That's it for Markets Live today.
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See you all again tomorrow morning from 9.
Shares were knocked early and then struggled to pick themselves up off the canvas, while the Aussie dollar climbed a little following the RBA decision to keep rates on hold.
The ASX 200 index dropped 27 points, or 0.5 per cent, to 5291, extending October's dismal performance into the new month.
The Aussie added 0.3 of a US cent to 76.5 US cents after the central bank held rates at 1.5 per cent, but seemed to add a little more positivity into its economic outlook in the accompanying statement.
The big banks all dragged, with ANZ off 1.1 per cent, CBA off 0.9 per cent and NAB 0.4 per cent, while Westpac was flat. A 1.2 per cent drop in Telstra and a 1.1 per cent fall in Wesfarmers also weighed on the index.
Miners were down as a group, but South32 climbed 2.3 per cent and Newcrest added 0.8 per cent.
The day's worst was a 9.9 per cent fall in Orocobre, which reversed some of yesterday's big gains. There was contrasting fortunes in TV stocks: Nine added 4.1 per cent to be the day's biggest gain, but Seven dropped 4.8 per cent.
In celebration of rates remaining steady at 1.5 per cent, here's the top 10 yielding stocks in the ASX 100. The top 100 averages a net dividend yield of 3.9 per cent, which isn't too shabby. More than half yield above 4 per cent.
Being a high-yielding name is a bit of a black mark at the moment, as the enthusiasm for "yield plays" looks to have stalled in the face of rising bond rates and talk of gathering inflationary pressures. That's probably why the market overall underperformed in October - people selling the ASX dividend play.
Still, some of the yields on offer are pretty impressive and it makes you wonder how much longer investors can continue to ignore them.
Among the big four banks, NAB yields 7.1 per cent, ANZ yields 6.3 per cent, Westpac 6.2 per cent, and CBA 5.7 per cent. The market is obviously worried that the payouts aren't sustainable.
The lowest yielding names are CYBG (zero), followed by Newcrest (0.4 per cent) and South32, which yields 0.5 per cent but which has so much cash on its balance sheet that it has to return some of it to shareholders one day, right?
The strong manufacturing PMI numbers has strengthened ANZ's belief in a change in China's growth momentum.
The current PMI value has now exceeded the average value of 50.4 between January 2013 and September 2016 and represents the highest level since July 2014, the economists say.
"Thus, we believe that today's data signals the end of persistent sluggishness in the industrial sector."
The return of producer price inflation is starting to propel a change in policy momentum, they add.
"Given the property frenzy, we see little room for the People's Bank of China to ease. But the central bank will still mitigate the risk of any cash crunch in in the money market."
ANZ's base case is for the PBoC to maintain the 7-day repo rate at 2.25 per cent but the market will maintain a tightening bias, given potential concerns about deleveraging.
Three giant investors, BlackRock, Vanguard and State Street, now hold the "balance of power" in corporate governance disputes.
No longer the silent giants in the background, boards are now dealing with competing agendas from short termism of active managers and the long-term view of passive managers.
The underperformance of the majority of Australian active managers over the past few years ,coupled with the low cost of passive funds, has driven investors into products such as exchange-traded funds en masse, with total funds under management topping $23 billion this year.
The three biggest providers of passive funds are having a growing presence on company registers.
According to Morningstar research, BlackRock holds 5 per cent or more of 43 companies on the ASX, including Bendigo and Adelaide Bank, CSL, Rio Tinto, Suncorp and Transurban.
State Street Global Advisors holds 5 per cent or more of nine companies, mostly REITs, while Vanguard sits on 32 companies including Tabcorp, Aristocrat Leisure and Mirvac.
The three majors have become a "balance of power" in the matters of corporate governance, including corporate transactions, mergers, schemes of arrangement and voting, proxy advisory firm Ownership Matters co-founder Dean Paatsch said.
