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Big earnings numbers from big names such as CBA, CSL and Wesfarmers built on a solid Wall St lead to push the ASX 200 beyond 5800 points and to its highest in approaching two years.
The benchmark index ended the day up 54 points or 0.9 per cent to 5809 points as it failed to succumb to the late-session wobbles that have been a feature of recent sessions.
Miners did their bit, as BHP added 1.3 per cent and Fortescue 1.5 per cent, although Rio somewhat mysteriously fell 0.2 per cent. Dragging on the index were interest-rate sensitive names such as the utilities and infrastructure stocks: Sydney Airport dropped 0.8 per cent, Transurban 0.3 per cent and AGL 0.4 per cent.
CBA's record half-year profits figure pushed the bank 2.3 per cent higher and sparked strong gains in its peers: NAB was up 2.4 per cent, Westpac 1.8 per cent and ANZ 1.3 per cent. Macquarie climbed 2.1 per cent.
Investors initially received earnings updates from Wesfarmers and CSL with caution, but the stocks closed the day up 2.8 per cent and 2.9 per cent, respectively. In the case of the former, it may have been talk off potentially selling its Officeworks business that cheered the market.
There were some other well-received earnings reports: Boral climbed 6.1 per cent and Computershare 4.9 per cent.
It wasn't all sunshine and lollipops among reporting companies. Domino's was punished 14.4 per cent, perhaps as its high profits ran into even higher expectations. Primary Health Care dropped 12 per cent and IOOF 7.7 per cent. Seven West Media dropped 5.8 per cent.
A2 Milk opened up 6 per cent following its profit result, only to end the session down 2.5 per cent. As for other companies reporting today:
- Sonic Healthcare +0.6%
- Orora -1.7%
- Dexus flat
- Vicinity Centres +0.3%
- Sims Metal Mgt -1.3%
- Aveo Group -2.4%
AMP is the latest lender to slam the brakes on some investor property loans, curbing for the second time in 18 months because of concerns it is about to break a regulatory limit.
AMP Bank is also attempting to cut back on new interest-only applications because of its "responsibility to protect customers and shareholders from what can be a higher-rish mortgage strategy".
Regulators and RBA are increasingly concerned about interest-only loans because of fears some borrowers might not have a strategy to repay the principal and because of their vulnerability to rate rises.
AMP is also worried about a surge in investor loan refinancing applications from borrowers rejected by CBA, the nation's biggest lender, and its subsidiary, BankWest, which last week cut back on some lending.
"This is in response to recent changes in consumer behaviour, competitor activity and regulatory obligations," a bank spokesman said.
From tomorrow it will no longer accept new finance applications for investor property lending. Last week CBA and BankWest announced an indefinite suspension on new finance applications for some investment banking loans.
Are we seeing a a return of last year's speculative bubble in Chinese iron ore futures? Reuters columnist Andy Home asks:
A comparison of the market mechanics of the Dalian iron ore contract now and a year ago is instructive. Volumes are nowhere near the extreme levels seen over the first and second quarters of 2016.
Even with a noticeable pick-up into the current price rally total volumes have averaged 1.43 million lots per day so far this year. At the peak of last year's frenzy, in April, daily volumes were averaging 6.63 million lots.
Quite evidently, the army of retail investors, many of them day-traders, has not returned to the iron ore fray in the same numbers as last year.
That's not to say there aren't speculative forces at work but they are qualitatively different this time around.
Which is not to say that the iron ore price is simply going to keep motoring. Nothing, as the old market adage says, moves in straight lines.
One warning sign is the steady rise in Chinese port inventories, which suggests that even with positive demand growth from the steel sector, the country is struggling to absorb supply from the rest of the world.
Moreover, nobody expects Beijing to keep pumping stimulus into the economy for ever.
A slowdown will inevitably come at some stage.
What are the economic costs of going full Trump?
Goldman Sachs - from whose alumni Trump has appointed several of his key advisers and whose share price shattered a 10-year record on Tuesday - modelled three possibilities when it comes to the President's success in pushing through his agenda.
