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Shares continued to push higher, adding 17 points or 0.3 per cent to 5753, as investors shrugged off a slightly more hawkish tone form the US Fed.
The Aussie dollar was also well supported, climbing above 73 US cents for the first time in three weeks.
Solid buying in the banks formed the backbone for the day's gains, with NAB the best, up 0.9 per cent, while Westpac added 0.5 per cent, ANZ 0.4 per cent and CBA 0.3 per cent.
Woolies and Wesfarmers were drags - after starting the session higher, the former ended 0.3 per cent lower, while the latter was only marginally down..
Energy stocks did well after oil prices recorded good gains overnight, although crude prices moderated through today's session. Woodside added 0.5 per cent.
Losers from the Trumpflation trade, such as stocks hurt by rising bond yields including Sydney Airport, Transurban, and listed property names, came under further pressure today. As did healthcare names, aside from CSL which added 1 per cent.
But QBE, which should benefit from higher rates, dropped 1.3 per cent to be the heaviest weight on the index, suggesting that there was more than a simple return to the post-election trends at work.
Finally, gold miners did very nicely as the precious metal enjoyed some more support. Newcrest added 1.8 per cent.
WorleyParsons has jumped as much as 3.4 per cent to an 18-month high, after the engineering services provider announced the renewal of a general engineering services contract with Saudi Aramco for an additional five years.
The stock is also supported by overnight gains in oil on fall in US crude inventory.
Shares are currently up 2.2 per cent at $10.13.
One of the consequences of tighter capital controls in China is a spike in the price of Bitcoin, which hit an all-time high this morning, soaring 20 per cent in 2017.
The digital currency, which just turned eight years old, reached $US1144.24, which was higher than the $US1137 it hit in November 2013. It's currently fetching $US1142.04. In December, bitcoin also surpassed its previous all-time high in total market capitalisation, which now exceeds $US16.1 billion.
The latest increase was driven by capital or currency restrictions in countries ranging from China to India and Venezuela, where people purchased bitcoin to protect their savings, as well as increased adoption by investors. The digital currency beat every other currency, stock index and commodity contract as an investment last year.
"Unlike the exponential adoption that propelled the price of Bitcoin in 2013, the current ascent was driven by a more gradual adoption over the last three years, mostly in China and other countries that have capital or currency restrictions," Gil Luria, an analyst at Wedbush Securities, said.
The #1 contract holder on OKCoin just got liquidated on a $10 million short position against #bitcoin pic.twitter.com/901QPdbQUy
— Whalepool (@whalepool) January 4, 2017
Global restrictions on sovereign currencies are playing a major role in driving increased bitcoin demand. The Chinese government, for example, made it more difficult for people to move the nation's currency and spend it overseas, leading to trapped liquidity. That's made bitcoin, which isn't controlled by any government or central bank, more attractive.
Also contributing to its rise, the explosion of bitcoin supply growth is slowing, with so-called miners getting fewer electronic coins in exchange for letting the network use their computing power. The payment to owners of the computers that verify bitcoin transactions and record them in a public ledger known as the blockchain fell by half in the middle of last year.
"It shows that more and more people are confident in the currency," said Marco Streng, chief executive of Genesis Mining, a bitcoin mining company. "They see the benefit of bitcoin and other cryptocurrencies. This will inevitably accelerate the growth of the whole economy."
Drivers may want to fill up at the servo in coming days with Australian petrol prices set to rise further.
The consumer watchdog says petrol prices are rising on the back the world's oil producing nations mid-December agreement to cut production.
ACCC chairman Rod Sims said the falling Australian dollar was also likely to push up the prices consumers pay for fuel in Australian.
"The ACCC is concerned that petrol prices are increasing in Sydney, and those in Melbourne, Brisbane and Adelaide may increase in the coming days, so motorists should get in early, shop around, and consider filling their tanks before prices jump," Sims said.
The ACCC said its research also shows that traditionally petrol prices rise sharply before Christmas before dropping off and then creep up again in late January.