The trend is most prominent in the REIT sector, with passive funds making up to 20 per cent of total holdings.
While these behemoths are perceived to have little reason to intervene in company decision making, the very fact that these funds cannot sell their holdings means they must develop productive relationships with company boards, BlackRock head of Asia Pacific corporate governance and responsible investment Pru Bennett said.
"We can find ourselves invested in companies we have concerns about from an ESG [environmental, social and governance] perspective," she said.
"An active manager can sell if they've got concerns. We can't sell, so we're locked in. We take a long-term view, and develop constructive relationships," she said.
Banks have quietly taken the knife to term deposit interest rates that three months were trumpeted by the industry as a sign it was balancing the needs of savers with borrowers.
When the major banks only passed on about half of the Reserve Bank's August rate cut to home loan customers, they also took the unusual step of raising some term deposits rates by as much as 0.85 percentage points.
Now, however, many of these deals have been quietly reduced, especially among the most popular terms of up to one year.
A swag of banks including Westpac, NAB and ANZ reduced some of their term deposit rates during October, figures from Mozo showed.
The wave of cuts comes after the Commonwealth Bank slashed some of its term deposit rates in September by up to 0.65 percentage points.
Here's AFR Chanticleer columnist Tony Boyd on AMP's recent travails:
Fund managers say it is the stock that the market loves to hate but the recent battering given to financial services group AMP has piqued the interest of deep value investors.
AMP is now trading at a 20 per cent discount to the sum of the parts valuations of several leading broking analysts.
One analyst, Daniel Toohey at Morgan Stanley, says the sum of the parts value is $5.71 compared to Tuesday morning's price of $4.51.
Also, investors are being paid handsomely to hold the stock. At the current price the stock has a yield of 6.2 per cent and grossed up yield after franking of about 8 per cent.
Since Friday's shocking $1.3 billion write-downs in its life insurance business AMP shares are down 12 per cent. The stock is down 22 per cent from its high this year of $5.80 hit on August 8.
There are many reasons why the company is struggling to get strong buying support in the market at current levels.
First, the company has been a disappointment over the past six years. For example, its price to book, which averaged about 5.5 between 2003 and 2007, has been about 2.2 since 2010.
The takeover of the Australian arm of AXA Asia Pacific never delivered what was promised. The synergy benefits were drawn out over too many years.
Another reason is that the market now expects earnings to track sideways for several years. Earnings per share are not expected to be higher than the 2015 result until 2019.
AMP's core business of wealth management is suffering from the Australia-wide trend toward independent financial advice.
For example, the Tynan Mackenzie financial planning business has lost about $5 billion in funds under management since become part of the AMP group.
Another reason why AMP's shares are struggling to get support at levels that prevailed in 2009, is that it is virtually impossible to see a catalyst for boosting the share price in the short or medium term.
One possible trigger for a re-rating would be takeover activity. But the big four banks would be forbidden from bidding for the company on competition grounds.
Here are a few economist reactions to the RBA's decision (we'll surely get more once the dust from the big race has settled):
Rahul Bajoria, Barclays:
The most notable change in the policy statement was its guidance that the RBA's forecasts for growth and inflation remain largely unchanged from the August statement on monetary policy, with growth in next year forecast be close to potential, before strengthening gradually. We believe today's statement is slightly neutral relative to previous statements, although the guidance paragraph was again left unchanged. We believe the RBA will maintain a data-dependent stance on policy rates, but the urgency to reduce rates is not present as of now.
Josh Williamson, Citi:
We still expect the RBA to deliver more policy easing to support aggregate demand and inflation returning to trend and to the target band respectively. The next opportunity could be May 2017 when the Q1 2017 CPI will need to show that underlying inflation is picking up from 1.5 per cent otherwise the RBA will need to revise its forecasts and provide more stimulus.
