Markets Live: Banks slam ASX into reverse

And that's it for Markets Live today.

Thanks for reading and for your comments.

See you all again tomorrow morning from 9.

And for those who like moving pictures, here's a graphical view of the day's action:

A surprisingly strong two-day rally on the ASX has come to an abrupt end, as a sharp fall in oil prices and a US rate hike proved reason enough for shares to retrace some of their recent gains.

But amid the broad sharemarket losses, a bumper jobs data release pumped up the Aussie dollar and provided a spark of investor interest in the heavily sold-down retail sector.

The S&P/ASX 200 index ended the session 71 points, or 1.2 per cent, lower at 5763, while the broader All Ordinaries index lost 66 points to 5797.

The major banks were once again the decisive factor, as they swung from gains earlier in the week to losses on Thursday. Westpac lost 2.7 per cent, ANZ fell 2.2 per cent, NAB dropped 2.1 per cent, while CBA lost 0.7 per cent.

Leading into today's session, traders and economists had been focused on this morning's meeting of the US Federal Reserve's monetary policy setting committee. A quarter-percentage point hike was widely expected and duly delivered by the central bank, bringing its Fed funds rate target to 1.25 per cent.

But that decision was overshadowed by another disappointing US inflation reading earlier last night, which pushed US and, in local trade, Australian 10-year government bond yields to their lowest for the year.

Another bumper jobs figure from the Australian Bureau of Statistics revealed the unemployment rate reached a four-year low of 5.5 per cent in May. That sparked an immediate US0.4¢ cent jump in the Australian dollar to as high as US76.3¢, before the Aussie retraced some of those gains to trade around two-month highs of US76¢ late on Thursday.

"Those looking for a rate cut this year have [had] their hopes dashed," TD Securities rates strategist PrashantNewnaha said. Mr Prashant added that if the Aussie could push past US76.8¢, then the next stop looked to be US77.5¢.

The stronger than expected jobs figures looked to have sparked some interest in the beaten-up retail sector. Super Retail Group, Harvey Norman and JB Hi-Fi all pushed higher, as did shopping mall landlords Scentre Group and Vicinity Centres. Lower yields also supported the rate-sensitive listed property names, with LendLease and Mirvac among the day's winners.

Another sharp fall in oil prices leading into Thursday's ASX session weighed heavily on listed energy names. Woodside Petroleum lost 1.7 per cent and BHP Billiton fell 2.9 per cent. Oil Search shed 2 per cent and Santos 4.7 per cent. The losses in the resources sector were not confined to oil and gas producers, as Rio Tinto lost 3.7 per cent and Fortescue dropped 3.3 per cent.

Bellamy's shares jumped 13 per cent to a six-month high of $6.50 after coming out of a trading halt due to a capital raising.

EnergyAustralia has hit NSW and South Australian customers with price increases of up to $1000 for power and gas.

The company's average small business customer in NSW will pay an extra 19.9 per cent - $915 a year - for electricity and an extra 10.7 per cent - $1042 over a year - for gas from 1 July. Residential customers are also being hit with price rises of nearly 20 per cent for electricity - an extra $320 a year- and 6.6 per cent for gas, an extra $49.40 a year.

SA customers are also paying an extra 19.9 per cent for power, which adds $390 to the average residential bill and $967 to the average small business bill. Gas is up 13.3 per cent for small business - an extra $936 a year - for small business. Queensland small business will pay an extra 13.3 per cent - $559 - for power.

The price hikes for retail customers come after ActewAGL foreshadowed increases of 17-19 per cent for power and gas in the ACT and reflect the huge stakes in play as the Turnbull government debates the Finkel energy security blueprint released last Friday and former prime minister Tony Abbott and junior minister Angus Taylor try to derail the plan.

EnergyAustralia chief customer officer Kim Clarke said the price rises reflected the surge in wholesale electricity prices, which have virtually doubled in a year as coal power stations have closed or become less reliable, and gas, which is scarce because supplies have been diverted to Queensland liquefied natural gas industry.

Clarke said EnergyAustralia would continue to "support development of a modern mix of energy technology" led by wind and solar projects in Australia's eastern states as well as "smart" solar and battery products, and urged politicians to stop sniping about the Finkel review and get behind its wide-ranging proposals.

