That's it for today - thanks for reading and posting your comments.
We'll be back tomorrow from 9am.
Investors lost some of their new year exuberance sending the ASX only marginally higher, as gains in financials and Telstra offset losses in the energy and utilities sectors.
The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each closed up 0.06 per cent to 5736.4 points and 5788.2 points respectively.
Investors are turning wary of the recent record highs attained on Wall Street and the buoyant ASX, which hit a 2016 high just before Christmas, as the inauguration of Donald Trump as President of the United States looms.
"Markets have been rallying quite strongly on this notion of fiscal hope but, as we move into the reality of 2017 and what a Trump presidency will actually look like, there is some risk of fiscal disappointment," said Paul Eitelman, strategist at Russell Investments.
"Any disappointment at this point could be a source of downside risk for markets from here, so we're incrementally being a bit more cautious."
A slight tumble in the iron ore price weighed on Rio Tinto, which closed down 0.9 per cent, while BHP Billiton and Fortescue Metals found buying support, closing up 0.6 per cent and 1.7 per cent respectively.
There was broad based buying in the big four banks, which all closed up between 0.5 and 0.9 per cent. Investors also piled into Telstra, boosting the stock 0.4 per cent.
Gold was trading marginally higher but a strong finish on Tuesday night was enough to prompt some buying support for the likes of Newcest Mining, Australia's largest gold producer, which closed up 0.8 per cent and Evolution Mining, which bumped up 1.4 per cent.
Banks hiking mortgage interest rates out of cycle and failing to pass on official rate cuts are expected to dampen demand for housing this year, according to a new report.
The REA Group Property Demand Index shows demand for housing on the company's realestate.com.au website peaked last year in October and November, before slipping by 6.6 per cent in December.
REA Group chief economist Nerida Conisbee said the fall in demand at the end of the year is likely due to banks hiking rates in late November and early December.
She said demand could track lower given that lenders have indicated they won't pass possible Reserve Bank rate cuts onto borrowers.
"We expect out-of-cycle interest rate rises by banks to continue," Conisbee said. "This will be a key issue for borrowers this year, especially first home buyers and investors, with access to cheap money becoming more difficult."
Underneath the blistering outperformance of iron ore and coking coal during 2016, some lesser-known commodities also staged handsome price rises.
Zinc was one of the best performers, surging 75 per cent year-on-year thanks to tightening supply, while uranium was one of the few base metals to close the year lower than where it started.
Agricultural commodities, such as pork, jumped 22 per cent in December after five months of steep declines, with palm oil hitting a four-year high after a 9 per cent gain in December thanks to supply concerns out of Malaysia.
"For many metals and energy products, the rally in prices has been particularly supported by a pullback in supply," said Paul Bloxham, chief economist at HSBC Australia, He noted that business investment had dried up as producers reacted to low prices.
He pointed to a devastating plunge in broad-based commodity prices in early 2016 as the catalyst for some companies to put the brakes on production.
"Decisions by OPEC, a pullback in investment by major energy and mining companies plus ongoing reform in China to reduce excess capacity have all contributed to the commodity price rally," Bloxham said.
Zinc enjoyed a significant price hike as supply growth dwindled thanks to the closure of the Century zinc mine in Queensland in late 2015 and the Lisheen mine in Ireland.
While the price has soared, Australian listed zinc plays have responded only modestly.
The latest RBA chart pack is out and among the usual wealth of information around the Australian economy is the following chart that nicely shows that while household debt is at record levels, the burden to household finances is much more manageable - thanks to record low rates.
However, once rates start rising, pressure on household finances is due to increase, which is probably why the RBA has been sounding a bit more concerned about debt levels of late.
Bellamy's Australia is facing a fresh set of problems with a major shareholder group believed to be backed by Jan Cameron looking to spill the board and install herself along with three others as non-executive directors.
The Singapore-based Black Prince Private Foundation, believed to be a holding company for Ms Cameron's interest at 14.48 per cent, is seeking to dump four non-executive directors including former Billabong CEO Launa Inman, Patria Mann, Michael Wadley and Charles Sitch.
The foundation proposes that Kathmandu founder Jan Cameron, Chan Wai-Chan, Vaughan Webber and Black Prince representative, Rodd Peters, be appointed to the board.
