That's all for today and this week - thanks everyone for reading the markets blog and posting your comments.
Here's the evening wrap of today's session.
Have a good and hopefully cooler weekend.
The Australian dollar slipped against the greenback but climbed to fresh four-year peaks on the yen as Japanese officials talked down the currency while piling pressure on the Bank of Japan for ever more radical reflationary policy.
Against the yen, the Aussie reached as far as 95.02, territory not visited since 2008, when it topped out at 104.48.
With all the action in the yen, the dollar was sidelined against the US dollar. The Aussie faded away to $US1.0520, from $US1.0545 in New York, but remains within reach of a four-month peak around $US1.0600 set last week.
The new peak against the yen came on reports the Bank of Japan would consider pledging massive asset purchases at its January 21-22 meeting to end deflation and achieve an inflation target of 2 per cent. A top advisor to the government also said a yen drop to 95 or 100 per US dollar would be nothing to worry about.
A true recovery in the world's third largest economy, and Australia's second largest export market, would be a major boon for growth, trade and commodity prices.
"The reawakening of Japan after a 20-year period of stop-go recession and deflation is shaping up as a major issue for 2013," says Shane Oliver, chief economist at AMP Capital.
"If, as appears increasingly to be the case, Japan is serious and embarks on a path of monetary reflation intent on exiting deflation it has a number of, mostly positive, implications for the global economy."
Upbeat economic data out of China and the United States coupled with rising Asian sharemarkets also sucked the wind out of safe haven bonds, sending Australia yields sharply higher.
The ASX200 added 1.3 per cent for the week and is up 2.6 per cent since the beginning of the year.
Among the sectors, materials gained 0.8 per cent, financials and energy both added 0.3 per cent, while consumer staples slipped 0.6 per cent.
The market has closed where it's been hovering most of the session: slightly higher. The benchmark S&P/ASX200 index added 14.6 points, or 0.3 per cent, to 4771.2, while the broader All Ords gained 15 points, or 0.3 per cent, to 4794.7.
Next week's main economic release will be the fourth-quarter consumer price index on Wednesday. Expectations are for prices to have climbed 0.4 per cent on the third quarter and 2.4 per cent over the year.
Underlying CPI (which the RBA focuses on) should print at a higher 0.7 per cent, or 2.5 per cent annually).
"Based on these forecasts, inflation would appear to be past the low point," says CBA economist Michael Blythe. "The global backdrop has also improved somewhat and parts of the non‑mining economy are responding to earlier interest rate cuts. So, the hurdle for further interest rate cuts looks quite high."
Small retailers have missed out on Christmas sales, with a survey showing that sales growth slowed in November and December.
The ANZ Small Business Sales Trends survey showed that while sales growth rose by 2.8 per cent year-on-year for small businesses, sales were 0.9 per cent lower in December than a year ago.
Sales growth for November and December combined slowed from prior months and was just 1.2 per cent up year on year.
Brent crude has slipped below $US111 a barrel as a steep rise in the previous session gives investors an opportunity to sell and book profits, while a rebound in China's growth is helping stem further losses.
Front-month Brent slipped 15 cents to $US110.95 a barrel, while US oil has declined 34 cents to $US95.15.
"We saw oil move up yesterday, with the US contract rising above $US95 for the first time since September, and that is triggering some profit-taking selling," says Ken Hasegawa, a commodity sales manager at Newedge Japan.
"Fundamentally, the market is well balanced, but more positive economic data will push up the market."
Just over 18 months ago Chinese authorities engineered a slowdown of the economy. The slowdown is complete and the recovery is now gathering momentum, says CommSec economist Savanth Sebastian:
- Economic growth picked up after bottoming out at a three-year low in the prior quarter, while retail sales and industrial production growth rates were holding at the fastest pace in 10 and nine months respectively.
- Given the improving data flow Chinese authorities are unlikely to provide any additional stimulus, especially given that consumer price inflation has started to rise. Interestingly, the Aussie dollar eased after the data releases, a clear reflection of a moderating view that near term stimulus was likely.
- While China has successfully engineered a soft-landing, achieving firmer growth while keep prices pressures in check will be a challenge. And Chinese authorities don’t have control of all prices but need to be mindful of the effects. For instance food prices.
