Markets Live: Wall St rally fires up ASX

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

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

Shares bounced solidly higher on Friday, with strong performances across most sectors helping the index recoup losses made earlier in the week.

The benchmark S&P/ASX 200 opened very strongly on Friday, after a strong Wall Street session and rising iron ore futures. It closed up 0.9 per cent at 5788.1, a narrow 0.6 per cent gain for the week.

It's the second weekly gain for the index, which might suggest it's leaving the doldrums of May behind. But AMP Capital's head of investment strategy Shane Oliver warned shares remained "vulnerable ot a short-term setback".

"We are now in a weaker seasonal period for shares with risks around Trump, North Korea, Chinese growth and the Fed's next rate hike providing potential triggers," he said. "However, with valuations remaining okay – particularly outside of the US, global monetary conditions remaining easy and profits improving on the back of stronger global growth, we continue to see any pullback in shares as an opportunity to 'buy the dips'. Shares are likely to trend higher on a 6-12 month horizon."

Energy stocks were hard hit over the week, comprising many of the ASX200's biggest losers over the five sessions.

Most other sectors traded into the black, with the heavyweight big four banks finishing up, recovering some of their outsized losses in May. Commonwealth Bank and Westpac both gained 0.3 per cent over the week, ANZ was up 0.2 while NAB jumped 0.8 per cent over the five sessions.

Shares in Macquarie added 1.3 per cent over the week, as sources from the millionaire factory hinted the company could be moving off-shore to avoid the bank levy imposed in the budget.

Iron ore futures halted a six-day fall, climbing 2 per cent on Friday to provide some support to the big miners. BHP gained 1.4 per cent on Friday and 0.3 per cent over the five sessions. Rio Tinto also had a good Friday but couldn't reverse the week's falls, closing down 1.3 per cent from Monday's open. The materials sector as a whole rose 0.4 per cent over the week.

The week's best performance among the top 200 stocks was Janus Henderson Group, a newly-completed merger between Henderson Global Investors and Janus Capital, which surged 5.4 per cent on Friday and 11.5 per cent over the week.

Meanwhile logistics giant Qube left a trading halt on Friday after completing a $350 million capital raising to fund a new Sydney freight exchange. It was up 0.8 per cent on Friday.

Don't panic about housing - at least not yet, Capital Economics recommends.

"While the latest figures support the view we laid out in March that the housing market is past its peak and that it will slow during this year and next, they aren't as bad as some of the headlines suggest," economist Paul Dales says.

House prices fell 1.1 per cent in May, led by falls of 1.3 per cent in Sydney and 1.7 per cent in Melbourne.

These prices are influenced by the normal peaks and troughs in activity during the calendar year, Dales says, adding that historically prices tend to drop in May.

But while a housing market crash has not begun, a slowdown is almost certainly underway, he says, pointing to a drop in auction clearance rates from 85 per cent in January to 75 per cent in May, or slower growth in new home sales.

And that's before either of these indicators had time to respond to the latest rises in mortgage rates or APRA's new lending rules.

"It probably won't be long before a further softening in demand drags house price inflation even further below 5 per cent," Dales says.

Looking further ahead, Capital Economics predicts that prices probably won't increase much next year and could start to fall in 2019 and 2020 as the RBA raises interest rates from their current record low.

Sydney prices could receive a boost from this week's stamp duty concessions, but Dales reckons it's unlikely to outweigh rising mortgage rates and tightening credit conditions.

Chinese iron ore futures climbed more than 2 per cent on Friday, snapping a six-day fall and buoying local miners, although the outlook for the steelmaking raw material remained bleak amid ample supply.

Weaker steel prices also capped gains in iron ore, with Shanghai rebar futures down for a seventh session in a row.

The most-traded iron ore on the Dalian Commodity Exchange was up 2.1 per cent at 431 yuan ($85) a tonne. The contract touched a six-month low of 415 yuan on Thursday and has lost about 5 per cent for the week so far.

"Restocking demand was also subdued with reports that several Chinese steel mills were reselling iron ore cargoes procured via long-term contracts," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

"Elevated Chinese port stocks also weighed on prices."

