BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
Energy companies were the day’s best performers, while Telstra, Estia and Vocus came under pressure.
- Stocks push higher on energy lift
- Dick Smith CFO knew of rebate over-reliance
- Banking inquiry: Hartzer in firing line
- BoQ shares slide
- Estia slumps on profit downgrade
- Bank inquiry: NAB’s Andrew Thorburn
- BoQ cash profit inches up
- Who stunk up the ASX?
Welcome to the BusinessNow blog. The local market is higher after services sector data and a surge in oil prices helped spur Wall Street to its first positive close in three sessions. The heads of NAB and Westpac are in the hot seat as the Parliamentary grilling of bank chiefs concludes today.
7.59pm:Stocks warning may be false alarm
A popular valuation metric pioneered by Nobel prize-winning economist Robert Shiller says stocks are dangerously expensive. But it may be a false signal.
Mr Shiller gained popular fame with his 2000 book Irrational Exuberance, which said US stocks were in the midst of a speculative frenzy. His timing couldn’t have been better — stocks peaked right as the book came out, and then collapsed. Lightning struck twice when, in a 2005 edition of the book, Mr Shiller said the housing market was in a bubble.
It is a track record that makes Mr Shiller hard to ignore, and it has garnered his stock valuation measure a wide following among investors. That measure looks terrifying right now: Every time it has gotten this high, markets crashed and financial mayhem ensued. Read more.
7.14pm:Lloyds sells WICET loans
Bridget Carter
Lloyds Bank is understood to have sold about $150 million worth of loans in the troubled Wiggins Island Coal Export Terminal (WICET).
The loans were sold at 79c in the dollar.
It comes as the asset remains in the hands of restructuring experts with loans worth several billion dollars.
The terminal is owned by a syndicate of miners including Glencore and also Wesfarmers.
It is understood that the debt was swallowed by a handful of hedge funds.
7.03pm:ASX website down
The Australian Securities Exchange website has been down for more than an hour. While this is not believed to have impacted the operation of the market, investors are not able to access late disclosures by listed companies.
The move comes on the heels of the ASX trading platform being down for nearly an entire day last month, prompting ASX boss Dominic Stevens to cut short an international investor roadshow. An ASX spokesperson could not be immediately reached.
6.54pm: European stocks track higher
Europe’s stock markets moved tentatively higher at the open on Thursday, tracking earlier gains in Asia and overnight on Wall Street, on the eve of key US non-farm payroll data.
In initial trade, London’s benchmark FTSE 100 index of top blue-chip companies added almost 0.1 per cent to 7,039.76 points.
In the eurozone, Frankfurt’s DAX 30 won 0.5 per cent to 10,641.13 points and the Paris CAC 40 gained 0.2 per cent to 4,500.36 compared with the close on Wednesday.
Asian markets rose Thursday, while the dollar strengthened further on growing expectations the US will hike interest rates by the end of the year, dealers said.
Another round of positive data out of Washington, this time on the key services sector, reinforced views that the world’s top economy is back on track and able to deal with the impact of tighter borrowing costs. AFP
6.38pm:Gold exit may be shortsighted: Evolution
Barry Fitzgerald
Shares in Evolution and the rest of the listed Australian gold sector have been hit hard for a second day on global interest rate rise fears.
But at a Melbourne Mining Club luncheon on Thursday, Evolution’s executive chairman Jake Klein argued that if anything, the gold price is in the early stages of a bull cycle.
He was speaking as the market took another 10c, or 4.3 per cent, off Evolution’s share price, leaving it at $2.23 at the close of trade. That followed on from Wednesday’s 20c, or 7.9 per cent, share price hit after gold suffered its biggest single day fall in three years, plunging $US43 an ounce to $US1269 an ounce. Read more.
6.13pm:ACCC stays on track with deals
John Durie
The ACCC is concerned that if either Pacific National or Aurizon buys Glencore’s Hunter Valley rail assets it will lock up the region’s rail contracts.
Accordingly, it issued a statement of issues raising concerns that the proposed deals may substantially lessen competition.
Glencore had put its rail assets on the market as part of a cost cutting exercise hooping to raise around $600 million.
The rail service, which simply hauls coal from its mines in the region, is run by Genesee & Wyoming, which had expressed interest in buying the asset.
This is the ACCC’s preferred option but obviously the price on offer is not as strong as from the rival operators. Read more.