- Overall the latest data bodes well for Australia, and the Reserve Bank is likely to feel more comfortable about the fortunes for Australia. And looking forward it is looking more unlikely that the Reserve Bank will be cutting interest rates in February given the improving global outlook.
Sydney Airport has not only hit new temperature records but also experienced an all-time high in the number of passengers.
Sydney Airport served a record 36.9 million passengers in 2012, a 3.6 per cent increase on the previous year, while Melbourne Airport’s passenger numbers exceeded 29 million, a 5 per cent increase on 2011. December was Sydney’s busiest month, with passenger numbers growing by 5.2 per cent.
Sydney Airport chief executive Kerrie Mather said international passenger numbers grew by 5.3 per cent and domestic over 2.7 per cent for the year.
‘‘It was exciting to see such a significant increase in both international and domestic low cost carrier capacity, in particular Scoot, Jetstar and AirAsia X internationally and the expansion of domestic services by Jetstar and Tiger,’’ she said.
She said the biggest international growth was from Malaysia and Singapore with incoming passengers increasing by 59 per cent and 34 per cent respectively.
Outbound international passengers from Sydney Airport grew by 5.9 per cent for the year, while inbound international numbers increased by 4.8 per cent in 2012.
Boom. Temperatures just topped 46 degrees in Sydney. But not at Observatory Hill, the place where the ''official" highest temp gets measured. But hit 45.3, equalling the highest ever.
Another comment on China: Zhang Zhiwei, China economist for Nomura International in Hong Kong, is worried about inflation picking up:
‘‘The data showed that the recovery is on track, but in the meantime inflation is picking up.
‘‘So monetary policy will likely be tightened this year, with no chances of cuts in banks’ reserve requirements or interest rates. As a result, GDP growth may slow down in the second half of this year.’’
Social media is abuzz with posting on the size of a 'Sub'.
Subway, the world’s largest fast food chain, is facing criticism after an Australian man posted a picture on the company’s Facebook page of one of its famous sandwiches next to a tape measure that seems to shows it’s not as long as promised.
The footlong sandwiches are meant to be 12 inches (304 millimetres), but the photo indicates the Australian’s sandwich is just 11 inches (279mm).
More than 100,000 people have ‘‘liked’’ or commented on the photo, which has the caption: ‘‘Subway pls respond.’’
Subway. Photo: Facebook
An uncertain global outlook means Beijing may need to keep tweaking policy to support growth, as - despite the GDP rebound - 2012 was still the weakest year of economic expansion in China since 1999.
"Momentum at the end of the year is fairly strong but it's not really an astonishing rebound," says Ken Peng, an economist at BNP Paribas in Beijing.
"For the first half of this year the economy will continue to be fairly solid, but China's trend growth is still set to slow down."
Some more on China (if you're not following Oprah's Lancealogue): China produced 716.5 million tonnes of steel in the whole of 2012, up 3 per cent from the previous year, despite crumbling profit margins and a slowdown in the economy.
Steel output over the month of December stood at 57.66 million tonnes, almost flat from the previous month. But the average daily output fell to 1.86 million tonnes, the lowest since January.
China Iron and Steel Association data published last week said daily output rates stood at 1.92 million tonnes in December, down from around 1.96 million tonnes in November.
However, analysts believed the production figures would have been underreported and expected the average daily steel output in the world's top producer to stay above 1.9 million tonnes in December and 2 million tonnes in early January.
Reaction to the China data by CityIndex's Peter Esho:
Rio Tinto's $14bn write-down = stock goes up. China's 7.9% GDP growth numbers = stocks go down. Gotta love the market #ausbiz
— Peter Esho (@PeterEsho) January 18, 2013
The dollar briefly rose above $US1.0560 on the China data but has since settled back to where it was before the release, at around $US1.0540.
Shares have trimmed their gains a bit but are still about 0.3 per cent higher.
Here's an overview of all the Chinese economic data released today:
- GDP - 4 Quarter (YoY): 7.9%
- GDP - 4 Quarter (QoQ): 2.0%
- Industrial Production (Dec): 10.3%
- Fixed Asset Investment (Dec): 20.6%
- Retail Sales - December (YoY): 15.2%
Chinese data is out and looks like it's a bit stronger than expected - GDP rose 7.9 per cent, slightly better than expectations of 7.8 per cent rise.
Japanese shares, meanwhile, have soared more than 2 per cent as exporters gain on expectations that the central bank will ease monetary policy aggressively next week, putting more downward pressure on the yen.