Imported iron ore at China's ports reached 136.6 million tonnes on May 26, the highest since SteelHome consultancy began tracking the data in 2004. That is enough to build the Eiffel Tower in Paris more than 13,000 times over.

Spot iron ore fell 1.8 per cent to $US55.97 a tonne overnight, the lowest since October. The spot benchmark has declined 41 per cent from this year's peak.

Also on Friday, the most-active rebar on the Shanghai Futures Exchange dropped 1.4 per cent to 3,052 yuan a tonne, marking the seventh straight day of declines. Steel had been holding up much better than iron ore over the past months, but that seems to have changed.

"In the long run, China's steel demand will trend down despite short-term volatility," Morgan Stanley analysts said in a report, citing a view by the China Iron and Steel Association.

Former Primary Health Care chief executive Peter Gregg has strongly denied he is working with major shareholder and possible suitor Chinese firm Jangho Group.

Despite a 6 per cent jump in Primary share price on Thursday and rumours swirling of a possible takeover, Gregg rebuffed the idea he has teamed up with the CHY12.3 billion ($2.43 billion) Shanghai-listed Jangho, which is looking to build its presence in Australian healthcare assets. 

"I categorically deny I'm working with Jangho," Gregg told The Australian Financial Review.  "I'm not working in any capacity with them. I'm restricted from this. This is not true at all .... your sources are wrong."

Gregg exited Primary on May 22 after talking with chairman Rob Ferguson. The AFR revealed on May 1 that Primary had hired Malcolm Parmenter from Sonic as its new head.   

Gregg had formally stepped down from his role as CEO in January when it was revealed that the Australian Securities and Investment Commission charged him with two counts of falsifying documents in 2011 while he was CFO at what was then Leighton Holdings (now CIMIC). He has denied the charges. 

Shares are up 0.2 per cent at $3.92.

Telstra hasn't exactly been a portfolio rocket this year, with shares down nearly 12 per cent due to concerns that increased competition will hit earnings and eventually the dividend.

But the worst seems to be over for the stock, which has gained about 13 per cent since its mid-April low of $4.00 to trade at $4.51 today.

In another welcome boost for investors, Goldman Sachs has upgraded Telstra to 'buy', with a price target of $5.00, saying the stock offers good value.

Goldies reckons the telco has the best network, will deliver higher cost cuts than flagged and, not least, has the means for a decent sized share buyback as well as dishing out a higher dividend.

"We believe the combination of Telstra's dominant networks (the fastest in Australia), its vast scale, and a clear, domestic focused strategy has put the company in a strong position to successfully navigate an increasingly competitive market," the analysts write.

They also say the telco's $1 billion productivity program looks conservative relative to global peers.

"At current pricing, Telstra's valuation is attractive, with a dividend yield that is amongst the highest in the market – while the capital allocation review provides further optionality to crystalize significant value," the analysts say.

They estimate that if Telstra were to securitise its NBN payment stream at a discount rate of 4.55 per cent and buy back stock, it would add about 20 per cent to earnings-per-share across financial years 2019-21, supporting a dividend of 34 cents (currently: 31 cents). 

"We believe this could be announced at Telstra's full-year result on August 17, along with an update on the performance of its productivity program – something which we view as critical for the company's long-term earnings profile," the analysts write in a note to clients.

Goldman sees long-term earnings flow as well as increased competition - particularly if TPG's performance is better than expected - as the main risks for the telco.

Logistics giant Qube has completed the institutional phase of a $350 million capital raising that will fund development of its new Sydney freight interchange.

Qube said it has raised $118 million at $2.35 a share in an institutional entitlement offer that was 99 per cent taken up, and $122 million in a placement to institutions that was oversubscribed at $2.42 a share.

That compares to a share price of $2.622 when the stock was placed in a trading halt earlier this week.

Qube will use $80 million to pay for warehouse construction at the Moorebank Logistics Park in southwest Sydney, and will allocate the balance to other investments and future growth.

The company will open a $110 million retail entitlement offer next Wednesday.

Shares in Qube came out of a two-day trading halt this morning and are currently up 1.3 per cent at $2.675.

The Australian dollar remains on track for another weekly loss amid broad strength in the greenback and on lingering concerns from an unexpected slump in China's manufacturing activity.

