Late on to slip in:
Primary Health Care chief executive Peter Gregg has resigned after being charged earlier this week with two counts of falsifying books and records while and executive at Leighton Holdings.
The board of the $2 billion company that owns a host of pathology and doctors clinics made the announcement that Gregg would leave the company after market close.
Gregg will remain in his role until the company completes and internal and external search for a new chief executive.
The announcement came after the board had been locked in deliberations for four days after being informed by Gregg on Monday evening he had been charged with two counts of falsifying books and records following an investigation by the Australian Securities and Investments Commission.
That's all for the week - thanks everyone for reading this blog and posting comments.
We'll be back Monday from 9am.
Have a great weekend!
Sharp falls in the big banks led the local sharemarket down on Friday and to a weekly loss, as investors took profits in a sector that had performed particularly well since the election of Donald Trump as US president in early November.
The benchmark S&P/ASX 200 Index fell 0.8 per cent to 5721.1 on Friday, losing 0.6 per cent in a week that began with a fresh 19-month high above 5800 points.
But towards the middle of the week, and especially after Mr Trump's press conference Wednesday night, his first since the election, doubts have been growing over the President-elect's willingness or ability to deliver on his fiscal stimulus promises.
The lack of clarity around the incoming administration's economic plans irked investors, weighing on Wall Street and sending the US dollar to a five-week low against a basket of major currencies including the Australian dollar.
"Over the short term everyone reacted favourably to the Donald Trump positives," said PM Capital chief investment officer Paul Moore, pointing to hopes of a lower corporate tax rate and increased infrastructure spending as causes for the recent rallies.
"But you might argue that [markets are] a bit ahead of themselves, and there's still uncertainty in terms of how he's going to implement trade policy and things of that nature."
Shares in the big four banks all finished down more than 1.3 per cent on Friday. For the week, ANZ was the biggest drag on the benchmark index, falling 2.3 per cent, followed by a 1.7 per cent loss in Westpac and a 1.3 per cent drop in NAB. Commonwealth Bank held up better slipping just 0.3 per cent.
The weakening greenback meant gold miners enjoyed a solid week of buying as the price of bullion touched a seven-week high just above $US1200 an ounce. Australia's largest gold producer Newcrest Mining finished the week up 1.9 per cent.
Resources giants BHP Billiton and Rio Tinto also finished the week higher as the commodities rally picked up steam again, rising 3.25 per cent and 3.3 per cent respectively, boosting along by an iron ore price jumping back above $US80 a tonne.
House prices are out of control in some Australian capitals, but we can't be sure we're in a housing bubble, says Michael Potter:
Market bubbles are never perfectly clear at the time, otherwise the galloping price increases would stop. So don't let anyone get away with 'claiming conclusively' that there is a housing bubble.
Regardless, price growth is unsustainable and will come to an end. The economy will suffer a hit if prices suddenly stopped growing, but the effect could be severe if prices started to fall.
While the regulators think that banks can absorb a hit to house prices, the effect on construction and real estate could be large, and price falls are expected to cause homeowners to cut consumption, meaning the impact spreads throughout the whole economy.
This is an important risk; what should be done in response? In addition to the suggestion that planned interest rate cuts should be cancelled, the OECD has even suggested rates should increase to cool the housing market. However, this is exactly the wrong solution to the problem.
While housing in some areas is going gangbusters, the rest of the economy is not. Economic growth is sluggish, particularly with the negative quarter of growth in September 2016. Wages growth after inflation is almost non-existent, forecast to be 0.5 per cent during this financial year and the next.
There goes our next holiday.
Alan van Noort​ has stepped down as chairman of the organic baby food maker Bubs Australia just over a week after its listing on the ASX.
The unexpected resignation, which was not flagged in the company's prospectus, followed the company's strong stockmarket debut which saw its share price triple following its listing on January 3.
Bubs managing director Kristy Carr said Van Noort had achieved his objective over the last six months to securing a transaction that would "secure the future of the company".
