That's it for Markets Live today.
Thanks for reading and your comments.
See you all again tomorrow morning from 9.
![market close](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/2/g/h/4/2/image.imgtype.columnistThumbnail.60x60.png/1427260967167.jpg)
Shares struggled to hold onto strong gains in early trade but ultimately finished the session comfortably higher, as a solid showing from miners helped offset the drag of NAB and Macquarie trading ex-dividend.
The ASX 200 added 12 points or 0.2 per cent to 5851, as CBA, ANZ and Westpac all climbed by around 0.4 per cent. Three in five stock in the top 200 were higher.
The Aussie dollar was pretty steady at 74.3 US cents following the release of RBA minutes that failed to add anything to the idea that the central bank remains firmly on hold.
While not exactly new, China's recent announcements around its construction of a new Silk Road helped lift the mood in commodities. BHP added 0.8 per cent, Rio 1.4 per cent and Fortescue 2.3 per cent. Energy names retraced their early gains following the overnight jump in oil prices. Woodside ended up 0.2 per cent, pacing the sector's advance.
Qantas continued to soar, adding another 2.9 per cent, with its share price consolidating at nine-year highs.
Telstra added 0.5 per cent, while Vocus lost 3.7 per cent. Woolies added 0.8 per cent, but Wesfarmers eased a little.
In corporate news, Orica shed 3.4 per cent on the release of its interim profit numbers. Fairfax added another 3.1 per cent to $1.18, climbing closer to the new private equity bid of $1.20.
![Winners and losers in the ASX 200 today.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/6/4/h/j/image.related.articleLeadwide.620x349.gw64ip.png/1494916326715.jpg)
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Last week, the world experienced an unprecedented cyber attack which hit over 200,000 victims in at least 150 countries through a ransomware hack. Victims included public services such as Britain's National Health Service and Chinese universities, as well as private corporations such as Fedex, Renault, Telefonica and Russian banks.
In the wake of this worldwide hack attack, if we are using the correct technical term here, cybersecurity stocks jumped in overnight trade. The bad news was good news for these companies.
For investors who reckon there is more juice in this trade, yesterday we mentioned that there's an ASX-listed exchange-traded fund called "Hack" that bundles up Nasdaq listed software firms operating in this space.
Today, strategists from Societe Generale bring us a sample of European listed businesses to play the theme.
They set the scene:
According to IDC, global spending related to cybersecurity services, software and hardware reached $US74bn in 2016. IDC expects spending to reach $US100bn by 2020. That would represent an average annual growth rate of 8.3%, twice the expected growth in overall IT spending.
The recent attack could be a catalyst for further investment in cybersecurity sooner rather than later on both the private and the public side (as in Belgium, where the government has already announced an increase in cybersecurity investment in the coming month). The European Commission is also working on a number of proposals.
So which stocks?
IBM, HP and Atos are among the largest vendors of IT security services across Europe, the Middle East and Africa (or EMEA - an awkward but standard regional split in financial markets).
But their lack of dominance "shows also that the IT security services market remains highly fragmented and, more importantly, local".
In France, the dominant player is Orange, which has created a dedicated unit to cybersecurity. The second largest vendor is the aforementioned Atos, with around 7 per cent market share, the SG analysts say.
For the security aspects not entirely related to IT systems (such as ID cards, passports, and SIM cards), the SG team isolate Gemalto and Sophos as among the leaders.
![Add some cybersecurity to your portfolio, SG analysts say.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/v/7/7/a/i/image.related.articleLeadwide.620x349.gw639f.png/1494915133890.jpg)
![elizabeth-knight_127x127](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/h/d/n/b/image.imgtype.columnistThumbnail.60x60.png/1415323665693.jpg)
The gloves are off in the brewing battle between a well known American activist investor and the Big Australian, writes BusinessDay columnist Elizabeth Knight:
At around midnight on Monday in Europe, the giant activist shareholder publicly pushing for an overhaul of BHP Billiton's structure and assets, Elliott Associates, launched its second grenade at the Big Australian's board and management - this time with ominous claims to have the reinforcement of other large shareholders.
The timing of the latest onslaught will have been clinical.
A delegation from Elliott Associates will be front and centre at the Bank of America Merrill Lynch investment conference in Barcelona on Wednesday watching BHP's chief executive, Andrew Mackenzie, on the podium outlining his company's vision and performance.
