Markets Live: Banks fuel $30b ASX rally

And that's it for Markets Live today.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

Shares had a blistering session, gaining nearly $30 billion in value with banks and consumer discretionary plays pushing the index to its best day of the year. 

Investors scooped up financial stocks after a few weeks of savage selling, helped along by this week's news the South Australian Liberals will block the state's bank levy. 

The RBA's announcement they would keep interest rates at 1.5 per cent did little to interrupt the day's euphoria, though the Aussie dollar dropped more than three quarters of a US cent, last fetching 76.13. 

Positive leads from international markets, rises in commodity prices and a seasonal July boost prompted investors to push the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index up  1.7 per cent and 1.6 per cent, to 5783.8 points and 5819.6 points respectively. 

CBA jumped 1.9 per cent, NAB was up 2.8 per cent, Westpac enjoyed a 3.3 per cent lift and ANZ closed 2.2 per cent higher. 

While, Tuesday's euphoria certainly favoured financials, some investors remain skeptical. 

"While we remain positive on the banking sector as a whole, we believe APRA is on the verge of introducing what should constitute 'unquestionably strong' capital requirements," said TS Lim, equities analyst at Bell Potter.

"These will probably provide some short term headwinds (more sentiment than anything else) and have far greater implications for the majors than the regionals."

Regional banks also enjoyed Tuesday's positive mood, with Bendigo Bank rising 2.9 per cent and Bank of Queensland closing 2.3 per cent higher. 

The rally was broad, with only 16 out of the top 200 stocks trading in the red - many of them gold miners after the precious metal fell sharply in overnight trade.

There was plenty of appetite for consumer discretionary stocks, which have largely been under pressure in recent months as investors weigh up the imminent Amazon threat and wages growth remains stagnant. 

Specialty Fashion was up 8.7 per cent, Harvey Norman and JB Hi-Fi traded 5 per cent higher and 5.3 per cent higher, respectively, while Myer closed up 3.6 per cent. 

Dips in the price of iron ore last night and oil prices through today's session did little to dampen enthusiasm for BHP Billiton and Rio Tinto, with the two resource giants closing 2.3 per cent and 0.8  per cent higher, respectively. 

Stocks in Hong Kong sold off sharply just before and after the midday break, with Galaxy Entertainment and Tencent among the biggest losers.

The Hang Seng index fell is trading 1.5 per cent lower at 25,396 points. Most of the declines came in the 10 minutes before and after the break. Galaxy sank the most on the gauge, plunging 4.2 per cent, while Tencent headed for its biggest loss since November as it trades down 3.8 per cent.

While the benchmark gauge surged 17 per cent in the first five months of the year to be among the world's best performers, it struggled in the past month to sustain gains above the 26,000 level. Analysts attributed today's slump to the selling of index futures after the measure fell below 25,500.

"Many investors were betting 25,500 was the supporting level for the Hang Seng Index and have bought lots of futures on it. As the index fell below that level this morning, some people got panicked and chose to sell their holding," said Kenny Wen, a strategist at Sun Hung Kai Financial in Hong Kong.

Investor jitters have grown in parts of Hong Kong's $US4.6 trillion equity market -- with a string of small caps collapsing last week to erase some $US6 billion of value.

Sharemarkets around the region are in the red, with the ASX and Kiwi exchange lone bright spots.

The RBA's cash rate target might be 1.5 per cent, but the after inflation, or "real", rate sits at -0.6 per cent.

That's the lowest it's been in 16 years. The surprisingly strong inflation reading for the March quarter - when the CPI jumped to 2.1 per cent from 1.5 per cent - was the impetus for the latest leg lower.

Our real rate did turn negative from late 2013 to mid 2014, but the real Aussie cash rate has generally been positive in the years after the GFC, even as overseas economies have run negative numbers for extended periods of time as they tried to stimulate activity via zero interest rate policies. 

Fidelity International head of investment solutions David Buckle recently told Fairfax Media that he believes the RBA should join the global shift towards tighter policy.

Negative real rates in overseas markets such as Europe has proved incredibly distortionary for financial markets by triggering a desperate search for yield, and it may have a similar effect here, Buckle reckons.

"For the first time the RBA is embarking on a path that the Western central banks have been on, and I think those central banks have made a very bad mistake in keeping the real interest rate so negative," the London-based Buckle said. "They have effectively taken the risk-free asset away from the investor choice and affected investor behaviour.

"The intent of the monetary policy is to try and encourage people to spend rather than save, but it's actually done the opposite: it has forced people to save more and save more riskily."

The Australian June quarter inflation reading is due on July 26.