6.05pm:Tokyo stocks extend winning streak
Tokyo shares closed higher for a fourth straight session on Thursday as a weaker yen boosted exporters, while Fujitsu soared on reports it is considering merging its money-losing PC unit with China’s Lenovo.
Tokyo’s benchmark Nikkei 225 index gained 0.47 percent, or 79.86 points, to close at 16,899.10, while the broader Topix index of all first-section shares was up 0.45 percent, or 6.12 points, at 1,353.93.
It came as the US dollar rallied, making the yen weaker -- a positive for Japanese exporters as it makes them more competitive abroad and inflates their repatriated profits.
“The US economy has been recovering even after it went ahead with a rate hike last December,” said Mitsushige Akino, an executive officer at Ichiyoshi Investment Management.
“From the Fed’s point of view, two rate hikes would have been possible but they haven’t been able to hike due to overseas market conditions.
“A December hike will happen for sure,” he told Bloomberg News. AFP
5.51pm:Ligtigation funder switches to baby food
Litigation funder Hillcrest is transforming into a baby food company after signing an agreement to acquire the manufacturer of Bubs Organic products. ASX-listed Hillcrest will change its name to Bubs Australia after its purchase of Sydney-based Infant Food Holding Company is completed.
It will consolidate its share capital and also raise fresh capital of $5.15 million as part of the process.
The company’s shares were suspended from trade on Thursday and are scheduled to resume the week of December 19.
Infant Food launched what it says was the first Australian goat milk infant formula, and produces a range of infant nutrition products that are marketed across Australia and on Chinese e-commerce platforms. Read more.
5.12pm:What was learnt at banking inquiry?
Westpac chief Brian Hartzer faced questions over gender discrimination, credit card fees and complaints process on final day. Read more.
4.36pm:ASX within reach of 5-week high
The Australian market rebounded today as blue chips, with the exception of Telstra, pushed the index to within reach of its five-week high.
At the close the S&P/ASX 200 was 0.5 per cent higher at 5482.3 points, not far off Monday’s high of 5492 points, which was the highest level since August 30.
Spring seems to have sprung on the local market, with five negative weeks in a row leading into a good chance of three positive weeks.
With one session remaining, the ASX 200 is 0.9 per cent higher for the week.
October is – six sessions in – living up to its historical position as the best month of the year for Australian equities. The local market has seen an average rise of 4.6 per cent in October over the last five years.
Energy stocks led the way today with a 2 per cent gain from the sector following a healthy 2.3 per cent rise in the price of crude oil overnight, while Woolworths pitched in with a strong 2.6 per cent rise to end the day at $23.91.
Standouts in the energy space were Santos, with a 3.6 per cent gain, and Origin Energy, which grew 3.1 per cent.
4.17pm:Hartzer questioned on RAMS
Nationals MP Kevin Hogan is now running the show and focus is on mortgage brokers.
Does the now Westpac-owned RAMS Home Loans direct customers to Westpac more than other banks, Hartzer is asked.
Kelly is informed RAMS is no longer a broker so Hartzer can comfortably deflect.
4.15pm:Westpac to continue political donations
Greens MP Adam Bandt takes over questioning and immediately focuses on political donations - the Greens have received none from the big four it should be remembered, writes Daniel Palmer.
“We have a policy that is very open and transparent” on political donations, Hartzer says.
“Our policy is very clear and we don’t have plans to change it.”
ANZ and NAB have recently hinted they will retreat from making direct political donations.
3.46pm:Blyth, Morris join up to launch PR firm
Corporate communications specialists Hayley Morris and Emily Blyth are to establish their own consultancy, nabbing investment bank Goldman Sachs as their inaugural client, writes Christine Lacy.
Morris has driven communications at the bank for the past 12 years, while Blyth is returning to Australia from London after six years at the helm of communications for mining giant Anglo American plc.
The pair had previously worked together at Goldmans before Blyth ventured overseas.
The business will operate under the banner of Consiglio and commence operations in Sydney from October 17.
They join a crowded market for corporate communications services dominated by brands that include Newgate, Cannings, GRACosway, Domestique, John Connelly and Partners and Bespoke Approach.
3.43pm:Nanshan Group snaps up Keeper’s Cottage
One of Sydney’s most prominent luxury houses, the Keeper’s Cottage in the upmarket Vaucluse, has been sold to one of China’s richest families.
