Markets Live: China weighs on ASX 3:55pm: The economy's sluggish transition away from the peak of the mining boom has been reflected in recent profit downgrades, UBS' head of strategy David Cassidy says. I think there's no doubt that the transition's been a bit sluggish, particularly on the housing construction side, where there's been some weakness. Some of [the downgrades] have been stock-specific, but there's no doubt that the economy has been struggling with the transition to some extent," Mr Cassidy said. I think the soft patch is going to extend until the election at least. I think the foundations are being laid for better profitability next year in terms of the currency coming back, the lag impact of the interest rates cuts we've seen and possibly one or two more to come. Also I expect business confidence will pick up post change of government. As long as nothing too disastrous comes out of China over the balance of the year, I do see potential for a better profit story next year. 3:40pm: Personal finance editor John Collett and banking reporter Clancy Yeates have been discussing the Australian dollar and how travellers can manage the blow from the sharp drop in the dollar. 3:29pm: One of the side effects of the global financial crisis has been a huge expansion of European organised crime, the Financial Times reports. Rob Wainwright, director of the EU's crime-fighting agency, said Europe's black market in counterfeit foodstuffs, pharmaceuticals and machine parts doubled to a value of about €2bn in the early years of the recession. The groups are profiting from an increased demand for cheap goods and finding ways to cash in on EU member states' attempts to boost tax revenues, he told the Financial Times. In particular, a new breed of cyber criminals in Russia, Ukraine and other parts of eastern Europe are carrying out increasingly sophisticated online attacks on financial services groups. 3:21pm: Billabong said refinancing and asset-sale talks with former suitors Sycamore Partners Management and Altamont Capital Partners are "well advanced." Shares in the company, which has breached debt repayment terms, surged as much as 35 per cent following the statement to the ASX and were 31 per cent higher at 17 cents at 2.49 pm. The Gold Coast, Australia-based retailer, whose market value reached $3.84 billion in May 2007, has fallen about 80 per cent this year after raising capital, selling assets and rejecting at least two takeover bids in less than two years. The company cut its earnings forecast again earlier this month and said it may sell Canadian retail chain West 49 to repay debt. 3:05pm: More on China. The continued fall in the Shanghai Composite Index - it was trading around 1888 just after 2.50pm - is dragging down Asian stocks. The Australian dollar has weakened too, but is still trading above 92 US cents. The CSI 300 Index of China's biggest companies slumped 4.8 per cent at 1.15pm in Tokyo, the lowest level since February 2009 and taking a five-day rout to 15 per cent. The MSCI Asia Pacific Index lost 1.3 per cent. Standard & Poor's 500 Index futures fell 0.4 per cent. The Aussie and the Kiwi lost at least 0.3 per cent versus the greenback, while the yen climbed 0.4 per cent to 97.39 per US dollar. Copper slid to its lowest level since July 2010. China's biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998. 2:54pm: So how worried should we be as China slows? According to Reuters columnist John Foley, perhaps not as much as we think we need to. Here's some of his views on impact of Chinese's economic slowdown on Australia. Consider Australia. A third of its exports go to China, according to calculations based on data from the International Monetary Fund. That's mostly mined commodities like iron and coal. Yet the total value of those exports was equivalent to just 5 per cent of Australia's GDP in 2012. Trade figures don't capture the full extent of economic interdependence. ... For Australia, Chinese demand has boosted growth in other ways, such as raising prices for commodities it sells to other customers. 2:42pm: The days of Coles "dollar bread" may be numbered, following a price rise the retailer is believed to have agreed with its baker of private label bread, Goodman Fielder. Shares in food products group Goodman Fielder surged today on news it has "successfully negotiated a private bread contract," which is believed to be with Coles, for the retailer's "dollar bread" contract. The new contract helped to push up the food products' group's shares by 4c to 75c. 2:34pm: Deutsche Bank's head of strategy, Tim Baker, said the raft of recent profit downgrades is continuing the trend that we have seen for the past few years. "I think the risk though is that December half FY14 earnings need to be trimmed a bit, given that momentum in the economy doesn't appear to be particularly good based on the recent data flow," Mr Baker said. I'm a bit more worried about the December half earnings given they have a bit of a bounce forecast in them then the June half earnings. Where we sit right now isn't quite as bad as the last few years. So the real issue is if we get the transition we are looking for, it should stay better then it has been. The worst case scenario is nothing's changed - so steady downgrades and not much growth. 