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In a session dominated by central bank policy, the local sharemarket initially surged higher after the US Federal Reserve flagged a cautious approach to rate rises this year, only to trim gains after a surprise follow-up move by the People's Bank of China.
Benefiting from a surge on Wall Street, the S&P/ASX 200 jumped in early trade, peaking just above 5800 points, only to hit reverse in afternoon trade, before a late spike salvaged some gains and the benchmark index ended the day 0.2 per cent higher at 5785.8.
The Fed raised its benchmark lending rate a quarter point, as widely expected, but continued to project two more increases this year, defying predictions it might signal a faster pace of tightening.
The immediate market reaction was a drop in the US dollar against most currencies, including the Australian dollar, as well as a rise in commodities, which are mostly prices in US dollar, triggering spikes in the share prices of miners.
"There were some sections of the market that expected dramatically revised forecasts and [interest rate] dot plot and therefore many people have found themselves too short of US funds," said Pimco chief investment officer Scott Mather.
Hours after the Fed's move, China's central bank increased the rates it charges, in a move seen as a bid to stave off capital outflows and keep the currency stable.
"Today's action is a precautionary action for the stabilisation of the renminbi exchange rate," said ANZ China economist Raymond Yeung. "It provides a signal that China will start to make use of interest rate tools to govern its monetary policy and influence cross border flows."
The surprise decision weighed a bit on sentiment, with most regional markets losing momentum in the aftermath.
Local miners were still the day's biggest winners after commodities including iron ore and copper gained overnight. BHP Billiton jumped 3.7 per cent, Rio Tinto rose 2.4 per cent and Fortescue rallied 4.4 per cent, all three extending strong gains earlier in the week.
A sharp drop in global bond yields following the Fed's dovish decision meant banks - which profit from higher yields - were among the biggest losers of the day, with NAB losing 2.4 per cent, Westpac and ANZ down about 1.5 per cent and Commonwealth Bank slipping 0.3 per cent. In turn, so-called bond proxies edged higher, with Sydney Airport rising 1.9 per cent.
In corporate news, Myer shares fell 5.3 per cent to a four-month low of $1.08 after the department store chain said sales dropped 1.3 per cent in the second quarter and January and February sales came in below expectations.
Seymour Whyte shares soared 21.8 per cent to $1.34 after the construction firm received a tentative bid from Vinci Construction, offering a price range of $1.36 to $1.43 cash per ordinary share.
The plan to rescue Slater and Gordon is under way after its major bankers on-sold their debt to distressed-debt buyers, paving the way for a restructure.
Sources told Fairfax Media that Westpac, National Australia Bank, Barclays and Royal Bank of Scotland, which together held in excess of $700 million in debt, exited their holdings in the past 24 hours.
Matters are moving quickly, with legal and financial advisers working hard to finalise a restructure of the group in the coming days.
Sources said a restructure was being worked out that would dramatically reduce the debt in the company.
It is expected the new debt holders will participate in a debt-for-equity swap, where they would exchange their debt for shares in a restructured Slater and Gordon.
The final details are being thrashed out, but it is believed existing shareholders will be severely diluted in the process.
Myer boss is trying to shake off the short sellers, and today's profit figures didn't help, writes the AFR companies editor James Thomson:
Department store giant Myer is becoming a classic battle between the bulls and the bears – and the company's caveat-heavy profit guidance demonstrates this perfectly.
Less than four months after chief executive Richard Umbers sent his share price flying and the short sellers scurrying upgrading Myer's full-year profit outlook, the retailer easily beat expectations for its first-half net profit, with earnings rising 5.3 per cent to $62.8 million, ahead of consensus for $58 million.
Good news for the bulls.
But Myer's first-half sales figures were not at all pretty.
Sales and transaction numbers in January and February were "below expectations, with January being the low point".
That's vindication for the bears and particularly the short sellers, who still hold more than 15 per cent of Myer and have made it one of the ASX's most shorted stocks.
In what might be read as a display of corporate bravery given the state of the market, Umbers is sticking to his forecast that net profit (both before and after the costs of the implementation of his New Myer turnaround are included) would be higher than for the 2016 full year.