Sally Auld, JPMorgan:
There are a number of reasons for the central bank to prefer a period of inactivity; first, it gives the RBA time to observe trends in the housing market. Second, the RBA will be keen to observe the path of commodity prices, especially to assess whether the recent rise in both coal and iron ore prices is transitory or otherwise. Third, the end of the decline in mining investment is now in the forecast horizon, meaning that the RBA might have a little more confidence in medium term growth outcomes. Finally, labour market data also warrant further scrutiny. Hours worked were weak in the 2Q national accounts, and the quality vs. quantity issues in job creation appear to have intensified in recent months.
Paul Bloxham, HSBC:
It's clear that although inflation is still below target the RBA is making use of the 'flexible' and 'medium-term' nature of the inflation targeting regime. In short, the RBA decision-makers are not 'inflation nutters'. Today they backed this up with (lack of) action. Overall, the statement was little changed from last month. Somewhat surprisingly, there was no specific reference to the recent sharp rise in coal prices. We expect the RBA to be on hold at 1.50 per cent in coming quarters.
Paul Dales, Capital Economics:
The decision by the Reserve Bank to leave interest rates at 1.5 per cent today may fuel some speculation that the next move in rates will be up, although not for a long time. That possibility shouldn't be ignored, but we're not convinced that the low inflation problem has been solved yet. If underlying inflation fails to rise as fast as the RBA hopes in the second half of next year, then the Bank may yet cut rates to 1.0 per cent.
Craig James, CommSec:
Rates may have bottomed but that doesn't mean they are likely to rise within the next year. So that means investors have to continue doing their research to find the best investment returns. The Reserve Bank will closely assess data on wages and inflation expectations in determining the next move on interest rates – either up or down. If inflation expectations fall too far – suggesting that inflation could stay below the 2 per cent for an extended period – then the Reserve Bank could cut rates again. If wages start lifting then the Reserve Bank will start thinking about increasing interest rates.
Tom Kennedy, JPMorgan:
In terms of the statement, I think a lot of it was quite similar to the past few months. In terms of notable changes, I'd say there was an unusual step in that they explicitly referenced to the upcoming statement of monetary policy on Friday. They kind of said growth and inflation are going to be unchanged in terms of their forecast. That's kind of interesting. Another thing I'd probably highlight is that the language of late has softened a little bit. Very slight change, but they obviously make these changes for a reason. Given that we think this cycle is all about inflation, I'd say this statement in neutral.
Brendan Rynne, KPMG:
The RBA was right to keep rates unchanged. With the US election outcome still unclear next week, the prospect of a shock to the global markets cannot be ruled out. Australia must maintain some headroom in its official cash rate in case we were to get hit with an international downturn. By not having our cash rate at, or near, the 0% lower bound we have the capacity to drop rates in order to minimise any shock to our domestic economy. There is a lot of noise in recent economic statistics, including last week's higher-than-expected consumer price inflation figures, which means there is no clarity in which way the RBA should jump.
Michael Blythe, CBA:
We were expecting to see a cut, so an element of surprise there, though we didn't have those cut views with really strong convictions. It does look like the RBA has become a little bit more concerned about the housing market, whether it's cooling or not, so that kind of financial stability issue is a little bit more prominent for them we think. There doesn't seem to be a particular bias there, but what they have said is their inflation forecasts are basically unchanged. That means they are looking at more than two years of sub-2 per cent inflation.
Su-Lin Ong, RBC:
The statement was a little more upbeat. On the global front, the discussion around China's growth in infrastructure and property construction was more upbeat and the discussion around (Australian) growth in residential construction and the idea that the economy is forecast to grow close to potential is also much more positive. It's a more hawkish tone than the market had been anticipating. There is not much of a bias at all. There is a very mild easing tone. We see rates on hold and we still have a cut in the second quarter of 2017.
The RBA's decision to keep rates steady has knocked on the head any hopes of a sharemarket recovery today, while the Aussie dollar has climbed 0.3 per cent of a US cent to 76.5 US cents.