2:05pm: Wind farms, hydro power and other renewable energy sources will actually cut household electricity bills, not push up bills as detractors have claimed, a new study suggests. Research commissioned by wind farm owner Meridian Energy found the national renewable energy target - which requires electricity generators to provide at least 20 per cent of power from clean sources by 2020 - will ultimately force down wholesale power prices. It found the renewable energy legislation would save Victorian households about $35 a year if the carbon price stayed, and $50 if it were abolished. South Australia - which already gets more than 20 per cent of power from renewables - would save as much as $56 a year. It is a different story in NSW and Queensland, where renewable energy has less impact on wholesale prices. Households in the northern states would pay up to $27 more because of the legislation. 1:41pm: Chinese markets have got even more to worry about now. The outlook for Hong Kong's banking system was lowered to negative from stable at Moody's Investors Service lenders" growing exposure to borrowers in China. Hong Kong banks are increasingly reliant on the mainland because real interest rates in the city remain low amid surging property prices, the credit-rating company said in a statement yesterday. These circumstances ""may contribute to adverse future operating conditions for Hong Kong banks,"" it said. Hong Kong banks are turning to borrowers in the mainland at a time when slower economic growth and efforts to rein in shadow banking are leading to rising bad loans. Non-performing loans at Chinese banks rose for six straight quarters through March 31, the longest deterioration in at least nine years. The increase may accelerate in the coming months, Moody's said in a separate statement yesterday. China's markets are down heavily: Hang Seng: -1.1% Shanghai: -3.1% Shenzhen: -4.5% SZSE comp: -4.3% 1:28pm: The tumble in Chinese stocks that sent the CSI 300 Index into a bear market is set to continue as tight credit deepens the nation's economic slowdown, according to Bank Julius Baer & Co and Societe Generale. The CSI 300 lost another 1.5 per cent in early trade this morning and was poised to close at the lowest level since December 4. Money market rates that have more than doubled in the past six weeks will weigh on China's indebted developers and manufacturers, said David Poh, who helps oversee $113 billion as the regional head of portfolio-management solutions at Societe Generale's private bank. ""We could see some downside pressure in the near term,"" Wong said in a telephone interview from Hong Kong yesterday. 1:06pm: Foods giant Goodman Fielder has renegotiated its private label bread contract with supermarket chain Coles. But in a case of good news, bad news, Goodman Fielder expects its earnings for the 2012-13 financial year to be lower than in the previous year. Full year earnings before interest and tax (EBIT) are set to be in the range of $195 million to $200 million, down from $233 million in 2011/12, it said on Tuesday. Goodman Fielder is Australia's largest listed food manufacturer, with brands including MeadowLea, Praise, White Wings, Pampas, Mighty Soft, Helga's and Wonder White. Goodman shares are up 5.3 per cent to 74.75 cents. 12:47pm: Supermarket group Coles has denied paying Bangladeshi suppliers so little they cannot operate safe factories. Coles also said it was pulling out of Bangladesh within ""the next few weeks"" and if it returned it would sign a garment industry safety accord put together following the collapse of a factory building which killed more than 1,100 people in April. 12:28pm: Gold miner Newcrest has brought in a former chairman of the corporate regulator to review the way it keeps investors informed about its business. Newcrest is currently under investigation by ASIC for events leading up to the company's announcement of a $6 billion writedowns earlier this month. ""Whilst the board is already reviewing events leading up to 7 June 2013, we have decided to obtain an independent perspective,"" Newcrest chairman Don Mercer said. Former ASIC chairman Maurice Newman will conduct the review of the company's disclosure and investor relations practices, he said. Newcrest shares are down 2.4 per cent to $9.40. 12:17pm: Leading economist Saul Eslake has criticised Prime Minister Julia Gillard saying he will not be intimidated into being "a cheer squad for the Australian economy." The Bank of America Merrill Lynch economist, who recently gave Australia about a 25 per cent chance of entering recession in the second half of 2015, says it's "not my job" to talk up the economy. For the Prime Minister or anybody else in a position of authority to suggest that merely by doing our jobs we are somehow increasing the risk of a recession . . . I've been around long enough not to be intimidated in that way and I'm not going to be on this occasion," Eslake says. The economist was referring to the Prime Minister's speech on Monday to the Committee for Economic Development of Australia, in which Ms Gillard took a swipe at pundits who had talked down the economy, suggesting their "unreasonable pessimism" was putting jobs at risk. "The most irresponsible pessimists have tossed around the 'r' word," Ms Gillard said. She described such pessimistic statements as "not so much sinister as silly." 12:11pm: The ailing retail sector in Australia has claimed another victim after women's fashion chain Noni B warned it would slide to a full year loss of between $3.5 million and $4 million after a review of its goodwill triggered a substantial non-cash writedown. Noni B told the ASX this morning that it expects an impairment charge to goodwill in the current year. The writedown of roughly $5 million, subject to audit, represented the current carrying value of goodwill. The impairment will be a non-cash charge to its accounts, but the decision to wipe away a significant chunk of the retailer's goodwill will shove the company into a full year loss for 2013. Noni B shares are down 6.7 per cent at 56 cents. 