The first - 'Full Trump' - is forecast to result in economic growth of 2.3 per cent in 2018, which is higher than would occur otherwise, before falling to 1.2 per cent in 2019 as a trade war starts to bite.
Unemployment would dip to 4.4 per cent in 2018, before rising slightly, while inflation would rise strongly in 2017.
The 'Full Trump' scenario assumes fiscal stimulus of $US450 billion a year, reciprocal tariffs at 11 per cent and immigration restrictions reducing the labour force by 2.5 million.
A second possibility, titled 'Benign Trump', assumes fiscal stimulus but not the immigration and trade restraints. This scenario is forecast by the analysts to result in economic growth lifting sharply to above 2.6 per cent in 2018 before declining steadily to 2.0 per cent by 2022.
The third possibility - 'Adverse Trump' - assumes trade and immigration restrictions and economic growth falling sharply to below 1 per cent by 2019, below what would happen in the absence of all of Mr Trump's policies.
"The downside risks from the more adverse parts of Mr Trump's agenda remain significant," the analysts state.
"An increase in the effective tariff rate on imports seems likely and we now assume a somewhat bigger decline in net immigration flows than we did immediately after the election."
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ASX-listed financial software company Rubik Financial has recommended a $68 million takeover by Swiss-based technology giant Temenos, which is moving further into the Australian market.
The offer has been pitched to Rubik shareholders at $0.1667 a share. The shares are trading up 43 per cent to 15.75¢.
"By acquiring Rubik, we will be able to provide a complete vertically integrated solution for the Australian banking market," Temenos chief executive David Arnott said.
"The acquisition will bring us scale and allow us to accelerate our penetration and growth in the Australian market across wealth, core banking and fund administration."
The Rubik board has unanimously recommended that its shareholders vote in favour of the deal, in the absence of a superior proposal.
The deal will be funded by Temenos' existing cash and debt facilities.
Rubik CEO Iain Dunstan said that the takeover bid comes after partnering with Temenos for a number of years.
"Today's announcement represents a positive result for all Rubik stakeholders. It is compelling in that, if approved, the offer delivers a significant premium to Rubik's recent share price and provides certainty of value for our shareholders," he said.
Rubik's stock was down 40 per cent for the year to December 2016. The benchmark S&P/ASX 200 Index was up about 12 per cent over the same period.
Writes AFR companies editor James Thomson:
Domino's Pizza chief executive Don Meij has responded to big questions over the state of his franchise business in Australia in what has become typical Domino's fashion - with a tasty profit upgrade.
Only this time, it didn't work.
Domino's shares have been savaged, falling 9 per cent despite Meij upgrading net profit guidance for the 2017 full year from growth of 30 per cent to growth of 32.5 per cent.
The problem is that will take Domino's underlying earnings to around $121 million, just below the $125 million the that market was expecting.
Also weighing on the stock are mounting questions about how hard Domino's is driving its Australian franchisees, their profitability, and claims some are underpaying staff - those same franchisees who are key to keeping the big growth numbers coming.
Meij was his usual passionate self on a media call this morning that was unusual for the fact he did not take questions. Meij said he would speak to journalists individually, presumably to better control what were likely to be some pointed questions following a Fairfax Media investigation that uncovered several instances of franchisees buckling under the pressure of running their businesses and underpayment of wages.
Meij offered a lengthy defense against the claims, arguing just 21 of 700-odd stores are unprofitable, with average profit for a franchisee who owns just under two stores running at $245,000 to $275,000 (no, we are not quite sure how an average can cover a range either).
High levels of existing franchisees buying new stores - 87 per cent in the first half - showed franchises were pretty happy, Meij argued, again stating he will take a "zero tolerance" stance on any examples of underpayment.
But the company's increased profit guidance - disappointing as it was to the market - underlines just how important it is that those Australian franchisees keep delivering.
Same-store sales in Australia and New Zealand, which ran at 17 per cent in the first half, need to run at 14 per cent to 16 per cent for the full year, up to three times the rate of growth from Domino's European business. Its Japan division may not grow same store sales at all.
By the way re Domino's underlying earnings out in force. Counted the words 17 times in first 10 pages or so of slide pack.
