Markets Live: BHP's five-month high leads ASX gains

Gold prices are holding around their highest in nearly seven weeks as tensions on the Korean peninsula boosted safe-haven demand for the metal and as the US dollar hovered close to multi-month lows.

The United States flew two supersonic B-1B bombers over the Korean peninsula in a show of force on Sunday and the US ambassador to the United Nations said China, Japan and South Korea needed to do more after Pyongyang's latest missile tests.

"I think (the market) is cautious about the situation in North Korea and investors tend to go long on gold (at times like these)," said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank. "I think gold will stay firm this week." 

Breaking Out Gold? pic.twitter.com/gGxWbnganS

— Steen Jakobsen (@Steen_Jakobsen) July 31, 2017

Spot gold hit its highest since June 14 at $US1270.98 in early trade, but is currently steady on the day at $US1268.55 per ounce. It gained about 1.1 per cent last week in its third consecutive weekly gain.

"Due to the ongoing summer holidays (in Asia), markets are expected to be thin and quiet," said ICBC Standard Bank's Ikemizu.

Asian shares have dipped following a lacklustre end to last week globally on some earnings disappointments, while the US dollar edged up but remained capped by US political uncertainty.

"A weaker US dollar is the main driver of gold's price action," said Jeffrey Halley, a senior market analyst at OANDA. "However, deepening political turmoil in Washington ... and North Korea's progress on ballistic missiles will all ensure the uncertainty premium continues to support gold's price." 

CBA's property buyers wanting to switch to an interest-only loan will have to wait six months – or twice as long – for new funding under the latest round of tough measures being introduced to discourage use of this type of repayment method.

The nation's biggest mortgage lender will also from today refer any lender that wants to switch from principal and interest to interest-only repayments within 180 days for tough credit reassessment.

CBA is attempting to lower the risk of its highly profitable mortgage book by encouraging borrowers to repay principal and discourage higher risk borrowers from applying, particularly interest-only investors.

The bank is also aiming to stop mortgage brokers, who act as an intermediary between the bank and borrowers, from encouraging property buyers to apply for a principal and interest loan and then switch over to lower payment interest-only loans a few months into the repayment term.

The new waiting period following interest-only loan refunding will increase from 90 days to 180 days.

Shorting the US dollar appears to be the market's favoured leveraged currency trade as traders turn more bearish against the currency than they have been in a year.

Short positioning in the US dollar has followed the US dollar index down, and the market is now net short against the US dollar for the first time since May 2016, according to ANZ analysis of CFTC figures up to July 25.

The catalyst has been a loss of confidence in the Federal Reserve's ability to deliver targeted rate hikes, sending traders looking for the next hawkish story elsewhere.

To this end, they have zeroed in on the Canadian dollar, the Australian dollar and the euro.

Leveraged funds increased AUD net longs to 54.5k contracts at 25 Jul. Most bullish since 1 week in Apr 2016, before that Apr 2013. - CFTC pic.twitter.com/e88raSaNSR

— Sean Callow (@seandcallow) July 31, 2017

"The market appears to be overly enthusiastic in expecting early policy tilts from the European Central Bank and the Reserve Bank of Australia in particular," said Khoon Goh, head of Asia research at ANZ. "It is at this juncture where we feel that markets are under-pricing the US Federal Reserve and expecting normalisation to come too soon from other developed market central banks."

Low volatility and strong appetite for risk assets are also working against the US dollar. But that could change once the Fed starts unwinding its monetary stimulus, which will have the effect of tightening liquidity.

Surging Chinese iron ore futures have delivered a solid boost to shares in local miners, with BHP rising more than 2 per cent to above $26, its highest since February.

Dalian futures are up nearly 8 per cent at 570 yuan ($US84.73), piggybacking on rising steel futures.

One possible explanation for the surprise rise in steel and iron ore futures is today's non-manufacturing data out of China.

While the official PMIs slipped slightly, the construction component jumped (see chart) - and that's a tailwind for steel and iron ore prices. 