Team Elliott has plenty of form in being relentless in its efforts to push for change and this week's instalment is unlikely to be the last.
The latest missive from Elliott, sent internationally to investors, brokers and media, is an aggressive assault on the board and management's strategy, performance and the billions of dollars Elliott says the company has lost from a series of poor investments, ill-timed, profligate share buybacks and even unsustainable tax avoidance measures.
If the BHP board thought it had neutralised Elliott with a 46-page fightback proposal in which it argued the costs of Elliott's proposed changes outweighed any benefits, then it clearly underestimated this activist shareholder, which has a weighty history of forcing corporate change in other organisations in which it invests.
"Current management's response to our value unlock plan has been inflexible and defensive, showing instead that they prefer to do nothing new to improve performance and to optimise shareholder value from BHP's first-class portfolio of assets," Elliott says.
It contends the "current management's response" to Elliott's plan "is unconvincing and misses the point".
![f the BHP board thought it had neutralised Elliott with a 46-page fightback proposal, it clearly underestimated this ...](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/i/o/o/g/i/image.related.articleLeadwide.620x349.gw6235.png/1494914080690.jpg)
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This morning's Reserve Bank minutes reveal but concerned they may have to cut rates if more Australians aren't able to get the jobs they want.
Wage growth was expected to increase "gradually as labour market conditions improved and the adjustment to the lower mining investment and terms of trade drew to an end," ," the minutes said.
But the minutes noted with concern that more than half the 145,900 extra workers taken on in the past year had been part-time.
"The share of part-time employment in Australia, which had increased from around 10 per cent in the early 1970s to over one-third at present, was relatively high by international standards, especially for younger workers," the minutes said.
In a signal that the RBA would be closely watching the next measure of so-called underemployment to be released by the ABS in June, the minutes said understanding the degree of spare capacity in the economy "required an assessment of the additional hours part-time workers were willing and able to contribute as well as the number of unemployed".
"It suggests an increased focus on underemployment," JPMorgan chief economist Sally Auld said.
"Essentially, this is the 'jobs vs hours' distinction – if hours rise, the underemployment rate should come down, but unemployment will be stable or higher. Unfortunately, data on the underemployment rate are only released on a quarterly basis, meaning that labour force releases for the months of March, June, September and December will take on additional significance."
"We have been saying it since last year," Capital Economics forecaster Paul Dales said. "It's the high underemployment rate that's keeping wage growth low."
"In order to assess how the labour market will influence the wider economy, you need to consider the additional hours part-time workers are willing and able to contribute."
The ABS will release wage growth figures for the March quarter on Wednesday. The median forecast is for annual growth near the present record low of 1.9 per cent, putting wage growth below price growth of 2.1 per cent. On Thursday, the ABS will release the employment results for April.
![Reserve Bank governor Philip Lowe highlighted "slow growth in real wages" for restraining growth in household consumption.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/v/y/x/0/7/image.related.articleLeadwide.620x349.gw60bi.png/1496745206106.jpg)
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The S&P/ASX 200 remains a long way off the all-time high it hit before the global financial crises while many of the world's leading equity indexes are soaring to records.
The S&P500 overnight closed above 2400 points for the first time. Meanwhile the tech-focused Nasdaq has set a new record in six of the past ten trading sessions. Both benchmark US indexes took only four years to leave the GFC behind.
Germany's DAX had similarly recovered by the middle of 2012, and traded at its highest ever level on Monday. Also scaling new heights on Monday night were Britain's FTSE 100 and India's NIFTY 50.
The MSCI Emerging Markets index does buck the trend, having seesawed up and down over the past decade. While it's had a good year, it is still trading 19.1 per cent below the high it set in 2008.
And so is the ASX, which is up 3.3 per cent this year. It is still trading 13 per cent below its GFC high, set in late 2007.
The correlation between Australian stocks and emerging stocks isn't surprising, said AMP head of investment strategy and chief economist Shane Oliver. Australia, he said, tends to be "lumped in" with emerging markets due to commodity demand and Chinese growth - traits shared with many of the world's developing economies.
These exposures have benefited Australian equities in the past.
"The Australian sharemarket was an outstanding performer in the the decade before last off the back of the mining boom, whereas US and European shares had, by their 2007 high point, had just recovered from the tech boom.
"So, our market had gone to a higher high, and so has found it hard to get back to those levels."
