Stocks steady after early bounce 1:26pm: Here's a quick analyst's take on the fall in the Australian dollar and the World Bank's China forecast: 1:21pm: Credit rating agency Fitch Ratings has warned that a weakening economy and increased competition will create a more challenging environment for Australian bank profits. "Profit growth is likely to be modest at best - due to higher impairment charges and net interest margin pressure from strong loan competition, partially offset by moderately higher credit growth and a reduction in funding costs," said the report, released today. Cost management should remain a key focus for the Australian banks. Wealth management and measured expansion into Asia provides earnings diversification for the larger banks. The report described the challenges facing Australia's banks as manageable with strengthening funding positions offsetting a slight deterioration in asset quality as the The agency, however, warned that a sudden and severe slowdown in China, a decline in underwriting standards as banks compete aggressively for loans and disorder in the capital markets that impedes on access to funding could threaten its stable outlook on the banking sector. 1:11pm: Here's a bit more from the World Bank's report. The global body said it expected global growth to rise from 2.4 per cent last year to 3.2 per cent this year. Read the press release here. 1:10pm: In what is proving a popular column, Nathan Bell in BusinessDay has taken a big swing at Qantas and its boss, Alan Joyce: He also warns off value investors who might be tempted to pick up shares in the devastated stock, saying that "even with a more considered and well-executed strategy, Qantas, like almost all airlines, is a poor business." Qantas chief Alan Joyce has thrown everything to get relief for the struggling airline. 12:42pm: The Australian dollar has fallen slightly on the back of a World Bank report that forecasts China's growth to moderate as the world's second-largest economy moves away from investment-driven expansion. The Aussie dollar has taken a turn downwards 12:18pm: Macquarie Group is reported to be among three shortlisted bidders for JPMorgan's physical commodities business, a sale that may fetch as much as $US2 billion. Blackstone Group and investment company Castleton Commodities International are also due to lob a final offer for the business next week, according to a report on CNBC. A Sydney-based spokeswoman for Macquarie declined to comment on Wednesday. JPMorgan executives are believed to be keen to make a decision on the sale before the month's end, some six months after announcing the auction plans, the report said. In initial sale documents, JPMorgan is reported to have valued the sum of its physical commodities holding at about $US3.3 billion, but any transaction is unlikely to include the sale of the holdings in their entirety to one bidding party. Sources told CNBC the sale price would likely come in between $US1.5 billion and $US2 billion. JPMorgan executives were coy about the pending sale on an earnings call last night, with chief financial officer Marianne Lake saying only that the bank was selling "the parts of the business that are the most capital-intensive." 12:16pm: Quantitative easing was like "beer goggles" for investors said president of the Dallas Fed, Richard Fisher. "Things often look better when one is under the influence of free-flowing liquidity," he said. Fed officials are talking lots about the US economy and tapering and overnight it was the opportunity for Fed Philadelphia President Charles Plosser and Fisher, in separate speeches, to throw in their two cents' worth. Plosser said the disappointing US payrolls data released on Saturday would not slow down the pace at which the central bank's stimulus program is trimmed. "They're not on a preset course but the default option is to continue on this path unless something upsets us from that," he said. I'm pleased that we've started to unwind this. I'd prefer it to be a little faster. I don't think it's accomplishing very much. In a second speech in as many days, Fisher said while he was happy with the $US10 billion wind-back of the Fed's tapering (which was announced in December), he would have preferred it to have been "double the announced amount." 11:57am: Great story in the AFR today describing what it's been like to hold shares in Forge: It's like a bicycle accident. One moment you're calm and balanced, with a clear idea of the destination. Or even a vague idea. The point is you're upright. Then a shock through the frame. The road flies up. Impact. Abrasion. Pain. Eyes wide. Mouth dry. Vision blurred. You sit up slowly and focus on the grim, ghastly news. "Trading halt," it says. Ninety per cent drop predicted. One of your stocks has been smashed. And there is nothing you can do. It happened in November when Forge translated bad news on two of its projects into a trading halt that lasted nearly four weeks. When the shares traded again they were dropped quicker than the handkerchief of a sick kid at a ­birthday party. From more than $4 to less than 40¢. It was sickening. Sound familiar to anybody?? You can read more here ($). Guess who invested in Forge? 