That's all for today - thanks for reading this blog and posting your comments.
We'll be back tomorrow from 9am.
Have a good evening.
Soaring iron ore futures lit a fire underneath mining stocks, which combined with solid buying in the banks saw the local sharemarket defy the regional trend to climb steadily higher.
Investors took their positive cue from the United States, which has just kicked off its earnings season with some strong profit growth in imajor banks.
The benchmark S&P/ASX200 Index and the broader All Ordinaries Index each rose 0.4 per cent to 5748 points and 5803 points respectively.
However, investors failed to push the benchmark index above 5750, suggesting minds were looking ahead to a big week of political news, such as Theresa May's impending Brexit speech on Tuesday and Donald Trump's inauguration on Friday.
"There's a sense of hesitation among investors as we enter another week that is full of high-impact events," said Gary Huxtable, client adviser at Atlantic Pacific Securities. "A lot of things are happening this week both on the political and economic front, and these must be playing on investors' mind at the moment."
Stronger commodity prices saw mining giant BHP Billiton's stock rocket to a 17-month high, closing up 1.9 per cent to $26.77. Main rival Rio Tinto also had a solid day, up 1.5 per cent, while Fortescue Metal enjoyed a 3.3 per cent surge.
The big four banks traded moderately higher, following gains in their US peers on Friday and as news broke that National Australia Bank and ANZ both hiked fixed-rate mortgages again.
Australian banks, which begin reporting in February, are likely to keep growing at a slower pace than their US peers, as lending growth remains constrained, with limited expansion in interest margins and some bad debts on the books.
"There are still headwinds for the banks, but generally they'll be okay," says Paul Taylor, portfolio manager of the Fidelity Australian Equities fund. "There's not a lot of growth, maybe mid-single digit growth, but investors will see that as a reasonable job."
In a note to clients, Deutsche Bank suggests Australia's major banks are now cheaper than a selection of offshore banks, excluding Asia and UK banks, on a 12 month forward per-share basis.
"Overall they provide a much better forward yield," says Andrew Triggs, research analyst at Deutsche Bank.
Triggs and his team calculate the average 12 month forward dividend yield for the big four banks is 5.5 per cent, well below the five-year average of 6.2 per cent.
"On a relative basis the sector still looks attractive against other interest-rate sensitive sectors," he says.
Donald Trump has repeatedly made waves with emphatic tweets and striking statements, but Japan's former currency chief is more surprised by what the President-elect isn't talking about: the yen.
"What's amazing is that he hasn't said anything about the yen," Tatsuo Yamasaki, a former vice finance minister for international affairs, said in an interview. "Last year Yellen was saying that the dollar's effective rate was up 20 per cent, and it was holding back exports, weighing on profits, and holding down inflation."
The yen has weakened about 8 per cent since Trump's win in November and is down about 26 per cent since Prime Minister Shinzo Abe came to power in late December 2012.
Trump has not shied away from bringing up foreign exchange in the past, including promising during the campaign to label China a currency manipulator as soon as he took office. He has also been vocal on trade, vowing to withdraw the US from the Trans-Pacific Partnership negotiations and singling out China, Mexico and Japan at his press conference on Wednesday.
"We have hundreds of billions of dollars of losses on a yearly basis – hundreds of billions with China on trade and trade imbalance, with Japan, with Mexico, with just about everybody. We don't make good deals anymore," Trump said in New York last week.
Although Trump did comment on the yen and manipulation in 2015 during the primary, there has been little on the subject from him since that has been noticed by those in Japanese policy circles, like Yamasaki.
Believe it or not, the ASX is the only sharemarket across the region posting a gain today - mainly thanks to higher commodity prices boosting local miners.
The Nikkei is down 1.1 per cent, the Hang Seng has lost 1 per cent, Korea's Kospi has fallen 0.5 per cent and the Shanghai Composite is slumping 1.4 per cent.
Traders say investors are hesitant to bet on rising shares ahead of Donald Trump's inauguration on Friday.
"The market is showing greater reluctance to push on with reflation-type trades without more details of proposed fiscal spending plans and the economic data to back it up," said analysts at ANZ in a research note.
