MS upgrades Fortescue

dfwe From the eternal optimists at Morgan Stanley: We expect iron ore prices to stabilise above US$85/t. We forecast debt reduction and increased dividends on this basis. EBITDA is flat on our base case, but we identify upside elements that could contribute inforward years. We upgrade Fortescue to OW. Equity price decline has created the upside: Our valuation and forecasts are largely unchanged. The equity is trading below a spot price scenario valuation, A$3.95/sh, and our base valuation of A$4.69/sh. We still allow for a bear side skew in our PT, but at A$4.30/sh there is sufficient upside...
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ANZ-RM consumer confidence dips

ScreenHunter_20 Apr. 10 19.28 By Leith van Onselen The ANZ-Roy Morgan Research (RMR) consumer confidence index fell in the week ended 19 October, falling 2.2 points (-1.9%%) to 111.6, taking it below its long-run average reading of 113.2 (see next chart). The overall fall in consumer confidence was driven by households having a more pessimistic take on their financial situation compared with the previous year and also being more downbeat about the economic outlook for the next five years. ANZ chief economist, Warren Hogan, continues to summon the confidence fairy and wealth effect from rising housing prices, even...
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NZ immigration booms as Kiwis desert Oz

ScreenHunter_4586 Oct. 21 09.25 By Leith van Onselen Statistics New Zealand has today released its permanent & long-term migration figures, which revealed that New Zealand net migration is at record highs as Kiwis continue to return home from Australia: The unadjusted figures for the September 2014 year showed New Zealand's highest-ever net gain of 45,400 migrants. Until the August 2014 year (43,500), the high was 42,500 in the May 2003 year. Over the last 20 years (December 1994–2013 years), New Zealand's annual net inflow of migrants has averaged 11,700. The highest-ever net gain of migrants was driven by...
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Gough Whitlam dies

imgres From the AFR: “Our father, Gough Whitlam, has died this morning at the age of 98,” a statement issued by his children on Tuesday morning said. “A loving and generous father, he was a source of inspiration to us and our families and for millions of Australians.” Mr Whitlam was prime minister from 1972 until 1975 during one of the most formative and turbulent periods in Australian politics, ending with his infamous dismissal by governor-general John Kerr in 1975. Prime Minister Tony Abbott praised Mr Whitlam’s legacy and described Mr Whitlam as “a giant of his time”. Former Prime...
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Stokes rightly sees WA headed for 1991 recession

kerry-stokes3 From the SMH comes a blunt assessment from Kerry Stokes that Western Australia is headed for a recession: "They [BHP and Rio] are pretty big smart cats," Mr 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." ...Mr Stokes offered a blunt assessment of the state's economic climate. "We are in a really tough period," Mr Stokes said. "Probably, this is as tough as I've seen since 1991. People are saying to me how...
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PBO declares budget emergency

ScreenHunter_3902 Aug. 22 15.25 By Leith van Onselen Parliamentary Budget Office (PBO) chief, Phil Bowen, has issued another warning that that Federal Budget is facing an $18 billion black hole by 2024 because of the Senate's reluctance to pass key Budget measures. From The Australian: Mr Bowen stood by his call for a “buffer” in the nation’s finances to prepare for a global downturn but said he did not seek to inject “panic” into the savings debate. “I don’t think I am in a position to say the global risks have increased,” he told a Senate hearing. “The global risks still are there. So I don’t pull...
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Abbott shirtfronts polls

unnamed From The Australian: THREE out of five Australians are in favour of Tony Abbott confronting Russian President Vladimir Putin over the shooting down of Malaysia Airlines Flight MH17 when he visits Australia next month. But despite endorsing the Prime Minister’s tough talk, the latest Newspoll, taken exclusively for The Australian, shows overall support for the ­Coalition has dropped to a three-month low. Labor continues to flatline, the Greens have received a bounce in primary vote, and Bill Shorten has marked his first year as Labor leader with his approval rating dropping to a...
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Macro Morning

marketmorning By Chris Becker The expected rebound in risk continued last night after the usual weekend gap, with US stocks surging around 1% as the US dollar weakened. With no major economic data releases last night, there weren't any catalysts to upset the rebound following this months QE-ending correction on risk markets. The S&P500 finished above 1900 points, first after following a weaker European lead, making a new three day high: The Q3 earnings season in US stocks continued with IBM having a shocker, dragging the concentrated DJ30 down, while Apple surprised on the upside giving the NASDAQ...
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Daily iron ore price update (iron snoreting ends)

