Markets Live: ASX skids after US attack on Syria

That's it for Markets Live today and for the week.

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Have a great morning and see you all again Monday morning from 9.

For those that missed the particular of the Syria news and its impact on the market, here's a video to catch up:

Shares have managed somewhat surprisingly to end the day in the black, after late morning news of US airstrikes on Syria swung solid early gains into solid losses by early afternoon.

The ASX 200 added 6 points for the day and was barely unmoved for the week at 5865 at the closing bell.

Helping steady the market on Friday was a mixed performance from the big banks, with CBA slightly lower, Westpac slightly up, while ANZ added 0.2 per cent and NAB lost 0.4 per cent.

But over the week the big lenders were a major drag, as CBA and ANZ dropped 1.3 per cent, while NAB lost 2.6 per cent and Westpac 2.3 per cent. Lots of talk this week around increased regulation probably did little to help.

Gold miners shone today as investors rushed to their arms in a traditional safety play amid geopolitical turmoil. Newcrest added 2.8 per cent today and an impressive 9.5 per cent over the week, while fellow gold producers featuring in the biggest winners over the five sessions.

Oil and gas stocks were the best over the five days, climbing 3 per cent, with electricity producers also doing. Both groups climbed today, as AGL added 2.6 per cent, Origin Energy 2.4 per cent and Woodside 1.3 per cent.

Miners fell today, and it was a week of mixed fortunes. BHP added 2.3 per cent thanks to its energy connections, but Rio and Fortescue fell. South32 climbed 5.4 per cent and Whitehaven Coal 10 per cent as coal prices spiked in response to cyclone-related supply disruptions.

Among the worst performers was Metcash, which lost 8.9 per cent over the five days as investors worried around a new drive to lower prices at IGA and what that would mean for margins.

But Vocus was the pits, plunging 12 per cent after investors booed the telco's announcement that it was going to build an underwater cable between Perth and Singapore.

The residential mortgage loan books at Aussie banks are huge, but at least regulators are remaining vigilant in their efforts to monitor the sector.

That's the view of UBS in a research note called Housing Bubble Watch, which provided some historical perspective on the incredible growth of household mortgage debt in Australia.

The bank also assessed statements made by APRA yesterday about fostering strength in the sector and raising capital ratio requirements for Aussie banks.

UBS cited the Basel 1 Accord in 1988 as a key event which kick-started the upward spiral in mortgage debt.

This chart shows the growth of household debt since then, and in the words of UBS "a picture tells a thousand words".

The Basel 1 Accord prescribed a minimum capital requirement for banks amounting to 8% of all risk weighted assets (RWA). As part of the RWA calculation, residential mortgage assets were given a risk weighting of 50%.

UBS said that, "from this time banks could leverage their mortgage books more significantly than other lending products, and allocated a greater proportion of their book to mortgages".

The introduction of Basel 2 in 2007 allowed major banks to bring risk-weighting measurements in-house. This saw the risk-weights for mortgages reduced to the "mid-teen levels".

With lower capital requirements, risk weightings at those levels implied that banks could leverage mortgage assets at around 80 times the value of their loan book, UBS said.

In 2015, Aussie banking regulator the Australian Prudential Regulation Authority (APRA) enforced a ruling that Aussie banks had to increase the risk-weighting of their mortgage books back to 25%.

Read more at BI Australia.

Here's a quick chart to help visualise the big moves in markets as news of US strikes on Syria emerged late this morning.

It was the expected response: gold and gold miners strongly higher in a falling sharemarket, with Qantas down as much as 4 per cent at one stage.

Investors have also looked to the safety of bonds, pushing down yields, which move in the opposite direction to prices.

Encouragingly, Wall St futures - not included in this chart - have recovered to trade only 0.2 per cent, but we'll see whether US investors remains as sanguine come the opening bell in New York tonight.

