Markets Live: Banks power ASX gains

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Gains for the big four banks helped the ASX to advance on Wednesday, with the benchmark closing firmly over the key 6000 level for the first time since the middle of November.

The S&P/ASX 200 index advanced 26 points, or 0.4 per cent, to 6011. The All Ordinaries rose 29 points, or 0.5 per cent, to stand at 6096. The Australian dollar traded at US75.86 cents.

The ASX's close over the 6000 level was a "very positive sign," according to AMP Capital's head of investment strategy Shane Oliver.

"The market had been due for due for a correction as it had got very overbought," he said. "That has been now been worked off."

Banks were one of the main drivers for the market's solid performance on Wednesday, with the financial sector accounting for 13 points out of the S&P/ASX 200's 26 point gain.

Of the big four lenders, CBA rose 0.8 per cent, Westpac and NAB were higher by 0.7 per cent, while ANZ rose 0.5 per cent.

The strength in the sector followed sharp gains for US banks in Tuesday's session after signs of progress on corporate tax cuts and after incoming Federal Reserve chair Jerome Powell indicated that regulation around the banks may be less onerous going forward.

It's not an unusual situation for Australian bank shares to follow the US financial sector higher, said Mr Oliver, noting that the sectors have tended to move in tandem ever since the GFC.

He also noted that, while the signals from Mr Powell on regulation would directly impact US financials, they may have implications for Australian lenders as well.

"The US often sets the trend in regulation globally so the shift might eventually come to Australia," he said. "The tide might be going out on regulation."

Away from the banks and Origin's 2.7 per cent climb added to the previous session's gains when it reaffirmed 2018 earnings guidance and said it was targeting cost reductions at its Australia Pacific LNG liquefied natural gas project.

UBS analysts said that they were retaining their buy rating on the stock, saying they had increased confidence that the combination of lower APLNG costs and higher oil prices will lead to lower debt and higher EBITDA, "facilitating the reduction in interest costs and reinstatement of dividends in FY19."

Seek shares were lower by 3.6 per cent after the job site provider upgraded its earnings forecast for the current financial year while it also indicated a higher net interest expense than previously anticipated.

Dealmaking provided a bit of a focus as well, with Capitol Health shares up 1.6 per cent after the firm announced plans to create one of Australia's biggest providers of diagnostic imaging after making a $356 million takeover offer for Integral Diagnostics, which in turn surged 22.8 per cent.

Delays for millions of future NBN customers expecting to connect through their existing pay television or internet cables could cost taxpayers up to $790 million, a statement from Labor claims.

The delay of new customers being added to the hybrid fibre coaxial (HFC) network for six to nine months, could cost from $423 million to $790 million, according to a joint announcement from shadow minister for communications Michelle Rowland and shadow minister for finance Jim Chalmers.

They pointed to the 2016 NBN Corporate Plan, which included a sensitivity analysis for a situation where delays occurred - and a revenue per home of $47 a month.

But the government has questioned the accuracy of the figures - saying the NBN was still working through the financial forecasts, and the estimates in the Plan were made before the HFC network was being rolled out.

Labor's calculations were made on the assumption that three quarters of two million homes were delayed for half a year, leaving a $423 million shortfall. The upper end of the range assumes three quarters of 2.5 million homes are delayed for nine months, resulting in a shortfall of $793 million.

But a spokeswoman for the Communications Minister Mitch Fifield said the Labor announcement was based on NBN's 2016 Corporate Plan, which was released in August 2015 and updated twice.

"The figures used by Labor reflect estimates made before the HFC network was being rolled out. In the time since that corporate plan was issued, NBN has rolled out HFC to more than a million premises – the fastest rollout of any technology type in the network," she said.

"NBN's latest Corporate Plan estimates a peak funding range of $47 to $51 billion."

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Banks are the star performers today, with the financial sector accounting for 15 points out of the S&P/ASX 200's 28 point gain to 6012.

Of the big four lenders, CBA, Westpac and NAB are higher by 0.9 per cent while ANZ is up 0.7 per cent. 

The strength in the sector followed sharp gains for US banks overnight after incoming Federal Reserve chair Jerome Powell indicated that regulation may be relaxed. 

