Markets Live: ASX posts a weekly gain

And that's Markets Live for the week.

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See you all again on Monday morning from 9.

The ASX ended the day with a loss, closing down 43 points, or 0.8 per cent, after another missile test by North Korea rattled investor nerves. 

The benchmark managed a 0.4 per cent gain for the week, however, its first weekly advance in four.

Miners dragged the index down on Friday, with BHP down 2.3 per cent, Rio TInto down 2.3 per cent and South32 down 2.8 per cent. Fortescue fell 4.5 per cent after announcing its CEO will step down.

The materials sector also lost ground over the week, falling 2.2 per cent.

Utilities were the worst performers by sector, losing 3.6 per cent, and telecoms also put in a poor performance, falling 1.5 per cent.

Financial sector stocks gained ground over the week, however, with the sector rising 2.9 per cent and real estate stocks climbed 0.7 per cent over the week.

China has notified regional regulators that it aims to stop exchange trading of cryptocurrencies by the end of September, people familiar with the matter told Bloomberg.

The plan was distributed by a People's Bank of China-led group overseeing Internet finance risks, said the people, who asked not to be named because the information is private.

The notice suggests policy makers will move quickly with their most far-reaching measure to rein in the growth of cryptocurrencies.

China's crackdown, which includes a ban on initial coin offerings announced last week, has fueled a 30 percent sell-off in bitcoin from its all-time high on Sept. 1.

The digital currency tumbled on Thursday after BTC China, one of the country's largest cryptocurrency venues, said it would stop handling trades by month-end.

Rivals OKCoin and Huobi said they haven't received any regulatory orders to halt. The PBOC didn't immediately reply to a faxed request for comment.

The cryptocurrency ban will only apply to trading on exchanges, according to people familiar with the matter. Authorities don't have plans to stop over-the-counter transactions, the people said.

China accounts for about 23 percent of bitcoin trades and is also home to many of the world's biggest bitcoin miners, who use vast amounts of computing power to confirm transactions in the digital currency.

While Beijing's motivation for the exchange ban is unclear, it comes amid a broad clampdown on financial risk in the run-up to a Communist Party leadership reshuffle next month.

Bitcoin's surge over the past few years has fuelled concerns of a bubble and prompted warnings of a potential crash from skeptics including JPMorgan Chase & Co.'s Jamie Dimon and billionaire investor Howard Marks.

Qantas CEO Alan Joyce's record $25 million pay this year makes him just one of five CEOs to receive more than $20 million in reported pay in one year, and the first to top highs not seen since the financial crisis.

The Qantas annual report, released on Friday, showed that Mr Joyce's high pay reflects a large payout of his long-term incentives and shares (Mr Joyce's base pay was just $2.1 million) which have ridden the benefits of the growing company share price which has increased from a low of almost $1 in 2014 to close to $6 today.

Mr Joyce, who is widely credited for turning around the ailing airline, made a personal donation of $1 million to the 'yes' campaign for same-sex marriage earlier this week.

Three years ago, 97 per cent of Qantas shareholders voted to weight Mr Joyce's long-term incentives to pay-out this year if he could deliver the goods.

The Irish-born Australian citizen has delivered on his promise and seen his pay jump from $12 million in 2015 and $13 million in 2016 to $24.58 million this year.

His senior executive team have been equally well rewarded with CEO of Jetstar Jayne Hrdlicka receiving $8.13 million and CEO of Qantas International Gareth Evans receiving $8.18 million.

There is no question that these pay outcomes are high. That's because they reflect the company's exceptional performance", Qantas chairman Leigh Clifford AO said in a statement.

"The company's market value has risen from $2.5 billion to $10 billion. We have generated around $3.5 billion in profit. The share price has risen by about 350 per cent over three years. And the value of executive bonuses, which are mostly paid in Qantas shares, have risen with it," Mr Clifford said.

Qantas shares are down 0.9 per cent. 

Most of the nation's leading investment banks, law firms, private equity houses and advisers will begin using artificial intelligence technology to improve due diligence processes, a move set to slice both the risk and cost of deal-making across the economy.