"It looks as though more than just reasonable data will be needed to see yields and the US dollar push higher again. Some decent positive surprises may be necessary for the market to gain conviction."
Asian markets are waiting anxiously to see if Trump makes good on a campaign pledge to brand Beijing a currency manipulator on his first day in office, and starts to follow up on a threat to slap high tariffs on Chinese goods.
Analysts fret that the spectre of deteriorating US-China trade and political ties is likely to weigh on the confidence of exporters and investors worldwide.
Trump told the Wall Street Journal he will not label China a currency manipulator on his first day in office on Friday, as he had pledged during the election campaign.
"I would talk to them first," he said. "Certainly they are manipulators. But I'm not looking to do that."
But he made plain his displeasure with China's currency practices. "Instead of saying, 'We're devaluating our currency,' they say, 'Oh, our currency is dropping.' It's not dropping. They're doing it on purpose," he said, according to the Journal.
Back to top
The Australian dollar has lost a bit of ground against the greenback, falling back below US75¢, but it's hit two-month highs against a depressed pound on growing fears of a "hard Brexit".
The Aussie is fetching 62.18 pence, up 1.4 per cent following a 3.3 per cent gain last week, as well as US74.69¢, down 0.4 per cent.
The pound was hammered on reports UK Prime Minister Theresa May will use a speech on Tuesday to signal plans for a "hard Brexit", fuelling worries about the British economy.
With so much attention on the pound, the currency took a back seat to its US counterpart, following recent hefty gains. It leapt 2.7 per cent last week, the strongest performance since March last year, following a shakeout in bullish US dollar positions.
Boosting the Aussie is strength in iron ore prices, with futures traded in China jumping nearly 8 per cent to their highest in three years. That was the sixth consecutive session of gains.
"Commodity prices and the weaker greenback have helped the Australian dollar higher in recent weeks, but it will likely be Trump's first few days in office which will make or break the current bullish sentiment for AUD," said ThinkMarkets senior market analyst Matt Simpson.
"If Trump hits the ground running and appears on track to implement protectionist policies, then we expect commodity currencies to remain under pressure and send AUD lower."
Here's more on why it's unlikely the Aussie will hit US80¢ anytime soon, despite looking cheap on a fair value basis.
Fuelling the rises in local mining stocks, iron ore futures in China have jumped another 7.4 per cent to 654 yuan ($US95), extending last week's 11 per cent rally.
The main driver last week was China's move to shut production of low-grade steel products by the end of June, as it tackles both overcapacity and chronic smog.
Demand for the steelmaking raw material has been quite stable, traders said, with Chinese mills still favouring high-grade material to cope with costly coal prices.
"Steel mills' profits are still ok so they would like to use better grade material," said a trader in Beijing. "Mills also need to buy some stocks to prepare for the long Spring Festival holiday."
The sharp price increases in steel and iron ore, as well as other raw materials coking coal and coke, suggest speculative investors took advantage of upbeat sentiment for the sector to raise bets in these commodities as they did last year.
"There has been an improvement in sentiment since last week and I think there are more speculative" forces at play, said Wang Di, analyst at CRU consultancy in Beijing.
Iron ore and steel futures are among the most heavily traded commodities in Chinese markets and saw wild swings last year that forced China's exchanges to impose higher transaction fees and other measures to stem speculative activity.
Copper prices are als extending last week's jump on the back of strong economic data from the United States and China, but gains are more moderate.
Customs figures on Friday showed China shipped in a record 4.95 million tonnes of copper in 2016, while US data revealed broad retail sales in that country climbed in December.
"Copper is still building on last week's momentum," said a commodity trader in Perth. "It's well supported. The gains we see today might not be astronomical, but the sentiment is strong."
Three-month copper on the London Metal Exchange rose 0.1 per cent to $US5917 tonne, after advanced more than 5 per cent last week. The most-traded copper contract on the Shanghai Futures Exchange was up 1.4 per cent at 48,220 yuan ($US6996) a tonne.
