to have bottomed out, said Abdolreza Abbassian, senior grains economist at the FAO.
"With the exception of July, the index has risen every month this year," he said.
Since the start of the year, the Rome-based organisation's sugar price index has jumped 43 per cent, with vegetable oils rising 21 per cent, meat 12 per cent and dairy 7 per cent, as supply has fallen in the face of lower prices.
Cereals, including wheat, corn and rice, have been the only sector that has declined since January, falling almost 4 per cent.
In August, vegetable oils rose 7 per cent from the previous month, driven by strengthening palm oil due to lower than anticipated output in Malaysia and continued tightness in global inventories.
This has coincided with rising import demand in key importing countries, notably China, India and the EU. International prices of rapeseed oil also firmed, reflecting lower crop prospects in Europe.
Dairy prices rose almost 9 per cent from July, with strong increases in cheese, whole milk powder and butter. The market was supported by falling milk production in the EU.
The euro zone is "treading water" until the next crisis hits, writes Ambrose Evans-Pritchard:
Large parts of the euro zone are slipping deeper into a deflationary trap despite negative interest rates and one trillion euros of quantitative easing by the European Central Bank, leaving the currency bloc with no safety buffer when the next global recession hits.
The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2 per cent inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.
Mario Draghi, the ECB's president, said there are limits to monetary policy and called on the rest of the euro zone to act "much more decisively" to lift growth, with targeted spending on infrastructure.
"It is abundantly clear that Draghi is played out and we're in the terminal phase of QE. The euro zone needs a quantum leap in the nature of policy and it has to come from fiscal policy," said sovereign bond strategist Nicholas Spiro.
Mr Draghi dashed hopes for an expansion of the ECB's monthly €80 billion ($1.17 trillion) program of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject.
The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.
The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1 per cent for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1 per cent has crept up to 58 per cent.
This is a classic precursor to deflation and suggests that the euro zone is acutely vulnerable to any external shock. The figure has spiked to 67 per cent in Italy, and is now significantly higher that it was when the ECB launched QE last year.
Woolies is having another rough session, falling as much as 3.1 per cent to $22.89, its lowest since mid-July.
The drop could be linked to the ongoing court battle with former JV partner Lowe's over the failed Masters hardware chain.
The US home improvement chain claimed yesterday it was "stitched up" by Woolwrths in a deal to sell Masters stores and sites for around $800 million.
It also asked Woolworths to produce almost 20 documents associated with the sale of their home improvement joint venture, including information it claims shows Woolworths had a deliberate strategy to push through the Masters deal and terminate the venture.
Today's falls come after the stock lost 2.2 per cent yesterday, trading ex-dividend, and put it on track for a weekly slump of nearly 4 per cent.
Australians will pay significantly more for Apple's new iPhones than American customers, even without the effects of the GST and the weakened Aussie dollar.
But the so-called "Australia Tax" on the new gadgets is only half what Apple applies to music downloads.
The six new phones, announced on Thursday and available to order from today, range in price from $1079 to $1569 depending on storage capacity and size.
Comparing those prices, minus the 10 per cent GST, with pre-sales tax US prices converted to Australian dollars reveals Apple is charging Australian customers between 12 and 15 per cent more than Americans.
The cheapest of the new iPhones is $132 more expensive in Australia, based on current exchange rates, and the top-end model is $159 dearer.
Apple unveils iPhone 7
Watch Apple CEO Tim Cook introduce the much anticipated new smartphone.
China's central bank is making its tolerance levels clear to yuan speculators.
Suspected intervention by the People's Bank of China drove the cost of borrowing the currency offshore to a seven-month high on Thursday, making it more expensive to short the yuan.
The authorities will prevent the exchange rate from weakening beyond 6.7 per dollar anytime soon, according to Svenska Handelsbanken, the yuan's top forecaster.
A breach of that level may trigger sharp moves and embolden bears, said Scotiabank. The onshore currency was trading at 6.6740 earlier today.