anvil1-200x2001 Here are the iron ore charts for October 20, 2014: Better price action. Paper markets were solid though don't forget that once charges and taxes are removed Dalian is still pricing in the mid-US$70s for January delivery. In physical, spot was firm too and the rebar rally continued, however it remains very much driven by price rises in Hebei which are artificial given the looming APEC shutdown. Baosteel and China Steel (in Taiwan) cut prices. In an interesting development, Chinese port stocks of iron ore fell by 1.35 million tonnes last week. As I always say, one must be cautious in...
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Daily LNG price update (slammed)

swaps Japan released some healthy forecasts for Australian LNG yesterday: Most of Japan’s liquefied natural gas imports will be coming from Australia and North America by 2020, government estimates show. The Ministry of Economy, Trade and Industry also sees Japan relying less on the Middle East and Southeast Asia for this energy resource. The ministry expects Japan to be securing a combined 60% or so of its LNG imports from the U.S. and Australia by 2020. Australia will remain Japan’s top LNG source that year. Supposing the total volume of Japan’s 2020 LNG imports remain at around 87 million...
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Pettis on $50 iron ore and why Australia is Spain

images Find below an excerpt from a Michael Pettis post that pretty much captures everything that MB has been arguing since it was created (in part thanks to Michael Pettis!) After last week’s tumultuous markets one of my clients sent me an email saying “I am so relieved your constant talk about worsening imbalances kept us from getting too complacent. Things really are as bad as you keep saying.” I am not sure that what happened last week is proof of anything I’ve been saying, but I do think that the framework I have used over the past decade has been useful, at least to me, in understanding both...
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China headed for 3.9% growth

gherthw1 The Wall Street Journal has a report from the Conference Board on a slowing China: China’s growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy, according to a report expected to come out Monday. ...Foreign companies should realize that China is in “a long, slow fall in economic growth,” the report said. “The competitive game has changed from one of investment-driven expansion to one of fighting for market share.” The Conference Board forecasts that China’s annual...
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Links 21 October 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: What is global market turbulence telling us? - FT Blog Five known unknowns about the future of the global economy - Washington Post The 1987 Crash and a Dose of Perspective - Wall Street Journal Signs of an oversold share market - Short Side of Long A smarter way of reaching for yield - Humble Student Bond trading is becoming increasingly automated - Dealbook Here's who should be happiest about falling oil prices - Quartz How will the Saudis react to lower oil prices? - Econbrowser North America: Is mortgage credit too tight?  -...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets Asia is off to a solid start to the week, with the stars starting to align for equities yet again. After a sharp pullback recently, investors appear to be regaining confidence that we may have seen a bottom for now. Sentiment is vastly improved from the carnage we saw last week and some positives are beginning to emerge. Bond markets showed signs of stability in the US, with the 10-year yield rising in treasuries and bunds. This helped prop up the US dollar, which had struggled through most of last week although the tightening...
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ANZ is wrong on bank capital

ScreenHunter_4572 Oct. 20 10.36 By Leith van Onselen ANZ Chief, Mike Smith, has warned that Australia's Big Four banks risk becoming “globally uncompetitive” if they are required to raise capital levels to withstand external shocks. From The Canberra Times: Mr Smith said despite concerns around the housing market, there was no need to raise the amount of capital banks were required to hold as has been suggested through the Murray Financial System Inquiry. "The Aussie banks are now holding twice as much capital as they did [in 2007] courtesy of regulation that has been implemented since the crisis. "The question is,...
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Privatising Medibank to raise up to $5.5 billion

ScreenHunter_4582 Oct. 20 13.41 By Leith van Onselen Coalition finance minister, Mathias Cormann, has today announced details of the float of Medibank Private, claiming that the sale would raise between $4.3 billion and $5.5 billion for the federal government. From The Guardian: Cormann said this would place the business among the top 100 companies on the ASX. About 2.7bn shares are expected to be sold in the float, to be finalised by December. The government intends to sell down its entire shareholding and use the funds on its asset recycling scheme aimed at encouraging infrastructure construction. More than 750,000...
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Iron ore miners miss rally

dsgfwe It's all good today in markets, exception for iron ore miners. Most are in the green but only just except BHP which has managed a little better. All opened strongly and have sold all day. All charts are going sideways:    Despite Chinese iron ore futures being up...
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Dodgy Chinese money already drying up at unis?