— Peter Morgan (@psimpsonmorgan) February 15, 2017
Former RBA chief Glenn Stevens has taken his first job since stepping down advising the NSW government on how to make housing more affordable.
NSW premier Gladys Berejiklian announced that Stevens, who stepped down in September last year after 10 years running the central bank, would provide advice to a NSW cross-government working group that will explore all options to make housing more affordable for NSW residents.
"The NSW government understands that housing affordability is top of mind for many people across the State – that is why we have made it a key priority and why we have asked Glenn Stevens to lend his expertise to tackling this issue," Berejiklian said.
"His advice will be invaluable in assessing measures that can have a real impact while avoiding any unforeseen consequences."
During Stevens' time as governor he advocated for changes to negative gearing.
Iron ore futures in China are down for the first time in seven session after reaching a record high in a rapid rally spurred by rising steel prices that some market participants feel may have been overdone.
Both commodities had started their rally shortly after China returned from the Lunar New Year break this month, with mills replenishing iron ore stocks hoping steel demand would strengthen as construction activity picks up.
"Margins at steel mills have increased primarily from higher steel prices, but also as metallurgical coal and coke costs have declined," CBA analyst Vivek Dhar said in a note.
The most-active rebar on the Shanghai Futures Exchange was steady at 3421 yuan (US$498) a tonne, after touching a two-month high of 3458 yuan earlier.
Iron ore on the Dalian Commodity Exchange was down 0.3 per cent at 705 yuan per tonne, after initially peaking at 718 yuan. That matched the highest intraday level for the most-traded contract reached in October 2013, when the exchange launched iron ore futures.
"As China's activity normalises after the Chinese New Year holiday period we expect restocking demand to fall and prices to decline," Dhar said.
"Chinese steel demand expectations have supported steel and iron ore prices this year, but not to the extent that prices suggest."
Uneven impact of iron ore rally: MBIOI-62 up 108% since start 2016, MBIOI-58 just +68%. Inter-grade spreads have widened considerably... pic.twitter.com/hsysiK0wbz
— MB Iron Ore Index (@IronOreIndex) February 14, 2017
Stocks of imported iron ore at China's ports reached 126.95 million tonnes on February 10, the highest since at least 2004, according to data tracked by SteelHome.
Strong iron ore futures prices had helped boost bids for physical cargoes, pushing up the spot benchmark above $US90 a tonne this week for the first time since 2014.
"While prices looked overvalued at above $US90/tonne, we see little on the horizon that can drag prices lower," analysts at ANZ said in a note.
Iron ore for delivery to China's Qingdao port slipped 0.6 percent to $US91.71 a tonne overnight, according to Metal Bulletin. The spot benchmark on Monday hit its strongest since August 2014 at $US92.23.
For all the uncertainty the new Trump administration has brought financial markets, fund managers are experiencing a surge of optimism according to Bank of America Merrill Lynch's latest fund manager survey.
Translating that outlook into positioning, a higher US dollar is the most crowded trade while investors are closely watching European equities, according to the survey.
The bank's February report, covering 175 fund managers with $US632 billion under management, found that businesses in the US are more optimistic than at any stage since the survey began tracking fund managers in 2003.
A total of 23 per cent of the managers who participated in the survey believe the global economy is headed for a growth "boom" (above trend growth and inflation), while 18 per cent point to a "goldilocks" scenario, where growth is above trend but inflation is still lagging below. And while 43 per cent still expect secular stagnation, this is down sharply from 88 per cent 12 months ago.
"Investor allocation and positioning continue to reflect expectations of a higher US dollar. A more hawkish stance by Janet Yellen at this week's Humphrey Hawkins testimony could provide an upside catalyst for the dollar, given the dovish market pricing of rate hikes," said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.
Long US dollar trades are by far the most popular, with 41 per cent saying the trade is the most crowded. A total of 14 per cent point to short government bonds and 13 per cent believe long US/EU corporate bonds are most crowded, while allocation to Eurozone equities has surged to an 8-month high.
More than 80 per cent of respondents expect a pick-up in inflation. A pick-up in inflation expectations may be the signal the US Federal Reserve needs to resume raising interest rates, with the market currently pricing in a 34 per cent chance of a hike this coming March, up from about 30 per cent before Dr Yellen spoke.
