Markets Live: Downward spiral continues 2:59pm: Casino operator Echo's plans for a "world first" resort in Sydney is more a red herring than anything else, writes BusinessDay's Elizabeth Knight. Investors should be more focused on whether Echo can make a return on the $1.1 billion it plans to spend on hotel rooms, parklands, bridges art and water slides. These features bring the tourists in but the gaming is the part that makes the returns. The lion's share of this new Echo investment is not earmarked for gaming facilities - which could ultimately reduce margins. But paying for it won't be the problem. There are more than six years of Echo's exclusive licence left and little capital expenditure needed on its existing facilities. If it doesn't need to begin spending in earnest on the latest plans for a few years, it should be able to fund the mega expansion out of cash flow and debt. And while it won't admit that equity raisings or asset sales are being contemplated it must be a handy comfort buffer. 2:46pm: Incoming Metcash boss Ian Morrice will conduct a review into the wholesaler's grocery operations, as well as its online offering and relationship with suppliers. This comes as the company's flagship food and grocery division reported a drop in market share in the face of nationwide price deflation and a cut throat battle for shoppers between the major supermarket chains. Although the market share decline was small and not uniform across all states it looks like Metcash has been outed as the main victim of the current price war between Woolworths and Coles, losing customers to the retailers and possibly newer retail entrants such as Aldi. Mr Morrice, who will replace long serving Metcash CEO Andrew Reitzer at the end of the month, said the wholesaler needed to help its independent grocery stores drive better volume from its stores as new players such as Costco and Aldi snapped at its heels, while the established supermarkets, Woolworths and Coles, strengthened their offering with deep discounting. Metcash shares are up 7.3 per cent to $3.69. 2:24pm: BusinessDay's Michael Pascoe offers some perspective as the financial year winds down: Perspective as the financial year winds down For all the panic in the headlines, the all ordinaries index is starting the last week of the year 14 per cent higher than it was on June 30. 2:11pm: Don Williams, the chief investment officer of Platypus Asset Management, said he was treating the recent falls in the Australian stock market as a seasonal correction. It starts in March and it runs for about three to five months. [Our market is] down by about 10 per cent. There is potential for the market to go lower, but we think it will pull up somewhere between 10 and 15 per cent. We think the bulk of the move is behind us," Mr Williams said. The earnings environment in the US is obviously better than in Australia, but I don't think the Australian market will go back to 4000. I think we would need a shock or an event far worse than what we have seen in the last few weeks to trigger that. We are expecting it to pull up somewhere around 4500. 2:02pm: While we're looking at China, the tumble in its share markets seems to be the biggest worry of regional investors today. The Shanghai Composite is down 3 per cent, while the CSI 300 of the leading Shanghai and Shenzhen listing has plunged 4 per cent. The Chinese market changed the mood completely. The Nikkei stopped rising and gave up its earlier gains immediately after the Chinese market opened (in Tokyo's mid-morning)," says Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo. "Global markets have just started pricing in the end of China's high-growth period and investors are backing away from emerging markets," he adds. Japan's Nikkei is currently down 0.35 per cent. 1:56pm: In another worry for China's central bank, companies are getting more creative in the business of money lending as they struggle to keep profits ticking over in a cooling economy, raising concerns they are adding to the mountain of debt risks building in the world's No.2 economy. Big state companies in industries struggling with over-capacity but with easy access to credit are borrowing funds, not to invest in their business but to lend to smaller firms sometimes at several times the official interest rate, part of an informal lending market in China that authorities are taking aim at. China's central bank increased pressure on banks to rein in such informal lending and speculative trading last week in money markets, letting short-term interest rates spike to extraordinary levels. In the $US3.7 trillion so-called shadow banking market, the fastest growing area is in so-called entrusted loans, which are arranged by banks on the companies' behalf, and in bankers' acceptance notes, tradeable securities that give a steady flow of cash. Can we use the money to expand production? Definitely not," a deputy general manager at a state-owned steel firm in the eastern Shandong province told Reuters, speaking on condition of anonymity. We will lose more if we produce more. We can only rely on other channels," he added, noting the firm loses an average 100-200 yuan per tonne of steel sold. 1:44pm: As the remarkable success of Psy's Gangnam Style was unfolding, Julia King and Chris Charlton were having a remarkable Korean experience of their own, Michael West writes in one of today's most read stories: 1:30pm: Australian bonds have plunged again amid a global selloff, sending the yield on benchmark 10-year government notes up 22 basis points to 3.98 per cent, heading for the biggest one-day jump in four years. The