July 02, 2012
Australian shares rallied for a second day on hopes that the latest pact by European leaders to end the region's debt crisis will have the intended result.
4.58pm: That's all for today here at blog central. Thanks everyone for reading and posting your comments. We'll be back tomorrow morning at the usual time, 9.30am.
For a wrap of today's session, click here.
4.38pm: The dollar is trading at $US1.0226, slightly down from a morning high of $US1.0269, as modest profit-taking followed Friday's dramatic rally sparked by optimism over Europe's progress in tackling its debt crisis.
"The jury is still out on whether these steps will prove ultimately successful but at the minimum, the steps buys Europe time to address the underlying structural and debt issues of the eurozone," says Peter Jolly, global head of research at National Australia Bank.
The Reserve Bank holds its July policy meeting tomorrow and analysts and markets alike expect no rate move following back-to-back cuts.
Interbank futures give a mere 12 per cent chance of a quarter point cut, although markets are still priced for around 75 basis points worth of easing over next 12 months.
4.30pm: Here's how some of the blue chips performed:
4.25pm: Here are some of today's noteable movers:
4.15pm: The gold sub-index led the gains, rising 3 per cent, followed by energy, up 2 per cent. Financials gained 1.2 per cent and materials added 1.1 per cent. Health bucked the trend, sliding 1.1 per cent.
4.12pm: The market has closed higher, extending Friday's rally. The benchmark S&P/ASX200 index jumped 38.4 points, or 0.9 per cent, to 4133, while the broader All Ords added 37 points, or 0.9 per cent, to 4172.5.
4.05pm: European stock index futures are pointing to a higher open, adding to last Friday's rally sparked by new measures to fight the eurozone debt crisis, but gains could be limited by tepid Chinese data that revives worries about the global economy.
Futures for Euro STOXX 50, for Germany's DAX and for France's CAC are up 0.2-0.4 per cent.
Meanwhile, both Dow futures and S&P futures are both down about 0.2 per cent, pointing to small losses at the start of trade on Wall Street later today.
3.52pm: As expected, David Jones shares have plunged after recommencing to trade and are down 13.5 per cent at $2.24 - that's 2 cents below Thursday's closing price, before the bogus bid was lobbed.
3.49pm: As the market heads into its final minutes, here’s what CMC senior trader Tim Waterer had to say about today’s action:
3.46pm: The David Jones saga ends in farce, Eli Greenblat comments:
Somewhere in England, or Luxembourg or perhaps even closer to home, someone is having a big laugh at the expense of the David Jones board, its shareholders and the entire Australian investment community.
The entire farce has made a mockery of continuous disclosure rules and raises the question as to why the takeover offer from EB Private Equity was made public by David Jones in the first place when even the most basic forensic investigation of the company showed the takeover approach lacked credibility.
David Jones claims it was forced to make the offer public because of those continous disclosure rules and the fact an obscure blog in Newcastle, England, was set to leak the story anyway.
Just who owns that blog and the owner's motivation in this entire laughable saga remains unclear.
3.39pm: David Jones shares seen resuming trade at 3.50pm. Expect more falls.
3.16pm: The carbon tax may have been introduced but global interest in Australia’s coal sector is undiminished: India's Adani Enterprises aims to start building its first local coal mine in July 2013, targeting 23 million tonnes a year output in the first year once a rail line is built to the Pacific Ocean, its Australian chief has told Reuters.
The company, which plans to work with Australian rail operator QR National on rail options, does not anticipate any problems lining up funding for its $10 billion mine and rail project, Adani Group Australia chief executive Harsh Mishra says.
"Expressions of interest we've got so far are predicated on the successful track record that Adani has demonstrated in India from banks that have traditionally supported us on our projects," Mishra says.
3.04pm: The real victor at the EU summit poker in Brussels was Angela Merkel, writes Wolfgang Muenchau in the FT:
Mario Monti faced down the German chancellor and won the battle. He will survive a few more weeks or months in politics. It was clever of him to threaten a veto on something Angela Merkel badly needed. He had her in the corner. It was an example of classic EU diplomacy.
