That's all for ... this month.
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Shares closed lower, led down by the big banks on jitters about the future of German banking giant Deutsche Bank, but the market managed to eke out marginal gains for the week and the month.
The ASX fell 0.65 per cent to 5435.9, up 0.08 per cent for the week and 0.05 per cent in September.
CBA was the main drag on the benchmark index on Friday, falling 1.5 per cent, followed by Westpac, down 1.4 per cent, NAB, minus 1 per cent, and ANZ, which slipped 0.7 per cent.
Miners also mostly ended lower, with South32 falling 1.2 per cent and Newcrest losing 0.9 per cent, but energy stocks built on yesterday's strong rally in the wake of the surprise OPEC oil production cut deal. Oil Search added another 1.3 per cent and Woodside gained 0.6 per cent.
Southern Cross Media was the worst performer on the index, down 13.2 per cent, after Nine Entertainment exited the company.
Over the month, miners and real estate stocks were the main winners, rising 2.3 per cent and 3 per cent respectively.
Qantas has returned to the Australian corporate bond market for the first time after its investment grade credit rating was restored to raise $425 million of long term debt in the bond market.
The airline's higher credit rating allowed it to cut the cost of seven-year debt dramatically from 7.50 per cent to about 4.5 per cent, saving millions of dollars in interest payments. Ultra-low global interest rates also helped.
Qantas raised $250 million of seven-year bonds at a margin of 2.58 percentage points over the bank rate, or 4.4625 per cent, well below the initial marketed guidance of 2.70 percentage points over the bank rate.
The airline also marketed a 10-year bond at a margin of 2.90 percentage points, taking advantage for demand for corporate debt, pricing the $175 million raising at 2.80 percentage points over the bank rate, with a coupon of 4.75 per cent.
The bond deal marked a dramatic change in fortunes for the airline that was downgraded to junk status by the major credit rating agencies - with Standard & Poor's stripping the investment grade rating in late 2013 with Moody's following in January 2014
For very good reasons September and October have managed to carve a niche for themselves in sharemarket history as some of the toughest months going around, the AFR's Phil Baker says:
But for all the worries facing investors this September hasn't been too bad for the major S&P ASX 200 index, on track to close at around 5434, not that far away from where it started trading for the month just over four weeks ago.
It probably helped that around $4.5 billion in dividends was paid out to investors over the past week and with that theme in mind maybe October will get off to a good start with another $7 billion slated to be paid next week.
It was also a good quarter for shares with the major index up almost 4 per cent over the past three months. The major index is now up 2.5 per cent with three months of 2016 left to navigate.
A look at the best and worst stocks over the past month and quarter reveal that resource stocks are back in favour.
It's probably too late to jump in now but resource companies, not known for dealing with the excesses of any boom that comes their way, have shown they can control their costs when they try.
While there's no shortage of commentators getting headlines for predicting a looming crash – as they have for the better part of a decade – there are other researchers suggesting Sydney in particular will remain strong for at least another year or so.
Deutsche Bank chief economist Adam Boyton is in the latter category. Among the points made in some solid Deutsche research this week, Boyton highlighted that housing is different to other markets in that housing supply is relatively fixed in the short run. By the short run, he means a quite a few years.
"After all, there are around 9 million dwellings in Australia, with a strong year for housing construction only increasing supply by around 2 per cent, once we take into account not just completions but also demolitions," he wrote. "Add to that the lags involved from planning, to approval and then to construction.
"That combines to suggest that, yes, while in the very long run supply matters, over even a five to 10-year horizon it is likely to be the demand side that has a greater impact on house prices. Specifically, it is likely to be factors that shift the demand curve that drive trends in house prices."
Boyton goes on to demonstrate that borrowing power is the major force in shifting the demand curve. Borrowing power in turn comes from the combination of movements in income, interest rates and credit availability. Adding income growth and falling interest rates, Boyton produces a graph showing a very neat correlation between the growth of borrowing power and Sydney house prices.
Assuming 30 per cent of gross income was allocated to mortgage repayments, the average household's borrowing power grew by 286 per cent to $485,000 over the 20 years to 2015. Average Sydney house prices grew by 283 per cent over the same period.
