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Shares have ended the day and the week lower, with a broad sell-off today pushing the ASX 200 down 56 points or 1 per cent lower today and 1.2 per cent down over the five sessions to 5444.
Today was a day of losses across the blue-chip ASX names, with the big miners, banks, supermarket owners, Telstra and CSL all dropping. Investors may have been spooked by another jump in bond yields - Aussie 10-year rates reached their year's high today - as well as worried about this weekend's Italian referendum on constitutional reform. Investors have likely developed a Pavlovian response to votes by now.
The Aussie dollar ended the week at just above 74 US cents, a tad lower for the week.
There was plenty of excitement in commodities markets, as iron ore pushed above $US80/tonne only to drop sharply and then rebound, with the spot price fetching $US78.36 on Thursday night and Chinese futures trading pretty flat through today.
The big miners weighed heaviest this week, with BHP and Rio both off around 6 per cent. There were some individual shockers, with Vocus finishing the week off 25 per cent and Bellamy's, which got smashed today on a poor sales update, dropping 43 per cent.
An OPEC deal struck Wednesday night to limit oil production put a rocket under the crude price and energy stocks. Brent crude added 13 per cent over the week despite easing a little today to last fetch $US53.34. Energy stocks had their best collective day since 2008, and it was only one of two sectors - the other was financials - to end the week higher.
Nice chart by UBS on how much of an influence 'macro factors' such as interest rate expectations or the trade weighted index have been on the Australian market over the past years, and especially since the GFC.
A pity there's no category 'political uncertainties', which has been the buzz word of the past months, and looks likely to stick around in 2017 as a number of key European elections loom.
It's a sea of red around the region, as the Trump rally runs out of steam and investors turn cautious ahead of key US jobs data, Italy's weekend referendum and Austria's presidential vote.
Japan's Nikkei is down 0.9 per cent, the Hang Seng in Hong Kong has dropped 1.2 per cent, the Shanghai Composite is off 0.8 per cent and the Kospi in Seoul has shed 0.8 per cent.
Oil has also given back some of the strong gains of the past two sessions, withy Brent slipping 1 per cent to $US53.35 a barrel.
"Markets have rallied pretty strongly and we had three fantastic weeks but buying pressure certainly looks exhausted," said James Woods, global investment analyst at Rivkin Securities. "We will see some corrective declines and profit taking. And from a technical perspective, allowing momentum indicators to unwind before gains can be sustained."
Investors are eyeing November's US employment report, due later in the session, for further evidence of improvement in the economy, after data showed factory activity accelerating in November and construction spending at a seven-month high in October.
The strong data boosted expectations of higher interest rates. Expectations for higher rates were already running high because of anticipated inflationary pressures from rising oil priced and President-elect Donald Trump's promises of fiscal stimulus and infrastructure spending.
Anyone hoping for cheaper trips to the US is likely to be disappointed, with most analysts predicting the Aussie dollar will remain under pressure against the greenback, which will be supported by Federal Reserve rate hikes.
A Reuters poll of 51 analysts saw the Aussie hovering around current levels by the end of this month and then slipping to $US73¢ over the next six months before ending 2017 around US72¢.
It's currently fetching US74.11¢, having dropped more than 3 cents since the election of Donald Trump and ahead of a near certain interest rate hike by the Fed in December.
Yet, the Aussie is still up 2 per cent this year. Its resilience is partly due to a rebound in major export commodity prices, with iron ore futures traded in China up 50 per cent since April. Thermal coal has surged 65 per cent this year.
A major source of support for currency is also its relatively high yield amid ultra-easy monetary policy in most developed countries.
The Reserve Bank holds its monthly policy meeting on Tuesday and is seen certain to keep rates at 1.5 per cent for a fourth month. Ten-year Australian bonds yield 2.8 per cent against 2.4 per cent in the US, 1.5 per cent in the UK and around zero in Japan.