Australian consumers aren't broke but are being more selective about the products they buy, according to the man in charge of the country's Westfield shopping centres.

Scentre chief executive Peter Allen told reporters at an Australia-Israel Chamber of Commerce event that he believes consumers' mood is still "pretty good" as retail sales continue to rise despite pressure from online outlets such as Amazon.

"We are seeing a little bit of a mix in terms of retailers and their performance, but a lot of that comes down to the product they have and the service they are providing," Allen said.

Oil prices are wallowing near their lowest levels in seven months, hurt by high global inventories and doubts over OPEC's ability to implement production cuts.

Brent crude oil is trading at $US47.01 per barrel, steady after slumping nearly 4 per cent in the previous session.

That's near levels last reached in late November last year when production cuts led by OPEC were first announced in an effort to prop up prices.

"For OPEC, an oversupply headache became a migraine," said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

Brent is down about 12 per cent since May 25, when the agreement to cut was extended to the end of the first quarter next year, instead of expiring this month as initially planned.

"OPEC 2017 year-to-date exports are only down by 0.3 million barrels per day (bpd) from the October 2016 baseline," analysts at AB Bernstein said in a note to clients.

There's a dark cloud building behind the world's best period of synchronous growth among developed and emerging economies this decade -- one that in time could rain down volatility in global markets.

The problem, identified by strategist and hedge fund manager Stephen Jen, is a deepening imbalance in the lack of new safe-haven assets as the world's output expands.

China and other developing nations are accumulating wealth, but failing to create sophisticated local markets that feature their own risk-free instruments. That's left a dangerous reliance on US Treasuries, according to Jen's argument, perpetuating a bond bubble and pushing investors into riskier assets.

It's a tweaked version of the "savings glut" argument that then-Federal Reserve Governor Ben S. Bernanke put forward in 2005 to explain why American borrowing costs were stuck at low levels even as the U.S. hiked interest rates. These days, current account imbalances among the US, China and Japan have come down, and Asia's biggest economies are carrying higher debt loads, undermining the idea that there's too much savings.

Instead, the problem is that emerging markets haven't yet been able to develop assets that investors are willing to hold as stores of value and collateral when times get tough. Doing that requires strong levels of confidence in the rule of law, equitable regulation and belief that money can be withdrawn by the investor whenever needed.

"The local capital markets in EM still lack the sophistication to match the real sectors in these economies," Jen and colleague Nicolo Bandera wrote in a note last week. The continued growth of emerging markets while their financial systems lag behind produces "a situation whereby the genuine safe-haven assets such as the US Treasuries, German bunds, and the British gilts become increasingly rare and in short supply," they wrote.

Fed and other central bank purchases of their own government bonds have even further limited the supply of such assets, Jen and Bandera highlighted.

Read more at Bloomberg.

China's central bank has left interest rates for open market operations unchanged, despite its US counterpart increasing its key policy rate overnight.

The People's Bank of China (PBOC) did not explain its rationale for keeping rates unchanged, but the yuan is on steadier footing and domestic liquidity conditions are much tighter than they were in mid-March, when it followed a Fed hike within hours.

Markets had been divided over whether the PBOC would raise short-term rates again in lockstep with the Fed, with those in the "hold" camp noting that China's short-term money rates and bond yields had already been trending higher.

Encouraged by improving economic growth, China had already nudged up short-term rates several times earlier this year as part of a broader push to reduce risks and leverage in the financial system after years of debt-fuelled stimulus.

Those rate moves, while modest, were accompanied by regulatory crackdowns on riskier forms of financing and shadow banking, tightening credit conditions and resulting in China's bond curve inverting in recent months.

One key game changer in recent weeks may have been a sharp reversal in market expectations for further depreciation in the yuan and capital outflows, after China moved aggressively in May to flush out speculative bets against the currency and allowed it to jump sharply against the dollar.

"There've been a lot of pre-emptive moves by the PBOC and regulators to kind of more balance exchange rate expectations in recent months, and so I think really China had done a lot of preparation ahead of the FOMC rate hike that was widely anticipated anyway," said Nomura economist Rob Subbaraman.