The ASX 200 is now 38 points, or 0.7 per cent, lower at 5281, losing a modest 10 points post the announcement. The 10-year Aussie government bond yield lifted a touch to 2.365 per cent.
Some reactions on Twitter to the RBA's hold decision:
No easing bias inserted; slightly hawkish if anything: inflation expected to pick up gradually, not remain low for extended period #ausbiz https://t.co/yK4UqO1ute
— Carson Scott (@CarsonScott) November 1, 2016
RBA's easing cycle over for time being---fixed-rate govt bonds selling off (yields rising) after getting hammered in Oct @FinancialReview
— christopher joye (@cjoye) November 1, 2016
...RBA once again laments the Aussie Dollar's height. Says currency could complication adjustment. Mkt's have no palette for subtle
— John Kicklighter (@JohnKicklighter) November 1, 2016
The last interest rate hike was November 2011. T'was a long time ago....
— Stephen Koukoulas (@TheKouk) November 1, 2016
Back to topStrong China PMI, RBA steady at 1.5% with neutral bias = about +0.5% on AUD/USD. Not a bad day at the office before the big race pic.twitter.com/q8M1t9DxUG
— Sean Callow (@seandcallow) November 1, 2016
Here's the statement by RBA chief Philip Lowe explaining today's decision:
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past year, but growth in global industrial production and trade remains subdued. Economic conditions in China have steadied recently, supported by growth in infrastructure and property construction, although medium-term risks to growth remain. Inflation remains below most central banks' targets.
Commodity prices have risen over recent months, following the very substantial declines over the past few years. The higher commodity prices have supported a rise in Australia's terms of trade, although they remain much lower than they have been in recent years.
Financial markets are functioning effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Government bond yields have risen, but are still low by historical standards.
In Australia, the economy is growing at a moderate rate. The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports. Household consumption has been growing at a reasonable pace, but appears to have slowed a little recently. Measures of household and business sentiment remain above average.
Labour market indicators continue to be somewhat mixed. The unemployment rate has declined this year, although there is considerable variation in employment growth across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term.
Inflation remains quite low. The September quarter inflation data were broadly as expected, with underlying inflation continuing to run at around 1½ per cent. Subdued growth in labour costs and very low cost pressures elsewhere in the world mean that inflation is expected to remain low for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.
The Bank's forecasts for output growth and inflation are little changed from those of three months ago. Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years.
In the housing market, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. Turnover in the housing market and growth in lending for housing have slowed over the past year. The rate of increase in housing prices is also lower than it was a year ago, although prices in some markets have been rising briskly over the past few months. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.
Taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
Interest rates steady
There was a case to cut, but new Reserve Bank Governor Philip Lowe has kept rates on hold. Peter Martin explains why.
The RBA has held rates steady at a record low 1.5 per cent.
The outcome was expected by the wide majority of economists, and the decision was also baked in to market pricing.
The central bank has cut its official cash rate target twice this year, in May and August.
The Bank of Japan has held off on expanding stimulus despite pushing back the time frame for hitting its 2 per cent inflation target, signalling that it will stand pat unless a severe market shock threatens to derail a fragile recovery.
In a widely expected move, the BoJ maintained the 0.1 per cent interest it charges for a portion of excess reserves that financial institutions park with the central bank.
At the two-day policy meeting that ended today, it also left unchanged its 10-year government bond yield target around zero per cent.
While the BoJ no longer targets the pace of money printing, it maintained a pledge to keep buying government bonds so the balance of its holdings increases at an annual pace of 80 trillion yen.
At a quarterly review of its forecasts, the BoJ cut its core consumer inflation forecast for the next fiscal year ending in March 2018 to 1.5 per cent from 1.7 per cent projected in July.
BoJ governor Haruhiko Kuroda will hold a news conference at 5.30pm (AEDT) to explain the policy decision and the quarterly review.