In a deal announced today, the house has been sold for $7.5 million after a number of attempts over the past few years.
It was sold to Nanshan Group’s Jianmin Song and Hailing Xu. The house is expected to be their Australian base as they oversee an aggressive expansion plan which included buying a major Virgin Australia stake from Air New Zealand earlier this year.
3.32pm:Hartzer warns on excessive regulation
With financial planning scandals a dime a dozen over the past few years it’s little surprise we are on the topic again, writes Daniel Palmer.
Hartzer warns, however, there can be “unintended consequences” of excessive regulation.
“If you try to run everything on the bases of rules and punishment you risk slowing innovation,” he said.
3.15pm:Hartzer ‘hazy’ on tribunal discussion
Labor’s Matt Keogh takes control of proceedings, trying to ascertain whether the government-proposed tribunal has been in the works for some time, writes Daniel Palmer.
Hartzer says idea was first brought up by Treasurer Scott Morrison in April or May, although he admits his “memory is a little hazy”.
2.55pm:$330,000 fine for underquoting property
A Melbourne real estate agency has been fined $US330,000 plus costs for creating the “illusion of a bargain” by underquoting on 11 properties in the sought-after suburbs of Richmond and Kew.
Consumer Affairs Victoria confirmed it is the largest under-quoting penalty handed down in the state’s history.
Hocking Stuart Richmond created an “enticing but illusory and misleading” marketing web which disadvantaged home buyers and other vendors, Federal Court judge John Middleton said in Melbourne.
The penalty effectively cancels the commissions Hocking Stuart Richmond earned from the sale of the properties - $US148,044 - and imposes an additional amount to deter other agencies from similar conduct.
2.40pm:Hartzer on delay in passing on rate cuts
Hartzer addresses the issue of not passing rate cuts on immediately - it took 20 days for the bank to pass on the most recent rate cut following the RBA decision, writes Daniel Palmer.
“Each bank has a different funding situation,” he said.
Westpac believes we need to move on from commentary around “passing on a rate cut” as it is an “inaccurate statement” given the current make-up of funding for the big four.
“We don’t fund off the cash rate,” he said, adding it’s not a major determinant for mortgage rates.
2.25pm:BARTHO: Profit isn’t a dirty word
From Stephen Bartholomeusz’s column today:
There’s an interesting contrast between the International Monetary Fund’s latest global financial stability report and the questioning of bank chief executives about the profitability of their businesses occurring in Canberra this week.
While the focus of the committee’s questions so far has largely been on bank cultures and legacy issues, there’s also been a sub-current of questioning related to the banks’ profitability, returns on equity and the pricing of their loans.
The four major banks’ returns on equity have averaged around 15 per cent for the past decade, although they have tumbled from around the 20 per cent level ahead of the financial crisis to, in the first half of this financial year, just under 14 per cent. That still makes them, along with the major Canadian banks, among the most profitable banks in the world.
2.10pm:Stocks push higher on energy lift
Australian stocks have pushed 0.35 per cent higher today, but have fallen short of the 0.5 per cent rise investors expected based on the SPI futures index.
At just before 2pm AEST the S&P/ASX 200 was trading at 5472.2 points, creeping back from yesterday’s 0.6 per cent slide.
Energy stocks are leading way, particularly BHP Billiton, which is more exposed to the oil price than rival Rio Tinto – BHP is up 1.3 per cent today to $23.14.
The energy sector is the best performer on the market, gaining 1.7 per cent following last night’s 2.3 per cent rise from the oil price.
It’s interesting to note, however, that crude hasn’t carried the momentum through to the Asian session; it’s 0.7 per cent lower today.
Telstra remains the dark spot among ASX blue chips – the telco giant has lost 2 per cent today to trade at $4.89.
2.00pm:Dick Smith CFO knew of rebate over-reliance
The chief financial officer of the failed Dick Smith retail chain knew the company had an “over-reliance” on cash rebates from its suppliers, the receiver’s key accusation against management, it has been revealed at a public examination, writes Anthony Klan.
The NSW Supreme Court public examination into the failed retailer was read an email from September last year in which Michael Potts said that reliance led to “wrong purchasing” decisions.
In the email Mr Potts said Dick Smith had: “Over-reliance on ... rebates leading to wrong purchasing and pricing decisions”.