11:45am: Since we're looking hard at relationships that are breaking down (see yesterday's blog at 4pm) here is another one: how the Australian bank's share prices have tracked their borrowing costs. Below is a chart of Westpac's five-year credit default swap spread (a proxy for wholesale borrowing costs) and the share price (inverted because as borrowing costs decline, the share price should rise). The chart shows that the share price has steadily tracked a decline in borrowing costs. But in November, the relationship broke drown. Westpac's stock began to sell off, even as its borrowing costs stabilised or declined. There are a couple of conclusions we can draw from this - one might be that the key driver for banking stocks is losing its effectiveness. Cheaper funding is clearly good for the banks because if they are raising money at better rates the margins on their home loans increase, lifting their earnings. Declining credit spreads are also reflective of a search for yield among global investors. As bond rates have stayed low, investors have been forced into riskier investments such as Australian bank bonds, and other income generating investments, like bank stocks! Since November, however, declining bank spreads aren't being accompanied by a rise in bank stocks. So it looks like investors think that bank borrowing costs are about as low as they're going to go, or that bank stocks are about as high as they can go. Borrowing costs (orange) vs inverted share price. 11:40am: More on OZ Minerals, which is the tearaway stock today after a quarterly update this morning, up over 16 per cent. OZ Minerals reported its cash pile has fallen again, but the fall was not as far as analysts expected, helping to fuel the share price rally. JP Morgan analyst Lyndon Fagan described that as a ""positive surprise"" in a note to clients. Most analysts had predicted the cash balance to be closer to $250 million by now on the back of generous dividends and weak 2013 revenues. Yields on Australian 10-year bonds have followed the lead set by US Treasuries overnight, after a rise in retail sales lifted the dampening sentiment from a disappointing jobs report last week. Yields on 10-year Commonwealth Securities traded at 4.23 per cent late Tuesday, but rose as high as 4.25 per cent this morning. Yields on 10-year US Treasuries bumped higher overnight, and were fetching 2.87 per cent this morning. "US 10-year yields have been trading in a range between 2.8 and 3 per cent since November and 2.6 and 3 per cent since June, so I think the ranges are pretty well set," UBS interest rate strategist Matthew Johnson said. I think we'll move back up towards 3 per cent and ultimately above it. Financial markets are moving forward their expectations of a rise in US interest rates amid growing commentary from Fed officials that its quantitative easing would draw to a close this year. "I don't think the Fed will raise rates in 2014 but I think we could go back to where we were in mid-2013 [in pricing in an earlier move]," Mr Johnson said. Futures data in the Fed funds market has the first rate hike in March 2013. So it's come forward into [the first-quarter of 2015], and it could come forward into [the fourth-quarter] in 2014. 11:26am: Great news - Michael Lewis is writing a new book on Wall Street. The author of classics such as Liar's Poker, which detailed the excesses of bond trading in the 1980s, and The Big Short, on the investors that made billions betting on the collapse of subprime, will publish a new book called Flash Boys. The publisher reportedly said the topic will be squarely focused once again on Wall Street. We're betting it will be on the explosion of high speed trading, a topic Lewis has been writing on. Michael Lewis is writing a new book. 10:52am: Turning to early winners and losers on the ASX as the market maintains its early gains of 0.8 per cent. OZ Minerals continues to pop - it's now up almost 17 per cent. Forge and Ten Network have reversed some of yesterday's losses, up 3.7 per cent and 3.9 per cent, respectively. Shareholders in those companies must be getting dizzy. Gold miners are copping it, despite the precious metal's price slipping only slightly overnight to now trade at $US1243.98/ounce as sentiment has turned more buoyant. This morning's best and worst performers 10:38am: Fortescue shareholders have cheered the company's plans to retire another $1.6 billion in debt in March. They will be keen for the miner to have as little debt as possible should the worst happen and a big hiccup in China send the iron ore price plummeting. But experts are divided on the future path of the crucial commodity this year. CLSA analyst Andrew Driscoll told the AFR he believes iron ore prices will fall dramatically in the second half of the year to below $US100/tonne. UBS's Gavin Wendt said he thought demand from China would stay "robust" and the price would trade between $US110/tonne and $US150/tonne in 2014. Meanwhile, iron ore has hit a six-month low of $US129.50/tonne, and has shed $US10/tonne since early December. 10:22am: Fortescue Metals Group will make another early move on its debt pile, after announcing plans to pay back another $1.6 billion in March. The debt, which is owed in two separate parcels, was not due to be retired until 2015 and 2016 respectively. The iron ore miner's share price jumped 3.9 per cent on the news. But Fortescue has vowed to use its current liquidity to move early on its debt pile, which topped $US12 billion with the past year. That tally is falling quickly, and will soon stand at $US9 billion once the March payments are made. Fortescue will then have net debt under $US8 billion, and will be free of any debt repayments until early 2017. Today's latest round of debt retirement was foreshadowed in late November by Fortescue chief financial officer Stephen Pearce, when he vowed that more early action on debt was imminent. It comes after a flurry of payments in November. 