Aussie shares and the dollar enjoy a boost
after the release of better than expected Chinese GDP data, as we head
for the sixth straight day of gains on the ASX.
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How quickly will central bank balance sheets normalise? With over $US4 trillion in assets - compared to about a quarter of that pre-GFC - it's no small issue.To get back to levels consistent with history, and updated to reflect the larger size of economies now versus 2007, it would take some time indeed - until 2023 - without "potentially disruptive sales of significant amounts of government bonds (and mortgage-backed securities in the case of the US)," reckon analysts at Tower Watson.
The possible path for a return to a more "normal" US Fed balance sheet is shown in the chart below.
But the Towers Watson analysts note that there is a debate that the Fed could operate monetary policy consistent with its mandate without shrinking its balance sheet at all; "a viable prospect in the US" which "could be replicated in the UK," says Towers Watson.
The continue: "Therefore, we think the size of central banks’ balance sheets is something of a red herring when it comes to normalising monetary policy.
"They may be slowly shrunk to pre-crisis levels, or they may not. Either way we expect the key monetary policy tool to be short-term interest rates, with policy rates responding in some fashion to prospective inflation differences from target, and economic growth.
"However, central banks are unlikely to normalise balance sheets at a rate that produces sharp upward rises in bond yields and disrupts market function, simply because they do not need to."
The size of central banks’ balance sheets is
something of a red herring when it comes to normalising monetary policy,
says Towers Watson.
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Today's Chinese economic data suggest that although slowing investment, particularly in the property sector, continues to put downwards pressure on growth, the broader economy and labour market remain healthy, Capital Economics China economist Julian Evans-Pritchard says:- We won't get the full breakdown of GDP by industry until tomorrow but we suspect that the slowdown remains heavily concentrated in the real estate sector, which grew a mere 2.0% y/y in Q2. Growth in the rest of the service sector is likely to have continued to see rapid growth.
- It makes sense to look at the September data, also released today, to gauge the recent momentum in the economy. The rebound in industrial production to 8.0% y/y last month suggests that August's reading of 6.9%, partly the result of an unusually strong base for comparison, overstated the recent weakness in industry.
- Nonetheless, downwards pressure on the economy still remains going into Q4. Year-to-date growth in fixed asset investment fell from 16.5% to 16.1% last month, on the back of a further slowdown in property investment. Growth in new housing starts continued to cool in September.
- Q3 wage growth, also released today, still looks upbeat. Growth in median income continued to outpace nominal GDP growth, meaning that the average household is enjoying an increasing share of the dividends from growth. This appears to be supporting consumption. Retails sales growth edged down in nominal terms last month but this was due to lower inflation, growth continued to edge up in real terms.
- The upshot is that although growth has slowed, it reflects a welcome rebalancing away from excess investment in certain sectors of the economy and is not cause for significant concern. With policymakers now prioritising employment and economic rebalancing over growth, we don't think they will feel the need to act aggressively to shore up the economy in response to today's data.
Newcrest Mining's flagship Cadia precinct is starting to hit its straps, with recent expansions allowing the New South Wales operation to reach a new low in terms of operating costs.The gold miner has recently spent $2 billion on expansions at Cadia and the results have shown up the production and cost data for the September quarter.
Cadia operated at an "all-in sustaining cost" of $US192 per ounce during the three months to September 30, well below the $US304 per ounce and $US342 per ounce seen in the March and June quarters.
While the fall in the Australian dollar helped the equation, it is the first time in the past five quarters that a Newcrest mine produced at a cost below $US200 per ounce, and only the second time over the same period that a Newcrest mine produced below $US300 per ounce.
The September result ensured a fat margin for the Cadia operation during the quarter, given Newcrest's average received gold price for the period was $A1393 per ounce.
A new "panel cave" has recently been completed at Cadia, which is near Orange in New South Wales, and commercial production began from the new operation on October 1.
Read more.
Cadia operated at an "all-in sustaining cost" of
$US192 per ounce during the three months to September 30, well below the
$US304 per ounce and $US342 per ounce seen in the March and June
quarters. Photo: AFR
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A $3 billion profit transfer from
food and grocery suppliers and smaller retailers to Coles and Woolworths
may be coming to an end as governments and regulators crack down on anti-competitive practices.Coles and Woolworths have increased their combined share of the food retail profit pool to $4.4 billion from $2.1 billion over the last seven years while the profits of smaller food retailers have fallen to $2.5 billion from $3.2 billion, according to a report by broker Morgan Stanley.