While the RBA just resisted calls to join the wave of global central bankers flagging an end to easy money, the Bank of Canada seems intent to lift interest rates sooner rather than later.

BoC governor Stephen Poloz last week caused plenty of ripples, and a surge in the loonie, when he suggested the bank could tighten policy as early as this month, surprising investors who had been betting it wouldn't move until later in the year.

It looked like rate cuts had done their job, Poloz said, adding that "we're just approaching a new interest rate decision so I don't want to prejudge", which markets took as a strong hint that next week's board meeting is very much 'live'.

Now Poloz backed up his hawkish comments in an interview with Germany's Handelsblatt, saying central banks shouldn't necessarily wait for inflation to hit the levels they like before starting to tighten monetary policy.

"If we only watched inflation and reacted to inflation, we would never reach our inflation target, we'd always be two years behind in the reaction," he said. "So we have to look at the rest of our indicators in the models that predict inflation."

When it comes to that prediction, Poloz told Handelsblatt he expects inflation should be "well into an uptrend" in the first half of 2018 as the output gap in Canada's economy closes. Poloz downplayed recent dips in global oil prices that have pushed inflation downwards.

"When you are driving towards a red spotlight, you ease up on the accelerator well before you get there instead of waiting for the last second to stop," he added.

Market pricing of the chances of a rate hike at next week's BoC meeting has jumped to above 80 per cent.

Global sharemarkets have been jolted out of their slumber over the past week or so, but Goldman Sachs reckons it will take more than central bank tightening to really shake things up.

 A large shock such as recession or war is usually required to trigger bigger spikes in volatility, which has been stuck close to record low levels this year.

That's generally been the case for the 14 similar low volatility "regimes" since 1928, at least in equity markets, Goldman Sachs strategists Christian Mueller-Glissmann and Alessio Rizzi said. These periods on average lasted nearly two years, featured short-lived spikes and realised S&P 500 volatility was usually at or below 10.

Swings picked up across assets in the past week and investors are positioning for a shift higher, in part because of fears of central bank tightening, the strategists wrote in a  note to clients. But a sustained breakout is unlikely without an escalation in uncertainty or recession risk, they said.

"Volatility spikes have been hard to predict as they often occur after unpredictable major geopolitical events, such as wars and terror attacks, or adverse economic or financial shocks and so-called 'unknown unknowns' (eg Black Monday in 1987)," Mueller-Glissmann and Rizzi said.

"Recessions and a slowing business cycle have historically resulted in a high vol regime across assets."

Goldman Sachs puts the chances of a recession in the next two years at 25 per cent.

Low volatility isn't unusual and tends to stem from a favourable macroeconomic backdrop with strong growth but anchored inflation and rates, similar to a "Goldilocks" scenario, Mueller-Glissmann and Rizzi said.

Markets have reflected this since January, with equities reaching record highs, strong global growth and declining bond yields, they said.

The risk investors face near-term is a consolidation but no transition to sustained high volatility, and to guard against this, Mueller-Glissmann and Rizzi recommend protection through put spreads.

Currency traders dropped the Aussie dollar after the RBA showed no inclination of joining last week's chorus of central banks talking up a shift to tighter monetary policy.

The moves in the dollar weren't outrageous, but a half-a-US-cent fall does display the market's bias leading into the statement.

"It is significant that the RBA continues to point towards the benefits of some depreciation in the currency," Colonial First State's Stephen Halmarick says.

The RBA today noted that "the depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment."

Says Halmarick: "This would seem to put to bed, at least for the time being, some of the growing hawkish expectations in local markets."

"If the RBA was to lag behind a global trend to (slightly) tighter monetary policy this should put some downward pressure on the Australian dollar – which is currently trading near its highest levels since March," he adds.

So no real surprise in the governor's statement, which is sticking with the glass half-full view of the local economy.

Still, the strong reaction in the currency shows more than a handful of traders were expecting the central bank to join its global peers in sounding more upbeat about the economic recovery and perhaps flagging a nearing end to ultra-low rates.

A few reactions on Twitter to the RBA's statement:

Talking global economies up and AUD down otherwise carry on

— Con Michalakis (@MichalakisCon) July 4, 2017

Interest rates in Australia now governed by the Fed and the Banks. RBA officially irrelevant unless you are a deposit holder.

— Lindsay David (@linzcom) July 4, 2017

RBA's assessment in press release remains 'glass half full' but certainly nothing to suggest it is joining global hawks #ausbiz #ausecon

— Alex Joiner (@IFM_Economist) July 4, 2017

Official rates have been left on hold again by the RBA. No change.Nothing to see here. Move along.

