BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion

Strong US economic data is making life hell for local gold stocks and big-name yield plays.

The price of gold has melted to a four-month low as bears take control of the market.

• GBP suffers flash crash
• ASX tracks sideways
• Gold is sinking
• BHP is back on track

Welcome to the BusinessNow live blog. Today, the local market ended lower as investors shunned high-yield, defensive sectors, while the British pound suffered a ‘flash crash’.

8.00pm:Abboud’s emails about Dick Smith

Scott Murdoch

The former chief executive of failed retail giant Dick Smith admitted in an email that he did not know how much cash the company had on hand when it was summoned by its main lender, Westpac.

The final day of a public hearing that has lasted for months in the NSW Supreme Court was told the company, named after its founding entrepreneur, realised in 2014 that problems were starting to emerge and these mounted until its official collapse in January this year. Read more.

7.27pm:FTSE lifts after sterling’s ‘flash crash’

The London stock market rose at the open on Friday, buoyed by a “flash crash” in the beleaguered British pound, but Frankfurt and Paris held steady before key US data.

In initial trade, the British capital’s benchmark FTSE 100 index of top blue-chip companies rose climbed 0.7 per cent to 7,047.29 points, as the sliding currency boosted the outlook for exporters.

In the eurozone, meanwhile, Frankfurt’s DAX 30 slid 0.2 per cent to 10,549.69 points and the Paris CAC 40 was flat at 4,480.10 points compared with the close on Thursday, ahead of key US non-farm payrolls data.

In earlier Asian trading hours, the pound faced a “flash crash” on a computer-generated sell-off in the beleaguered currency, as tough talk from French President Francois Hollande underscored the perils for Brexit-bound Britain.

Sterling droped to a 31-year low at $1.1841 before rebounding sharply. The euro also hit a seven-year-high 94.15 pence, before easing slightly.

Foreign companies listed in London have seen their shares rocket by the pound’s tumble as it boosts their earnings when they are converted into sterling.

“The pound had a rollercoaster ride,” said City Index analyst Kathleen Brooks.

“The driver of this massacre: apparently algorithms reacting to comments ... from French President Francois Hollande about the UK’s potential hard Brexit.”

Mr Hollande sent one of the strongest warnings yet that Britain will have to pay a heavy price for leaving the EU, adding to concern. AFP

6.54pm:The biggest US question

Stirling Larkin

George Washington said that “worry is the interest paid by those who borrow trouble.” And with US Presidential elections one month away and heightened fracas between US Reserve Bank Presidents about the plight and pace of interest rates, investors might wonder why, when combined with historically unjustifiable valuations across US S&P500 equity, bond yields and even the US dollar itself, so many American and global investors are deeply apprehensive about what they see as trouble brewing.

Australian ultra high net worth investors have also been wary of an additional factor which is that both listed and off-market stock and fixed income markets — shares and bonds — have continued to experience atypically low levels of volatility:

When an investor has a fungible portfolio — that is, savings which are able to be spent and liquidated rapidly — of or greater than $100m, diversification is often sought in less volatile asset allocations such as private equity, venture capital or fixed term instruments.

But with primary markets continuing to deliver consistently low volatility, this too adds additional “worry” for this investment community because low volatility across all investment allocations can only mean one thing: lower realised returns over the longer term.

So the only question confronting Australian global investors looking at lead US indicators is: Are we seeing the US finally head into a cyclical recession, or is this a lull within a continuing but slow bull market recovery? Read more.

6.19pm:Tokyo snaps winning streak

Tokyo shares ended lower on Friday, snapping a four-day winning streak, as a plunge in the pound and caution ahead of a key US jobs report dampened buying sentiment.

Investors are waiting for the latest payroll figures later in the day for clues about the health of the world’s largest economy and chances of an interest rate hike this year.

The benchmark Nikkei 225 index slipped 0.23 per cent, or 39.01 points, to close at 16,860.09. It gained 2.49 per cent over the week.

The broader Topix index of all first-section issues fell 0.25 per cent or 3.32 points to 1,350.61. It rose 2.10 percent over the week.