China's foreign-exchange gyrations reflect the challenge for policy makers: They need to allow the currency to weaken to boost exports and help an economy growing at the slowest pace in more than two decades.
But the decline has to be managed because unfettered drops would spur capital outflows, draw criticism from trading partners and result in a loss of face before the yuan enters the International Monetary Fund's reserves basket on October 1.
"The PBoC would love to weaken the yuan much more, but it will make sure the slope is not steep," said Bjarke Roed-Frederiksen, an economist at Handelsbanken, the most accurate yuan forecaster tracked by Bloomberg over the last four quarters. "The currency will more likely weaken beyond 6.7 after October1 as the authorities control the pace of declines. They are still fully in control - they can move it where they want and keep it where they want."
Talk that the PBoC has drawn a line in the sand at 6.7 emerged in July, when it set a series of stronger reference rates after the onshore currency fell past that level for the first time since 2010. That speculation was reignited on Tuesday, when both the onshore and offshore yuan strengthened quickly after approaching that mark in early trade.
In local economic data, housing finance numbers came in below expectations in July, driven by falls in owner-occupier approvals, while investor approvals ticked slightly higher.
The number of home loans approved fell 4.2 per cent in July, missing market expectations of a 1.5 per cent fall, while the value of total housing finance was down 1.8 per cent in the month.
The numbers look even worse once refinancing activity is excluded, with genuine new loan commitments slipping more than 6 per cent over the month, JPMorgan economist Tom Kennedy notes.
"The weakness in today's data is consistent with a slowing in housing market turnover, falling credit growth, tighter lending criteria for dwelling construction, and slower house price appreciation," he said.
Investor housing approvals rose 0.5 per cent in July, continuing recent months of growth.
With owner-occupier lending remaining subdued, the investor share of housing approvals has started to pick up again, but at 37.3 per cent of lending is well below the peak of 45 per cent in mid-2015, NAB says.
China's consumer price inflation slowed to its weakest pace in almost a year in August, pulled down by abating food costs, although an encouraging moderation in producer price deflation added to recent evidence of a steadying economy.
The consumer price index (CPI) rose 1.3 per cent in August from a year earlier, compared with a 1.8 per cent increase in July. That was the slowest pace of inflation since October 2015. Analysts had expected a 1.7 per cent gain.
But Capital economics China economist Julian Evans-Pritchard said the latest slowdown wasn't a concern, as it's likely to be short-lived due to more subdued food price inflation, which came in at 1.3 per cent, from 1.8 per cent in July.
Evans-Pritchard also doesn't expect the data to spark further monetary easing by the People's Bank.
"While some will likely argue that the fall in headline CPI increases the likelihood of further monetary easing by the People's Bank, we doubt it will make a great deal of difference. It is concerns over credit risks, not inflation risks, that is keeping the PBoC on hold," he said.
The producer price index (PPI) dropped 0.8 per cent in August from a year earlier. Analysts had expected PPI to fall 0.9 per cent.
China factory prices have been falling since March 2012, but a turning point could be on the horizon as the industrial sector improves on the back of a housing recovery, and commodity prices bounce globally.
Australian motorists are open to having their cars tracked by GPS systems and paying fees to drive on roads, tollroad group Transurban has claimed after releasing initial findings from trials of user-pays charges.
"We believe that a usage-based road charging system could work in Australia," Transurban chief executive Scott Charlton said.
"The study suggests that moving to a new usage-based charging model would likely generate a sustainable funding source that could meet future infrastructure demands."
Infrastructure Australia chief executive Philip Davies is among the policymakers arguing the current system of using fuel excise taxes, vehicle registration fees and stamp duty to pay for roads is "unsustainable" because it does not raise enough money, does not help address congestion issues and is not fair.
"Currently, what motorists pay is only loosely related to what we use and how our use of vehicles affects other users," Mr Davies said in an opinion piece for The Australian Financial Review. "This means a person who doesn't drive or own a car is effectively subsidising people who do."
Transurban, which builds and operates tollroads, has been pushing state governments to develop user-pays systems to ease congestion. Transurban benefits from less congested tollroads, because they allow traffic to flow faster.