On the face of it, that's more good news for the bulls.
Except the guidance came with a pretty big caveat. It is "based on the expectation" that those conditions seen in January and February "do not return".
That's a mighty big "if" given how downbeat Umbers was about trading in the early months of the year.
Will the sales suddenly turn around from the "low point" of January? Will the sales headwinds Umbers called out on Thursday – including patchy consumer confidence and "widespread" discount fatigue among shoppers – abate in the remaining trading weeks of the financial year?
As Umbers says, revenue is "the core building block of a profitable result". To translate, cost cutting has its limits.
After delivering five quarters of sales growth before this second quarter's major stumble, Umbers would know he simply must get sales heading north again.
Dutch anti-Islam, anti-EU firebrand candidate Geert Wilders has conceded defeat in parliamentary elections, congratulating Dutch Prime Minister Mark Rutte on his victory, but promising not to go away.
The right-wing populist promised firm opposition if he does not end up, as is likely, in the ruling coalition.
"I would rather have been the largest party," the leader of the Party for Freedom told reporters after exit polls showed Rutte's centre-right VVD Party to win 31 of parliament's 150 seats, down from 41 in 2012 but ahead of Wilders' party, which tied in second place with two other parties at 19 each.
"[But] we gained seats. That's a result to be proud of," Wilders said adding his party's influence on Dutch politics had been enormous.
A beaming Rutte told cheering supporters at a post- election party that "it appears that the VVD will be the biggest party in the Netherlands for the third time in a row".
"Tonight we'll celebrate a little."
"It is also an evening in which the Netherlands, after Brexit, after the American elections, said stop to the wrong kind of populism," Rutte said.
The unconfirmed result is a huge relief to other EU governments, facing a wave of nationalism. He said he had spoken to several European leaders, who called to congratulate him.
French President Francois Hollande said Rutte's election success was a "clear victory against extremism".
France faces a presidential election starting in April when far-right leader Marine Le Pen, who wants to leave the EU and sharply curb immigration, is expected to make a strong showing.
At 81 per cent, turnout was the highest in 30 years in an election that was a test of whether the Dutch wanted to end decades of liberalism and choose a nationalist, nativist path by voting for Wilders and his promise to "de-Islamicise" the Netherlands.
Japan may have held fire, but China's central bank has raised short-term interest rates in what economists says is a bid to stave off capital outflows and keep the yuan currency stable after the Federal Reserve raised US rates overnight.
The increase in short-term rates was China's third in as many months, and came a day after the end of the annual session of parliament where leaders warned that tackling risks from a rapid build-up in debt would be a top policy priority this year.
In a statement on its website, the PBoC pointed to stronger domestic and external demand, higher inflation, rapid credit growth and an overheating housing market in some cities as factors behind today's hikes. It also mentioned the overnight Fed rate hike.
Hours earlier, the Fed raised its benchmark policy rate, as had been widely expected, and signalled more hikes were on the way as the US economy picks up steam.
"The higher US rates and tightening of US monetary policy could trigger further capital outflows and have some negative impact on China's financial system," Nomura economist Yang Zhao said. "I think they want to stabilise the currency at this time."
Some analysts had expected another such rate rise in China in coming months as authorities look to contain risks from a rapid build-up in debt.
The People's Bank of China also strengthened the yuan's daily mid-point reference rate by the most in about two months.
The yuan fell 6.5 per cent against the US dollar last year in the face of the rising greenback and uncertainty over China's economy, prompting the government to clamp down on capital outflows to ease a drain on its foreign exchange reserves.
The yuan has been largely stable this year as the dollar has paused, but China's government has remained alert as many market watchers expect the US dollar will eventually resume its climb.
The latest move reflects the central bank's desire to maintain relatively high yuan rates, increasing the cost of shorting the yuan, and easing depreciation pressure, Zhou Hao, emerging markets economist at Commerzbank, said in a note.
After years of super-loose policy, the PBoC has cautiously moved to a modest tightening bias in recent months in a bid to cool explosive growth in debt and discourage speculative activity, though it is treading cautiously to avoid hurting growth.