The yuan is now up 2.3 per cent so far in 2017 - with nearly half of that seen in recent weeks - after tumbling 6.5 per cent last year.

The oil guru who predicted the market rout in 2014 said OPEC and its allies should have gone much further when they extended their supply deal last month.

"They should have cut another million barrels a day for ninety days in order to drain the system," said Gary Ross, global head of oil at PIRA Energy, a forecasting and analytics unit of S&P Global Platts.

For Ross, the producers missed an opportunity to deepen cuts between June and August when refinery demand is higher and so accelerate the decline in inventories. Such a move would have pushed the market into backwardation, when near-term prices are higher than those for later months, he said.

That structure favours OPEC because it would discourage their shale-oil rivals from locking in prices for future production.

"If that was really their objective, then they should have cut during this window of maximum crude runs to accelerate," he said.

OPEC and partners led by Russia re-upped their agreement on May 25, agreeing to maintain curbs of as much as 1.8 million barrels a day until next March. Yet benchmark crude prices have since slid to $US47.01 today, and the International Energy Agency said Wednesday that the cuts are only slowly diminishing global stockpiles.

Ross's view was echoed by analysts at Sanford C Bernstein, who said OPEC needs to cut deeper for longer to restore inventories to normal levels.

"OPEC needs to drain by 34 million barrels a month or 1 million barrels a day for the next 10 months," the analysts wrote in a note. "This looks challenging."

The last time Network Ten collapsed, a banker named Malcolm Turnbull was instrumental in resuscitating it, the AFR's John McDuling writes in this excursion into Australian corporate history:

In the spring of 1990, Turnbull, then still a corporate dealmaker by trade, was appointed to represent Westpac in receivership proceedings for Network Ten, whose parent company Northern Star had collapsed under $455 million in debts.

His appointment was highly controversial. It was opposed by the Trade Practices Commission (the competition regulator at the time) and the Communications Minister of the day, Kim Beazley.

Turnbull, a long time adviser for billionaire Kerry Packer, had only resigned from the board of rival broadcaster Channel Nine weeks earlier.

Turnbull was also advising Melbourne property developer Hudson Conway on a bid for Channel Seven, which had also collapsed under the control of Christopher Skase. Those were different days.

Despite concerns about a stealth takeover of Ten, and further concentration in the media sector, Turnbull got his way and proceeded to restructure the broadcaster.

"We essentially did an exercise to say, let's assume we've just got the licences, and we have run out of money. How do we meet our statutory and regulation obligations and at the minimum expense and achieve sufficient ratings to make a buck?" he told me in a 2013 interview.

Savage cost cutting at Ten ensued.

But the network ultimately emerged from that period with the low-cost, youth oriented business model that would bring about its strongest period - ratings wise, and financially - in the late 90s and early 2000s.

So it is entirely fitting that as the fallen broadcaster's administrator attempts to forge a path forward, Turnbull will once again be involved. Albeit, less directly this time.

Here's more at the AFR

Employment growth is gathering momentum, taking talk of an RBA rate cut off the table, for now, economists say. Here are some choice comments following today's jobs numbers stunner:

Kristina Clifton, CBA:

The pace of employment growth has clearly accelerated, with jobs growth averaging 47k per month over the past three months.  This is well above the 20k needed to accommodate the growing population. The split between full‑time and part‑time jobs growth has moved in the right direction too. Full time jobs growth has averaged around 20k per month this year after falling in 2016. The pace of part‑time job growth is also positive with around 11k new jobs added per month this year. The recent run of employment data takes thoughts of a rate cut off the table for now. 

David Gladwell, ANZ:

Encouragingly, average hours worked recorded a solid increase, and the underemployment rate also retreated from its recent peak. This will be a welcome result for households, with the absorption of spare labour capacity a prerequisite for any improvement in wages growth. We continue to believe that employment will rise from here, although the recent rapid growth is less likely to be sustained.