Transurban started the trials in an around Melbourne in May 2015. The main study involved 1565 volunteers who were given "virtual travel accounts" to simulate road charges.
GPS devices were installed in the participants' cars, and recorded information on their trips, including how far they travelled and how much time each trip took. Participants were sent monthly travel statements and could check daily usage online.
If participants reduced their road usage over the month, their account balance would be in credit. If they did not reduce road usage, their account balance would be $0.
Transurban offered three usage-based charging options: a fee of $1 per trip; a 10¢ charge for each kilometre driven; and a flat rate of 10¢ for each kilometre for a capped number of kilometres and then 20¢ for each extra kilometre.
Transurban allocated charging methods to each participant, who could nominate their preferred charge but did not always receive their first preference.
The most popular option was the charge for each kilometre, followed by the flat rate charges. The least popular option was the charge for each trip.
New Origin Energy chief executive Frank Calabria will continue the company's focus on reducing debt and lifting shareholder returns when he replaces the retiring Grant King at the end of October.
Origin chairman Gordon Cairns said the company's board has been preparing for some time for the departure of King, who has run Origin for 14 years.
"The past year has been a transitional one for Origin with good progress made on debt reduction following last year's fall in oil price. We are also expecting completion of APLNG's LNG project in the next few months.
"With good progress on these two important priorities it is now an appropriate time for change of leadership at Origin."
The AFR's Mike Smith agrees that it is the right time to call it quits, noting King has outlasted three oil price slumps to achieve his vision of a $25 billion LNG plan:
It has been a messy year for Origin Energy as it made the transition from a domestic electricity company into the gas and renewable energy giant that has been King's vision.
Origin posted a $589 million loss in the last financial year and suspended dividend payments. King is departing satisfied that he has put the company back on the right course following a $4 billion debt reduction program.
Origin shares are up 5.3 per cent at $5.40 after oil prices spiked overnight.
Sigma shares have bounced another 7.6 per cent this morning, putting them on track for a weekly gain of nearly 20 per cent, after UBS upgraded the stock to a 'buy'.
UBS analysts raised their Sigma recommendation from 'neutral' and ratcheted up their price target to $1.40 from $1.23, saying the company is well placed to capitalise on growth opportunities. Sigma is a drugs supplier and pharmacy services provider.
"After five years of progressive improvement in operations & execution, Sigma's 1H17 result appears to be an inflection point on new growth opportunities. The result shows the base business is reliable and stable," UBS said in a note to clients.
UBS also noted that Sigma expected to maintain a higher dividend payout ratio and that further share buybacks could be re-considered.
Brace for more cuts to bank dividends, the AFR's Christopher Joye warns:
I don't think Australian bank shareholders are cognisant of the risk that if equity capital ratios fall modestly, there are new automatic restrictions imposed by the regulator on the distribution of earnings that mean dividends may not be paid.
In fact, it is likely that some banks will stop paying dividends altogether in the next recession as they rebuild capital eroded by loan losses.
(APRA chief Wayne) Byres' latest speech confirmed our analysis that APRA will garnish 40 per cent of a major bank's earnings from being used for dividends, AT1 hybrid coupons and/or staff bonuses if their common equity tier one (CET1) capital ratio falls below 8 per cent.
If equity declines to less than 7.125 per cent (6.25 per cent), APRA will restrict 60 per cent (80 per cent) of total earnings. A formal stop on 100 per cent of all payments to equity and hybrids kicks in when the CET1 ratio hits 5.375 per cent of risk-weighted assets.
Capital is only likely to be declining in a recession because banks are losing money as they did in 1991 when both ANZ and Westpac reported losses and slashed dividends.
Yet in the next recession if a bank suffers negative earnings and CET1 falls below 8 per cent, prudent investors should assume they are going to get no dividends or AT1 distributions. (In APRA's recessionary stress tests, ET1 ratios fell by more than 3 percentage points.)
For the avoidance of doubt, there is nothing stopping the bank continuing to making interest payments on deposits, senior debt and subordinated bonds.
