That's all for this week - thanks everyone for reading and posting your comments.
We'll be back on Monday, from around 9am.
Have a great weekend.
![market close](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/g/h/4/2/image.imgtype.columnistThumbnail.60x60.png/1427260967167.jpg)
The sharemarket lost the last of its 2017 gains this week, as global markets digested the increasing-certainty of a 'hard Brexit' and lost more of the exuberance that greeted the election of Donald Trump last year.
The benchmark S&P/ASX200 lost 0.7 per cent to 5654.8 on Friday, and 1.2 per cent over the week, following cues from Wall Street and other regional markets which also ended the week lower. A second straight week of losses meant the index is also in the red for the year, down 0.2 per cent.
AMP Capital head of investment strategy Shane Oliver said the market had been correcting some of the large gains it had made since Donald Trump's election in November. In the next few weeks, he said, shares "remained vulnerable" to more of this "as we enter the seasonally weaker month of February and as nervousness around what President Trump will do in relation to tax cuts, deregulation and US-China relations lingers".
"However, we see sharemarkets trending higher over the next 12 months helped by okay valuations, continuing easy global monetary conditions, fiscal stimulus in the US, some acceleration in global growth and the shift from falling to rising profits for both the US and Australia."
Fundamentally, Mr Oliver said, economic and corporate data releases remained encouraging, suggesting that aside from "political bluster and uncertainty over Trump's policies the world has entered 2017 on a strong note".
Locally, the financial sector took a heavy hit this week, as the deregulatory fervour in the United States tempered and several analysts, including Fitch, issued reports outlining their concerns over bank valuations. The sector as a whole shed 2.8 per cent.over the week.
Among the big banks, ANZ suffered the biggest losses, dropping 4.1 per cent after a downgrade to 'neural' by Citi, while the other big three shed around 3 per cent over the week.
The week's top mover was Bega Cheese, up 21 per cent over the week after buying Vegemite off Mondelez International. Blood products giant CSL also had a good week, soaring 13.4 per cent following a surprise profit upgrade on Thursday, while gold miner Santa Barbara reaped the benefits of the gold prise rally, up 10.2 per cent.
Outside the ASX 200, Oroton shares plunged 13 per cent on Friday after the luxury handbags retailer lowered profit guidance due to soft Christmas period sales.
![The week's biggest winners and losers.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/v/n/m/j/image.related.articleLeadwide.620x349.gtvnmy.png/1484890869229.jpg)
![US news](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/b/d/l/0/image.imgtype.columnistThumbnail.60x60.png/1427236013357.jpg)
As historians, politicians and the American public weigh up the Obama legacy, at least US investors will be praising the outgoing president.
Under Barack Obama, Wall Street enjoyed outsized returns, with the benchmark S&P 500 index rising 180 per cent over the eight years the Democrat was in office. It's the second-highest S&P 500 gain of any US presidency since World War II.
Obama's capitalist record is helped by timing - he took over towards the end of the global financial crisis, which saw shares extend their plunge in the first few months of his presidency, wiping out all the gains made in the early 2000s. But the turnaround came in March 2009, just two months after his inauguration.
Wall Street benefited from a period of massive quantitative easing by the US Federal Reserve, as well as fiscal action by the US government such as the Recovery Act in 2009, which combined a range of tax incentives and stimulus spending in key sectors worth $US831 billion over a decade.
The stellar run proves correct Obama's 2009 advice to investors. Just two months after his inauguration, the president strongly encouraged investors to return to the market.
"Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it," he said.
In individual stocks, some of the largest gains went to gun manufacturers, as Americans stocked up on firearms in anticipation of their future sale being curtailed by the Democratic administration.
American firearms manufacturer Smith & Wesson saw its shares rise 727 per cent to $US20.56, while Sturm Ruger soared 859 per cent to $US51.55 (the other major American gun manufacturer, Remington Outdoor, is privately held). Both Sturm Ruger and Smith & Wesson have seen their share prices decline after the election of Donald Trump in November.
![Some of the largest gains went to gun manufacturers during Obama's tenure.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/v/l/a/9/image.related.articleLeadwide.620x349.gtvlvw.png/1484890762625.jpg)
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Australia's biggest supermarket chain, Woolworths, "won" Christmas and has bridged the gap with major rival Coles, suppliers say.