11:59am: Chinese markets have opened and are trading lower. The Shanghai Composite is down 0.3 per cent, after trumbling as much as 1.35 per cent in the opening minutes. It fell 5.2 per cent yesterday. The CSI300 is down 0.6 per cent, after plunging 6.3 per cent yesterday, entering into bear-market territory as it's down more than 20 per cent since February. ""We are likely to see a technical rebound after the market slumped so much in such a short period of time,"" says Li Jun, a strategist at Central China Securities. ""Valuations are low and that's appealing to short-term speculators. But the overall trend remains downward as the financial system is still in a money crunch that may hurt economic growth."" 11:56am: Japan's Nikkei has dropped below 13,000, as sellers were encouraged by lingering worries about stress in China's banking system and the US Federal Reserve's plans to roll back its stimulus later this year. The Nikkei fell 0.6 per cent to 12,978.90 after opening marginally higher. Analysts say the mood is likely to remain subdued as a recent spike in interbank borrowing costs have raised fears that stress in China's banking system could weigh on already slowing growth. The benchmark Nikkei has dropped more than 18 per cent since reaching a 5-1/2-year high on May 23, hurt by slowing growth in China, Fed stimulus concerns and disappointment over the Japanese government's recently unveiled growth strategy. 11:47am: Australia has some of the most expensive real estate in the world, but that's not going to change any time soon, according to Citi economist Paul Brennan, who said the risks of a housing bubble are overblown. However, Mr Brennan said the growth outlook was tepid, despite low interest rates lifting prices in the short-term. In the longer term, there are potential downsides to the Australian housing market. These include the lower growth outlook in China, slowdown of Chinese immigration and reduced appetite for offshore capital inflows associated with the lower AUD as the mining capex boom winds down. Mr Brennan said they expected nominal house price growth to peak in March 2014, by which time it will have increased by 3 per cent only to fall back to current levels. Australia's appeal as an immigration destination is critical to house prices, according to Mr Brennan. From the perspective of a middle class Chinese family is desirable, but also desirable are Canada, the US, the UK, and to a lesser extent New Zealand. Career prospects, education opportunities for children, environmental preference and housing would be some of the more important drivers behind an immigrant family's choice of destination. All other things being equal, the already high levels of residential housing price put Australia at a disadvantage compared to the US which arguably provides equivalent housing stock but at lower prices. Hence, the income effect will likely contribute toward rising house prices, while the substitution effect will likely work against it. 11:31am: Investors have been behaving like "feral hogs" since last week's taper comments by Fed chief Ben Bernanke, Richard Fisher, president of the Federal Reserve Bank of Dallas, told the FT. Markets shouldn't overreact to the central bank's plan to reduce the pace of asset purchases, he said. "The word 'exit' is not appropriate here," said Fisher, who doesn't vote on policy this year and has been critical of the Fed's easing policies. Is "feral hogs" a fair description of the way investors have been rushing out of global assets, or should the Fed be blaming itself for the mess it created? Send us your comment. 10:54am: Yesterday saw the sharp sell-off of US and Australian bonds - a continuation from last week ahead of a possible tapering of the Fed's stimulus program. So what should we expect going forward? Macquarie Securities analysts say that there isn't a basis for a further sharp sell-off in US bond yields (which strongly influence Australian bond yields) as it would lead to "much higher mortgage rates and undermine the recovery in activity that is enabling the US Federal Reserve to commence tapering QE in the first place." Secondly, a moderate rise in 10-year yields in Australia wouldn't be a disaster as they player a smaller role in the Australian economy compared to the US, the analysts say. But clearly, higher yields - by themselves - would harm growth. For example, higher government bond yields would undermine the attractiveness of high yielding stocks, and so make it more expensive for them to raise capital and expand. That could result in less commercial property development. Thus, while the direction of this impact is clear, the size of the impact is likely to be modest overall. 