rate last week surged 39 basis points, the steepest five-day gain since November 2001 - the last time weekly broad-market bond losses exceeded 1.3 per cent. The gap over similar- maturity US Treasuries was at 1.40 percentage points after touching 1.07 on June 19, the least since November 2008. ""Our 10-year yields definitely won't be able to fight the global move, however, we do expect them to outperform the US,"" says Westpac rates strategist Timothy Jung. The gap between the two may narrow to 1 percentage point, he says. ""This is all about tapering and what the Fed is going to do having a knock-on effect around the world,"" says Derek Mumford, a director at Rochford Capital. ""We can look for yield-curve steepening, with the short-term rates coming down as there's still potential for the RBA to cut rates and longer-term rates pushing up."" 1:17pm: While retail may have seen strong jobs growth over the last year, the sector still faces a number of difficult challenges that will weigh on growth in sales over the coming years. Over the decade leading up to the 2008 Global financial crisis consumer spending had benefited from significant tailwinds. Indeed the RBA describes this period of consumer spending as an ..."unusual one..." said Bank of America Merrill Lynch economist Alex Joiner. "But more recently it notes that ..."a return to the very strong growth of some years ago is unlikely." This is because the sector now faces significant headwinds. Mr Joiner said recent trends have shown a marked slowdown in not only nominal growth, but also in the amount spent per capita. Nominal sales are being weighed down by the need of retailers to continue discounting to keep sales volumes turning over. This has been due to increasing competitive pressures, particularly from the rise in internet shopping," Mr Joiner said. 1:05pm: The Australian dollar could be due for bounce higher after falling to an almost-three-year low last week. The commitments of traders, as recorded in the latest US Commodity Futures Trading Commission data, show that even more traders were holding short positions in the Australian dollar. If some of these traders chose to take profits from their short positions, the dollar could experience a bounce higher in the short-term despite its longer-term downward trend, US-based FXCM currency strategist Ilya Spivak said. "We hit another record in terms of net short as of last week," Mr Spivak said. We are looking at a net short of 63,500 contracts at this point, which is very substantial. Mr Spivak said the rate of growth in short positions was decreasing. The sense seems to be that the level of intensity behind Aussie dollars selling has somewhat slowed in its conviction and I think it's possible we could be getting to be a situation where a correction could happen. I think the extent to which people are net short sets the stage for them to want to take some profits if that begins to make sense. The dollar is currently trading 92.07 US cents. 12:52pm: In a country synonymous with larger-than-life mining tycoons and Outback heroes, the geeks are quietly inheriting the earth. 12:37pm: Victoria's two big gaming companies have won court action against the state government over levies of more than $42 million imposed on them. The Victorian Supreme Court today ruled in favour of Tatts and Tabcorp in their joint legal action against the Victorian Treasurer Michael O'Brien, challenging his determination that they each pay health benefit levies of about $42 million for the 2012/13 financial year. The companies say they operated gaming machines in Victoria for only 46 days of the financial year, losing the right to operate poker machines in venues other than Melbourne's Crown Casino on August 15, 2012. Tatts shares are down 1.1 per cent to $3.08, while Tabcorp is flat at $3.19. 12:20pm: The market still hasn't found the bottom for this session, with both the ASX and the All Ords now down 1.6 per cent. The ASX's gains for 2013 have shrunk to a mere 14 points, taking it within 4 points of the lows it plumbed on June 13. The All Ords is now trading in the red for 2013, falling below the June 13 lows to 4646.3. 12:14pm: The Prime Minister thinks reporting of the economy has been unreasonable, avoiding the 'r' word while getting stuck into those who have been using it. She told the Committee for the Economic Development of Australia this morning that the economy is "growing, stable and strong," an assurance that will be welcomed by a Reserve Bank so worried about the transitions under way that it has cut its cash rate seven times in the past 18 months. It is now lower than it was during the global financial crisis, and the Reserve is holding open the possibility of cutting it again. Julia Gillard herself acknowledged in her speech "some complex transitions under way." Something will have to replace mining investment as an economic driver as the boom winds back. She pointed to housing investment and bigger export volumes. Here's some more 11:58am: Bluescope Steel could be a significant beneficiary of the lower Australian dollar, Deutsche Bank told clients this morning. Bluescope guidance is that each 1 cent move in the Australian dollar against the US dollar is worth around $4 million to pretax profits. The investment bank reckons it could be twice this, however. We reviewed our forecasts on a divisional basis, and believe BSL's sensitivity to a depreciating AUDUSD is more than double company guidance... we think it is closer to $9-10million. We take into account additional factors which the BSL sensitivity does not (eg the impact to domestic prices), and we believe the recent AUD depreciation is very positive for BSL. It has a 'buy' recommendation on the shares with a $6.17 price target. Its shares are this morning down 0.5 per cent at $4.45. 