Rapid global advances in artificial intelligence and "natural language processing" algorithms will arrive in CBD towers across the country via the "virtual deal rooms" provided by Sydney-based technology firm Ansarada, which has an 80 per cent share of that market.

Since it was established more than a decade ago, Ansarada technology has been used in more than 20,000 deals, including internationally. The company has 200 staff in offices around the world and was profitable from its first day.

It is preparing to tap into its history of deals to provide insights to companies and their advisers about how bidders are likely to respond during live deals and to monitor due diligence.

Natural language processing, which refers to AI-based systems that read text, can bolster due diligence (DD), which typically involves tens of thousands of documents being reviewed by highly priced lawyers or bankers to identify risks.

The DD process can take many months, but due to the huge volume of material, important facts are often missed. AI promises to reduce risk by more accurately locating relevant documents and clauses and then presenting them to decision makers.

"We are using technology to read documents normally done in expensive, cumbersome due diligence processes that only scratch the surface – AI allows computers to read and analyse documents," said Ansarada founder and CEO Sam Riley.

"Soon we will be able to classify documents by type so a banker will be able to ask 'show me all the change-of-control clauses' and then see each of those on their screen."

Here's the AFR's Patrick Commins on why offshore investors aren't keen on Aussie shares:

It's an article of faith among investment professionals: Aussies have too much money in domestic shares.

And they're probably right. About half of our money is in domestic shares, on Rainmaker numbers. And for self-managed super funds, the allocation to offshore shares is miniscule.

That said, it does makes sense to keep our money close to home.

"That home bias is absolutely justified," Franklin Templeton Investments head of equities Stephen Dover says.

It's ironic, really. I have come all the way to Saigon, Vietnam, to interview some of the most senior people at Franklin Templeton, a firm with a mighty $US750 billion in assets under management, to hear that our preference for Aussie shares is "absolutely justified".

"It doesn't mean it doesn't make sense to diversify globally," Dover clarifies. "It just means that to diversify globally has a higher hurdle than it does in other countries."

FT purchased Australian fund manager Balanced Equity Management a little over six years ago, meaning Dover can see our sharemarket from both an overseas and local angle.

And his comments on the local market don't come unprompted – I did ask for how overseas investors view our market. There's that home bias again.

Around 30 per cent of the Aussie sharemarket is foreign-owned. That may sound like a lot, but it's low for a developed market, Dover says. And what gives us our home bias also makes our sharemarket less attractive to foreigners.

Between the preferential tax treatment of our compulsory superannuation system and our dividend franking credit scheme, "the same stream of earnings [from an ASX-listed company] is more valuable to an Australian investor than it is to foreign investors – and that is unusual," Dover explains.

"That makes Australian equities more expensive relative to equities in other markets, so it makes it less favourable to foreign investors."

The end result: relatively little offshore ownership.

The ASX resources sector is heading for a loss of around 1 per cent this week as it gives back some sharp gains made earlier in the week.

Credit Suisse portfolio strategists, for one, are trimming exposure to Australian commodity stocks. 

"We have been bulls on the Aussie commodity stocks for over a year. However, after the strong run we think it is time to further trim our long position," strategist Hasan Tevfik says. 

"At our peak we had five commodity stocks in our 12 stock long portfolio. This came down to four when we took profits on Fortescue a couple of weeks ago. Today, we trim further and take profits on South 32.

"The 19th Communist Party Congress will begin on the 18th of October and we think it is more prudent to observe the the event with a less overweight position. 

"It will mark Xi Jinping's first five years in power and it is interesting this time can be broken up into two phases (1) when liquidity conditions were tightened (and the iron ore price fell) and (2) when liquidity conditions eased. Liquidity conditions in China are accommodative now and we worry they may normalise after the Congress."

Mr Tevfik continues to hold BHP, Rio Tinto and Bluescope in the Credit Suisse strategy long/short portfolio. 

Who will succeed Warren Buffett as chief executive officer of Berkshire Hathaway?

It's one of the most guarded secrets in the business world. That didn't stop JPMorgan Chase's new Berkshire analyst from placing odds on one man.