Australian bank shares have tended to take a lead from US lenders ever since the GFC, noted AMP Capital's head of investment strategy Shane Oliver. 

In addition, the signals from Mr Powell on regulation may have implications for Australian lenders, he added.

"The US often sets the trend in regulation globally so the shift might eventually come to Australia," he said. "The tide might be going out on regulation."

Incoming US Federal Reserve chief Jerome "Jay" Powell may indeed be the "continuity candidate" that the market assumes, but it's unclear that more of the same in terms of monetary policy is what is needed right now, writes Patrick Commins.

On Tuesday night, Australian time, Powell toed the party line in his confirmation hearing with US senators, repeating the consensus positions of the Fed's board under outgoing boss Janet Yellen: there will be a rate hike in December, a few more next year, and a continued run-down of the central bank's bloated balance sheet.

Powell will be appointed at what looks like a sweet spot for the global economy, with investors unruffled by the beginning of the end of the post GFC years of monetary stimulus.

The reduction in central bank support programs, in terms of asset purchases, is halfway through, Citi strategists estimate. And "so far, the impact on markets has been limited," they note. "Perhaps the second half of the taper will bring more market turmoil."

Perhaps. But the timing of when this "paradigm shift" away from extraordinary support will really kick in remains a mystery. This time last year there was a lot of talk of higher rates and losses in bond markets, which would put expensive asset markets around the world under pressure. Instead it was another fabulous year to make money in at the riskier end of financial markets.

The upbeat mood is nicely captured by the fact that International Monetary Fund forecasters in recent months have for the first time since 2010 begun to upgrade their growth outlook.

All of which, as Macquarie economists put it, means now is the time to "make hay while the sun shines".

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Gay marriage has one final hurdle to jump to become law after senators passed a private members bill allowing same-sex couples to wed by 43 votes to 12.

Attention now turns to the House of Representatives, where lower house MPs begin deliberations next week, amid a backlash from opponents directed at Malcolm Turnbull over his handling of the legislation.

Nationals MPs Andrew Broad and George Christensen accused the Prime Minister of lacking leadership by failing to consult sufficiently with conservatives over Liberal Senator Dean Smith's private member's bill and produce a compromise that could be put forward under the Coalition's imprimatur.

Conservatives have argued Senator Smith's bill lacked sufficient protection for religious freedom and attempts to amend his bill have been thwarted in the Senate.

"I think, in my view, there's been a complete lack of leadership," Mr Broad told the ABC.

"All assurances both by the Prime Minister and the Opposition Leader that religious freedoms would be protected — that they believed in those — seemed to be walked away from in what I think is a rather sneaky way."

Mr Christensen endorsed his colleague's comments.

"A true leader would have sought to capture the will of the people and protect freedoms, not this hands-off approach," he said on Twitter.

Government backbenchers and Attorney-General George Brandis attempted to move a number of amendments to extend protections for religious freedom but were steamrolled by the rest of the Senate.

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It started with high hopes by raising $30 million and listing on the ASX last December, after acquiring eight different businesses in the booming 4WD and SUV parts and accessories industry. But less than a year later, Automotive Solutions Group has put up the white flag.

The $500 million predator, AMA Group, has won out in a takeover bid pitched at just 35¢ per share. The issue price in the float was $1, and it's been a tale of woe at ASG for much of its short life as a listed entity.

An independent expert's report from BDO Corporate Finance released on November 28 found the bid from AMA, which runs 100 crash repair outlets, was "fair and reasonable".

New ASG chairman Dr Ken Carr and a fresh set of directors appointed just a month ago have recommended that the remaining shareholders accept the offer. AMA now holds 61 per cent of ASG.

Dr Carr said in the target's statement that "any returns from current turnaround activities are unlikely to result in a material change in performance in the near term".

He also said that ASG would need "ongoing access to financial support to meet its needs over the coming months".

AMA last week advanced an emergency loan of $3.5 million to ASG so it could pay a raft of tax bills across GST, BAS, PAYG and payroll tax, which had fallen due.

ASG said at the time it was the "only reasonable funding option" available to the company. The loan offer came as AMA surged through the 50 per cent mark of acceptances for its bid.

