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Miners powered the ASX higher today, with investors taking their lead from a record-breaking night on Wall Street, as an early rally built strength through the day.
The Dow Jones cracked through 19,000 points on Tuesday night as post-Trump bulls continued to romp into shares and investors see sustained support for surging commodity prices.
The benchmark S&P/ASX200 index and the broader All Ordinaries Index each rose 1.3 per cent to 5484.4 points and 5549.9 points, respectively.
"This was a day of broad-based buying and it looks like folks are trading on fundamentals rather than speculation," said Michael McCarthy, chief market analyst at CMC Markets. "The market also broke through an important technical level on Tuesday which meant we saw a lot of technical buying on Wednesday."
Shares have pierced through the 5385 and 5400 band, providing investors momentum to pour into industrials, materials and telecommunications companies.
Resource giants BHP Billiton and Rio Tinto surged 2.7 and 2.5 per cent higher, respectively, while Fortescue Metals rocketed to a five-year high and closed up 2.9 per cent to $6.30.
"The market thinks the post-inauguration President of the US will implement stimulatory programs, increasing demand against the Chinese's recently curtailed supply," said Mr McCarthy. " And these commodity moves are occurring against a backdrop of a stronger US dollar, so it looks to hold."
The Australian dollar stayed relatively well supported throughout the session, hitting the day's high of US74.34¢ at market close.
Property trusts struggled along on Wednesday, after having been hammered by investors in recent months as the market fervently discusses the pace at which interest rates may start to rise. The sector managed to close up 0.6 per cent higher.
Healthcare was the only sector in the red on Wednesday, as Fisher & Paykel and ResMed were heavily sold off. Both healthcare companies are locked in a legal battle over intellectual property rights, which analyst Deutsche Bank pointed to as a reason to downgrade Fisher & Paykel to a "hold". Shares in Fisher & Paykel closed down 6.7 per cent while ResMed was off 2.4 per cent.
In other equities news, CYBG shares closed down 4 per cent after the bank's preliminary full year results were released the previous night, where management was forced to admit the impact of Brexit is not yet fully understood.
Shares in retail sector property landlord Vicinity Centres have jumped 2.7 per cent to $2.85 after a block trade of 2.97m shares crossed at $2.795 this afternoon.
That's the stock's best day since late June and some minor relief for shareholders who have endured a 20 per cent fall in the price since early July.
"It was as though every vendor woke up in the New Year and made a resolution not to sell."
These were the words McGrath chairman Cass O'Connor used to explain why things had gone so horribly wrong for the real estate group since it publicly listed in December last year.
She told investors at the McGrath shareholder meeting that rocketing real estate prices have created "an environment in which vendors are reticent to sell, fearing they will not get back into the market."
This is bad news for real estate operators like McGrath which are heavily reliant on property sales turnover for its earnings.
She cited data showing that listing volumes as a percentage of total property stock are currently at levels not seen since the industry started collecting this data.
A decade ago, homeowners in Australia's capital cities would move every 6.7 years - today that is 10.7 years, said O'Connor. For apartments it was every 5.9 years, which has now stretched out to nine years.
"This city is in the midst of what economists might call 'severe disequilibrium': endlessly growing demand meeting newly limited supply," she said.
And in more company news, Webjet expects its 2017 first-half net profit to be up more than 75 per cent on last year and that it will achieve is guidance for a $78 million full-year profit.
Shares in the online travel agency have surged 8.6 per cent to $10.37 after managing director John Guscic told the group's annual general meeting bookings continued to grow well. The stock is up 90 per cent this year.
Mr Guscic said Webjet's bookings growth continued to outperform the market "by more than four times (with) strong growth coming through both domestic and international bookings".
Estia Health shares have jumped as much as 5.6 per cent to above $3, their highest in six weeks, after the embattled aged-care operator reaffirmed earnings guidance.
Estia said it's expecting underlying EBITDA for FY2017 to come in between $86 million and $90 million.
But it also said that changes in government funding recently announced will have a significant adverse impact on earnings in FY18 and 19, if it doesn't put strategies in place to mitigate this.
The company added that it remains "comfortably" within its debt covenants.
Shares are up 3.5 per cent at $2.96, after adding 4.8 per cent yesterday.
Stockland's focus on house and land products is likely to see it through a slower residential market in the next five years, giving it an edge over apartment-heavy companies like Mirvac, Morgan Stanley analysts say.
The analysts said in a note they preferred Stockland over Mirvac because Stockland had fewer apartments, and less exposure to foreign buyers.