Australia's relative lack of heavy exposure to tech stocks, and heavy exposure to resources, means the trends that have powered indexes such as the Nasdaq have acted to suppress local companies, said Betashares chief economist David Bassanese.
Not that Australian investors haven't had anything to cheer about for the past decade. Australia's corporates pay out some of the highest dividends in the world - around double the proportion of revenues typically given back to shareholders by American companies.
While this may mean limited reinvestment of revenues into the company, thus crimping future profits, it has meant the ASX200's total return index - which includes both dividends and capitalisation returns - has grown far more strongly. It recovered its GFC level in 2013.
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The analysts at Citi seem to like TPG Consortium's latest bid for Fairfax Media, the publisher of this blog.
In a note sent out yesterday, they note the $1.20 per share all-cash offer made by TPG to Fairfax's board on Sunday is at a "substantial premium to our fundamental valuation", making the offer "highly likely to proceed, although we do see scope for a higher offer from TPG Consortium".
TPG is likely the only bidder, they note, as since first hearing of TPG's interest in Fairfax in Fairfax's own Australian Financial Review in January, no other bidders have emerged. As for the proposed Australian media ownership laws, they would give whoever buys Fairfax scope to cut newspaper costs, potentially through mergers with other media companies.
Citi raised its price target on Fairfax to $1.20, and its rating to neutral, from its previous sell-rating.
Not that everyone loves the new deal. The chief investment officer of Fairfax Media's second largest shareholder, Martin Currie Australia's Reece Birtles, called on the publisher's board of directors to reject TPG Capital and Ontario Teachers' Pension Plan's new, all-cash $2.76 billion offer for the company, which he thinks undervalues Domain.
Meanwhile UBS analysts reckon TPG Capital can afford to pay about 5¢ per share more for Fairfax Media, they told clients in a research note.
In an interview with News Corp's The Australian, Fairfax director and fast food mogul Jack Cowin said while TPG's initial offer was "structurally non-aligned with reality", "now it's about focussing on the right price".
Fairfax shares are up another 1.5 per cent today, after yesterday's 6.5 per cent rise. They're currently trading at $1.16.
![TPG has approached Fairfax Media with a higher offer, which Citi analysts say is "highly likely to proceed".](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/0/e/j/d/image.related.articleLeadwide.620x349.gw5xnh.png/1495396649698.jpg)
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As we near 2pm the ASX is very narrowly clinging to this morning's strong start, with selling in NAB and Macquarie Group providing a heavy drag. Both stocks went ex-dividend today.
The index opened strongly but declined throughout the day, a trend not halted by the release of RBA minutes at 11.30pm. The drag is almost entirely due to the financials sector, with most other sub-indices of the ASX200 still in the black.
The Commonwealth Bank meanwhile is bucking the broader trend in financials, up 0.5 per cent. Resource stocks are also holding up, with BHP Billiton, South32, Fortescue and Rio Tinto all still trading solidly higher.
The index is currently up just 0.1 per cent - or 5 points - on this morning's start, suggesting it may end the day flat.
The turnaround may be due to S&P500 futures, which are down 1.8 per cent off Monday's record close, suggesting some pullback is likely to take place in the US Tuesday trading session. The S&P500, along with the tech-heavy NASDAQ, both closed at record highs overnight.
The Australian market finished flat yesterday, but that doesn't mean it's a buy, wrote Bell Potter's Richard Coppleson. "I don't see the market as a buy here … no, it looks and feels like it's got a drop coming soon."
![asian markets](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/2/b/d/k/a/image.imgtype.columnistThumbnail.60x60.png/1427082894487.jpg)
What's North Korean missile testing done for the financial markets in neighbour South Korea? Less than you might expect.
The South Korean won climbed to six-week highs early on Tuesday, as the dollar continued to weaken in global markets while a jump in oil prices improved investor risk appetite. The won was quoted at 1,118.1 against the greenback as of 0232 GMT, the highest intraday level since April 4.
"The local currency gained strength following a strong Wall Street, which was boosted by the global oil price rise amid dollar weakness," said Ha Keon-hyeong, a foreign exchange analyst at Shinhan Investment Corp. He added that it was doubtful whether the won would strengthen beyond the 1,100 won per dollar level as foreign investors seemed to be selling local equities while the Federal Reserve's June meeting was also near. South Korean shares wobbled after notching another record high right after the market opened as foreign stock-selling offset support from upbeat U.S. stocks.