Oil prices have slipped on profit-taking, after rising 7 per cent in the past two sessions, amid doubts that OPEC's first planned output cut in eight years would make a substantial dent in the global crude glut.
London Brent crude for November delivery, which expires after the settlement later in the day, is down 0.6 per cent at $US48.93 a barrel.
The Organisation of the Petroleum Exporting Countries agreed on Wednesday to cut output to 32.5-33.0 million barrels per day (bpd) from around 33.5 million bpd, in what would be its first production cut in eight years.
OPEC said other details will be known at its policy meeting in November, leaving unanswered when the agreement will come into effect, what new quotas for member countries will be and for what periods, and how compliance will be verified.
OPEC officials said their plan will remove around 700,000 bpd from the market. Analysts estimate the global crude oversupply at between 1.0-1.5 million bpd.
Analysts at Goldman Sachs said higher crude prices will spur non-OPEC output, particularly US shale oil. The US oil drilling rig count has risen in 12 of the 13 past weeks.
"If this proposed cut is strictly enforced and supports prices, we would expect it to prove self defeating medium-term with a large drilling response around the world," Goldman said in a note.
But Societe Generale analyst Michael Wittner said the real significance in the deal was not the size of the actual production cut, but that Saudi Arabia and OPEC have returned to active market management.
"Uncertainty about the deal will contribute to continued high volatility in the next two months, he said. "However, we believe that oil market participants will now be much more reluctant to maintain or establish significant short positions for crude oil."
Here's a nice behind-the-scenes account by Bloomberg of how Algeria managed to coax OPEC members to strike the surprise deal
CBA has quietly slashed some of its term deposit rates, just two months after boasting that increases could help millions of savers.
The bank had responded to the Reserve Bank's cash rate cut in August by passing on only half to home owners and small businesses and lessening the outrage by boosting one, two and three-year term deposit rates to 3 per cent or more.
Ahead of a parliamentary grilling of the big banks next week, it has chopped the one-year rate to 2.4 per cent and the two-year rate to 2.45 per cent – now some of the lowest rates in the country. The three-year rate is the same.
"It was a PR exercise from the start, a temporary measure. It was to make their decision sound a bit better, dress it up and make it politically palatable," said Omkar Joshi at Watermark Funds Management.
"The next day we saw Treasurer Scott Morrison say 'very rarely after a cash rate cut do banks lift term deposit rates' but less than 2 per cent of bank term deposit rates are above the 12-month duration anyway."
Bond king Jeffrey Gundlach, chief executive of DoubleLine Capital, says investors should tread carefully when shorting Deutsche Bank shares because a government bailout is not out of the question.
"I would just stay away. It's un-analyzable," Gundlach told Reuters about Deutsche Bank shares and debt. "It's too binary. The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be."
Gundlach said investors who are betting against shares in Deutsche Bank might find it futile.
Put open interest for Deutsche Bank has gone ABSOLUTELY parabolic: https://t.co/PwZWjiVDDT$DB
— StockTwits (@StockTwits) September 29, 2016
"One day, Deutsche Bank shares will go up 40 per cent. And it will be the day the government bails them out. That jump will happen in a minute," Gundlach said. "It is about an event which is completely out of your control."
Gundlach noted that financials and banks have been poor relative performers all year.
"Something has been hurting the banks," he said. "It is not a coincidence that increased regulation and bizarre monetary policies have coincided with relatively poor performance from the banking sector. They have been very poor relative performers, particularly for the last five quarters at the onset of negative interest rate policies."
Gundlach said investors should continue to stay defensive. About recent market weakness, Gundlach said: "It doesn't feel like it's over."
It's becoming more likely that we've seen the last RBA rate cut, says HSBC chief economist Paul Bloxham.
The central bank has cut the cash rate twice this year, in May and August, and while many economists have pencilled in further easing later this year and/or early next year, a few have started to reconsider as economic growth picks up and commodity prices recover.
The Reserve Bank is very unlikely to ease at Phil Lowe's first meeting as governor next week. A vast majority of economists expect the central bank to remain on hold and financial markets are pricing in zero chance of a move.