But this was only the foreground spectacle. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all. The European Stability Mechanism was already able to purchase Italian bonds in the open market. The instrument was there, but not used. The agreed changes are subtle.
Italy must still sign a memorandum of understanding, and subject itself to the troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure.
2.59pm: As we wait for more details to emerge about the now bizarre non-bidder for David Jones, we're wondering where - if the whole proposal turns out to have been a joke right from the start - it would rank among the world's greatest hoaxes: smaller than the Raelians but bigger than Milli Vanilli? What do you think?
Meanwhile, Reuters points out that the UK bidder, EB Private Equity, is not listed in Companies House, the registrar of privately owned firms based in England and Wales, nor recorded by private equity tracking firm Preqin.
2.51pm: The shock evaporation of the takeover offer comes as there were was a growing belief among market players and investors as to the credibility and funding of the offer from EB Private Equity.
In a letter to DJs, the UK bidder complained that recent publicity around its proposal has made it difficult to proceed".
David Jones said it expected no further discussions with EB Private Equity’s mysterious chairman John Edgar.
Directors and officers of David Jones have never spoken to Mr Edgar via phone since the $1.65 billion takeover offer was made on Friday with the parties only corresponding via email.
2.46pm: BREAKING: David Jones has just announced that EB Private Equity has withdrawn its offer.
2.39pm: In an otherwise dismal year for Asia's investment banking industry, a ray of hope has appeared from the most unlikely of places: Malaysia, Reuters writes.
State oil company Petronas announced the country's largest-ever outbound takeover last week, offering to buy its Canadian partner Progress Energy Resources Corp for $US4.7 billion to gain control of vast shale gas deposits to supply lucrative Asian markets. The news broke on the same day Malaysian palm oil firm Felda Global listed its $US3.1 billion IPO with a 20 per cent pop.
Bank of America-Merrill Lynch, Goldman Sachs and JPMorgan are among the investment banks benefiting from the deal-making boom at a time when fees are tough to come by. A few key business relationships have paid off for BofA-Merrill, while Goldman's expanded business and JP Morgan's decades-long operation in Malaysia have been a boon for them.
Another $US5 billion to $US7 billion of Malaysian stock offerings are expected during the next year, turning the normally sleepy Kuala Lumpur financial hub into one of the most active deal centres in the world.
2.21pm: Some more on David Jones and the mysterious takeover offer by EB Private Equity: Australian Stock Report head of research Geoff Saffer says the available information raises questions about EB’s ability to make the deal.
2.01pm: More bad news for Qantas reports BusinessDay's Matt O'Sullivan:
Qantas has suffered its first monthly decline in yields from both its domestic and international operations in more than two years, in a further sign of the impact of a fare war with Virgin Australia.
The airline today released its monthly traffic statistics, which showed that total yields for its domestic operations – including Jetstar and QantasLink – were up 4 per cent for the 11 months to May, compared with the same period last year. Yields for the group’s international business rose by 1.5 per cent over the same period.
But excluding Jetstar – which analysts today described as the ‘‘only shining light’’ – the group’s monthly traffic figures reveal the toll the battle with Virgin for passengers on domestic routes is having on the core driver of Qantas’s earnings.
Despite the release of the weak traffic figures, shares in Qantas rose 3.26 per cent in early afternoon trading. Virgin was down 1.28 per cent.
1.49pm: This just in from BusinessDay's Eli Greenblat:
Upmarket department store David Jones has called a trading halt in its shares as confusion grows over the credibility of the mysterious $1.65 billion takeover offer for the group last week and the financial backing of its takeover suitor.
David Jones called a trading halt moments ago and in a letter to the Australian Securities Exchange said the halt could last until the end of the day as it looks at correspondence from EB Private Equity, the-little known British firm that has made the takeover bid.
1.39pm: While local stocks are hanging to to their early gains, traders warn that the rally may be short-lived as the eurozone's debt crisis is far from over.
"Even though markets went up significantly on Friday night, we are still fairly cautious as to whether that's a sustainable move, given that the announcements from the summit were probably better than the actual detail of what's been delivered," says Andrew Pease, chief investment strategist at Russell Investments Asia Pacific.