Meanwhile, oil prices seem to have hit a ceiling for now, amid worries that plans by OPEC and other leading producers to cut crude supply would be fully implemented.
"There remains a question mark over whether OPEC, with a long history of non-compliance, will actually follow through (with the cuts). Very few respondents expect full compliance," Singapore Exchange said today, citing results from a survey of its participants.
"Three quarters of those surveyed went for (crude) prices averaging within the current $US50-60/barrel range (for 2017)," SGX added.
Brent crude is trading at $US56.37 a barrel, down 0.35 per cent.
Some more detail on the spike in the offshore yuan (see post at 1.21pm), which surged the most in a year as traders scramble for a currency that's becoming increasingly scarce outside the nation's borders, showing that China's efforts to choke capital outflows are beginning to pay off.
The yuan jumped 1.3 per cent late Wednesday and overnight deposit rates surged to as high as 30 per cent in Hong Kong on news that Chinese policy makers were encouraging state-owned enterprises to sell foreign currency. That widened the spread between the offshore and onshore exchanges rates to the most in 11 months.
Investors are cutting bullish positions in the US dollar after the report underscored China's determination to support the yuan, Societe Generale said. Policy makers in Beijing have recently taken a slew of measures to tighten control of the currency market, including placing higher scrutiny on citizens' conversion quotas and stricter requirements for banks reporting cross-border transactions.
"Given the recent capital controls, the channels for domestic institutions and retails to bring out onshore cash to the offshore market have also been tightened," said Becky Liu, a rates strategist in Hong Kong at Standard Chartered. "There is a lack of supply of yuan liquidity."
The offshore yuan has since pared some of its gains, dropping 0.3 per cent to 6.8871 per US dollar, while the premium over the onshore rate narrowed to 0.6 per cent from 0.94 per cent outside the onshore yuan's trading hours Wednesday.
High short-term funding costs, which will continue to trend higher, could dissuade significant short yuan positions from being added in the near term, Societe Generale strategist Jason Daw said.
A rebounding currency would alleviate pressure on Chinese authorities battling to curtail capital outflows after an annual $US50,000 quota for citizens to buy foreign exchange reset on January 1 and the imminent inauguration of US President-elect Donald Trump lifts the dollar.
Investors have been watching for the yuan to break the psychologically key level of 7 against the greenback for the first time since 2008.
"We expect the authorities to maintain an elevated currency management mode in the run-up to Donald Trump's inauguration on January 20, and until after the Lunar New Year break from January 27 to February 2," said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank.
How to become a better investor? Well, there are plenty of books on the subject but most of them aren't exactly riveting reads.
Smart saving and investing is all about good habits, says Stockspot founder Chris Brycki.
"The mistake people make is they let boredom set in before they've had the chance to get excited and form (necessary) good habits."
If the magic formula is forming a habit and boredom avoidance what are the ingredients?
"First off, you don't need to bury your head in a textbook to learn about investing. Modern entertainment technology brings global experts and information to where you are – the beach, your daily stroll, the gym or the backyard with the dogs and the kids running around."
Brycki has put together a list of recommendations on how to entertain yourself smarter and what to watch, listen to and read in your summer downtime to get you started on being a better investor in 2017.
Is the local bull market for equities about to run out of puff?
Shaw and Partners wealth manager Karl Goody thinks so, and wants to see some declines in January before putting any more money into stocks.
The S&P/ASX 200 Index's 12 per cent surge in just two months has sent the relative-strength indicator to the highest level since August, signalling the rally may have gone too far, too fast. That's prompting Goody to cash in on gains made since buying in mid-November so he can redeploy money after the pullback he expects in shares.
"I'm still pretty cautious," said Goody, who helps oversee about $10 billion as a private wealth manager at Shaw. "You're going to see some profit taking over the next few days, even if it doesn't become a more sizeable sell-down."