"Stockland enters with 2017 with a record number of net deposits and with long dated products, new project commencements and a broadening product mix we see volumes remaining above 6000 lots," the analysts said.
"Further [Stockland] residential margins have become more resilient and are now able to withstand 20 per cent price declines in Sydney and 15 per cent price declines in Melbourne."
Economists and property analysts said there is a likelihood of apartment price corrections of up to 20 per cent in certain parts of Sydney and Melbourne, although overall, many are in favour of another price boom in 2017. Morgan Stanley takes the view that the residential boom has most likely peaked.
While Stockland was looking to increase apartment development - it has two projects in Merrylands in Sydney's west, and Toowong in Brisbane - its strength laid in its house and land projects particularly in its lean towards townhouses which are very profitable, the analysts added.
"We estimate [Stockland] town home volumes could increase to about 8 per cent of volume in 2018, currently less than 1 per cent, which could have a material impact to profitability given one town home operating profit contribution is equivalent to about 2.3 land sales."
"The introduction of Town Home product are upside risks against downside risks of a Victorian slowdown and increased competition."
But Stockland largest profit contributor, its retail portfolio, might have some growing pains because the group's developed assets' net operating income growth has been lowest in five years. The loss of Shell as a tenant at Stockland's Durack Centre in Perth was also a concern.
While the analysts' view of Mirvac was not as bright as Stockland, shareholders supported the company's results at Mirvac's AGM last week.
Donald Trump's election as US president is driving global markets to levels not seen in nearly two decades - but in completely different directions. And the "polarisation'" of emerging and developed markets is all part of "Trump reflation," argues Divya Devesh, a foreign-exchange strategist at Standard Chartered.
In the post-Trump era, emerging markets have been feeling the heat. Malaysia's ringgit has plunged to be less than 1 per cent from the 4.48 per US dollar it reached in September of last year, the weakest level since the Asian financial crisis in the late 1990s.
At the same time, all four major US equity benchmarks - the S&P 500 Index, the Dow Jones Industrial Average, the Nasdaq Composite Index and the Russell 2000 Index - climbed together to record peaks this week. The surge, which was helped by rallies in commodities, has taken place simultaneously for the first time since 1999.
Not only that, the greenback recorded 10 days of gains that were its longest winning streak against the euro since the eurozone currency was first introduced back in 1999, as surging Treasury yields threaten to cloud the outlook for ambitious presidential spending plans.
"Traditional correlations have broken down," said Devesh. "Markets are operating under the assumption that fiscal spending in the US is set to increase and these reflationary and supportive drivers for US growth are sending US assets - its currency, rates and equities - higher."
Global bond yields surged the most on record over the past two weeks - 1 1/2 times faster than the previous all-time mark in 1994 (that decade again!) on expectations that the Federal Reserve will increase interest rates to curb inflation spurred by Trump cutting taxes and spending big on roads, railways and airports.
Andrew Sigalla, the former chairman and chief executive of TZ Ltd, has been found guilty of defrauding the company of $8.7 million to pay off mortgage and settle his debts with bookmaker Tom Waterhouse.
Sigalla was found guilty of 24 counts of dishonest conduct after three days of deliberation by a jury in the NSW Supreme Court. He had pleaded not guilty.
Sigalla faced allegations he transferred $8.7 million of TZ's money between December 2006 and March 2009. On one occasion, Sigalla had transferred $500,000 worth of TZ shares to reduce his debt with bookmaker Tom Waterhouse and pay off his mortgage on an industrial estate at Ingleburn.
He was first charged with breach of directors duties in 2013 and arrested at Sydney's five star Intercontinental Hotel.
Sigalla was replaced by Mark Bouris, a Wizard Home Loans founder and Celebrity Apprentice Australia host, as TZ chairman in 2009. TZ Limited, a technology company which specialises in smart lockers, is still listed on the ASX with a market capitalisation of $34.3 million.
Chinese iron ore futures extend their frenzied run, shooting up by their 9 per cent trade limit as steel prices extend gains amid planned mill closures in the country's top producing city as part of efforts to fight pollution.
Tangshan in China's northern Hebei province has ordered many of its industrial factories, including steel mills, to curb production or even close for as long as four months through to March in a bid to clear the skies of smog.
"Further closures of steel capacity in the Hebei province in China due to pollution issues has seen steel prices rebound over the past few days, dragging iron ore prices higher," ANZ said in a note.