The request comes amid a lengthy suspension to the trading in shares of the company as it seeks to renegotiate supply agreements.
However the chairman of Bellamy's, Rob Woolley, said the proposal to shake up the board is an "unwanted distraction".
"If the proposals were to succeed, it would be disruptive to the company," he said.
There are growing concerns that the rally in the global oil market, which has seen prices hurtle to an 18-month high, could be stalling amid doubts whether major oil producers will achieve their ambition of bringing an end to the painful supply glut that has weighed on the market for the past two years.
Oil enjoyed its biggest annual gain since the financial crisis in 2016 with the price of Brent, the global benchmark, rising 52 per cent, while US crude finished the year up 45 per cent. Oil prices were lifted by hopes that the Organisation of the Petroleum Exporting Countries (OPEC), along with other oil-producing countries such as Russia, would follow through on their agreement to cut output by 1.8 million barrels a day – or almost 2 per cent of global output.
But some traders are sceptical whether OPEC members will abide by the deal which hopes to end the global oil supply glut that has weighed on the market for two years and pushed the oil price to a decade low of $US26 a barrel in early 2016.
Although oil prices rose in early trading overnight, boosted by local media reports that Kuwait was adhering to the OPEC deal by cutting its output by 130,000 barrels a day, oil futures finished lower. Brent crude finished down 2.4 per cent at $US55.47 a barrel. It's up 0.6 per cent at $US55.81 in Asian trade today.
Reports that major oil companies are flocking to develop oil and gas reserves in Iran after the lifting of international sanctions did little to boost confidence that the OPEC deal will stick. Several media outlets in Tehran reported on Tuesday that 29 European and Asian companies – although no US groups – had been selected to participate in tenders planned for this year to develop oil and gas reserves in Iran.
In addition, traders pointed out that the output cuts only begin this month and it could take several months before they cause high inventory levels to fall.
Others noted that Trump's promise to boost the nation's oil and natural gas production by scrapping environmental regulations could lead to a surge in US production.
Here's more at the AFR
The Australian dollar is moving further away from a seven-month low it hit last week, aided by tighter capital controls from China.
The Aussie is buying US72.33¢, after falling as low as US71.63¢ last week.
Traders said there was some relief that a feared rush of capital out of China had yet to eventuate, with Beijing slapping tighter controls on foreign currency purchases over the weekend.
The Aussie is often used as a liquid proxy for the yuan and had been under pressure recently on worries the yuan would come under pressure when China's individual annual quota for foreign currency purchases was reset this week.
The Aussie lost 2.8 per cent in January last year when the yuan tumbled amid heavy capital outflows.
"Of course these are early days, but to the extent that the news eases concerns of a possible repeat of last January's China's equity and CNY meltdown, that is good news for China and the AUD," said Rodrigo Catril, currency strategist at National Australia Bank.
Still, the yuan remains under pressure, trading just below 7 per US dollar, but the falls have been more gradual over the past months, and they've been mostly shrugged off by sharemarkets as the following chart shows:
This chart (of $SPX vs $USDCNY) was fun for a while... pic.twitter.com/V5Z9s5t7B9
— Topdown Charts (@topdowncharts) January 4, 2017
Hunter Hall has established an independent board committee to consider a takeover bid from investment firm Washington H. Soul Pattinson, which Hunter Hall says is at a material discount to the company's current share price.
WHSP announced on December 30 that it intends to acquire all of the shares in the ASX-listed investment manager that it does not already own, after agreeing to buy a stake of 19.9 per cent from Hunter Hall chief executive Peter Hall, who is also the largest shareholder.
Hall, who controls 43.95 per cent of Hunter Hall shares, has told WHSP that he intends to accept its offer for his remaining stake of 25.05 per cent unless there is a superior offer.
WHSP is offering $1.00 per Hunter Hall share, which values the target at about $27.3 million. Hunter Hall shares are down 1.2 per cent at $2.47, their third straight day of losses after the company confirmed Hall is stepping down and selling his stake.
