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Local shares have lost more than $40 billion in value in a surprisingly strong selloff, as investors were spooked by a number of disappointing earnings updates.
After a fairly calm start to the session, selling picked up in the afternoon and the ASX closed at the day's low.
The benchmark index fell 1.2 per cent to 5295.5, taking losses over the past two sessions to 2.7 per cent.
Wesfarmers was again one of the biggest drags on the market, falling 2.7 per cent as investors continued to fret over yesterday's quarterly update, showing soft sales growth at Coles.
South32 was another big loser, falling a whopping 8.1 per cent. There was no company specific news out, but materials overall had a tough day, with the sub-index slumping 2.1 per cent.
In a busy day of annual general meetings, shareholders of JB Hi-Fi, Tatts Group, Blackmores, Ardent Leisure, Challenger, Steadfast, Tassal, APA and Whitehaven Coal came toe to toe with company boards.
Among the updates, Blackmores shares briefly tumbled below the $100 mark, falling more than 50 per cent since the start of the year, but clawing back to close 1.3 per cent higher after the vitamin maker flagged a poor start to the financial year, with September quarter net profit diving 46.6 per cent to $12 million.
NAB's $6.48 billion profit, which exceeded analyst expectations, cheered investors who sent the stock up as high as 1.5 per cent before closing 0.5 per cent higher. The positivity failed to spill into the other banks, which all closed lower, with Commonwealth Bank the biggest drag on the Index, down 1.6 per cent.
There were some other bright spots, with Challenger announcing at its AGM it had entered annuity deals with AMP and Mitsui Sumitomo Primary Life Insurance to diversify is product range while reaffirming its Life segment's 2017 cash earnings operating earnings guidance range of $620 million to $640 million. It sparked a rally in its shares but lost some steam by end of trade, closing 4.3 per cent higher.
The demise of Dick Smith and the launch of Apple's iPhone 7 have helped JB Hi-Fi lift first-quarter sales by more than double the rate a year ago, but analysts believe growth is likely to slow after Christmas.
JB Hi-Fi's group chief executive Richard Murray told shareholders at the annual meeting that total sales had risen 12.4 per cent in the three months ending September and same-store sales were up 8.3 per cent - more than double the same-store sales growth of 3.7 per cent in the same period last year.
Despite the stronger than expected start, Murray reiterated his forecast for sales of $4.25 billion in 2017, excluding the impact of JB Hi-Fi's $870 million acquisition of The Good Guys, which is expected to be completed late next month.
The forecast implies top-line sales growth of 7.5 per cent and same-store sales growth of 4.5 per cent and suggests that JB Hi-Fi does not expect the strong momentum in the first quarter to be maintained through the year.
Analysts said JB Hi-Fi had enjoyed a fillip in the first quarter from the collapse of Dick Smith, which had removed an aggressive competitor, the launch of the iPhone 7 and higher average selling prices in the wake of the weaker Australian dollar.
This time last year Dick Smith was slashing prices of brands such as Apple and Fitbit and discounting big-screen televisions in a desperate attempt to clear excess inventories after months of weak sales. The stock clearance ultimately failed and the company collapsed in January.
Analysts believe new products such as gaming consoles, virtual reality devices and the Google phone are likely to keep sales growth humming at least until Christmas.
Sales growth is likely to slow after Christmas as JB Hi-Fi laps Dick Smith's closure, but strong gains in the first half are likely to boost margins for the year.
JB Hi-Fi shares rose as much as 5 per cent in early trade but ended just 1 per cent higher at $28.28, but are still 8 per cent higher than the $26.20 investors paid in September to take up their entitlements in a $394 million capital raising to part-fund The Good Guys acquisition.
"This is a strong result," said Deutsche Bank analyst Michael Simotas. "Optically it is clearly higher than guidance implies but the fact that the company said first quarter sales growth was 'in line with expectations' suggests to us that it expects the Dick Smith tailwind to dissipate after the first half."
"While JB Hi-Fi is clearly executing well and maximising the benefit of these tailwinds, we caution against capitalising the current run-rate of growth," said Citigroup analyst Bryan Raymond.
And there it is: the ASX has just fallen through the 5300-mark, losing more than $40 billion in a surprisingly strong two-day selloff.
Citi head of equity sales Karen Jorritsma said the selling, which accelerated in the afternoon, was due to falls in momentum, or high PE stocks.
"I think it's around valuations, two weeks ago [high PE stocks] were looking pretty toppy," she said. "A couple of downgrades have reminded people that things are expensive and not invincible."