Seek shares have hit a seven-month high after the jobs portal finalised moves to privatise its successful Chinese jobs portal Zhaopin and delist it from the New York Stock Exchange.

Seek will partner with two China-focused private equity firms Hillhouse Capital Management and FountainVest Partners to acquire all outstanding shares of Zhaopin Zhaopin, which was floated on the NYSE in mid-2014.

The website is the largest and most popular Chinese jobs portal, with about 36.9 million job postings in the year to June, 2016.

Under the delisting, Seek and its private equity partners will buy the outstanding Zhaophin shares for $US18.20 in cash per American depositary share, or $US9.10 per ordinary share.

The deal values Zhaopin at $US1.01 billion. Seek, which currently owns 61.2 per cent of shares in Zhaopin, and 74.5 per cent of voting power, will retain its stake in the privatised business.

The offer price represents a 14.2 per cent premium to the closing price of the Zhaopin American Depositary Share on February 16, when the group first announced discussions around the potential deal.

Seek shares are up 2.5 per cent at $16.33.

The euphoria that had lured investors back into commodities is showing signs of fatigue.

After cash poured into exchange-traded funds linked to raw materials earlier this year, inflows have plunged in recent weeks. The spigot is turning off even as banks including Goldman Sachs urge investors to have "patience" in the wake of a waning price rally.

At stake is more than $US400 billion that Citi estimates is invested in commodity markets stuck in a tug-of-war between supply and demand. Investors are focused on rising global inventories for everything from crude oil to soybeans, while Goldman says the pace of economic growth in China will drive raw-materials consumption.

"We were getting very close to initiating longs in a lot of commodities at the beginning of the year, and they just kind of fizzled out," said Tom Dering, executive vice president at Chesapeake Capital. "We're much lighter in our commodity exposure than average. When things get into this range, we're neutral. We're looking for some sort of movement one way or the other."

The Bloomberg Commodity Index, which tracks returns for 22 components, has dipped about 4 per cent since this year's peak in mid-January. The gauge fell 2.7 per cent in March, the first monthly loss since October, and hasn't been doing much in April. The listless track down has curbed enthusiasm for the asset class, especially after global equities reached all-time highs.

The lingering impact of Cyclone Debbie on Queensland's exports of coal will begin to ease in around a week for some exporters as work is expedited to repair the multiple rail links which shift the millions of tonnes of coal to port.

Queensland supplies an estimated 15 per cent of the global demand for good quality coking coal, and the widespread mine closures from Cyclone Debbie prompted some coal traders to speculate the supply disruptions could rival that of Cyclone Yasi in 2011, when the spot price of coking coal topped $US400 a tonne for a time.

Even though the share prices of some coal producers such as Whitehaven Coal surged on news of the cyclone, brokers and analysts warned clients this week that the impact of the cyclone on coal prices may be transitory.

Earlier this week, miners such as BHP Billiton and Glencore declared 'force majeure' which released them from contractual supply commitments due to forces beyond their control.

The Insurance Council has indicted that total losses from the cyclone are expected to top $1 billion, a figure which is expected to be conservative.

Ahead of Cyclone Debbie, China's large coal users had built up stockpiles at ports which is likely to limit the price spike resulting from the latest cyclone.

But rail operator Aurizon said today that repair work would take longer than expected on its Blackwater coal haulage line, and would reopen on April 10 under restricted conditions.

However, there was no change to the five-week repair schedule for the major Goonyella line that connects into the Dalrymple Bay and Hay Point Coal terminals, Aurizon said.

And the railway link from Moura to Gladstone is now expected to be restored by April 12, a week earlier than expected originally, with the resumption of shipments along the Newland link to the Abbot Point export terminal also brought forward a week to April 14, as repairs continue at several sites along the line, it said.

Coal export disruptions have led to huge price rises in globally-traded coking coal. 

Telstra's high dividend yield has kept it a perennial favourite with small shareholders, who count on it for steady payouts.