Why have Bellamy's been punished so hard today, slumping as much as 44 per cent on disappointing revenue forecasts?
It's a case of extremely high valuations leading to extremely high expectations, with Bellamy's one of the few growth stocks in the market.
"The market will always show scant regard for those stocks on a high PE multiple whenever they disappoint on profit expectations," the AFR's Phil Baker writes.
He recommends taking a look at some of the other stocks in the market that trade on very high valuation measures.
These include Domino's Pizza, Cochlear, Ramsay Health Care and REA Group - all vulnerable to any profit downgrade.
It's worth noting that Bellamy's is one of the most shorted stocks in the market - many investors have been betting the stock would slide. Looks like they have made a killing today.
Bell Direct analyst Julia Lee said the company's trading update was disappointing, particularly after rival a2 Milk delivered an upbeat trading update on November 22.
"Given that the update was mainly around China and temporary volume dislocation, that's what has the market worried," Lee said.
The announcement was "quite a big adjustment", she said. "Investors are used to seeing triple-digit gains in revenue from Bellamy's."
NAB's economics team is the latest to predict that the economy contracted in the third quarter, following yesterday's soft investment spending numbers and last week's slump in construction work done.
NAB expects third-quarter GDP to come in at -0.2 per cent, following 0.5 per cent growth in Q2 and a 1 per cent spurt in the first quarter. That should bring the year-end growth rate down sharply to 2.1 per cent, from an above-trend 3.3 per cent in the previous quarter, the economists say.
NAB's growth forecasts are well below those published in the RBA's latest statement on monetary policy which suggested real GDP growth of approximately 2.75 per cent to 3 per cent.
"The expenditure measure of GDP is looking particularly weak with partial data pointing to a broad-based decline in business investment, a surprise contraction in dwelling investment and a subtraction from net exports (-0.3ppt). Household consumption growth is expected to be subdued (0.4%q/q), with particular weakness in retail trade. There is also downside risk to our forecast for public demand."
It would be the first quarter of negative growth since 2011 and only the fourth since Australia's record-running stretch of 25 years without a recession - usually defined as two consecutive quarters of contraction.
NAB's gloomy forecast follows Morgan Stanley, which predicts a 0.3 per cent contraction and Nomura, which also expects a 0.2 per cent fall. Most other economists are still predicting 0.2 per cent growth in the third quarter, but forecasts have come down sharply after key GDP components disappointed.
Unsurprisingly, the three are among those forecasting further RBA rate cuts next year.
Nomura tips the RBA will cut in February and the stick with a cash rate of 1.25 per cent, while Morgan Stanley expects two cuts in the second half of next year and NAB predicts one cut in the second quarter and one in the third.
"At this stage, we remain comfortable with our call for two further rate cuts in mid-2017, and flag the possibility of an earlier cut if current data on non-mining activity and employment fails to pick up," NAB says. "Inflation and wages figures in next week's national accounts data will also be watched closely, and are likely to remain subdued."
Financial markets have recently started cautiously pricing in a slim chance of a rate hike over the next 12 months, but economists are less sure, with most still saying a cut is more likely than a rise, but not before the second half of the year.
And no-one is predicting the central bank will move when it meets next week.
Here's a recap of today's session: shares are sharply lower in thin volumes, with losses led by materials and financials, ahead of key US economic data.
"We've got a major market event tonight...it looks like large institutional investors who have driven markets this week are sitting on the sidelines," said Michael McCarthy, chief market strategist at CMC Markets.
Investors are focusing on the US payrolls report later tonight for confirmation that the American economy continues to strengthen, with an eye on an expected hike in benchmark US interest rates later in the month.
The ASX gained 1.1 per cent yesterday in a rally sparked by steep rises in the energy sector, and is on track to slide about 0.7 per cent this week.
The metals and mining index has shed more than 1 per cent with most of the mining giants in the red. The losses come despite a 3.8 per cent rise in Dalian iron ore futures, which have been swinging wildly all week.