Magellan's Hamish Douglass has owned up to a making a handful of poor investment decisions as the chief investment officer of the multibillion-dollar global fund manager, including loading up on Australian dollars as a defensive position just before the bottom fell out of the local currency.

The Australian-based global fund manager is celebrating the tenth birthday of the flagship Magellan Global Fund launched in July 2007 and has grown to $50 billion under management. Today the firm sent a video to clients and advisers reflecting on the firm's successes and failures.

Douglass highlights a handful of poor stock selections which he puts down to inadequate due diligence such as positions in weight-management company Nutrisystems, which fell 80 per cent, and Tesco which has been the single biggest drag on returns in recent years (Tesco remains in the portfolio).

It was a decision to sell down shares and go to cash in 2008, however, that Douglass chastises himself most about. The decision to preserve capital was a costly one that influences how the fund operates today, he said.

"I did the dumbest thing in history, I then converted all that cash into Australian dollars, what happened was the Australian dollar collapsed from around parity with the US dollar to the 60c range and of course when I reached to go and spend that money to buy global equities again it was worth a lot less," Douglass said.

"So I made a great decision to get out of equities and then I made a dumb decision ... we've learnt from that lesson, some people may have noticed we don't hold cash in Australian dollars when we are holding it for defensive purposes."

Here's more at the AFR

It was the endless travel that prompted Cochlear chief executive Chris Smith to resign, writes AFR Chanticleer columnist Michael Smith:

The departure of Smith after just two years in the job should be a lesson for Australian-headquartered companies with chief executives based on the other side of the world. The tyranny of distance means it often just does not work.

Smith, an American who had been working for Cochlear out of Denver, Colorado for 10 years, moved to Sydney when he landed the top job in September 2015.

That arrangement did not work as Smith's family was in the United States and he found himself spending his entire life on a plane.

Holliday-Smith agreed to let him return to the United States and run the hearing implant maker from there but that did not work either. At the time, Holliday-Smith said it was a "unique" situation and the company was committed to its Australian headquarters.

At the time, the board decided it would work because as chief executive of a global company, Smith would have to spend as much time in the United States as in Australia anyway. While Smith was the best man for the job at the time, the experiment has failed.

"Co-location" is the industry jargon for a growing trend in corporate Australia to allow chief executives to live offshore for a big chunk of the year.

This is usually for strategic reasons such as Boral chief Mike Kane's decision to spend half the year in his native United States to bed down a major acquisition.

Treasury Wine Estates chief Mike Clarke is also based in California for a large part of the year to oversee US brands acquired from Diageo.

Brambles' new chief Graham Chipchase has also been allowed to remain based in London. It is too early to determine whether that arrangement is working or not.

The problem for Australian companies trying to attract the best global CEO candidates is the distance.

While the lifestyle of Sydney or Melbourne is a selling point, spending more time on a plane than on the ground is not.

Read more at the AFR.

Shares in wind farm operator Infigen Energy have rebounded from an early session fall amid news that record low wind generation had resulted in a 36 per cent slump in quarterly revenue.

Shares in Infigen gained as much as 3.3 per cent and are currently up 1.3 per cent at 76.5 cents after falling in opening trade on announcing that revenue for the three months to June 30 had dropped to $32 million, from the previous June quarter's $50 million.

The Sydney-based company, which owns and sells 557 megawatts of wind-generated electricity through the spot markets, said record low wind conditions across its NSW and South Australian farms had resulted in a 37 per cent drop in production.

Production fell to 254 GWh, from 406 GWh in the same period last year, with wind output 40 per cent below the previous June quarter and 30 per cent below its previous June average, the company said.

However, Infigen said its full-year production was up 1 per cent on the previous year and full-year unaudited revenue was up 14 per cent, to $196.7 million.

Since 2008, only Sydney, Melbourne and Canberra have seen "real" growth in dwelling values, writes CoreLogic's Cameron Kusher:

Adjusting dwelling value growth for inflation provides valuable insight into the housing market's performance. With inflation currently at such a low level, adjusting for it is not resulting in any additional capital cities seeing value decline however, over the longer term it does highlight the significant underperformance in terms of value growth for certain cities.