Credit Agricole director of foreign exchange Yuji Saito says the EU agreement offered a direction but details are yet to be worked out.
"Still, with concerns over the eurozone's debt crisis easing for now, the focus this week turns to US data, including the monthly jobs report."
1.35pm: Shares in mid-tier gas producer Nexus Energy have been placed in a trading halt, pending the release of an announcement.
Its shares, which last traded at 11 cents, will remain in a trading halt until Wednesday or when the announcement is made to the stock market. No further details were given.
1.20pm: Investors may be wondering whether the bizarre bid for David Jones was a bogus offer or merely an unorthodox way of conducting business, Adele Ferguson writes.
But what it has done is focus the market on the break-up value of David Jones as a property play. It has some good properties in its books at $450 million and some suggest these properties could be worth $800 million.
If John Edgar turns out to be a big talker with no backing, it has at least put the spotlight on the value of David Jones in the hands of private equity or a trade buyer who can sell the property, lease it back and without having the headache of a big capital gains tax bill.
1.06pm: European banks have cut their lending to Australian business by almost $20 billion due to the eurozone crisis, and they are likely to continue retreating from the market, new analysis has found.
After the weekend’s agreement to boost support for Europe’s banks, a report by Barclays economist Kieran Davies says European corporate lending to Australia had fallen by more than 30 per cent from its peak in 2009 to $40 billion.
Davies says the trend has further to run, because outstanding loans that are approaching maturity are unlikely to be rolled over.
‘‘Some of those banks do have less capital to play with, and their regulators and shareholders are urging them to lend that money out to companies and households in their home bases.’’
12.59pm: But the biggest winner among the top 200 stocks is Fairfax, jumping more than 8 per cent to 60 cents.
The board of Fairfax, publisher of this website, has been embroiled in a dispute with the media company's largest shareholder, Gina Rinehart, who on Friday called on chairman Roger Corbett to resign if he fails to turn the ailing share price around.
12.53pm: Telstra is having a good day, rising 1.8 per cent, as Charlie Aitken notes in a tweet:
Telstra outperforming on a risk on day. Interesting, high yield remains well bid. Ditto banks
- Charlie Aitken (@CharlieAitken2)
12.44pm: The dollar has also retreated further from the day's high after the Chinese manufacturing data, trading at $US1.0218, down half a cent from the day's high this morning.
12.38pm: The weak Chinese data is weighing a bit on the local market, but the ASX200 is still outperforming most its regional peers:
12.35pm: A small downer for the market, coming from China: factory activity shrank at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey shows, underlining the risk of a lurch lower for the Chinese economy.
The HSBC Purchasing Managers' Index (PMI) for June fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4. June was the eighth straight month of a reading below 50, the threshold dividing expansion from contraction in the survey methodology.
China's official PMI, released on Sunday, also fell to a seven-month low in June. However, the official PMI was 50.2, indicating the sector was still expanding.
The two indexes often give divergent readings as the official PMI surveys mainly big, state-backed firms, while the HSBC PMI takes the pulse of more smaller, private-sector companies.
But both readings underline speculation that Beijing will relax monetary and fiscal policies further to boost domestic activity to compensate for weakening foreign demand for China's factory goods - a problem for the world's biggest exporter.
"We expect more decisive easing efforts to come through in coming months," says Qu Hongbin, an economist at HSBC.
12.31pm: Online sales rebounded in May to post their highest reading so far this year, handily outpacing growth for traditional bricks and mortar retailers, a survey shows.
National Australia Bank's index of online sales rose 10.8 per cent in May to 187.2, more than reversing a dip the month before. Annual growth in the index continued to slow, however, reaching 14.2 per cent in May from 15.5 per cent the previous month.
12.20pm: Troubled clothing maker Pacific Brands has trimmed $25 million from its debt pile thanks to stronger cash flows and the sale of two surplus properties.
Pacific Brands has been trying to reduce its debts amid a major restructure aimed at turning its fortunes around.
Shares are up 2.5 per cent.