The Aussie is hovering just above a three-week low of US73.72¢, and is poised to end the week around 0.9 per cent lower, its sixth week in the red out of the past seven.

The currency is struggling to recover ground after the private Caixin purchasing managers' survey yesterday showed that China's manufacturing activity had contracted for the first time in nearly a year.

"It was a week that brought out the bears, the markets (over-)reacting to every weak print (Caixin PMI) but glossed over any good news such as the Chinese official PMIs remaining solid and a surprise +1 per cent bump in retail sales in April," said TD Securities Asia-Pacific chief macro strategist Annette Beacher. 

Adding to pressure on the Aussie, the US dollar rallied overnight on upbeat US private sector job figures as investors await the closely-watched non-farm payrolls report for another potential boost.

"Throw in another near-2 per cent fall in iron ore prices and growing expectations that ... Australian growth could come in negative, and the makings of a depreciating AUD are there," said Jason Wong, currency strategist at BNZ Bank, referring to Australia's first quarter gross domestic product data due out on Wednesday.

Japan's Nikkei share average has shot through the 20,000-point barrier for the first time since December 2015 after a batch of strong US economic data lifted Wall Street and the US currency against the yen.

The Nikkei swept through 20,000 in early trade making a 1.3 per cent advance to 20,115.23, its highest level since August 2015. The index was poised to post weekly gains of 2.1 per cent.

The threshold of "20,000 is a big technical and psychological level for traders, so we should be not be surprised if we see some resistance at this level," said Gavin Parry, managing director at Parry International Trading.

Traders added that when there is a recovery seen in the global environment, there is a greater focus on Japan Inc earnings which saw profit growth of 16 per cent in the fiscal year through March.

"Japanese stocks would have risen to this level earlier if we did not see global risks and the rising yen," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

But US political turmoil could unnerve investors next week again, Fujito said, as former FBI director James Comey will testify next Thursday before a US Senate panel investigating Russia's alleged meddling in the 2016 US election, in a hearing that could add to difficulties facing President Donald Trump.

"The market is worried that the allegations against Trump over his interference with a federal investigation would delay his efforts on tax cuts and economic policy," Fujito said, adding that there is also a risk that the US dollar will fall against the yen, hurting Japanese stocks.

Cyclical sectors were pushed up by recovering risk appetites, with financials and exporters outperforming. Nomura has jumped 4.7 per cent, Mitsubishi UFJ Financial Group has soared 3.1 per cent, while insurer T&D Holdings surged 3.6 per cent. Subaru Corp added 3.3 per cent and Kyocera Corp advanced 2.7 per cent.

And while we menton rates: Three of the country's big banks have cut interest rates paid to many customers with savings accounts in the past month as lenders try to protect their profit margins.

In a move likely to save banks money but attract little public attention, both Westpac and ANZ lowered the "base" rates they on pay online savings accounts during May, while increasing short-term "introductory" rates by the same amount.

The changes mean the advertised rates for these products are unchanged, even though long-term customers will receive lower rates of interest on their money.

Meanwhile, Commonwealth Bank also cut the rates it pays on its bonus savings accounts by 0.1 percentage points for balances of up to $50,000 during May, while lifting rates on higher balances. 

The cuts come as new figures from financial comparison site Mozo show all of the big four banks have cut interest for online savings accounts by more than the 0.5 percentage point reduction in official interest rates over the past year.

Mozo figures show Westpac and the Commonwealth Bank have lowered base rates on online savings accounts by 0.75 percentage points in the last year, ANZ has cut its base rate by 0.8 percentage points, and NAB lowered its base rate by 0.6 percentage points.

Here's the latest by the AFR's Chris Joye on 'how to invest like the professionals':

Most investors hold bank shares and deposits, which book-end a rich capital structure. Yet few have exposure to the assets that reside in between — including senior bonds, subordinated bonds, hybrids and securities like AAA rated "covered bonds", which rank ahead of, and are actually safer than, wholesale deposits.

Years ago my team developed a plan to launch a passive exchange traded fund (ETF) that would invest in senior-ranking, floating-rate notes issued by Australia's top banks.