But in the face of increasing competition and declining margins, coming at a time when Telstra needs to make further investments in its network while cutting costs, analysts and fund managers are questioning whether Telstra's high dividends are sustainable.

In the first three months of the year, the S&P/ASX 200 surged 3.5 per cent. But Telstra has declined more than 10 per cent so far this year, taking shares to their lowest level since June 2013. 

It maintained its 15.5¢ per share, fully franked dividend for the half-year in February, despite unveiling a profit far below analysts expectations and below its own market guidance, due to increased competition in the mobile phone market. 

This and other challenges to Telstra's balance sheet have analysts at UBS recommending it cut the very thing that keeps it popular as an investment.

That's because, as a recent note by UBS analysts led by Eric Choi pointed out, Telstra faces long-term threats to its earnings, and could soon have to fight off the threat of a fourth mobile network.

TPG Telecom has in several public statements signalled its interest in starting a new Australian mobile network.

"Global precedents … paint a bearish scenario of what could happen if [TPG] entered the market," the analysts wrote.

They point to France, where, in 2012, mobile operator Free secured a 15 per cent market share over three to four years, reducing the profits of the three major existing players. The current Telstra share price, they added, "does not factor the future entry of a fourth mobile network".

Here's more

Because the housing boom has once again been a defining topic this week, here are a few choice quotes by ex-CBA chief executive David Murray we thought are quite fitting.

The chairman of the government's Financial System Inquiry - and former Future Fund chairman - earlier this week warned a crisis on the scale of the 1890s great property collapse could not be ruled out.

"What people should do is look at the 1890s, which was caused by a housing land boom," he told The Australian. "To say it won't happen and simply ignore it is wrong."

Half of the nation's banks closed their doors following the 1890s crash.

"Many people say a crisis has a low probability of occurrence, but the problem with that view is that whatever the probability, the severity can be very high if it occurs," Murray said. "It shouldn't be allowed to grow … it's too big a risk to take."

Boosted by imported capital flowing in, a city block in Melbourne almost doubled in value in a couple of months in late 1887, while the average price of land in Sydney increased by more than 80 per cent from 1880 to 1884.

From the end of 1887 some of the more reputable banks began restricting lending for land purchases. The huge amount of land that had come onto the market was depressing rental yields. These low rental yields and high leverage taken on by some speculators led to cash flow problems.

The crash finally came in 1891. Land values fell to levels about one-half their boom levels. In the suburb of Prahran, prices peaked at an average of more than£1000 per property in 1888 and fell to £520 by 1898.

Here's more on the crash

While a lot of shares - including the big banks and CSL - have given up early gains, gold stocks are clearly the day's winners.

The All Ordinaries gold index is up a solid 3 per cent, after the precious metal's price spiked 1.4 per ent to $US1269 an ounce, its highest since the US election in November.

"We're seeing a rush to safe-haven buying, in which of course gold will be a major beneficiary," said Jeffrey Halley, senior market analyst at Oanda. "As long as the situation is quite fluid in Syria, I would expect gold to remain good now."

Markets have calmed down a bit following the initial rush to safety on news that the US launched cruise missiles against an air base in Syria, raising the risk of confrontation with Syrian backers Russia and Iran.

The ASX has lifted about 10 points off the day's low but is still down 0.1 per cent at 5849, or about 40 points below the high it hit just before news of the attacks hit the screens.

Other regional markets are also lower, including Hong Kong, down 0.8 per cent, Korea, down 0.2 per cent, Shanghai, -0.1 per cent and Japan's Nikkei, down 0.1 per cent, while US futures are down about 0.5 per cent, pointing to losses at the start of Wall Street trade later today.

News of the missile strike against Syria has added a bit of short-term uncertainty, said AMP Capital Investors head of investment strategy Shane Oliver.

"But we have seen such events in the past and the impact usually proves short lived. This is likely to be the case again, particularly as it's unlikely to signal increased US involvement in the war in Syria."