Computershare said its first-half net profit jumped 78.2 per cent to $150.15 million, a result that has helped push the company's stock to an -all-time high.
Revenue climbed 7 per cent to $999.12 million, the company said in a statement to the ASX.
Computershare said it would pay a partially franked 17c dividend on March 22 to shareholders of record on February 27.
The company is staying focused on its burgeoning mortgage servicing business as it reports a management revenue jump of almost 7 per cent to edge above $US1 billion.
Computershare's stock is up 5.3 per cent to $13.64.
A strong $US and slowdown in key segments last year hurt the software company but its full-year results still pleased investors.
Computershare boss Stuart Irving told investors last August that its results demonstrated the underlying fundamentals of the business were strong and that it was already receiving some benefits from its diversification into mortgage loan servicing, pleasing shareholder who had been nervous the business had reached the end of its growth runway.
AFR columnist Matthew Stevens writes in more detail than we can include here about why the iron ore price is so high:
There is mounting evidence that this price spike is driven by forces both cyclical and structural. The challenge from here will be working out the balance of the passing and the permanent.
The cyclical drivers in iron ore include the fact that Chinese [steel] mills are operating more profitably, that higher coking coal prices are still forcing a focus on mill utilisation meaning there is greater demand for higher quality ores, that the mills are re-stocking after Chinese New Year and that there have been several interruptions to Australian shipments through the Pilbara cyclone season.
At the same time the Chinese government, in the name of pollution management, has forced the temporary closure of sintering plants over the winter months, creating almost certainly unintended momentum in the pricing of pellet and lump iron ores.
The short and medium term outlook for Australia's two key export earners sits, to significant degree, in the thrall of the changes China is forcing on its steel and power industries.
Dirty, sub-scale coal and iron ore mines, steel mills and coal-fired generation are being forced out of the system. And long-promised consolidation of the steel industry has begun in earnest and the slightly unexpected victims include a family of electric arc furnaces that recycle scrap metal.
This would be positive for the iron ore market for two reasons. First, it is driving demand for quality ore and coke right now. And second, it would appear to delay the arrival of the scrap cycle and that raises the possibility that the duration of peak blast-furnace production will be longer than anticipated.
There is good reason to anticipate that the structural effect of these changes will be that China is going to depend even more than it has over the past decade on the seaborne trade in high-quality iron ore and coal. And that is very good news for the thermal coal producers of the Hunter Valley, for the coking coal miners in Queensland and for our big three iron ore producers.
The view from [BHP] is that iron ore will top out pretty soon, that the supply-side response to surge in demand for 62 per cent and better ore will be rapid and that by April we will see price moderation. BHP's standing view is that 62 per cent product will range between $US50-$US60 over the shorter term. That view has not changed.
Read more at The AFR.
Packaging company Orora lifted interim net profit by 4.8 per cent to $92.1 million despite what it described as "flat" economic conditions and "escalating power prices in Australia".
The company says underlying earnings from its US business soared 19.8 per cent to $55.1 million, but that factors including energy prices meant the increase in its core domestic market was more modest - rising 3.3 per cent to $109 million.
Orora says it expects full-year earnings to surpass those of the last financial year.
Revenue rose 4.1 per cent to $1.98 billion. The board declared a partially franked dividend of 4.5¢.
The Melbourne-based company also said it would acquire The Garvey Group and Graphic Tech businesses, to add to its North American "point of purchase" packaging display business, for $US54 million ($71 million).
Orora shares are down 0.8 per cent at just shy of $3.
The price of admission to the elite club of Berkshire Hathaway "A" shareholders has hit a quarter of a million dollars for the first time, taking the value of Warren Buffett's famed investment vehicle to a new record.
Berkshire shares closed overnight at $US250,412 ($326,653), surpassing a December high and marking a 13 per cent surge since the US presidential election that Mr Buffett had hoped would be won by Hillary Clinton.
The nearly 1 per cent rise during Tuesday's trading session inflated the value of a single Berkshire share by $US2078, and the value of the company is now $US412bn. That means a single share is now about the same price as a four-bedroom house in the suburbs of Mr Buffett's native Omaha, Nebraska.