Jorristma pointed to Wesfarmer's update on Wednesday and Blackmores AGM update as examples.
"Investors are moving generally out of high PE (price-earnings) stocks into more beaten up value names."
Wesfarmers is again one of the biggest drags on the benchmark index, falling another 2.4 per cent after it dropped more than 5 per cent yesterday in its biggest slide since the GFC.
The big banks are mostly lower, apart from NAB which is hanging onto its gains after it positively surprised some investors this morning by not cutting its dividend.
Miners are also among the losers, with BHP falling 1.1 per cent and South32 down 5.4 per cent.
As losses on the overall market accelerate, threatening to pull the ASX below 5300 points for the first time in more than five weeks, Challenger's rally is fading fast.
The stock gained more than 13 per cent this morning after the firm entered annuity deals with AMP and Mitsui Sumitomo Primary Life Insurance to help diversify its product range and expand distribution relationships.
Challenger also reaffirmed its segment Life's 2017 cash operating earnings guidance range of $620 million to $640 million.
But most of the share gains have since faded and the stock is up just 4.4 per cent at $10.95.
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The 100 members of the 2016 BRW Young Rich list have enjoyed a stunning rise in wealth this year with the booming property sector and technology floats in Australia and abroad boosting overall wealth to a record $12.3 billion.
The 36-year-old Atlassian co-founders Mike Cannon-Brookes and Scott Farquhar top the Young Rich list again this year with combined wealth of $4.6 billion after the float of their software company Atlassian on the NASDAQ exchange in the United States late last year.
Number three and four on the 2016 Young Rich List are another technology duo, Dave Greiner and Ben Richardson. They are the founders of Sydney company Campaign Monitor and have combined wealth of $543 million. Although they have stepped away from day-to-day management of the firm they remain directors and shareholders.
Rounding out the top five is Perth property developer Paul Blackburne at $483 million. His Blackburne Property Group dominates the Perth apartment market and develops three to four large apartment projects per year.
Sticking with currencies, Bloomberg has an interesting piece on the 'forex witching hour':
In the global currency market, the darkest hour comes just as dawn is breaking in Asia.
Between the New York close and the start of trading in Tokyo, foreign-exchange volumes dwindle to just 2 per cent of peak turnover, according to Aite Group, a consultant in Boston. As a result, any transaction in that two-hour window will hit the market disproportionately hard.
The flash crash in Britain's pound earlier this month shows what's at stake. At about 7am Singapore time - 10am in Sydney and while London dealers were sleeping and those in New York were finishing up their day - sterling slumped more than 6 per cent in just two minutes, reaching a 31-year low.
After that, traders are more wary of leaving automatic sell orders known as stop-losses in place at times when fewer people are working and bouts of extreme volatility are more common.
"It's always been a danger zone with respect to stop losses; certainly after this, people will think about it even more," said Anthony Hall, head of foreign exchange, rates and credit in Asia Pacific at UBS, the world's third-biggest currency trader. "If you think about how the structure of the market's changing, how you would have executed orders and left stop losses in the past is no longer applicable today."
The severity of the pound's drop suggests that algorithms triggered an avalanche of automatic sell orders, adding to the downward pressure on the world's fourth-most traded currency, according to UBS and DBS Group Holdings. UBS processed its highest volume of trades in a minute as sterling plunged, Hall said.
"Movements like this recent pound crash will likely happen again at some point in time," said Peter Soh, head of foreign exchange in Singapore at DBS. "Looking back, say five years ago, moves of this intensity were unheard of."
What's changed is that post-2008 crisis regulations have caused global investment banks to pull back from dealing, while electronic traders take on a growing share of the $5.1 trillion-per-day market in their place.
Here's the article at Bloomberg
The Australian dollar is ticking lower after a two-day rally fizzled out in the face of stubborn chart resistance above 77 US cents.
The Aussie is down 0.3 per cent 76.25 US cents, despite strong terms of trade numbers. It briefly touched a high of 77.09 on Wednesday after steady inflation figures only reinforced expectations the Reserve Bank would skip a chance to cut rates at its policy meeting next Tuesday.
However, the Aussie was quick to fall back, marking the fifth time since September that it has failed to hold a beachhead at 77 US cents.
"The fact that the Aussie has collapsed from above 77 US cents in recent months just tells you that rallies are anything but another selling opportunity for traders," said Greg McKenna, chief market strategist at AxiTrader.
"So the buyers had the chance to take it higher but could not beat the bears back from this enduring supply zone."