But what's it look like further down the road? Financial markets are still pricing in a 72 per cent chance of a cut by July, but Bloxham says there are three main reasons why the RBA is likely to remain on hold:
1. Growth is strong. The Q2 GDP print showed growth of 3.3 per cent year-on-year, which is above-trend. Looking forward, we also expect growth to remain well supported, particularly as the big drag from mining investment is set to fade. There are also signs of lifting non-business investment and the forward indicators suggest that labour market conditions continue to gradually improve.
2. Commodity prices have risen and we expect that they have passed the trough. This has already supported a modest pick-up in national income growth and is set to boost export values, which have been weak in recent years. The particularly sharp rise in the price of coal(Australia's second largest export), due to Chinese production cuts, should boost local incomes in the coming months.
3. Inflation bottoms: Although underlying inflation remains below the RBA's 2-3 per cent target, we suspect it may be close to its trough,given strong growth and rising commodity prices. The RBA also seems quite prepared to tolerate below target inflation for a period, as long as it believes it will head back to target over time.
The key risk to this view is that rising commodity prices and local growth could boost the Aussie dollar beyond the RBA's comfort zone, Bloxham says.
"If the AUD were to lift, it could weigh on export growth and inflation. Clearly, the global rates outlook also plays a key role."
Private sector credit growth rose 0.4 per cent in August, to be up 5.8 per cent over the year.
Among the components, housing credit rose by 0.5 per cent in the month, while the annual rate dropped again to 6.5 per cent.
The annual rate of growth for investor credit outstanding for housing continued on its downward trend, falling to 4.6 per cent in August, the slowest pace in about five years. That should be of comfort to the RBA, as the rate is well below the 10 per cent upper level that APRA flagged in its lending guidelines that came into place in early 2015
Business credit rose by 0.1 per cent in August to be 5.7 per cent higher over the year, while personal credit shrank 0.1 per cent in the month to be 1.2 per cent lower than a year ago.
The numbers confirm that the lacklustre performance of business credit has persisted into the third quarter, said JPMorgan economist Tom Kennedy.
"While the data don't provide a sectoral breakdown, we suspect the slowing may relate to tighter conditions in construction and developer finance, reflecting mounting risks recently cited by the RBA."
The central bank is hoping for a faster rate of business credit growth as the economy transitions to non‑mining business investment.
China's factory activity expanded marginally in September as domestic and export orders picked, suggesting the recent cyclical pick-up in the economy is continuing.
The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) rose to 50.1, in line with analysts' forecasts and slightly higher than August's no-change mark of 50.0, which separates expansion of activity from contraction on a monthly basis.
The reading has bounced around the neutral 50 level for the best part of five years, pointing to stubbornly sluggish demand.
Output expanded in September, but at the slowest pace in three months, the survey showed.
"The readings for the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilise," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note accompanying the PMI report.
A construction boom fuelled by government infrastructure spending and a housing market rally have helped to underpin growth in the world's second-largest economy in recent months, though small and mid-sized private firms like those which dominate the Caixin survey have continued to struggle.
The upshot is that today's data remain consistent with broader evidence that the economy has gained momentum recently, said Capital Economics China economist Julian Evans-Pritchard.
"We think that the acceleration in credit growth over the past year will keep this cyclical upturn going until early next year. It may not last much longer, however, given that the People's Bank has held back from adding to policy support in recent quarters."
Contrary to what some are claiming, the AFR's Chris Joye remains convinced the housing market is on fire:
The September house price index results are grim for those claiming the market is "cooling". Home values have jumped a strong 0.8 per cent across Australia's five largest capital cities in September, according to the index provider with the most comprehensive data and measurement methodology, CoreLogic.
Over the three months to September 30, national dwelling values have appreciated 2.7 per cent, which is an 11.2 per cent annualised pace, care of the Reserve Bank's rate cuts in May and August.
This is entirely consistent with the lofty auction clearance rates reported in Sydney and Melbourne, which have averaged 78.8 per cent over the past seven weeks – higher than the same period a year ago. (Across all cities the 75.1 per cent volume-weighted clearance rate is also up slightly on 12 months ago.)
Yes, sales volumes have declined but, as we previously explained, this is because new listings in Sydney and Melbourne have been falling as the four-year-long boom exhausts the number of owner-occupiers willing to trade for a capital gain. Lower turnover is therefore a signal of the boom's strength, not any weakness, as the RBA has suggested.