The economy is on more solid footing now than early last year, giving policymakers more room, in theory, to tackle financial risks and push through reforms.
In keeping with its cautious tone, the central bank's increases in short-term rates today were a very modest 10 basis points, or a tenth of a percentage point, the same size as moves in January and February.
The PBoC insisted the moves did not indicate a change in its monetary policy or constitute a hike in its benchmark policy rate.
Capital Economics China economist Julian Evans-Pritchard predicts further increases in Chinese interbank rates during the coming quarters as the PBoC moves to slow the pace of credit growth.
"Our forecast for the PBoC's 7-day reverse repo rate to end this year at 3.0%, implying a further 55 basis points of hikes, remains unchanged."
NAB has jacked up rates for owner occupiers and residential property investors, but launched a special introductory rate for first home buyers.
NAB's standard variable rate has risen from 5.25 per cent to 5.32 per cent, while the rate for residential investment loan customers rises from 5.55 per cent to 5.8 per cent.
As a sweetener, NAB has introduced a two-year fixed rate loan rate for first home buyers at 3.69 per cent per annum.
The increases to owner-occupiers and investors follow a string of rises on investor loan rates across the market as the banks struggle with speed limits on investor loan growth introduced by the Australian Prudential Regulatory Authority late in 2014.
More recently, APRA moved to tighten eligibility among investor borrowers by asking banks to discount rental income by 20 per cent when looking at servicability.
The Fed's decision may have hugged the limelight, but another key central bank also met today to discuss monetary policy:
The Bank of Japan kept monetary policy steady in the wake of the Fed's second interest rate hike in three months, underscoring the diverging policy paths of major global central banks.
Economists had expected no change in the BoJ's policy settings as rising global protectionist sentiment and an expected series of US rate hikes overshadow budding signs of recovery in the trade-reliant Japanese economy.
Investors are now focusing on governor Haruhiko Kuroda's post-meeting briefing later this afternoon for clues on how the Fed's move could affect the BoJ's decision on whether and when to pull back its massive stimulus programme.
Kuroda, who will attend this week's Group of 20 finance leaders' meeting in Germany, may also shed light on how the BoJ will defend its ultra-loose policy from any US criticism it is exploiting a weak yen to gain a competitive trade advantage.
As expected, the BoJ maintained its short-term interest rate target of minus 0.1 per cent and a pledge to guide the 10-year government bond yield at around zero per cent via aggressive asset purchases.
It also kept intact a loose pledge to maintain the pace of its annual increase in Japanese government bond (JGBs) holdings, which is 80 trillion yen ($917 billion).
While a rebound in fuel costs is set to accelerate price growth in coming months, Kuroda is likely to stress that no immediate rate hike is on the horizon with inflation still nowhere near his ambitious 2 per cent target.
But he may leave open the chance of raising the BoJ's target for the 10-year bond yield if the economic recovery gathers enough momentum to push prices steadily higher, analysts say.
Seymour Whyte shares are soaring after rhe construction firm received a tentative bid from Vinci Construction.
Vinci proposed to acquire 100 per cent of Seymour's issued shares for a price range of $1.36 to $1.43 cash per ordinary share.
The offer suggests a structure whereby a special dividend may be incorporated as part of total consideration to unlock the value of franking credits. Seymour Whyte has a franking credit balance of about $17.8 million.
The firms say there's no certainty the initial proposal will result in binding offer, but Seymour has agreed to provide Vinci with access to due diligence.
Shares have jumped 22 per cent to $1.34.
Economists are releasing their verdicts on this morning's jobs data, and it's fair to say they don't love them.
JP Morgan's Tom Kennedy calls it an "unambiguously weak" report:
Importantly, the unemployment rate is now just 0.1 [percentage point] below the upper end of the RBA's forecast range, meaning any increases from here will likely cause the RBA to rethink their outlook for monetary policy
The weakness in annual full-time employment growth continues to be borne out in the underemployment rate (the number of underemployed workers expressed as a percentage of the labour force), which popped higher in February and is now tracking at all-time highs again. As we have previously mentioned, wage growth since 2013 has held a strong negative relationship with the underemployment rate, so today's pop higher makes the RBA's objective of engineering a sustained up-tick in core inflation all the more difficult.