Bubs was listed from the shell of Hillcrest Litigation Services, where Van Noort had served on the board for 18 years. Van Noort pocketed $1.05 million when he sold 3.24 million of his total shareholding of 5 million shares on Jan. 5.
Bubs sought to raise $5.2 million at an issue price of 10¢ a share. Its shares rose as high as 33.5 cents despite concern about companies importing infant formula into China following a profit warning for Bellamy's Australia.
The stock is trading 2.4 per cent higher at 21 cents, after earlier in the session rallying as much as 14.6 per cent.
China's exports remained subdued in December despite a strong end of the year for global manufacturing, raising uncertainties for the nation's external sector as it braces for potential trade frictions with the US under a Donald Trump presidency.
The country's exports fell by a more-than-expected 6.1 per cent from a year earlier, while imports beat forecasts slightly, growing 3.1 per cent on strong demand for commodities from coal to iron ore.
That translates into a trade surplus of $US40.82 billion for the month, below expectations of a $US47.5 billion surplus.
Exports in all of 2016 fell 7.7 per cent from a year earlier, while imports slid 5.5 per cent. China's Jan-Dec trade surplus was $US509.96 billion.
Analysts had expected December exports to have fallen 4 per cent on-year, a contraction from an unexpectedly 0.1 per cent rise in November and pointing to persistently sluggish global demand. Imports were expected to have grown for a second month but at a slower pace of 3 per cent, after soaring 6.7 per cent in November.
"External demand remains sluggish," said Wen Bin, a researcher at China Minsheng Banking in Beijing. "The outlook for exports this year doesn't look very promising," he said, citing slowing global trade amid rising protectionism and uncertainties in US trade policy.
China, the world's largest trading nation, could be heavily exposed to protectionist measures this year if US President-elect Donald Trump follows through on campaign pledges to brand it a currency manipulator and impose heavy tariffs on imports of Chinese goods.
Core inflation is set to come in at 0.5 per cent for the fourth quarter and 1.5 per cent over the year, matching the RBA's forecasts, according to a survey by UBS.
The survey prompted UBS to lift its forecast for quarterly headline inflation to 0.6 per cent, from 0.4 per cent, in part due to a larger than expected 6 per cent rise in fuel, economist Scott Haslem writes in a note to clients.
"Nonetheless, the CPI is seen staying below the RBA's 2-3 per cent target for a 9th quarter, the longest 'undershoot' since the 1990s, but in line with the RBA's forecast of 1.5 per cent," Haslem says.
He predicts the RBA will keep rates on hold unless core CPI drops below this 1.5 per cent line in the sand.
A much lower quarterly print, ie 0.3 per cent, which rounds to 1.25 per cent annually, would increase the risk of a cut, he says.
If the November election was intended as a rejection of elites, of expertise and of the sort of technocratic advice that economists often give, it's a punch that has landed, economist Justin Wolfers writes:
In sombre analyses, huddled hallway conversations and pointed asides during endless panel sessions at the annual conference of economists last weekend in Chicago, the major theme was a sense of anxiety about the incoming Trump administration.
This foreboding was evident in roughly equal measure among conservative and liberal economists. But it is in direct contrast with the feelings of small-business owners and Wall Street traders.
Most of my fellow economists remain convinced that university-trained economists can offer useful insight to the new administration. Few believe it will matter. The life force that animates the econ tribe - that what they're doing matters - has been drained away.
Few see useful channels for influence.
Partly this reflects US president-elect Donald Trump's plans. On issues like restricting trade, directly intervening to assist specific industries or corporations, targeting tax cuts to the wealthy, his agenda stands as a rejection of the advice that mainstream economists have typically offered.
Over three days of intense discussions, I didn't encounter a single economist who expressed optimism that Trump's administration would be good for the economy. The optimists were those who thought he would not have the energy to actually implement his agenda; the pessimists' thoughts veered toward disaster.