10:16am: And we're off! The local market has opened higher as expected, with the ASX 200 following Wall Street up, gaining 0.7 per cent in early trading after Tuesday's nasty sell-off. Gains are spread across sectors, with gold stocks being the exception, down 1.6 per cent. OZ Minerals is an early winner, shooting 14 per cent higher to $3.50 on this morning's quarterly production report - investors were clearly unphased by their dwindling cash pile. 10:01am: The Aussie dollar continued to trade steadily lower overnight to dip below 90 US cents and is now trading at 89.5 US cents. A top official from the US Federal Reserve has said the central bank should pare its bond buying as quickly as possible, even if doing so sends stock prices tumbling, because more bond buying risks inflation and makes an eventual exit from easy policies more difficult. Richard Fisher, president of the Dallas Federal Reserve Bank and one of the Fed's most hawkish policymakers, said that continued purchases by the US central bank of Treasuries and mortgage-backed securities carries the risk of fueling an asset price bubble, though he stressed that no such bubble now exists. Janet Yellen, who takes over as Fed chief after January 31 when Ben Bernanke's term ends, is expected to continue to pare the program and end it later this year, unless the economy takes a clear turn for the worse. Fisher's comments suggest that he will keep up the pressure to do so, even if markets react unfavourably. 9:59am: The weekly poll is still around: Total votes: 890. 9:48am: OZ Minerals' cash warchest continues to erode, with the company today revealing that its once billion dollar cash holdings now stand at $363 million. The continued erosion of the cash pile stood out amid a December quarterly report that saw the copper and gold miner meet, and in some cases beat, its revised guidance for the 2013 calendar year. The company has dabbled with some minor acreage in Chile, but appears to have mostly spent the cash pile on generous dividends and extending the operating life of its flagship mine, Prominent Hill. Investors were alarmed in August when OZ reported the cash pile at $432.9 million, and today it has slipped further to $363 million at December 31. OZ stressed that number was subject to audit and possible change before the full year results presentation in February, and stressed that it also had an undrawn debt facility of $US200 million. UBS estimated recently that the cash pile could slip to zero by the end of 2014. The slipping cash pile has been one factor in OZ Minerals share price slide over the past year, but some major shareholders have been outspoken in favour of the spend, saying they will happily lend money to the company in the future if needed and would prefer the stronger dividends in the meantime. OZ managing director will speak to the investment community later this morning. 9:41am: As Qantas Airways" management continues to work through a strategic review, a partial float of its lucrative frequent flyer division would seem increasingly likely, writes the AFR's Street Talk column. Some in the market are attributing the stock's 15 per cent rise from a record low of 95¢ last month to short-term oriented investors betting the float of a minority stake would unlock enough cash and see-through value to produce further gains in the Qantas share price. There are suggestions in some quarters that Macquarie has been given a formal advisory mandate, although others say pitches have been made by several investment banks with no final decision to date. Another option would be a dual-track process that could culminate in the sale of a minority stake to private equity. A float of the division would have the potential to lead to a rift between short-term holders looking for an immediate cash injection and longer-term investors concerned it would be selling part of a crown jewel and losing flexibility with its rewards points. Read more ($). 9:36am: US stocks rose overnight, erasing much of the previous session's steep drop, after as a strong December retail sales reading eased concerns about a slowdown in the economy. Google rose 2.4 percent to $1,149.40, giving a large boost to the outperforming Nasdaq, a day after the technology giant announced plans to acquire Nest Labs Inc, scooping up a promising line of products and a prized design team for $3.2 billion in cash. Core U.S. retail sales increased 0.7 percent in December, flying past the 0.3 percent gain expectation. Fourth-quarter growth prospects were further boosted by a report showing retail inventories, excluding autos, increased 0.6 percent in November. The data followed Friday's payroll report, which was sharply below expectations. "Retail sales numbers for December sort of calmed everyone down," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. Numbers indicate the economy is most likely moving forward at a nice pace despite an errant jobs number last Friday. The Dow Jones industrial average rose 115.92 points or 0.71 percent, to 16,373.86, the S&P 500 gained 19.68 points or 1.08 percent, to 1,838.88 and the Nasdaq Composite added 69.712 points or 1.69 percent, to 4,183.016. Tuesday's gains followed the largest drop in two months on the S&P 500, and market participants say they are gearing up for a more volatile 2014 after a year that constantly saw U.S. stocks go higher. "We're seeing a good preview of what the year will bring, which is a little bit more volatility," said Andres Garcia-Amaya, Global Market Strategist at J.P. Morgan Funds. Both JPMorgan Chase & Co and Wells Fargo & Co posted earnings that beat expectations, though upside was limited with Wells Fargo near all-time highs and JPMorgan highest since 2000. Shares of both banks rose less than 0.1 percent on the day. 9:35am: Local stocks are poised to open higher, rebounding from yesterday's losses after Wall Street rallied overnight. SPI futures up 23 pts at 5197 at 5.29am AEST AUD at 89.72 US cents at 5.29am AEST On Wall St, S&P500 +0.91%, Dow Jones +0.48%, Nasdaq +1.49% In Europe, Eurostoxx ... , FTSE100 +0.14%, CAC +0.26%, DAX +0.32% Spot gold fell 0.8 per cent to $US1243 an ounce WTI crude oil rose 0.8 per cent to $US92.50 Iron ore slid 1.1 per cent to $US129.50 Read more in this morning's need2know. Good morning and welcome to the Markets Live blog for Wednesday.