And if trends continue, Coles might need to cut product prices or increase spending on staffing, marketing or stores to regain momentum against Woolies and German discounter Aldi, investment bank UBS said.
"Should current trends continue, we believe Coles may need to react in the form of margin investment (staff, marketing, price) or CAPEX (store investment), particularly given both Aldi and Woolworths are accelerating refurbishment activity," analyst Ben Gilbert told clients.
"Our channel checks suggest [Coles] management are becoming nervous over slowing like-for-like [sales, excluding new stores], with the risk now being that Coles reacts irrationally (ie. a step-up in discounting) to minimise the sales loss."
Coles' rating fell 0.3 points to 6.8, a decline UBS attributed to a "lack of change in strategy to combat a better capitalised more customer-focused Woolworths and [a] step-up in intensity by Aldi in fresh".
![Psychological win even as profit is down: Woolworths chief executive Brad Banducci.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/v/7/s/z/image.related.articleLeadwide.620x349.gtvkyv.png/1487718254140.jpg)
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Gold is another winner of the week, buoyed by a weaker US dollar ahead of the inauguration of Donald Trump later in the day.
Spot gold topped $US1200 this week for the first time since late November and was up 0.3 per cent at $US1207.80 per ounce in late trade.
"There is a bit of safe-haven buying ahead of Trump's inauguration," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Trump's protectionist statements, with mixed promises of tax cuts and infrastructure spending, have increased demand for gold as a safe-haven. The metal has risen more than 7 per cent since dropping to its lowest in more than 10-1/2 months in December.
Back to top![dollar](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/a/q/s/h/image.imgtype.columnistThumbnail.60x60.png/1427237767290.jpg)
The Australian dollar jumped to a two-month high after data showed China's economy expanded at a faster-than-expected pace in the fourth quarter of 2016.
China is Australia's No.1 trading partner while the Aussie is often seen as a liquid proxy for the yuan.
The dollar is currently trading at US75.82¢, just below today's peak of US75.89¢, a level not seen since November 11.
The Aussie is up about 1 per cent this week and is on track to clock its fourth straight weekly gain. It is up 5.3 per cent in January so far, making it one of the best performing major currencies in the world.
"I have been fielding more questions about the Aussie's resilience over the past 24 hours than any other currency," said Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific.
"Australia (is) an oasis in this politically contentious global environment. In addition to the political stability, yields remain attractive."
The Aussie extended its winning streak elsewhere. It touched a 1-1/2-year peak against the euro after the head of the European Central Bank pointed to subdued inflation and the need for further monetary policy stimulus. It also rose on the yen to be near a one-month high.
Investors are now awaiting the inauguration of Donald Trump later on Friday for further cues. Trump will be sworn in as the 45th president of the United States.
"Donald Trump will take centre stage as we begin a new chapter in American politics and global financial markets. Buckle up as we are likely in for a wild ride these next 100 days," Innes said.
![](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/v/i/p/l/image.related.articleLeadwide.620x349.gtvhu9.png/1484885550510.jpg)
![Tenants market: residential rents are barely budging.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/x/b/6/image.imgtype.columnistThumbnail.60x60.png/1440644111173.jpg)
New home sales picked up in November, showing the short-term housing construction outlook was healthy, the Housing Industry Association said.
House sales rose 5.1 per cent as every mainland state except NSW showed an increase, while unit sales jumped 9.3 per cent, the industry group's latest monthly report showed.
While the figures - which followed an 8.2 per cent decline in detached house sales in October - did not alter the longer-term picture of a slowing sector, they showed that activity was sustained and unlikely to fall off a cliff, HIA chief economist Harley Dale said.
"You wouldn't want to be seeing signals of an imminent and sharp slowdown in national new home building activity, and we're not," Dale said. "Looking further out, the declines in construction activity will inevitably become chunkier."
![Housing activity is sustained and unlikely to fall off a cliff, the HIA says.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/l/o/o/w/j/image.related.articleLeadwide.620x349.gtvhrl.png/1493866485473.jpg)
![The yield on the Australian 10-year](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/w/x/g/image.imgtype.columnistThumbnail.60x60.png/1475200777471.jpg)
US Federal Reserve chair Janet Yellen has backed a strategy for gradually raising interest rates, arguing that the central bank wasn't behind the curve in containing inflation pressures but nevertheless can't afford to allow the economy to run too hot.