Nickel producers such as Western Areas are under pressure today after Indonesia eased export bans on the ore.
Western Areas shares have plunged 17 per cent to $2.72, while Independence Group is down 9.5 per cent at $4.20.
Indonesia introduced new rules yesterday that will allow exports of nickel ore and bauxite and concentrates of other minerals under certain conditions in a sweeping policy shift by the key global supplier.
A ban on unprocessed ore exports was imposed in 2014 to spur higher value smelting industries, but the government of Southeast Asia's biggest economy has faced a hefty budget deficit and missed its 2016 revenue target by $US17.6 billion.
The resumption of shipments may have been drafted to help stop the gap.
The new regulations sent nickel prices tumbling more than 5 per cent to a four-month low of $US9660 a tonne before they recovered.
The rules include broad changes to permit extensions, which may now be applied for up to five years in advance of expiry, as well as new divestment requirements.
Iron ore imports by China surged to a record above 1 billion metric tonnes last year as unexpectedly strong steel production and lower local mine output combined to fire up demand in the world's top buyer for cargoes from Australia and Brazil, supporting a rebound in prices.
Asia's top economy imported 1.024 billion tonnes of the raw material in 2016, up 7.5 per cent from a year earlier, customs data shows. That equates to importing 32 tonnes of iron ore every second, IG's Chris Weston has calculated.
Iron ore prices surged more than 80 per cent last year as China added stimulus to sustain economic growth, bolstering steel production, soaking up rising low-cost mine supply and shredding bears' forecasts.
The outlook depends on the country's ability to absorb even greater volumes, with the federal government among those seeing little scope for gains, while others see the potential for a further increase.
Seaborne supply may expand again this year as Brazil's Vale starts up production at its giant S11D project.Imports should "continue to rise through 2017," said Justin Smirk, a senior economist at Westpac. "It is all about supply, the supply of ore in the seaborne trade from both Australia and Brazil, as well as some of the smaller producers, continues to grow and as such, will continue to enter the Chinese markets."
The iron ore spot price, which hit a two-year high of $US83.58 a tonne last month, was at $US80.99.
Smirk cautioned prices may slip even as imports continue to rise as "rather than suggesting that demand for imported ore is strong, I would argue to suggest that supply is growing again," he said. Without a solid lift in demand, there may be a correction in prices through 2017, he warned.
A conga line of Federal Reserve officials has cautioned that the fiscal and tax plans sketched out by the incoming Trump administration could trade a short-term economic boost for longer-run inflation and debt problems they might have to counteract.
Fed regional bank presidents, in an array of appearances, agreed in principle that the policies President-elect Donald Trump is likely to pursue will increase economic growth - through direct spending, the consumption and investment spurred by tax cuts, and the boost to business from lighter regulation.
But at this point the economy does not really need much short-term help, said Chicago Federal Reserve president Charles Evans, speaking to the American Council of Life Insurers. It needs longer term strategies to expand a labor force constrained by issues like population aging and lagging productivity.
The new administration is taking over "at a time of arguably full employment", Evans said. "The US economy could experience a burst of 4 per cent growth for a year or two or more...But unless this is accompanied by sustainable structural improvement in labor and productivity growth, such GDP growth would ... ultimately lead to more restrictive financial conditions."
Lockhart, who retires at the end of next month, said that if inflation moves too quickly the Fed may be forced into "preemptive" rate increases.
Their comments and those of other colleagues showed the dilemma the Fed now faces. After years of hoping other arms of government would do more to help the economy, and ease the demands on the central bank, they now face a situation in which the White House and Congress may try too much too fast.
In December, at their first policy-setting meeting after Trump's election, Fed officials indicated they were likely to raise rates at a slightly faster pace in 2017, with a core group of policymakers saying three increases are expected compared to one each in 2015 and 2016.
Philadelphia Federal Reserve Bank President Patrick Harker said while he had not yet changed his policy outlook based on anything Trump might do, as things stand "the economy is displaying considerable strength" without any extra government help. Fed Chair Janet Yellen said the US economy was doing "quite well" and didn't face any serious obstacles in the short term.