BHP Billiton has dropped about 2 per cent, reversing yesterday's near 5 per cent surge, while Rio Tinto has dipped about 1 per cent.
Fortescue Metals has dropped as much as 4 per cent, but the miner's shares are still more than 200 per cent higher for the year.
Energy stocks are in the red despite oil prices soaring overnight, while financial stocks are lower with the "Big Four" banks weighing down the index most.
"For banks, index selling is being spread across the market. Given the prominence of banks and BHP, they are taking a hit."
Consumer staples stocks have also lost heavily, with losses led by Bellamy's Australia, a manufacturer of organic baby formula.
Bellamy's slid as much as 43.9 per cent after saying it expected sales momentum to be hit by import regulations in China.
This has rubbed off on other China-exposed stocks such as Blackmores and Bega Cheese.
The collapse in the value of organic baby formula company Bellamy's came as a surprise to just about everyone in the Australian market with the exception of a handful of people, says the AFR's Tony Boyd:
Analysts at the majority of broking houses that cover the stock were tipping Bellamy's shares would rise by between 30 per cent and 65 per cent over the next 12 months.
Clients of Ord Minnett, Bell Potter, Wilsons and Morgans were advised to buy the shares. Citi recently initiated coverage on the stock with a "sell" rating.
Shares are down 38 per cent at $7.53 after the infant formula maker shocked with news of slowing sales in China.
It is often difficult for analysts to stick their head up above the parapet and take a contrarian position. It is particularly difficult for analysts employed by firms which either advise the company or have raised capital for the company.
One fund manager who saw the writing on the wall and warned earlier this year about the risks associated with Bellamy's was Tim Hannon, chief investment officer at alternatives investment management company Newgate Capital Partners.
Hannon, a former Goldman Sachs banker, is a Tasmanian who doubted a company based in Launceston could have a good handle on its supply chain in China.
Hannon looked at the company's accounts and questioned whether it had the IT systems to understand its supply chain in sufficient depth.
He told Chanticleer that Bellamy's was a classic example of a company that suffered from the bullwhip effect. That refers to a situation whereby forecasts yield supply chain ineffeciencies.
Here are a few economist reactions to the surprisingly solid October retail sales numbers:
Felicity Emmett, ANZ:
The broad-based nature of the improvement in sales over recent months is encouraging. Sales in NSW are up 6.9% on a three month annualised basis, while sales in Victoria and Queensland are each up a strong 9.1%. For the RBA, the upside surprise in retail sales would be encouraging, given the string of disappointing data over the last month or so. It suggests that growth in household spending has accelerated, and that the loss of momentum in the economy in Q3 is likely to be temporary.
Tom Kennedy, JPMorgan:
Heading into today's print we had flagged the retail report as providing an important update on the health of the household sector given the conflicting signals stemming from the labour market (falling unemployment, rising underemployment and benign wage growth). In this regard, today's modest outperformance is an encouraging sign and may portend stability in household consumption growth, which has started to look a little shaky. Still, there are still aspects to today's release that suggest consumers are still not firing on all cylinders. Indeed, the mix of spending was not optimal, with non-discretionary spending doing most of the heavy lifting and increasing 0.6%m/m, a result which was mostly owing to an upturn in food retailing. In contrast, discretionary spending remains lackluster and managed to only nudge 0.3%m/m higher in October.
Rahul Bajoria, Barclays:
Despite mixed real sector data over the past few weeks, the expectation of further rate cuts in the next 12 months remains low. We believe the RBA will remain data dependent, but its tolerance of lower underlying inflation over the near term appears to have increased after it cut rates in May and August. Australia's economic outlook appears broadly resilient to external shocks. We expect the RBA to stay on hold for the whole of 2017.