Slater and Gordon shares have been on a rollercoaster ride this week, rising 36.8 per cent yesterday before falling 21.2 per cent today to 4 cents.

In a statement to the ASX today, the company noted the "higher than usual trading volumes" in its shares. 

Slater and Gordon told shareholders yesterday that its lender creditors scheme of arrangement had been approved by senior lenders.

In October, it told shareholders that a 100 for 1 share consolidation will reduce its share capital to 3.5 million shares from 347.2 million shares and that shareholder interests will be reduced to 5 per cent of its total share capital.

Today it reminded shareholders that if its recapitalisation isn't passed then its solvency will have to be reassessed due to unsustainable debt levels.

"If this were to occur, shareholders would most likely receive nothing because the company's debt is greater than its assets," it said today.

Meanwhile, eChoice, an award-winning mortgage aggregator with more than 400 brokers, could be sold to a 'major financial institution' after being placed into voluntary liquidation because of unsustainable debt.

Tony Wales, a director of eChoice and Welas, a private investment company, which is a secured creditor of eChoice, called in liquidators' Rodgers Reidy after deciding that he could no longer support the group in its current form.

A spokesman for the liquidator said eChoice is in liquidation because of an "unsustainable historical debt burden to Welas Pty Ltd, which had supported the group for many years but formed the view that it could no longer continue support".

Thirteen subsidiaries, which are involved in activities ranging from equipment leasing to franchising, are also continuing under control of the administrator.

There are six other subsidiaries with existing contracts and lenders that are not in administration.

eChoice is a mortgage brokerage and aggregator, which provide software, access to lenders and commission processing functions to other borkers. Its panel of lenders include the big four banks and AMP.

Peter Andronicos, managing director and chief executive, was not available for comment.

The company's debt was about $45 million for the financial half-year ending December 31. Revenues fell by nearly 11 per cent to $25 million over the same period.

"Excluding the historical debt burden, the business remains a viable opportunity in the hands of a new owner," according to the liquidators.

Administrators are aware of "one major financial institution that is interested" and it is likely that assets of other companies in liquidation could sell intellectual property, including trademarks, website and 'know-how'.

It would not disclose the names of interested parties.

Bitcoin surpassed $10,000 for the first time, bringing this year's price surge to more than 10-fold even as warnings multiply that the largest digital currency is an asset bubble.

The euphoria is bringing to the mainstream what was once considered the providence of computer developers, futurists and libertarians seeking to create an alternative to central bank-controlled monetary systems.

While the actual volume of transactions conducted in cryptocurrencies is relatively small, the optimism surrounding the technology continues to drive it to new highs.

Bitcoin has risen by more than 50 percent since October alone, taking off after developers agreed to cancel a technology update that threatened to split the digital currency.

Even as analysts disagree on whether the largest cryptocurrency by market capitalization is truly an asset, its $167 billion value already exceeds that of about 95 percent of the S&P 500 Index members.

"This is a bubble and there is a lot of froth. This is going to be the biggest bubble of our lifetimes," hedge fund manager Mike Novogratz said at a cryptocurrency conference Tuesday in New York.

Novogratz, who's says he began investing in bitcoin when it was at $90, is starting a $500 million fund because of the potential for the technology to eventually transform financial markets.

There's no agreed authority for the price of bitcoin, and quotes can vary significantly across exchanges. In Zimbabwe, where there's a lack of confidence in the local financial system, the cryptocurrency has traded at a persistent premium over $10,000.

From Wall Street executives to venture capitalists, observers have been weighing in, with some more skeptical than others as bitcoin's rise has grown steeper, sweeping along individual investors.

The number of accounts at Coinbase, one of the largest platforms for trading bitcoin and rival ethereum, has almost tripled to 13 million in the past year, according to Bespoke Investment Group.

The ASX is holding onto early gains at lunchtime, as investors continue to favour banking stocks.

The S&P/ASX 200 index is up 35 points, or 0.6 per cent, at 6019 while the All Ordinaries is moving in lockstep in points and percentage terms, trading at 6103. The Aussie is at US75.97 cents.

The big four banks are performing well after a solid session for Wall Street financials.