12.09pm: The biggest loser among the top 200 is Aristrocrat Leisure, which has plunged 12 per cent after the gaming machine maker flagged first-half net profit would be between $30 million to $33 million. That was well short of the $39.3 million analysts were expecting.
11.59am: David Jones shares have clawed back some of their early hefty losses of 8.5 per cent but are still down 5.4 per cent on doubts over Friday's surprise takeover offer.
"There is significant uncertainty over the legitimacy of the bid given the lack of information on the bidding consortium," UBS analyst Ben Gilbert says.
"Given the bid appears highly dependent on property development, it is unlikely the value they see in the business is accessible to the broader market. This limits the scope for a competing bidder."
Gilbert says the bid implied a value of 11 times FY13 earnings before interest and tax, or a 40 per cent premium to David Jones' global peers, which indicates the offer was too rich.
11.52am: All 21 economists polled by AAP say there will be no change to the cash rate tomorrow, but many expect the central bank to cut one more time this year, bringing the cash rate to 3.25 per cent.
AMP chief economist Shane Oliver says that a spate of strong data since the previous board meeting on June 5 may have changed the central bank’s outlook on the domestic economy:
CommSec chief economist Craig James says that while June’s rate cut was influenced by Europe, the RBA would be looking for information on domestic growth before moving again:
Deutsche Bank economist Adam Boyton says that despite good GDP and jobs numbers, the Australian economy could still do with a nudge:
11.47am: The dollar is taking a breather from its early morning rally that saw it shoot up as high as $US1.0268. It has since slipped nearly half a cent to $US1.0227.
Analysts and markets alike aren't expecting a change to official interest rates when the RBA meets tomorrow.
Interbank futures are giving a mere 12 per cent chance of a quarter point cut, although markets are still priced for around 75 basis points worth of easing over next 12 months.
11.41am: In response to a reader's question: OneSteel has been renamed Arrium and is now trading on the ASX with the code ARI.
Shares are up 2.3 per cent after earlier today rising as much as 6.9 per cent.
11.36am: Lend Lease shares are one of the biggest winners so far, jumping 4.7 per cent after the company provided a higher than expected profit outlook, Carolyn Cummins reports:
Lend Lease rarely issues profit guidances to the market and brokers welcomed the update of the expected earnings range. The market consensus for the 2012 financial year was about $440 million but today Lend Lease said that is now closer to between $485 million and $505 million.
Brokers at JPMorgan say the estimate includes capital gains on the reduction in its share of the Parkway Parade shopping centre in Singapore and the recent sale of a 50 per cent interest in Greenwich Peninsula, London amongst others.
‘‘Broadly, we view this upgrade positively. The better than expected conditions for the construction businesses are partly offset by the weakness in Australian residential markets, though this weakness is not unexpected,’’ JPMorgan says.
‘‘We also note that our earnings estimates already include the impact of capital recycling gains in the 2012 financial year. Therefore, while the lower tax rate does help, we believe that a material proportion of this upgrade is driven by improvements in operational conditions for the group.’’
Andrew Macfarlane, an analyst at Goldman Sachs also views the new earnings range as a positive:
‘‘The strength of the announcement is chiefly due to the fact that Lend Lease management does not normally provide earnings guidance. Our earnings estimates and price target are under review.’’
11.29am: Our daily markets poll is now closed: 48 per cent of respondents said the market would close more than 1 per cent higher. Looks like they're on track.
11.23am: For investors wondering why the results of the 19th EU crisis summit are buoying sentiment, Morgan Stanley's Joachim Fels has a nice explanation (note that it came before Italy's loss in the European Cup finals early this morning):
Even though it might be tempting to open this Start with yet another football analogy, especially after Italy so convincingly ejected Germany from Euro 2012, I refrain from it today. Why? Because in contrast to the semi-final in Warsaw, there were no losers at the EU summit in Brussels – only winners. And I’m not being cynical here, I mean it!
By agreeing to create a single banking supervisory mechanism run by the ECB and, once that’s done, allow the ESM to inject capital into banks directly, Europe’s leaders took an important step towards breaking the negative feedback loop between banks and weak sovereigns and progressing towards a more federal Europe.