— Marcus Padley (@Marcus_Today) July 4, 2017

#RBA on hold. No big changes to statement: sees gradual rise in grth & inf, signs S & M prop may be easing. No me-tooism after ECB,BoC,BoE..

— Shane Oliver (@ShaneOliverAMP) July 4, 2017

RBA sees low wages growth lasting for sometime despite employment growth stronger in recent months; some signs housing is cooling #ausbiz

— Matthew Taylor (@MattCNBC) July 4, 2017

from the RBA statement "Growth in housing debt has outpaced the slow growth in household incomes." almost a full para on debt levels hmm #FX

— TECHFX TRADERS (@Tony_Sycamore) July 4, 2017

Consumer discretionary names are doing marvellously well today, with strong moves that pre-date the solid retail sales figures dropped by the ABS late this morning.

Special shout out to shareholders in car sellers AP Eagers and Automotive Holdings Group: over the past month the stocks are now up 10 per cent and 14 per cent, respectively.

Looks like anyone hoping for the RBA to join the chorus of hawkish central bankers flagging a nearing end to ultra-low rates will have been disappointed by today's statement by governor Philip Lowe:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain.

In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The rise in commodity prices over the past year has boosted Australia's national income.

Headline inflation rates, having moved higher over the past year, have declined recently in response to lower oil prices. Wage growth remains subdued in most countries, as does core inflation. Further increases in US interest rates are expected and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility has been low.

As expected, GDP growth slowed in the March quarter, partly reflecting temporary factors. The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.         

The RBA has left the cash rate unchanged at 1.5 per cent, as widely expected.

The Aussie dollar fell half a cent to the day's low of US76.33¢ on the decision.

The competition watchdog is set to look at a proposed acquisition of Network Ten by Lachlan Murdoch and Bruce Gordon.

Parties for Gordon and Murdoch are understood to have engaged the ACCC to gauge what the watchdog would think of a proposed joint bid for Ten by their respective investment vehicles Birketu and Illyria.

The move is standard for such takeovers or transactions.

The ACCC will go through a process of analysing whether it believed a joint bid for Ten from Murdoch and Gordon would substantially lessen competition and make a ruling.

The competition regulator could ask for more details, or could indicate which way it may rule should such a proposal come to fruition.

The ACCC could also recommend enforceable undertakings - ie waving it through if the bidders take certain measures.

This morning's solid retail sales figures have come as a pleasant surprise to economists, although they wonder how sustainable the spending levels are.

Here's the take from AMP Capital's Diana Mousina:

There are still a lot of question marks around the stability of consumer spending in the near term. Wages growth is still running at a record low (and there are no signs of a upward turn), consumer sentiment is stuck in negative, house and apartment prices are slowing (putting pressure on wealth and savings as a result) and there are concerns about the arrival of Amazon in the Australian market. So, it is hard to see significant upside in broad retail spending growth from current levels.

NAB's Tapas Strickland points to at least one change in consumers' collective mindset:

While the pick-up in the pace of growth is somewhat surprising given still temperate consumer confidence, one measure of household risk aversion has eased over the past quarter. The number of consumers citing the wisest place to save as being repaying debt or holding deposits in [a bank] decreased in the June quarter to 53.9% from 57.9%.

While only one measure of household risk aversion, it does have a close relationship with retail sales growth and raises the question of whether we have passed the low point in household consumption growth.

We will be watching these indicators closely over the next couple of months. If the pace of retail sales growth holds, the RBA is likely to become less worried about the state of the economy and more confident in its views of the labour market and inflation.

Retail sales have shown a "clearly improved trend" over April and May, writes UBS's George Tharenou, but there are caveats:

It's probable that some of the retail bounce is a short-term weather-related boost, as (mainly Queensland) households re-stocked post Cyclone Debbie, and the recent bounce of retail also followed a sharp slowdown in prior months – albeit the underlying trend also appears to have improved.

While a run of better than expected jobs should be a positive sign for consumption, for now wages remain stuck at a record low, while ongoing rises in mortgage rates and a looming energy price shock are clear negatives ahead.

Finally, RBC Capital's Michael Turner writes:

For the RBA, the recent improvement in both household spending and labour market data will likely have eased some small but growing concerns that a more cautious household sector was emerging. While challenges remain, we believe they are still likely far enough out on the horizon for a more upbeat tone on this sector to make its way into communication in the near term.

A shift from scepticism to optimism among Wall St strategists could be the "first step" towards the euphoria that we "typically see at the end of bull markets and that has been glaringly absent so far in the cycle," write Bank of America-Merrill Lynch analysts.