In the past four years, the combined profits of food and grocery suppliers have plunged to $3.7 billion from $6.1 billion, while the combined profits of Coles and Woolworths have climbed to $4.4 billion from $3.1 billion.
At the current run rate, if the total food retail profit pool remained flat, Coles and Woolworths would account for 100 per cent of industry profits by 2020, Morgan Stanley said.
Morgan Stanley analyst Tom Kierath believes profit growth for the major chains is likely to slow as the available profit pool shrinks and as the federal government and the Australian Competition and Consumer Commission (ACCC) take a more-active approach to increasing competition, Mr Kierath said.
Last week, the ACCC launched its second major legal action against Coles in five months, accusing the retailer of unconscionable conduct against five grocery suppliers by forcing them to plug gaps in its profits, pay for wastage in stores and pay fines for late deliveries.
Read more.
A crackdown on competition issues could cut into the profits of the big supermarkets like Coles and Woolworths. Photo: Michelle Mossop
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Here's a more fulsome report on the Chinese economic data released today:China's economic growth cooled to 7.3 per cent between July and September from a year earlier, the weakest expansion since the global financial crisis and reinforcing expectations that Beijing will need to roll out more stimulus to avert a sharper slowdown.
With a faltering property market increasingly dragging on manufacturing and investment, the reading was the slowest for the world's second-largest economy since early 2009, when the growth rate tumbled to 6.6 per cent.
Economists polled by Reuters had expected third-quarter growth to slow to 7.2 per cent from 7.5 per cent in the second quarter, adding to worries about flagging global growth which have sent financial markets tumbling in recent weeks.
On a quarter-on-quarter basis, growth eased to 1.9 per cent versus expectations of 1.8 per cent and down from 2.0 per cent in the second quarter.
Other data released alongside the gross domestic product (GDP) report on Tuesday showed factory output rose 8.0 per cent in September from a year earlier, beating expectations for a 7.5 per cent increase and up from August's six-year low of 6.9 per cent.
Fixed asset investment, a key driver of the Chinese economy, was weaker than expected. It climbed 16.1 per cent in the first nine months compared with the same period a year earlier, below forecasts for a 16.3 per cent rise and cooling from 16.5 per cent in the first eight months of the year.
Retail sales rose 11.6 per cent in September from a year earlier, below analysts' predictions of 11.8 per cent and down from the previous month's 11.9 per cent.
Read more.
The reading was the slowest for the world's
second-largest economy since early 2009, when the growth rate tumbled to
6.6 per cent. Photo: Bloomberg
AS we say "happy birthday!" to the 1987 sharemarket crash, here's a great pic of the AFR's front page from that time, courtesy of Seacurl Capital's Kit Lowe:
There is too much smoke around the future ownership of Network Ten for there to be no fire, writes BusinessDay columnist, Elizabeth Knight, as shares in the broadcaster are up another 2.3 per cent today:The chat around the industry and investment circles is that a deal is brewing and one that will involve Rupert Murdoch's empire either directly or via Foxtel, in which News Corp has a 50 per cent stake.
Any changes in Ten's ownership would need to navigate around existing media rules; thus the betting is that News/Foxtel will take a 14.9 per cent stake in Ten and private equity will take out the remaining minority investors but will leave the holdings owned by James Packer, Gina Rinehart and Bruce Gordon.
Packer, Rinehart and Gordon are sitting on such large paper losses on their Ten investments that it is barely worth selling; and as none is financially stretched they are taking the view that they will take any upside that a privatised Ten might provide.
One hedge-fund player, Anchorage, and one private equity group, Providence Equity, have already been outed as having interest in Ten. If they teamed up with Murdoch the risk would be defrayed – particularly as they wouldn't need to buy out the Packer/Rinehart/Gordon holdings.
Ten chief executive Hamish McLennan is clearly pushing for a relaxation of the media ownership regulations – particularly the two out of three rule – that limits a company having radio, television and print in the same market.
For Foxtel to become involved in the deal it would ultimately require a green light from its other 50 per cent owner, Telstra, which sources said yesterday was being advised by UBS.
It is not surprising that buyers are circling Ten given its shares are now trading at the penny-dreadful end of the market and its losses are predicted to extend into the current financial year. Last week it reported $168 million of red ink for the 2014 financial year.
Read more.