11:55am: Here's how the region's markets are doing so far: Japan (Nikkei): +0.3% Hong Kong: -1.1% Shanghai: -0.2% Taiwan: -0.5% Korea: -0.8% Singapore: -0.3% New Zealand: +0.1% Note that the Japanese market is bucking the trend, profiting from a weakened yen. ""Volatility is going to be the order of the week for the markets,"" Vasu Menon, head of content and research at OCBC Bank in Singapore, told Bloomberg TV. ""China has had a credit binge for way too long. The government is trying to rebalance the economy, trying to downsize the shadow banking system. All that means credit is going to remain fairly tight."" 11:42am: The US Federal Reserve's plan to cut back on how much cheap money it pumps into the world's biggest economy is still weighing on markets, as investors worry about the impact on growth and adjust their portfolios. "The valuation adjustment for tapering of Fed stimulus is well underway," says Ric Spooner, chief market analyst at CMC Markets. While it may have further to go, a substantial valuation adjustment has already occurred in the Australian market. Stocks with exposure to the United States have edged higher - helping to cap broader losses - supported by a weaker Australian dollar as earnings from abroad are boosted when repatriated home. Blood products maker CSL has climbed 1.5 per cent while pallets maker Brambles is up 0.3 per cent. 11:29am: Bell Potter's always colourful Charlie Aitken has flagged Westpac as being a prime pick this morning, saying that the collapse in the Australian dollar will pull eastern Australia out of its prolonged recession. With NSW the most populous state, and given Westpac's strong position in that market, that has fed his optimistic view of its outlook. Westpac is the mega cap way of playing NSW. Seven million people coming out of a 'feels like' recession shouldn't be under-estimated," he told clients this morning. With a grossed up fiscal 2014 yield of 9.3 per cent "Westpac is paying you to take the risk in its equity," was the way he put it. The broker's banking analyst has also upgraded the bank to a "buy" with a $30.75 12-month price target, partly on the argument that only NSW and Queensland have declining ratio of insolvencies to new company registrations. Westpac shares are down 0.1 per cent at $27.68, outperforming the broader market. 11:13am: We just hear that Cricket Australia has sacked head coach Mickey Arthur, and that on the eve of the Ashes. The former South Africa coach, whose contract was due to run until the end of the World Cup in March 2015, was informed of the decision over the weekend, our webiste is reporting. CA is expected to confirm his axing later today. It is not known who will replace him, although highly rated Queensland coach Darren Lehmann is in England and has just completed a coaching stint with Australia A. 11:09am: Aussie stocks are down to a 1.5 per cent loss for the day, with the ASX200 trading at 4668.4, just 12 points above where it opened the year. At current levels, the ASX200 has booked losses of more than 4 per cent since Thursday. The All Ords is also down 1.5 per cent, trading 9 points below where it ended last year. 10:59am: Graincorp shares could be worth more than the $13.20 a share takeover offer on the table, given the scarcity value of the grain handler's assets, shareholders were told Monday. US bidder ADM is offering $13.20 cash a share for Graincorp shares, which Grant Samuel estimates to be worth as much as $13.97. ADM is to pay $12.20 in cash with the balance of the offer to be paid in the form of dividends paid by Graincorp. In mid-morning trading on the ASX, Graincorp shares were up 3c at $12.50, against the backdrop of a broadly weaker sharemarket. 10:45am: Leighton has secured a $1.3 billion deal with Fortescue Metals for work at the Kings deposit at the Solomon Hub, making it the construction company's biggest ever single contract award. Its shares are 0.5 per cent lower to $15.04 The deal takes the total value of work under the Solomon Hub agreement to $2.8 billion, the largest single contract award in the history of Leighton Contractors, the company said in a statement. Leighton secured the full service, five-year plus two-year extension option contract to deliver whole-of-mine management at the Pilbara iron ore project in September 2012. The initial award was to mine the Firetail deposit, valued at $1.5 billion. Fortescue's decision to award the Kings deposit activates the full scope of the contract. 10:34am: Gold stocks are lower this morning after as hedge funds cut bets on a gold rally by the most since February after the Federal Reserve laid out plans for reducing stimulus. US investors reduced their net-long position by 29 per cent to 38,951 futures and options by June 18, US Commodity Futures Trading Commission data show. Holdings of short contracts jumped 14 percent, the most in eight weeks. ""There's certainly a rush to the exits in gold,"" said Jim Russell, a senior equity strategist in Cincinnati at US Bank Wealth Management, which oversees about $US110 billion of assets. ""The nudge up in the Fed's expectations economically suggests they may unwind their program a little quicker than investors thought."" 