"I consider it prudent to adjust the stance of monetary policy gradually over time," she said in remarks to the Stanford Institute for Economic Policy Research in California, while stressing the considerable doubt surrounding that outlook.
Yellen's second speech this week comes just a day before the inauguration of Donald Trump as US president. She said that future alterations in fiscal policy were just one of the many uncertainties that the Fed would have to grapple with as it plots its monetary moves in the months ahead.
Not only is the size, timing and composition of such changes unclear, estimates of their impact on the economy by budget experts vary considerably, Yellen noted in a footnote to the speech.
"She doesn't feel like the economy is overheating," said Laura Rosner, senior US economist at BNP Paribas. "Nothing in her speech gave a strong signal that a hike is coming in March."
Policy makers next meet late this month, followed by a gathering mid-March. In making the case that the Fed had not fallen behind the curve, Yellen said that wages had risen "only modestly" and the manufacturing sector was operating well below capacity.
What's more, she didn't see that changing soon. Payroll growth has slowed while the economic expansion "seems unlikely to pick up markedly in the near term" given weak foreign demand and prospective gradual increases in interest rates, she said.
Still, she saw dangers in permitting the economy to overheat and inflation expectations to get out of control. "Allowing the economy to run markedly and persistently 'hot' would be risky and unwise," she said.
![Markets see an about 40 per cent chance the Fed will hike rates in March.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/u/8/7/2/image.related.articleLeadwide.620x349.gtvhba.png/1484883781126.jpg)
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Analysts have been busy updating their outlooks for Aussie banks this week following a pretty impressive rally since the US election, and the bottom line seems to be the share prices are looking stretched.
Earlier we brought you Citi's fairly gloomy take (see post at 11.45am) with a local focus, Morgan Stanley is similarly downbeat but for different reasons.
Analyst Richard Wiles reckons there were five key factors behind the global rally in the sector, but says their effect on Aussie banks have been overstated.
"Trading multiples look too high, and we see downside risk for the group," he says. Here's his reasoning:
- Monetary policy and margin expansion: Changes to the monetary policy stance in the US, Europe,and Japan underpin the potential for material margin expansion for many global banks. However, Australian banks are unlikely to benefitnearly as much given their different balance sheet structure and a less hawkish outlook for RBA cash rates.
- Reduced regulation, excess capital and dividends: Recent developments in relation to regulation have increased investor confidence in banks' capital adequacy and dividend growth prospects. In contrast, APRA has stated that "capital accumulation remains theappropriate course". At the same time, three of the major banks have acknowledged that payout ratios are above target levels.
- Lower US taxes: Our US large cap bank analyst, Betsy Graseck,estimates median EPS upside of >10% for US large cap banks from potential tax changes. In Australia, we see little prospect of material upgrades from lower tax rates,as the government's proposed reduction of the large company tax rate is long dated and currently looks unlikely to get through Parliament.
- Fiscal stimulus and improvinge conomic outlook: Since the US election, our forecasts for developed market GDP growth have been upgraded,and the G10 surprise indexhas surged to a six-year high. In Australia, our Macro+ team forecasts below-consensus growth of ~2% in 2017, while the government recently reiterated a focus on Budget consolidation.
- Valuation support: We think many global banks still offer valuation support. However, Australian bank trading multiples look elevated vs.history on several measures and we'd argue that the outlook for ROE, EPS growth and dividend growth is less attractive than it was in the past.
Like Citi, ANZ is Morgan Stanley's preferred banking stock but Wiles is a bit more bullish, rating it an 'overweight', while CBA is an 'underweight'.
"We prefer ANZ in the lead-up to its February 17 trading update. We think institutional revenue risks are overstated, cost-cutting is on track, credit quality is stable, and the capital position is relatively strong."
![](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/v/g/b/e/image.related.articleLeadwide.620x349.gtvgce.png/1484881996573.jpg)
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And here's Chris Joye's take on Donald Trump, focusing on his potential impact on markets:
Portfolio performance in 2017 will likely hinge heavily on which version of Donald Trump prevails: the aspirational entrepreneur who concentrates on the economy, delegating non-core decision-making in high-tail-risk areas like foreign policy to subject matter experts; or the impulsive and erratic megalomaniac who ushers in extreme geopolitical volatility that whip-saws markets.