One of Australia's best known contrarian fund managers has become the latest investor to warn that yield stocks may not be as safe as they are perceived to be.
Allan Gray chief investment officer Simon Mawhinney argues that investors risk overpaying for "safety" if they are buying stocks such as infrastructure and utilities, which have been a winning trade up until the third quarter of this year when bonds showed signs of snapping a decades-long rally. "You do trade-off safety for price," he said.
Mawhinney's biggest position is in Woodside Petroleum and he has been accumulating Nine Entertainment.
"More and more money has been put into seemingly safe investments where the dividend yield or next year's earnings are relatively safe. Those investments have done very well over the past five years - staggeringly well - and it seems now there's quite a risk," the fund manager said. "Who knows what lies in store for us going forward? Mathematically they're nowhere nearly as cheap as they were five years ago."
The risk to Allan Gray's thinking is that markets head for a period of heightened uncertainty, which drives investors back to the equity market's safe havens. A contrarian investor seeks out companies that are out of favour, capitalising on downbeat sentiment to seize on an under-valued opportunity. Markets have favoured income and growth investment biases amid record low interest rates.
Vita Group has told the ASX that there is no information not yet available to the market that could explain yesterday's 13 per cent plunge in the company's share price or, presumably, the further 9 per cent drop today.
The mobile phone retailer - which includes chains such as Fone Zone as well as some Telstra shops - did say that, "in line with normal commercial practice", Telstra "briefed Vita Group and the broader Telstra licensed channel in confidence about some potential changes to the remuneration construct".
In the ASX statement, the company went on to say that it and the big telco were in "confidential discussions about those potential changes, and other strategic and tactical opportunities available to their partnership".
The shares last fetched $3.73.
BusinessDay columnist Michael Pascoe ponders the reality of a low interest rate, high house price world:
Another month, another rise in average Australian capital city housing prices, up half a per cent in October, 2.7 per cent for the quarter, 7.5 per cent for the year. That's the reality of living in a low inflation, low interest rate world.
In the big ticket cities of Sydney and Melbourne, the CoreLogic home value index scored monthly rises of 0.6 and 0.8 per cent respectively, with quarterly rises of 2.9 and 4.6 per cent, and 10.6 and 9.1 per cent for the year.
For all the talk of supply and demand and zoning and population growth and foreigners and investors and negative gearing and discounted capital gains tax, the biggest single factor in pushing prices higher over the past year has been increased borrowing power – lower interest rates.
That's the unpleasant reality the Reserve Bank board has to deal with at today's meeting. Monetary policy has reached the point of providing stuff-all stimulus for anything other than increasing the bidding power of would-be buyers at housing auctions.
And thus, despite core inflation weakening a touch more in the September quarter, the RBA is expected to leave rates unchanged this afternoon.
On Friday, we'll get a full guide to the RBA's thinking in its quarterly statement on monetary policy. Odds are that it will show little change in the bank's inflation outlook as outlined by governor Philip Lowe – a slow rise over the next couple of years to the desired minimum level of 2 per cent.
Read more.
The reality of a low inflation world
Will we see another rate cute by the June quarter next year? Michael Pascoe comments.
Instead of bracing for drama, most investors will be seeking the finer points of the Bank of Japan's new policy framework as a two-day meeting comes to an end today.
One focus is exactly how the BOJ will meet its new target for 10-year bond yields, and the implications for its asset purchases. The BOJ is also due to update its inflation and growth forecasts. It is widely expected to lower its inflation outlook, and extend the target date for reaching its 2 per cent price goal beyond the end of governor Haruhiko Kuroda's term in April 2018.
All but two of the 43 economists surveyed by Bloomberg expect no additional easing this month. The two who said they expected easing both forecast a cut to the negative interest rate. HSBC later dropped its call for the negative rate cut. Some 35 per cent of respondents said they though Kuroda's BOJ is done with expanding stimulus.