To be sure, it’s only a stepping stone, not a milestone, because the debate about the ‘if, how and when’ of a fiscal union is far from resolved and will likely intensify in the coming months. Still, couching it in terms of our scenarios for the euro area, the summit outcome makes me more confident that the euro area is not headed for ‘divorce’ but will rather keep ‘staggering on’ (which has been our main scenario from the start) and may eventually even end up in the ‘European Renaissance’ quadrant defined by both economic rebalancing and fiscal union. Fingers crossed.
11.06am: Back to the markets: the ASX200 is pushing higher again, with energy (up 2.3 per cent) and materials (up 1.7 per cent).
10.54am: In a slight diversion from hard-core economic news, Rupert Murdoch has just tweeted that he's been receiving hundreds of nasty tweets in response to his earlier tweet on the split of Tom Cruise and Katie Holmes and the Scientology connection, when he said there's "something creepy, maybe even evil about these people":
@rupertmurdoch: Since Scientology tweet hundreds of attacks. Expect they will increase and get worse and maybe threatening. Still stick to my story.
10.44am: And in some positive economic news from overseas: Japanese manufacturers were less pessimistic about business conditions in the three months to June, the central bank's closely watched Tankan survey showed, a sign that the economy was on track for a moderate recovery despite the pain from Europe's debt crisis and slowing overseas growth.
Service-sector sentiment also continued to recover as companies benefitted from solid private consumption and spending for rebuilding from last year's earthquake and tsunami.
Big manufacturers expect business conditions to improve in the next three months, the survey showed, underscoring the view that the world's third largest economy is headed for a recovery.
The June Tankan's headline sentiment index for big manufacturers was minus 1 in June, up three points from March and better than the median market forecast of minus 4, the quarterly survey showed.
10.38am: The TD Securities-Melbourne Institute inflation survey results suggest the Reserve Bank, which has a target inflation range of 2-3 per cent, will have plenty of room to cut the cash rate at its monthly board meeting tomorrow.
But TD Securities Head of Asia-Pacific Research Annette Beacher says that, after cutting by 0.75 percentage points since April, the RBA is unlikely to move again until at least August.
‘‘We believe the RBA is in a comfortable position to sit tight for at least tomorrow’s RBA board meeting,’’ she says.
‘‘We still expect the next move to be down, thanks to the favourable inflation outlook, but we don’t see any urgency for a third consecutive cut, given the recent flow of strong data (GDP, employment, exports) have defied poor sentiment.’’
10.35am: Some more signs of deflation creeping in: the TD-Securities-Melbourne Institute monthly inflation gauge shows prices fell 0.2 per cent in June after remaining flat in May.
The annual inflation rate fell to 1.6 per cent in the 12 months to June 2012, the slowest pace since 2009.
10.30am: Capital city home prices posted their largest monthly increase in more than two years as the effects of deep rate cuts pushed through by the Reserve Bank began to take hold.
RP Data Capital City home values rose 1 per cent in June, following a 1.4 per cent fall in May, leaving home prices down 1.2 per cent in the six months to June. The median dwelling price across all capitals was $460,000 in June.
June’s result was the strongest single monthly result since March 2010, when interest rates were still rebounding from their global financial-crisis lows.
“The catalyst for the improvement in market conditions is likely to have been the 55 basis-point reduction in the average discounted home loan rate over May and June as well as the subtle improvement in consumer sentiment readings that have been reported,’’ said RP Data director of research Tim Lawless.
In June, home prices rose 1 per cent in Sydney, Melbourne and Brisbane, while leaping 2 per cent in Perth in that time.
10.25am: Bit going on. We'll have some house price data out in a minute.
Among other movers today:
Newcrest is up 3.4%
BHP up just 1% (after 5% rally in New York on Friday)
Rio up 0.7% (ditto...also up 5% plus in NY)
Fairfax Media (publisher of this blog) up 4.5% to 58 cents.
10.20am: Aristocrat didn't do well out of that earnings update noted earlier. The stock is down as much as 10.5%.
Lend Lease, on the other hand, got a lift out of its market update. The builder's shares are up as much as 4.5%
10.10am: Some early sense of the size of today's bump - not huge.