Since the value declines ceased at the end of 2008, only Sydney, Melbourne and Canberra have actually recorded real growth in dwelling values. In all other cities, real dwelling values are currently lower than they were at the end of 2008 which is now almost nine years ago.

This data really highlights the uneven nature of growth across the capital city housing markets since the end of the financial crisis. It also shows that low mortgage rates alone are not the driver of the much stronger growth in Sydney and Melbourne.

The chart shows the change in real dwelling values across each capital city relative to their most recent market peaks. The chart again shows that values are only above their previous peak in Sydney, Melbourne and Canberra.

Brisbane values are 9.3% lower than their peak in March 2008, Adelaide values peaked in June 2010 and are still 6.3% lower. In Perth, the market peak was September 2007 and values are still -20.0% off their peak and in Hobart values are 11.2% lower than their peak which occurred in December 2007. Finally, Darwin has seen the largest fall in real dwelling values, down 26.7% from its peak with the peak having occurred in September 2010.

The regularly reported nominal value data is valuable however, it is important and interesting to consider the impact of inflation on dwelling values from time to time. As the data shows, outside of Sydney and Melbourne and to a lesser degree Canberra, dwelling value growth has been extremely weak for a number of years now.

You can read more here.

The latest official PMI readings suggest that China's growth momentum may have waned at the start of the September quarter, writes Capital Economics China economist Julian Evans-Pritchard:

Today's data also hint at a slowdown in the broader economy. The official non-manufacturing PMI declined from 54.9 to 54.5, with stronger construction activity more than offset by weaker service sector growth.

We are wary of putting too much faith in the official PMIs given that they have provided false signals in the past. We will have a better idea of how the economy has performed recently when the July reading of the Caixin manufacturing PMI, a better guide to cyclical trends than the official index, is published tomorrow (the two indices only move in the same direction 60 per cent of the time).

But in the meantime, today's official PMI readings suggests that activity may have cooled this month. We anticipate further weakness ahead as the crackdown on financial risks weighs on credit expansion and economic growth.

Ding Shuang, chief China economist at Standard Chartered in Hong Kong, said:

The economy in the second half will likely slow down gradually. With the deleveraging in process,we will see gradual lagged effects on the economy [which will show up more clearly at the end of the third quarter].

Raymond Yeung, the Hong Kong-based chief economist at ANZ, said:

July's PMI signals a slight softening of the manufacturing sector. External demand will likely drop in the summer and third quarter GDP growth isn't expected to hit 6.9 per cent. But we aren't worried about the decline today.

Investors are shrugging off news that Sirtex Medical may face legal action from disgruntled shareholders who claim the biotech engaged in misleading and deceptive conduct in relation to its sales forecast for 2016-17 and that shareholders consequently suffered financial losses.

Law firm William Roberts Lawyers, which is inviting Sirtex shareholders to join a class action, alleges that Sirtex had no reasonable basis for forecasting double-digit sales growth for its primary revenue-earner, SIR-Spheres Y-90 in fiscal 2017.

SIR-Spheres Y-90 is a targeted radiation therapy approved for supply in Australia, the European Union and the US, and accounts for almost all of Sirtex's revenues.

Shares are marginally higher at $16.10.

Sales of new homes in fell sharply in June to the lowest since 2013, though conditions were markedly different across states, an industry survey showed on Monday.

The Housing Industry Association (HIA) said its survey of large-volume builders showed new home sales fell a seasonally adjusted 6.9 per cent in June, from May, reversing two months of gains.

Sales of detached houses fell 5.7 per cent, while apartment sales dropped 10.7 per cent. Total sales in June were down 11.9 per cent on the same month last year.

Results by states were mixed, with sales of houses falling in New South Wales, South Australia and Queensland, but rising in Victoria and Western Australia.

Growth in China's manufacturing sector slowed in July but only marginally, reinforcing expectations the world's second-largest economy will cool slightly in coming months as borrowing costs rise and regulators clamp down on riskier types of financing.

