Markets Live: ASX on Fed steroids

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This was published 9 years ago

Markets Live: ASX on Fed steroids

Shares bounce after Wall Street surged on dovish minutes from the US Federal Reserve, with banks leading the way despite NAB’s surprise writedown, while the dollar see-saws on weak jobs numbers.

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That's all for today - thanks everyone for reading this blog.

Here's the evening wrap of today's session.

Investors piled back into banks, continuing the yoyo the sector's stocks have seen over the past days.

The big four were up between 1 per cent (NAB) and 1.8 per cent (Westpac).

The miners, meanwhile were mixed, with BHP gaining 1.15 per cent, while Rio slipped 0.1 per cent, trimming more of the gains it made earlier in the week on the back of (meanwhile denied) Glencore merger speculation.

Here are the biggest winners and losers among the top 200:

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The sharemarket has closed higher, posting its biggest one-day gain in two months.

The benchmark S&P/ASX200 index jumped 1.1 per cent, or 55.4 points, to 5296.7, while the broader All Ords gained 51.7 points, or 1 per cent, to 5293.3.

All sectors posted gains, with financials rallying 1.6 per cent, while materials added 1.1 per cent.

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Western Australian Premier Colin Barnett has delivered a stinging rebuke to BHP Billiton and Rio Tinto, warning moves to boost iron ore production were “flawed” and hurting the state.

A clearly frustrated Barnett said he would “hate” to lift royalty rates in the state to offset falling royalty revenue but warned if the situation continued it may be an issue he would need to address.

This strategy of the two major producers to flood the market and force the price down, I mean, remember who your landlord is,” Barnett said. “That is hurting Western Australia.”

Barnett said he was so frustrated and angry that he had to announce wide-ranging cuts to the public sector that included 1500 voluntary redundancies because of falling mining royalties and lower goods and services tax revenue.

BHP revealed plans on Monday to boost production by a further 65 million tonnes while slashing costs. It will allow the miner to make more profit on the ore it produces. But the swelling production is depressing global prices.

Glencore chief executive Ivan Glasenberg has criticised BHP and Rio for rapidly increasing production for adding to an oversupply that had helped push prices down 40 per cent this year.

Remember who your landlord is, WA Premier Colin Barnett warns.

Remember who your landlord is, WA Premier Colin Barnett warns.Credit: Bohdan Warchomij

Bathroom fixtures and homewares group GWA Group is unlikely to pay a dividend this year due to restructuring charges but a financial and strategic overhaul of the company should result in a leaner, more focused business in the medium term.

That’s the view of Citigroup analyst Ross Barrows who summarised the raft of material financial and strategic announcements announced by GWA on Wednesday as a 10 per cent headcount reduction, a $29 million restructuring charge, proposed annualised savings of about $4 million, proceeds form asset sales and information relating to the company’s dividend.

GWA said the hit to retained earnings resulting from these initiatives would affect the group’s ability to pay “fully franked ordinary in the current financial year.”

While Mr Barrows notes the company may be able to return cash to shareholders via a special dividend or “some other distribution mechanism”, he does not expect GWA to pay a dividend in fiscal year 2015 and forecasts the company to lower its payout ratio in fiscal year 2016 and fiscal year 2017 to 70 per cent from 75 per cent.

The analyst also lowered his earnings forecast for the next three years by about 4 per cent but retained a “buy” rating on the stock.

Asian shares are mostly higher, following Wall Street's strong lead, with the local market a rate outperformer:

  • Japan (Nikkei): +0.45%
  • Hong Kong: +0.8%
  • Shanghai: -0.6%
  • Taiwan: +0.1%
  • Korea: closed
  • ASX200: +1.3%
  • Singapore: +0.7%
  • New Zealand: +0.4%

 

‘‘Minutes of the September Fed meeting acted like a steroid,’’ said Matthew Sherwood, head of investment markets research at Perpetual. They ‘‘seemed to suggest that US rates could remain highly accommodative for longer than initially expected if global demand remained weaker than expected.’’

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The Australian exchange traded fund (ETF) market rose to a new all-time high of $12.7 billion in September, despite a falling local share market, according to the BetaShares Australian ETF Review for September.

The industry grew by approximately $300 million over the month, driven almost exclusively from new money inflows rather than market movements, underscoring the increasing popularity of ETFs as a portfolio tool, BetaShares managing director Alex Vynokur said.

Interestingly, buying activity increased heavily in currency and fixed income ETFs, as investors looked to profit from the decline in the Australian dollar and the gradual rise of bond yields, Vynokur said.

Average trading value across the ETF market as a whole increased 44 per cent month on month, reaching an all-time high of $1.5 billion.

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Bank of Queensland expects consumer confidence and business investment to remain subdued in the year ahead as the economy shifts away from mining investment.

The warning came as the bank delivered a record cash profit of $301 million in the year to August 31, up 21 per cent from the previous year.

The lender said its exposure to Queensland’s slower property market played a major role in its meagre mortgage growth.

Acting chief executive Jon Sutton warned business investment and consumer confidence were expected to remain subdued.

‘‘Business banking is growing modestly in a market that is flat to negative in terms of growth, given the subdued business sentiment,’’ he said. ‘‘Brokers are telling us that the market is as quiet as they’ve ever seen it and small business in particular are still delaying investment decisions.’’

Despite difficult conditions, Sutton said he expected BoQ’s investment in business banking in the past 18 months to translate into further growth, while mortgage lending should lift as it increases the number of brokers.

Forget traditional market principles such as company valuations: The grey army of self-managed super funds investors is ruling the Aussie sharemarket and turning it on its head.

The DIY investors are outgunning institutional investors and international hedge funds and driving up share prices of companies the professionals view as overvalued - namely those of household names and companies paying big dividends such as the big four banks and Telstra.

Shortsellers betting on falling share prices have paid dearly for ignoring the DIY investors, market experts say.

"They are the army," says Hasan Tevfik, director of Australian equities research at the Swiss bank. "They are the dominant force in the equity markets now. Investors don't understand who's actually driving share prices."

Professional investors should avoid shorting the stocks the retirees favour, including the big four banks and Telstra, according to Tevfik.

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Maybe that's one of the lessons for professionals wondering why they've been outperformed by SMSFs in six of the past eight years ...

"They are the army": Retirees and self-managed super funds are chasing dividends and household names, upsetting traditional market principles such as looking at share valuations.

"They are the army": Retirees and self-managed super funds are chasing dividends and household names, upsetting traditional market principles such as looking at share valuations.Credit: Peter Braig

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The Australian Bureau of Statistics’ jobs fracas is unfortunate underlying data volatility, which is ultimately much ado about nothing, the AFR's Christopher Joye comments:

That was certainly the financial markets’ reaction: after an immediate dip in the Aussie dollar and drop in bond yields, traders had within 30 minutes left both key instruments unchanged from their levels before the release at 11.30am.

Let me explain why.

What financial markets and the Reserve Bank of Australia are really focused on is obviously what the jobs data means for the setting of interest rates.

The reason the monthly jobless data are important is because the RBA believes the unemployment rate is the single most powerful predictor of inflation and spare capacity in the economy.

And as an inflation-targeting central bank, it is changes in the quarterly core consumer price index that exercise the heaviest influence over what the RBA does with its target cash rate. Ipso facto, traders concentrate on the monthly jobs release.

The brighter interest rate strategists know to effectively ignore the highly variable absolute employment growth numbers reported each month, which are published with enormously wide standard errors that make them practically meaningless.

The absolute key for investors punting on the currency and listed interest rate future securities, and for the RBA, is the unemployment rate, which is a far more stable variable.

Read more on the ABS data debacle

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