St. Louis Federal Reserve President James Bullard downplayed any immediate inflation concerns during remarks in New York. He said the impact of the tax, spending and other changes Trump might enact would become clear perhaps next year.
Housing has helped keep the economy up in past years but it won't boost growth by much this year, Capital Economics predicts.
"After contributing 0.5 percentage points to the annual rate of GDP growth in Australia in each of the past two years, it looks as though dwellings investment will add almost nothing to growth this year," economist Paul Dales says.
"This is one reason why we believe that 2017 will be another disappointing year for the Australian economy, with GDP growth accelerating from around 2.3 per cent last year to only 2.5 per cent."
Dales concedes that the level of construction activity will remain close to its recent record highs for a while yet, but notes that it's the rate of change of that level that influences GDP growth.
"And the latest building approvals figures suggest that dwellings investment will rise at a slower rate this year, or perhaps even fall outright," he says, adding that the risk to his forecasts lie on the downside.
The trade of the century? The AFR's Chris Joye reckons the purchase and sale of UFC qualifies for the category.
The best trade of 2016 has to go to Lorenzo Fertitta, who snagged a 2000 per cent gross return on his $US2 million investment in 2001 to buy the Ultimate Fighting Championship (UFC), which was sold last year for about US$4 billion. That's a 66 per cent annual return over 15 years in what must be one of the top non-tech investments of the 21st century. (I flew to Las Vegas to snatch Lorenzo's last-ever on-the-record interview about the UFC's extraordinary business two days before the sale.)
My best trades in 2016 were in the listed hybrid market, which I argued in March, August and October had become cheap and, just as importantly, no longer plagued by terrible supply "technicals". The spreads major bank hybrids pay above the bank bill swap rate – a three-month benchmark rate that typically trades 0.25 percentage points above the Reserve Bank of Australia's cash rate (or 1.83 per cent today) – had blown out from a miserly 2.8 per cent in 2014 to as wide as 6 per cent in February 2016.
While the hybrid market had become compelling, one dark cloud was the issuance outlook. The Australian Taxation Office's unwillingness over the last decade to give the major banks tax rulings confirming they don't have to attach franking credits to hybrids when they issue to overseas investors that cannot use them had restricted sales to retail punters on the ASX, which only have so much capacity. Supply was also amplified by regulators forcing the majors to deleverage their balance sheets through expanding Tier 1 capital, which this column called back in 2013.
The best performing asset class in 2016 was Australian residential property, which provided gross capital gains of more than 10 per cent and total returns (including rents) of over 14 per cent. We had forecast high single-digit capital growth for last year, which was rendered conservative by the RBA's decision to cut rates on the assumption they would not reignite the boom. Yet in 2016 Sydney and Melbourne home values surged a crazy 15 per cent and 13 per cent respectively on the back of the RBA's cheap money policies.
Here's the whole AFR article from a few days ago
David Jones has lifted adjusted first-half sales 4.0 per cent, the department stores' South African parent company says.
Woolworths Holdings says sales growth took a 1.6 per cent hit from the absence of concessions from collapsed electronics retailer Dick Smith and 2.7 per cent from the fact that Boxing Day falls in the second half of its financial year.
Sales were up once those two factors were stripped out. The company also said adjusted sales at its Country Road fashion stores dropped 0.9 per cent in the 26 weeks to December 25.
David Jones isn't traded on the ASX anymore, but rival Myer's shares are up 2.7 per cent at $1.32.
Then there were three: CLSA, Ord Minnet and now Citi have slapped 'sell' notes on Bellamy's Australia, with a $3.75 valuation.
CLSA and Ord's have $3.50 and $3.72 valuations respectively.
Citi said it sees "no quick fix for Bellamy's issues".
In particular it is wary of further downside to near term sales guidance, balance sheet pressures and further management upheaval.