The investment bank's "Sell Side Indicator" (SSI) is how they measure Wall Street's bullishness on stocks, and this measure is at its highest since 2011. But, as the chart shows, the latest reading has only pushed the indicator further into "neutral" territory - as the chart below shows. Indeed, today's sentiment levels are now less than 2 percentage points from the average of the past 15 years, they write.

The SSI is based on the "average recommended equity allocation of Wall Street strategists" as of the last business day of each month.

"We have found that Wall Street's consensus equity allocation has been a reliable contrary indicator. In other words, it has historically been a bullish signal when Wall Street was extremely bearish, and vice versa."

At these levels, the SSI suggests the return from the S&P 500 index will be 12 per cent over the coming 12 months, including a 10 per cent price gain and 2 per cent from dividends.

"Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 93 per cent of the time, with median 12-month returns of 19 per cent. However, past performance is not an indication of future results."

It's worth noting that the sentiment indicator is a single input into BoA's target for the S&P 500 index; BoA's strategists expect the benchmark US stock index to end the year at 2450 points, only slightly higher than the 2429 achieved overnight.

Residential listings have bounced back over the month of June, although not enough to offset an overall decline in numbers over the course of the whole year.

The national tally rose by 3 per cent to 333,805 by the end of June as significantly more stock hit the Melbourne and Sydney markets over the month, on SQM Research figures.

That rise helps explain the downward trend in auction clearance rates over the month, according to SQM Research managing director Louis Christopher.

"Compared to May, we saw more homes being listed for sale," he said.

"At the same time, investors are retreating in the face of higher mortgage rates, which is helping to take some pressure off property prices in Sydney, with asking prices for houses and units down over the month.

"But in Melbourne, we are seeing continued strong growth in asking prices for units and especially for houses, which are up a staggering 22.1 per cent over the year to June 27, with stock still in short supply."

The June rebound has not been enough to reverse the year-on-year fall in national residential property listings of 3.3 per cent.

Listings rose in most capitals but big declines in Hobart and Melbourne pushed down the average across the nation.

Over the year, Melbourne listings fell sharply, by 12.7 per cent. In stark contrast, Sydney listings jumped 12.3 per cent over the full year.

In June alone, Sydney listings increased 6.5 per cent as owners looked to bank real estate profits before the end of financial year.

The SQM figures show asking prices for houses jumped in Melbourne and Hobart over June.

But there was downward pressure on asking prices over the month in Sydney, Canberra, Brisbane and Perth, where there are higher stocks levels in those markets.

Woolworths' turnaround may be faster and stronger than expected but Coles appears to be heading into a prolonged downturn, according to a survey of food and grocery suppliers by UBS.

Woolworths outperformed Coles on key measures including instore execution, pricing, promotions and morale for the first time since August 2012, while Coles posted its lowest score since 2011, according to the survey of 48 suppliers conducted by UBS last month.

UBS analyst Ben Gilbert said the survey, which has been conducted several times a year since Wesfarmers acquired Coles in 2007, is a strong leading indicator of Woolworths' turnaround "as well as a potential downturn at Coles".

Gilbert said the turnaround at Woolworths was expected, given its $1.5 billion investment into prices and service over the last 18 months, but the speed and magnitude of its recovery in areas such as pricing strategy, promotional effectiveness and morale were surprising and suggested sales growth was likely to be stronger for longer.

Woolworths has posted three consecutive quarters of same-store supermarket sales growth, outperforming Coles for the first time in years, and UBS expects sales momentum to accelerate until the fourth quarter of 2018.

In contrast, suppliers believed Coles had gone backwards in areas such as pricing, value perception, in-store compliance and culture, suggesting the retailer was under 'significant pressure' and struggling to formulate a strategy to counter Woolworths, Gilbert said.

Woolies shares are up 1.7 per cent today, while Coles-owner Wesfarmers has added 1.2 per cent.

Shares are going gangbusters today, gaining nearly $30 billion in value with the market firing on all cylinders, on track for its best day since November.

The big banks are doing most of the heavy lifting on the index, but it's really a broad-based rally that has just 15 out of the top 200 stocks trading in the red.

Why do markets go up a lot/down a lot ? - folks love attributing stories/events. Reality - Marginal buyers /
Marginal sellers move it ....

— Con Michalakis (@MichalakisCon) July 4, 2017

Banks have been due for a bit of a rebound following weeks of savage selling, and yesterday's news that the SA Libs will block the state's bank levy seems to have been just the spark needed to light a bit of a fire.