Reports are coming in that North Korea may have tested a nuclear weapon.
A seismic event this morning measured by the US Geological Survey with a magnitude of 5.3 appears to be a nuclear test, South Korea's meteorological agency says.
The seismic event was detected near North Korea's known nuclear test site, where it detonated its fourth nuclear device in January. The USGS said the tremor was detected on the surface. Naturally occurring earthquakes strike below ground.
The news is weighing on the Japanese sharemarket, which has just turned negative after earlier rising as much as 0.4 per cent.
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We mentioned the New Zealand dollar's bull run yesterday and that the kiwi is for taking parity with the Aussie into its sights.
Deutsche Bank reckons a driver for that to happen could be the different causes of housing booms in the two countries.
Australia's boom is largely home-grown, whereas New Zealand's is being fuelled by record immigration. That's affecting the countries' current accounts differently, the bank notes.
While Aussies are feeling richer due to house-price gains, prompting them to spend more on imports and boosting their current account deficit, New Zealand is sucking more offshore capital into its housing market, narrowing its current account gap.
Currencies are sensitive to trends in the current account - a country's balance with the rest of the world - because they are a gauge of risk for investors.
"The nature of the real estate boom in Australia should have bearish currency implications because it leads to deterioration in the basic balance," said Deutsche strategist Robin Winkler.
"This is not the case in New Zealand and adds to our conviction that AUD/NZD should drop to parity."
The two currencies have never converged in the free-floating era that began in the 1980s. They came close in April last year, when the Aussie dollar fell below $NZ1.01.
It's currently trading at $NZ1.0329 after falling to a 15-month low of $NZ1.0264 on Wednesday.
Shares have opened with another bigger than expected drop, led down by the big banks and putting the ASX on track for a fourth week of losses.
The ASX is down 0.75 per cent at 5345.3, while the broader All Ords has slid 0.7 per cent to 5446.1.
Today's falls come after the ECB's refusal to ramp up its asset purchases disappointed global investors, leading to falling sharemarkets. However, the ASX is once again underperforming its peers, dropping sharper than other markets.
"A lot of people wanted to see a bit more stimulus from Draghi today, or at least an extension to the program," said Yogi Dewan, the chief executive of Hassium Asset Management. "At the end of the day, Europe's economy isn't in great shape, inflation doesn't look exciting and there are a bunch of political risks to reckon with. It's very unusual for Draghi to be this hawkish. It looks like he's taking the lead from the Fed. Everyone is just on hold."
The big banks are all down around 1 per cent, while miners and energy stocks are offering some support to the market.
BHP has gained 0.9 per cen, South32 is up 1.9 per cent and Origin Energy has added 2.1 per cent.
We just mentioned outgoing Reserve Bank governor Glenn Stevens talking about the dollar in a long interview with the AFR.
Another thing Stevens spoke about was his "discomfort' about rising Sydney house prices, but he argued that these concerns need to be weighed up against the need to stimulate economic activity.
Stevens said that there were some mixed evidence as to the strength of the housing market. Although real estate auction clearance rates are high, the number of houses being put up for auction had fallen, and lending for housing had slowed.
"Prices are probably rising smartly in some areas, but in other areas they're not, and in some cities in the country, they're falling," he said, in what is the clearest acknowledgement to date that the central bank is concerned about outsized price rises in some sectors of the market.
"So I think it's a mixed picture. It's not without risk, and it certainly gives me some discomfort, but then we're balancing that against the other obligations we have to pursue."
Stevens also pointed out that Australia had a new "two speed" economy, with strong growth in states such as NSW, while resource-rich states, such as Western Australia and Queensland, had seen growth rates slump as the mining boom had ended.
The Australian dollar has fallen back to earth after a wild night that briefly saw the currency hit a three-week high, before slumping nearly a whole cent.
Boosted by better than expected Chinese trade data and the European Central Bank's decision to keep monetary policy unchanged, the Aussie rose as high as 77.32 US cents overnight.