Meanwhile, London nickel eased 0.7 per cent to $US10,375 a tonne, reversing some of Friday's unexpected 1.7 per cent gain after Indonesia eased a ban on exports of nickel ores.
Traders said they were worried that the country's abrupt easing of a three-year ban on such exports would drag on prices for the metal, despite assurances over the weekend from top Indonesian mining officials that the step would not flood the global market with supply.
Sharemarket volatility has been remarkably low considering all the political uncertainty, with the VIX hitting a new 2017 intraday low on Friday, but Societe Generale points out that the relative calm in equities doesn't extend to other asset classes.
Bond markets are much moire volatile and in particular the forex market's volatility has spiked, catapulting the ratio between implied volatility on the S&P500 and FX to a historic high, Michala Marcussen points out.
One explanation on the fundamental side is the recent batch of upside surprises to economic data, she says.
"It is also noteworthy just how narrow the consensus amongst economists remains on the G5, with the notable expectation of the UK. More likely, equity markets are putting their faith in a batch of new "puts" and not least the "Trump put". Given the long list of political events to come, however, this picture seems all too smooth."
Among the 'risk events' this week, Prime Minister May is due to set out her Brexit plan on Tuesday and, Friday Donald Trump takes office, while next Sunday, the French vote in the first round of the left wing primaries. Finally, on the data front, China will publish fourth-quarter GDP numbers along with a gaggle of other economic data, including industrial production and retail sales on Friday.
Hong Kong's richest man, Li Ka-Shing, is betting on a less hostile reception from the federal government towards his second stab at investing in Australia's energy infrastructure over the past year, the AFR's Michael Smith writes:
Cheung Kong Infrastructure Holdings (CKI), the infrastructure giant controlled by Ka-Shing, has firmed up its $7.4 billion bid for DUET Group's electricity and gas distribution networks in Victoria and Western Australia following a relatively short due diligence period.
While the Treasurer Scott Morrison rejected CKI's bid for Ausgrid last year, it is safe to assume Ka-Shing and his partners are more confident of getting the DUET deal through the Foreign Investment Review Board (FIRB) process.
The political noise around Chinese foreign investment, which hit almost hysterical levels around the time of the Ausgrid rejection last August, has died down and DUET's assets are less sensitive than Ausgrid which owns critical power and communication services.
CKI was outraged at the time for being lumped in the same camp as Chinese state-owned enterprises like State Grid, which was also knocked back. The move, which upset the New South Wales government's budget plans, raised concerns about the opaque nature of the government's foreign investment policy.
Kogan.com shares have jumped after the online retailer set the scene for another upgrade to 2017 earnings forecasts after trading beat management expectations in the December-half.
Shares are up 8 per cent at $1.61, but still below the $1.80 issue price.
Kogan.com founder Ruslan Kogan said that trading in the second quarter had exceeded forecasts made in November, when the company upgraded its full-year earnings guidance from $6.9 million in the prospectus to between $8 million and $9 million before interest, tax, depreciation and amortisation.
Earnings in the six months ending December had exceeded the original full-year prospectus forecast, buoyed by strong sales and cashflows and improved margins.
Despite the stronger than expected pre-Christmas trade, Kogan stopped short of issuing his second earnings upgrade in three months, saying the results were yet to be audited.
The company finished the December quarter with cash of $26.5 million compared with $31.7 million at the end of the September quarter. Inventories rose from $28.3 million at the end of September to $41.8 million at the end of December, with stock in warehouses almost doubling to $32.3 million.
The UK government is drawing up plans to try to reassure investors amid expectations that Prime Minister Theresa May's long-awaited blueprint for a hard Brexit will cause more market turmoil, according to two people familiar with the situation.
Government officials expect sterling to take another hit when May sets out her vision for leaving the bloc in a speech on Tuesday, and the Treasury is preparing to speak to major banks in London to try to smooth the reaction, said the people, who declined to be named as the plans aren't public.
While Treasury officials often reach out to banks to explain policy, it's unusual for the prime minister's office to anticipate a bad market reaction, they said.