Investors who can afford to buy get enhanced voting rights that are not available to holders of Berkshire's more modestly priced — and more frequently traded — "B" shares, which closed at their own record of $US166.95.
Many of the "A" shareholders have held the stock for years, watching as it has expanded beyond its origins as a vehicle for Mr Buffett's public market investments into a sprawling conglomerate whose businesses span insurance, utilities, manufacturing and railways.
Keeping the stock expensive is a form of "shareholder eugenics", Mr Buffett has explained, describing shareholders as "partners" who he expects to buy in for the long term.
Stronger than expected economic activity has prompted NAB to revise its call for two rate cuts by the middle of this year, with the bank now predicting the RBA will remain on hold for large parts of 2017.
Economic growth in the fourth quarter is likely to print at a strong 0.9 per cent, NAB predicts, following the surprise 0.5 per cent quarterly contraction in the preceding three months.
"Meanwhile, business conditions have turned up in December and January, suggesting the soft patch through much of H2 2016 was a 'mid-cycle' loss of momentum as we had suspected."
Through the remainder of 2017, NAB expects quarterly growth outcomes to be solid, with the drag from mining investment reducing, LNG exports adding strongly to growth and the global backdrop somewhat more supportive.
The bank's economists are expecting the annual growth rate to pick up to over 3 per cent by the third quarter of this year, but add that the annual average pace of growth for 2017 will be a lowly 2.3 per cent.
While the backdrop has turned more favourable for the economy in 2017, NAB remains concerned about next year, as the contribution from residential construction, LNG exports and temporarily higher commodity prices fade and household consumption remains constrained.
"We now expect a 25 basis point cut to the RBA's cash rate in November 2017 to 1.25 per cent - necessary to help prevent the unemployment rate from rising and underlying inflation from undershooting the bottom of the target in 2018."
Domino's Pizza shares aren't getting much love today despite a upgrade to full-year profit guidance, sliding nearly 8 per cent to $57.80.
The global pizza chain now expects full-year profit to grow by 32.5 per cent, from 30 per cent.
But CMC chief market analyst Ric Spooner reckons that expectations for Domino's - like for other growth stocks - were even higher, so the upgrade fell short of some of the more bullish hopes.
"The stock is still trading at valuation multiples that make it vulnerable to any market nervousness," Spooner says.
In relation to allegations of staff exploitation at some of its stores, Spooner said that Domino's provided improved transparency on the profitability of its franchisees, noting it expects record franchisee profitability this year and that the current store payback is three to five years.
"It's also clear that Domino's has been on the front foot conducting its own checks of franchisee wage payments, which have revealed some problems," he said. "However, the real test for markets will be whether the Fair Work Ombudsman uncovers any significant issues over and above these that put pressure on future costs."
Analysts fear the scandal may affect Domino's ability to attract new franchisees and convince existing franchisees to open new stores.
Domino's has also been negotiating a new wage agreement with the Shop, Distributive & Allied Employees union and expects to finalise a deal in coming months.
In reports last year, Deutsche Bank and UBS estimated that the introduction of award penalty rates could lift wage costs in Australia by as much as 14 per cent, crunching franchisee profits by between 14 per cent and 24 per cent.
The former market darling's shares have dropped nearly 30 per cent from all-time highs hit in August.
Retail giant Wesfarmers is looking to sell Officeworks through a trade sale or a stock market float, the conglomerate has announced.
Wesfarmers managing director Richard Goyder said the company had started a strategic review of the stationery and office supplies chain, which it acquired in 2007.
Earnings in the business had doubled since 2009 and Officeworks was delivering a 13.9 per cent return on capital, Mr Goyder said, making it the right time to capitalise on the turnaround.
"Officeworks is well positions for future growth with a strong competitive position and ongoing initiatives to grow its addressable market," he said.
"In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated."
Mr Goyder said Wesfarmers would hold onto Officeworks if the sale options available did not match its valuation of the business.
There are 163 Officeworks stores across Australia. Total revenue in the network jumped 6 per cent in the six months to December 31 to $927 million and earnings before interest and tax grew 5 per cent to $62 million.