Woolworths has confirmed one of the worst kept secrets in retailing, that it is likely to sell its petrol retailing arm, with a number of offers on the table.
The retailer said it is "currently evaluating whether to retain or dispose of its petrol business".
"Woolworths has received incomplete and conditional proposals from a number of parties in relation to the purchase of the business and the development of an enhanced convenience and loyalty offer to its customers."
Supplied by Caltex, Woolworths operates 530 petrol stations across the country, a number of which also include convenience stores.
Caltex has made little secret of its desire to buy the business, confirming its interest when releasing its results last month.
In the year to June, Woolworths generated $4.6 billion in sales from its petrol stations, due to a decline of 2.4 per cent in the underlying volume of petrol sold, but with sales hurt by a redrawing of its tie-up with Caltex which resulted in 131 Caltex operated sites being excluded from Woolworths numbers.
Woolies shares are up 0.1 per cent at $23.35.
Sales of new home sales bounced back in August, but only enough to offset a little more than half the previous month's fall.
The Housing Industry Association said sales jumped 6.1 per cent in August after dropping by "a rather hefty 9.7 per cent" in July.
"That's a bit like losing some momentum on a trampoline, but maintaining an overall height that is still impressive," HIA said.
Aust HIA Aug new home sales +6.1%mom (after -9.7% in July). Tracing out a gradual downtrend...but still strong pic.twitter.com/8HLBm7H5yr
— Shane Oliver (@ShaneOliverAMP) September 30, 2016
Japan's Nomura Research Institute has offered $1.63 a share for ASG Group, valuing the IT contractor's diluted equity at $349 million.
The two parties have entered into a scheme implementation agreement whereby NRI will acquire 100 per cent of ASG's shares.
NRI's offer price represents a 20 per cent premium to Thursday's close and a 27 per cent premium to the 10 trading day volume weighted average price.
Shares are up 16.5 per cent at $1.59.
Back to topOne of the mysteries of the oil market is the question of how much crude oil China has squirrelled away in commercial and strategic stockpiles.
Now a satellite imaging firm called Orbital Insight claims to have an answer. It says that in May, Chinese inventories stood at 600 million barrels, substantially larger than commonly thought and nearly as big as the US Strategic Petroleum Reserve.
Chinese storage capacity, which includes working inventory, is four times greater than widely used estimates, the firm says, adding that it has not only been able to count storage tanks, but it has also used imaging techniques to figure out how much oil is in the tanks.
The issue could influence expectations in oil markets. If China has built larger reserves than previously estimated, that means much of what looked like oil demand over the past couple of years was not a result of higher consumption but of strategic planning. It would make OPEC's task of cutting output to drive up prices more difficult. And it could provide a buffer for China in the event of a sudden disruption in imported supplies.
A chart is doing the rounds implying that Deutsche is the next Lehman - the bank blow-up that sparked the global financial crisis.
"There is a fear that Deutsche Bank is setting up as Europe's Lehman Brothers moment," said CMC market analyst Jasper Lawler.
While there's no doubt that Deutsche, which the IMF recently called the biggest risk to the global financial system, is creating a growing headache for investors, most dispute that we're close to GFC 2.0.
The main reason for Deutsche not being the next Lehman is that its balance sheet still looks strong enough to weather a crisis, eg its loan book of 433 billion euros contains just 19 billion euros worth of loans to riskier industries, while its provisions for soured loans was just at 3.5 per cent of net revenues.
It's also worth noting that the hedge funds that Bloomberg reported as shunning the bank did so for counterparty risk, not credit risk.
Since Lehmans went bust in September 2008, international authorities have tried to create new structures that allow banks to fail while leaving the rest of the financial system relatively unharmed.
This is why Deutsche has coco bonds that it can write off in times of trouble, and why any German state rescue would be based on the new strict rules on bailouts, which have already this year prevented a rescue for Italy's Monte dei Pasci.
Lastly, it's not likely going to be Lehman, because most investors still reckon that if push really came to shove, the German government would step in.