"The WHSP takeover offer of $1.00 represents a material discount to Hunter Hall's prevailing share price, being a 67.7 per cent discount to HHL's share price prior to close on 30 December, 2016," Hunter Hall said today, adding that, given the nature of the WHSP offer and Mr Hall's direct involvement, the Hunter Hall board had established an independent board committee (IBC).
Hunter Hall said its shareholders need take no action at this time, and the independent board committee would provide updates when appropriate.
Former US Treasury Secretary Lawrence Summers said investors are being far too sanguine about the risks associated with Donald Trump's incoming administration.
The Harvard professor, a Democrat who was Treasury chief under Bill Clinton, cited the possibility of protectionist measures by the US as well as changes to foreign policy and domestic social policy as issues that are creating "extraordinary uncertainty".
With just over two weeks to go before Trump's inauguration on Jan. 20, the S&P 500 is close to a record high, having risen almost 10 percent in 2016 on optimism over fiscal stimulus and stronger economic growth. While the Dow Jones Industrial Average has struggled to close at the 20,000 level, it rose 13 percent last year.
"This is probably the largest transition ideologically and in terms of substantive policy that we've seen in the US in the last three quarters of a century," Summers said. "Those kinds of transitions have to be -- given the central role of the US in the global system -- matters of enormous uncertainty. I don't think that's fully recognised by markets."
Summers was also critical of a paper jointly written by economist Peter Navarro, who will lead a newly formed White House National Trade Council, and Commerce Department head Wilbur Ross.
"The Navarro-Ross paper is well beyond voodoo economics," Summers said of the September report on Trump's growth plans. "The logic of it, the arguments made, are so far out of the mainstream of any kind of responsible economic thinking that they are the economic equivalent of creationism."
Summers dismissed the idea that any tax policy introduced to encourage US companies to repatriate profits would boost investment and hiring.
"The vast majority of the companies who have large overseas cash also have substantial amounts of domestic cash," he said. "The reality is that cash that is brought home will be used to pay dividends, to buy back shares, to engage in mergers and acquisitions, to rearrange the financial chessboard, not to invest in large amounts of new capital. It is a chimera to suppose that there will be large increases in capital investment as a consequence of that repatriation."
Australia's east coast-centric housing boom will roll on in 2017 but could become unstuck in 2018, according to SQM Research founder Louis Christopher, arguably the country's most accurate forecaster.
Christopher expects capital city house prices to rise between 6 and 10 per cent this year, led by double-digit price growth in Sydney, Melbourne and possibly Hobart. There will be single-digit growth in the other capital cities, apart from Perth and Darwin where further steep falls are predicted.
"It is now very likely it will be a strong start to the new year for Sydney and Melbourne, given the way 2016 ended," he said.
Looking ahead to 2018 the picture is gloomier, according to Christopher. He believes both Sydney and Melbourne's housing markets will be "dangerously overheated and overvalued" by the end of 2017, paving the way for a possible correction.
His forecasts for 2017 are under a base case scenario of a steady economy, no changes to the cash rate, the Australian dollar hovering between 70¢ and 80¢ and no meddling in bank lending by the Australian Prudential Authority in the first six months of the year.
Should the Reserve Bank cut the cash rate again next year, house price growth could be even greater.
His forecasts are worth noting. Over the past two years Christopher has predicted capital city house price growth in line with the Australian Bureau of Statistics's Residential Property Price Index.
In an interview with The AFR, the director of research and strategy at the $78bn investment fund QIC, Katrina King, gave her outlook for 2016. Here's a taste:
AFR: What's the outlook for commodities?
King: Let's consider those most important to the Australian economy – coal and iron ore. No view on commodities can be complete without first considering what has happened and what will happen in China. To shore up its growth targets for the year, the Chinese government has continued its fiscal and credit stimulus which has boosted construction and hence steel demand. The other major contributor to commodity prices has been the domestic cuts to production of iron ore and coal in China – this is largely on environmental grounds and also reflects the need to rationalise capacity and remove debt overhang. As a result, we believe these shutdowns are permanent. Thus there is a structural, rather than simply cyclical, increase in demand for Australian commodities.
Our outlook is for some slowing of China housing construction in 2017 but we don't expect production cuts there to be reversed. Therefore we expect some softening in commodity prices from their elevated levels at the end of 2016 – but by no means a complete reversal to their levels of early 2016.
