One of the world's biggest retailers, Costco, wants to reclaim bragging rights of being 30 per cent cheaper than supermarket giants Woolworths and Coles.
Costco is 27 per cent cheaper than Coles and 24 per cent cheaper than Woolworths on a 27-product basket of basic household items, investment bank Morgan Stanley recently told clients. But the price gap had narrowed from 37 per cent, thanks to price cuts at Woolies and Coles, analyst Tom Kierath said.
Costco Australia managing director Patrick Noone said Costco was 28 per cent cheaper than the big two chains, based on an internal review of 150 to 160 fresh food and grocery products. He said he wanted to widen that gap back to 30 per cent.
"We're still comfortably ahead ... We can work a bit harder to get to 30 per cent," he said.
Mr Noone said Costco had not been troubled by Woolworths spending more than $1 billion on cutting prices over the past 18 months and Coles spending more on price last quarter than it ever had.
"Retail is always competitive ... [but] our business is going well," he said.
A Woolworths spokesman said, "We're a house of brands committed to providing our customers with great quality products at great value both in-store and online."
A Coles spokeswoman said the average customer had just $150 per week to feed their family.
"Discounts for bulk pack sizes are not new in Australian retail. However, not all customers want or can afford to buy in bulk, so Coles offers value on products of all sizes across the store."
Mr Noone also said Costco's prices were "in pretty good shape" compared with German chain Aldi.
Aldi aims to be 20 to 25 per cent cheaper on a basket of groceries than Woolworths and Coles through selling almost only high-margin home-brand products and through greater labour productivity.
Shares are taking a bit of a drubbing in early trade, defying futures trading which suggested a flattish start and a positive lead from Wall St.
Bluechips are weighing, especially miners, as the ASX 200 droops 20 points or 0.3 per cent to 5756.
Commodities are on the nose at the moment following some pretty steep falls in the likes or iron ore and, last week, oil. BHP is off 0.7 per cent this morning, while Rio is down 0.9 per cent and Fortescue 0.8 per cent. South32, which has been doing relatively well of late, is off the most at 2.3 per cent.
Heavyweights are dragging on the index, with the big four banks, the supermarket owners, Telstra and the likes of CSL all lower. Macquarie is an exception as it gains 0.4 per cent.
Gold producers are doing very nicely, however, suggesting this is more than a case of the Fed spooking markets with talks of tighter monetary policy. After all, the US dollar actually fell on Friday night. In any case, Newcrest is up 3.8 per cent, Resolute MIning is the morning's best performer, up 8.7 per cent, and St Barbara 6.8 per cent. As NAB's Ray Attrill mentioned earlier, this may be a case of "buy mystery, sell history" following Friday night's much-anticipated jobs figures.
Also weighing are listed property plays, as a couple of brokers cut a number of the stocks to the equivalent of "sell". BWP Trust and Vicinity Centres are off 1.8 per cent.
With wage growth at an 18-year low, corporate profits could prove one of the few growing sources of income for Australians.
In the next 10 weeks $22.3 billion in dividends – about 1.3 per cent of GDP – will be paid out by Australian companies to local and overseas shareholders.
Of the 88 per cent of companies that announced their intentions to pay dividends in the February earnings reporting season, 68 per cent chose to raise their dividend. The peak of these payments will come in the last week of March and the first week of April, when $7.9 billion and $7.3 billion will be paid out respectively.
The dividends are up on last year, when $19 billion was paid out.
"It's a fairly substantial increase," said Craig James, chief economist at stockbroking firm CommSec. Over the financial year as a whole $72.3 billion will be paid out by Australian companies – a record.
The growth in the dividend payouts comes despite a decline in the number of companies paying dividends overall (88 per cent, compared to 99 per cent) – the smallest percentage in two years. While companies are no longer "falling over themselves" to keep dividends high – with some instead focussing on reducing debt levels – profits have increased sharply, leaving most companies in a position to raise dividends if they choose. Of the 142 companies reporting half-year results, 64 per cent increased their profits, and 94 per cent reported a profit overall.