Despite German Chancellor Angela Merkel stating otherwise, "it's not necessarily a Lehman moment," The Lindsey Group chief market analyst Peter Boockvar told CNBC, "because we have to assume that the German government in some way will bail them out."
Boockvar said Deutsche's problems were more linked to the modern-day regulatory and central bank environment.
Negative interest rates are the toxic factor in the equation, he said: "It is a tax on capital. Every day, [negative rates] are bleeding the European banks."
Austrian Finance Minister Hans Joerg Schelling echoed this sentiment overnight, saying, "I am very convinced of is that we don't have a banking crisis, we have a profitability crisis in our banks."
"Cost-income ratios are too high, the margins are very bad due to the very dramatic interest rate situation - the banks will have to tackle those challenges and reorganise."
Schelling said Deutsche was not due to be a topic for discussion at the upcoming meeting of European finance minister, but did urge caution, saying no one would have thought the collapse of medium-sized Lehman could have triggered such a catastrophic avalanche.
Shares have opened sharply lower, pulled down by the big banks as investors around the world fret about Deutsche Bank's growing woes.
The ASX is down 0.75 per cent at 5430.4, putting the market on track for a flat week, while the All Ords has lost 0.7 per cent to 5519.2.
All sectors are in the red apart from energy, which is extending yesterday's rally after oil prices continued to rise on a surprise agreement by OPEC to cut production.
Oil Search is up 2.7 per cent, while Woodside has added 0.5 per cent.
Among the losers, the big banks are all down about 0.9 per cent, while the big miners have lost 1 per cent (Rio) and 0.3 per cent (BHP). Fortescue has dropped 2.4 per cent.
In local corporate news, Nine has sold its entire near 10 per cent stake in Southern Cross Austereo after the metropolitan and regional broadcasters struck a five-year affiliation deal earlier this year.
Nine acquired the stake in March, following a sell down from Macquarie Group. It bought 9.99 per cent of stock for $1.15 per share and sold it at $1.54 for a profit of about $30 million.
"Our relationship with Southern Cross has never been better," Nine chief executive Hugh Marks said. "The early performance of our new affiliate agreement has surpassed our expectations, and we look forward to a long and prosperous relationship between our two companies."
In April, Nine and Southern Cross signed a five-year affiliate agreement, ditching their respective partners, Bruce Grodon's WIN Corporation and Network Ten.
Gordon is Nine's largest shareholder with close to a 15 per cent stake. The 87-year-old billionaire is also the Ten Network's biggest shareholder with nearly 15 per cent.
A takeover of Southern Cross by Nine was discussed last year, but talks cooled after the former's share price continued to push north. Any takeover or merger would have required the government's proposed media ownership regulation changes to be successful.
Wall Street dropped, weighed down selling in Wells Fargo, Citi and other major banks as investors worried about the health of Deutsche Bank, as well as a fall in Apple.
The S&P 500 financial index declined 1.5 per cent after Bloomberg reported that some hedge funds have withdrawn excess cash and positions held at the German lender.
Growing concerns over the stability of Germany's biggest bank have pushed its shares to record lows and its US-listed stock tumbled 6.7 per cent.
"This Deutsche Bank story is really casting a very long shadow over equity markets," said Peter Kenny, senior market strategist at Global Markets Advisory. "In some respects, it speaks to fears over large money-centre banks having serious problems, and the last time we had that conversation was the financial crisis."
Adding to negative sentiment in the banking sector, Wells Fargo lost 2.1 per cent after US lawmakers rebuked CEO John Stumpf over his handling of sales abuses. Citigroup dropped 2.3 per cent and JPMorgan Chase fell 1.6 per cent.
Apple fell 1.55 per cent after Barclays cut its price target. The stock was the biggest drag on Wall Street.
Up 5 per cent this year, the S&P 500 is trading near 16 times expected earnings, above its 10-year average of 14.
"Equity valuations are stretched and priced for perfection," said Mike Baele, managing director with the private client reserve group at US Bank. "I would not be surprised to see additional volatility."
The Dow Jones industrial average slid 1.07 per cent to 18,143.45 points at the close, its sharpest decline in two weeks. The S&P 500 lost 0.93 per cent to end at 2,151.13 and the Nasdaq Composite dropped 0.93 per cent to 5,269.15.
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