Investors had already been on edge as Donald Trump met Chinese leader Xi Jinping for talks over flashpoints such as North Korea and China's huge trade surplus with the United States.

"While President Trump had flagged a response to this week's chemical attack in Syria, the swiftness of the response and the willingness to take action halfway through the Trump-Xi meeting caught markets a little off-guard," said Sean Callow, senior currency strategist at Westpac.

"There should be limited market follow-through, however, with no indication at this stage that this is the start of a broad-based, sustained US military campaign."

It was not yet clear if this strike would be the only one, though Secretary of State Rex Tillerson did say the attack was "proportionate".

The yen, a favoured haven in times of stress due to Japan's position as the world's largest creditor nation, climbed across the board. The US dollar fell to 110.30 yen from 110.95 just before news of the attacks hit dealing screens, while the Aussie dollar fell to a four-month low against the yen at 83.1 yen.

Investors also headed for the safe haven of bonds. Yields on 10-year US Treasury debt fell five basis points to 2.29 per cent, breaking a significant chart barrier at 2.30 per cent for the first time this year.

Aussie 10-year yields fell 9 points to 2.503 per cent, their lowest since just after the US election. Bond yields move inversely to prices. 

Spot gold prices jumped 1.2 per cent to $US1266.01 an ounce and touched their highest since November 10.

"Clearly this raises the stakes, and we expect to see gold prices continuing to push higher in the short term, at least until there is some clarity around whether this is a one-off or develops into something more," ANZ analyst Daniel Hynes said.

Oil also caught a bid on concerns the military intervention could affect supplies from the Middle East.

Australia's success in evading the global recession is coming back to haunt it.

A delayed fallout is manifesting itself in a steady climb in underemployment, in direct contrast to countries such as the US, Europe and the UK, which were consumed by the 2008 financial crisis.

Over the last few years, the average rate of workers wanting more hours has fallen throughout those markets, according to OECD data compiled by AlphaBeta.

But Australia's underemployment has sharpened, as commodity prices peaked and mining investment started winding down.

"You can't escape the fact that recessions do have some positives: the crudest way to put it is it cleans the crap out of the system," said Justin Fabo, a senior economist at AlphaBeta in Sydney.

"It resets your cost base, it improves efficiency, productivity and on an even more fundamental basis, it gives people perspective."

Australia deployed fiscal and policy stimulus to avoid economic contraction after the collapse of Lehman Brothers; and China's massive stimulus program then sent commodity prices soaring, helping the economy to roar back.

The upshot: all that good work only delayed the effects of the recession rather than completely avoiding them.

Problems in the labour market have become stark over the past year as full-time jobs fell, part-time roles picked up some of the slack and many people quit hunting for work.

As a result, unemployment remains below 6 per cent despite a labour market that in reality has a lot more slack than that figure suggests.

"Everyone thinks that we've done really well since the global financial crisis, which we kind of have, but a lot of the fallout from the GFC has just been kind of delayed or slowed in Australia, whereas in other places it hit pretty hard, they hit rock-bottom, then they've recovered from that," Fabo said.

The issue then is whether Australia might've done better taking its medicine earlier and getting it out the way.

Was this a recession we should have had?

Read more.

APRA is on the money: major banks are short nearly $20 billion in equity, the AFR's Chris Joye writes:

One of this column's firmest convictions has been that the major banks must continue deleveraging their balance sheets, which in respect of their biggest asset exposure (home loans) remain more than 40 times their equity capital base. This did not jive with the prevailing zeitgeist, with many bank investors, analysts and executives crowing that the capital raising debate was "over".

Yet arguably Australia's finest regulator, Wayne Byres, once again "shocked" complacent stakeholders during the week with a hard-hitting message that materially more equity capital was coming.