We still see the cash rate biased lower in Australia. While this might take some time to play out, today's data are a salient reminder that underlying fundamentals in the Australian economy are certainly not consistent with higher rates anytime soon.
On a similar line, Citi's Josh Williamson writes that labour market weakness is "a warning to RBA hawks":
Ongoing spare capacity in the labour market portends continuing sub-trend wages growth. The February data keeps the rolling average three-month unemployment rate around 5¾%. This is about 0.75ppt above what the RBA views as full employment.
Reducing the gap requires a pick-up in GDP growth. However, GDP growth is not strong enough to lift employment growth to a speed that will do so. Furthermore, the earlier pick-up in yearly employment growth now looks out of place.
Market pricing for RBA rate hikes needs to be pushed well into [2018], in our view.
ANZ economist Felicity Emmett writes:
The February labour market report disappointed, with a fall of 6.4k jobs and a rise in the unemployment rate to 5.9%. The detail was slightly more positive than the headline with full-time jobs rebounding after the previous month's sharp fall. The weakness in the report is at odds with still solid business conditions and ongoing gains in ANZ job ads, and in our view some improvement is likely over coming months.
UBS's George Tharenou agrees that lead indicators suggest employment could improve in coming months:
Overall, the trends in the labour market over recent months show ongoing modest jobs growth. However, the unemployment rate jumped to 5.9%, which combined with weak hours, saw the broader underutilisation rate surge to only just below a 2-decade high, indicating significant labour market slack, consistent with our view of low inflation & wages.
That said, lead indicators of employment still suggest better jobs growth over coming months (~1½ - 2% y/y). Nonetheless, for now, the labour market data strongly argues against growing calls for the RBA to hike (UBS's forecast if for rates on hold ahead).
And here's Capital Economics's Kate Hickie:
While we are wary about reading too much into a single monthly move, given that the fall in employment followed only modest gains in December and January, it sends a worrying signal about the current momentum in the labour market.
What's more, although full-time jobs rose by 27,100 in February, that wasn't enough to reverse the sizeable 44,100 fall in January. Indeed, it is still true that on net all of the jobs created in the past year have been part-time ones.
All told, it is clear that there is still plenty of slack in the labour market, which supports our view that wage growth will remain subdued for a few years yet. · Looking ahead, we expect employment growth to remain modest and the unemployment rate to remain around 6.0% this year. That said, in this low underlying inflation environment, if the unemployment rate were to rise notably this could be enough to prompt a further rate cut by the RBA, particularly if concerns about financial stability ease.
And there go the last of today's gains on the sharemarket, and once again it's mainly miners that are driving the overall market.
The ASX was already well off the day's highs following the soggy jobs numbers, but since Chinese iron ore futures started turning south about half an hour ago, the selling in the market has accelerated.
Dalian iron ore futures have just slumped another 10 yuan to 711 yuan, taking them about 25 yuan below the early high.
The big miners are all still posting solid gains, following the tailwind they received from the Fed's more dovish stance this morning, which pushed up commodity prices, but they are all about 1 per cent off the earlier highs.
BHP and Rio are both up about 2.3 per cent, while Fortescue has added 2.9 per cent.
Meanwhile, selling in the banks has also picked up a bit, with ANZ the worst performer, down 1.7 per cent.
Myer is deep in the red, falling 4.6 per cent after its January and February sales numbers disappointed.
One of Australia's largest fund managers will divest millions of dollars worth of shares in companies that make deadly landmines and cluster bombs as part of an ethical investment overhaul.
AMP Capital will also sell about $440 million worth of tobacco company shares under a new framework that uses degrees of "harm" and "denial of humanity" to determine if an investment is ethical.
The $165 billion investment manager said it would divest about $130 million worth of shares of companies that make cluster munitions and landmines because those weapons killed indiscriminately and left a dangerous legacy for civilians.
The company said it was not invested in chemical and biological weapons manufacturers, but ruled out ever doing so under the new ethical framework, developed with the help of The Ethics Centre.
AMP said it was selling out of tobacco because it was a highly addictive product that could not be safe for consumers and hurt others through passive smoking.