The Aussie barely moved against the euro or sterling. It fell 0.3 percent on the yen, after rising each day this week.
Iron ore futures in China have climbed more than 1 per cent to hold near 26-month highs, reflecting firm demand for high-grade material as Chinese steel producers boost productivity to use less coal.
The spot price for high-grade iron ore rose to the highest since April overnight and its premium to low-grade material widened to the most in a month.
"I don't think there's a shortage in high-grade (iron ore) but demand for high-grade is big because of costing factors," said a Shanghai-based iron ore trader.
Iron ore for January delivery on the Dalian Commodity Exchange was up 1.2 per cent at 480.50 yuan ($US71) a tonne, marking its fourth consecutive session of gains. Spot iron ore rose 1.8 per cent to $US63.07 a tonne overnight.
Government-led capacity cuts have prompted a shortage of coal in China, including coking coal and coke used to make steel, lifting prices to multi-year highs.
"I don't think in the next couple of months we have any solution for the coal problem," the trader said.
Dalian coke was up 0.2 per cent at 1711.50 yuan per tonne, having hit 1765 yuan on Wednesday, its highest since August 2013. Coking coal dipped 0.5 per cent to 1,283 yuan, after reaching a contract high of 1332 yuan the session before.
A lift in company earnings will support sharemarkets over the next 12 months, but inflation and growth will remain subdued and keep a lid on returns, State Street Global Advisors says.
A pick up in company earnings in the US after four quarters of negative growth is providing a brighter outlook for equity markets, albeit with returns remaining subdued along with growth.
"With a one-year view we would see equities to outperform bonds but with very modest returns, in the high to single digits, and bonds at 2 to 3 per cent," said SGA's Asia Pacific head of strategy and research Thomas Poullaouec.
"In the next month [however] we have a cautious stance on equities, specifically in Japan and Europe, and are neutral on US and emerging markets."
Next month's US presidential election is unlikely to disrupt the markets beyond a short term knee-jerk reaction, Poullaouec said. While Donald Trump's chances of winning the US election were falling, even if he did succeed, while it would spark some immediate volatility, "we don't think it will have a material impact in the short term".
Echoing Citi chief global equity strategist Robert Buckland's comments last week that next year's French presidential election was a greater concern to markets than the headline-grabbing prospect of Donald Trump entering the White House, Poullaouec agreed Europe was a bigger risk.
Italy's referendum on constitutional reforms in December could result in incumbent prime minister Matteo Renzi to be thrown out which may lead to a push for an Italian exit from the European Union, the "first domino" amid a wave of anti-EU sentiment sweeping the continent ahead of elections in France and Germany in 2017.
Economists are having their say on this morning's export and import price data from the ABS. CBA economist Kristina Clifton said it was a "solid increase" in the terms of trade and the trend would lift national income:
Our estimates suggest that the terms of trade rose by a solid 3.5 per cent in Q3. This follows an increase in Q2 and would mean our ToT are 6 per cent higher than in Q1.
A rise in the terms of trade increases our purchasing power and has a positive impact on living standards. It also lifts nominal GDP or national income.
Looking ahead, the continued lift in key commodity prices is pointing to another solid increase in our terms of trade in the fourth quarter. The increase in export prices should be larger in Q4 as the run up in spot prices is reflected in contract prices.
We think that higher coal prices will be sustained until mid‑2017, which will support our overall export prices. It should also see Australia's trade position move into surplus and the current account deficit narrow, to around 2.5 per cent of GDP.
JP Morgan economist Tom Kennedy points out that this is the first time that the price index has posted back-to-back gains since 2011:
While still early days, recent dynamics in Australia's key commodity export markets suggest the terms of trade is likely to climb higher in Q4.
Indeed, spot coal prices have moved sharply higher since late September and given the preference of exporters to operate on quarterly contracts, it appears these gains are now partly crystalised from a terms of trade point of view.
Moreover, iron ore prices have also firmed and will likely add to the upward impulse to the export price index. The strength on the export side should be tempered somewhat by rising fuel prices, following the nascent effort by OPEC to curtail aggregate production.
Meanwhile, the ever upbeat Craig James at Commsec is highlighting "the biggest lift in terms of trade in five years", before going on to say:
Prices of consumer imports are still falling. The key question is whether retailers choose to pass the savings on to consumers or seek to lift margins, thus boosting revenues and profits.
A raft of businesses across the agricultural and mining sectors are experiencing rising fortunes with export prices recording solid gains over the past three months. The hope is that commodity producers will spend some of the higher income, lifting revenues of equipment and services businesses across the country.