1.51pm:Tracker mortgages too risky: Hartzer
Hartzer says tracker mortgages - which are pegged to movements in the official cash rate - are appealing on their face, but they may not be so in reality, writes Jared Owens.
“The impediment ... is because tracker mortgages are really quite fraught from a risk point of view,” he says, citing them as partly responsible for the collapse of Northern Rock which was plagued by sharp drops in official interest rates despite a higher real cost of funds.
“The answer in a sense is we could put that product out there, but the premium we would have to charge to manage all the risks ... make that product really unattractive.”
He suggests people look to a fixed-rate loan instead.
1.44pm:Lack of accountability in banking industry
Coleman questions the lack of accountability among senior executives in the banking industry, notwithstanding the “fluffy” presentations about putting people first, writes Jared Owens.
Shouldn’t the executives step up and wear the consequences?
“I agree. The role of leadership is incredibly important,” he says. “The trick is we’ve got a big, complex business and what we’ve got to do is proactively make sure we have processes in place ... to hold people accountable when things go wrong.”
1.33pm:Brian Hartzer’s turn in the firing line
This afternoon’s witnesses are Westpac chief executive Brian Hartzer and his chief financial officer Peter King, writes Jared Owens.
Hartzer, who was a key player in cleaning up the Royal Bank of Scotland failure during the global financial crisis, says there have been significant global changes in the makeup of their balance sheets.
1.02pm:Vocus shares slide on sell rating
Vocus Communications shares are down over 5 per cent after copping a ‘sell’ rating from CLSA with the broker’s telco analyst Roger Samuel cutting his price target on the stock from $8.55 to $5.55, writes Supratim Adhikari.
Vocus shares were trading at $5.56, down 5.76 per cent, at 12:45pm.
The telco has been downgraded from “underperform” to “sell” over concerns around the accounting treatment of costs associated with recent acquisitions and potential issues with integration.
Mr Samuel said in a client note that despite Vocus’ shares underperforming the market by about 30 per cent since the company reported earnings he was worried by accounting challenges and an increased risk to earnings.
12.50pm:Active funds don’t beat market: report
The debate around active versus passive investing is poised to heat up as figures from S&P Dow Jones Indices show active fund managers consistently fail to outperform the market, writes Daniel Palmer.
As at June 2016, the majority of Australian funds in large caps, real estate investment trusts, international equities and bonds were outperformed by their respective benchmarks over one-, three- and five-year periods.
The only outperformance was seen in the more volatile mid- and small-caps category — and this was exclusively over the longest timeframe in the study.
“There is no consistent trend in the yearly active versus index figures, but we have consistently observed that the majority of Australian active funds in most categories fail to beat the comparable benchmark indices over three- and five-year horizons,” the report noted.
12.15pm:NAB’s market power
Liberal MP Craig Kelly asks: Do you now have, or have you ever had, a substantial amount of market power?
Thorburn declines to adopt that phrase, but says NAB has about 20 per cent market share in home loans and business banking, and his biggest competitor is twice his size.
Thorburn takes on notice questions about the bank’s view on the proposed effects test in competition law.
12.02pm:Credit cards? Yes, they are profitable
Liberal MP Scott Buchholz has baited chief operating officer Antony Cahill, getting him to put on the record that credit cards are indeed profitable. He created the impression earlier that it was a tough business.
“It is a profitable segment, Mr Buchholz, no doubt about that, but it has reduced (in profitability) in recent years and it is certainly under pressure,” he says.
Buchholz says banks should reduce their credit card rates if they want to be liked.
11.55am:Bunnings ‘strong, under-appreciated’
Ord Minnett analysts have hiked their price target on Wesfarmers by $4, but opted to leave their ‘hold’ recommendation unchanged, saying Bunnings is an “under-appreciated” asset.
The analysts jacked up the 12-month price target for Wesfarmers to $44 from $40 and say that while Coles’ earnings are slowing, Bunnings is strong and under-appreciated.
“Wesfarmers remains attractive for its sound cash generation and management,” Ord Minnett said.
“Given share price performance there is modest valuation support.”
The Ord Minnett view doesn’t fall too far outside what other analysts are saying, with Bloomberg data showing four ‘buy’ ratings, eight ‘holds’ and four ‘sell’ recommendations.
The consensus 12-month price target is $43.08.