10:20am: Ric Spooner at CMC Markets writes that ""the valuation adjustment for tapering of Fed stimulus is well underway." In note this morning he says: While it may have further to go a substantial valuation adjustment has already occurred in the Australian market. The strength of buying in bank stocks off Friday's lows and similar levels the week before suggests investors chasing dividend yield are starting to see real value around those prices. From a technical point of view it would take a rally past the May high at 5249 to provide conclusive evidence that the downward correction has ended. Any rally we do see at this stage is more likely to be a corrective bounce in an ongoing move lower. 10:14am: The Australian share market has opened more than one per cent lower. The benchmark S&P/ASX200 index was down 56.1 points, or 1.18 per cent, at 4,682.7, while the broader All Ordinaries index was down 55.1 points, or 1.17 per cent, at 4,668.7. On the ASX 24, the June share price index futures contract was down 42 points at 4,646, with 10,689 contracts traded. 10:13am: Supermarket group Metcash has lifted underlying full year profit by 6.9 per cent to $281 million but has lost market share in its core grocery business as it beds down major restructuring and new acquisitions. The company promised a review of its food and grocery operations as it recorded revenue of $13.1 billion for the year to April 30 and a reported net profit after tax (NPAT) of $206 million. The result is up $129 million on the previous year, when the company recorded restructure costs and impairments. The retailer behind the IGA and Franklins supermarket chains suffered a 2.3 per cent fall in sales in its core food and grocery business to $9.1 billion as it closed stores but achieved 35 per cent earnings growth, to $47 million, in its liquor business. 10:01am: Mining giant Rio Tinto has decided to retain its diamonds businesses following a review which considered a range of options, including divestment. Rio Tinto Diamonds and Minerals chief executive Alan Davies said the medium to long-term market fundamentals for diamonds remained robust, fuelled by growing demand for luxury goods in Asia and continuing strong demand in North America. ""We have valuable, high-quality diamonds businesses that are well-positioned to capitalise on the positive market outlook,"" Rio said in a statement on Monday. ""After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses."" For Rio, diamonds have not lost their sparkle. 9:58am: Picking up where we left off? Credit Suisse equity strategist Damien Boey said he expected the weakness in the Australian share market to continue into this week after last week's mixed close. "The issue here is that the Fed seems pretty serious about wanting to end quantitative easing and the market has clearly been in a stage of digesting whether that's a good sign or a bad sign," Mr Boey said. So the market initially thought that the if the economy is strong enough for the Fed to tighten then that's actually a sign of good growth. But now the market has clearly turned the other way, and you can see that we've had wholesale liquidation of not only equities, but bonds have sold and gold has sold and everything has sold. So people are in a lot of cash at the moment. ... I think we have a bit more [weakness] to go because we haven't even reached a conventional sell-off yet. 9:53am: Also in corporate news this morning, GrainCorp is recommending its shareholders accept Archer Daniels Midland Australia's takeover offer, in the absence of a superior one. Releasing its official response on Monday, GrainCorp said that under the agreement, its shareholders would receive $13.30 per share. That would comprise a payment from ADM Australia of $12.20 a share and permitted dividends totalling $1.00 per share. The dividends are expected to be fully franked, providing an additional value of up to 43 cents for those eligible for full franking benefits, the grains processor and supplier said. Recommending the offer, GrainCorp directors said the cash payments of $13.30 per share ""represent a significant premium to GrainCorp's trading prices, prior to the announcement of ADM's initial takeover proposal"." 9:46am: In corporate news this morning, insurer AMP expects its first half underlying profit will be lower than estimated and come in between $415 million and $435 million. AMP said it was providing the guidance update for the first half of 2013 following poor claims and lapse experience in its Australian wealth protection business in the second quarter, particularly in May. Experience losses were $32 million for the five months to May 31, comprising $26 million in insurance claims. The latest figures ""reflect the ongoing volatile nature of experience across AMP's insurance portfolio, which has in-force premiums of more than $1.7 billion,"" AMP said in the statement. ""The industry is experiencing increased pressure on insurance claims and policy lapses."" AMP said it anticipated some strengthening of best estimate assumptions for income protection claims at the half year, although the financial effects should be largely offset by future premium rate increases. 9:41am: The Australian dollar is slightly lower this morning as the US dollar continues to strengthen following last week's news that the US central bank may wind up its economic stimulus program. In early trade, the local unit was buying 92.12 US cents, down from 92.34 cents on Friday. AMP Capital chief economist Shane Oliver says the Aussie dollar's fall to 92 US cents represents a 10 per cent drop from last year's average cross rates, but this can translate as a three per cent profit increase for some local companies. "It won't surprise me if we see some earnings upgrades for companies with overseas exposure," Mr Oliver said. 9:39am: Good morning folks.