It's another down day for Wesfarmers, with shares extending yesterday's massive 5.7 per cent slide by another 1.7 per cent as investors and analysts turn away from the Coles owner.
To recap: first-quarter sales growth at Coles slowed even more than analysts had expected, triggering the biggest one-day selloff in the stock since the global financial crisis.
The soft numbers led Deutsche to downgrade Wesfarmers to a 'sell', from 'hold', with a sharply reduced price target of $38.00.
"We had expected a sharp slowdown in Coles' growth but the Q1 result still fell short of our estimates which prompted earnings downgrades," analyst Michael Simotas writes in a note to clients.
"We believe sales growth will be increasingly difficult to come by which could undermine the value loop that has been pivotal to Coles' success."
Meanwhile, Simotas reckons that top competitor Woolworths is improving despite the deflationary environment, while Aldi continues to gain market share.
He notes the outlook for Bunnings remains bright but as Coles is the key driver of Deutsche's valuation, the stock was downgraded.
Export prices are rising but import prices have fallen for a fourth straight quarter.
The price index for exports of goods was up 3.5 per cent in the September quarter, driven by solid gains for a range of commodities including non-ferrous metals, coal, meat, gas, gold, and sugar, the ABS said.
The import price index fell 1.0 per cent in the quarter, as prices dropped for manufactured goods including telecommunications equipment and industrial machinery.
Capital outflows from China are accelerating, reaching the fastest pace since the currency panic at the start of the year, the London Telegraph's Ambrose Evans-Pritchard notes:
The latest cycle of credit-driven expansion has already peaked after 18 months. Beijing has had to slam on the brakes, scrambling to control property speculation that the Communist authorities themselves deliberately fomented.
How this episode could have happened is astonishing, given that premier Li Keqiang has warned repeatedly that excess credit is becoming dangerous and will ultimately doom China to the middle income trap.
It will be clear by early to mid 2017 that the economy is rolling over and that the underlying 'quality of growth' has deteriorated yet further. "We think the recovery will run out of steam early next year," said Chang Liu from Capital Economics.
This stop-go rotation - an all-too familiar pattern - coincides with an incipient liquidity squeeze in global finance as dollar LIBOR and Eurodollar rates ratchet upwards. A rate rise by the US Federal Reserve will clinch it.
Since the commodity rebound is in great part driven by demand for Chinese industry and construction - and by a touching belief that China's economy will sail majestically through 2017 - this looming slowdown spells trouble.
We just mentioned Blackmores, but it's not the only stock that could exit the $100 club today - CSL is also threatening to fall through that level, trading at $100.12, down 1.6 per cent for the day.
The health-care giant has lost more than 16 per cent since touching an all-time high just above $120 in late July.
But while Blackmores is sliding because it's not able to live up to its lofty expectations, CSL has been caught up in the great rotation out of yield-sensitive defensive stocks.
Health-care stocks are among the main victims, with the sub-index losing 12.6 per cent since the start of August. Fellow defensives telcos have slid 16.3 per cent, utilities are down 12.9 per cent, while real-estate stocks are down a more benign 4.1 per cent.
And the winner over the period? Pretty much only miners, with the materials sub-index rising 5.8 per cent as commodity prices recover.
It's been quite a phenomenal fall from grace for Blackmores, last year's market darling. The supplement supplier's shares have hit new lows this morning on a profit update, falling through the $100-level for the first time since August 2015.
Investors saw through the positive spin on poor September quarter earnings, and focused on the fact that full year sales will fall short of last year's record.
While confirming weak September quarter earnings, Blackmores said it enjoyed "improved sales and profitability momentum" at the end of the quarter. Even so, full year sales will fall short of last year's record, it warned.
Shares are down 5.2 per cent at $99.00, well below the all-time high in January of $220.90. The stock is this year's second-worst performer on the benchmark index, just after struggling Estia Health.
At first glance the numbers remain impressive (much more so than Estia's): In the year to June, the group's net profit more than doubled to $100 million on revenue up 52 per cent to $717 million, thanks largely to surging demand from China.
But this started to unravel in the September quarter with revenues down 8.1 per cent at $149 million as the net profit dived 46.6 per cent to just $12 million.
"We entered the second quarter with an improving sales and profit trajectory, there are positive sales trends that indicate overstocking is easing, consumer demand remains robust and we have been able to capture significant new sales in China," chief executive Christine Holgate said.