Citing sources familiar with the central bank's thinking, Reuters reported on Thursday that the BoJ next week will consider removing the 0.1 per cent floor on short-term interest rates and commit to open-ended asset buying until the 2 per cent inflation target is reached.
"There still is strong expectations on 'Abenomics'," says Hiroichi Nishi, assistant general manager of equity information department at SMBC Nikko Securities.
China’s stocks are higher in early trade, ahead of the release of a report on fourth-quarter economic growth at 1pm (AEDT) and a number of other data including retail sales and industrial production.
The Shanghai Composite Index is up 0.8 per cent, extending this week’s gain to 2.7 per cent
‘‘GDP and other economic data should not be a surprise and should show economic growth stabilising,’’ says Wang Weijun, a strategist at Zheshang Securities. ‘‘The rally we’ve seen over the past month has reflected expectations of an economic recovery. We may see some profit-taking activities and consolidation around this level.’’
The Australian dollar is holding held near fresh four-year peaks against the yen on reports Japan's central bank will commit to open-ended asset buying to beat deflation and hopes for an upbeat report on the Chinese economy later in the day.
The dollar has pushed to 95.02 yen, its highest since Aug 2008 when it topped 104.48. It leapt 1.4 per cent in the previous session to last fetch 94.76.
The Aussie has gained more than 20 per cent in two months and exploded higher offshore on a report the Bank of Japan would next week consider pledging massive asset purchases to end deflation and achieve an inflation target of 2 per cent.
But the main focus is now on Beijing, which is due to release a raft of data including GDP. Confirmation that growth in the world's second biggest economy has accelerated would lift risk assets.
The dollar is at $US1.0550, from $US1.0545 early, marking time ahead of the China data dump and within reach of a four-month peak around $US1.0600 set last week.
Is it time for Australia to get rid of the Brits for once and for all and bring Rio Tinto home? Brian Robins asks tongue-in-cheekily:
It is hard to see just what the UK-based head office has brought to the table over the years - with the Alcan merger, and then pursuing a fruitless and embarassing merger with China to stave off an unwanted bid from BHP surely enough to reinforce to shareholders that ‘‘absentee managers’’ sitting in a remote location are no substitute for those with direct mine management exposure.
Despite all of the efforts of Rio’s head office to develop in other regions over the past few decades, Australia is still the crown jewel in the group, accounting for more than three-quarters of Rio’s profit.
US telecom firm AT&T says it will take a $US10 billion write-down on its fourth quarter earnings to cover accounting losses in its pension funds caused by lower-than-expected interest rates.
The No.2 US wireless carrier said that, based on lowered rate forecasts, for the quarter to December 31, ‘‘we expect to record a non-cash, pre-tax charge of approximately $US10 billion related to actuarial gains and losses on pension and postemployment benefit plans’’.
AT&T said the move was necessary after it cut its prediction of long-term gains on pension plan assets from 8.25 per cent to 7.75 per cent ‘‘due to the continued uncertainty in the securities markets and US economy in 2013’’.
It said in a statement filed with the Securities and Exchange Commission that the recalculation resulted ‘‘in an actuarial loss of approximately $US12.0 billion’’.
Japan's Nikkei share average rose more than 2 percent on Friday as exporters gained after a fall in the yen on expectations that the BoJ will ease monetary policy aggressively next week.
The Nikkei rose 2.2 percent to 10,842.62. If it ends above Tuesday's 10,879.08, it will be the highest close in 32 months.
Citing sources familiar with the central bank's thinking, Reuters reports that the BoJ next week will consider removing the 0.1 per cent floor on short-term interest rates and commit to open-ended asset buying until the 2 per cent inflation target is reached.
Rio is now sitting on a gain of 2.86 per cent while the overall market remains at just below 0.5 per cent higher. Here's how some of the other blue chips are faring today:
- CBA: +0.24%
- NAB: +0.96
- QBE: +1.11%
- Woodside: +0.43%
- Newcrest: +0.35%
- Woolworths: +0.16%
- Wesfarmers: -1.97%
- Myer: +0.42%
A quick reminder about what we're expecting out of China at 1pm:
- GDP: forecast 7.8 per cent y/y, up from 7.4 per cent, and 2.2 per cent for Q4
- Industrial production: 10.2 per cent for December, up from 10.1 per cent in November
- Retail sales: 15.1 per cent for December, up from 14.9 per cent in November
- Fixed asset investment: 20.7 per cent for December, in line with November reading
- Also due: December property prices, January flash business sentiment indicator, business climate index and entrepreneur confidence index
Wesfarmers shares are down today, about 1.1 per cent at this stage. JPMorgan just downgraded its recommendation on the stock to underweight following its strong recent share price performance. ‘‘We prefer WOW in the retail sector,’’ says JPMorgan analysts Shaun Cousins and Uma Joshi.