A steady performance from incoming Fed chief Jerome Powell at his confirmation hearing with US senators coupled with signs of progress on corporate tax reform helped US lenders to solid gains.

In Australian trading, banks were the best performers by sector as CBA advanced 0.9 per cent, Westpac rose 0.8 per cent, NAB climbed 0.7 per cent and ANZ rose 0.6 per cent.

Mining giant BHP rose 1 per cent, gold miner Newcrest advanced 1.2 per cent and Galaxy Resources climbed 3.3 per cent.

Supermarkets were adding to gains made in the previous session, with Wesfarmers up 0.6 per cent and Woolworths higher by 0.7 per cent.

Industrials were lagging, however, with Sydney Airport down 0.9 per cent and Transurban losing 0.7 per cent.

Capitol Health shares are up 3.3 per cent today after the firm announced plans to create one of Australia's biggest providers of diagnostic imaging after making a $356 million takeover offer for Integral Diagnostics.

The deal, revealed by The Australian Financial Review's Street Talk column on Wednesday morning, values Integral at $2.46 a share, based on Capitol's most recent close of $1.89. Capitol is offering 6.9 Capitol shares and 36¢ cash for each Integral share.

Crucially, fund managers Adam Smith Asset Management, Microequities Asset Management, Regal Funds Management and Wilson Asset Management, who together own 19.55 per cent of Integral, have thrown their support behind Capitol's plan.

Capitol and its chief executive Andrew Harrison will now need to win over Integral's doctor shareholders.

"We look forward to combining Capitol's and Integral's strengths, including the clinicians, into one of Australia's leading healthcare services providers. Integral's strong hospital network, combined with Capitol's expertise will create a first-class healthcare organisation," Harrison said in a statement

"We look forward to engaging with Integral's highly regarded doctor partners and associates."

Capitol said the deal would create a company with $64 million annual earnings and $70 million net debt, based on 2018 financial year forecasts. Synergies from the deal have been put at $5 million a year.

The deal is priced at 11 times forecast earnings before interest, tax, depreciation and amortisation.

The offer was pitched at a 30 per cent premium to Integral's last close and well above the company's IPO price of $1.91 two years ago.

Integral shares surged more than 26 per cent today.

The Trump administration launched a new trade case against China on Tuesday, opening the first US government-initiated anti-subsidy and anti-dumping probes in decades into imports of Chinese aluminum alloy sheet.

The seldom-used tactic is aimed at accelerating the imposition of duties against unfairly subsidised and dumped products. US companies and industries claiming injury from imports would normally first ask the Commerce Department to open such probes, but government-initiated cases skip that step.

"President (Donald) Trump made it clear from day one that unfair trade practices will not be tolerated under this administration, and today we take one more step in fulfilling that promise," Commerce Secretary Wilbur Ross said in a statement.

The case shows "that we stand in constant vigilance in support of free, fair and reciprocal trade," he added.

The Commerce Department last initiated an anti-subsidy duty investigation in 1991 on softwood lumber from Canada and last initiated an anti-dumping probe in 1985 on semiconductors from Japan.

Ross told US aluminum industry executives on a conference call that Commerce has evidence that China's aluminum producers were selling flat-rolled sheet products in the United States at prices below fair value and were benefiting from unfair government subsidies.

"Available evidence also indicates that US producers of aluminum sheet are suffering injury caused by these imports," Ross said.

The Commerce Department estimated anti-dumping duties of about 56.54 percent to 59.72 percent in the aluminum case. It said imports from China of the flat-rolled metal typically used in construction and in transportation and electrical equipment totalled about $603.6 million in 2016.

Commonwealth Bank of Australia, the nation's largest mortgage, is launching a major overhaul of its lending policies in a bid to "ensure the long-term sustainability of the property market".

It will include toughening of existing lending policies, such as increasing deposits, and the introduction of new measures that will make it harder for borrowers in higher risk suburbs to get loans.

Borrowers will face more rigorous scrutiny of their capacity to repay loans, such as more evidence of any other liabilities and commitments that might impact their long-term capacity to service their outstanding debt.

"This is part of our continued commitment to ensuring the financial well-being of our customers and the long-term sustainability of the Australian property market," a bank spokesman said.