Westpac and NAB are both up more than 3 per cent, CBA and ANZ have gained more than 2 per cent each.

The rally comes after the ASX experienced its worst day of 2017 on Friday, followed by more losses yesterday.

But overnight gains on most international markets as well as rises in commodity prices seem to have finally convinced local investors that there are a few bargains around.

"The Australian stockmarket has recently had a tendency to do its own thing, ignoring international leads. Yesterday was a case in point and it looks to have backfired on sellers this morning," says CMC chief market analyst Ric Spooner.

"Having assessed that yesterday's downward momentum has dried up, value hunters have leaped on the opportunity created by recent selling."

The recent ups and downs following a period od unusual calm are also a reminder that sharemarkets can be quite volatile.

So here's the confirmation that the wild swings and weird share price numbers we're seeing on the Nasdaq in after-hours trade (see post at 10.43am) were caused by a technical glitch at the exchange.

Bloomberg says it's due to accidental corrupt data that flowed out of a Nasdaq systems test.

Nasdaq developers who were testing the system in after hours trade, accidentally sent "bad data" to the financial data providers, a Bloomberg spokesperson in Sydney said.  

"It's an exchange-side issue, where the Nasdaq disseminated bad data and traded corrupt messages to us during an exchange-side test of their systems," she said.

"We were not notified of the test. But, we are no longer receiving these trade corrupt messages.

"We are now just working to correct the bad data."

Private equity firms TPG Capital and Hellman & Friedman may have walked away from Fairfax Media, but Morgan Stanley remains bullish on the publisher's prospects.

Analyst Andrew McLeod has kept his $1.50 share price target for Fairfax, which is well above the bid of both US-based private equity firms. Less bullish are Citi's David Kaynes, with a price target of $1.06, and UBS analyst Eric Choi, with a target of $1. 

Fairfax shares are down 1.8 per cent at 96 cents, following their 11 per cent plunge yesterday. TPG had a proposal of $1.20 per share for Fairfax, valuing the company at $2.7 billion, while H&F had a non-binding offer of $1.225 to $1.25 per share, valuing Fairfax at $2.87 billion.

No formal bids were given to Fairfax by last Friday's deadline and TPG, along with its consortium partner Ontario Teachers' Pension Plan, officially withdrew on Sunday.

"This is a disappointing result, as we expected at least one firm bid," McLeod said. "A bid would have been a positive outcome, providing a faster path to realising underlying valuation and additional options for shareholders."

But, McLeod reckons Fairfax, publisher of this blog, is doing a lot right.

"FXJ is debt free and importantly ... reiterated the Domain spin-off remains on track for completion by the end of the year. Whilst, we expect the shares to be weaker on the back of this news...there is nothing to change our fundamental view - we remain Overweight."

Among the reasons he lists for his bullishness, are real estate listing have returned to positive growth, predicted changes to media ownership regulation leave Fairfax with more options and Monday's trading update was positive. 

Citi's Kaynes, however, remains worried about Fairfax's traditional media assets, aka, print.

"We expect media revenue trends to continue to deteriorate, and while group revenue declines are large, this is partly offset by Domain growth and higher margins," Kaynes said.

We mentioned the wild swings in US tech heavyweights showing up in the feeds of key data providers, most likely due to a Nasdaq systems test, but one of the strangest details is the price of $US123.47 that more than a dozen shares including Apple, Amazon and Microsoft are being quoted at.

It's still unclear what exactly caused the data bug, but the issue is replicating itself across major financial websites, including Bloomberg, Reuters, Google Finance, and Yahoo Finance. 

Here are a few reactions on Twitter:

123.47 is the new covfefe pic.twitter.com/tpJ8zK6PmL

— Conway Anderson (@ConwayAnderson) July 4, 2017

the price of ruining capitalism is $123.47

— saddest server (@sadserver) July 4, 2017

$123.47 remember this sacred number of NASDAQ - msft,amzn,aapl,goog finally united on the same front pic.twitter.com/ljYeM86kLk

— 6th Cosmos (@6thCosmos) July 4, 2017

.@NYSE going insane right now. Looks like the stocks are fine but the thing that reports them is busted. Prices all $123.47. Jesus. pic.twitter.com/ynqwUybROZ

— Luke Hopewell ⚡️ (@lukehopewell) July 4, 2017

You know, I've complained about Ethereum & Solidity a few times, but at least no one accidentally set all contracts to 123.47 wei pic.twitter.com/DX0bxdRYbH

— The Nikkistic Epoch (@lojikil) July 4, 2017