There's persistent talk of a housing collapse? What's ahead for the Australian property market?
Our base case is that we will see a mild downturn in the annual growth of house prices in 2017 and 2018. The risk to this view would be one where oversupply (in particular in Brisbane and Melbourne) causes units to face a price correction, which then leads to contagion to house prices more generally. This is certainly a risk we need to keep an eye on in 2017 but, for now, we don't see it as highly probable for several reasons. First, units in Australia represent less than 20 per cent of the total housing stock and limited land release has meant demand/supply conditions have remained tight for houses. Second, units are not direct substitutes for houses so the contagion channel isn't clear-cut. Finally, interest rates are low but, unlike many countries, still have room to move lower if the RBA needs to step in to ensure a more orderly housing correction.
We will continue to watch developments in China closely as further tightening of capital controls could exacerbate price falls in the unit market, heightening the contagion risk.
Talking price rises, one of the biggest themes for 2017 — the rising outlook for inflation — was underscored overnight after German consumer prices staged a sharp 1.7 per cent rise from a year ago, beating expectations of a 1.3 per cent advance.
Though underlying price pressures remain weak, the data may embolden European Central Bank hawks who argue the euro-area economy is on a firmer footing, justifying a shift away from loose monetary policies.
Analysts at Societe Generale reckon ECB tapering fears are likely to haunt markets once more in the second half of the year.
The first reduction in the ECB's asset purchase program, announced in December, will take place in April 2017.
"We then expect a gradual tapering of 10 billion euros to continue as of June 2017, with reductions of €10bn per meeting, assuming our forecasts hold steady, but also in view of the legal problems of raising the issue limit."
The Turkish lira hit a fresh record low, pummelled by higher-than-expected inflation and security worries after militant attacks
The lira sank to an all-time low of 3.6 per US dollar after sharp rises in food and drink prices pushed annual inflation to 8.53 per cent last month, 53 basis points above one of the nation's key interest rates.
That erodes the yield on Turkish assets already under pressure from growing security concerns and adds pressure on the central bank to raise borrowing costs.
"The inflation number is worse than expected ... it's an awful number and obviously there is a lag of months before the full effect of lira depreciation ... is reflected, so one would expect core inflation to remain high from here," said Paul Fage, an emerging market strategist at TD Securities.
The currency's depreciation since end-September calls for at least 200 basis points of rate hikes just to keep the real rate stable," said Inan Demir, an economist at Nomura. "To beef up real yield support for the lira, the magnitude of the hikes will have to be larger."
The central bank, which is under government pressure to ease borrowing costs to spur economic growth even when inflation is still well above its target, raised the top end of its three-pronged interest rate corridor 25 basis points in November. That month, it also boosted the one-week repurchase rate 50 basis points to 8 per cent for the first time since 2014.
Fage noted that a presidential adviser had said a rate hike would "break the economy's back", implying intense pressure on the central bank to avoid much-needed rate hikes.
"It's unlikely they will do the big emergency hikes they did in the past and if they do hike it will be the order of 25-50 bps," he added.
Alumina shares have dropped 1.8 per cent to $1.81 after the company outlined the size of the hit it will take from charges related to its AWAC joint venture's closure of an alumina refinery and bauxite mines in Suriname as well as an impairment of interest in a Western Australia gas field.
The recently announced closure of the Suriname operations - a joint venture between Alcoa and Alumina - will result in total restructuring-related charges of $108 million and related cash costs of $181 million over five years from 2017.
Alumina said its share of the charges and costs will be $43 million and $72 million respectively, while it will bear another $21 million of a $52 million charge related to the Perth basin gas field impairment.
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Remember the biggest market scare headline from January 2016: The Royal Bank of Scotland's "sell everything!" alarm? And the $10,000 bet Steven Koukoulas tried to make against the RBS analyst? Well now the tables have turned and "The Kouk" is the bear, Michael Pascoe says:
Funny thing about the RBS analyst who made the "edge of a cataclysm" call – he seems to have disappeared. After advising RBS clients they should sell everything except high-quality government bonds, Andrew Roberts hasn't turned up on a Google search since. I've gone through several pages of searches but there's been nothing fresh from Mr Roberts since that headline-grabbing advice.