Ivan Colhoun, NAB:
Wednesday's GDP data may provide some further information as to the extent to which recent improvements in retail trade reflect price increases or volume gains, or a switch from other items of consumption outside the retail trade survey. The improvement does seem to correct what looked like overly weak retail spending estimates in the May-July period, though the NAB business survey retail component has been signalling weaker retail business conditions for some months. The RBA is likely to be encouraged by these recent trends, leaving the Bank comfortably on hold for the time being.
Katie Hickie, Capital Economics:
The stronger-than-expected rise in retail sales in October will be a welcome sight for retailers in the lead up to the all-important Christmas spending period and suggests that the probable slowdown in real consumption growth in the third quarter may not continue into the fourth. That said, with income growth at a record low of 1.9% and employment growth weakening recently, a sharp rebound in real consumption growth doesn't seem likely in the near term.
New Origin Energy chief executive Frank Calabria has lost no time in reorganising the top ranks in the energy supplier, appointing a new, seven-strong leadership team that includes his main internal rival for his role, David Baldwin.
The restructured team, which Mr Calabria said simplifies the company's structure, will see Jon Briskin elevated to head the large retaining business, while Greg Jarvis takes up the role of executive general manager, energy supply and operations.
Mr Baldwin remains as chief executive of the integrated gas business, which includes the $25 billion Australia Pacific LNG venture in Queensland, which is ramping up to full production.
Tony Lucas, the former general manager of strategy and risk, takes up a new role as executive general manager, future energy and business development, while Sharon Ridgway has been appointed EGM, people and culture.
Mr Calabria said an executive search was underway for the role of chief financial officer, with Gary Mallett to remain as acting CFO while the search continues.
The leadership team also includes Andrew Clarke, as group general counsel and company secretary, and Carl McCamish as EGM, technology, risk, health, safety and environment, and transformation.
The new team "reflects our need to deliver better operational performance today while preparing us for the future in a changing industry," Mr Calabria said.
"With six new members, this group will drive a new performance culture across the organisation."
The restructuring removes a layer of management from the energy markets business and brings operational leadership roles up onto the leadership team, noted Mr Calabria, who took over from long-standing CEO Grant King after Origin's annual shareholder meeting in October.
Origin shares are up 0.5 per cent at $6.50, against a 0.6 per cent drop in the energy sector.
Retail spending rose a solid 0.5 per cent in October, driven by food and household goods purchases.
The rise to $25.6 billion in spending in October was more than twice what most economists had expected, and follows a 0.6 per cent rise in September.
Food retailing spending rose 0.6 per cent in October, household goods increased by 0.7 per cent, while clothing and department store sales both fell by 0.4 per cent.
Strengthening sales growth of small retailers - usually a good sign. #ausecon pic.twitter.com/lP2WvAA9AR
— Justin Fabo (@justinfabo) December 2, 2016
Considering the weakness in clothing sales, it's probably no coincidence that retail veteran and Premier chairman Solomon Lew today described the past five years as "a period as difficult as I have ever encountered in Australian retail".
Lew, at Premier's AGM did however note strength in the group's children's stationery brand, Smiggle.
Guess which stock in the Dow Jones index has risen the most since the US election?
No, it's not Caterpillar as investors bet on Trump pouring billions into US infrastructure, and it's also not UnitedHealth, set to profit from the Donald's health insurance plans.
Both of these stocks have done very well over the past three weeks, rising more than 13 per cent.
But their gains are easily outpaced by Goldman Sachs shares, which have rallied a stunning 25 per cent since November 8, adding a lazy $US19 billion to the bank's market cap.
Yep, that's right, Goldman Sachs, the bank that was at the centre of Trump's anti-Wall Street campaign.
To be fair, the gains are partly due to rising bond yields, which have boosted share prices of the whole sector. JPMorgan is the second-best performer in the Dow over the period, rising 16.8 per cent.
Trump's plans to cut regulation in the sector, in particular repealing the Dodds-Frank Act, hasn't hurt the share performance.