In forex markets, the pound fell off a cliff to hit a 31-year low of $1.1841 before immediately rebounding to around $1.2450 -- as calls by French President Francoise Hollande for tough Brexit talks triggered a computer-generated sell-off.

But the market’s focus was firmly on the US jobs report, with an upbeat reading likely to boost the dollar against the yen, a plus for Japanese shares, particularly exporters.

The dollar was trading at 104.00 yen compared with 103.95 yen in New York on Thursday afternoon.

“It’s partly the jobs data-wait but also the fact that Hong Kong and Japan are going to be closed on Monday” for public holidays, Andrew Sullivan, managing director of sales trading at Haitong International Securities Group, told Bloomberg News.

“People are more cautious because they don’t want to be exposed to the market when there’s key data coming out and they can’t react to it,” he added. AFP

5.37pm:Is globalisation hitting the skids?

Global finance ministers and central bankers are descending on Washington this week with a central concern in mind: fear that the modern age of globalisation is hitting a wall.

Last year’s $US646 billion in foreign direct investment in rich economies represents a 40 per cent drop from the peak before the financial crisis. International lending, as measured by cross-border banking claims at the Bank for International Settlements, is down nearly $US2.6 trillion, or 9 per cent, over the past two years. Read more.

5.10pm:Computerisation blamed for pound’s plummet

The British pound dropped sharply against the US dollar early in the local session, after a sell-off triggered by worries about the UK’s exit from the European Union, was accelerated by computerised trades, market watchers said.

The pound fell as much as 6.3 per cent in mid-morning (AEDT) trade on Friday, to $US1.1819 from $US1.2614 before recovering, according to Thomson Reuters data. More recently, it was down 1.4 per cent at $US1.2437.

“I initially doubted what I saw on my screen,” said Kenji Yoshii, a foreign exchange strategist at Mizuho Securities.

Traders and strategists said the initial catalyst for the pound’s drop came from remarks by French President François Hollande in Paris, who called for tough exit negotiations in comments cited by Sky News. His comments came early in the Asian session, where light trading volumes likely exacerbated the move, they added. As the pound’s descent worsened, it broke through technical levels that likely triggered further selling from trading strategies based on algorithms, traders said. Read more.

4.28pm:Investors shun high-yield, defensive sectors

The Australian sharemarket has rounded off an overall positive week in lacklustre style, edging lower as high-yield, defensive sectors were shunned, writes Daniel Palmer.

At the closing bell, the benchmark S&P/ASX 200 index weakened 15.6 points, or 0.28 per cent, to 5,467.4, while the broader All Ordinaries index lost 16.3 points, or 0.29 per cent, to 5,548.5.

Over the week, the benchmark gained 0.7 per cent, with energy leading the way as crude prices surged back above $US50 a barrel.

It was a similar story through Friday trade as energy outperformed and defensive areas such as real estate, utilities and telecommunications noticeably lagged.

The lack of interest in the latter stems from rising bond yields, with the lustre on high-yield stocks through a period of record low rates starting to wane. Read more.

4.15pm:Karoon on the cusp of a transformation

Karoon Gas Australia is on the cusp of a transformational Brazilian acquisition that would give it oil reserves rivalling that of Woodside Petroleum and make it a significant producer in its own right, writes Matt Chambers.

Two years after Karoon did a well-timed $US600 million deal to sell its Poseidon gas field stake off Western Australia to Origin Energy (just three months before oil global oil prices tanked), managing director Bob Hosking is finally close to a deal amid low oil prices to spend the takings on.

Having taken positions in Brazil’s Santos Basin in recent years, Melbourne-based Karoon is now taking advantage of a big sell-off by state-controlled oil giant Petrobras and is close to securing interests in two fields at or close to production in the basin after a 12-month bidding process.

Read more

3.25pm:Should banks donate to political parties?

The much-hyped bank inquiry in Canberra this week revealed that Commonwealth Bank and NAB have stopped donating to Australian political parties, and ANZ Bank is looking at following their lead.

This means that politial parties now know that one bank, Westpac, is more important to them financially than all the rest, and that’s just asking for trouble.

Watch James Kirby’s video on the banks and political donations

2.41pm:Milk industry agrees to code of conduct

Milk processors have agreed to draft a code of conduct designed to prevent retrospective price cuts like the one that rocked dairy farmers earlier this year.