This will likely result in the majors targeting core risk-weighted common equity tier one (CET1) capital ratios above 10 per cent, which CLSA's Brian Johnson estimates leaves them pro-forma short about $20 billion assuming no further rises in the risk weights applied to investment property loans, which account for 35 per cent of their housing books. If they do climb, which is probable, then the shortfall expands by $10 billion for every 10 percentage point increase in risk weights.

The characteristically independent Byres did not pull his punches, noting that for all the banker talk of better risk-weighted capital ratios since the global financial crisis, real leverage had not, in fact, shrunk much

"Overall leverage has not materially declined," Byres cautioned. "The proportion of equity that is funding banking system assets has improved only modestly, from a touch under 6 per cent a decade ago to just on 6.5 per cent [today]." So notwithstanding "the extra capital that new regulation has required, banking remains a highly-leveraged business". Our big banks currently hold less equity capital than a first-time buyer with a 10 per cent deposit.

The mirage of soaring post-GFC capital ratios was a function of Byres' predecessors' willingness to allow banks to slash their home loan risk weights, and hence artificially disappear assets, from 50 per cent before 2007 to 16 per cent in 2014, which meant the majors could leverage their equity when lending against bricks and mortar by more than 65 times. Because house prices never decline.

Byres' commitment to ensuring that Australia's mega-banks have "unquestionably strong" equity buffers will translate into a long overdue wealth transfer from the $440 billion of shareholders who have enjoyed supernormal returns back to the trillions of dollars of depositors, bank creditors, and, at the limit, taxpayers who have borne too much implicit risk.

Here's more at the AFR

In further market repercussions of the US air strike on Syria, S&P futures have dropped 0.4 per cent, pointing to a lower open of trade on Wall Street later today.

Meanwhile, oil prices are soaring. After tepid trading before the news, Brent crude futures, the international benchmark for oil, jumped to $US55.60 per barrel, up 72 cents, or 1.3 per cent from their last close. US West Texas Intermediate (WTI) crude futures climbed 70 cents, or 1.4 per cent, to $US52.40 a barrel.

"Syria is not a big oil producer but it does potentially increase the risk of escalation in the whole region," said CMC chief market analyst Ric Spooner.

"We're seeing a risk response to the airstrike. Given rising supply, the size of inventories and the extent of the pick up in shale output, it does seem likely that price gains will be capped."

And gold is extending its rally - it's now up 1.2 per ent at $US1266 an ounce.

More details are coming out on the US attack: the American military targeted Syrian aircraft, an airstrip and fuel stations in its cruise missile strike on a Syrian airbase, a US official said, adding the missiles themselves struck their targets about an hour ago.

Facing his biggest foreign policy crisis since taking office in January, US Donald Trump took the toughest direct US action yet in Syria's six-year-old civil war, raising the risk of confrontation with Russia and Iran, Assad's two main military backers.

Some 50 Tomahawk missiles were launched from US Navy warships in the Mediterranean Sea, a US official confirmed. A target was identified as an airbase in Homs. 

"Tonight I ordered a targeted military strike on the airfield in Syria from where the chemical attack was launched," Trump told reporters at his Florida club, where he hosted Chinese President Xi Jinping earlier in the evening. He said the missile strike was in the "vital national security interest of the United States" and that he was compelled to act after more 70 men, women and children were killed by poison gas.

Trump ordered the strikes just a day after he pointed the finger at Assad for this week's chemical attack, which killed at least 70 people, many of them children, in the Syrian town of Khan Sheikhoun. The Syrian government has denied it was behind the attack.

Trump said earlier on Thursday that "something should happen" with Assad as the White House and Pentagon studied military options.

US military action put the new president at odds with Russia, which has air and ground forces in Syria after intervening there on Assad's side in 2015 and turning the tide against mostly Sunni Muslim rebel groups.

Trump has until now focused his Syria policy almost exclusively on defeating Islamic State militants in northern Syria, where US special forces are supporting Arab and Kurdish armed groups.