The official Purchasing Managers' Index (PMI) stood at 51.4 in July, down from the previous month's 51.7 but still well above the 50-point mark that separates growth from contraction on a monthly basis.

Analysts had forecast the reading would come in at 51.6, little changed from June.

Growth in the services sector also slowed slightly in July but remained at robust levels.

The official non-manufacturing Purchasing Managers' Index (PMI) fell to 54.5, from 54.9 in June, but remained well above the 50-point mark that separates growth from contraction on a monthly basis.

The services sector accounted for over half of China's economy last year as rising wages give Chinese consumers the opportunity to shop, travel and eat out more.

China posted stronger-than-expected economic growth of 6.9 per cent in the first half, fuelled by a year-long construction boom, resurgent exports and robust retail sales.

But economists expect the pace to slow slightly in the second half due to higher financing costs, a regulatory clamp-down on riskier lending and some signs of moderating in the red-hot housing market.

Origin Energy has more than doubled annual sales of oil and gas, driven primarily by the ramp-up of its APLNG venture in Queensland but also reflecting growth in the conventional oil and gas business about to be spun off as Lattice Energy.

Full-year sales in oil and gas in 2016-17 reached $2.2 billion, up from $1.08 billion on a year earlier, thanks to both higher prices and production.

Revenues excluding APLNG, which will remain with the parent company after the Lattice sale, increased 26 per cent to $746.9 million.

Sales from Origin's 37.5 per cent interest in APLNG surged by almost $1 billion to $1.46 billion.

Origin is gearing up to either float or sell Lattice, with a decision expected by September.

Several parties are understood to be in the bidding process for Lattice, including a venture involving Beach Energy. It will retain its interest in the $25 billion APLNG venture and its large exploration ventures in the Northern Territory, Queensland and Western Australia, which are likely to be developed for the LNG market.

Production from the oil and gas activities rose 40 per cent overall, to 232 petajoules, helped by the start-up of the second production unit at APLNG last October and the beginning of production at the Halladale/Speculant project off the south-east coast.

Chief executive Frank Calabria said the uplift in output and sales "reflects strong operational performance across our upstream operations".

Mr Calabria noted that APLNG successfully completed a 90-day operational test last week, paving the way for some $US3.4 billion of shareholder guarantees for the project debt to be released this September quarter.

In the June quarter, production rose 30 per cent from a year earlier to 89.2 petajoules, which was also up 12 per cent on the March quarter. APLNG shipped 33 cargoes in the June quarter.

Shares in Origin, which also has a large utilities business whose revenues aren't included in the quarterly report, are up 0.7 per cent at $6.91.

With the price for lithium carbonate about triple what it was in 2012, Australian miners bringing hard rock lithium mines into production are turning their attention back downstream.

A reinvented Galaxy is now the only major West Australian lithium miner that has not flagged plans to become involved in converting spodumene concentrate from a mine in the state into one of the lithium chemicals used in lithium-ion batteries, demand for which has been super-charged by the adoption of electric vehicles and energy storage systems.

Kidman Resources has teamed up with Chilean lithium major SQM to add a chemical plant to its planned Earl Grey project. Two of the partners in the operating Mt Marion mine, Neometals and Mineral Resources, are studying a local lithium hydroxide plant.

Pilbara Minerals and Altura Mining are exploring Asian converter plants with Chinese lithium companies and the part-owner of the state's massive Greenbushes mine, Tianqi, is leading the pack with a lithium hydroxide plant already under construction south of Perth.

The plans would be positive for the states resources industry, with the move downstream delivering more investment and skilled jobs. But with the price for spodumene concentrate so strong, some in the market have questioned whether the miners should forgo the risks and just stick to their knitting.

"It is all about margin," Canaccord Genuity analyst Reg Spencer said. "Today market prices for spodumene are so robust it is a very profitable business just to dig the ore up, concentrate it and sell it to converter plants in China."