A voluntary code of conduct will ensure transparency in contracts and pricing decisions, United Dairy Farmers of Victoria says.

Farmers were hit hard after Australia’s largest dairy processor Murray Goulburn’s retrospective cut to its farmgate milk prices in April. The United Dairy Farmers of Victoria says it has reached an agreement with all industry stakeholders to develop a voluntary code of conduct that will ensure transparency in contracts and pricing decisions.

AAP

2.22pm:Investors have the yips on yield names

Aussie stocks look set to notch up their third weekly gain in a row, despite a sour Friday session, as the market’s favourite yield names weigh on the index.

At 2pm AEDT the S&P/ASX 200 was 0.15 per cent weaker for the day at 5474.7 points after falling as much as 0.5 per cent earlier in the session.

As global bond yields continue to recover following strong employment figures, which are seen to be a green light for the US Fed to raise interest rates, local bond-proxies such as Telstra, Transurban, Sydney Airport, Scentre and Westfield are coming under pressure.

Favoured for their reliable dividend and high payout ratio, these stocks are squeezed as investors head back into bonds as yields recover.

Telstra and Transurban have both dropped 1 per cent today, while Scentre is down 1.2 per cent and Westfield slumps 2.2 per cent.

Most other market majors are slightly positive this afternoon, with CBA, Westpac, ANZ and NAB trading between -0.15 per cent and +0.5 per cent, CSL flat and Wesfarmers up 0.4 per cent.

Estia shares are down another 5.9 per cent today after the aged-care company flagged an earnings forecast cut and asset sales, while gold miners are struggling after further commodity price falls.

Resolute is 5.4 per cent weaker and Regis Resources has dropped 3.8 per cent.

1.40pm:Sterling flash crash was 10%: CBA

CBA currency strategist Richard Grace says the 10.00am (AEDT) flash crash in sterling today actually saw it fall 10 per cent to a 31-year low of 1.1378 rather than the 6 per cent fall to 1.1841 indicated on Bloomberg.

A The pound slumped to a 31-year low against the US dollar early this morning, sinking to $1.2740 -- its lowest level since 1985.

He notes that the two-minute plunge coincided with a Financial Times report quoting hard-line comments on Brexit from French President Francois Hollande.

“It is possible some opportunistic hedge funds, model-based accounts including algorithmic traders, seized the chance to capitalise on the thin market liquidity and aggressively sold GBP/USD, triggering a series of stops,” CBA’s Grace says.

Capital outflow caused by Brexit, falling interest rate differentials and a large current account deficit are set to limit sterling’s upside, according to Grace.

His target is 1.2000 for September 2017, but “the risks to our forecasts are that GBP/USD depreciate more than we are currently forecasting, and AUD/USD as well as AUD/GBP, are higher than we are currently forecasting.”

1.24pm:A small selection from today’s Q&A

Below you’ll find a small selection of questions and answers from today’s live Q&A session.

To read the rest, click here. And don’t forget to tune in next Friday from 12pm!

Question from Sadhana

What are possible reasons for Telstra sell off today?

Chris’s reply:

Hi Sadhana,

There are a few things going on with Telstra that seem to be putting investors off.

The stock is down 1 per cent today and has lost 3.1 per cent in the last two-and-a-half sessions to $5.02 - it’s on track for one of its worst weeks this year.

1. Dividend stocks like Telstra, Transurban, Sydney Airport and Westfield are all hurting as the 10-year bond yield recovers. They now have more competition for income-hungry investors.

2. In addition to that, Telstra’s massive capital expenditure plan (taking it to 18 per cent from 15.6 per cent) is seen to potentially cap dividends and share buybacks.

3. The future of the telco space is unclear. As the NBN rolls out some think smaller ISPs will capture a larger share of the pie, while others think all telco margins will be squeezed.

Question from Sam

Are you concerned with the level of China’s debt? In you opinion, can they gradually deleverage their position which is what their claiming?

Chris’s reply:

That’s the million/billion/trillion dollar question!

Nobody really knows but China certainly has an amazing ability to defer, absorb and deflect these kinds of concerns.