The Korea Composite Stock Price Index (KOSPI) was down 0.1 percent at 2,289.02 points, still hovering near its record intraday high hit on May 10 when it reached 2,323.22. Offshore investors sold a net 65.9 billion won ($59 million) worth of KOSPI shares near mid-session, weighing on the index.
Tech giant Samsung Electronics rose nearly 1 percent while Korea Electric Power Corp lost more than 3 percent. Decliners outnumbered advancers 522 to 280. June futures on three-year treasury bonds gained 0.02 point to 109.35. 0232 GMT Prev close Dollar/won 1,118.1 1,123.6 Yen/won 9.8502/63 9.8164 *KTB futures 109.35 109.33 KOSPI 2,289.02 2,290.65
North Korea said on Monday it had successfully tested a newly developed mid-to-long range missile on Sunday aimed at verifying the capability to carry a "large scale heavy nuclear warhead." The missile landed in the sea 97 km (60 miles) south of Russia.
South Korea's military said it needs further analysis on the North's claim of technical advancement and that the possibility of the isolated nation mastering missile re-entry technology is low.
![The Korea Composite Stock Price Index (KOSPI) was down 0.1 percent at 2,289.02 points, still hovering near its record ...](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/v/w/s/q/y/image.related.articleLeadwide.620x349.gw5vzx.png/1494906075336.jpg)
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There's been a lot of discussion lately on the unusual calm on global markets. One of your editors has some thoughts on the uncanny omen.
Last week the Vix index - the so-called "fear gauge" for Wall Street - ticked below 10 points in a widely remarked upon dip to almost 25-year lows.
The immediate reason for the move lower was the French election, which settled on a markets-friendly candidate, Emmanuel Macron. The bigger factor is probably the lingering "central bank put" - or the expectation that central bankers will come to the rescue if things go really wrong.
It's bumped up a little in recent days. But then again, so have sharemarkets. The list of major stock indices hitting records on Monday night is impressive: the S&P 500 and Nasdaq in the US; Germany's Dax; the UK's FTSE; Korea's KOSPI; and Taiwan's TAIEX. The MSCI World Index is also at all-time highs.
Still, given that there are lots of things to worry about in the world - very high valuations, Chinese financial stability, Donald Trump doing something crazy, North Korea doing something even crazier, Brexit negotiations going pear shaped, and so forth - it does seem unusual that the volatility is quite this low.
How unusual? Well, since 1990 we have had fewer than 10 days when the Vix dropped below 10 points, Morgan Stanley analysts say. Most of those days were in two years - in 1993 and 2006.
And it's not just stock volatility that's very low, credit and currency markets are also becalmed, the analysts say.
The Vix tracks "implied" volatility through options pricing over the S&P 500. It tells you how worried traders are about near-term volatility in the coming 30 days.
But "realised" volatility on the benchmark US sharemarket index is also down to just 6.5 per cent, Morgan Stanley calculates. To put it in context, that's a level seen less than 5 per cent of the time since the mid-1990s, the investment banks reckons.
A very low Vix is spooky; of the "it's calm, too calm" variety. Surely if nobody is worried then something terrible is about to happen - that's market psychology 101. The other omen is the last time we got this low on the Vix was in 2007 just before the GFC.
![Wall Street's Vix index fell below 10 and has seldom traded at such levels.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/5/q/0/c/image.related.articleLeadwide.620x349.gw5soq.png/1494905562775.jpg)
![Hedge funds are trimming their exposure to the Aussie dollar.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/x/a/9/image.imgtype.columnistThumbnail.60x60.png/1435106788034.gif)
Hedge funds are giving up on the Australian dollar.
Optimism has evaporated as the prices for iron ore, Australia's biggest export earner, plunged. Leveraged funds cut net long positions to 12,879 contracts in the week through May 9, the sixth straight reduction and down from as high as 53,601 at the start of March, according to data from the Commodity Futures Trading Commission.
Rising Chinese iron ore stockpiles are fuelling concerns over the extent of the price rout, after the steelmaking ingredient hit a six-month low last week. The narrowing bond yield differential between Australia and the US, given expectations for a rate increase by the Federal Reserve in June, adds to the concerns that have made the Aussie the worst-performing Group-of-10 currency in the quarter.