The ASX200 is up about 1%, with gold miners up 3% and materials up 1.5%
10.04am: Investors didn't take long to give David Jones a bit of a hammering. DJs shares are down as much as 7.7% in early trading, or 20 cents, to $2.39.
That's a loss of about half of Friday's advance as investors are obviously sceptical about the chances of a real takeover bid.
9.59am: Some mixed signals on the manufacturing front:
Australia's manufacturing activity contracted for a fourth straight month in June, hit by a high dollar and a slump in residential and commercial construction, a private survey showed today.
The Australian Industry Group/PriceWaterhouseCoopers performance of manufacturing index (PMI) rose 4.8 points to 47.2 in June, but still remained below the 50-point level that marks the threshold between contraction and expansion, Reuters reports.
AIG chief executive Innes Willox said concerns over the impact of a carbon tax, which comes into effect this month also weighed on the sector.
Still, there were signs of improvement in the survey. The index of production bounced 8.8 points to 47.5 in June, while that for employment rose 5.8 points to 48.8 and new orders firmed 5.6 points to 46.2.
9.49am: Investors may temper some of their hopes of a takeover bid for DJs after the source of a takeover approach was confirmed to be a little-known group, EB Private Equity. John Edgar, a Scottish investor involved in a range of bizarre ventures, is behind the bid – a revelation that may see some of Friday’s 14.6 per cent leap in DJs reversed today. Full story.
9.45am: The Australian dollar has been one of the beneficiaries of the renewed confidence in the eurozone. It shot up to $US1.0264 early today, almost a full US cent higher than the Friday's close.
Sydney-based Rochford capital director Derek Mumford said the dollar had experienced a relief rally after the positive news from the European meeting on Friday.
However, he doesn’t expect it to surge higher because of the lingering problems in the eurozone and the uneven outlook for growth elsewhere.
‘‘We’re not expecting it to go too much further than this,’’ he said.
‘‘Over the next few weeks we’ll see that still the (European) problems persist. The banks and governments are hugely in debt without any chance of repaying a good proportion of this debt. I think that will weigh on risk appetite going into the week.’’
9.43am: Aristocrat Leisure has also started the week on a bright note, announcing it expects to lift its first-half net profit by as much as one third and deliver strong earnings growth for the full year.
Aristocrat flagged that it stood to reap a net profit of between $30 million and $33 million for the six months to June 30, 2012. It posted a net profit of $24.9 million for the previous corresponding period.
"The company reiterates that it expects continued strong NPAT (net profit after tax) growth over the 12 months to 30 September 2012, and also the calendar year to 31 December 2012, compared with the prior corresponding periods," Aristocrat said in a statement.
9.38am: Here's a quick look and the week ahead in local business news. For a full calendar click here:
And for a rundown of what's expected offshore this week, particularly in the US, check out the Wall Street week ahead which asks, can the EU decision on the weekend fuel a longer term rally?
9.35am: One local company in the news this morning is Lend Lease, which says it expects to post a modest rise in operating profit for its 2011/12 financial year.
The developer today said it was on track to achieve an operating profit after tax of between $485 million and $505 million for the year to June 30, 2012.
The result excludes any profits from the Barangaroo South development in Sydney's CBD. Lend Lease posted an operating profit after tax of $485.3 million in the year to June 30 2011.
9.32am: There isn't any major economics or company news scheduled for today but tomorrow the RBA will make a decision on official interest rates.
Financial markets don't expect the RBA to move rates from 3.5 per cent even though the run of economic data since the last meeting has been less than robust. Pundits expect the central bank will wait to see the June-quarter inflation numbers, due for release on July 25.
9.29am: Local shares are set for a strong start after US and European markets ended last week with a bang thanks to agreement among EU leaders on bolstering the defences of eurozone banks.
Check today's need2know for a comprehensive look at what's likely to drive the ASX today and for a snapshot for the week ahead. Meantime, here are this morning key markets links:
9.26am: Good morning folks. Welcome to the Markets Live blog for Monday.
This blog is not intended as investment advice
BusinessDay with agencies