Wesfarmers shares last traded 0.2 per cent higher for the day at $44.61 and have now regained 15.7 per cent from their late-June low.
11.44am:Trade deficit lower than expected
Australia’s trade deficit rose to $2.01 billion in August, from a revised $2.12bn in July.
The deficit was slightly below the $2.3bn market consensus but not enough to move the dial on the Australian dollar, currently trading around US76.12c vs US76.09c at the NY close.
11.30am:Australian Pharma shares surge 6%
Australian Pharmaceutical Industries has seen its shares shoot 6 per cent higher after news of the imminent departure of long-time chief executive Stephen Roche coincided with the group upgrading its full-year profit forecast, writes Daniel Palmer.
The latter development allowed the group to immediately quash concerns of weak performance that typically marry with news of the exit of a leading executive.
Read more
11.20am: Thorburn on housing bubble
Thorburn says household indebtedness is rising, but so too is the wealth of households. He doesn’t want people to take on debt they can’t service, writes Jared Owens.
Asked about the “housing bubble”, Thorburn says it seems contained to Sydney and Melbourne but the bank only loans to people it believes could sustain a mortgage with an interest rate well above 7 per cent.
“We want to make sure that we’re disciplined ... to protect our shareholders ... but also individual borrowers,” he says.
11.15am:BoQ shares slide on lacklustre result
Bank of Queensland has seen its share price fall as much as 5 per cent after it booked a modest 1 per cent rise in cash earnings, writes Daniel Palmer.
For the 12 months to August 31, the ASX-listed financial services group (BOQ) said it recorded a cash profit of $360 million, up 1 per cent on the prior period, while its statutory earnings lifted 6 per cent to $338m.
The figures fell shy of market expectations for a cash profit of $362.8m and statutory profit of $349.4m, although revenue of $1.12 billion was exactly in line with forecasts.
11.05am:Telstra weighs on ASX
Telstra is a major weight around the local market’s neck this morning, with the seventh-biggest stock in Australia (by market capitalisation) currently the tenth-worst performing stock on the ASX 200.
Telstra has dropped 1.5 per cent this morning to $5.07, a two-week low. Stock in the country’s largest telco has now fallen 13.4 per cent from its 2016 high of $5.86 back on July 21.
Telstra has been squeezed by persistent concerns about the future of the telecommunications landscape as the NBN continues to roll out, potentially giving smaller competitors a larger slice of the internet service provision pie.
Additionally, high-yield stocks, such as Telstra, have been hit hard in recent sessions as bond yields recover.
The broader ASX 200 is 0.3 per cent higher for the day at 5469 points.
10.59am:Stocks lift as investor nerves steady
The Australian sharemarket has rebounded in early trade after a steady bid on Wall Street driven by rising crude prices and a calming of fears around Germany’s Deutsche Bank.
At 10.30am (AEDT), the benchmark S&P/ASX 200 index bounced 15.9 points, or 0.29 per cent, to 5,468.8, while the broader All Ordinaries index gained 15.5 points, or 0.28 per cent, to 5,552.5.
10.57am:Thorburn on fixing bank culture
Banks challenges Thorburn over his assertion that it may take five or 10 years to fully reform the bank’s culture. She says there are larger, more complex companies that have achieved cultural change faster, such as the pharmaceutical industry to which she once belonged.
“It will take some time, but I believe we are relentless about that and we are focused on that,” Thorburn says.
10.45am:BoQ margins don’t bode well: Watermark
Bank of Queensland’s FY16 earnings report was soft and particularly weak margin trends don’t bode well for future periods, according to Watermark Funds Management.
“The net interest margin was the key source of disappointment in the result,” Watermark analyst Omkar Joshi says, noting that the net interest margin declined by 7bps to 1.90 per cent in the second half and fell 3bps to 1.94 per cent in the full year.
“The second-half margin was 6bps weaker than consensus expectations and also weaker than guidance of flat margins in the second half,” Joshi says.
“The margin weakness was caused by an increase in funding costs as well as continued front book competition, which put pressure on lending margins.”
Cash earnings were 1 per cent below consensus, underlying profit missed by 2 per cent and the cost-to-income ratio blew out to 46.8 per cent, he adds.
On the positive side, provision coverage continued to fall, with collective provisions to risk weighted assets down to 50bps from 54bps in the year, helping cash earnings.