"With iron ore prices for September delivery loitering under 460 yuan per metric ton, any further leg lower would be a cue for leveraged funds to turn short on AUD/USD," said David Forrester, a foreign-exchange strategist at Credit Agricole CIB's corporate and investment-banking unit in Hong Kong.
Iron ore stockpiles at Chinese ports rose 1.7 per cent to a record 134.25 million tonnes as of Friday, according to weekly data from Shanghai Steelhome E-Commerce Co.
While the potential for Australia to report a current-account surplus in the first quarter may provide some relief for the currency, the impact may be temporary if commodity prices stay lower for longer, Forrester said.
The march of the Fed toward higher US interest rates has also been a factor sapping optimism toward the Aussie.
![The survey of Salvation Army clients found two-thirds were living in extreme housing stress.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/v/e/u/6/t/image.related.articleLeadwide.620x349.gw5sef.png/1495721875104.jpg)
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RBA board members remain firmly on hold amid ongoing concerns about heavily indebted households, a weak labour market and soft wages growth that is unlikely to drive up inflation before 2018.
In the minutes of their May meeting, when they left the official cash rate steady at 1.5 per cent, policy makers again indicated that their main focus is on jobs and the housing market, which has inflated sharply in Melbourne and Sydney since their last hike in August last year.
"The board continued to judge that developments in the labour and housing markets warranted careful monitoring," the minutes say.
With the jobless rate at a 13-month high of 5.9 per cent, and underemployment near all-time highs, board members said there was still "significant uncertainty" about measuring when the labour market might tighten enough to spur wage pressures.
A lack of likely inflation from the labour market, as well as ongoing competition among retailers, is giving the Reserve Bank scope to hold off tightening borrowing costs for the first time since 2011.
Simultaneously, the Reserve Bank remains wary of the housing market, even as it made no reference to signs of a slowdown across the biggest cities in April.
Instead, it merely repeated its long-standing assessment that prices are rising "briskly" in some markets.
The bank, led by governor Philip Lowe, has repeatedly argued that cutting rates further would only encourage more borrowing by households who are already heavily indebted, out-weighing any economic benefits.
With wages growing at record lows, debt was outpacing incomes and threatening to weigh on consumer spending.
"Subdued growth in labour costs and strong competition in the retail sector had continued to have a dampening effect on aggregate inflation," the minutes showed. "A fall in housing prices could also weigh on consumption growth."
The RBA's angst over housing has convinced financial markets there will be no more cuts in interest rates despite weakness in the labour market.
Futures market pricing implies almost no chance of any change in the benchmark rate this year.
The dollar was little changed at US74.30¢ after the minutes were published, a sign market traders don't believe the minutes have moved expectations for rates in the near-term.
![Apartment glut is set to trigger a sharp slowdown in construction, putting 200,000 jobs at risk and prompting the RBA to ...](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/s/6/x/1/u/image.related.articleLeadwide.620x349.gw5rym.png/1494900647896.jpg)
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Initial public offerings worth $2.4 billion are at risk as shares in discretionary retailers derate amid concerns about soft consumer spending and the impact of Amazon.
Fund managers say proposed initial public offerings for Wesfarmers' Officeworks, Archer Capital's Quick Service Restaurant Holdings and Navis Capital Partners' Retail Apparel Group could be postponed or abandoned in favour of trade sales because investors are unlikely to value the companies as highly as vendors.
Price earnings multiples for discretionary retailers have fallen on average to 10 to 12 times 12-month forward earnings, while vendors are still hoping to secure 14 to 16 times earnings from investors through initial public offers.
"Retail IPOs have been caught in the crosshairs of medium-term concerns about Amazon but also soft short-term consumer data, which has led to a broad-based derating of the whole consumer sector," said Yarra Capital portfolio manager and head of Australian equities research, Katie Hudson.
"The reset there is around growth, the presumption that previously they could roll out stores, they could generate earnings growth through those strategies, and now that's much more challenging," Ms Hudson said.
"A broad-based comment is that we haven't seen a reset around vendor expectations," she said. "You can see evidence of that in the fact that we've only had one or two IPOs this year above $50 million, so it's more broad based than retail IPOs [and] what it reflects is that vendor expectations haven't been reset."
Fund managers say Officeworks, QSR and RAG have some appealing characteristics, but vendor expectations are too high, especially after a spate of profit downgrades and poor sales figures from listed retailers and growing concerns about long-term prospects if Amazon's impact on the market is as material as that in the US.