As the following chart shows, history isn't always kind to stock bulls in the immediate aftermath of the 14-day RSI reaching these levels. The technical measure has only tipped above 70 once in the past two years, preceding a 3.1 per cent loss in the subsequent month.
ASX market internals looking eupohric..nice place for contriarians - 80% co's >50 day MA, 88% 20-day. 10% with RSI>70 was was 22% y'day
— Chris Weston (@ChrisWeston_IG) January 5, 2017
Over at Citi, strategists are advising investors to hold fewer local equities in global portfolios, noting the surge in valuations amid the recent rally. The gauge's estimated price-earnings ratio of 16.4 remains well above the five-year average of around 15x, but is also below levels of around 17.5 reached early 2016 and i the first half of 2015.
Citi's chief equity strategist Tony Brennan does expect the ASX to top 6000 points by the end of this year, but he's not particularly enthusiastic about the local market, given some doubts on earnings and a decent rerating of his market.
"We are not especially bearish, but remain underweight" in a global context, he says.
A rift among Bellamy's Australia board over support for chief executive Laura McBain to remain with the troubled organic baby food maker has emerged as a key factor in a shareholder revolt lead by Jan Cameron to dump the board.
The four non-executive directors including former Billabong CEO Launa Inman, Shanghai-based Michael Wadley, former McKinsey & Co director Charles Sitch, and Patria Mann were asking tough questions about McBain's performance following a 40 per cent downgrade to earnings in early December.
A source confirmed to the AFR that while Chairman Rob Woolley has continued to stand by McBain, independent directors wanted her to step aside.
This was part of the impetus by Tasmanian and Kathmandu founder Cameron, who along with several other dissident shareholders - including Bellamy's largest the Black Prince Private Foundation - are looking to dump the board.
Cameron told The AFR that both McBain and Woolley should remain at the Launceston-based company while the four non-executive directors should go, and she along with three other allies should be installed.
Here's Chanticleer on Jan Cameron's bizarre bid to roll selected board members
The People's Bank of China has lifted the daily fix for the onshore yuan to 6.9307 per US dollar, from 6.9526, not fully matching the overnight big jump in the offshore yuan.
The currency posted its biggest percentage gains in about a year in offshore trading overnight, after Chinese authorities stepped into both its onshore and offshore yuan markets to shore up the faltering yuan for a second day.
China: CNH dropping well below the CNY, usually good indication of intervention also HIBOR at 16.9% today pic.twitter.com/bosyZyE82b
— Angus Nicholson (@AN1cholson) January 5, 2017
The offshore yuan rose 1.3 per cent by New York close to 6.8689 to the US dollar, but has since given back some of the gains to trade at 6.8904.
Traders attributed the size of the rise in the freely traded offshore yuan to a lack of liquidity in the market.
Funny business in the CNH. Nothing in the CNY universe that would have matched a move of ths magnitude https://t.co/W8IW8ykl3K
— Comrade Balding (@BaldingsWorld) January 5, 2017
The currency has been falling over the past few months, as the greenback strengthens, but it hasn't quite managed to breach the level of 7 yuan per US dollar.
The latest reversal may come at an opportune time ahead of the inauguration of Donald Trump as US president, considering the Republican has been outspoken about Beijing's alleged currency manipulation in favour of a weaker yuan.
American stocks have rocketed since the election of Donald Trump, but it's time investors consider their exit strategies, says Morgan Stanley, suggesting the President-elect's inauguration might be a good time to get out.
"We are worried that there is an arrogance in telling people they should be worried, but to stay bullish for now," said Morgan Stanley's equity strategist team, led by Adam Parker, in a note to clients.
"Part of us thinks we should just sell the inauguration. After all, what incrementally positive and exciting outcomes could be produced in the first few weeks after that?"
Prior to the US election in November, the bank says it was optimistic on the future of US equities, despite expecting low earnings growth and only some valuation-multiple expansion.
But since confirmation Mr Trump will be at the helm of the world's largest economy, the bank expects "material" contractions in earnings growth and multiples.