Asset quality remained healthy, with impaired loans declining by 3 per cent in the second half and past due loans declining 8 per cent. But the dividend payout ratio increased to 79 per cent in the full year, from 74 per cent, and is now starting to look vulnerable going forward as earning pressures continue, Joshi says.
BoQ flagged lower credit growth, subdued revenue growth and declining ROEs for the entire industry as the impact of lower interest rates continues to flow through.
The bank’s shares fell as much as 5.3 per cent to a two-week low of $10.85 after a disappointing earnings report.
BoQ shares were last down 3 per cent at $11.10.
10.38am:NAB’s strategy for staff to be ‘bold’
Liberal MP Julia Banks is now the interrogator. She wonders why NAB’s strategy tells their staff to be “bold”, which could be interpreted as “risk-taking” or “stretching the envelope”, writes Jared Owens.
Thorburn says boldness is not to blame for the financial planning scandal, but rather a failure of respect for customers. She wonders if financial planners might misinterpret what boldness means.
She asks: “For a business that is in the context of serious financial scandals and a clearly flawed risk management process ... will you revisit this as a communications strategy?”
10.19am:Estia shares slump on profit downgrade
Estia shares dropped 12 per cent at the open to $2.91, which is the lowest they’ve been since September 6 and puts the aged care operator on track for its biggest one-day fall on record.
The group has plunged 62 per cent since peaking at $7.84 in November last year.
10.07am:Estia downgrades profit forecasts
Estia Health has announced a sharp downgrade to profit forecasts amid a tumultuous period that has seen its chief executive step down and founder exit the board, writes Daniel Palmer.
In an update to the market this morning, the aged care operator said it expected a decline in underlying earnings before interest, tax depreciation and amortisation to $86-$90 million in fiscal 2017.
This compares unfavourably to the $92.7m delivered in fiscal 2016 and is well below expectations outlined six weeks ago for growth of at least 13 per cent.
10.05am:Where’s NAB’s apology?
Labor’s Matt Thistlethwaite notes Thorburn didn’t come to the hearing with a pre-prepared apology, as the ANZ and CBA bosses have, writes Jared Owens.
Thistlethwaite: “I haven’t heard an apology from you today. Do you see no need to apologise?”
Thorburn: “No. Not at all ... I have apologised and do so again.”
10.03am:NAB on tracker mortgages
Coleman is now asking about tracker-rate mortgages, which are pegged to movements in the RBA cash rate or some other independent benchmark, writes Jared Owens.
These are available to bank customers in Britain but not in Australia.
Thorburn says if too many people applied for tracker rate mortgages, it would pose a “significant risk” for the bank since much of the banks’ funding is not affected by the RBA cash rate.
10.00am:Thorburn defends action on misconduct
Pressed on the firing of 41 financial planners for serious conduct breaches of conduct, Mr Thorburn was forced to defend the lack of punishment for senior executives as no such employees were terminated, writes Daniel Palmer.
“That is a significant number [of breaches] and we acknowledged that, and said it wasn’t good enough,” he said.
“[But] it was not a systemic issue.
“I think we’ve learnt [and] we need to get this right.”
9.50am:Thorburn grilled on misconduct allegations
Committee chair David Coleman asks about the “extremely serious” allegations of misconduct by his employees with 41 sackings, writes Jared Owens.
Thorburn says it’s a “very relevant and fair” line of questioning and he needs to get it right because his business is built on trust.
He says financial planning is important because customers need “sound and reliable” opinions about how to manage their finances.
9.45am:Why NAB jacked up term deposit rates
Thorburn says the bank is funded by customer deposits, wholesale funding and shareholder equity. New global regulations designed to shore up the banks means they need greater levels of deposits, and have jacked up term deposit rates to attract that funding, writes Jared Owens.
He says the industry itself must “lead with its own real and lasting reform”.
Thorburn acknowledges concern that bank employees work on incentive systems that could see them steered towards products they don’t need.
“Customers need to be confident that every time they deal with their bank, they are receiving products and services that best suit their needs,” he says.
9.42am:NAB ‘not clear enough’ on rates: Thorburn
Thorburn concedes the bank has “not been clear enough” about the relationship between its interest rates and the official cash rate, writes Jared Owens.
“Many of you would recall that, from the 1990s until the GFC, movements in mortgage lending rates did correlate to movements in the cash rate. But, we now operate in a low rate environment and other factors are having far greater influence,” he says.