Arnhem Investment Management analyst Chris Tynan said Officeworks was a well-run business that dominated its categories and had invested ahead of the curve in digital, so it was better placed than some retailers to compete with Amazon.
"But in the current climate realising the multiple they believe the business is worth might be more difficult," Mr Tynan said. "Twelve months ago it would have been a lot easier to sell."
![Initial public offerings worth $2.4 billion, including Wesfarmers' spin-off of Officeworks, are at risk following a ...](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/l/d/k/8/d/image.related.articleLeadwide.620x349.gw5qwa.png/1495012075395.jpg)
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Activist investor Elliott Associates has indicated it will give ground on its campaign for BHP's dual-listing and its petroleum division, as it launched a fresh assault on the company's track record.
Elliott had originally suggested BHP should demerge its entire US petroleum division, but other shareholders like Tribeca have since argued that the onshore shale portion of the division should instead be sold for cash.
Speaking five weeks after its initial proposal, Elliott indicated it was open to other ways of fixing the petroleum division, and said it now believed an independent review of the petroleum business was warranted.
"We recognise that there are a number of obvious possible solutions to unlock the latent value of BHP's petroleum business, including a sale or demerger of the US petroleum business and a sale or ASX listing for the Australian and other remaining petroleum assets," said Elliott in a statement.
"Our preferred approach is a full or partial demerger of the petroleum business, but in any event the logical next step to unlock optimal value from that business is the strategic review which shareholders have every right to expect.
"Elliott is now calling for an in-depth, open and timely independent review of the petroleum business with full disclosure of the review results."
The comments come after Deutsche analyst Paul Young said BHP's best US shale assets could fetch $US9 billion at current market prices, but he also pondered whether the company may get a higher price if it waited a few years before selling them.
Elliott also indicated it was open to revising its plan to collapse BHP's dual-listed structure and reduce its Australian listing to a CHESS depositary interest.
"There is at least one alternative structure which is a solution to the regulatory concerns which have been raised in recent public feedback on unification; unified BHP could be incorporated in Australia as well as remaining, per our original proposals, Australian headquartered and Australian tax resident, and retaining full ASX and LSE listings."
![Paul Singer, president of Elliott Management Corp, has had many celebrated stoushes.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/v/i/f/g/7/image.related.articleLeadwide.620x349.gw5oyp.png/1494897311489.jpg)
![Tenants market: residential rents are barely budging.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/x/b/6/image.imgtype.columnistThumbnail.60x60.png/1440644111173.jpg)
The cost of housing bricks has soared by a third in just two years in Sydney as a construction boom has kept the NSW capital one of the world's most expensive cities in which to build.
Sydney's 33.1 per cent leap in the cost of 1000 standard bricks - from $590 in 2015 to $785 last year - was triple the 9.6 per cent gain seen in Melbourne over the same time, where the cost of the same material rose to $570 from $520.
The figures, contained in Turner & Townsend's International Construction Market Survey 2017, also show the clear effect the country's biggest-ever housing boom has had on the market for materials and labour in Australia's largest city. The cost of structural steel has jumped 17.1 per cent over the past two years to $2400 per sq m from $2050 while it has barely budged in other cities.
But the booming market has done little to alter the existing picture of a strong, if patchy, overall market dominated by Sydney. The NSW capital ranked ninth out of 43 markets surveyed in the quantity surveying firm's latest global comparison, with New York taking top place as the most expensive place in which to build. Melbourne came in 20th, Perth 21st (down from 18th position) and Brisbane 22nd.
And with Australia's residential housing blitz likely to hit a peak over the next 12 to 18 months, demand for some of those materials is likely to ease. It will be offset to some extent by rising demand for infrastructure-related inputs, but the timing and extent of those is unclear, said Turner & Townsend senior economist Gary Emmett.
"If the housing sector continues to slow down, then lower demand and lower costs might be expected for those residential finishing trades currently involved in residential apartment construction, for example, plasterers, tilers and carpet-layers, and joiners," Mr Emmett said.
![Red hot: brick costs have soared 33 per cent in Sydney over the past two years.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/5/j/o/i/image.related.articleLeadwide.620x349.gw5oof.png/1496361251572.jpg)
![market open](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/2/g/h/4/3/image.imgtype.columnistThumbnail.60x60.png/1427152702357.jpg)
Shares are enjoying solid and broad gains in early trade, as local investors take their cue from the upbeat overseas mood leading into the session.