Getting stock levels under control could take up to two years, it reckons.
Also the deal giving Fonterra the right to curtail a supply agreement if control changes reduces takeover potential, further reducing Bellamy's appeal, it told clients.
Bellamy's shares are down another 5.2 per cent to $4.17, extending this week's carnage that began on Wednesday when the stock came out of a five-week suspension. Late November the shares were trading above $12.
Peter Hall, the founder of investment firm Hunter Hall, has resigned from the board of the fund's Listed Investment Company - Hunter Hall Global Value.
In a statement to the ASX, the company said the resignation was effective immediately. Hall appears to remain on the board of Hunter Hall International, the management company which he founded.
The LIC which has a market capitalisation of $289 million invests in global and Australian stocks. One of its largest holdings is drug company Sirtex, which has fallen 40 per cent since December 1.
Earlier this week, Hunter Hall told its LIC investors that the board had established a committee to deal with matters that would arise from the resignation of Hall as chief executive and chief investment officer of Hunter Hall, but that he would "continue to work with management to ensure a smooth transition when he leaves the business in June this year. "
The funds management firm has been embroiled in controversy since late last year when Mr Hall chose to sell his 44 per cent stake at $1 a share to conglomerate Washington H Soul Pattinson.
Since then questions have been asked about the role the directors played in informing shareholders of the value of Hall's sale, at what was a 69 per cent discount to the trading price.
Hall has initially sold 19.9 per cent of his shares with an agreement that WHSP would then make a takeover offer to the company at $1 a share.
On Thursday, the highly unusual bidders statement tabling an offer at a deep discount to the trading value of the company was filed the ASX.
Here's one for the bears, who have had a bit of a hard time of late.
Are global stocks headed for a meltdown? asks the London Telegraph's Ambrose Evans-Pritchard:
​Bank of America calls it the Icarus Trade. Global stock markets will surge by another 10 per cent in a parabolic "melt-up" this quarter, akin to the final stage of the dotcom boom.
This will be followed by a mirror "melt-down" later in 2017 as the US Federal Reserve squeezes global liquidity, and rising bond yields puncture the Trump reflation trade.
Michael Hartnett, the bank's investment strategist, says there will be a perfect moment for the "Big Short" within a few months, but first we must all wait for the speculative fever to pass. The warning signs of a market top are not yet flashing red.
The Bull/Bear ratio is a frothy 3.4, but far from extreme. The cash reserves of money managers have fallen to a 19-month low of 4.8 per cent. The danger zone is nearer 4 per cent. Powerful rallies tend to draw all but the most steely resisters into the vortex first.
Hartnett says bond stress is creeping up on the markets. The peak-to-trough losses for holders of US Treasuries over the past five months are already greater than before the 1987 crash, the Orange County and Mexico blow-ups in 1994, and is not far short of the "taper tantrum" in 2013.
The great unknown is where the pain threshold lies in a global system with debt ratios that are now roughly 40 per cent of GDP higher than just before the Lehman crisis. Bank of America fears a further rise in yields of 50 to 75 basis points may be enough to trigger a "financial event".
HSBC's latest global outlook is even darker. Indeed, it is astonishing.
The bank expects yields on 10-year US Treasuries to push a little higher to 2.5 per cent before crashing back to historic lows of 1.35 per cent by the end of the year. Markets will conclude by the (northern) summer that Trumpian stimulus does not add up to much, and that the reflation narrative is a hoax.
"We believe that equities are walking a tightrope, and there is a fairly long way to fall," said the bank.
Shares have opened lower, pulled down by the big banks as the Trump trade of the past months shows more signs of unwinding.
The ASX is down 0.3 per cent at 5752, which would put it on track for a minimal weekly loss.
The big four banks are all down around 0.55 per cent, following slides in financials on Wall Street overnight.
Wesfarmers is extending yesterday's slump, falling another 1 per cent, while BHP continues to climb, adding another 0.3 per cent.