Some of the money from the bumper dividends will go to overseas shareholders, Mr James said, though most will stay in Australia. But Mr James expressed caution that it could have much impact on consumer confidence and spending.
"What we have seen over recent years is that individual investors or consumers have been more inclined to take a conservative approach," Mr James said. "They aren't spending the money that comes through – they're more likely to be looking at ways to pay down debt or investing further."
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There's something for everyone in a big week for macroeconomic news, writes IG strategist Chris Weston:
The highlight of the week is naturally Thursday's (at 5am AEDT) Federal Open Market Committee meeting, where a very commendable non-farm payrolls report has removed any elements of doubt that the Fed will hike rates this week.
There should also be some real colour on Obamacare legislation, while the US debt ceiling suspension expires mid-week and this could get some focus, as will the Trump administration, which is set to release its budget proposals for the 2018 fiscal year.
We get the Dutch elections on Wednesday, but we are unlikely to get any clarity on the outcome due to Holland's proportional representation system and there may be a messy process of trying to cobble a government together. A negative outcome for markets seems unlikely as anti-EU candidate Geert Wilders will struggle to form any sort of alliance.
Perhaps the other focal point will be whether the UK pulls the trigger on Article 50 on Tuesday as speculated, while there are rising tensions between Holland and Turkey and we shall watch to see if this in any way becomes a markets story.
Investors will also be watching Chinese industrial production (among other data points) and central bank meetings from the Bank of Japan and Bank of England.
Locally, the big economic data release is Thursday's February employment report (consensus 16,500 jobs), although we have our own political stories in the minds of investors with Labor now favourites to take the next Australian Federal election, with bookies paying $1.60 relative to the Liberals on $2.25. Obviously, there is a lot of water to flow under this bridge and there will no doubt be a number of twists to this story.
All trades lead to Yellen
With Thursday morning's rate hike locked in, how many more are the Fed expecting in 2017 and will Trumpism have an impact? (Video produced in commercial partnership between Fairfax Media and IG Markets).
Here are Friday night's market highlights ahead this morning's ASX open:
- SPI futures up 3 points or 0.1% to 5782
- AUD +0.5% to 75.42 US cents
- On Wall St, Dow +0.2%, S&P 500 +0.3%, Nasdaq +0.4%
- In New York, BHP -0.1%, Rio -0.1%
- In Europe, Stoxx 50 +0.2%, FTSE +0.4%, CAC +0.2%, DAX -0.1%
- Spot gold +0.3% to $US1204.64 an ounce (European low: $US1195.28)
- Brent crude -1.8% to $US51.27 a barrel (-8.1% on week)
- US oil -1.9% to $US48.35 (-9.1% on week)
- Iron ore slips 7 US cents to $US86.72 a tonne
- LME aluminium +0.6% to $US1880 a tonne
- LME copper +0.7% to $US5732 a tonne
- 10-year bond yield: US 2.58%; Germany 0.48%; Australia 2.97%
Today's agenda:
- January credit card balances and purchases at 11:30am AEDT
- ECB president Mario Draghi speaks tonight in Frankfurt
Stocks to watch:
- Trading ex-dividend: Altium, McGrath, Sims Metal Mgt
- Wesfarmers scheduled to provide an update on UK Bunnings performance tonight
- Oil and gas companies after crude suffers its worst week since November
- BWP Trust cut to sell at UBS
- Growthpoint cut to sell at UBS
- Vicinity cut to neutral at UBS
- Charter Hall raised to overweight at Morgan Stanley
- Westfield cut to underweight at MS
- Investa Office cut to underweight at MS
- Mirvac raised to overweight at MS
- Stockland cut to underweight at MS
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China's industrial output grew more than 6 per cent in January and February, a vice chairman of the state economic planner said on Sunday, adding that the survey-based unemployment rate in 31 major cities was about 5 per cent for the two-month period.
National Development and Reform Commission (NDRC) Vice Chairman Ning Jizhe gave the approximations, which were in line with expectations for official data set to be issued on Tuesday, on the sidelines of China's annual parliament session.
Fixed asset investment growth kept pace with the final few months of last year, Ning said.
"China's economic growth still mainly relies in domestic demand," he said.