Since the election, the US rally has been sizeable and has spilled over into global financial markets including the ASX.
However, Morgan Stanley seems uncomfortable blindly following the optimistic tone taken by financial markets, given there is little information on which to make investments with conviction.
"We can't help but think that the Republican sweep has created a more uncertain and volatile outlook for the economy and corporate earnings growth," writes the bank, before pointing to rising interest rates by the US Federal Reserve, China's economic slowdown, a significantly stronger US dollar and the political uncertainty sweeping throughout Europe as causes for concern.
Morgan Stanley has amended its base-case target for the S&P 500 at 2300 by the end of 2017, compared with Wednesday's close of 2270. The inauguration of the 45th president of the United States will take place on January 20.
Packaging company Orora has wrapped up the $59 million acquisition of The Register Print Group in the US.
Orora says the $US44 million purchase of the New Jersey-based company, whose services include signage, packaging and retail display manufacture, represents a step toward the aim of growing its North American point-of-purchase business. The acquisition was announced on December 15.
Shares in Orora are 1.2 per cent higher at $3.05.
Australia's services sector ended 2016 with a bang.
A performance index surged to 57.7 in December, the highest level since May 2007 and third straight month of expansion (anything under 50 signals contraction). Growth was helped by a more than 2 per cent drop in the Aussie dollar over the month, and will no doubt cheer the Reserve Bank of Australia as it seeks to steer economic reliance away from mining toward services industries.
"Sales and new orders were particularly strong across many services sub-sectors pointing to the likelihood of a strong start to the new year," Ai Group chief executive Innes Willox said in a statement
After defying skeptics with solid growth last year, China aims to do the same again in 2017.
With a crucial Communist Party Congress set for late this year, leaders are more determined than ever to prevent blow-ups that could detract from a twice-a-decade leadership reshuffle.
Things look good so far. The economy recently emerged from four years of factory deflation, consumption is holding up and there's a potential tailwind this year for exports if US President-elect Donald Trump delivers on vows to boost fiscal and infrastructure spending -- and also goes slow on bellicose promises to slap punitive tariffs on imports from China.
Forecasters have raised growth estimates even as policy makers move to curb soaring property prices and battle yuan depreciation that threatens to accelerate, potentially aggravating capital outflows. Recognising challenges ahead as the nation grapples with rising debt and the risk of confrontation with Trump, President Xi Jinping is open to growth falling below the 6.5 per cent target, a person familiar with the situation said last month.
"While there are plenty of challenges going into 2017, China poses less of a systemic risk to markets than it did going into 2016," said David Loevinger, a former China specialist at the US Treasury and now an analyst at fund manager TCW Group in Los Angeles. "Fears of a hard landing have receded."
Economists and analysts see the following as areas that will underpin strength and possibly provide upside surprises for the world's No. 2 economy this year:
Robust Consumption
Growth will be resilient this year with consumption a major contributor, said Mike Shiao, chief investment officer for Asia ex-Japan at Invesco Hong Kong Ltd.
Resilient wage growth will support retail sales growth of about 10 percent and consumption should continue benefiting from rising demand for services including financial services, health care and education, he said.
Global Boost
Trump is vowing to increase US fiscal and infrastructure spending, which may fuel an economic rebound in 2017 that helps Chinese exports and supports its growth, according to Rajiv Biswas, Asia-Pacific Chief Economist at IHS Global Insight in Singapore.
"An immediate U.S. tax cut or strong anticipation of one could provide some stimulus to China," said David Dollar, a senior fellow at the Brookings Institution in Washington and a former U.S. Treasury attache to Beijing. "It won't be huge, but in the current environment it could help China stabilise its growth in the 6 per cent to 7 per cent range."
Reflation
China's climb out of deflation is set to continue this year, lifting nominal growth and giving the central bank room to keep interest rates and the required reserve ratio on hold, according to economists Qu Hongbin and Julia Wang at HSBC in Hong Kong. Reflation will help lower real borrowing costs and ease debt burdens, which could lead to a modest recovery in private sector investment, they wrote in a report.