The most-traded iron ore for January delivery on the Dalian Commodity Exchange rallied as much as 9 per cent to hit the exchange-set ceiling of 616.50 yuan ($US89) a tonne. It was up 8.2 per cent at 612.50 yuan.
Dalian iron ore surged by its limit yesterday as it recovered with steel and other steelmaking raw materials after investors returned to the market to pick up sold-off commodities.
Some traders say today's gains may be part of sustained speculative trading, noting that the Tangshan curbs may tighten available steel supply but should also cut demand for iron ore.
"Logically if steel capacity is under control or restricted it should not give any positive support to iron ore," said a Shanghai-based trader.
The most-active January rebar on the Shanghai Futures Exchange was up 3.6 per cent at 2,927 yuan a tonne, after rising as far as 2,966 yuan. The construction steel product rose by its 6-per cent limit on Tuesday.
Stronger futures lifted spot iron ore sharply again overnight as physical trades picked up with Australian cargoes sold at higher prices, according to The Steel Index which tracks Chinese transactions. Prices of iron ore stocked at China's ports rose about 15 yuan per tonne, it said.
Iron ore for delivery to China's Qingdao port jumped 6.5 per cent to $US74.90 a tonne, data from Metal Bulletin showed. The spot benchmark lost 8.8 per cent last week, snapping a five-week rally.
It's nothing but blue sky for the miners at the moment, and shareholders are making hay while the sun shines (to horrendously mix a metaphor).
Here are some of the impressive records being made today:
- Fortescue at $6.27 a share is at its highest since July 2011
- Mineral Resources at $13.50 is level with its all-time high in February of the same year
- South32 at $2.82 is at its highest since listing in May 2015
- OZ Minerals at $8.28 is at its highest since October 2012
- Rio at $59.98 is at its highest since March of last year
- BHP at $25.91 is at its loftiest since October 2015.
Also on a high is Macquarie Group - its share price of $84.39 is the best in a year.
Construction activity is at its lowest level in nearly six years, extending the run of weak partial data for September quarter GDP.
The volume of construction work in the September quarter was down by 4.9 per cent from the June quarter, its largest drop in about 16 years, and down 11.1 per cent from a year earlier. Economists had expected a 1.6 per cent quarterly drop.
The fall was seen in residential building and engineering construction, which includes mines, bridges and the like but the weakest sector was non-residential building, where the volume of work dropped by 10.9 per cent in the quarter.
The residential building contraction was in both private new build (-3.2 per cent over the quarter) and alterations and additions (-0.7 per cent).
"The latter declines run against the trend of swelling pipelines of work yet to be done in higher density dwelling construction," says JPMorgan economist Tom Kennedy. "We would therefore expect this to be a temporary lull from a pocket of the economy that should be delivering an ongoing positive contribution to GDP growth into 2017-18 (though adding to disinflation in rents)."
The weak overall result was led by another collapse in WA, where construction work slumped 14 per cent over the quarter and is now down 43 per cent from a year ago, but Victoria also fell 7 per cent as did NSW, with a 2 per cent drop.
Today's soft numbers add to the sense from the retail volumes and trade data (and business surveys) that GDP growth slowed materially in the third quarter, says Kennedy, who predicts the economy grew just 0.3 per cent in the September quarter, from 0.4 per cent.
The next data point of note to update GDP forecasts is next week's capex report.
Fixed rate mortgages have been climbing for a while but now the first bank is lifting its variable rates.
ME Bank, which is owned by 29 industry funds, will raise its variable rates by up to 10 basis points, the first hike in a variable rate in the latest round of increases. The bank's fixed rates are rising by up to 15 basis points.
ME head of home loans, Patrick Nolan, said: "The increases were based on increasing swap rates – up 40 basis points since the end of August - and increasing cost of deposit funding."
Lenders have been raising fixed rates as the impact of the 'Trump effect' and growing expectation that central bankers are set to end the era of record low rates ripples through global markets.
Bank of Sydney has raised five-year fixed rates by up to 60 basis points. Another big increases on fixed rates is a 20 basis point increase by Bank of Queensland, according to Canstar, which monitors the cost of financial products and services.
More than a dozen lenders have increased rates since Donald Trump was elected earlier this month on a platform of lower taxes and higher spending, increasing speculation of a swing from a deflationary to inflationary economic phase.
Rising costs of funding debt are also widening the competitive gap between the big four, which can largely fund lending from customer deposits, and the smaller lenders that are more reliant on capital markets.