Energy stocks are among the winners, rising 0.2 per cent, with Origin up 1.15 per cent.
Meanwhile, the pain continues for Bellamy's investors, as the shares slide another 6.6 per cent, following the rout of the past two days, or since the stock resumed trading following its five-week suspension.
Investors are likely to remain cautious ahead of Chinese trade data out later today, says CMC chief market strategist Michael McCarthy.
"The release of trade data from China today offers an ominous echo of last January's rout," he says.
In 2016 weak China imports and exports sparked fears that drove major indices down by more than 10 per cent.
"Thankfully for investors, expectations are muted, with a consensus estimate of a 3 per cent lift in imports offsetting a 4 per cent fall in exports. Any significant divergence will likely move markets."
Gold surged above $US1200 an ounce overnight to its highest in seven weeks as the US dollar continued to fall after US President-elect Donald Trump's long-awaited news conference gave few details on economic policy.
But analysts warned that gold's revival since mid-December may be running out of steam as the greenback was likely to rebound once Trump moves ahead with his economic plans. Spot gold is currently at $US1195 an ounce, or roughly where it was in late Asian trade yesterday, but it touched $US1206.98 overnight, its highest since November 23.
Trump delivered a wide-ranging briefing on Wednesday that lasted longer than expected but contained no details on tax cuts and infrastructure spending, analysts said. That sent the US dollar index sliding to the lowest in nearly five weeks.
"It's a mess frankly, which is a reflection of the fact that there's no clarity on US economic policy," said Tom Kendall, head of precious metals strategy at ICBC Standard Bank. "For the time being, I'm sticking to my thesis that this move can go a bit further, but we're running out of steam."
Gold is up around 7 per cent since hitting a 10-1/2-month low on December15.
"Despite moving back to $US1200 per ounce, we see no lasting recovery for gold," said Carsten Menke, commodities research analyst at Julius Baer in Switzerland. "The market lacked support from physical buying ... which we believe is a precondition for a lasting recovery."
The outlook for US. rates may become a little clearer when Federal Reserve chair Janet Yellen appears at a webcast town hall meeting with educators later this morning.
"Trump's election has introduced a proliferation of unknowns, which the market will have to work through as they surface," RBC Capital Markets said in a note. "Overall, while we are cautiously optimistic on gold for the year, we still think the real reason to buy gold is as a risk overlay - a hedge against moves like these."
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US earnings season kicks off tonight, IG's Chris Weston writes:
The US Q4 earnings season really kicks into gear tonight, with Bank of America and JPMorgan starting the proceedings. The US financials space will get attention above all other sectors this earning season. Not just because the analysts' consensus is for earnings-per-share growth of 21.5%, but because for those more macro-focused traders, what CEO's say about the potential for a further boost to net interest income (from a steeper yield curve) from potential fiscal stimulus matters.
The fact that all of the big US banks have moved in unison since Trump became president-elect tells you the banks are simply being used as a vehicle to trade the reflation thematic. So, rather than select one bank my preference has been to focus on the sector, which we can do easily through the KBE ETF (SPDR S&P Bank ETF). It's interesting that despite a pullback in US treasury yields of late the US banks have held firm and we can see the KBE has simply traded in range of $44.56 to $42.83 in the last 23 trading sessions. I am happy to trade a break-out either side of this range, and this will tell me everything I need to know about how traders read earnings. The probability (given the strong trend higher from September to December) is that the banks break to the upside, but patience is required.
The big talking point remains whether US fixed income yields will continue to fall, which in turn will pull down the USD and hold implications for markets like precious metals, which are really just a slave to other markets. It's interesting that the US 10-year treasury is holding key support at 2.28%, and in fact we have seen sellers start to creep into price and that is supporting the USD from moving down too aggressively. In my opinion 2.28% (on the US 10-year treasury) is the key line in the sand, so for those who think the Trump train has derailed should watch moves from here and a break of 2.28% suggests the market is warming to that view.
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