Party Congress
This year's political climate is especially supportive of growth because the Communist Party Congress makes policy makers "highly risk-averse," said Li Wei, China and Asia economist at Commonwealth Bank of Australia in Sydney.
That means policy support will be intensified whenever growth softens notably, according to Wang Tao, head of China economic research at UBS Group AG in Hong Kong.
Quick note to say that Morningstar has been active this morning, cutting their recommendation on a number of stocks:
- Harvey Norman to sell from hold (shares are up 0.1%)
- Pact Group to sell from hold (-0.2%)
- Primary Health to hold from buy (+0.6%)
- Iluka Resources to hold from buy (+0.9%)
While Credit Suisse has lifted TPG to neutral, with the stock 1.7 per cent higher.
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Some of the biggest losers from the end of Western Australia's mining boom might finally have something to celebrate.
After eye-watering drops in median house prices across the Pilbara, there is a growing view that values in Port Hedland and Karratha have found a bottom.
Hedland Property Shop managing director Jim Henneberry, who is based in Port Hedland, said there had been an increase in sales turnover in the past couple of months.
"The market is about to turn," Mr Henneberry said.
The median house price in South Hedland crashed 70 per cent in just four years from $850,000 to $250,000. Prices have not been this low since 2005.
SQM Research founder Louis Christopher, who has been described as one of the nation's most accurate property forecasters, said he has noticed vacancy rates in a number of mining towns falling.
"Vacancy rates started lifting in 2012. It was a good leading indicator [for falling prices]," Mr Christopher said.
"We have noticed in a number of mining towns the vacancy rate appears to have peaked. That suggests perhaps the worst is over for the mining towns."
Pilbara homes fetching $1 million five years ago sold late last year for just over $200,000. Even modestly priced homes plunged in value.
A three-bedroom, one bathroom South Hedland home that fetched $465,000 in September 2009 sold in November for $115,000.
Two and a half hours north at Karratha, a three-bedroom, one-bathroom home purchased for $320,000 in 2006 sold for $145,000 last month.
"We have gone below what we should have done," Mr Henneberry said.
He said hurting the market has been requirements by the major banks for home buyers to stump up a 30 per cent deposit, making it difficult for younger families to purchase homes even with prices being so low.
But he said the CBA had become more aggressive in the local market and had lowered the threshold for new loans.
"The [sales] volumes are increasing," Mr Henneberry said.
"We are getting three offers on mortgagee sales at the moment. We were sitting here six months ago lucky to get one [offer]."
Were the Fed minutes more or less hawkish than expected? It depends who you ask.
Economists like Citi's William Lee reckon the minutes "confirm the more hawkish tone that chair (Janet) Yellen expressed" during her press conference following the December board meeting in which the US central bank lifted rates for just the second time since the GFC and flagged three more moves this year.
"Almost all participants shifted up the upside risk to their growth forecasts, in part, because of prospective fiscal stimulus. The Committee may adjust its policy stance in various ways because of this more hawkish tone," says Lee.
But currency traders took the minutes as less hawkish than they had feared, which contributed to a drop in the greenback, and subsequent rise in the Aussie (see post at 9.47am).
It's all a matter of perspective, but one thing was evident: the minutes were full of "uncertainty", meaning it's anything but clear how the central bank will act this year.
The Fed cited "considerable uncertainty" about the effect the incoming Trump administration could have on the economy.
But there was much more uncertainty in the minutes.
The Mish Talk blog has counted and finds 15 mentions of "uncertainty" in the minutes, two of "heightened uncertainty", one of "greater uncertainty", one of "considerable uncertainty", two of just being "uncertain", one occasion of "uncertainty" used twice in a sentence and one instance of "uncertainties".
In fact, some see the increase in uncertainty as the main takeaway from the minutes.
Interestingly, the name "Trump", a likely source of all the uncertainty, doesn't feature once in the minutes.