Mari Iwashita, chief market economist at SMBC Friend Securities in Tokyo, is among those who think the central bank is unlikely to ease again under Kuroda. "There's a good chance that the BOJ will do nothing until Kuroda's term is over unless inflation expectations plunge or a global economic shock occurs," Iwashita said.
The board meeting typically ends between noon and 1pm in Tokyo (3pm AEDT), with Kuroda to brief the press at 3:30pm (5:30pm).
Kuroda, known for shocking market participants early in his tenure, in September shifted to a strategy focused on sustainability. The BOJ said it would seek to pin the 10-year government bond yield near zero, while keeping a rate on some commercial bank reserves at minus 0.1 per cent.
Investors are still paying close attention to the BOJ's asset purchases, particularly of Japanese government bonds. The policy shift came as many concluded that the BOJ had neared the limits of its asset purchases.
Kuroda has said he sees no immediate need to back away from the current JGB buying pace of 80 trillion yen ($1 trillion) a year to meet the 10-year yield target, while acknowledging the BOJ may not need to buy that much to do so. He has said purchases were likely to fluctuate.
The yen has declined about 4.4 per cent against the US dollar and the Topix index has risen about 3 per cent since the last BOJ meeting on Sept. 21.
What's the best outcome of the US elections for markets? Investors seem to favour a Clinton victory if only for the reason that she seems a much more predictable/stable candidate than her erratic opponent, and would in a way guarantee the status quo.
But really it's hard to tell as it's questionable if some of both candidates' policies - for example, growth-friendly tax cuts - will be implemented the way they're being sold today.
However, if history is any guide the best outcome for shares would be a Clinton victory but with Republicans retaining control of at least the House as this would be seen as "more of the same", AMP's Shane Oliver notes.
Since 1927 US total share returns have been strongest at an average 16.7 per cent a year when there has been a Democrat president and Republican control of the House, the Senate or both. By contrast the return has only averaged 8.9 per cent a year when the Republicans controlled the presidency and Congress.
Of course in those past decades the US didn't experience quite the level of partisan politics that over the past years have at times all but brought Washington to a standstill.
Oliver also has a word of caution for investors: "Around the Brexit vote there was much concern a Yes vote would be a disaster for shares and the global economy. In the event there was an initial knee jerk sell-off but after a few days global markets moved on to focus on other things. So there is a danger in making too much of the US election."
Growth in China's vast manufacturing sector accelerated at the fastest pace in more than two years, while the services sector also grew faster.
The official manufacturing purchasing managers' index (PMI) jumped to 51.2, from 50.4 in September and above a predicted 50.3 reading, while the non-manufacturing PMI stood at 54.0 in October, compared to the previous month's reading of 53.7.
Both came in well above the 50-point mark that separates growth from contraction on a monthly basis.
China is counting on growth in services to offset persistent weakness in exports that is dragging on the world's second-largest economy.
The economy expanded at a steady 6.7 per cent in the third quarter and looks set to hit Beijing's full-year target, fuelled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt
Most economists tend to point to accelerating house prices as a reason the RBA won't cut rates today, but RBC head of Australian economics Su-Lin Ong sees the recent rally in bulk commodities as a major factor in the board's reasoning.
Coal and iron ore - both key Australian exports - have posted strong gains over the past months, rising to five-year and six-month highs respectively, with particularly coking coal up a stunning 150 per cent since August.
Ong notes the move in bulk prices underpinned a rise in terms of trade in the past two quarters.
"Importantly, this is narrowing the gap between national income and output growth, with the former a key metric that we have long favoured and a key driver, in our view, of RBA policy action."
Based on the bulk commodity developments and their implications for national income, she reckons the RBA is unlikely to cut any further.
Ong says the chart below suggests that divergence can occur (for example, mid-2013 amid mini Chinese fiscal stimulus), "but at this stage of the rate cycle, these commodity developments may carry more weight".
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