Ten chief executive Hamish McLennan sees some small green shoots. Photo: Peter Rae
Chinese GDP grew 7.3 per cent in the third quarter, down from 7.5 per cent in the previous one, but still above market expectations of a fall to 7.2 per cent growth.In other data out, September industrial production also came in at a higher than expected 8.0 per cent growth, year on year. That's up from 6.9 per cent annual growth in August and ahead of an expected plus of 7.5 per cent.
Retail sales in September grew 11.6 per cent year on year, slightly below expectations of 11.7 per cent growth and down from 11.9 per cent in August.
The Australian dollar lifted on the economic data, rising about a quarter of a cent to the day's high of 88.14 US cents.
Hundreds of workers will suffer from the decision to knock back a proposed coal mine in the Hunter Valley to protect two stud farms, miner Anglo American and the NSW Minerals Council say.The multinational lost a three-year battle to expand its Drayton open cut coal mine, about 13 kilometres south of Muswellbrook, when the Planning and Assessment Commission rejected the proposal in a determination dated October 17.
CEO Seamus French said the decision and likely closure of the existing mine would have serious implications for the Hunter and the state.
"Unemployment in the Hunter Valley is 8 per cent. To reject a project which would continue to provide 500 full-time jobs for a period of 20 years is incomprehensible, he said.
"It is devastating for our employees, it is devastating for our suppliers, it is devastating for the local community and it is devastating for the people of NSW."
The Drayton mine has extracted almost all the available coal under its current approval. The company and its staff found out about the decision to reject after it was leaked to The Daily Telegraph and published on the front page.
Anyone hoping the RBA minutes would reveal new insights on the central bank's most pressing issues will have been disappointed, says TD Securities rates strategist Annette Beacher, calling the minutes ''forgettable'':"After a bland RBA board communiqué on the day, with scant reference to financial stability/house prices, and nothing about the five-cent depreciation of the AUD between meetings, we expected some further fleshing out of these topics," Beacher says.
"We were left empty-handed, save for the AUD ‘remained high by historical standards’ and house prices were consistent with “strong conditions” in the established housing market."
Given the lack of fresh insight the AUD is sharply unmoved at 87.9 US cents, awaiting the Chinese data flow at 1pm.
A short history of the jawbone. Source: TD Securities 
Here's a nice little lunchtime success
story: As punters crowded betting booths at the Melbourne Cup six years
ago, Marcelo Ulvert and his business partner Malcolm Treanor opened
three bank accounts for $37.50.They now joke it was the best bet they have made.
The three bank accounts were used to create digital marketing business Cohort, which is now worth $12 million after listed investment company Oceania Capital Partners acquired a 50 per cent stake for $6 million.
"It's an amusing thing for us," Mr Ulvert said. "The growth from $37.50 to a $12 million business in six years is kind of sweet.
"But it just validates the fact that if you do have an entrepreneurial streak in you, just because you live in a small country with 25 million people doesn't mean we can't build a business with global aspirations."
The Sydney-based company boasts clients including Westfield, Woolworths, Telstra and Foxtel and has featured on BRW's Fast Starter list for the past three years. It made the list last year after its revenue jumped 121.1 per cent in 2011-12 to $4.9 million.
It plans to now use its Australian successes to take on Europe and has recently opened an office in the UK.
Read more
"The growth from $37.50 to a $12 million business in
six years is kind of sweet.": Cohort co-founders Marcelo Ulvert and
Malcolm Treanor. Photo: Janie Barrett
Shares have pared early gains, but are still on track for a sixth straight positive session, as investors remain on the sidelines ahead of Chinese economic growth data due later in the day.Data due at 1pm AEDT is expected to show that China's economy grew at its weakest pace in more than five years in the third quarter as a property downturn weighed on demand, raising the chances of more aggressive policy steps from the government.
China will also release data on industrial output and retail sales for September.
"The Australian market's been quite reactive to news from China. So, it is trying to find some guidance from there," says James McGlew, executive director of corporate stockbroking at Argonaut.
Tipping iron ore prices to head back above $US85 a tonne, Morgan Stanley has upgraded Fortescue to ‘overweight’, forecasting more debt reduction and a lift in dividends.The analysts headed by Brendan Fitzpatrick say that valuation and forecasts for the company’s earnings remained largely unchanged, but add that the recent share slump has created the upside, saying too much caution has been priced in.