"The most likely successor in our view, who Warren Buffett regularly praises, is Greg Abel," JPMorgan's Sarah DeWitt said in a note released on Thursday, initiating coverage of the company.

Don't count Buffett out yet, though. The billionaire investor, who turned 87 last month, "shows no signs of slowing and could possibly be at the helm for another decade in our view", she wrote.

Abel, 55, is the head of Berkshire's utility businesses. He's often mentioned by analysts and investors as a leading contender to replace Buffett, along with reinsurance executive Ajit Jain.

Both managers were praised by Berkshire vice chairman Charles Munger in 2015 as "world leading" executives who are in some ways better than Buffett.

The ASX is firmly in the red at lunchtime on Friday as investors head toward the weekend in a gloomy mood after North Korea's latest provocation. 

The rogue state fired another missile over Japan a day after threatening to sink Japan and reduce the United States to "ashes and darkness" for supporting a UN Security Council resolution imposing new sanctions against it.

The benchmark declined 0.6 per cent, or 34 points, to trade at 5704.20, with the materials sector taking 17 points off the index.

BHP fell 1.8 per cent, South32 declined 3.3 per cent, Rio Tinto lost 1.9 per cent and Fortescue Metals dropped 4.4 per cent after announcing its CEO will step down. 

Banks were lower as well, with Westpac down 0.9 per cent, CBA down 0.6 per cent, AN and NAB down 0.4 per cent each.

Building materials firm James Hardie fell 3.6 per cent and retailer Myer dropped 4.1 per cent. 

On the upside, Domino's PIzza climbed 3.4 per cent and Goodman Group rose 1.5 per cent, with the moves helping to limit downside for the benchmark. 

Fortescue Metals Group shares are down 4.2 per cent. 

Chief executive Nev Power will step down from the role in February after more than six years at the helm of the iron ore producer.

Fortescue announced on Friday morning Mr Power would end his term as chief executive in February and take some "well deserved and well overdue time off".

Mr Power has been chief executive of Fortescue since July 2011, overseeing the iron ore miner's growth and subsequent cost and debt reduction which has cemented its place as the world's fourth largest iron ore producer.

Chairman Andrew Forrest said a feature of the Pilbara iron ore producer's success over the past 15 years had been the strong relationship between its chairman and chief executive.

Mr Forrest, who preceded Mr Power as Fortescue's CEO, said he announced the news with "excitement for Fortescue, elation for Nev and my own personal sadness".

Nev has executed his duties to the highest degree and met or exceeded the often unreasonable standards set by his board," Mr Forrest said in a statement.

"We could not be more pleased with his stewardship and respect his decision that it is time for the next chapter of Fortescue to begin.

"This is consistent with our long term succession plan and we both share great confidence in the quality of internal and external candidates to continue Fortescue's legacy."

Fortescue's chief operating officer Greg Lilleyman, who joined the company in January from Rio Tinto, has been viewed as a potential successor.

The company's chief financial officer Elizabeth Gaines is also relatively new to the role, stepping from the company's board into the C-suite in February following the departure of Stephen Pearce, who is now finance director at London-based Anglo American.

Steel production in China chalked up a fresh monthly record as mills in the world's top supplier increase output to profit from a rally in prices to six-year highs before government-ordered pollution curbs are implemented.

Crude steel output climbed to 74.59 million tonnes last month, surpassing the previous peak of 74.02 million in July, and up from 68.57 million in August 2016, according to the statistics bureau on Thursday.

While that's an all-time high for the month, daily output was less than the record in June. Production surged 5.6 per cent to 566.4 million tonnes in the first eight months, also a record.

Steel prices have been supercharged this year in the country that accounts for half of global output. A crackdown on illegal mills shuttered some supply, boosting the remaining producers, while demand has been underpinned by significant state-backed stimulus.

Investors are also eyeing signals that the government will press ahead with anti-pollution curbs over winter.

"Steel mills have boosted output as profit margins are good," said Helen Lau, an analyst at Argonaut Securities (Asia) in Hong Kong. "Production cuts won't set in until September or October, so steelmakers are churning out as much as they can in the meantime."