The idea was to furnish punters with a liquid and divisible medium through which to access the superior interest rates on offer in the $1.6 trillion unlisted bond market, which trades in minimum $500,000 parcels. We shelved the plan because the economics did not stack up for an active manager.

The good news is that ETF provider BetaShares is this week launching a strikingly similar product called the Australian Bank Senior Floating-Rate Bond ETF (ASX code: QPON) that could presage a revolution in fixed-income investing.

BetaShares already has a cash deposit ETF (ASX: AAA) that has grown to more than $1.1 billion in size given its attractive at-call interest rate (currently 2.02 per cent).

The new bank floating-rate note ETF will pay materially higher gross interest of 2.87 per cent, or 2.65 per cent after the 22-basis-point management fee, which comfortably beats the best at-call and term deposit rates. (Net interest will be lower — perhaps around 2.5 per cent — after round-trip retail brokerage, which most institutions should be able to minimise.)

Eighty per cent of the ETF will be allocated to senior floating rate notes issued by the four majors, with the remaining 20 per cent invested with smaller banks, which approximates the distribution of market capitalisation weights. The bonds will have a typical maturity of four years with a strong weighted-average A+ credit rating.

Here's more at the AFR

Downer EDI has again extended its offer for takeover target Spotless Group, with the hostile bid now stretched to June 29.

Downer announced the extension today, also saying it will accelerate payments to accepting Spotless shareholders if its stake in the target passes 50 per cent by June 16.

Chief executive of Downer, Gran Fenn, said the company was maintaining its offer at $1.15 a share and described the price as "full and fair" and representing a 59 per cent premium to Spotless's share price when the bid was launched in March.

"The alternative for Spotless shareholders is to put their faith in a company which saw a share price decline of almost 70 per cent in the two years prior to the announcement date and which has acknowledged the risks around the execution of its strategy reset," Fenn said.

Spotless's board has urged shareholders to reject Downer, saying they can do better in future by retaining their ownership as the company goes through a strategy reset to boost earnings growth.

Downer has declared its $1.15 bid - which values Spotless at $1.3 billion - as final in the absence of a higher competing bid.It will now waive outstanding defeating conditions if it reaches 50 per cent acceptances by June 16, with accelerated payments to start on June 19.

Spotless shares are up 2.2 per cent at $1.145 while Downer have added 0.6 per cent to $6.435.

Sales of new homes rose slightly in April, new figures show, but the housing industry remains concerned the improvement will not halt a continuing weakening in construction and buying activity.

The New Home Sales report from the Housing Industry Association shows new home sales rose 0.8 per cent nationally in April, with New South Wales, Victoria and South Australia all recording increases in sales of detached housing.

HIA senior economist Geordan Murray warned the April rise would not negate a continuing downward trend, pointing to policy changes including the NSW government's move this week to increase taxes for foreign property investors, as creating uncertainty and threatening activity.

Bankwest will today announce a 76 basis point interest rate rise for principal and interest home buyers, the latest twist in lenders' attempts to slow borrowing and lower risk of bad debt on loan books as market sentiment sours.

The CBA subsidiary is creating a new category of low deposit lenders for those with less than 5 per cent deposit by raising rates to 5.29 per cent, up from 4.53 per cent. The new rate is inclusive of expensive lenders' mortgage insurance. The comparative rate, which takes into account all fees and charges, will rise from 4.94 per cent to 5.69 per cent.

For a $1 million home buyer with a 30-year, principal and interest $950,000 loan, the new rate of 5.29 per cent will mean an increase in monthly payments of $439 to $5269, according to analysis by finder.com, which monitors fees and charges of financial service products.

The higher rates apply to higher loan-to-value owner-occupied, principal and interest borrowers, which until now have largely avoided big increases as lenders focused on interest-only.

Many lenders, including Westpac and ANZ, are lowering rates for owner occupier principal and interest borrowers, who pay down the loan principal in addition to interest. They are also providing incentives for switches from interest-only, such as waiving new loan fees.

First-home buyers in NSW will applaud Premier Gladys Berejiklian's decision to axe stamp duty for all properties cheaper than $650,000 - but the relief is unlikely to last as the step could well provide the next boost to already sky-high house prices.