It follows renewed public warnings from the Australian Prudential Regulation Authority about the need for lenders to improve their balance sheet resilience by toughening scrutiny of new borrowers' ability to service loans. This is in addition to heeding speed limits and caps on investment lending.

The regulator is also privately pressing lenders to refine lending criteria amid evidence that many borrowers are under increasing financial stress despite interest rates being at record lows.

This has been intensified by regulatory and investment bank claims that borrowers had qualified for about $500 billion in 'liar loans', which are loans were applicants, or their representatives, had embellished their capacity to repay to gain approval.

Other lenders, including Macquarie Bank and Westpac Group, which includes Bank of Melbourne, BankSA and St George – have recently announced new measures to assess borrowers' suitability by changing the way it calculates loans and borrowers' other commitments. ANZ and AMP have also recently issued 'black lists' of riskier suburbs.

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The latest ballistic missile fired by North Korea was the most powerful yet and could threaten peace "everywhere in the world", US Defence Secretary James Mattis has warned.

North Korea unleashed the ballistic missile into the Sea Of Japan a week after after US President Donald Trump labelled Pyongyang a state sponsor of terrorism because of its nuclear attack threats.

The intercontinental ballistic missile (ICBM) travelled about 1000km in distance and landed within Japan's exclusive economic zone, the US Defence Department said.

Seated beside President Trump at the White House two hours after the missile was launched, Secretary Mattis said: "It went higher, frankly, than any previous shots they'd taken."

"It's a research and development effort on their part to continue building ballistic missiles that could threaten everywhere in the world basically."

"The bottom line is it is a continued effort to build a ballistic missile threat that endangers world peace, regional peace and certainly the United States."

South Korea fired pinpoint missiles into the water in response as a warning to Pyongyang.

A low-key President Trump said, "We will take care of that situation." He did not offer any details.

The missile flew to the east and the South Korean military is analysing details of the launch with the United States, according to a report from South Korean news agency Yonhap, citing South Korea's Joint Chiefs of Staff.

After firing missiles at a rate of about two or three a month since April, North Korea paused its missile launches in late September, after it fired a missile that passed over Japan s northern Hokkaido island on Sept. 15.

As indicated by the futures market, Australian shares are climbing in early trading on Wednesday, with gains from the banking sector shoring up the index.

The benchmark S&P/ASX 200 rose 26 points, or 0.4 per cent, to 6010 while the All Ordinaries advanced a similar amount in point and percentage terms to trade at 6093. The Australian dollar reached US76.00 cents. 

US stocks set the stage for gains in the Australian market, with banks putting in a particularly strong performance in the US after investors took heart from comments from incoming Fed chair Jerome Powell on interest rates and regulation and amid signs of progress on tax cuts. 

Banks on the move in Australia on Wednesday included Westpac, up 1.1 per cent. CBA, up 0.8 per cent, NAB, up 1 per cent, and ANZ, up 0.8 per cent. 

Miners were also helping to support the index, with BHP up 1 per cent and Rio Tinto up 0.8 per cent.

Laggards included CSL, down 0.5 per cent, Aurizon, down 1 per cent, and A2, down 0.9 per cent. 

Iron ore will weaken next year as global supplies increase including from a new mine in Brazil at the same time that steel production risks topping out in China, according to Goldman Sachs, which expects prices to decline back toward $US50 a tonne.

The raw material may fall to $US60 a tonne in three months, $US55 in six and $US50 in 12, according to the New York-based bank's projections, which suggest a second year of lower prices after they dropped in 2017. Benchmark ore with 62 per cent content was last at about $US67 a tonne, according to Metal Bulletin.

The forecast for lower prices "is mainly because we see steel production in China peaking and should fall going forward and iron ore supply is still growing, with S11D ramping up", analyst Hui Shan said in an email to Bloomberg, referring to Vale's giant new mine.

Iron ore investors have endured a volatile ride this year as prices swung in a wide arc on policy shifts in China, where officials are curbing steel supply to cut pollution, as well as on prospects for extra output from miners.

The mainland's environmental cleanup has buoyed prices of steel, aiding mills' profitability, and prompted speculation that the trends enable users to pay more for iron ore. That's not an argument Shan finds persuasive.