But it slid just as quickly, falling to a low of 76.36 US cents this morning, before stabilising around 76.5 US cents mid-morning.
The falls closely tracked a similar drop in the euro, but NAB said that comments by RBA chief Glenn Stevens may have exacerbated the plunge in the local currency.
Stevens told the AFR that the Aussie is close to fair value at its current level, but added the currency "could give us trouble" if it appreciates, a warning that seemed to play some part in taking the dollar back below 77 US cents, NAB senior economist David de Garis said.
Stevens also made the point that it's "my position, in recent times, it (the AUD) has been adjusting as it should".
AxiTrader chief market strategist Greg McKenna saw the selling more linked to the euro's path, but added that sellers have jumped in whenever the currency tops the 77c-level.
"All eyes were on ECB president Mario Draghi last night when he said the QE program has not been discussed. And some traders and market observers took that as a sign that the QE could be ending," McKenna said.
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Various soft leads are likely to cause a modest weakening of the Australian equity market on open and a close below 5372 will effectively see the index close down four weeks in a row.
- ASX: The ASX 200 likely to open around 5350, with SPI futures -14 points. BHP should find support on the higher oil price, while banks may open slightly lower.
- International equities: Flat leads from Wall Street for Asian equities, with the S&P 500 closing -0.2%, with volume 11% above the 30-day average. Energy and financial stocks the outperformers on the session. The key range on the S&P 500 is 2192 to 2150 and a break of this range could be significant and hold influence for many other developed market equity indices.
- Bonds: Strong moves have been seen in European and US fixed income market, largely as a result as ECB doing absolutely nothing. These moves have had natural flow on into FX and equity markets.
- Currencies: The USD rallied 0.2% on the session, with good gains against the JPY, NZD and AUD, while EUR/USD was the much watch currency gaining 0.2%, although the pair is now well of the session high of $1.1327. AUD/USD trading a session range of $0.7733 to $0.7635. Strong technical selling coming into AUD/USD with downside risks building here. At 6:30am, the Aussie is fetching 76.41 US cents, 78.36 Japanese yen, 67.89 Euro cents and 57.45 British pence.
- ECB: Mario Draghi and the ECB providing traders with absolutely no insight on policy, despite lowering inflation projections and the market having many questions about the future of its bond buying program.
- Fed: The lack of ECB action has given some increased scope for the Federal Reserve (Fed) to hike this year, with the probability of a September hike increasing 8 percentage points to 28%.
- Energy: US crude is up 2.5% since the ASX 200 cash market close after we saw the biggest inventory drawdown since 1999. A sizeable drop in imports, married with strong refinery activity and weather issues causing the drop. Analysts had expected a gain of 905,000 barrels.
- Local data: Event risk centres on Aussie July home loans and China CPI (consensus is for 1.7%) and PPI (-0.9% - the lowest since July 2014). Neither should really shake markets into life.
Mario Draghi and the European Central Bank gave traders and investors absolutely nothing to work with, says IG strategist Chris Weston:
This seems quite bizarre given they have lowered their inflation forecasts for 2017 to 1.2% and while this is a mere rounding issue from its June forecast of 1.3% it simply pulls it further and further from their inflation mandate.
Throw in market based measures of inflation expectations close to record lows, loan growth to non-financial firms dropping in certain Southern European countries and technicalities around the conditions of asset purchases suggesting they will simply run out of bonds to buy by March 2017 and one can understand why the market wanted more meat on the bone.
So, we have actually been left with more questions than certainties around ECB policy and while most will still be expecting more bond purchases and an extension of the program which ends in March 2017, one questions if we could actually see this program being unwound somewhat or tapered in coming meetings!
If we bring it back to markets, Mario Draghi has lost control in influencing the EUR, but his objective was always to lower borrowing rates for corporate and sovereigns and place more emphasis on promoting fiscal policy and from that perspective the ECB have done a great job.
It's just a shame that there is a lack of demand in Europe for credit and it's hard to agree with Mario Draghi that the 'monetary policy transmission has never worked better'.
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