Spot reinforcement bar in China, a benchmark product used in construction, hit 4396 yuan a tonne early this month, the highest level since October 2011. Prices have gained 30 per cent this year.

Steel output may drop in coming months as Asia's top economy presses ahead with supply-side reforms. Hebei province, the centre of China's mammoth steel industry, has plans that'll allow for winter output cuts of as much as 50 per cent to reduce pollution. Citigroup has estimated daily production could shrink 8 per cent because of the environmental crackdown.

The British pound, bolstered by an unexpected policy turn at the Bank of England, could soon recoup all of its post-Brexit vote losses.

The currency surged 1.4 per cent against the US dollar, making sterling the best performer on Thursday night among G10 currencies. 

An unexpected and decidedly hawkish shift in tone from the Bank of England's Monetary Policy Committee, or MPC, fuelled the currency market moves.

"A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target," according to a statement released by the bank.

The pound promptly leapt to $US1.3404, the highest it has traded since the UK vote to leave the European Union in June 2016. The pound plunged from $US1.50 on June 24, 2016 as the result of the vote become clear.

"The next test against the US dollar is $US1.35, a break of which would be very surprising as it would signal a move back towards the kind of levels we were seeing prior to the Brexit vote," said OANDA's Craig Erlam.

The pound was at $US1.3390 on Friday morning.

The yield on UK 10-year government notes rose nine basis points to 1.23 per cent, as the market priced in a 50 per cent chance of the Bank of England hiking at its next – November 2 – meeting, up from a previous 10 per cent chance, said NAB economics director David de Garis, with the chances of a rate hike at the MPC's December 14th meeting reaching 80 per cent, up from 36 per cent.

New Zealand's central bank may be facing the biggest shake-up to the way interest rates are decided since it pioneered inflation targeting three decades ago.

The main opposition Labour Party, which has a chance of victory in a September 23 election that's too close to call, wants the Reserve Bank to add full employment to its existing sole mandate of price stability.

It also proposes policy be decided by a committee that would include external members, rather than the governor as lone decision maker.

While adding employment would bring New Zealand into line with the Reserve Bank of Australia and the Federal Reserve, scrapping the sole focus on inflation adds to uncertainty brewing in markets about a potential new government and its economic policies. The prospect of a new RBNZ chief being appointed in the next few months to succeed Graeme Wheeler is further fuelling the anxiety.

"It will probably all come down to how the next permanent governor decides to interpret any changes," said Paul Dales, chief Australia and New Zealand economist at Capital Economics in Sydney. "If Labour were to win and its policies weakened growth and inflation, then it would take even longer to satisfy a dual mandate. A growth-minded governor may be more inclined to keep interest rates lower for longer."

New Zealand's dollar became the second-worst performer in a group of 10 currencies the past month as traders cautiously watched Labour's popularity soar after it installed Jacinda Ardern as leader in early August. The kiwi dipped again late Thursday when a One News/Colmar Brunton poll showed Labour maintaining a small lead over the ruling National Party.

A poll-of-polls compiled for Radio New Zealand has the two major parties neck-and-neck, with both able to form coalition governments after post-election talks with smaller parties. 

Read more here

Across Asia this morning the yen rose and South Korean stocks retreated after North Korea's missile launch over Japan. 

While US stock futures also dropped, equities in Tokyo traded sideways, showing that the broader market reaction to the latest North Korean provocation is muted.

Tensions had already resurfaced on Thursday, when the Nikkei reported that Pyongyang was preparing another missile launch.

Ten-year Treasury yields were down even after data showing US inflation quickened, supporting an uptick in expectations for a Federal Reserve rate hike.

"I wouldn't necessarily say this is an escalation," James Soutter, portfolio manager at K2 Asset Management in Melbourne. "This is more of a continuance of provocation. Hence markets won't like it, but I don't think it's necessarily the precursor to a sustained market pullback."

Markets are showing signs of becoming conditioned to actions from North Korea, which has launched more than a dozen missiles this year and tested a nuclear device. Initial reactions have become short lived.