While the WES investment thesis remains strong, and we see no imminent catalysts on the downside, especially given the appetite for high yield investments with earnings growth, we suggest the risk reward for investors at current levels is not attractive. WOW is our preferred exposure in the retail sector.
Here's a story from BusinessDay's Paddy Manning which pulls together some more of the analyst reaction to the Rio news. Currently, the miner's shares are 2.4 per cent higher.
The analyst reactions to the Rio news are starting to arrive. Here’s where Clarke Wilkins at Citi Research reckons yesterday’s drama announcements leaves the company:
We believe the market will perceive (the) write-downs and management changes negatively in the short term, but that these will be positive for the stock and the sector longer term.
One of our structural bearish criticisms of the sector has been poor capital allocation, and lack of shareholder focus. We believe (yesterday’s) announcement could significantly realign Rio Tinto with shareholder interests through reduced M&A and reduced capex spend.
We maintain our Buy rating on the stock with unchanged A$73/share price target implying an ETR of 16%.
Looking at the mining sector more broadly, Rio's gains are in line with the other big miners, suggesting investors don't see the loss of CEO Tom Albanese or the $14b writedown as a reason to punish the stock:
- BHP is 0.58% higher to $36.55
- Rio is 2.06% higher to $65.93
- Fortescue is 2.74% higher to $4.50
And to the worst-performed companies on the ASX200:
- Ten: -2.99%
- Cardno: -2.43%
- Mineral Deposits: +1.86%
- Downer EDI: -1.86%
- Sydney Airport: -1.3%
- Wesfarmers: -1.12%
- Boral: -0.93%
Now for some of the early gainers on the ASX200:
- Paladin Energy: +3.83%
- Decmil Group: +3.7%
- Henderson CDI: +3.38%
- St Barbara: +3.26%
- Alacer Gold: +3.2%
- OZ Minerals: +3.03%
The ASX200 last closed around its current levels in early May 2011.
The energy index is leading the market higher with an early gain of 0.92 per cent, closely followed by materials, up 0.66. Here's how the others are faring:
- Info tech: +0.56%
- Health: +0.54%
- Industrials: +0.43%
- Utilities: +0.4%
- Financials: +0.39%
Up, up and not quite away, but still a handy early gain.
In early trade, the All Ordinaries index is 23.9 points higher, or 0.5 per cent, to 4803.6, while the benchmark S&P/ASX200 is 23.7 points higher, or 0.5 per cent, to 4780.3.
Rio shares are up - yes, up - 1.8 per cent in early trade. They've added $1.15 to $65.75. It looks like leadership was more important to investors than the $14 billion writedown.
Early take - ASX200 is up a bit less than 0.4 per cent as markets open.
Interesting comment from reader 'Seriously' on Ten:
today marks applications close for TEN's retail rights offer... will be interesting to see if the stock tanks next week as expected without the underwriters in the market propping up the share price to limit their take up of the retail offer...
As always, we're keen to hear your thoughts on matters financial. Drop your thoughts into the comments field. Get your votes in for the pick-the-close comp, too. (Close off time is 11am?)
And just before the market opens, here's some interesting equities research from HSBC. Analysts there write that:
Seventy five per cent of global fund managers in HSBC’s latest Fund Managers’ survey are holding an overweight view towards equities in the first quarter of 2013 (vs 40% in 4Q12), while a quarter maintain a neutral outlook (vs 50% in 4Q12). No fund manager is underweight on equities. Over six in 10 fund managers (vs 30% in 4Q12) are underweight on cash as an asset class, while over a third (vs 20% in 4Q12) are underweight on bonds. No fund manager holds a positive outlook on bonds or cash for 1Q13.