Since nobody knows which Trump will come to pass all we can do is mark-to-market his actions to determine the most likely path.
After some promising and conciliatory stability immediately post the election, capricious Trump "tape bombs" re-emerged over the past week with divisive remarks on Brexit (it will "end up being a great thing"), the European Union ("basically a vehicle for Germany"), NATO ("obsolete"), and German chancellor Angela Merkel, who had made a "very catastrophic mistake … taking all these illegals", and would be given no more credit than Russia's kleptocrat Vladimir Putin: "I [will] start off trusting both – but let's see how long that lasts". Oh, and throw in napalming the US dollar ("our currency is too strong and is killing us"), which put the greenback in a tail-spin.
While there is loads of latent event risk lying in wait in 2017 – Brexit, European elections, China-US relations and of course the inevitable "unknown unknowns" – investors seem to be assuming that the more reliable "pure American profit-maximiser" will reassert itself as Trump's dominant personality. I've argued this central case, but remain concerned about unanticipated shocks emanating out of the South China Sea.
Defence hawks know that America's geostrategic credibility rests on its preparedness to deploy its military might as a war fighter without peer to enforce its democratic, rules-based vision of a capitalist world. They also believe that China needs to be stopped from further imperilling prosperity via its erection of (now weaponised) artificial islands to brazenly steal international territories.
The worry is that the parochial and notoriously tough Chinese, emboldened by a modernised military that can go toe-to-toe with the US in the South China Sea, may not be convinced to cease and desist from empire-building through moral suasion alone.
This is why I have been selectively taking chips off the table in my own fixed-income portfolios, which are holding the most cash they've had since mid-2014. It seems prudent to create ample capacity to capitalise on future dislocations.
![Donald Trump in the lobby of Trump Tower.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/u/d/6/j/image.related.articleLeadwide.620x349.gtvaae.png/1487120590782.jpg)
![china](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/b/d/k/e/image.imgtype.columnistThumbnail.60x60.png/1429585740303.jpg)
China's economy accelerated for the first time in two years in the final quarter of 2016, cementing an economic stabilisation that's giving leaders a buffer as they transition to neutral policy and prepare for potential trade tensions with Donald Trump.
Gross domestic product grew at an annual pace of 6.8 per cent in the fourth quarter, slightly more than expected, supported by higher government spending and record bank lending that has stoked concerns about an explosive rise in debt.
The world's second-largest economy expanded 6.7 per cent in 2016, the National Bureau of Statistics said on Friday, roughly in the middle of the government's 6.5-7 per cent growth target but still the slowest pace in 26 years.
Economists had expected China would report 6.7 per cent growth for both the fourth quarter and the full year. The economy grew at an annual pace of 6.7 per cent in the third quarter.
Other economic data released a the same time as the GDP figures came in more or less on target.
Industrial production grew 6.1 per cent in December, from a year before, while retail sales grew a strong 10.9 per cent, slightly above the 10.7 per cent growth rate that had been expected.
Fixed-asset investment rose 8.1 per cent in 2016, less than expected and the slowest annual pace since 1999.
The Aussie dollar bounced on the data, rising three-tenths of a cent to a two-month high of US75.88¢.
![China's economy grew at a slightly faster than expected rate in the second quarter.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/m/6/1/q/f/image.related.articleLeadwide.620x349.gtvdhr.png/1484878742330.jpg)
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The strong surge in the share price of Bega Cheese on news of the purchase of Vegemite along with the spreads business of Kraft in Australia may encourage the board to tap investors for fresh funds.
Bega is yet to clarify how it will finance the $460 million acquisition, beyond tapping Westpac and Rabobank to borrow the initial funds to pay for the purchase as it concludes parallel negotiations involving other group assets.
Bega told analysts it is finalising a corporate transaction to part fund the purchase, although until those negotiations are finalised, it refused to give more information. However the company did make it clear there would be a substantial reduction in debt once the deal is finalised.
The deal brings with it ownership of a 6.3 hectare plant in South Melbourne which could be sold and leased back. But until more detail is revealed about how the purchase is to be financed, sharemarket analysts are on the backfoot in advising clients whether to buy Bega shares on the deal.
Bell Potter analyst Jonathan Snape​, for example, re-iterated his 'hold' recommendation for Bega shares Friday, even as he hiked to $5.62 from $5.19 his price target for the shares.