Iron ore prices should be determined by their "own supply-and-demand dynamics, not how much buyers could potentially pay", said Shan. Steel margins have been high for an extended period, and they're high precisely because of policy-driven output cuts, which depress iron demand, Shan added.

Last night, the OECD urged Australia to begin increasing official interest rates, even if inflation remains weak, to cool the housing market and prevent a blowout in risky debt levels.

Forecasting solid economic growth and falling unemployment over the next two years, the OECD said it was time for both monetary and fiscal support to be "gradually withdrawn".

The Organisation for Economic Co-operation and Development's latest world economic outlook argues that the Reserve Bank of Australia is likely to begin hiking the official cash rate in the second half of 2018 as a pickup in wages and prices becomes more entrenched.

"A tighter policy stance will ease pressures on house prices and will reduce the threat of the build-up of other financial distortions" in Australia, they said in their report published in Paris on Tuesday.

In lending support for higher official interest rates, the OECD said the growing shift towards normalising monetary policy in the big advanced economies is unlikely to blunt incentives among companies to invest in productive assets.

By contrast, it warns the greatest hurdles to a long-run recovery may include the fact that expectations for future growth have been permanently dampened since the global recession, as well as doubts about trade liberalisation and a decline in the number of new businesses being created in countries such as Australia.

The remarks add to a growing body of commentary by monetary policy experts who question whether central banks should wait for signs of inflation before unwinding crisis-era rates and bond-buying programs. Former Reserve Bank board member John Edwards cautioned earlier this month that inflation may not be the best gauge as to how central bank rates are likely to evolve in the near-term.

The Reserve Bank expects core inflation to remain below the bottom of its 2-3 per cent target for most of the next two years, suggesting it sees no urgency to join the global trend towards tighter policy settings.

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When in doubt buy risk assets has been the message we have been provided with once again, notes IG's Chris Weston. 

Our call for the ASX 200 open sits at 6021 and we see the market having the potential to test the 9 November high of 6052 in the near-term.

Perhaps not today, but it would not be out of the realms of possibility that we see these highs come into play, with SPI futures also needing a break of its recent high of 6047.

A lot will ride on the feel to other Asian markets though and if we can see good buying here it will give the moves in the ASX 200 real backbone.

Yesterday, we saw the CSI 300 held and closed above its August uptrend at 3991 and could see modest gains on open this morning. The Hang Seng was down 1.2 per cent at the lunch break yesterday, on news the Chinese regulator had suspended approvals for certain mutual funds that were allocating up to 80 per cent of this portfolios into Hong Kong listed equities.

However, after calmer heads prevailed we saw the index rally to close unchanged and we should see a stronger open here, as we should in the Nikkei 225, which will feed off USD/JPY, which now sits at ¥111.50 and has fully negated and failing to follow-through after yesterday's bearish outside day reversal.

So, with Aussie banks expected to work well it would be positive to see energy and materials names put in a few points, although the leads are not overly inspiring, with copper -2 per cent , spot iron ore +0.7 per cent (iron ore futures are lower by 0.1 per cent ) and we can see small selling in US crude. Industrials should work fairly well today though and I'd expect outperformance here. 

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The Reserve Bank of New Zealand said on Wednesday it would ease restrictions on home loans given the recent cooling in the housing market, which is likely to be dampened further by new government policies.

In its half-yearly Financial Stability Report, the central bank said it would undertake a "modest easing" of loan-to-value ratio (LVR) restrictions from Jan. 1, 2018.

House prices had risen more than 50 percent nationally in the last 10 years, and almost doubled in the city of Auckland, but have more recently cooled as a slowing economy and home loan restrictions curbed demand.

The move comes as demand is expected to be hit further by a ban on foreign purchases of existing homes which is due to begin in early 2018.

"Over the past six months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016," RBNZ Governor Grant Spencer said.

"Housing market policies announced by the Government are also expected to have a dampening effect on the housing market."

As part of the changes, the RBNZ will allow banks to make up to 15 percent of new loans to owner occupiers at LVRs of more than 80 percent. That is up from 10 percent of new lending currently.

Also, up to 5 percent of banks' new loans to investors can be at LVRs of more than 65 percent, compared to 60 percent currently.