If he was out to get publicity, he was certainly successful, featuring in stories around the world. Embarrassingly, much of the coverage was uncritical or even barely sceptical. Hey, fear sells.
But not everyone was unquestioning. Stephen Koukoulas of Market Economics, alias The Kouk, went a step further than expressing doubt by immediately calling Roberts out, prepared to bet 10 grand that at least six of 11 markets Roberts indicated as losers would in fact rise.
Koukoulas never heard from Roberts, but he kept score anyway. As it has turned out, all 11 of the nominated markets finished in the black, averaging a stunning gain of 29.6 per cent with the US dollar iron ore price the best performer, up 85.9 per cent. Roberts wasn't just wrong, he was stunningly wrong. In the pantheon of failed Doomsday forecasts, he's at the top table with Marc Faber and whoever it is who has been advertising "The Crash of Next Year" for the past several years.
But in a twist to the bulls versus bears game, now it's the Kouk who has turned cautious, predicting Australian and global stocks will fall, commodity prices will drop, including a halving of the coal price, and he's tipping Australian unemployment to finish this year at 6 per cent despite the Reserve Bank cutting interest rates two more times.
Local shares have opened marginally higher, feeding off continuing bullish sentiment in the market.
The ASX is up 0.1 per cent at 5739.3 and the All Ords has added 0.1 per cent to 5791.2.
"The fact that the index closed at its high after a 1.2 per cent rally yesterday hints at the possibility of unsatisfied buying," says CMC chief market analyst Ric Spooner. "Against this, traders will be weighing a soft overnight session for commodities, especially oil and a positive session for precious metals, neither of which suggest strong 'risk on sentiment' for this morning's session."
The big banks and Telstra are propping up the benchmark index, with CBA's 0.6 per cent gain the biggest tailwind.
Fortescue is up 1.2 per cent despite a dip in the iron ore price overnight, while Rio has dropped 0.7 per cent and South32 is down 0.5 per cent.
Gold miners are rebounding from yesterday's losses, after the precious metal's price rose overnight. Newcrest has added 1 per cent.
Iron ore has a tough act to follow in 2017. After surging last year in a rally that caught out many investors, the commodity faces a challenge as supply concerns re-emerge, with Vale bringing on the industry's biggest project and holdings at China's ports at a record level.
Seaborne supply is expected to remain strong on shipments from Vale's newly completed S11D project in Brazil, and as miners look to take advantage of current prices, according to Tan Hui Heng, a Singapore-based analyst at Marex Spectron. That, coupled with slowing demand, may hurt iron ore, he said, joining banks including Morgan Stanley in expecting a retreat.
Iron ore soared 81 per cent in 2016 in a year when low-cost supply had been expected to rise further amid tepid consumption, hurting prices. Instead, stimulus in China helped sustain steel output, and that, along with speculative interest and record coal prices, fuelled the rally. Better demand and a more restrained approach by top miners Rio Tinto and Vale are likely to carry into this year, limiting losses, according to Clarksons Platou Securities.
This year "will bring more supply than current pricing can handle, so pricing should see downward pressure from the current $US80 a tonne levels", Jeremy Sussman, an analyst at Clarksons, said. "Nevertheless, we expect it to be a gradual decline rather than a crash that many are still calling for."
The iron ore spot price fell 1.2 per cent to $US77.91 a tonne on the first trading day in 2017, not far off a two-year high of $US83.58 hit on December 12. The rally supercharged miners' shares in 2016, with Rio 34 per cent higher and Vale more than doubling.
The holdings at ports in the largest buyer, one gauge of supply, surged 22 per cent last year for the biggest annual gain since 2011. In the final week of 2016, they expanded 2.7 per cent to 113.95 million tonnes, according to Shanghai Steelhome Information Technology Co. That's the highest level on record.
"If history is any precedent, record stocks at Chinese ports carry an ominous sign," Axiom Capital Management analyst Gordon Johnson and senior associate James Bardowski wrote in a January 2 note. Axiom predicts prices will drop to $US61 if inventories fall just half as much as in the last down cycle.
Prices should remain about $US70 to $US80 in the early part of 2017, with a gradual easing toward the $US50-$US60 range by mid-year, according to Gavin Wendt, founding director and senior resource analyst at MineLife. The drop would come as supply better balances with demand, Wendt said.