After dipping early following its earnings update, Wesfarmers shares have now jumped 2 per cent to $42.98.
The fall in the oil price over the past years has prompted Origin Energy to slash $1.9 billion off the value of its assets, primarily its gas export project in Queensland, ahead of the release Thursday of its earnings.
It has sought to soften the blow by signalling an underlying profit, as measured by earnings before interest, tax, depreciation and amortisation of $2.4 billion to $2.6 billion for the year to June.
The company cited the lower oil prices, the foreign exchange rate of the Australian dollar, discount rates and costs for the massive write-down which is equal to around 15 per cent of the company's share market worth.
Sharemarket investors have taken the news in thier stride, with the shares ahead 0.55 per cent at $7.34.
The bulk of the write-down, $1 billion, related to the gas export project in Queensland, with a further $578 million booked on exploration acreage in the Browse Basin, with $170 million cut from the value of the exploration assets of its planned spin-out and the like.
Shares in Primary Health Care continue to nosedive after the company cut its full-year net profit expectations. The firm blamed a disastrous first-half performance on its medical centre business, where earnings fell 36 per cent due to lower doctor recruitment.
Primary said underlying net profit after tax (NPAT) was $41.9 million for the six months ended December 31. A strong performance in imaging, an increase in pathology and savings in interest costs from capital recycling were offset by the poor performance in its medical centres and bulk billing division.
Primary stock is now 9.8 per cent lower at $3.49.
The $2 billion dollar company said amid a subdued environment and uncertainty over government policy and regulations, it now expects underlying net profit for fiscal 2017 to be in the range of $92 million to $102 million, subject to trading conditions in the remainder of the year and the outcome of any government policy reviews.
Primary has previously said it expected to exceed the $96.8 million underlying net profit from continuing operations in 2016.
Following two days of reviewing the company's financials, the board decided to bring forward the results release date from Friday.
Chief executive Peter Greg called on more clarity from the government in several areas including the medicare rebate freeze, Medicare Benefits Schedule review, the proposed bulk billing incentive cuts in pathology and imaging and the potential regulation rents in the pathology sector.
"The results were delivered in an environment of difficult healthcare policy where the Medicare rebate freeze and government policy changes contributed to on‐going uncertainty," Mr Greg said.
Underlying profit for the half year period after tax from continuing operations fell 5.4 per cent to $41.9 million, on revenue that was down less than 1 per cent to $808.7 million.
An franked interim dividend of 4.8c per share has been declared.
The board is continuing its search for a new CEO after Mr Gregg resigned in January following news the corporate regulator proceeded with legal action against him relating to the falsification of company documents in 2011 while he was at construction group Leighton Holdings (now known as CIMIC).
Consumer sentiment has brightened but still remains less upbeat than businesses, amid concerns about personal finances and the outlook for the economy.
A survey of 1200 people by Melbourne Institute and Westpac Bank found consumer sentiment rose 2.3 per cent in February, from January when it rose just 0.1 per cent. That left the index at 99.6, just below the level where optimists match pessimists.
Yesterday's NAB business survey showed a surprisingly strong bounce in business conditions and confidence to multi-year highs.
Among the components of consumer confidence, the measure of family finances compared to a year ago bounced 4 per cent after a sharp drop the previous month, while that for family finances over the next 12 months rose 1.1 per cent.
Expectations for the economic outlook over the next 12 months gained 2.8 per cent, and the assessment of economic conditions for the next five years rose 1.6 per cent.
A bright spot for retailers was the measure of whether this was a good time to buy major household items which increased 2.2 per cent for a second month of gains.
"The rebound is a hopeful sign that the soft patch in retail sales late last year has not extended into 2017," said Westpac senior economist Matthew Hassan.
Opinion was more cautious on housing, however. The index that tracks whether this was a good time to buy a dwelling slid 7.8 per cent to the lowest since May 2010.
The deterioration might have reflected expectations of higher interest rates. A question on the outlook for mortgage rates found 60 per cent of respondents expected rates to be higher in 12 months and just 5 per cent looked for a cut.
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