‘‘The equity is trading below a spot price scenario valuation of $3.95 a share, and our base valuation of $4.69 a share,’’ the analysts write in a note to clients.
‘‘We still allow for a bear side skew in our price target, but at $4.30 a share there is sufficient upside to warrant the rating upgrade.’’
Morgan Stanley concedes its view is not without risk: ‘‘It is based on our house view that 62% iron ore price index will be at, or above, $US85/t for the next several years.’’
If this turns out to be the case, then Fortescue can reduce its gearing below 40 per cent in financial year 2017 and increase the dividend, the analysts say.
‘‘The 4-5 per cent yield we forecast also suggests the equity is under-priced.’’
The analysts identified potential upside factors for the stock, saying the flagged expansion to around 175 million tonnes per annum (shipped) and gas conversion of the truck fleet could add $1.25 a share to its base.
‘‘These are elements that could support the equity in future years.’’
Fortescue has returned to Morgan Stanley’s top pick list, but the analysts add, ‘‘We prefer Rio Tinto for its larger, lower-cost iron ore business, but both offer leverage to our view that iron ore prices will stabilise above current levels.’’
Source: Morgan Stanley
The Reserve Bank's minutes of its October meeting are out, but they're nothing to get too excited about.The RBA repeated that the Australian dollar is still too strong to help rebalance the economy and discussed the need for banks to maintain high lending standards.
The board members noted that while the currency had declined against the US dollar, it remained around levels seen earlier in the year. The bank said borrowing costs have fallen further as competition increased and ‘‘members discussed the importance of lenders maintaining strong lending standards.’’
The currency ‘‘remained high by historical standards - particularly given recent declines in key commodity prices - and was offering less assistance than would normally be expected in achieving balanced growth,’’ policy makers said in the minutes.
‘‘Members considered that the most prudent course was likely to be a period of stability in interest rates.
The minutes show the board was concerned that increased competition among lenders could result in the issuing of riskier loans.
The RBA said interest rates for loans edged lower in recent months as competition among lenders increased.
‘‘In this context members discussed the importance of lender maintaining strong lending standards."
The Aussie hardly reacted to the minutes and is currently trading at 87.84 US cents, where it was earlier this morning.
China’s economic growth will slow to about 4 per cent annually after 2020 following decades of rapid expansion, according to the Conference Board.China faces a “deep structural slowdown and broad uncertainty” in the decade ahead, the New York-based research group said in the report yesterday. China’s development model, based on state direction of capital and growth-fixated monetary policy, generated “deep seated” risks and imbalances, it said.
“The course of China’s growth has always harboured the potential for deceleration at least as rapid as its acceleration,” David Hoffman, vice president of the Conference Board’s China Center for Economics and Business in Beijing and a co-author of the report, said in a press release. “We are beginning to see the signs of this transformation take hold.”
China’s government has signalled it will tolerate slower economic growth this year by refraining from broad stimulus. Weighed down by a property slump, China’s gross domestic product probably expanded 7.2 per cent in the third quarter, the slowest in more than five years, according to Bloomberg’s survey of economists ahead of data scheduled for release today.
China’s growth goal was 7.5 per cent in 2012 and 2013, with actual expansion of 7.7 per cent both years.
The full transition of China’s economic growth model will probably be a long slog as the adjustment process will “necessarily be painful,” the Conference Board said.
China's economic growth will slow to around 4.4 per
cent a year from 2020, according to the Conference Board . Photo: Tamara
Voninski 
A tough advertising market and poor ratings from the Ten Network, which Southern Cross Austereo broadcasts into regional areas, have hurt revenue in the first two months of the 2015 financial year, Southern Cross chief executive Rhys Holleran says.Earnings before interest, taxes, depreciation, and amortisation are now expected to be down 18-20 per cent in the first half, compared with previous guidance of down 10-15 per cent.
Revenue is now also outside the previously issued guidance, down 5-7 per cent in the first half compared with the prior year. Southern Cross expects revenue to be down 7-8 per cent in the first half, compared with the previous corresponding period.
Southern Cross shares have dropped 3.5 per cent to 89.25 cents.
Aircraft engineers represented by one of the Qantas unions at the centre of the 2011 industrial dispute that grounded the airline have agreed to a new four-year deal that includes a pay freeze for the first 18 months.The settlement is a major step towards achieving the goal of Qantas chief executive Alan Joyce to freeze pay across the company as part of efforts to strip $2 billion in costs from the business within three years.