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The open of the Asian markets promises to be a fairly drab affair, with our call for the ASX 200 sitting up three points, IG's Chris Weston writes:
Turnover through the Aussie market was predicably terrible yesterday at $3.74 billion (38% below the 30-day average) and that will likely be the case again today, although I'd expect turnover north of $4 billion. BHP's ADR is largely unchanged, if we use the mining heavyweight as a proxy for the space, and I would expect banks to open ever so slightly stronger.
The trend in the ASX 200 is strong though and moves into 5700 should be supported and looking at the daily chart there are no red flags warranting more aggressive short positions just yet. Happy to stay long for now.
In terms of volatility the commodities space has been interesting, and there seems to have been somewhat of a move from energy into precious metals. US crude basically collapsed close to 5% after hitting $US55.00 in mid-US trade and technically looks to be putting in a double top. A move through $US52 could be on the cards if we get a poor weekly inventory report (tonight 03:00 aest), with the market expecting a drawdown of 1.38 million barrels. Surprisingly the S&P 500 energy sector is still strong on the day and it will be interesting to see if Aussie energy plays can hold up this morning.
Precious metals have seen a good level of short covering, and my preference in this space has been to be long platinum and this trade has been working well, with price gaining over 4%. Technically we have seen price break out of multi-month wedge pattern and $US1000 to $US1020 would be my target here. We can also look at seasonality and see that that platinum has gained for 13 of the last 15 January's, with views that traditionally car manufacturers tend to receive budgets in January and buy volumes of PGM in this window. There tends to be a fall in production as well during this period which supports price.
Manufacturing output in China, the UK and the US is recovering at a steady pace, boosting hopes for the global economy days into the new year.
Factories have struggled around the world the past few years in an environment of goods-price deflation, according to economists at JPMorgan, which today released its global manufacturing PMI for December, up 0.4 points to 53.8, its best level since 2014.
"The latest output PMI reading implies global production growth at a 3.7 per cent annualised pace based on the historical relationship," JPMorgan said. "This would mark a dramatic improvement over the recent past. In 2015 and 1H16, output gains averaged just 1.1 per cent annualised."
JPMorgan said a recovery in pricing power and expected gains in profits and spending are "expected to give a major boost to manufacturing output in our forecast, which calls for 2.5 per cent average gains in 2017".
First on the mark this week was China. Its factory activity picked up more than expected in December as demand accelerated, with output reaching a near six-year high, a private business survey showed, giving the manufacturing sector a solid boost heading into 2017.
The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) rose to 51.9 on a seasonally adjusted basis, from 50.9 in November and easily beating analysts' forecasts of 50.7.
After a rocky start to the year, China's economy looks set to hit Beijing's 2016 growth target of 6.5 to 7 per cent, after expanding 6.7 per cent for each of the first three quarters.
British manufacturing grew at its fastest pace in two and a half years last month, adding to signs that the economy ended 2016 strongly despite the shock of June's Brexit vote.
The Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI) rose to 56.1, the strongest reading since June 2014, from 53.6 in November, helped by orders from home and abroad.
Britain's economy has fared much better than many economists predicted since the vote to leave the European Union, with consumer spending strong and companies performing well.
IHS Markit's eurozone PMIs showed manufacturing growth there hit a more than five-year high, similarly boosted by an influx of new orders.
US factory activity accelerated to a two-year high in December amid a surge in new orders and rapidly rising raw material prices, indicating that some of the drag on manufacturing from prolonged dollar strength and a slump in oil prices was fading.
Other data on Tuesday showed US construction spending hit a 10-1/2-year high in November, providing a boost to a fourth-quarter economic growth estimate. The reports suggested President-elect Donald Trump would inherit a strong economy, with a labour market that is near full employment, from the Obama administration.
"The economy is ending the year on a high note with even the manufacturing sector showing signs of faster growth. It appears that President (Barack) Obama will be leaving his successor with a pretty good economy," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The Institute for Supply Management (ISM) said its index of national factory activity rose 1.5 percentage points to 54.7 last month, the highest level since December 2014. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 per cent of the US economy.
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