The risks have grown worse since 2013, when Barack Obama, Trump's predecessor, considered and then rejected ordering a cruise missile strike in response to the use of chemical weapons by Assad's loyalists.

Here's more on the SMH's live blog

Looks like reports of US attacks on Syria have spooked investors.

Washington officials have confirmed that more than 50 cruise missiles have been fired at a Syrian airbase two days after Bashar al-Assad's regime used poison gas to kill scores of civilians.

The decision to strike in Syria marked a stark reversal for Trump, who during his presidential campaign faulted past US leaders for getting embroiled in conflicts in the Middle East.

The ASX has plunged 40 points in response, swiftly losing all of the day's gains.

The Aussie dollar also responded, sliding about a quarter of a cent to the day's low of US75.19¢.

Gold, a safe haven asset, jumped nearly 1 per cent to $US1263 an ounce, its highest in five months.

US President Donald Trump had said on Thursday that "something should happen" with Syrian President Bashar al-Assad after a deadly poison gas attack in that country. 

Shares in The Reject Shop have plunged after the discount variety store chain warned its full-year profit will drop by almost a third.

The Reject Shop said the weak trading conditions flagged in its half year results released in February have continued across its stores in all states and it now expects a full-year profit of about $12.5 million - compared to $17.1 million in 2015-16.

The company also warned that it may not be able to declare a final dividend in 2016-17.

Shares in The Reject Shop are down a whopping 31.3 per cent at $5.44, their biggest fall in more than three years.

The Reject Shop's managing director Ross Sudano blamed a tough retail environment and "execution issues" with the group's merchandising strategy for the weak sales performance.

He said the company's focus on the merchandise mix has moved too heavily towards a focus on variety products.

"This reduced focus on our everyday value and bargains, and its impact on our in-store promotional program, has adversely affected our foot traffic," he said. "Coupled with the challenging market environment, where customers are reducing their discretionary spend, our promotional activity has not generated the incremental foot traffic required to grow comparable sales."

Barrick Gold is selling a half stake in an an Argentina mine to state-back Shandong Gold Mining of China.

The sale of a 50-per cent stake in Veladero, one of Barrick's top five gold mines, for $US960 million is its biggest partnership deal with a Chinese miner, eclipsing a $US298 million joint venture in 2015 with Zijin Mining Group for a mine in Papua New Guinea.

The price tag, about 15 per cent to 30 per cent above some analysts' net asset valuations, is a feather in chairman John Thornton's cap, a former Goldman Sachs banker who has pledged closer ties with China since his 2014 appointment.

"Thornton is doing the right thing. He's put a billion dollars in our pocket and he has got the Chinese as partners. What more can you ask for?" said billionaire investor Seymour Schulich. "I like Thornton's style. He is well connected in China. The deals are finally starting to happen."

Shares are pushing towards the 5900-mark, in broad-based gains led by the utilities sector.

The ASX is up 0.4 per cent at 5879.6 points, on track for a weekly gain of around 0.25 per cent.

Traders are tipping that after the positive start a sense of wariness will prevent further gains, as markets wait for the outcome of the Xi-Trump meeting as well as US employment numbers tonight.

At Xi dinner, Trump jokes they had a "long discussion" and so far "I have gotten nothing, absolutely nothing".

— John Kehoe (@Johnkehoe23) April 7, 2017

Rivkin analyst James Woods notes bond yields have decreased over the past month since the Fed raised rates at the March 15 meeting, but strong employment data tonight could reverse the trend.

"A strong non-farm payrolls reading tonight with expectations around 180,000 should see yields find support at this level (2.3% for the 10-year Treasury) once again," he said.

In local equities, the big banks are leading the way up after several days of selling, all rising around 0.6 per cent.

CSL continues to rise, hitting a new all-tme high at $128.26, up 0.2 per cent.

Among utilities, AGL Energy is up 2.75 per cent.