It also heralds the beginning of the end for the sub-4 per cent fixed rate offers that have contributed to record levels of switching between lenders by cost-conscious borrowers.
The remarkable outperformance of small caps seems to have run out of puff, with investors finally turning their attention back to the growth potential of bluechips.
Since the beginning of October, there's been a clear divergence between the top 20 ASX companies and the small cap index. While the former have risen around 3 per cent, small caps are now off 1 per cent - and the difference is even more pronounced since the US election.
That's in sharp contrast to the previous 18 months during which small caps rallied about 13 per cent, while the top 20 stocks collectively fell 15 per cent, weighing on the benchmark S&P/ASX 200 index.
"We've had a reversal of the lower-for-longer, pay-up for certainty, safety yield thematics," said Matt Sherwood, head of investment strategy at Perpetual Investments. "Investors have decided that trade is over and are buying up quality."
Investors sold off bonds after Donald Trump's surprise election victory, which saw the yield on Australian government bonds spike. This bodes well for Australian banks - who like to borrow at the short end and lend at the long end - meaning a steeper yield curve is good for the earnings. It also hasn't hurt the local banks that President-elect Trump has vowed to slice regulation in the sector.
As such, investors have poured money into bank stocks. The big four banks have led the local rally since the Trump election, each rising about 10 per cent as investors take advantage of the rotation out of yield plays.
Meanwhile, the big miners are basking in new-found popularity as commodity prices unexpectedly soar due to Chinese stimulus as well as hopes that a Trump administration will ramp up spending on infrastructure.
Iron ore and Brent crude have also staged remarkable comebacks this year, prompting BHP Billiont and Rio Tinto to soar higher, after years of underperformance.
"That very large end of town was starting to look cheap, relative to the smaller end," said Dean Dusanic, equity strategist at UBS.
Programmed Maintenance is back in the black and plans to use its Skilled labour hire business to cash in on government projects, programs and private maintenance contracts.
The staffing, maintenance and facility management services company said the acquisition of Skilled in October last year had helped it lift net profit to $3.67 million in first six months of 2016/17.
That compares to Programmed's net loss of $18.69 million in the first half of 2015/16.
Programmed's shares lifted strongly in morning trade and are up 8.2 per cent to $1.74.
Programmed managing director Chris Sutherland said revenue had soared 89 per cent to $1.3 billion due to the acquisition of Skilled.
He also expects the windfall from Skilled to grow in coming months with the first two stages of integrating the business and its workforce now complete.
"The acquisition of Skilled, only a year ago, was a very important long-term transformation opportunity for Programmed to greatly increase our scale and efficiency and provide for the opportunity to grow services across a much larger customer base," Mr Sutherland said.
"We are excited to be now moving to the third and most important phase of our plan which is to significantly grow sales over the next three years."
Under that plan Programmed will target outsourced public sector administration contracts, government health support programs such as the National Disability Insurance Scheme, defence projects such as submarine building in South Australia, industrial and mining asset maintenance, offshore oil and gas and public-private infrastructure projects.
The company will also retrain 100,000 blue collar workers displaced by automation and globalisation and try to secure new property, school, resort and sports field maintenance contracts.
Programmed is still expecting earnings of $100 million, before non-trading items, in the 2017 financial year as previously reported.
The company will pay fully franked interim dividend of 3.5 cents per share, down three cents from the first half of the 2016 financial year.
After Evans-Pritchard's warning (10.57am), here's the more optimistic scenario for miners, at least short-term.
The market appears to be in a capitulation phase for commodity bears, says CMC chief market analyst Ric Spooner.
"The consensus view is swinging towards commodity prices maintaining higher levels based on continued demand from China and improved US demand," he says.
"That's a scenario which would support stocks exposed to domestic demand as well as mining stocks as the benefits of both improving terms of trade and an increase in export volumes flows through the economy."
Spooner also reckons that US stock indices, which hit new highs, can continue to inch higher.
"This situation may continue for a while given the trade-off between high valuations, rising interest rates and a stronger US dollar against the possibility of earnings upgrades due to US fiscal stimulus."
More parents are guaranteeing their children's home loans to help them enter the property market, two major banks say, as rising prices prompt first home buyers to take on bigger debts.
In a phenomenon dubbed the "bank of mum and dad", fast-rising prices in Sydney and Melbourne especially are causing more first home buyers to depend on parental help through loan guarantees or cash transfers.
Confirming anecdotal evidence, figures from NAB and Westpac suggest loans guaranteed by family members are growing more quickly than the broader market.