"We are not prepared to deliver investment returns to customers at any cost to society," AMP Capital chief executive Adam Tindall said.
AMP's new ethical framework takes into account if there are international conventions that prohibit or control a company's products.
The Convention on Cluster Munitions, which bans the use and production of cluster bombs, has been signed by more than 100 states, including Australia.
Mr Tindall said AMP still believed that engaging with companies was the best way to change their behaviour, but when it came to makers of tobacco, cluster munitions, landmines, biological and chemical weapons, "no engagement can override the inherent dangers involved with their products".
"Our analysis has found that our funds can continue to be managed effectively under this new framework without compromising investment objectives," he said.
BusinessDay columnist Elizabeth Knight explains the real reason the big supermarkets want you to be "loyal":
Last November I signed for Coles' flybuys loyalty program by way of researching whether it would make me an additionally loyal customer. This week I discovered I had spent about $3500 and believing this would have earned me a handsome coupon, I was amazed – no gobsmacked – that all this loyalty was rewarded with a $10 discount coupon.
Cynicism comes with the turf in the journalistic profession and I had instinctively known that supermarket loyalty schemes are not particularly generous. I didn't believe that I was in line for a business class airfare to anywhere but thought I might be well on my way to earning some cheap electronic appliance, say a waffle maker.
And none of the above suggests that Coles – or Woolworths for that matter – doesn't carry some good cheap everyday produce on the shelves. But these are available to all customers, not just those with a loyalty card.
Instead, what this loyalty scheme is lavishing on its members is a 0.5 per cent discount.
It is hard to imagine spending that much money with any other retailer or service provider and receiving this minuscule discount.
Meanwhile, as the Coles checkout operator watched my jaw-dropping look of disbelief she quickly assured me that once I spend another $500 – or $4000 in total – I would get a $20 discount coupon. Can't say that made me feel any more loyal.
And at the risk of appearing that Coles is being singled out for its miserly rewards program let it be on the record that the Woolworths scheme is no more generous.
The main argument in favour of joining a supermarket loyalty scheme is that there is no downside – you were already going to shop there so even a small benefit is a gift.
So why are these supermarkets so keen on giving us something for nothing?
They aren't. We are giving them the precious – and valuable – gift of our personal data.
Now even fast fashion is getting tougher.
Inditex, the owner of the Zara chain, said overnight that profitability shrank to an eight-year low. Main rival Hennes & Mauritz reported the first monthly sales drop in almost four years. Shares of both retailers sank.
The reports illustrate the difficulties facing the fashion industry as consumers divert spending to leisure activities and buy more of their apparel from a rising number of online suppliers. The increased competition is putting pressure on prices, while higher production costs are also squeezing profitability.
"In February, industry data was very challenging," Richard Chamberlain, an analyst at RBC Capital, said in a note. Sales declines of 9 per cent in Germany and 6 per cent in Sweden reflect "some spend rotation into other consumer categories."
H&M shares fell as much as 5.1 per cent in Stockholm, the most in three months. A 1 per cent drop in February sales was caused by the month having one day fewer than in the leap year of 2016. Adjusting for that, revenue rose 3 per cent in local currencies, missing estimates.
Chamberlain estimates that H&M's same-store sales fell 3 per cent in the month, weighed down by the tough industry conditions and as initiatives to expand online options for customers and improve methods of supply take time to feed through to sales.
H&M has been in the shadow of faster-growing competitor Inditex in recent years, though Wednesday's results from the Zara owner suggest it too is finding life more difficult.
Inditex's gross margin narrowed to 57 per cent from 57.8 per cent in the 12 months through January, missing the Spanish retailer's goal to keep the measure within 0.5 percentage points of the previous year.
Apart from the soft jobs data, slow to non-existant wages growth is the RBA's other bugbear, and the reason why interest rates are unlikely to go up anytime soon (if it weren't for those pesky house prices):
Back to topI love the honesty of the RBA about their wage forecasts https://t.co/2Cx6FGJfoy pic.twitter.com/IESmIdP8lW
— Cameron Murray (@Rumplestatskin) March 16, 2017
Just for a bit of historical context, here is the full-time/part-time split going back almost 40 years. That split has gone from 85/15 to more like 65/35 over the decades.