The ASX 200 is up 28 points or 0.5 per cent at 5867, with miners and energy names providing the most impetus following the overnight jump in oil and the generally optimistic turn in commodities. The gains are made more impressive considering the drag from a couple of banks trading ex-div.
The Aussie dollar is consolidating above 74 US cents, last fetching 74.3. The next test will be RBA minutes due at 11:30am AEDT.
BHP is up 1 per cent, Rio 1.2 per cent, South32 1.7 per cent and Fortescue 1.6 per cent. Woodside has climbed 1.3 per cent. Banks are also getting bought for a second day as the shock of last week's budget fades. CBA is up 0.6 per cent and Westpac 0.9 per cent. NAB and Macquarie are down 2.7 per cent and Macquarie 1.5 per cent, but that reflects them trading ex-dividend.
The big names are all higher - Woolies, Wesfarmers, Telstra and CSL all enjoying support. Real estate stocks and retailers are among the losers. Westfield is down 0.5 per cent, while JB Hi-Fi has dropped 2.5 per cent and Harvey Norman 1.1 per cent.
![Winners and losers in the ASX 200 this morning.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/5/n/u/q/image.related.articleLeadwide.620x349.gw5nv1.png/1494894577879.jpg)
![](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/w/x/i/image.imgtype.columnistThumbnail.60x60.png/1427407663710.jpg)
Coca-Cola Amatil has reaffirmed forecasts for a decline in first-half profits, indicating that beverage sales have not improved since the bottler downgraded earnings targets last month.
Speaking at Coca-Cola Amatil's annual meeting in Sydney, group managing director Alison Watkins said underlying net profit for the six months ending June would decline and underlying net profit for the full year was expected to be broadly in line with that in 2016.
"That said, our medium-term target continues to be mid-single-digit earnings per share growth," Ms Watkins said.
Last month, CCA backed away from its promise of delivering mid single-digit earnings per share growth, saying trading in the Australian beverages unit in the year to date had been weaker than expected, with all channels experiencing volume and price pressure as consumers shifted away from sugary soft drinks.
Rival Asahi, which makes Pepsi and Schweppes, has been aggressively discounting while weak foot traffic in shopping centres has crimped sales at small food and beverage outlets.
CCA's market leading Mt Franklin brand is also losing market share to cheap private label bottled water.
CCA's Australian beverages earnings have been falling since 2012 and volumes have been in decline since 2005 as consumers eschew carbonated soft drinks in favour of bottled water.
In response to the shift away from sugary drinks, CCA has been rebalancing its portfolio, changing formulations of carbonated soft drinks to reduce calories and introducing new non-carbonated beverages such as Zico coconut water, Glaceau Vitaminwater and Fuze tea.
But progress has been slow. Sparkling beverages accounted for 67 per cent of CCA's Australian drink volumes in 2016, down from 68.5 per cent in 2014, while still beverages accounted for 26 per cent of volumes, the same level as 2014.
CCA's shares have nudged higher in very early trade to $9.64.
![Coca-Cola Amatil managing director Alison Watkins has reaffirmed that June-half profits will fall and full-year profits ...](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/r/y/y/n/h/image.related.articleLeadwide.620x349.gw5n87.png/1494893551049.jpg)
![Oil is trading at 1 2015 high after another overnight rally.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/8/3/m/k/image.imgtype.columnistThumbnail.60x60.png/1444363506474.jpg)
Oil jumped more than 2 per cent to its highest in more than three weeks, topping $US52 a barrel after Saudi Arabia and Russia said that supply cuts need to last into 2018, a step towards extending an OPEC-led deal to support prices for longer than first agreed.
Energy ministers from the world's two top producers said that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
The ministers said they hoped other producers would join the cut, which would initially be on the same volume terms as before. Kazakhstan, however, said it could not join a prolonged reduction on the same terms.
Global benchmark Brent crude was up $US1.24 at $US52.08 a barrel by 1.40pm in New York, having touched $US52.63, the highest since April 21. US crude rose $US1.26 to $US49.10.
Oil traders were surprised by the strong wording of the announcement, though it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance when they meet to decide policy on May 25 in Vienna.
The Organisation of the Petroleum Exporting Countries, Russia and other producers originally agreed to cut output by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension, in a bid to shore up prices.