Global equities climbed to a record high this week as earnings and faith in economic growth overshadow the escalation of tensions on the Korean Peninsula.

The latest missile, which was launched at 6:57am and flew over the northern island of Hokkaido before landing in the Pacific Ocean, comes after the UN Security Council on Monday approved harsher sanctions against North Korea as punishment for a nuclear bomb earlier this month.

Yoshihide Suga, Japan's government spokesman, told reporters that the situation was similar to that when a missile was fired over Japan on Aug. 29, NHK reported.

Australian shares are off to a weaker start after North Korea fired another missile over Japan.

The benchmark S&P/ASX 200 index lost 24 points, or 0.4 per cent, to 5714.40 in early trading.

Futures had been pointing to a higher start for the ASX following more records in the US stock market overnight and before news emerged of North Korea's latest provocation.

The yen jumped and S&P 500 Index futures declined in early Asia trading as news emerged of the missile launch which came after the UN imposed harsher sanctions against Kim Jong Un's regime.

Miners were the worst performers by sector, taking 12 points off the index, with BHP down 1.5 per cent, South32 down 3.6 per cent and Rio Tinto down 2 per cent.

The sector was extending losses from Thursday when some weaker-than-expected data from China raised questions about the strength of its economy.

Banks were also weak on Friday morning, with Westpac down 0.8 per cent, ANZ also down 0.8 per cent, CBA down 0.5 per cent and NAB also down 0.5 per cent.

Myer fell 4.8 per cent after it was downgraded to underperform at Credit Suisse.

A hat-trick of global economic news bowled over financial markets in the past 24 hours and has given pause for thought to investors predicting never-ending ultra low interest rates and the death of inflation, writes AFR's John Kehoe.

• "US inflation surprises to the upside."
• "Bank of England sends strong signal on interest rate rise".
• Australia posts the "best six months of employment growth in 17 years".

Global bond yields rose overnight as traders factored in the possibility of central banks becoming less dovish and tightening monetary policy.

To be sure, given other headwinds, few are predicting a rapid inflation breakout or rates rising quickly.

But the trio of interest rate-connected news in the US, United Kingdom and Australia at least gives heart to bond bears and inflation hawks betting that dormant price pressures and anchored rates may not last forever.

Long-term structural factors continue to weigh on inflation such as the globalisation of the labour market, weak productivity, the digitalisation of the economy and an ageing population.

Ultimately, these trends may be setting low inflation expectations among consumers and employees, in perhaps the biggest inhibitor to faster price gains.

But with US unemployment a very low 4.4 per cent, Fed chair Janet Yellen is hoping that price pressures and wages will ultimately pick up.

Similarly, the Reserve Bank of Australia will be buoyed by employers adding 54,200 jobs in August, more than three times the consensus forecast.

Like the Fed, central bankers at Martin Place are yearning for an uptick in prices and wages to demonstrate that the Phillips Curve is not broken, but merely flatter.

Ultimately, however, the RBA, Fed and BoE will want to see more than fledgling signs of firmer inflation and labour market tightness before becoming overtly hawkish.

Making news this morning:

North Korea has fired an unidentified missile eastward from the Sunan district in its capital, Pyongyang, South Korea's military says.

The South Korean and US militaries are analysing details of the launch which was early on Friday, the South's Office of the Joint Chiefs of Staff says.

The missile has flown over Japan, Japan's NHK television said. South Korea's presidential Blue House has called an urgent National Security Council meeting.

The North's launch comes a day after the North threatened to sink Japan and reduce the United States to "ashes and darkness" for supporting a UN Security Council resolution imposing new sanctions against it for its September 3 nuclear test.

The North previously launched a ballistic missile from Sunan on August 29 which flew over Japan's Hokkaido island and landed in the Pacific waters.

Japanese cabinet secretary Yoshihide Suga said Japan would take appropriate action. He said the missile fell into the sea 2,000 kilometres east of Hokkaido Island and there was no evidence fragments of missile had fallen on Japan.