More than 87 per cent of the 942 votes received were in support of the enterprise bargaining agreement, which includes an 18-month wage freeze, followed by annual increases of 3 per cent.
About 1500 Qantas licenced engineers are covered by the agreement. As part of a side deal, about 50 engineers who were forced to take redundancy this year will have the chance to return to Qantas. The number was initially higher but some of the engineers have since decided to take voluntary redundancy.
Shares are up 1.5 per cent at $1.36.
Heading into reporting season for three of the big four banks, analysts at Citi have released their preview which can be summarised thusly: Results will be fine, still too expensive."With significant regulatory uncertainty for the sector at present, and an absence of major bank buy recommendations following the removal of CBA in mid-August, we prefer to stay on sidelines and hopefully get more involved at lower prices," they write, noting that despite their considerable retracement, bank share prices still outperformed the market.
"We expect good results with favourable market conditions including steady credit growth, falling funding and credit costs," they write. "Business lending spreads will provide further ongoing pressure to revenues."
They are neutral on ANZ and Westpac and have a sell on NAB. CBA, which doesn't report, is also rated neutral. The Citi analysts, instead, reveal a preference for Macquarie and Bank of Queensland, rating both a buy.
Credit Suisse analysts are on the same page as their Citi brethren, writing this morning that bank valuations “have improved but do not appear outright compelling”.
They recommend clients “revisit the sector post reporting season” in the wake of the shares trading ex-dividend and around the time of the final report from the Murray Inquiry in November.
“We do not see bank reporting season as a likely positive catalyst for Australian bank stocks, they write.
Their major bank order of preference is ANZ (outperform), NAB (outperform), CBA (underperform), WBC (underperform).
A snapshot of the upcoming bank reporting season from Credit Suisse. 
Christophe de Margerie, chief executive at Total, Europe’s third-largest oil company, has died in a Moscow plane crash, a Vnukovo airport spokeswoman says."Tonight, a plane crashed when it collided with a snow-clearing machine. Three crew members and a passenger died. I can confirm that the passenger was Total's head de Margerie," she said.
The 63-year-old de Margerie started his career in Total’s finance department in 1974 and took over as CEO at the French company in February 2007, when that post was split from the chairman’s.
Before becoming chief executive, de Margerie, known by the nickname “Big Moustache,” because of his curved moustache, oversaw exploration and production and headed up Total’s business in some of the world’s political hotspots including Iraq, Iran and Myanmar.
Total CEO Christophe de Margerie has died in a Moscow plane crash, Interfax reports.
Billionaire businessman Kerry Stokes says economic conditions in his home state Western Australia are the worst in nearly 25 years.Stokes, speaking after the launch of his authorised biography attended by a who’s who of Perth business yesterday, also backed the controversial strategy by the world’s two biggest miners to ramp up iron ore production.
Glencore, Fortescue and WA premier Colin Barnett have blamed BHP Billiton and Rio Tinto for pushing down already weak iron ore prices by boosting production.
Stokes, who is set to emerge with 19 per cent stake of BC Iron following the takeover of his Iron Ore Holdings minnow, said the mining industry needed to be more efficient.
“They [BHP and Rio] are pretty big smart cats,” Stokes said. “Frankly if you can sell something at $80 a tonne that cost you $20 a tonne you might want to sell as much as you can. I understand that.
“That means everybody else who competes has got to get a whole lot more efficient.”
Barnett earlier this month lashed the big miners and blamed the plunging iron ore price and dwindling income from the goods and services tax for forcing a fresh round of public sector cuts.
Mining needs to be more efficient, says Kerry Stokes Photo: Alex Ellinghausen
Shares climb at the open, with banks once again leading the gains.The ASX 200 is 15 points, or 0.3 per cent, higher at 5334.3, while the All Ords is 14 points higher at 5321.6.
ANZ and NAB are 0.5 per cent up and CBA 0.2 per cent, while Westpac has eased 0.1 per cent.
BHP is 0.2 per cent lower and Rio is up slightly.
Veda is down 3.9 per cent on news that its private equity shareholder has abandoned a planned sale of its stake.
Newcrest Mining has kept its guidance for the full year unchanged after reporting a 12 per cent fall in gold production for the September quarter due to lower grades of the precious metal and planned plant shut downs.Gold output fell to 561,731 ounces in the three months ending September 30 from 586,573 in the year ago period. Copper rose to 24,831 tonnes from 19,632, while silver jumped to 555,731 ounces from 532,315.