First-home buyers have been struggling to get a foot into a market dominated by cashed-up investors, and one of their biggest gripes has been having to pay stamp duty.

In a recent report by CoreLogic, across NSW the largest proportion of respondents (48%) identified that stamp duty was the most significant obstacle to housing affordability. And almost three-quarters of respondents felt that removing or reducing stamp duty would be an effective way to improve housing affordability in NSW.

But CoreLogic head of research Tim Lawless warns that abolishing stamp duty may just cause different headaches for first home buyers.

"We can expect first home buyer activity to stall before surging higher on July 1. The long-term outcome may be self-defeating due to higher demand pushing up prices," he said. 

The current policy provides a stamp duty exemption to first home buyers purchasing a new home with a price tag under $550,000.  The new policy has substantially broader scope, providing an exemption for both new and established housing with a price tag under $650,000 and sliding discounts up to $800,000.

CoreLogic notes that over the past 12 months, 45.4 per cent of dwellings sold across NSW had a price tag of $650,000. In the Sydney metropolitan area the proportion of properties that meet the exemption criteria falls away sharply, as just 25.8 per cent of dwelling sales over the past twelve months were at a price of $650,000 or less.

Breaking that down further, just 20 per cent of detached houses in Sydney sold for $650,000 or less while unit sales comprised just over one third of all sales at or below this price.

But Lawless says that a rise in first time buyer demand could prop up the overall housing market, filling the "hole" left by fewer investors in the market and offseting the recent slowdown in the pace of capital gains.

Donald Trump has spoken: the US will exit the landmark 2015 Paris climate accord. And clean-energy investors shrugged it off, for now.

Solar stocks barely budged after the announcement overnight. The Bloomberg Intelligence Global Large Solar Energy Valuation index of 16 companies gained 0.8 per cent at the close in New York.

JinkoSolar, the world's biggest panel producer, climbed 2.7 per cent, and that was one of the bigger swings. Canadian Solar, the top North American supplier, gained 0.8 per cent, and US rival SunPower Corp rose 1.5 per cent. Seoul-based Hanwha Q Cells posted one of the larger losses, and that was just 2.1 per cent.

Today's decision is a setback for the environment and for the U.S.'s leadership position in the world. #ParisAgreement

— Lloyd Blankfein (@lloydblankfein) June 1, 2017

The muted response is a sign that investors expect demand for clean energy will continue go grow, in the US and around the world.

"Trying to make a short trade on a long-term trend is risky," SunPower chief executive Tom Werner said in an interview.

The reaction followed a more volatile Wednesday, suggesting that investors have already moved beyond their gut reactions, said Joseph Osha, an analyst at JMP Securities.

Most solar shares declined, with Canadian Solar and JinkoSolar both down more than 5 per cent, on the first reports that Trump intended to withdraw the US from the Paris agreement.

"It's sentiment," said Angelo Zino, analyst at CFRA Research. "Will Trump exiting the Paris-climate accord have an impact on solar demand in the next nine to 12 months? Probably not."

Michael Liebreich, the London-based founder of Bloomberg New Energy Finance, put it another way: the Paris accord is "nothing more than an international framework for discussion and expectation-setting. There's nothing binding about Paris other than discussions."

In the US, federal tax credits and state-level renewables mandates have been key drivers of wind and solar growth. It's not clear how Trump's plan will affect these policies, if at all.

"The US is so hedged around the initiatives at the state level," Liebreich said. "As long as those are not dismantled on an accelerated time frame, nothing appreciably will change."

Janus Henderson's Australian shares are the top gainer in the ASX200 this morning, rising more than 6 per cent to $45.44.

It comes as Credit Suisse started coverage with a "neutral" rating of the asset manager and a price target of $33, saying there is a cross-sell opportunity for Henderson in the US and Japan.

Additionally, Fitch assigned the company a 'BBB' credit rating with a positive outlook.

Three of nine brokerages rate the stock a "buy" and six a "hold", with an average price target of $42.30.

British-Australian asset manager Henderson Global Investors last year agreed to buy US fund firm Janus Capital and dual list the $US6 billion giant in New York and Sydney, cancelling the London listing.

Earlier this week the two announced the completion of the all-stock merger.