Mike Danby, Head of Wealth Management for HSBC Bank Australia, said: “The bearish sentiment of global fund managers towards cash next quarter underlines potential opportunities in the market. They are looking at stronger prospects in equities and selective fixed income markets, based on valuations and on the back of improving economic indicators in the US and China.”
Apart from Rio, the other major news today will be some important China economics data due at 1pm. Full coverage here when it all lands. We've also got China correspondent John Garnaut filing on the GDP result.
Here's what we're waiting for and what the market's expecting:
- GDP: forecast 7.8 per cent y/y, up from 7.4 per cent, and 2.2 per cent for Q4
- Industrial production: 10.2 per cent for December, up from 10.1 per cent in November
- Retail sales: 15.1 per cent for December, up from 14.9 per cent in November
- Fixed asset investment: 20.7 per cent for December, in line with November reading
- Also due: December property prices, January flash business sentiment indicator, business climate index and entrepreneur confidence index
A bit more on Rio. Adele Ferguson writes that the decision to remove Tom Albanese "was a long time coming":
For years the market has been quietly scratching its head that the disastrous $US38 billion acquisition of Alcan didn't cost some senior executives their jobs. On Thursday night, the board finally acted to replace chief executive Tom Albanese with iron ore boss Sam Walsh.
It is understood that after learning that management had made some serious errors of judgment in the purchase of the Riversdale business in Mozambique, the board decided to finally make a few hard decisions in relation to management. Besides replacing Albanese, it has also replaced the head of Riversdale.
IG Markets’ Evan Lucas again, this time on the Rio dramas from late yesterday:
This saw RIO’s London listing fall as much as 4.6% in early trade before rallying on the news that current iron ore head Sam Walsh had been appointed as new CEO by the board. RIO Plc finished only half a per cent off at the close.
We see this news as short-term pain for a long-term gain. Sam Walsh’s results speak for themselves; he has continued to hit record production levels and kept RIO’s iron ore revenue ticking over under tricky trading conditions. He will also bring a much stricter and disciplined approach to further investment and capital management.
Watch for the share price to wobble today before research houses update their ratings; we would expect upgrades here.
Related to the oil price, here’s Evan Lucas from IG Markets with a local angle:
Watch the local energy space today; WPL and STO both produced good fourth-quarter results yesterday and a rising oil price will enhance profits, though energy has been a major laggard.
Oil prices closed sharply higher overnight, boosted by positive economic reports in the United States and fears linked to hostage-taking on an Algerian gas field.
The price of West Texas Intermediate for February delivery finished at $US95.49 a barrel in New York, up $US1.25 from Wednesday's close. In London trade, Brent North Sea crude for delivery in March climbed $US1.42, settling at $US111.10 a barrel.
"Petroleum prices are moving higher in sympathy with stronger equities after a jump in US housing starts and a drop in initial claims for unemployment added to the case for US economic growth," said Tim Evans of Citi Futures.
Evans said that prices also were supported by recent events in Algeria that some cited as a "wake-up call" regarding geopolitical risk.
Foreign governments expressed growing alarm Thursday over the safety of their citizens after Islamists seized a gas plant in the Algerian desert near Libya and took dozens of hostages.
Markets on both sides of the Atlantic were pretty happy about some upbeat US economic data which was released overnight. US home building surged in December, finishing the year with the most new homes started since 2008, the Commerce Department said. Housing starts rose 12.1 per cent last month, reaching the highest level since July 2008.
The US is the world’s No 2 copper-consuming country behind China, and building construction accounts for about half of copper demand, according to data from the Copper Development Association trade group.
Initial jobless claims in the US also declined by 37,000 to a seasonally-adjusted 335,000 in the week ending January 12, the lowest level in five years.
That saw the S&P 500 surge to a five-year high and its third day of gains.
For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key markets numbers:
- SPI futures are 34 points higher at 4755
- The $A is higher at $US1.055
- In New York, the S&P500 was 0.56% higher at 1480.94
- In Europe, the FTSE100 rose 0.46% to 6132.36
- China iron ore was flat at $US145.40 a metric tonne
- Gold fell $US7.60 to $US1690.80 an ounce
- WTI crude oil fell $US1.31 to $US95.55 a barrel
- Reuters/Jefferies CRB index added 0.19% at 298.20
Good morning folks. Welcome to the Markets Live blog for Friday.
This blog is not intended as investment advice
Contributors: Thomas Hunter, Jens Meyer, Max Mason
BusinessDay with agencies
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