While parents are urged to be wary about guaranteeing the debts of their children, it is a market where banks see significant potential. The industry is marketing products that limit the risk to parents if their child is unable to repay their loan.
NAB told Fairfax Media that 8 per cent of first home buyers taking out new loans now had the backing of a family member, up from 4.8 per cent in 2010 and 6.7 per cent last year.
Westpac, the country's second-biggest lender, said the number of customers using a guarantee product provided through its St George brand had increased 9 per cent in the past year.
That is faster than 8 per cent home loan growth across the entire bank, suggesting strong demand for financial products that allow parents to give their children a leg-up.
These increases come as first home buyers, who typically have much less equity than other buyers, are responding to fast-rising prices in NSW and Victoria by borrowing more.
ABS figures show the average loan size for a first home buyer in NSW has risen 14 per cent in the past two years to $376,000, though the figure is below last year's peak. In Victoria the same figure has risen 10 per cent to $325,000.
A word of caution on the surge in mining stocks from the London Telegraph's Ambrose Evans-Pritchard:
Rampant speculation and exaggerated hopes of a Trump-led boom have fuelled a blistering rally in industrial metal prices.
Oil is perking up and talk of a new commodity super cycle is suddenly on everybody's lips.
It is as if we were returning to the glory days of break-neck industrialisation in China and the rising powers of Asia, but this time the bulls risk bitter disappointment.
A hauntingly strong US dollar is watching like Banquo's ghost over the party. Sceptics warn that the market is already starting to fray at the edges, and signs are growing China's latest recovery is about to fade.
"When you have copper going up by $US1000 in barely a week you know there is something wrong. Fundamentals don't change that fast," said Robin Bhar, base metals strategist at Societe Generale.
Copper was already on a tear before the US elections, chiefly driven by the latest housing bubble in China. Prices on the London Metal Exchange have risen by 25 per cent to $US5445 a tonne in a month. Zinc, nickel and lead have followed to varying degrees. Iron ore has jumped 40 per cent in the same period, doubling since the start of the year.
Investors have thrown caution to the wind since the election shock, making a collective bet that Trump's fiscal stimulus and bonfire of regulations will lift the world out of its deflationary malaise once and for all.
It is a bet that his spending plan on roads, bridges, telecommunications, harbours and the power grid - either a putative $US550 billion, or $US1 trillion, depending on Trump's mood - will gobble up commodities.
"There isn't really going to be any infrastructure spending until 2018 to 2019," said Bhar. Few "shovel-ready" projects are on offer in the US, even if Congress agrees to fund them.
Bruce Kasman from JP Morgan said the likely outcome is that deficit hawks in Congress will whittle down the infrastructure plan to $US150 billion and little of that will have any impact over the 2017-2018 period. Tax cuts worth $US200 billion will lift the deficit to 4 per cent of GDP - "an unprecedented level for a peace-time economy near full employment" - and will add roughly one percentage point to US growth, but it will not help the world economy.
JP Morgan warns that the double squeeze from a super-charged Trump dollar and higher global borrowing costs is likely to outweigh the local stimulus in the US itself, leaving aside the costs of protectionism and the damage to global supply chains.
Nothing like a 6.5 per cent jump in the iron ore price to get people excited about mining stocks again. The Aussie dollar is enjoying a bit of a lift and is a touch above US74¢.
That dynamic has helped lift the ASX 200 index 13 points or 0.2 per cent higher to 5427 in early trade, as continued weakness in healthcare dragging on the overall market. More stocks are lower than higher in early trade.
BHP is up 1.9 per cent, Rio 0.9 per cent, Fortescue 2.6 per cent and South32 1.8 per cent. A flagging oil rally has pushed energy stocks lower.
The big four banks are performing solidly, all higher by around 0.5 per cent.
So it's up to healthcare to spoil the party, as CSL drops 1.2 per cent, ResMed 1.8 per cent and Cochlear 1.1 per cent. QBE continues to surrender some of its recent gains, falling 0.5 per cent.
British bank CYBG is lower after an underwhelming earnings report earlier in the week sparked a downgrade to "hold" by Bell Potter.
In corporate news, labour hire and building management firm Programmed is back in the black with a $3.67 million profit for the first six months of the 2017 financial year.
The result is a turnaround from its $18.69 million half-year loss in the 2016 financial year. Revenue rose 89 per cent to $1.34 billion in the six months to September 30 due to the acquisition of Skilled, which was finalised in October, the company said.
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