“Funding costs have fallen overall — but they have not fallen by as much as our lending rates. This has meant a reduction in bank margins ... Put simply, banks are now earning less than they used to for every dollar they lend.”
9.40am:ECB ‘taper tantrum’ talk to stay: NAB
Talk of another “taper tantrum” like that seen in the US in 2013 won’t quickly disappear after a Bloomberg report suggesting a consensus was emerging within the ECB to taper its bond-buying program sent tremors through markets, according to NAB.
While tonight’s ECB minutes are unlikely to shed any light on the issue — an ECB spokesman last night said the matter had not been discussed by the Governing Council — fear of tapering continued to push up global bond yields overnight.
Despite the overnight bounce in equities, taper talk may continue to weigh on equities, currencies gold and other assets that have benefited from QE.
German 10-year bund yields rose 5 basis points to -0.005 per cent, and above-consensus US services sector PMI helped push US 10-year Treasury yields almost 2 basis points higher to 1.70 per cent, near the September peak.
That’s pushed Australian 10-year bond yields up 2 basis points to 2.15 per cent this morning, above the September closing high of 2.13 per cent and near the intraday September peak of 2.17 per cent.
Expect a further selloff in “bond-like” equities, including property trusts, infrastructure and utilities.
9.30am:Broker rating changes
Nine Entertainment cut to ‘neutral’ vs ‘buy’ — UBS
Bendigo & Adelaide Bank cut to ‘hold’ vs ‘buy’ — Morningstar
Aristocrat Leisure cut to ‘sell’ vs ‘hold’ — Morningstar
Vocus Communications cut to ‘sell’ vs ‘underperform’ — CLSA
9.24am:Bank inquiry: Thorburn a ‘proud banker’
This morning’s witnesses are National Australia Bank chief executive Andrew Thorburn and his chief operating officer Antony Cahill.
We’re expecting Westpac’s Brian Hartzer after lunch at 1.15pm.
Andrew Thorburn Thorburn says it’s a “privilege” to appear before the hearing, describing himself as a “proud banker”, writes Jared Owens.
“For bankers, trust is the currency that matters most,” he says, noting he’s served his entire professional life in the industry.
“At its core, it has the purpose to help people, to help businesses, and to help the economy prosper. However, there have been some issues in our industry, and at NAB, which we cannot be proud of.”
Follow our full coverage here.
9.17am:BoQ cash profit inches up
Bank of Queensland has booked a modest 1 per cent rise in cash earnings as margins were crimped in the low interest rate environment, writes Daniel Palmer.
For the 12 months to August 31, the ASX-listed financial services group said it recorded a cash profit of $360 million, up 1 per cent on the prior period, while its statutory earnings lifted 6 per cent to $338m.
The figures fell shy of market expectations for a cash profit of $362.8m and statutory profit of $349.4m, although revenue of $1.12 billion was exactly in line with forecasts.
More to come
9.05am:Who stunk up in the ASX yesterday?
Investors gave reliability a hiding yesterday as the much-hyped recovery in bond yields continues to squeeze the ASX stocks that have been treated as bonds in recent years.
Stocks like Transurban, Scentre, Westfield, Telstra and property trusts have been favoured in a low-growth market because of their high and reliable dividends. They’re seen to be safe option for a return in a low-interest rate environment, but as bond yields shoot higher, their ASX ‘proxies’ are hurting.
Yesterday saw Transurban drop 3.2 per cent, Scentre fell 2.6 per cent, Westfield gave up 2.1 per cent and Telstra lost 1 per cent.
The broader S&P/ASX 200 fell 0.6 per cent to finish at 5452 points.
These are the sort of moved Credit Suisse equity strategist Hasan Tevfik has been warning of in his ‘Bondcano’ commentary.
Aussie gold miners were planted firmly in the sin bin yesterday as the price of the precious metal failed to recover from its worst drop in 18 months on Tuesday.
Northern Star Resources tumbled 10 per cent, Evolution and Resolute both gave up 7.9 per cent, St Barbara fell 7.6 per cent, Regis Resources lost 6.6 per cent and Newcrest, the largest in the sector, dropped 5.1 per cent.
The price of US dollar gold has now lost 3.7 per cent in three days.