The pound has dropped steeply against the US dollar and other currencies, after four UK newspapers reported on Sunday that May would outline moves for a hard, clean break from the European Union's 27 other member states.
Sterling tumbled as much as 1.6 per cent in early trading to below $US1.20 for the first time since the so-called flash crash in October. It's since steadied a bit and is trading back above $US1.20, still down more than 1 per cent.
Here's a midday recap of the action so far: shares have bounced as miners rejoice on higher metals prices, with the benchmark metal index soaring to its highest in more than two years.
Basic material stocks outperformed thanks to strong copper prices that hit a five-week peak on Friday, while aluminium jumped to its highest in nearly 20 months, after solid economic data from top metals consumer China and the United States fuelled optimism about metals demand.
The metal index rose as much as 1.8 per cent, with heavyweights BHP hitting its highest in 17 months, and Rio Tinto rising as much as 2 per cent. Smaller iron-ore miner Fortescue has risen 2 per cent and wis among the top gainers.
The gold index touched a two-month high, with shares of gold producer Newcrest Mining up 2.7 per cent, and Evolution Mining adding 2.3 per cent. The yellow-metal was up on Friday, after the US dollar weakened and US Treasury yields came off their highs. It's extended gains in Asian trade, rising as high as $US1205 an ounce and is currently at $US1201.
Financials are also supporting the benchmark with the 'big 4' banks rising between 0.1 per cent (NAB) and 0.6 per cent (Westpac).
"We saw good profit results from big US banks on Friday, which helped the Australian bank stocks," said Ric Spooner, chief market strategist with CMC Markets, adding that markets are waiting for clarity on US President-elect Donald Trump's policies and their impact on bond yields, as rising bond yields could help bank stocks.
Shares of energy firm DUET Group have jumped as much as 5.4 per cent, their highest in more than 8 years after it recommended a takeover offer from a consortium led by Hong Kong's Cheung Kong Infrastructure Holdings.
Oil stocks are underperforming as weaker prices weigh on the sector. Crude prices fell on Friday and ended the week 3 per cent lower on lingering doubts over the extent of OPEC cuts. Oil Search has shed 0.8 per cent, while Caltex Australia is down 0.5 per cent.
Latest rumblings indicate Trump is quite serious about a US border tax, which is intended to encourage US-based production and discourage imports.
The good news for investors in Aussie stocks is that, according to Citi, the sales exposure of the local market to the US is only roughly 8 per cent.
On top of that, most companies with strong exposure to the US have significant American production (eg James Hardie), meaning they are likely to avoid any punitive taxes.
The bad news is that healthcare stocks such as CSL, ResMed, Cochlear, Ansell and Fischer & Paykel Healthcare are the most vulnerable as they export to the US.
"Those investors concerned about the direction of US policy should look within markets or sectors which are less exposed to the US," says Citi strategist Tobias Levkovich, citing Australia, certain eurozone countries and even Japan as relatively less exposed.
Of course, a border tax might not actually happen, with Levkovich giving it a 30-50 per cent chance, adding that even if it does happen it's likely to be watered down by industry exceptions.
The missing ingredient of the economic recovery in Australia - and most developed markets - has been wages growth butt with commodities prices rallying again there are hopes we could see wages gaining some traction this year.
"The historical correlation with commodity prices suggests that wages growth should lift sharply in 2017," says CBA economist Kristina Clifton.
But before anyone gets carried away, Clifton adds that she expect and only modest lift, because CBA like many other economists reckons the latest run up in commodity prices will be only temporary.
"Our commodity analysts are expecting bulk commodity prices to ease in 2017. And the latest government budget update assumes a decline in prices later this year. The mining companies must share a similar view with no significant plans as yet to invest to expand capacity."
This is vastly different from the previous commodities boom where mining investment ramped up strongly alongside rising prices, causing the labour market to tighten and put upward pressure on wages, she says.
"This time around there is also a lot more spare capacity in the labour market to work through before significant wage pressures are likely to emerge."
Nonetheless it a positive factor, she adds. " And another positive sign for wages growth and inflation in Australia is that global disinflationary pressures are easing."