"We await further details to accurately account for the business," he told clients in a research note.
Analysts forecasts on the rise in earnings a share of Bega following the acquisition range to as high as around 25 per cent, depending on how the purchase is funded and the degree of any asset sales.
"There is quite a degree of uncertainty about how it will be funded," Morgan's analyst Belinda Moore noted.
Bega shares are trading "cum a capital raising" analysts said, after Bega management failed to rule out a sharemarket raising out when addressing analysts on Thursday.
"The most straightforward of the options, a 1-for-3 rights issue at around $5 a share would address the gearing issue quickly and equitably for shareholders," Bell Potter's analyst Snape told clients.
Bega shares are down 0.4 per cent today at $5.14 after soaring 15 per cent yesterday on the takeover announcement.
![Will Bega finance the takeover via a capital raising?](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/m/d/x/4/k/image.related.articleLeadwide.620x349.gtvd8j.png/1484877757197.jpg)
![need2know](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/g/h/4/5/image.imgtype.columnistThumbnail.60x60.png/1427239371417.jpg)
On April 6, 1917, the United States officially entered World War 1. Just six weeks short of 100 years later, Donald Trump is being sworn in as President of the United States. And thus ends the "American Century", says Michael Pascoe:
You can quibble about when the American Century began – the United States' economic, political and cultural dominance is generally given a mid-20th century start. That short-changes the US. Britain's "Imperial Century" finished with World War I, the period that saw America challenge Europe's economic might, so there's no point leaving a gap in the timeline.
And, yes, for those who have nominated all of the 21st century as Asia's, there is an overlap with the end of the American. As it turns out, there is a neatness about January, 2017 - Trump's inauguration follows close on Xi Jinping's Davos speech, the moment China's president claimed global leadership on trade and climate in the vacuum of America's advertised withdrawal. As the China Daily puffed "the one major power with a global outlook":
"Ready or not, China has become the de facto world leader seeking to maintain an open global economy and battle climate change. In effect, President Xi has become the general secretary of globalisation."
In contrast, Trump has promised to shrink America with his mercantilist policies, his "border tax" and weird veneration of a manufacturing-based economy that doesn't really exist anymore.
In economic terms, the eclipsing of American power is well underway. Dominance went a good while ago with China the key driver of global economic growth this century. By the World Bank's reckoning, China's economy is already bigger on a purchasing power parity basis. In absolute terms, the American economy remains substantially larger but the cross-over point appears to be within the next decade, depending on how you want to fiddle your assumptions.
Beyond bragging rights for being "the biggest", that really doesn't matter all that much – first, second, whatever. A world with multiple large, strong, interrelated economies is a good thing. A world of rising economic equality would be a very good thing.
More important is the aspiration that the better part of American Exceptionalism offered. Trump is extinguishing the American "light on the hill".
![Ready to grab the mantle of global leadership ... China's President Xi Jinping.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/t/s/2/r/image.related.articleLeadwide.620x349.gtv7zs.png/1484876023554.jpg)
![china](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/2/b/d/k/e/image.imgtype.columnistThumbnail.60x60.png/1429585740303.jpg)
Boosted by higher government spending and record bank lending, China is expected to report today around 1pm that its economy grew at an annual pace of 6.7 per cent in the fourth quarter, giving it a solid tailwind heading into what is expected to be a turbulent 2017.
But Beijing's decision to double down on spending to meet its official growth target may have come at a high price, as policymakers will have their hands full this year trying to defuse financial risks created by an explosive growth in debt.
The world's second-largest economy also faces increased uncertainties from a cooling housing market and the government's bid to push through painful structural reforms, which could help deal with the root-cause of rising debt and housing risks but may weigh on near-term growth.
China's sluggish exports also could come under fresh pressure this year if US President-elect Donald Trump follows through on pledges to impose tough protectionist measures.
"While Chinese growth looks stable into early 2017, a more marked slowdown by the second quarter appears inevitable," Gene Frieda, global emerging markets strategist at asset management giant Pimco, said this week.
"Growth has been stabilised only after massive fiscal and credit stimulus. China's total government and private sector debt will likely surpass 285 per cent of GDP this year, a 90 per cent increase since 2008."
While China's economy appears to be on much better footing than a year ago, the expected fourth-quarter growth rate would still be near the weakest since the global crisis.