Oil has gained support from the deal but inventories remain high and rising output from other producers, including the United States, is keeping prices below the $US60 that top exporter Saudi Arabia would like.
Some analysts said that US production could still threaten to disrupt the market balance unless the cuts were deepened.
"We are of the camp that the extension cuts might not be enough - they might need to extend the cuts and to increase them to stabilise this market," said Oliver Sloup, director of managed futures at iitrader.com.
![An oil pumping jack, also known as a nodding donkey, operates in an oilfield near Ufa, Russia.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/r/s/s/8/q/image.related.articleLeadwide.620x349.gw5mq9.png/1494892597293.jpg)
![IG](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/n/n/y/5/t/image.imgtype.columnistThumbnail.60x60.png/1467590219900.jpg)
SPONSORED POST
It's hard to be anything else but upbeat on risk assets at the moment, writes IG strategist Chris Weston:
The mood on the street still doesn't fell overly bullish in any way, but look around the markets and we see new highs in the FTSE 100, DAX, S&P 500, NASDAQ 100 and new high in the MSCI World index should be in play this week. Emerging markets are flying too and attracting heavy inflows into equity and bond funds, while we are also seeing strong moves in the likes of the Mexican peso (+10.8% ytd), Polish zloty (+9.5%), Russian ruble (+8.7%) and Korea won (+7.5%).
The EEM ETF (iShares MSCI Emerging Markets ETF) has highlighted this goodwill towards all things EM, gaining a further 1% overnight and rallying for a fifth straight day – despite the trend being mature stay long this market. We can see the Nifty 50 in India looking like a trend followers dream and trading at all-time highs, while in China we can see a bullish set-up in the Hang Seng (the highest levels since July 2015) and H Shares. It seems like an offshore move though and while the CSI 300 index still has had a reasonable rebound, there is some work to do.
I'd be long any of those markets here, but the H-Shares especially looks compelling given the strong upside break through the April and May double bottom neckline and the technical target here is 10,800. Place a stop below yesterday's low of 10,336 and we still have a 2:1 risk-to-reward.
We could explore other markets, but the point is there are great opportunity in global markets. These trending conditions are clearly not occurring in Australia and if traders are simply restricting themselves to the Aussie market they are missing out on generating increased returns for the portfolio.
A big week for the AUD, USD
With China still in the spotlight and expectations elevated for a hike in June from the Federal Reserve, this week's Australian economic data could be highly influential for the AUD. This video was produced in commercial partnership between Fairfax Media and IG Markets.
![NZ](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/2/t/w/1/k/image.imgtype.columnistThumbnail.60x60.png/1426726009807.jpg)
New Zealand's housing market is the most over-valued among the so-called G-10 economies and the most at risk of a correction, according to Goldman Sachs.
In research published this week, the investment bank said there is about a 40 per cent chance of a housing "bust" in New Zealand over the next two years, which it defines as house prices falling 5 per cent or more after adjustment for inflation.
The report looks at housing markets in the G-10 countries -- those with the 10 most-traded currencies in the world -- and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years. In Auckland, the nation's largest city, the average price has surged 91 per cent since 2007 to more than $NZ1 million.
Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.
"Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway," it said. "According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40 percent."
A graph in the report shows that New Zealand's probability of a housing bust is just above 40 per cent, while Sweden's is just above 35 percent. The risk of a bust in Australia is about 25 per cent.
While residential investment in New Zealand and Sweden are high, immigration booms in both countries are supporting construction demand, Goldman said. As well, debt servicing ratios in New Zealand are fairly low by historical standards, due to record-low interest rates and "a modest consumer deleveraging cycle after the 2008-09 recession."
New Zealand's central bank last week forecast house-price inflation would slow to 5 per cent this year from 14 per cent in 2016, and remain positive through mid-2020.
Goldman said its model is "just one tool" and has "a few key drawbacks," including predicting housing busts too often.
However, taking the model output and other data into account, "we see reason for some concern about house-price developments in the small open G-10 economies," it said. "Prices do appear overvalued and credit growth has been high -- traditional warning signs of real house-price declines."
![There's a 40 per cent chance of a housing price correction in New Zealand, Goldman analysts reckon.](http://web.archive.org./web/20170619025557im_/https://www.fairfaxstatic.com.au/content/dam/images/g/j/1/d/f/d/image.related.articleLeadwide.620x349.gw5m73.png/1494891675601.jpg)
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