So yes there’s a good chance it can.

CBA released a note this week on what a Trump presidential victory means for Australia and one of the key messages was that Australia would shift even further towards China than the US. So Chinese debt is certainly going to remain front of mind.

Click here to read more from today’s Q&A.

12.35pm:Government spikes Vodafone spectrum bid

The Coalition government is putting two blocks of prized 700Mhz spectrum up for sale, spiking Vodafone Hutchison Australia’s bid to pick up the asset for half a billion dollars.

Instead the government has opted to make 2 x 15 MHz of unallocated 700 MHz digital dividend spectrum available by auction to all interested parties.

The decision follows consultations on Vodafone, which lobbed an “unsolicited proposal” to acquire 2 x 10 MHz of unsold 700 MHz spectrum for $594 million by direct allocation in May.

12.29pm:BARTHO: An education on banking

From Stephen Bartholomeusz’s column today:

The chief executives of the four major banks were subjected to the first of their planned annual “grillings’’ before a parliamentary committee this week. Had it been anywhere but Canberra, they would have emerged with sun tans.

Ian Narev, Shayne Elliott, Andrew Thorburn and Brian Hartzer did experience the odd moments of discomfort, largely because of the odd nature of some of the questions they were asked, but generally escaped unscathed from the erratic and unfocused experience.

Despite the exorbitant hourly cost to their organisations of having four of the most highly-paid executives in the country spending hours before the committee, the investment would, from their perspective, probably be regarded as worthwhile.
Read more

12.17pm:Join Chris Merritt for a legal Q&A

Legal affairs editor Chris Merritt is answering subscribers’ questions on all things legal until 1pm. There’s still time to submit questions and read Chris’ responses. Don’t miss out!

Click here to submit your questions and follow the Q&A session.

12.01pm:Join us for a live Q&A now!

Markets editor David Rogers and BusinessNow editor Chris Kohler are answering subscribers’ questions about the week that was in a live Q&A session right now. Don’t miss out!

Click here to submit your questions and follow the Q&A session.

11.37am:Karoon confirms talks with Petrobras

Karoon Gas has confirmed it is in talks with Petrobras over stakes in two Brazilian oil fields after a 12-month bidding process. Due diligence and negotiation of final terms and conditions are now due.

The assets include a 100 per cent operator interest in the Bauna project, currently producing 45,000 barrels per day.

This is potentially good news for the share price. Karoon is currently in a halt and last traded at $1.395 a share.

11.21am:Algorithms to blame for GBP dive: IG

News algorithms likely caused the flash crash in the British pound this morning following a Financial Times news item that focused on Brexit risks, according to IG.

“There is no way that news warranted a 6 per cent fall in sterling,” IG chief market strategist Chris Weston told SKYBusiness.

GBP/USD was last down 1.2 per cent at 1.2460 after earlier diving as much as 6.1 per cent to a 31-year low of 1.1841 in the space of just two minutes.

11.09am:British pound suffers “flash crash”

The British pound has seen a “flash crash”, which briefly wiped 6 per cent off the currency.

It hit a new 31-year low of US1.184c, the biggest one-day fall since Brexit on June 24.

Traders are focusing on Brexit risks and the flash crash seems to be contributing to a risk-off movement in the Australian market, which is down 0.3 per cent, compared with a SPI 200 futures read of +0.3 per cent.

The Aussie dollar is also slightly lower - approaching the overnight low of US75.62c.

10.30am:ASX trades sideways in early deals

The Australian sharemarket is trading sideways in early deals, aided by strength in oil prices but weighed by a lack of interest in high-yield sectors as easy monetary policy appears likely to be gradually unwound, writes Daniel Palmer.

The ASX is flat in early trade, with commodities in focus.

At the 10.15am (AEDT) official market open, the benchmark S&P/ASX 200 index was steady at 5,483, while the broader All Ordinaries index edged down 2.3 points, or 0.04 per cent, to 5,562.5.

Commodities are in focus as the US dollar wins plenty of support from the prospect of rising rates, with December firming as the meeting for the next hike given data continues to outstrip expectations.

Oil is shrugging off the impact of a rising US dollar as investors focus on improving supply and demand fundamentals.