But Mr Spencer said whether shareholders would realise value from the costly pursuit would lie in the execution.

"With talk of everyone wanting to build their own refinery, what everyone is a little naive about is that the experience in operating these plants is in China and they are highly capital intensive - the average capital intensity of a converter plant is about the same as the mine itself," he said.

"You need the expertise and the finance."

Read more at the AFR.

Shares are hopping around like a frog in a sock this morning, but making little progress, with the ASX 200 up only a handful of points to 5709 in early trade after jumping between gains and losses at the open.

There are more winners than losers, with support most pronounced for resources names, but slight losses in the major banks and selling in CSL is flattening the overall move.

In corporate news, Cochlear is off 0.6 per cent after announcing its CEO would leave, while Syrah Resources is off a hefty 5.8 per cent following its quarterly production update.

Miners and energy names are the best performers early, as Rio adds 1.1 per cent and Fortescue 2.2 per cent despite a slide in the iron ore price on Friday night. More gains in oil prices has helped BHP add 1.5 per cent and Woodside 0.9 per cent. Beach Energy is up 1.9 per cent.

The best performer early is Asaleo Care, as the owner of personal hygiene brands like Sorbent, Libra and Handee jumps 3.6 per cent on no news. Perhaps it's part of the wider jostling going on around retail stocks: JB Hi-Fi is up 1.7 per cent this morning as well.

And here are Friday's market highlights:

• SPI futures up 24 points or 0.4% to 5658
• AUD +0.2% to 79.88 US cents (Session range: 0.7937 - 0.8007)
• On Wall St, Dow +0.2%, S&P 500 -0.1%, Nasdaq -0.1%
• In New York, BHP +0.8%, Rio +1.6%
• In Europe, Stoxx 50 -0.7%, FTSE -1%, CAC -1.1%, DAX -0.4%
• Spot gold +0.8% to $US1269.74 an ounce
• Brent crude +2.2% to $US52.61 a barrel
• US oil +1.5% to $US49.76 a barrel
• Iron ore -2.1% to $US68.73 a tonne
• Dalian iron ore +3% to 545 yuan
• LME aluminium -1.6% to $US1907 a tonne
• LME copper -0.1% to $US6325 a tonne
• 10-year bond yields: US 2.29%, Germany 0.54%, Australia 2.68%

On the economic agenda:

• HIA new home sales at 11am AEST, RBA private sector credit at 11:30am
• Chinese manufacturing and non-manufacturing PMIs at 11am
• German retail sales this evening

Stocks to watch:

• AWE cut to neutral at UBS
• Infigen scheduled to release quarterly update
• Origin Energy, Syrah Resources and Mineral Resources quarterly production result
• Northern Star full-year earnings
• Sandfire Resources cut to neutral at JP Morgan
• Scentre Group cut to hold at Morningstar
• Oil could give a boost to energy names this morning.

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As we await the start of the earnings season, American companies have been presenting some upbeat quarterly profit figures, writes IG strategist Chris Weston:

While Apple reports earnings at 6.30am AEST on Wednesday, as a whole US earnings will become less of an issue for investors and the focus here largely turns back to economic data trends and specifically the inflationary readings.

Let's recap though, because 57 per cent of S&P 500 corporate have reported earnings, and we find 78 per cent have beaten the Street's forecast on earnings, by an average of 5.2 per cent, while 72 per cent have beaten on sales.

Great numbers, but that's not going to surprise as this level of beats are only modestly above the average we've seen over past quarters. What is positive though is aggregate EPS growth thus far is an impressive 10.6 per cent, with top line growth at 6 per cent. Both numbers are nicely higher than what was expected going into reporting season.

With valuations getting quite a bit of focus, this is the sort of earnings growth that will keep the bulls happy. But far more needs to happen going forward if we are to avoid a correction of sorts when we step back from liquidity-driven markets to one where we go back to our roots and look at return on equity and earnings growth. How many companies are trading at a discount to intrinsic value? Not many.

The earnings batten though is handed to Japan, where we see over 350 companies reporting today alone. It's also a busy reporting calendar in Europe, so European equity markets should be well traded. 