Here's the overnight action in numbers: 

• SPI futures up 7 points or 0.1% to 5742
• AUD +0.3% at 80.06 US cents (Overnight range: 0.7956 - 0.8016)
• On Wall St: Dow +0.2%, S&P 500 -0.1%, Nasdaq -0.5%
• In New York, BHP -1.6% Rio -1.8%
• In Europe: Stoxx 50 +0.1%, FTSE -1.1%, CAC +0.2%, DAX -0.1%
• Spot gold +0.3% to $US1326.46 an ounce
• Brent crude +0.1% to $US55.22 a barrel
• US oil +0.8% to $US49.67 a barrel
• Iron ore -3.4% to $US73.99 a tonne
• Dalian iron ore -2.7% to 510 yuan
• Steam coal -0.3% to $US100.00, Met coal +0.5% to $US207.00
• LME aluminium -0.6% to $US2098 a tonne
• LME copper -0.7% to $US6498 per tonne
• 10-year bond yield: US 2.18%, Germany 0.41%, Australia 2.72%

On the economic agenda today:

• BusinessNZ manufacturing PMI August
• US Empire manufacturing index September
• US Retail sales August
• US Industrial production August
• UofM preliminary consumer sentiment September

Broker actions:

• Myer cut to underperform at Credit Suisse
• Macquarie Telecom Group new buy at Canaccord

The ASX is set to inch higher at the open as it looks to snap its streak of three weeks of losses, says IG's Chris Weston.

We can see fairly uninspiring and lacklustre leads. The S&P 500 closed -0.1% and basically hasn't moved for three days (hence we see the VIX index at 10.4%), with high yield credit spreads widening a few basis points, while SPI futures closed 9 points higher in the night session at 5744.

Our call for the ASX 200 sits at 5742, and should see any gains capped into 5777, while the downside should be limited to 5718, although on a positive note the index looks destined to snap three weeks of losses.

Clearly, the balance of power is held by the Aussie financials and while the higher inflationary macro backdrop is a positive for the space on open, let's not forget the ASX financial sector has gained 3.6% this week and if the US banks are to go by we may see traders fading the opening levels, which in turn could weigh on the index.

The key macro thematic of the week has been reflation and the US has come to the party and snapped five months of below consensus core CPI prints, delivering a print modestly above expectations at 0.248%, while headline inflation came in at 0.4%, with the street modelling 0.3%.

Therefore, this week we have seen above expectations inflation surprises in China, Sweden, India, the UK and the US and the interest rate markets have changed quite markedly this week.

There is now a 46% chance the Fed hike in December, relative to a 25% probability seen last week and it's no surprise in this environment that US tech is underperforming (the S&P 500 tech sector closed -0.4%), while banks continue to find support. 

Read more here

Choppy trading in Europe and the US overnight is setting the ASX up for a slightly higher open this morning.

The standout event for markets overnight was the Bank of England's interest rate meeting where policymakers indicated that they could hike rates within months.

The odds on a 25 basis-point-rate increase by the BoE by November rose to about 50 per cent following the announcement compared to 40 per cent just beforehand. A hike is fully priced in for February 2018.

US consumer inflation also came in a touch stronger than expected for August, at 0.4 per cent, bolstering the case for a third US interest rate hike this year.

In the wake of the inflation data, the probability of a December US rate hike increased to 50.9 per cent from 41.3 per cent on Wednesday, according to CME Group's FedWatch program.

"Traders are really getting worked up by the resurgence of the policy tightening theme," said John Hardy, the head of foreign-exchange strategy at Saxo in Hellerup, Denmark.

On the US stock market, Boeing pulled the Dow Jones Industrial Average up to a record high on Thursday, while the S&P 500 fell.

European stocks edged up to a five-week high on Thursday, boosted by energy stocks and retailers. Britain's FTSE fell 1.1 per cent, weighed by sterling shooting higher when the Bank of England said it would likely raise rates in the coming months.

Bitcoin fell for a fifth day, the longest losing streak in more than a year, after one of China's largest online exchanges said it would stop handling trades by the end of the month amid a government crackdown on cryptocurrencies.