0 From Michael Sainsbury via Crikey on the suddenly pressing Chinese anti-corruption campaign: The economic effects of the campaign are very real. Tough new laws on entertaining have hurt the hotel and restaurants industries, as well as the karaoke and hostess bars that have relied on officials spending up. One former Australian diplomat who was recently entertained in China said that toasts, which would traditionally have been made with China’s vicious local firewater baijiu, were being made with, of all things, milk -- as a beverage all but unknown in many parts of China only a few decades...
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The east coast gas crisis is overblown

fgw4g From the Grattan Institute today: For some time the price of natural gas has been rising well above  the cost of living. As with electricity, rising network prices are the  main reason for a 36 per cent increase in average gas bills over  the past five years. But in the next few years, huge changes in the  gas market will push up prices even more sharply, adding more  than $300 a year to the average household gas bill in Melbourne  and over $100 a year in Sydney and Adelaide. The increases will  mean tough decisions for many households and businesses. Natural gas is one of Australia’s main...
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Moody’s warns of iron ore downgrades

imgres Nothing really new here expect the threatened downgrades from Moody's: The growing oversupply in the iron ore market is damaging for the sector and poses risks to the downside. We estimate over 300 million metric tons (MT) of new and expanded production will come on-stream over the next several years. In light of expectations for muted growth in global steel production for at least into 2016, the lack of equilibrium will continue to weigh negatively on prices and operating performance of iron ore producers. As a result, we have revised our price sensitivity for iron ore for the period...
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Police set to seize dodgy Chinese assets

chinese-corruption From Fairfax: The Australian Federal Police are poised to seize assets of corrupt Chinese officials within weeks, in an unprecedented joint operation with its Chinese counterparts. In an exclusive interview with Fairfax Media, Commander Bruce Hill, the manager of the AFP's operations in Asia, has confirmed Australia has agreed to assist China in the extradition and seizure of assets of corrupt officials who have fled to Australia with illicit funds running into the hundreds of millions of dollars. The joint operation will make their first forfeiture of assets within weeks, having agreed on a...
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Kouk stands alone on rate cuts

edit-cut-md From the SMH blog: ...27 economists surveyed by Bloomberg, 26 expect rate hikes next year. But bond markets are pricing in the chance of the opposite. And in the wake of this week’s turmoil economist, Guy Bruten at Alliance Bernstein lists four circumstances (aside from GFC II) that may prompt the RBA to cut, rather than, hike rates next year: Angst around the commodities downturn would have to rise further. Bruten gives this scenario a tick – recent falls in the iron ore price are driving down long-term forecasts “with the obvious consequences for capital spending, government...
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Population ageing and the Australian economy

ScreenHunter_08 Feb. 03 14.45 By Leith van Onselen Reserve Bank of Australia (RBA) deputy governor, Christopher Kent, has today given a speech to the Leading Age Services Australia National Congress on the impacts of population ageing on the Australian economy. Kent identifies three causes of population ageing: Population ageing is driven by three different forces. The first is the baby boom that followed the Second World War. The second is the drop in fertility rates thereafter. Combined, these two changes led to a ‘bulge’ in the age distribution of the population. The early part of this cohort began to retire from...
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Citi: Robust shale could drive oil much lower

fbgre Citi today offers some useful analysis of the trillion-dollar question. At what price can Saudi and/or OPEX dislodge US shale oil production? And, by extension, what price are we going to see for LNG contracts for the next few years? In a stand-off between OPEC and US shale, how low can shale go? In a bear scenario, $75 WTI may only be a soft floor  Brent and WTI have plummeted, and supply cuts are needed to support prices; with the Saudis and OPEC bracing for lower prices, shale is set for a showdown with the cartel.  At what price might US shale production growth be meaningfully...
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Morgan Stanley sees falling bank returns

dfgrw From Morgan Stanley: We are more concerned about the outlook for the major Australian banks because we think the EPS upgrade cycle is coming to an end and investors are under-estimating the downside risk to ROEs from the Murray Inquiry. Against this backdrop, elevated trading multiples are hard to justify. The EPS upgrade cycle is coming to an end EPS upgrades over the past 2 years were primarily driven by loan loss normalization, home loan standard variable rate re-pricing, lower funding costs and good cost discipline. Better than forecast outcomes now look unlikely. In fact, both revenue and...
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