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A snapshot of today:
What happened today?
ASX 200 down 100.9 points to 4928.6 to test the low for the year as volume withers in pre-Yellen nerves. Resources and Energy shares lead the falls with the Suncorp downgrade hurting financials. Asian markets mixed with Japan down 2.12% but China up 0.45%. US futures up 51.
A nasty start to the week. We opened down and then sat there for the rest of the day. No one seemed brave enough either to pop the bargain hunting boots on or to continue to sell it down.Watching and waiting in thin trade on low volumes until the match out and then we accelerated losses and volume to a heavy $5.83bn. This week is shaping up as a crucial one with the government to announce its mid-year update plus of course the Fed. No reason to be a hero in this environment, not so close to Xmas.
Late in the day the banks took a tumble lower as traders in Europe woke to hit the sell button. It kicked in at exactly 3.00pm so probably a grumpy computer coming on line but hard to see a convincing rally unless something changes in resources.
- BHP -3.49%, RIO-2.04% and Fortescue Metals (FMG) -2.45% all sank on lower iron ore prices as BHP looks to be heading for 1500 cents. Interestingly the big four iron ore miners account for 75% of the global supply now as smaller players are gone.South32 (S32) -1.49% continues to fall away but at least the gold sector had a slightly green day after falls in the AUD and a firming of the bullion price. Newcrest(NCM) +4.17%, Regis Resources (RRL) +8.57%, Evolution Mining (EVN) +6.57% and St Barbara (SBM) +6.05%.
- Energy stocks were weak again as Iran is hoping to come online in January, keeping pressure on the crude price. Santos (STO) -4.84%, Oil Search (OSH) -5.48% andOrigin Energy (ORG) -4.49% the worst affected. There were a couple of stocks bucking the trend in the energy space, with Beach Energy (BPT) -4.71% after securing a $350 financing facility and Drillsearch Energy (DLS) +3.88%.
- Financials were badly affected by the surprise downgrade from Suncorp (SUN) -9.81% with the big four down around 2%, Westpac (WBC) -2.57% and wealth advisers like Platinum (PTM) -2.39%, Macquarie Group (MQG) -3.52% andMagellan Financial (MFG) -3.15% especially weak as they tend to suffer more on market downturns.
- Insurers took their cue from SUN with QBE Insurance (QBE) -4.69% particularly badly mauled as were IAG -3.14% and AMP -2.33%.
- In the industrials we saw red across the board. Smartgroup Corp (SIQ) +27.56% bucked the trend on an acquisition and update but consumer stocks like Woolworths(WOW) -1.83%, Wesfarmers (WES) -1.69% were weaker. Even infrastructure stocks came in for profit taking. Sydney Airports (SYD) -2.76%, Transurban (TCL) -1.59%,Aurizon Holdings (AZJ) -3.31% and Qantas (QAN) -1.31% despite oil falling.
- Speculative stock of the day was Orrex Resources (ORX) +233.33% as it announced an agreement to acquire a HR cloud based platform called NVOI limited.
- Dog of the day goes to Enterprise Metals (ENT) -58.33% following disappointing drilling results at its Vulcan West target at Doolguna.
- Suncorp (SUN) -9.81% after new CEO Michael Cameron issued a profit downgrade as higher losses in its commercial insurance and a falling AUD have hurt margins and profits. The key measure Insurance Trading Ratio (ITR) is set to fall to 10% from the previous 12.8%. Profits were hit by higher than anticipated large losses in commercial insurance, a $75 million hike in natural hazards allowance, increased claims in compulsory third party insurance in NSW and lower investment yields.
- Smartgroup (SIQ) +27.56% following a full year update showing revenue up 24% on previous year, NPATA up 46% on the year, as it announced the acquisition of Advantage Salary Packaging for $60.8m in cash and shares.
- Woolworths (WOW) -1.83% has been forced to go back to the drawing board following changes to its Frequent Flyers program with Qantas. Woolworths is negotiating a new agreement with Qantas that would enable customers to convert $10 of Woolworths Rewards points into 870 Qantas Frequent Flyer points. An announcement is expected tomorrow.
- The long-awaited merger between Martin Sorrell’s WPP and ASX STW Communications (SGN) +1.38% will go ahead with WPP taking a 61% stake in the Australian-listed marketing and advertising services company.
- Cimic Group (CIM) -0.5% has announced a buy-back of 10% of its shares over the next 12 months.
- Austal (ASB) -3.7% has won something. After the horror turn of events last week with the US Naval contract for Littoral Combat ships, the company announced today it had done a deal with National Bank to build two Cape Class patrol boats worth $63m.
- Veda Group (VED) +0.36% announced it had received FIRB approval for the takeover by the US group Equifax.
- The closure of a high yield bond fund has spooked the bond markets. High yielding corporate bonds, used to be called Junk (now they have been rehabilitated) are in chaos following news that a high profile one had suspended all redemptions.
- ANZ has changed its forecast for no rate cuts now until May and then again August in 2016. The stronger jobs numbers, if they can be believed, is ensuring most economists are running the slide rule over their 2016 forecasts.
- A report today from AMP saying household debt has increased fourfold since 1988. Rising from $60,000 to $245,000 according to the latest AMP NATSEM report. Worryingly the ratio of debt to disposable income has tripled from 64% to 185% in the same time.
Average interest rates from 1988-2015 – Would be nasty if we ever got back to the average.
- Regions with the highest 10% of debt repayment burden are found in the inner ring suburbs of major capital cities. Looking at households with the top 10% of debt, households in inner Brisbane and west Brisbane are the most burdened with interest repayments at $59,400 per year or 47% of disposable income. A 2.5 percentage point increase would push up repayments by $18,700 a year.
- Inner west Sydney comes in second with average interest repayments of $30,900 (or 43% of disposable income) and a 2.5 percentage point increase would raise repayments by $13,000 a year.
- Sydney inner north has the highest debt levels of the most indebted households in Australia with at least $910,000 in debt held by the top 10%.
- The curious case of the missing chairman in the night. Fosun group founder and chair Guo Guangchang went missing last week as he was ‘helping authorities with their inquiries’. Today he reappeared looking none the worse for wear and attended a company meeting as the shares resumed trading in Hong Kong.
In Europe and the US
- To paraphrase Oscar Wilde “to lose one finance minister is misfortune but to have three in a week looks like carelessness.” But so it is in South Africa, where Jacob Zuma, the current President, has now appointed three different finance chiefs in a week. First he sacked the incumbent, then replaced him with David van Rooyen which the market hated and then replaced him with a previous chief Pravin Gordhan. This helped push the Rand up 6.4% at one point before falling back to be up 4.3% No wonder the South African economy is in such a mess.
- The US Senate is debating a generational shift to allow US oil companies to export oil. Not sure to whom but this would be the first time in 40 years. This is all part of a deal to extend expiring tax provisions or finance the government through to September 2016.
Ahead in Europe
- FTSE -19 points.
- DAX -260 points.
- CAC -85 points.