January and February data will be released together in a bid to smooth out seasonal factors caused by the timing of the long Lunar New Year holidays, which began in late January this year but fell in February last year.
China unexpectedly posted its first trade gap in three years in February as a construction boom pushed imports much higher than expected. That upbeat import reading reinforced the growing view that economic activity in China picked up in the first two months of the year.
With the economy on much steadier footing than a year ago, the government has trimmed its economic growth target to about 6.5 per cent this year, Premier Li Keqiang said in his work report at the opening of parliament last week.
The economy grew 6.7 per cent last year.
Traders betting on further gains in the US dollar aren't being dissuaded by its slump late last week after the February employment report showed robust jobs growth.
That's because they're counting on the Federal Open Market Committee's March 15 meeting to reignite the sputtering rally in the greenback.
Dollar bulls will focus on the Fed's quarterly update to its "dot plot" its projections for rates in coming years. The market has yet to fully price in the three 2017 hikes that the Fed forecast in December, and Friday's labor report kept alive speculation officials may want to pick up that pace.
"I'm still bullish," Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia, said after the jobs report. "Any tilt up in the dots or messaging along these lines next week will be dollar-supportive."
While finishing Friday on a down note, the greenback has actually been on the upswing. Comments two weeks ago by Fed officials that bolstered expectations the central bank will boost borrowing costs have provided underlying support even as the prospects for a quick implementation of the Trump administration's pro-growth agenda diminish.
The currency is down almost 2 per cent this year, in part because traders are assessing President Donald Trump's stance on the dollar. While fiscal stimulus proposals would tend to spur inflation and lift the currency, administration officials have complained that the greenback is too strong.
US Treasury Secretary Steven Mnuchin plans to use his debut at a Group of 20 meeting in Germany this week to drive home the message that the U.S. won't tolerate countries that engage in currency devaluation to gain an edge in trade, according to people familiar with the matter.
Even stronger employment data couldn't stop the dollar from falling Friday. U.S. employers added 235,000 jobs in February, beating the median analyst forecast of 200,000 -- but that was still shy of some expectations for a blowout number, strategists said.
"There are a lot of hurdles the dollar rally has to jump through, but I'm not convinced there's any evidence of a meaningful pullback," said Jeremy Cook, chief economist at World First UK.
Global equities and local shares have fallen into a bit of a rut ahead of the next interest rate meeting of the US Federal Reserve and investors are likely to tread water until the meeting wraps up later this week.
The US Federal Reserve this week is poised to press ahead with an interest rate hike when it concludes a policy meeting early Thursday Australian time.
Over the weekend, there was even a report that the European Central Bank last week considered whether it would make sense for it to lift rates before it concludes its asset buying program, offering an unexpected and at least temporary respite to the besieged euro.
While rising rates can choke economic growth and corporate profits, the "new normal" view of this current cycle is that rates are a sign of confidence in the outlook. Friday's February US jobs data are a case in point; 235,000 new jobs were added versus expectations of 200,000.
The jobs report provides more than enough to justify a rate rise in the US, "assuming of course that the markets have correctly interpreted the Fed's very deliberate hawkish delivery over the last few weeks," said OANDA's Craig Erlam.
The US dollar and Treasuries sold off on the jobs data. With a rate rise fully priced in, traders have turned their attention to signs of a faster pace of monetary policy tightening.
"If, in conjunction with a 25-point funds rate rise, the FOMC fail to lift their median 'dot' points currently indicating 3 rate rises in total this year and three next, or meaningfully lifts its inflation forecast, the US dollar shouldn't get any fresh support, indeed could extend Friday's 'buy the mystery/sell the history' losses," NAB head of FX strategy Ray Attrill said.
Oil lost more ground over the weekend as traders and investors reset their level of faith in how effective the current round of OPEC and non OPEC output cuts will be in paring the global glut, as US producers ramp ever higher the number of rigs they have in the field with plans to boost spending. It would appear there's more downside risk to the price of oil for now, which could pressure shares in BHP Billiton among other locals.
Good morning and welcome to the Markets Live blog for Monday.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.
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