Shares have bounced higher at the open, with gains across most sectors bar utilities, as Wall Street's recod-busting mood catches on.

The ASX is up 0.6 per cent at 5774.7, putting the benchmark index on track for a modest weekly gain of around 0.5 per cent.

This week's data flow has so far painted a picture of robust US economic growth but possible moderation in China, CMC chief market analyst Ric Spooner notes.

"This has combined to put pressure on the Aussie dollar. However a solid overnight performance by US markets should deliver a firm start for trading in the ASX 200 this morning."

The S&P 500 rose 0.8 per cent and closed on its high with buyers in charge and led up by the financial sector.

That's helped the local banks, which are all up around 0.5 per cent.

Telstra is another strong performer, rising 1 per cent after the stock was upgraded to a 'buy' by Goldman Sachs.

Macquarie Atlas continues to outperform, rising 3 per cent to take its gains since mid-March to more than 30 per cent. Like other bond proxies, the stock has been profiting from the falls in global yields.

Among the losers are yesterday's biggest winners: utilities, led by a 1.9 per cent drop in AGL.

The leads from Wall Street suggest we close out the week on a more positive note, with the S&P 500 and NASDAQ 100 pushing to new all-time highs and the Dow looking like it just needs a good payrolls report tonight to join this camp, IG strategist Chris Weston says:

The focus of the night has really been three-fold. Firstly, much discussion has centred on Trump's confirmation he will take the US out of the Paris Climate Accord and looking to "renegotiate" a new deal more in the interests of the US. Of course, House Speaker Paul Ryan was quick to jump on this and applaud the great man, as it is of course a raw deal for the US.

Every other global leader will condemn this action and the likes of Al Gore has said the American people will continue to work with the ideology that climate change is real and will set an example.

As a market reaction, it's been a whippy night in the oil markets, and while we saw a sizeable 6.42 million barrel drawdown in official crude inventory data and a sizeable 2.8 million draw in gasoline, the move away from the Paris Accord has caused a few oil traders to sell given Trump's actions could in theory, lead to increased oil production.

Traders have also been keen to play the oil move in FX markets, with USD/CAD breaking the May downtrend and I'd be happy to hold longs here into $C1.3600 in the very short-term.

We have also seen some focus on the confirmation that former FBI Director James Comey will testify on 8 June before the Senate Intelligence Panel. It actually promises to be a fairly hectic day, with the market keen to hear any key revelations from Comey, while we also get the ECB meeting and UK election exit polls in the early hours of the Fridays Asia trade.

Thirdly, US data has given the equity bulls some inspiration, although they seem to have gone it alone and there was hardly any move in corporate credit markets or US Treasuries on the day. In fact the US yield curve is currently sitting at 91 basis points and hardly thematic of a market wanting to load up on US banks, which is what we saw, with the S&P 500 financial sector closing up over 1%.

The ADP private payrolls reported 253,000 jobs created in May, well above consensus and it gives us hope at least that tonight's non-farm payrolls will be close enough to the consensus print of 182,000 (economists estimate range from 245,000 to 130,000). Of course keep an eye on average hourly earnings too, with consensus calling for a 2.6% increase in wages.

Here's more

Former RBA governor Glenn Stevens has endorsed a crackdown on tax concessions for negative gearing in his first major public report since leaving his old job.

 Stevens in a report on the NSW government's housing affordability package blamed negative gearing for the lack of investment by corporates in rental housing.

He said Australia's rental stock was in the hands of individuals rather than corporate investors at least in part because of negative gearing and capital gains tax concessions.

"Individuals are prepared to accept very low rental yields because of the tax concessions. Institutional investors are unlikely to find those yields attractive. It would be a bad mistake to offer them a separate round of tax concessions or subsidies in order to secure their involvement. It would be better to lessen the generosity of the concessions to individuals."

He said the Commonwealth tax experts should investigate the matter.

The remarks will provide support to the federal opposition's call for an end to negative gearing and they are consistent with concerns expressed during Stevens' time at the RBA that the tax system was encouraging speculative investment in property.

Stevens also expressed concerns about state government subsidies to investors. He called for research on how many home owners grants go to those buying investment properties and questioned why NSW wanted to subsidise that investment strategy.