US crude jumped 1.3 per cent overnight, moving back above the psychologically important $US50 a barrel mark.

Read more

10.16am:What next for the stock market?

Bond-like equities that have benefited from record-low interest rates have lost ground this week despite a rise in the S&P/ASX 200.

Meanwhile, the energy sector has benefited from higher oil prices and banks have performed well despite a parliamentary grilling.

Markets editor David Rogers and BusinessNow editor Chris Kohler will speak directly to subscribers about the week that was in a live Q&A session at 12pm today.

Click here to submit your questions and follow the Q&A session.

10.01am:Karoon closes in on Petrobras deal

Karoon Gas Australia is understood to have struck an exclusivity deal with Brazilian oil giant Petrobras over talks to buy into the Bauna and Tartaruga Verde fields offshore Brazil, writes Matt Chambers.

If the talks result in a deal, it will transform the Melbourne-based explorer into a producer.

Read more

9.44am:Broker rating changes

Estia Health cut to ‘underweight’ vs ‘equalweight’ - Morgan Stanley

Graincorp cut to ‘underperform’ - CLSA

ALS raised to ‘outperferform’ vs ‘underperform’ - CLSA

Select Harvests resumed at ‘hold’ - Bell Potter

Spark Infrastructure raised to ‘outperform’ vs ‘sector perform’ - RBC

Galaxy Resources rated new speculative ‘buy’ - Bell Potter

OZ Minerals raised to ‘buy’ vs ‘hold’ - Wilsons

Sims Metal raised to ‘hold’ vs ‘sell’ - Deutsche Bank

Woodside Petroleum cut to vs ‘buy’ - Morningstar

9.40am:Gold is sinking like a stone

Gold is in meltdown mode this week as market bears swarm after strong US employment numbers overnight were seen to boost the chance of a Federal Reserve rate hike this year.

Gold fell to an almost four-month low and breached the critical 200-day moving average after US jobless claims dropped to the second-lowest level since 1973.

Low unemployment is seen to be a signal the Fed can push ahead with its rate-hike plan and market betting instantly reflected that – the chance of a December rate hike is now seen at 63 per cent, compared with 52 per cent a month ago.

Higher interest rates detract from the appeal in non-yield investments like gold, which is being crushed.

Millennium Minerals pours its first gold bar from Nullagine. Source: Supplied

The price of the precious metal lost 1.5 per cent overnight to $US1,254.15, breaking below the 200-day moving average of $US1,256.4 and the lowest level since June 8.

The strong employment figures point to a rate hike this year, which IG’s Angus Nicholson says is why we’ve seen a $US63 decline in gold this week.

“But there looks to be further downside to gold even if non-farm payrolls only slightly misses expectations,” Mr Nicholson said.

Big-name yield stocks like Transurban, Sydney Airport, Westfield, Scentre and Telstra are also finding themselves on the outer with investors as bond yields recover and the Fed looks the hike rates.

Australian gold miners have been hammered

Gold miners have been the worst performing stocks on the ASX over the last week, with the 4.4 per cent decline in the yellow metal’s price being exaggerated to much larger falls from the highly-leveraged miners.

Northern Star has plunged 16.1 per cent in the last five days to $3.91, St Barbara is down 13.2 per cent to $2.77, Evolution has lost 11.2 per cent to $2.23, Regis Resources dropped 10.4 per cent to $3.46 and Newcrest, which is the biggest Aussie gold miner, is down 6.5 per cent to $20.94.

READ: Gold ‘may be in early stages of bull cycle’, says Evolution

Gold miners’ price moves

9.27am:BHP is back on track

From Robert Gottliebsen’s column today:

Suddenly, smiles are appearing on global markets.

The higher world interest forecasters are back on track and, even more importantly for Australia, BHP is back in favour among the institutions.

Traditionally, the Big Australian has been the corner stone of many share portfolios and the graph below should make Australian investors feel good.

On global markets, the European bank crisis and the implications of Brexit have has been put aside for the moment, while Trump no longer looks the likely winner of the US presidential election.

Meanwhile, the US economy is clearly strengthening and skilled labour shortages are emerging, so, we look set for the Federal Reserve to move interest rates higher before the end of 2016.