Looking to start a business in 2017? Stay away from apartment development and milk powder manufacturing.
According to research from IBISWorld, these industries, as well as mineral exploration, heavy industry and other non-building construction and grain growing, will suffer a decline in earnings this year.
Apartment development, heavy industry construction will have the biggest losses, suffering a 26 and 38 per cent decline in income respectively.
"Many of the industries likely to disappoint this year have performed strongly in recent years, but research suggests boom times for these industries are over, at least for the next 12 months," IBISWorld senior industry analyst Nathan Cloutman said.
IBISWorld said apartment building revenue would contract to $19.3 billion in 2016-17.
Two of the big banks have hiked fixed interest rates on home loans, and a senior banker at National Australia Bank says funding costs that drive variable interest rates "remain elevated."
With all of the other major banks lifting fixed interest rates in recent months, NAB said today its two-year fixed rate for new loans would rise by 23 basis points to 3.98 per cent; the three-year fixed rate would go up up by 20 basis points to 4.09 per cent; and the four-year rate by 60 basis points to 4.59 per cent.
For investors, the rises were steeper (29 basis points for two-year, 40 basis points for three-year and 80 basis points for four-year fixed loans).
For owner occupiers, NAB kept its five-year fixed rate steady at 4.59 per cent and reduced by 10 basis points the fixed rate on 12 month loan to 3.89 per cent, which it says is the lowest ever one-year fixed rate it has offered.
NAB also said applications for fixed rate loans as a share of total applications had "more than doubled" in December compared to September. When borrowers take out fixed rate loans, banks finance them from capital markets.
On Friday, ANZ increased rates on two-year loans by 23 basis points to 3.9 per cent, and three-year loans 4 per ent. ANZ reduced its four year fixed rate by 10 basis points to 4.74 per cent.
The big four all raised variable interest rates for property investors in the lead-up to Christmas, but spared owner-occupiers who are a more politically sensitive group of customers.
However, smaller banks have increased variable rates for owner-occupiers, and NAB's chief operating officer, Antony Cahill said the funding costs for variable loans remained above historical averages.
The ASX is off to a strong start, propped up by gains in the miners following rises in key commodity prices as well as the big banks after US earnings season began with a banking bang on Friday.
The benchmark index is up 0.6 per cent at 5758, led by a 1.1 per cent rise in the materials sub-index.
"Australian investors are likely to enjoy a better day as commodity prices are generally higher, supporting resource shares and adding positive weight to the short term outlook for the AUD," says CMC chief market strategist Michael McCarthy.
BHP has added 1.3 per cent, remaining on a roll, Rio is up 1.6 per cent, while the big four banks have added between 0.3 per cent (CBA) and 0.7 per cent (ANZ).
Bellamy's is reversing some of last week's big losses, up 3.5 per cent following three straight sessions in the red last week, which saw the shares fall 40 per cent.
Among the blue chip losers, CSL is edging back to the $100 mark, falling another 0.2 per cent.
Reporting is also a feature of local trading this week, McCarthy adds. Whitehaven coal will report production numbers, and Transurban delivers traffic statistics today. Later in the week Rio, Paladin, Woodside and Sydney Airports will all report on activity.
SPONSORED POST
The event risk that investors need to navigate this week is huge, says IG's Chris Weston:
That political risk comes in the form of Trump's inauguration speech, which promises to once again be one that we simply have to watch, but is likely to stop short of anything that gives more details on the fiscal timeline. UK PM Teresa May's speech on Tuesday is absolutely shaping up to be the markets highlight though and looking at the moves in GBP this morning we can see that for those who like volatility then the UK is where you want to look.
GBP/USD has traded below $US1.2000 this morning, but the bigger moves are seen in GBP/JPY which has fallen 1.6%. GBP/AUD fell 3.5% last week and is trading just above $1.6000 in early trade and this remains my preference for trading GBP given we saw bulk commodities once again have a strong night on Friday (iron ore, steel and coking coal futures closed up 4.9%, 0.9% and 4.3% respectively). Keep an eye on iron ore futures this week though as we could be staring a break of the December highs of 650 and into blue sky territory, although copper also looks really bullish.