Meanwhile, the remuneration package paid to Newcrest Mining managing director Sandeep Biswas has been labelled "excessive" by an influential proxy adviser, raising the pressure on the goldminer before its annual meeting of shareholders later this month.
Proxy adviser ISS Governance criticised several aspects of Newcrest's pay structure and recommended shareholders formally reject the company's remuneration report that will be voted on at the October 31 meeting.
Read more.
Newcrest has not yet outlined a clear strategy for the revival of its struggling Lihir goldmine. Photo: Reuters
The Foreign Investment Review Board said it has no objection to the takeover of Goodman Fielder by Singapore oils trader Wilmar International and Hong Kong investment company, First Pacific.“Goodman Fielder advises that Wilmar and First Pacific are continuing to progress the other regulatory approvals required in connection” with the outlined scheme of arrangement, Goodman Fielder said in a statement to the Australian stock exchange.
In late September, the Australian Competition and Consumer Commission said it would not oppose the acquisition, even though it would increase Wilmar’s share of the edible oils market to more than 50 per cent.
A shareholder meeting to approve the scheme is scheduled to be held in the first quarter of calendar 2015, the company said.
When markets are buckling and volatility is signaling a crisis, you sell what you can, not what you want.That’s what happened last week on Wall Street, where slowing economic growth in Europe, Ebola anxiety and escalating conflicts in the Middle East and Ukraine tore through the calm with a force not seen in three years. Loath to find out what their record holdings of corporate bonds and leveraged loans were worth as liquidity thinned and markets slid, professional traders turned to stocks and Treasuries to defuse risk.
The result was a frenzy. US government debt volume surged to an all-time high of $946 billion at ICAP Plc, the world’s largest interdealer broker, more than 40 percent above the previous record. About 11.9 billion shares changed hands on U.S. equity exchanges on Oct. 15, the most since the European debt crisis of 2011.
“Whenever people can’t sell their illiquid assets, they turn to the US stock market because everyone is involved in it and that’s what they can sell,” said Matt Maley, an equity strategist at Miller Tabak & Co. “That’s why the market selloff was so sharp. You sell what you can, and the deepest, most liquid asset in the world is US stocks.”
The concern is the more investors buy obscure assets, the less flexible they’ll be during a market disruption. In the latest bout, they went to where the volume was, while hanging on to less-traded assets.
Read more at Bloomberg.
When volatility strikes, you sell what you can, not what you want. Source: Bloomberg
Investors will be keenly awaiting Chinese GDP data today: China is expected to post its weakest growth since the global financial crisis in the third quarter as a property downturn weighs on manufacturing and investment, raising the heat on Beijing to unveil more stimulus measures.Data out at 1pm today is expected to show the world's second-largest economy expanded 7.2 per cent in the September quarter from a year earlier, slowing markedly from 7.5 per cent in the previous quarter.
That would be its weakest performance since early 2009, when the growth rate tumbled to 6.6 per cent and a collapse in world trade threw tens of millions of Chinese out of work.
The market believes Beijing will tolerate a gradual slowdown as long as there are no signs of a potentially destabilising jump in unemployment, but anything weaker would fuel speculation of major stimulus measures such as an interest rate cut.
"We expect weak Q3 data as the economy still faces relatively big downward pressures, but we have seen some positive signs from exports, power production and bank lending in September," said Tang Jianwei, senior economist at Bank of Communications in Shanghai.
Premier Li Keqiang has said growth slightly below the official target of 7.5 per cent this year was fine as long as the job market remained stable, saying the government accepted activity would slow as it tries to reform the economy.
Annual growth slowed to 7.4 per cent in the first quarter, before a series of stimulus steps, including infrastructure investments and cuts in the reserve requirement ratio (RRR) for smaller banks, lifted it briefly in the June quarter.
While the leadership has offered a steady stream of aid to more vulnerable sectors of the economy, they have ruled out massive stimulus as China is still struggling to deal with a mountain of local government debt, the hangover from 4 trillion yuan ($740 billion) in spending rolled out in 2008-09 to cushion the impact of the global crisis.
Similarly, the central bank has resisted calls to cut interest rates or RRR for all banks, while trying to coax increasingly risk-averse banks to continue lending and keep the financial system flush with cash to avert any damaging spikes in borrowing costs.
In its latest move, sources said late last week that it was set to inject about 200 billion yuan of liquidity into some banks.