Rahul Bajoria, Barclays:

In terms of monetary policy, the RBA appears comfortable with a neutral stance for now, but ongoing concerns around the relative weakness in household consumption and wages will continue to keep the RBA watchful. We believe that, more than headline growth, if the trend of improvement in the labour market continues and wages start to rise at the margin, this may create conditions for the RBA to normalise policy, but not before those trends are firmly established. We think the RBA is likely to wait for CPI inflation to hold consistently above 2% over the next 6-12 months before signalling a shift in its stance.

Katie Hickie, Capital Economics:

The much stronger than anticipated rise in employment in May and the larger than expected fall in the unemployment rate will go some way to quashing growing talk of the chance of another interest rate cut by the RBA later this year. Nonetheless, there still appears to be plenty of spare capacity in the labour market, which will keep wage growth weak and mean that the RBA probably won't raise rates until 2019 either.

Craig James, CommSec:

One strong economic result is viewed with suspicion. Two strong results are viewed with cautious optimism. Three strong job results are viewed as confirmation of a very positive trend. And it makes sense. Job ads have been rising for some time and are at 6-year highs; business surveys show the best operating conditions in nine years; the global economy is lifting; and domestic profitability is at record highs.

Michael Turner, RBC:

Labour force reports tend to contain a high noise factor, but there is little point in denying the solid trend of the past three months. May's 42k increase in employment takes the 3m total up to 141k, which has dragged the unemployment rate down from 5.9% as of March to 5.5%. This purple patch of employment growth is given a little more credence by the alignment of some improving leading indicators, including job vacancies and surveyed expectations of headcount within firms.

Blackmores shares have tumbled almost 20 per cent in the past three weeks as the one-time glamour stock is buffeted by an industry-wide bout of promotional discounting and cooling sentiment over the unpredictable buying patterns of Chinese entrepreneurs.

The share price of Australia's No.1 vitamins company fell through the magical $100 barrier at the start of June and the stock remains under pressure at around $88, with investors closely scrutinising the level of discounting among the major chemist retailers and supermarket chains, after a profit margin crunch became evident in the March quarter Blackmores results.

The stock soared as high as $220 in January, 2016 on buoyant demand from Chinese buyers but regulatory uncertainty in China and a subsequent slowdown in appetite after a bout of boisterous buying punctured confidence.

Category killer Chemist Warehouse, which runs more than 270 superstores and also has a strong online presence, has always been aggressive in its promotional deals on vitamin brands and is continuing with that strategy in June, while other chains and supermarket outlets have also stepped up their promotions.

Chemist Warehouse is currently selling Blackmores Bio C vitamin C tablets at 55 per cent off their recommended retail price, while calcium and magnesium tablets are also more than 50 per cent off under a big catalogue discount special which also includes a large range from rival Swisse.

Supermarket chain Woolworths is also offering 25 per cent off Blackmores Womens Vitality vitamins, and 19 per cent off Blackmores calcium and magnesium tablets.

Coles has some Blackmores products on promotional specials but discounts are particularly aggressive for the rival Cenovis vitamins brand.

Analyst from stockbroker Morgans, Belinda Moore, said on Thursday that discounting and promotional specials were a constant in the industry.

"There is a continuation of heavy discounting in the vitamins sector in Australia," she said.

Morgans has a "hold" recommendation on Blackmores. The Blackmores third quarter results in late April were generally below analysts expectations and that disappointment has carried through over the past few weeks.

Engineering and maintenance firm Downer EDI says it now has an interest of nearly 30 per cent in takeover target Spotless Group Holdings.

Downer is offering $1.15 for each Spotless share, valuing the facilities services provider at $1.3 billion, but Spotless's board says shareholders will be better off if they keep their shares as the company resets its strategy to boost earnings growth.

Spotless said the company was showing positive momentum and again recommended that shareholders reject Downer's current offer.

Spotless shares are up 0.2 per cent at $1.1425, while Downer have dropped 3.5 per cent to $6.06.

A few reactions on Twitter to the surprisingly large drop in the jobless rate. Few seem to be doubting the numbers this time around, instead pointing to leading indicators which over the past months have been stronger than the ABS data:

As in other countries, we're seeing good employment, low unemployment, but weak wages and GDP. A puzzling mix!