But neither has stacking his team with a number of high-profile alumni from America's most famous investment bank.
Trump first picked former Goldman Sachs investment banker and managing partner, as well as prominent alt-right figure Steve Bannon to be his White House chief strategist. Earlier this week, he tapped 17-year Goldman veteran Steve Mnuchin for Treasury Secretary.
And now the rumour mill is suggesting Goldman Sachs president and COO Gary Cohn, with whom Trump met this week, is under consideration to be director of the Office of Management and Budget.
Trump ran as an anti-establishment and anti-Wall Street candidate, using every opportunity to take a swipe at his opponents' links to Goldman Sachs.
2016: a choice between Donald Trump and Goldman Sachs.
— Edward Snowden (@Snowden) February 28, 2016
He regularly blasted Hillary Clinton for not releasing transcripts of speeches she gave to Goldman Sachs and other Wall Street banks. He also accused Clinton and ex-presidential candidate Ted Cruz of being controlled by Goldman Sachs.
"I know the guys at Goldman Sachs. They have total, total control over (Ted Cruz). Just like they have total control over Hillary Clinton," he said earlier this year during the primaries.
And Trump's closing campaign ad flashed an image of Goldman Sachs CEO Lloyd Blankfein just as Trump condemned the "global power structure" for robbing America's working class and enriching the elite.
Have US share investors become too bullish? Analysts at Bank of America say that the euphoria following Trump's win signals we are approaching Wall Street's market's last hurrah
The crux of the argument is that the firm's contrarian sell side indicator, which measures Wall Street's bullishness on equities, jumped to a six-month high in November, its biggest gain in more than a year.
Right now, the index is pointing toward a rally of almost 20 per cent for US stocks over the next 12-months, but the analysts believe that a rally of that magnitude could mark the end of the bull run.
"[T]he post-election bounce in Wall Street sentiment could be the first step toward the market euphoria that we typically see at the end of bull markets and that has been glaringly absent so far in the cycle," said Savita Subramanian, head of US equity and quantitative strategy at the firm.
"The Sell Side Indicator does not catch every rally or decline in the stock market, but the indicator has historically had some predictive capability with respect to subsequent 12-month S&P 500 total returns," the bank said.
Bank of America analysts currently have a base case call for the S&P 500 to end 2017 at 2300, or 5 per cent above today's levels. With this indicator taken into consideration when formulating their outlook, the team's bull case scenario represents a rapid rise in stocks.
"The case for a traditional euphoria-driven end-of-bull-market rally is easy to argue for, and 20 per cent or greater annual returns are the historic norm, putting the S&P 500 at 2700 in our bull case," they conclude, adding that their bear case calls for stocks to end the year down 27 per cent at 1600.
Bellamy's shares are being crunched after the infant formula maker warned that revenue would come in well below expectations due to soft sales in China.
The company said sales in the recent Singles Day online shopping event in China were short of expectations, while regulatory changes in China have affected the company's market share, meaning revenue for 2016-17 could be around $240 million - below last year's $244.6 million.
Analysts had been expecting revenue of about $368 million in the current financial year.
Bellamy's also said its pre-tax margin would come in "moderately below 20 per cent", following last year's 22.2 per cent.
Shares have slid a whopping 43 per cent to $6.90, their biggest plunge on record.
The bad news is affecting other shares in teh sector, with A2 Milk down 13 per cent, Bega Cheese losing 6.3 per cent and Blackmores falling 5.9 per cent.
CBA is raising interest rates on a range of fixed-rate home loans, the latest big bank to increase costs for home buyers seeking to lock in their borrowing costs.
The country's biggest lender raised interest rates by 0.2 percentage points to 4.09 per cent for its three-year owner-occupied fixed-rate loan, the most popular term. Two-year fixed rates will rise 0.15 per cent to 3.99 per cent, while five-year fixed rates will increase 0.6 per cent to 4.74 per cent.