Economists polled by Reuters estimated GDP grew 1.7 per cent in October-December from the previous three-month period, versus 1.8 percent in July-October.
A surprisingly strong print today would likely boost global financial markets, particularly commodities, which have already been buoyed by China's record imports of crude oil, iron ore, copper and soybeans.
A weak outcome would likely raise the risk of more capital outflows, adding pressure on the yuan currency , which last year hit 8-1/2 year lows. China recently tightened curbs on outflows as its foreign exchange reserves fell to near six-year lows..
The economy also likely grew around 6.7 per cent for 2016 as a whole - roughly in the middle of the government's target range - as a stimulus-fuelled construction boom breathed new life into its long ailing "smokestack" heavy industries.
![Beijing has stabilised the economy, but at a huge cost.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/l/j/m/c/image.related.articleLeadwide.620x349.gtv52l.png/1484874653375.jpg)
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Australian banks have rallied hard since the US election but this is about as good as it gets for their share prices, Citi says, downgrading three of the big four.
The share price rally has left expectations too high heading into financial year 2017, as the market's expectations of cost cuts seems misplaced, analyst Craig Williams writes in a note to clients.
"We fear these expectations are misplaced as investment spend outweighs staff reductions," he says.
Williams predicts profitability conditions will be as tough in FY17 as they were in the previous one.
Here are the main reasons for Citi's skepticism about the major banks:
- Constrained revenue growth: Revenue is to be hit by slowing balance sheet growth and competition-led margin contraction. Some respite is expected from higher interest rates, however benefits are expected to be long-dated.
- Cost savings unlikely to be the saviour: The sector is in the midst of a 1-in-30 year IT reinvestment phase which will keep expense growth at low single digit levels irrespective of revenue growth conditions
On the positive side, Williams doesn't expect a sharp decline in asset quality, despite pockets of stress, nor a sharp increase in core capital.
Among the individual banks, Citi has downgraded ANZ back to 'neutral' and CBA and Westpac to 'sell', but kept its 'neutral' rating on NAB.
ANZ faces a more challenging outlook for its restructuring story, which pushed the shares higher last year, Williams says.
"The cost reduction narrative becomes remarkably similar to peers, while the next phase of balance sheet contraction in the IIB (international and institutional banking) division is likely to have a larger revenue impact."
Meanwhile, CBA and Westpac will feel the impact of retail banking competition in FY17 as well as a continued obligation to invest in IT in the future, he predicts. "This dynamic will keep core profit growth constrained."
Citi's pecking order from most to least preferred: ANZ, NAB, Westpac, CBA.
ANZ, NAB, WBC, CBA.
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The collapsed childrenswear chain Pumpkin Patch will shut its doors within weeks after receivers failed to find a buyer for the childrenswear chain.
Receivers KordaMentha have announced that 68 Pumpkin Patch and Charlie & Me stores across Australia and New Zealand will close by the end of January, costing 560 people their jobs. Pumpkin Patch's remaining 56 stores will close as and when stock is sold, through to mid-February.
"We have successfully traded stores through the traditional holiday period and stock levels are now considerably reduced," receiver Neale Jackson said. "The balance of stock will be consolidated in the remaining stores as the receivership enters its final phase."
After years of losses and dwindling sales, and being squeezed by discount department stores such as Kmart and middle-of-the-range brand Bonds, New Zealand-based Pumpkin Patch collapsed in late 2016 owing $76 million.
It employed about 1000 people in Australia at its 117 stores, plus close to 600 people in New Zealand across its 43 stores.
![Pumpkin Patch's stores will close by mid-February.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/s/u/t/m/j/image.related.articleLeadwide.620x349.gtv830.png/1484895570002.jpg)
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Santos has posted record full-year production and beaten guidance on costs as new chief executive Kevin Gallagher continues to turn around the oil and gas producer after the crash in oil prices.
But shares are still down nearly 1 per cent at $4.08, despite small gains in oil prices overnight, as somne analyst had been hoping for higher revenues.
Output in calendar 2016 reached 61.6 million barrels of oil equivalent, up 7 per cent on the previous year and towards the upper end of guidance, Santos said in its December quarter report.
Sales volumed jumped 31 per cent to 84.1 million boe, ahead of guidance, helping revenues edge up 6 per cent despite still-depressed commodity prices. December quarter sales rose 26 per cent to $US753 million, taking revenues for the full year to $US2.59 billion.