— David Bassanese (@DavidBassanese) June 15, 2017

BANG! The catch up in the ABS labour force numbers looks pretty much complete.

— Justin Fabo (@justinfabo) June 15, 2017

Trend employment rose 25,200 in May - driven by an ongoing improvement in full-time employment #auspol #ausbiz pic.twitter.com/WIl7YyhSDP

— Callam Pickering (@CallamPickering) June 15, 2017

ASX -20p since jobs.. obviously momentum leaning that way, but still a bizarre reaction #goodnewsbadnews

— Chris Weston (@ChrisWeston_IG) June 15, 2017

According to ABS data, 60% of jobs created in Australia last 12 months to May are full time jobs - that's a big shift from 6 months ago. pic.twitter.com/Qp3l2VNwYq

— Robert Rennie (@R0bertRennie) June 15, 2017

Economic data continues to surprise: the jobless rate fell to 5.5 per cent in May, its lowest since February 2013, as 42,000 new jobs were created.

That was well above expectations of an unchanged unemployment rate of 5.7 per cent and jobs growth of 10,000.

Continuing the good news, the strong jobs creation was all in full-time employment, with 52,100 full-time positions being added to the economy while 10,100 part-tme ones fell away.

And even the participation rate edged up, to 64.9 per cent, from 64.8 per cent in April.

All that's put the next rocket under the Aussie, which has shot up more than a third of a cent to US76.27¢, nudging a two-month high.

The ASX isn't liking the reduced likelihood of another RBA rate cut, down more than 1 per cent now.

Political turmoil in Washington is raising the risk that President Donald Trump and lawmakers will be unable to coordinate efforts to promote economic growth, Allianz chief economic adviser Mohamed El-Erian warns.

"The unknown is whether the technical work that's going on, in tax reform and infrastructure, will ever make it to Congress in a very constructive manner," El-Erian told Bloomberg TV. "The longer these distractions continue, the harder it is for Congress to get to economic governance."

It comes amid reports the special counsel overseeing the investigation into Russia's role in the 2016 election is interviewing senior intelligence officials as part of a widening probe that now includes an examination of whether President Donald Trump attempted to obstruct justice.

The move by Special Counsel Robert Mueller to investigate Trump's own conduct marks a major turning point in the nearly year-old FBI investigation, which until recently focused on Russian meddling during the presidential campaign and on whether there was any coordination between the Trump campaign and the Kremlin, the Washington Post said.

The Senate has been conducting its own hearings into Russian interference in the US election, including testimony from James Comey, the former FBI director who was fired by Trump.

Attorney General Jeff Sessions, who recused himself from the investigation, left Democrats Tuesday saying that he was stonewalling their efforts.

El-Erian said it's hard to say how long the focus on the probe will distract attention from the economy.

"One doesn't know how much is there," El-Erian said. "And until people figure out how much is there, you can't answer the question 'What does it take for it to go away?' "

Trump campaigned on plans to lift the pace of economic growth to 3 per cent or more. While his views on immigration and trade made much of Wall Street uneasy, many bankers welcomed the president's choices of advisers, including former Goldman Sachs executives for top posts as Trump highlights the importance of reforming the tax code.

"He has the people around him who have been working on this, he just needs the political runway. And for that, you've got to clear the distraction, which they haven't been able to do so far," said El-Erian. "What I do know is the economic data is softening, and that there's a risk that they may see the economy slip back into sub-2 per cent growth."

This a good find from LiveWire, a short post from NAI500.com which includes a great chart (below) showing commodity prices are at a 50-year low against US stocks.

Here's the post:

The Dow Jones, S&P 500 and Nasdaq closed at record highs on Friday despite signs that US jobs growth is slowing down and that expansion of the world's largest economy remains stuck around the 1% level.

In contrast the S&P GSCI All Commodities index is flat so far in 2017 although prices for energy, metals and agriculture have rallied 34%  from lows hit in January last year.

In relation to the S&P 500, the GSCI commodity index is currently trading at the lowest level in 50 years. Also, the ratio sits significantly below the long-term median of 4.1. Following the notion of mean reversion, we should be seeing attractive investment opportunities.