Of course, Aussie earning season officially kicks off tomorrow with Navitas and then Rio being the biggy. Again, the focus for me is not so much about whether corporates can beat the street's forecasts or earnings, but whether the outlooks are sufficient and inspirational enough for the market to break the 5850 to 5675 range it's been in since mid-May.

Read more.

More than $1 billion of bets against the Australian retail sector will be tested when the earnings season gets under way this week, underlining a difficult year for the stocks with the most to lose from Amazon's entry.

Short exposure to Harvey Norman, JB Hi-Fi, Metcash and Myer is tracking at about $1.3 billion collectively, according to the latest data provided by the securities regulator. With double-digit short positioning for all of those names, including Myer where 16.5 per cent of the company is in the hands of shorts, any surprises could trigger a squeeze.

Increased price volatility has been a notable feature of recent earnings seasons. However, the stakes are higher for retailers whose outlook has been clouded by Amazon's arrival, as well as nervousness linked to the housing market. The online giant has just settled on a former Bunnings distribution centre in Melbourne and it is said to be eyeing a purpose-built Goodman Group lease at Eastern Creek to service Sydney.

Fund managers say that the divergence of views in the retail sector makes it one of the few pockets of the market where consensus and reality are potentially misaligned. The shorts were vindicated when Myer downgraded forecasts earlier this month in an otherwise mild confession season that yielded upgrades from Adairs and Kogan.

"Going into reporting season the biggest stock price surprises are going to come from the most shorted stocks in the market," said investor Reece Birtles from Martin Currie Australia. "Retailers have already performed strongly since peak hysteria from the Amazon threat in mid-June on the back of anecdotes of strong sales performance in categories like electronics and furniture."

In spite of this, short interest in discretionary retail is more than double its long-run average.

Read more.

Hearing implant maker Cochlear has announced its chief executive officer Chris Smith will retire from his position on January 2, 2018.

Dig Howitt, Cochlear's chief operating officer, will replace Mr Smith as president of the company with immediate effect and will takeover as CEO when Mr Smith retires in January.

The company says the appointment of Mr Howitt, who joined Cochlear in 2000, has been part of a succession process.

Mr Smith has been CEO for less than two years. According to Bloomberg, he took the top job in September 2015.

The company also confirmed earnings guidance for a FY17 net profit of $210-225 million. Cochlear said its profit announcement will come August 17.

You can read the ASX announcement here.

James Packer's Crown Resorts is facing allegations from a former first aid manager that the casino told staff to ignore a domestic violence incident because it involved a visiting south east Asian politician, and did not let a chef attend the first aid office until the end of his shift even though he had serious burns.

​In a document filed in the Federal Circuit Court, Crown's former first aid manager, Audrey Gatt, claims she witnessed and complained about more than 20 occupational health and safety incidents at Crown Resorts in the five months she was employed at the casino.

Ms Gatt says in March 2017, security told first aid officers to "ignore" a domestic violence incident involving a notable politician from south east Asia, and to leave the badly beaten woman alone to attend to her injuries.

She says the visiting politician threatened not to attend Crown in the future if he was exposed. She says she complained about the incident the following day.

Ms Gatt also claims that in February she complained about a chef who sustained extensive burns to his right arm but was made to work all day before being allowed to go to Crown's first aid office for treatment. 

She alleges when the chef asked his supervisor for permission to go to the first aid office, he was told there was no one to replace him and he needed to continue working. As a result he needed a skin graft, she claims.

"The chef was not able to speak English and was frightened he may lose [his] job if he tried to argue or attend the first aid office without authority to do so." 

Ms Gatt says on another occasion, a heavy box fell and severed a staff member's finger and  security personnel was delayed in retrieving the finger, which meant the finger could not be reattached. 

She says the accountants employed by Crown at the time "appeared more concerned with the staff's blood having stained the money, and the resulting inability to then count and bank the money, rather than the welfare of the staff member who had just lost his finger".

There's more at the AFR.