"Further relaxation of credit supply through increased base money supply and relaxation of loan quotas could help, though we do not expect a RRR cut soon unless there are persistent large FX outflows," Tao Wang, China economist at UBS, said in a note.
"We also expect a wholesale cut in the benchmark lending rate by the end of 2014 or early 2015 to help more effectively lower borrowing costs and boost businesses' cash flow."
Authorities may resort to bolder and broader measures if quarterly growth slips below 7 per cent, government economists at top think tanks involved in policy discussions said.
In local corporate news, private
equity firm Pacific Equity Partners was seeking bids for its 30 per cent
stake in credit reporting business Veda Group after market.Sources told the AFR's StreetTalk column that PEP had asked a handful of investment banks to pitch for the block of shares by 6pm Monday.
The blind date auction was expected to see the shares sold to fund managers on Monday night and this morning, StreetTalk reports the sources as saying.
PEP owns 265 million Veda shares, worth $615 million at Monday’s $2.32 a share close. The trade comes less than two months after PEP sold a similar stake in Veda at $2.15 a share.
Consumer confidence declined 1.9 per cent to 111.6 in the week ending October 19, according to the ANZ/Roy Morgan weekly index.The deterioration last week was fairly broad-based. Perceptions of households’ ‘financial situation compared to a year ago’ (-4.6%) - the subindex most correlated with consumer demand- saw the largest decline.
Expectations of economic conditions continue to languish below average levels. Households’ perception of the economic outlook over the next year and next five years both fell 1 per cent last week.
Despite the fall, ANZ says confidence continues to show a surprising lack of volatility and has been broadly steady around its long-run average for ten consecutive weeks.
“Consumer confidence remains broadly stable with house price gains likely providing some offset to concerns related to recent sharemarket losses and volatility on global financial markets,’’ says ANZ chief econmist Warren Hogan. ‘‘Levels of confidence suggest that household spending is likely to grow moderately over 2014 and 2015.
"This argues for an extended period of monetary policy stability and we expect the RBA to leave the cash rate on hold until the middle of 2015.”
European stocks fell, following their longest streak of weekly losses in more than a year, as worse-than-estimated financial results added to concerns over the region’s economic recovery.SAP lost 5.8 per cent after the world’s largest supplier of business-management software cut its full-year earnings forecast. Royal Philips declined 3.7 per cent after third-quarter sales and profit missed analysts’ estimates.
The Stoxx Europe 600 Index slid 0.5 per cent to 317 at the close of trading, after earlier falling as much as 1.1 per cent. European equities have led a rout that erased as much as $US5.5 trillion from the value of shares worldwide amid speculation that the European Central Bank’s stimulus measures will not be enough to spur growth.
“This correction might be the symptom for something larger,” Benedict Goette, founder of asset-management firm Compass Capital in Zurich, said. “I do not expect a big positive impulse from the current earnings season in Europe. Unless a multi-day up-move develops, people will remain nervous. We’re now in the highly volatile phase of attempting to bottom, but I would expect a final bottom only by the end of October or mid-November.”
The benchmark index reached its lowest level of the year last week after an eight-day slump, its longest losing streak in 11 years. It rebounded on Oct. 17, posting its largest rally since November 2011, as ECB Executive Board member Benoit Coeure said the central bank will start purchasing assets within days. The region’s stocks gauge briefly pared losses earlier today after people familiar with the matter said the ECB bought short-dated French covered bonds, as well as Spanish debt.
US stocks rallied for a third day as optimism over corporate earnings spurred a rebound from last week’s sell-off.Apple, which rose 2.1 per cent during regular trading, gained after exchanges closed on higher-than-forecast sales. Hasbro climbed 4.9 per cent after reporting profit that beat estimates. Sears Holdings surged 23 per cent after saying it plans to raise capital. IBM slid 7.1 per cent, closing at the lowest price since 2011, after abandoning an earnings forecast for 2015.
The Standard & Poor’s 500 Index rose 0.9 per cent to 1,904. The index has fallen for the past four weeks and is down 5.3 per cent since Sept. 18. The Dow Jones Industrial Average added 19.3 points, or 0.1 per cent, to 16,399. 7. The Nasdaq Composite Index added 1.4 per cent.
“It’s all about earnings,” said Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management. “Yes, IBM earnings were a big miss, but other company earnings are coming in better than expected and that’s good news. The growth rate for the third quarter has been ratcheted up and that’s some good news for the market.”