Worth noting that the S&P GSCI index is heavily weighted towards energy, about 56 per cent, while another 20 per cent is in agricultural goods. Livestock is close to 9 per cent, industrial metals near 10 per cent, and precious metals around 5 per cent.

Bellamy's shares have jumped 8.5 per cent to a six-month high of $6.25 after coming out of a trading halt due to a capital raising.

The infant milk formula supplier said it has generated $14.3 million from the institutional component of its capital raising, with a 96 per cent take-up rate for the initial stage of the entitlement offer.

The retail component is set to open next Tuesday.

The company aims to raise a total of $60.4 million to acquire a canning facility it hopes will help improve margins and satisfy Chinese regulatory demands.

Shares have dropped back below 5800 points as some of the optimism that fuelled a big two-day rally leaches out of the market, with banks reversing course and miners and energy stocks copping some heavy losses.

The ASX 200 is down 46 points or 0.8 per cent at 5788. Healthcare is joining the losses, as CSL drops 2.2 per cent from its freshly attained record highs. The overnight oil slump and talk of a persistent oil glut has put pressure on energy names. BHP is off 2.5 per cent and Woodside 2 per cent. Oil Search and Santos are down around 3 per cent. The mood among resources is generally dark, as Rio loses 2.7 per cent and Fortescue 2.2 per cent.

The major banks are all down by around 1.3 per cent after powering the sharemarket gains over the previous two days, Macquarie is off a modest 0.1 per cent.

Retail stocks are enjoying some much-needed support, as GUD Holdings, JB Hi-Fi, Super Retail and Bapcor all among the best performers early. Bellamy's is the best, as it climbs 10 per cent on its return to trade following a capital raising.

Mobile network investment by Telstra and Optus will not be interrupted by Vodafone's legal action against the competition regulator.

The ACCC met yesterday morning and decided it would not halt its domestic roaming inquiry while Vodafone's case is heard. 

This means Telstra and Optus will get a final decision within a few months. The draft decision fell in Telstra's favour. 

"The matter is listed for a first case management hearing on 30 June 2017," the ACCC said yesterday evening. "In the meantime, the ACCC is making no changes to the current inquiry process, including submission deadlines."

Submissions are due Friday, June 16. Telstra shares last traded at $4.36.

This from former US Treasury Secretary Larry Summers:

While I do not believe the Fed made a serious mistake in raising rates, I believe that the "preemption of inflation based on the Phillips curve" paradigm within which it is operating is highly problematic.  Much better would be a "shoot only when you see the whites of the eyes of inflation" paradigm of the kind I have advocated for the past several years.

Such a paradigm would be more credible, more likely to result in the Fed's satisfying its dual mandate, reduce risks of recession, and increase the economy's resilience when recession comes.

I suspect that moving away from inflation targeting to something like nominal gross domestic product-level targeting would be a better idea.  But I think that this issue is logically subsequent to the question of how policy should be made in the near term with the given 2 per cent inflation target.

Five points frame my doubts about the current approach.

First, the Fed is not credible with the markets at this point.  Its dots plots predict four rate increases over the next 18 months compared with the markets' expectation of less than two.

No change in Fed median dot plot of rate expectations (altho a slight reduction in the mean). Mkt remains understandably sceptical given inf pic.twitter.com/6pAC0JZium

— Shane Oliver (@ShaneOliverAMP) June 14, 2017

Second, the Fed regularly proclaims that it has a symmetric commitment to its 2 per cent inflation target.  Recoveries do not last forever, and when recession comes, inflation declines. So why would the Fed want to be projecting only 2 per cent inflation entering the 11th year of recovery with an unemployment rate clearly below their estimate of the NAIRU, or the non-accelerating inflation rate of unemployment? 

Third, preemptive attacks on inflation, such as preemptive attacks on countries, depend on the ability to judge threats accurately. The truth is we have little ability to judge when inflation will accelerate in a major way. The Phillips curve is at most barely present in data for the past 25 years. 

Fourth, as I have stressed in my writings on secular stagnation, there is good reason to believe that a given level of rates is much less expansionary than it used to be given the structural forces operating to raise saving propensities and reduce investment propensities.

Read more at the Washington Post.