Morgans analyst Adrian Prendergast described the report as "reasonable" although it fell just shy of his estimates for production and sales revenues.
Gallagher said the business had been restructured and "substantial" costs reduced, resulting in it generating free cash flow "for the first time in many years". The oil price at which Santos generates free cash has been lowered from $US47 a barrel at the start of 2016 to $US38 a barrel.
![Santos delivers a 'reasonable' result, at the higher end of expectations.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/b/p/l/4/image.related.articleLeadwide.620x349.gtv67b.png/1487285360906.jpg)
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Shares have opened lower, led down by the big banks and miners as the Trump rally of late last year continues to unwind amid uncertainty ahead of the Republican's inauguration later today.
The ASX is down 0.5 per cent at 5666.5, on track for a 1 per cent weekly loss and its second straight week in the red.
Real estate and finance are leading losses, following similar slides in these sectors on Wall Street overnight, while healthcare is the main winner, led up by more gains in CSL (+2.1%) following yesterday's surprise profit upgrade.
"While CSL's share price rose 12.5% in response to yesterday's profit upgrade, it still finished on its high. This suggests unsatisfied buying that may see further gains over coming days," says CMC chief market analyst Ric Spooner.
Spooner says that a reversal of the current downtrend in the ASX will depend heavily on Trump's first actions following his inauguration.
"It's clear that investors have reached a level where they are prepared to wait and see what the Trump administration has to offer in its crucial first 100 days in office. This begins with tomorrow's inauguration speech. If Mr. Trump's acceptance speech is any guide, this speech may not do much to scare the market horses."
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Oroton shares are getting smashed in early trade after the luxury handbags retailer lowered its first-half earnings forecast following a 10 per cent decline in year-to-date sales.
Shares are down 20 per cent at $1.67 following news that Oroton expects earnings before interest, taxes, depreciation and amortisation (EBITDA) of between $4.5 million and $5 million in the six months to January 28, compared to $8.9 million for the prior corresponding period.
Chief executive Mark Newman said the group's already weak like-for-like sales did not improve during Boxing Day and the New Year, and also cited a $1 million hit from exchange rate movements.
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Billionaire investor George Soros has warned that global markets will falter given the uncertainty of incoming US President Donald Trump's policies.
"Right now uncertainty is at the peak," Soros told Bloomberg News at his annual media dinner held at the World Economic Forum in Davos, Switzerland. "I don't think the markets are going to do very well."
Stocks in the United States surged after Trump's November 8 election victory.
"Markets see Trump dismantling regulations and reducing taxes, and that has been the dream," said Soros. "The dream has come true."
But Trump has called for border taxes and withdrawing from his predecessor's Trans-Pacific Partnership trade deal, among other policies that have unclear ramifications for US growth, Soros said.
"It's impossible to predict exactly how Trump is going to act," he said.
Soros, who founded Soros Fund Management and now is chairman of the New York-based firm, was a large contributor to the Super PAC fund-raising group backing Democratic presidential nominee Hillary Clinton and had donated to other groups supporting Democrats.
Overall, Soros said about the president-elect: "I personally am convinced that he is going to fail. Not because of people like me who would like him to fail. But because his ideas that guide him are inherently self-contradictory and the contradictions are actually already embodied by his advisers ... and his cabinet."
Turning to the United Kingdom, Soros said it is unlikely that Prime Minister Theresa May will "remain in power" given divisions within her government.
May on Tuesday laid out plans for Britain to negotiate its exit from the European Union. Soros said that process will be long and that "a bitter divorce" will hurt both sides.
Soros famously made huge profits in 1992 betting against the British pound as it crashed below the preset level and had to be withdrawn from the European Exchange Rate Mechanism.
China has an interest in European unity because of the bloc's importance as an export market, Soros said.
He said President Xi Jinping, who on Tuesday made a case for China's leadership in Davos, can steer his country to either a more open society or a more closed society, while nudging it to a more sustainable economic growth model.
"Trump will do more to make China acceptable as a leading member of the international community than the Chinese could do by themselves," Soros said.
![Trump will fail because many of his ideas are self-contradictory, George Soros predicts.](http://web.archive.org./web/20170609161504im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/p/x/l/8/image.related.articleLeadwide.620x349.gtv39w.png/1492212240483.jpg)
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