In August, the group warned that first quarter earnings would be down, and now it has confirmed that full year revenues will fall short of last year, saying only that it "remains confident in the group's strategic focus and long-term growth prospects".
Despite efforts to cool the property market, Sydney and Melbourne house prices have run away yet again, hitting new record highs.
The harbour city's median house price is now at a record $1,068,303, after a 2.7 per cent jump over the September quarter, according to Domain Group data. Domain is owned by Fairfax Media, publisher of this website.
"The growth is raging back into Sydney … we have auction clearance rates in the mid-80 per cent range, and there were two interest cuts in August and May this year," said Domain Group chief economist Andrew Wilson.
But house prices in Melbourne rose the most over the quarter, gaining 3.1 per cent on the quarter and 9.1 per cent from a year ago to a record median price of $773,669.
"This is clearly a two-speed housing market, maybe three-speed," Wilson said. "Melbourne and Sydney are in front and maybe it's second gear for all the other markets except Darwin and Perth. They're in reverse still."
This revival in the Sydney market will "likely be on the RBA's minds next week," HSBC chief economist Paul Bloxham said.
But while there's likely to be more price increases over the next few months, it will be "single digit rather than double-digit growth" on an annualised basis, he said.
Shares have stumbled lower after an early rally in the big banks and miners quickly ran out of steam and the broad mood staying cautious, amid plenty of corporate news.
The ASX 200 is a few points down at 5357, with more stocks lower than higher.
NAB's annual result helped boost the banking sector early but that quickly faded, with ANZ and CBA trading a little lower. NAB remains 1.1 per cent higher, while Westpac is 0.3 per cent ahead.
After yesterday having its worst session since the GFC, Wesfarmers is off another 1.8 per cent, so no immediate signs of a bounce there. Woolies is up 0.2 per cent. Other bluechips weighing on the market are CSL, down 0.6 per cent, and Westfield, down 1.8 per cent, perhaps as investors continue to pull back from the winners of yesterday amid Fed rate hike talk and signs of an inflection point in inflation expectations.
Real estate names such as Mirvac and Stockland are lower, despite word of new record high prices in Sydney and Melbourne houses.
APN News & Media is down heavily after returning to trade following a $2.45/share institutional capital raising.
Among companies updating the market at their AGMs, Challenger surged as much as 13 per cent and last traded 6.7 per cent higher after announcing new annuity relationships with AMP and Mitsui Sumitomo. JB Hi-Fi has rocked another 4.5 per cent higher as investors responded to utterings at its shareholder shindig.
And speaking of ROCKing on, iron ore miners enjoy another jump in the commodity price: Fortescue is up 1 per cent, although Rio is pretty flat. BHP has followed energy producers lower.
NAB's shares are up about 1.5 per cent in early trade even though the bank's full-year earnings report doesn't look particularly flash.
But Watermark Funds Management analyst Omkar Joshi notes the result is better than expected, driven largely by lower bad debts and expenses which benefited from charges taken in previous periods.
Here are Joshi's main takeaways from the result:
- Cash earnings came in 2% ahead of expectations on a full year basis and 3% ahead in the second half. However, pre-provision profits were in-line with expectations in both the second half and full year which implies the beat was driven by lower bad debts and tax.
- Pleasingly, NAB experienced 'positive jaws' in 2016, with revenue growing by 3% while expenses grew by 2%. Revenue was in-line with expectations but costs were 1% better than expected.
- The net interest margin declined by 2bps over the year to 1.88% and was 3bps below expectations for the full year. In the second half, the net interest margin declined by 11bps to 1.82% and came in 7bps below expectations. NAB has flagged the impact of term deposit costs on the margin in recent months.
- Bad debts were 14% below consensus expectations which helped drive the earnings beat. New impaireds have continued to increase (albeit marginally) in the Australian business which is not a good lead indicator of asset quality.
- The dividend was maintained at 99c, however the payout ratio for the full year is now at 81%. This is starting to look stretched and NAB has included some disclosure around the sensitivity of the payout ratio to risk-weighted asset inflation and ROEs.
Retailer JB Hi-Fi's first-quarter results have met expectations with total sales up 12.4 per cent and comparable sales up 8.3 per cent.
The consumer electronics and home appliances retailer - which is in the process of taking over rival The Good Guys - also reaffirmed its total sales guidance of around $4.25 billion for 2016-17.
Chief executive Richard Murray will tell its annual shareholder meeting later today that it hopes to complete The Good Guys deal on November 27, subject to certain conditions being met.
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