Profit for S&P 500 companies probably rose 5.9 per cent in the third quarter -- a forecast that’s been revised upward from an increase of 4.8 per cent as of Oct. 10 -- and sales increased 4 per cent, according to analysts’ projections compiled by Bloomberg.
“The state of corporate earnings in the US is on solid footing,” Adam Parker, chief US equity strategist at Morgan Stanley, wrote in a report.
Apple has forecast a strong holiday quarter after a better-than-expected 16
per cent jump in iPhone sales, and the strongest growth in Mac computer
shipments in years helped the company surpass Wall Street's targets.The company projected stronger-than-expected revenue of $US63.5 billion to $US66.5 billion in the December quarter, when new iPads and iPhones vie with rival devices from Microsoft and Amazon for consumers' holiday outlays.
The earnings report was released after the close of Wall Street trading, but shares of Apple rose 1.3 per cent to about $US101.10 in after-hours trade.
Sales of the iPad, which helped launch the mainstream tablet market in 2010, slid for the third straight quarter. A gradual decline in tablet demand worldwide has worried investors already concerned with Apple's slowing growth, who are awaiting a new device that can energise its expansion.
Sales of Apple's tablet slid more than 7 per cent from the previous quarter to 12.3 million units, and were down 13 per cent from the year-ago period.
Some investors hope that Apple's recently forged alliance with IBM, intended to drive tablet and phone sales to corporate customers, may help reverse a decline in sales of the tablet device.
Apple's fortunes, however, still largely hinge on the iPhone, which accounts for half its business, and the company's ability to again re-define markets with new technology gadgets. The Apple Watch, the company's entry in the nascent wearables category, will not hit store shelves till 2015.
Orders for the iPhone 6 and 6 Plus began in September, helping Apple chalk up a 12.2 per cent jump in revenue last quarter to $US42.12 billion. That exceeded the roughly $US39.9 billion that Wall Street analysts had predicted, on average.
The giant in Apple's earnings: iPhone 6 sales were better than expected. Photo: Daniel Munoz/Fairfax Media via Getty Images
Local shares are poised to edge higher at the open ahead of the latest RBA's musings and some key data on China's economy.What you need2know:
• SPI futures up 14 pts, or 0.3%, at 5320
• AUD at 87.84 US cents, 93.90 Japanese yen, 68.63 Euro cents and 54.36 British pence
• On Wall St, S&P 500 +0.9%, Dow 0.1%, Nasdaq +1.4%
• In Europe, Euro Stoxx 50 -1.2%, FTSE -0.7%, CAC -1%, DAX -1.5%
• Spot gold up 0.6% to $US1246.11 an ounce
• Iron ore adds 1% to $US81.60 per metric tonne
• Brent oil down 0.9% to $US85.43 per barrel
What’s on today:
• Australia: RBA board minutes, speech by RBA deputy governor Phillip Lowe, Australian Bureau of Statistics (ABS) International merchandise imports for September
• China: Q3 GDP; industrial production monthly spending; US existing home sales.
Stocks to watch:
• Holding AGMs: Fletcher Building, Southern Cross Media, Bradken, SMS Management
• Cabcharge Australia has rejected a confidential $500 million bid for its under-pressure taxi payments business.
• Asciano rated new outperform at Credit Suisse with price target $6.90
• Ausdrill cut to hold vs buy at Deutsche Bank, PT 77c
• CSL: BioCSL completes 2014-15 flu season shipment of Afluria, says around 16.2m doses delivered to providers
• Dexus investor day
• Fleetwood extends agreement with Rio Tinto on accommodation services in Karratha for 6 months
• Newcrest 1Q output
• News Corp raised to neutral v outperform
• Qube rated rated new underperform at Credit Suisse with PT of $2.40
• Toll rated new outperform at Credit Suisse with PT of $6.60
• Transfield raised to sector perform vs underperform at RBC Capital, PT $1.95
• Pacific Equity Partners cancels sale of $615m stake in Veda, reports the AFR
• Bank of America Merrill Lynch has reiterated a “buy” recommendation on Tabcorp with a price objective of $4.54 a share with first quarter 2015 trading way ahead of expectations.
• Commonwealth Bank has moved from “neutral” to “overweight” on Newcrest Mining with a price target change to $12.28 from $10.10 a share.
Read more.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
BusinessDay with wires.
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