This should support AUD/USD, which is threatening to break above $US0.7500 and I suspect it will stay above here in the week ahead if we do see a closing break. It will be interesting to watch the open of the FTSE 100 too as we could be staring at a 15th consecutive gain in the market. This is clearly a reflection of a weaker GBP given some 80% of company's source revenue from outside of the UK, but I am not sure we have reached a point of maximum euphoria, although the market internals at concerning levels (91% of stocks above their 50-day moving average).
The market is now positioning for some fairly punchy rhetoric from Teresa May and this idea of "hard Brexit" and a clean break from the single market seems likely, in a bid to gain full control over immigration. Brexit minister David Davis also adding fuel to fire, with calls for a priority around negotiating 'third country' free trade deals, which by all accounts are very hard to achieve unless there is full separation. We also hear from the UK Supreme Court this week amid a market is starting to head towards a "hard Brexit" and the great unknown is upon us. Forget the run of good UK data, GBP is an out-and- out political currency (it has been for a while) and the prospect of volatility here is now very high.
Aside from the political risk, we also get a number of key economic releases, including China Q4 GDP (expecting 6.7%) on Friday, US core CPI, Aussie employment and policy meetings from the ECB and Bank of Canada. Of course we also start seeing US Q4 earnings ramp up with 9% of the S&P 500 market cap due to report, predominantly in the financials and industrials, although energy also gets a look. We also get a number of Fed speakers and global leaders speaking at Davos. As I said, the event risk is real.
Trump to be sworn in as 45th President
All eyes are on the inauguration speech, where we know anything can happen. What will this mean for the âTrump tradeâ? (This video was produced in commercial partnership between Fairfax Media and IG Markets)
Local banking stocks have been on a roll, rallying alongside their US peers following the US election. But will the good times continue?
Global ratings agency Fitch doesn't think so and has revised its outlook on the Australian banking sector to negative, citing an increase in "macroeconomic risks" and slower profit growth.
The report published today cited high household debt that was rising relative to disposable income. That made borrowers sensitive to changes in the labour market and interest rates.
Fitch also expects profit growth to slow in 2017 "reflecting low interest rates, slow asset growth, competition for assets and deposits, higher funding costs, and a rise in loan-impairment charges."
A positive was improvements in cost management to be offset by increased investment in technology.
The outlook related to the sector more broadly. The agency said that the rating outlook for the individual banks is stable but that an "ongoing rise in household debt and house-price growth heightens the banking system's sensitivities to a sharp correction if labour market conditions and interest rates were to change."
The agency also cited the risk of a worse than expected slowdown in China's growth that "would negatively impact Australia's economy given the countries' strong economic ties."
The report highlights potential risks in the Australian banks as sharemarket investors re-embrace the nation's lenders that have experienced their sharpest rally in six years, gaining over 20 per cent since the November 9 election of Donald Trump in the United States.
The renewed enthusiasm has been driven in part by expectations that new global banking rules will not require Australian banks to raise as much capital as initially expected.
In local corporate news, Hong Kong-based utilities giant Cheung Kong Infrastructure will push ahead with a $7.4 billion takeover of DUET Group after being given the nod of approval by the electricity and gas distribution network company's board.
The board decided in favour of recommending the offer after squeezing a $3.03 per share price out of CKI, up from a prior offer of $3 per share.
CKI, which is led by Hong Kong's richest man Li Ka-Shing, has been actively seeking to increase its Australian investments in recent years, paying $2.4 billion for the then-listed Envestra in 2014 and seeking to buy a 50.4 per cent stake in NSW's Ausgrid last year.
However, its bid for Ausgrid was knocked back by Federal Treasurer Scott Morrison and the Foreign Investment Review Board.
The DUET portfolio includes a stake in Victorian electricity distribution network United Energy, gas distributor Multinet and WA's Dampier to Bunbury Pipeline.
Search pagination
1 new post(s) available. View post(s) Dismiss