Shares are keeping the good times rolling into 2017, with the ASX 200 climbing another 21 points or 0.4 per cent at 5758 points, with broad gains across blue-chip stocks.
The big four banks are up around 0.5 per cent, while Rio and Fortescue have climbed 1 per cent despite another fall in the iron ore price overnight. BHP has added 0.2 per cent. Gold miners are doing very nicely, with Newcrest adding 2.1 per cent.
Some of the names that have suffered during the year-end Trumpflation trade, such as Sydney Airport, Transurban, DUET Group and healthcare names such as ResMed and Cochlear, are weighing on the index (although CSL is 0.3 per cent up).
But insurers, like QBE and IAG, are also lower, as are industrials, like Brambles and Ansell, which have tended to be winners in the higher rates, higher inflation environment.
So a bit of a mixed bag this morning, with the Aussie at 72.8 US cents, after somewhat surprisingly climbing overnight.
The biggest miners on the ASX are tipped to report a $US6 billion ($8.3 billion) jump in combined revenues next month, triggering a rebound in profits and dividends across the sector.
Stronger-than-expected commodity prices over the past year have already sparked an $US80.9 billion rise in the combined market capitalisation of the five biggest miners on the local bourse, and there could soon be more rewards on offer for shareholders who stuck with the sector during the dark days of 2014 and 2015.
Miners will start reporting quarterly production results in just over a week, with half-year financial results to follow in February, and the mood in the sector is starkly different to the same time last year, when commodity prices were near their nadir.
BHP Billiton is expected to reveal that revenues for the six months to December 31 topped $US19.1 billion; a rise of more than 20 per cent above the same period last year, according to analysts surveyed by Bloomberg.
An eightfold increase in adjusted net income to more than $US3 billion will likely revive the debate around the potential for BHP to pay higher dividends, just one year after the BHP board axed its progressive dividend policy.
Analysts believe BHP will deliver a modest improvement to dividends in February, and will prefer to focus on repaying debt in the near term.
But continued strength in commodity prices during 2017 could ensure that BHP's dividends rise strongly during the 2018 financial year, which is less than six months away.
A boost to shareholder returns could come sooner at Rio Tinto, where debt levels are close to the bottom of the range sought by management.
Analysts believe Rio could spend $US2 billion on share buybacks over the next 18 months, plus boost dividends to the levels seen during the progressive dividend era if commodity prices remain strong through 2017.
The ASX's biggest gold miner, Newcrest Mining, is tipped to report earnings that are more than triple the amount reported in February 2016, while strong improvements are also likely to be revealed by Fortescue Metals Group and South32.
The Australian dollar has hit a three-week high after the US Federal Reserve's minutes were less hawkish than traders had feared.
The local currency is trading at US72.77¢, up from US72.39¢ late yesterday. It earlier touched US72.85¢.
The rise in the Aussie was more down to some weakness in the greenback, which slipped from a 14-year high against a basket of currencies after the minutes of the US Federal Reserve's December board meeting, when they last raised interest rates, were released.
The US central bank board noted upside risks to interest rates from potential fiscal stimulus from president-elect Donald Trump's administration.
But the Fed's optimism seems based mainly on Trump's ability to follow through on his campaign promises for major tax cuts and big spending as "about half of Fed officials included fiscal policy in their forecast".
In other words the Fed is betting on Donald Trump delivering, which is a risky gamble, BK Asset Management's Kathy Lien said.
"Some policymakers recognise the risk, which is why they officially endorse a 'gradual rate hike pace' as the upside risk is debated."
Westpac senior market strategist Imre Speizer said the Aussie had potential to rise a bit further as momentum was turning positive, adding that the US73¢ mark looked "vulnerable".
However over the next one to three months, Mr Speizer was more cautious, predicting the US dollar bulls would remain in charge, pulling the Aussie back below US72¢.
"The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead," Mr Speizer said. "The Fed's assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar.
"Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar's trend," Mr Speizer said. "There's also the issue of Australia's AAA rating, seen at risk."
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