As part of the changes, which also applied to investor loans, it reduced rates on four-year fixed rates by 0.2 percentage points to 4.39 per cent.
The changes affect customers taking out new fixed-rate loans, not those with existing loans.
It follows Westpac's move last week to also increase its fixed rates, and both banks are responding to change in the outlook for interest rates, as investors bet the RBA's cutting cycle is finished.
US investment bank Archer Daniels Midland is selling its 19.9 per cent stake in GrainCorp for about $387 million following its failed takeover bid.
Three years after ADM's $3 billion bid was blocked by then treasurer Joe Hockey on national interest grounds, ADM chairman and chief executive Juan Luciano said the US company could better use its cash elsewhere.
ADM acquired the stake in 2012 as part of the takeover deliberations. It has been sitting on GrainCorp's register as a frustrated investor for the bulk of the time since.
ADM isl selling its stake at $8.53 a share to an unnamed underwriter, rumoured to be UBS, but according to Street Talk only a handful of institutions snapped up the stock.
Shares are still up 1.3 per cent at $8.82 this morning.
The ASX has slipped below 5500 points in early trade and would be even further in the red if it weren't for one sector posting strong gains: energy.
The energy sub-index is up another 0.7 per cent after oil prices extended their rally overnight following OPEC's production cut agreement. All other sectors are either flat or posting losses.
"A weak lead from US markets; Italy's referendum and tonight's release of US jobs data all provide reasons for the stock market to close the week in cautious, wait-and-see mode," says CMC chief market analyst Ric Spooner.
While Spooner expects continued support for energy stocks thanks to the OPEC deal, he says another sell off in Australian bonds this morning might see investors continue to rotate out of the "expensive, defensive" sectors such as utilities and real estate investment trusts.
The yield on the Australian 10-year bond hit a 2016 high of 2.883 per cent this morning.
Among individual stocks, Wesfarmers is the biggest drag on the index, falling 0.9 per cent, followed by a few of the big banks and BHP. But ANZ and Rio are among the biggest lifters, adding 0.4 per cent and 0.9 per cent respectively.
Oil Search has gained another 1.7 per cent, Woodside is up 0.5 per cent and Origin Energy has added 0.9 per cent.
And as oil prices recover, BP has officially sanctioned the $US9 billion Mad Dog 2 oil project in the Gulf of Mexico, which includes BHP Billiton as a major shareholder.
The project will include a new floating oil platform with the capacity to produce as much as 140,000 gross barrels of crude oil per day. Production is expected to begin in late 2021.
BP is the operator of the project with a 60.5 per cent stake, and it indicated that BHP and Chevron would make their investment decisions at a later time.
BHP owns 23.9 per cent of the project and Chevron 15.6 per cent. BHP is expected to approve the spending as one way of offsetting its declining production of conventional oil over the next decade.
This is what weighed on US tech stocks overnight: for the first time since being elected US president, Donald Trump has threatened to impose big tariffs on American firms shifting jobs offshore.
Unveiling a tax-break deal to stop 1100 jobs at an air conditioning plant in the state of Indiana shifting to Mexico, the President-elect warned there would be "consequences" for other companies that move manufacturing plants overseas.
"They will be taxed very heavily at the border if they want to leave, fire all their people and make the product in different countries and then think they are going to sell that product back over the [US] border," Trump said.
Since being elected president on November 8, Trump had refrained from repeating his campaign rhetoric to ignite a "trade war" by slapping tariffs of up to 45 per cent on imports from China and Mexico.
James Pethokoukis, a free-market scholar at conservative think tank the American Enterprise Institute, said Trump's heavy handed speech instilling "fear" in American executives was "absolutely chilling".
"I think this was the worst economic speech by an American politician since 1984 when Walter Mondale promised to reverse Reaganomics."
Economists have warned if Trump starts a tariff war with other countries such as China, it could tip the world economy into recession.
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