Not that the recent trend towards P/T isn't significant to today's debate around low wage growth.
And here are some responses from the Twitterati to this morning's jobs data:
Even with the full time/ part time switch, Australia still shedding full time jobs & total employment still only running sub 1% - soft data. pic.twitter.com/OsdBxXJfLq
— Robert Rennie (@R0bertRennie) March 16, 2017
Jobs data out 5.8% and a big jump in FT jobs of 27K.A positive not sure how much credence the market gives them now. Equities unchanged.
— Marcus Padley (@Marcus_Today) March 16, 2017
Softish labour force data & the unemployment rate edging higher -should quieten calls & mkt pricing for RBA to hike rates #ausbiz #ausecon pic.twitter.com/2mvHDRn2ZU
— Alex Joiner (@IFM_Economist) March 16, 2017
Total hours worked up 0.9% over the past twelve months. Average hours per person unchanged over the same period #ausbiz #auspol pic.twitter.com/pey1nlhevN
— Callam Pickering (@CallamPickering) March 16, 2017
The Aussie dollar slipped about two-tenths of a cent to below US77¢ following the jobs disappointment, but the currency is still hanging on to most of the strong gains following the Fed decision earlier today.
The Aussie is fetching US76.93¢, after hitting a three-week high of US77.19¢ earlier in the session.
Considering the scale of the jobs data miss - the unemployment rate rose to a 13-month high of 5.9 per cent, instead of remaining unchanged as expected - it's a bit surprising the Aussie hasn't fallen further, but the currency seems well supported by the overarching theme of greenback weakness.
There are also the usual doubts about the reliability of the highly volatile Australian employment data.
"Given the unpredictability and huge variance in this data point, I expect the Aussie to remain supported on dips," said OANDA managing director Illka Gobius.
But Gobius also doesn't expect the Aussie to climb much further: "As we find ourselves back in the AUD death valley at .77-.7750, the speed of the move has me erring in buy on dip mode, as opposed to chasing this initial move."
The unemployment rate has jumped to a 13-month high of 5.9 per cent, above the consensus forecast of a steady 5.7 per cent result, after the economy shed 6400 jobs in February on a seasonally adjusted basis.
A 27,100 gain in full-time jobs over the month was outmatched by a 33,500 fall in part-time jobs, according to the ABS survey. The market had been expecting an extra 16,000 jobs in total over the month.
The participation rate was steady 64.6 per cent.
The sheer scale of Australia's household debt means lifting interest rates is going to be a far more sensitive operation than in previous times.
At present, just two economists think the RBA will hike rates this year as it frets about hefty mortgages and financial stability. Goldman Sachs and TD Securities both expect a single quarter-percentage-point increase in the fourth quarter, while traders are pricing in a 30 per cent chance of a hike by December.But consider a hypothetical scenario where the Federal Reserve turns aggressive in lifting rates, the Australian dollar tumbles, and the RBA seeks to tame a subsequent boost in inflation with monetary policy: too much household debt would pose a risk of the central bank crushing the economy with the hit from rate rises.
James McIntyre, head of economic research at Macquarie Bank, has run the ruler over previous tightening cycles in the mid 1990s and turn of the century, the first of which involved 11 quarter-point hikes.
He found that the subsequent surge in households' debt servicing ratio -- interest costs as a portion of disposable income -- would be achieved with less than a third of those hikes today, thanks to record high private debt levels.
"The RBA's reticence about further increases in household debt-to-income ratios is clear when you begin to consider how potent interest-rate rises might be from a debt-servicing perspective," McIntyre said. ``At the current level of debt-to-income, we estimate that three to four 25 basis-point rate hikes would deliver a bigger increase in debt-servicing costs for households than 10 to 11 rate hikes did in the mid-1990s."
McIntyre, who doesn't expect a rate increase until early 2019 when core inflation is likely back inside its 2 per cent to 3 per cent target, notes the other difference between the periods is a wider spread between the cash rate and lenders' mortgage rates: from 180 basis points to about 375 basis points.
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