Read more

9.14am:Iron ore holds below $US55

The iron ore price is holding steady below the key $US55 a tonne threshold amid subdued trade in China due to a public holiday, writes Elizabeth Redman.

The iron ore price remains below $US55 a tonne.

Iron ore was unchanged at $US54.50 a tonne overnight, according to The Steel Index.

Yesterday the commodity dropped below the budget estimate for the first time in three months as it continues to gradually decline from levels above $US60 a tonne.

9.05am:Is gold at the start of a bull cycle?

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, writes Barry Fitzgerald.

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

8.28am:Stocks set to lift into the weekend

Australian stocks look set to continue their rally into the weekend following yesterday’s healthy rebound. With one session remaining the ASX 200 is 0.9 per cent higher for the week.

The SPI 200 is pointing to a modest 0.3 per cent rise, but fair value suggests 0.4 per cent is more likely.

Gold stocks will likely come under pressure following another substantial loss overnight – the yellow metal has now tanked 4.4 per cent this week and local miners have been the worst performers on the market.

Oil, meanwhile, continued its impressive performance, gaining another 1.5 per cent overnight.

Despite the gains from oil BHP Billiton seems to have done its dash, for now, with the miner’s ADRs pointing to a flat open.

7.25am: Wall St steady as oil lifts

US stocks were little changed ahead of Friday’s jobs report, as oil cracked $US50 a barrel for the first time since June.

In Europe, stocks pulled back slightly on talk of the ECB reining in its stimulus program.

The Dow Jones Industrial Average fell 13 points, or less than 0.1 per cent, to 18,269. The S&P 500 gained 0.1 per cent, and the Nasdaq Composite declined 0.2 per cent.

Read more

7.05am: Dollar slips further against greenback

The Australian dollar has slipped against its US counterpart, but has strengthened against the euro and the Japanese yen.

The Aussie dollar lost ground against the greenback overnight.

At 7am (AEDT), the local unit was trading at 75.84 US cents, down from 76.05 cents on Thursday.

BK Asset Management managing director of FX Strategy Kathy Lien said the US dollar has strengthened overnight amid optimism around the US non-farm payrolls report.

“Investors are putting more money into US dollars ahead of Friday’s non-farm payrolls report,” she said.

She said based on several market indicators, a solid jobs report is expected Friday night, Australian time, and that will boost the chances of a US Federal Reserve rate hike.

“Unless fewer than 150,000 jobs were created last month and earnings growth misses expectations, September non-farm payrolls will support the case for a December rate hike,” she said.

AAP

6.55am: Local market set to open slightly higher

The Australian market looks set to open slightly higher.

At 6.45am (AEDT), the share price index was up just 10 points at 5,477 as global investors await the release of the latest US jobs data after the Australian market closes on Friday.

The market closed higher yesterday, driven by strong gains by energy and mining stocks and the major supermarkets.

The benchmark S&P/ASX200 index closed up 30.1 points, or 0.55 per cent, at 5,483.0 points, while the broader All Ordinaries index was up 27.8 points, or 0.50 per cent, at 5,564.8 points.

AAP

6.50am: US oil gushes above $50 for first time since June

US oil rose above $50 a barrel in New York Thursday for the first time since June, lifting energy shares, but sharp falls in Twitter and Wal-Mart spoiled the party for Wall Street.

Overshadowing strength in the key commodity was anticipation ahead of Friday’s US jobs report, likely to give clues as to the Federal Reserves next rate move.

Dealers attributed oil’s success in smashing the key $50 resistance point to a lingering reaction to a surprising drawdown in US oil stocks, reported Wednesday, as well as a cautious belief that the OPEC cartel will come through on a promised supply cut.

AFP

6.20am:Wall St steady

With 40 minutes left of trade, the Dow is 0.1 per cent lower. The S&P 500 is steady, while the Nasdaq is off 0.2 per cent.

US stocks swung between slight gains and losses as government bonds slipped and oil cracked $US50 a barrel for the first time since June.

Some traders said early declines led by healthcare shares were mitigated by fresh hopes that the European Central Bank was holding course on easy money policies.

Read more