8.56am:Morgan Stanley upgrades ASX 200 target
Morgan Stanley has upgraded its 12-month price target on the S&P/ASX 200 share index from
4800 to 5200, representing a 12-month PE of 14.5 times and EPS growth of 5%.
“A more constructive near-term outlook for China and continued Resource earnings upgrades are helping offset weakness in Industrial earnings,” says Morgan Stanley strategist Chris Nicol.
But it’s still a slightly bearish target, being almost 5% below the current index level of 5453.
8.51am:Australian Pharma changes CEO, guidance
Australian Pharmaceutical says CEO Stephen Roche will step down in February when Richard Vincent will formally take the reins after a transition period. It sweetens the news by upgrading FY16 underlying NPAT guidance to $51m, a 17% increase on the prior year. That’s a 3% upgrade of its July 19 guidance of $49.5m, so enough to mitigate any unease about the loss of Mr Roche after 10-years at the helm.
8.30am:BHP set to rally as ASX recovers
Aussie stocks will do their best to recapture yesterday’s losses following a strong showing on Wall Street, thanks to healthy economic data and a bounce in the price of oil.
The SPI 200 is pointing to a 0.5 per cent rise, and fair value suggests the same outcome.
Yesterday saw the market close 0.6 per cent weaker to 5452 points as investor favourites continued to slide as bond yields recover.
BHP Billiton is heading for a 1.4 per cent rise today, according to its ADRs, while banks remain under the microscope as NAB and Westpac CEOs take their turn to front the Parliamentary Inquiry today.
7.20am: Wall St rallies as oil shoots higher
US stocks rose Wednesday as US crude-oil prices surged toward $US50 a barrel. But in Europe,
equities fell as concerns rose about the European Central Bank moving to trim its stimulus program.
The Dow Jones Industrial Average rose 113 points, or 0.6 per cent, to close at 18281. The S&P 500 rose 0.4 per cent, and the Nasdaq Composite gained 0.5 per cent.
The yield on the benchmark 10-year Treasury note rose for a fourth consecutive session. It closed at 1.718 per cent, compared with 1.683 per cent Tuesday and 1.55 per cent in late September.
7.05am: Dollar continues to slide against greenback
The Australian dollar has slid further against its US counterpart and the euro, but is up against the yen.
At 7.00am (AEDT), the local unit was trading at US76.12 cents, down from US76.26c on Wednesday.
Westpac senior market Strategist Imre Speizer said news of a big jump in the US service sector activity index for August boosted the US dollar overnight. He said the greenback had also been lifted by other data showing a rise in US factory orders and a slight dip in the trade balance in the same month. “The (Australian) trade balance poses minor event risk for the Australian dollar today,” Mr Speizer said in a note.
“Otherwise, it looks like it wants to retest 76 US cents, a resurgent US dollar the main factor.”
AAP
6.55am:Stocks set to open higher
The Australian market looks set to open higher after Wall Street rose on strong services sector activity data.
At 6.45 (AEDT), the share price index was up 28 points at 5,461.
In Australia, the market on Wednesday recovered some of its early falls but still closed in negative territory with sentiment remaining subdued on strengthened expectations of a Federal Reserve rate rise. The benchmark S&P/ASX200 index fell 31.1 points, or 0.57 per cent, to 5,452.9 points. The broader All Ordinaries index lost 32.9 points, or 0.59 per cent, to 5,537 points.
AAP
6.45am: Oil prices rise on US data
Oil prices climbed Wednesday after federal data showed that US crude stockpiles fell for the fifth consecutive week.
US crude futures for November delivery rose by $1.14, or 2.34 per cent, to $49.83 a barrel on the New York Mercantile Exchange — the highest settlement price since late June. Brent crude, the global oil benchmark, gained 99 cents, or 1.95 per cent, to $51.86 a barrel on London’s ICE Futures exchange.
Wall Street Journal
6.40am:Iron ore tumbles below $US55 a tonne level
The iron ore price has skidded below budget forecasts for the first time in three months, continuing a downward trajectory that could come as a blow to federal tax revenues if sustained.
Iron ore shed 0.9 per cent to $US54.50 a tonne overnight, according to The Steel Index, from $US55 in the previous session.
The commodity has now lost 12 per cent since reaching a three-and-a-half month peak of $US61.80 a tonne in mid-August, a level many analysts and mining companies saw as unsustainable.
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