10:50am: The Australian dollar's volatility against its US peer was near the highest in 1.5 years amid concern a cash squeeze in China will worsen, damping demand for riskier assets. ""Volatility in a lot of asset classes is here to stay,"" said Jonathan Cavenagh, a strategist at Westpac in Singapore. ""Commentary from the likes of Fisher provided some relief for the Aussie, but the market is still going to be focused on the China issue, and that's still looking quite downbeat. We're still looking to sell into rallies back up toward 93.50 and 94 cents."" The Aussie dollar was little changed at 92.48 US cents in Sydney. Yesterday, it touched 91.48, the lowest since September 2010 before rallying 0.3 per cent. The currency pair's one-month implied volatility rose seven basis points to 15.3 per cent from yesterday, when it reached 15.5 per cent, the highest since December 2011. The yield on Australia's 10-year government bond fell 13 basis points to 3.91 per cent from yesterday, when it reached 4.04 per cent, the highest since April 2012. The three-year rate fell seven basis points to 2.92 per cent. 10:18am: Aussie stocks have bucked weak leads to move into positive territory shortly after opening. The benchmark S&P/ASX200 index was up 6.7 points, or 0.14 per cent, at 4,675.8, while the broader All Ordinaries index was up 4.5 points, or 0.10 per cent, at 4,655.6. On the ASX 24, the September share price index futures contract was up eight points at 4,641, with 10,709 contracts traded.AAP cdh 10:04am: Here's an interesting note on the changing economic picture courtesy of the falling Aussie dollar. CBA economist Michael Blythe writes that the high dollar has been "a defining feature of the economic landscape over the past couple of years." But he says a lower Aussie against a global economic backdrop that is largely unchanged "does mean that the Aussie is now playing its traditional role as an income buffer." Mr Blythe writes: The main beneficiaries of this income buffering should be corporate profits and government tax revenues related to that profit story. Households, in contrast, are set for a reduction in spending power as import prices rise. Higher import prices effectively represent a cut to real incomes. Many households often equate the currency as a measure of economic virility. A weaker currency, particularly if the move is rapid, could weigh on consumer confidence. The risk this time is greater given we have become accustomed to the la dolce vita delivered by a strong currency. Policy makers will also appreciate the two-edged nature of a weaker currency. A lower currency will help boost activity in some sectors. But the current mix of favourable inflation drivers could shift in an unfavourable way. 9:54am: With the Australian dollar stabilising above 92 US cents overnight, has the currency found a bottom - at least temporarily - following its recent slide? NAB currency strategist Ray Attrill said the odds were still stacked against the dollar and in favour of its US counterpart, and the moves overnight were just a "pause" in the downward momentum. "It looked as if the commentary that we had overnight particularly from Richard Fisher and from Narayana Kocherlakota - two ends of the Fed spectrum - seemed to have a little bit of an impact in calming the bond market and the sharp sell-off that we had seen earlier in our day," Mr Attrill said. I think the Australian dollar is a bit steadier today is because we haven't seen a further rise in US bond yields. In fact, they have come back down. We are off more than 10 basis points and that is why the Aussie has found its feet a little bit this morning. Mr Fisher had urged the US central bank to stay strong over its exit policy, while Mr Kocherlakota called for a clearer and more dovish exit plan. 9:49am: Seeking to calm investors, who have been behaving like "feral hogs" since the Bernanke remarks last week, two Federal Reserve presidents got on the front foot, emphasising that policy remains accommodative, three days after a timetable to cut bond buying sent financial markets reeling. "What we're talking about here is dialing back," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in London. Investors shouldn't overreact to the central bank's plan to reduce the pace of asset purchases, the Dallas Fed chief said in an interview with the Financial Times published on its website. Investors behaved like "feral hogs" after the June 19 comments by Bernanke, he said, according to the newspaper. Minneapolis Fed President Narayana Kocherlakota, who has called for easier policy, said the Fed must emphasize in its statement that policy will remain accommodative "for a considerable time" after the end of quantitative easing. "We have to bring that forward and hammer it every time we talk about policy," Kocherlakota, who also doesn't vote this year, said to reporters today in a conference call. 9:49am: Australian stocks are expected to be weighed down by the negative sentiment on financial markets, as investors fret about China's credit squeeze and the tapering of the US stimulus program. Commodities stocks in particular were expected to push lower, CommSec analyst Juliana Roadley said. We did see copper fall to a three-year low, which is a concern for us. Major copper stocks were losing ground overnight. and we're set to follow. Base metals were also lower across the board," Ms Roadley said. The gold sector was holding back at the Toronto exchange, but we have seen gold coming back already in early Asian trade, so that's a positive sign, and hopefully that will help to reduce some of the losses. The iron ore price was also losing ground in the last 24 hours. 9:35am: World markets started the week in a pessimistic mood, and it looks set to continue today, with Asian equity futures from Hong Kong to China and Australia down. Chinese are stocks set to extend declines that pushed the nation's shares into a bear market amid concern a cash crunch will curb economic growth. But US Treasuries managed to claw back from steep losses, with the price of the 30-year bond turning higher late in the day. The S&P500 closed 1.21 per cent lower while London's FTSE gave up 1.42 per cent. Both of those look modest compared to China shares yesterday, with China's CSI 300 Index, representing the 300 biggest companies in the Shanghai and Shenzhen stock exchange, lost 6.3 per cent, falling 22 per cent from this year's high and entering a bear market. 9:33am: Good morning folks.