ASX at the close

ASX_logo by Chris Weston, IG Markets There has been a sense of excitement through the markets today, not just because of the binary outcome in the Scottish referendum, but because there seems to be a fundamental shift occurring through the capital markets. Firstly, I have to say Janet Yellen and the Federal Reserve are doing a top-notch job in managing asset prices. By all intents and purposes, they have told the market they plan to raise short-term rates five times in 2015 and a further six in 2016 – and the S&P 500 continues to find buyers. The fact that the Fed have such aggressive targets...
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External shock as I wave you goodbye!

imgres Rebar futures are down 60 points or 2.2% to 2716 today and Dalian iron ore ore futures are down 17 points or 3% to 576. These are big moves and markets have closed almost on their lows. From Reuters: "There is no sign that demand for steel can improve in the short term," said Cao Bo, analyst at Jinrui Futures in Shenzhen, citing the prolonged weakness in China's housing sector. China's home prices fell for a fourth straight month in August, data showed on Thursday, pointing to a deepening downtrend in the country's property market that is weighing on the broader economy. Real estate, along...
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Wherefore art thou gold?

tumblr_m2xds4BxVZ1qk553k By Chris Becker If you're a long term speculator in gold, I think its apt time to ask the Pascometer to come out swinging against the "shiny useless metal". If you're more of an observer, and/or you consider a little slice of physical gold in your portfolio as just another form of insurance, then Cullen Roche's latest piece at Pragmatic Capitalism makes for interesting reading (added chart is mine): A reader writes in asking about the price of gold and why it keeps falling despite surging US government debt.  The thinking here is that gold prices will hedge against a collapse in the US Dollar...
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Crikey fights lone hand on Iraq

imgres Good for Crikey, fighting a lone hand in bringing debate to the rush to war. From Bernard Keane: Yesterday's massive anti-terror raids were, apart from the success of possibly disrupting an alleged murder plot, quite a media event...Examined a little more closely, the details became more problematic. Despite talk of a "cell", a total of two people were charged, including one for firearms offences, which for such a vast operation seems disproportionately small -- surely more charges will be laid? The Queensland raids led to further charges against two men already in custody, not new arrests....
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Another iron ore junior bites the dust

imgres From Yahoo: Economic factors have been blamed for shipments from Iron Ore Holdings' Iron Valley project in the Pilbara being pushed back. Project partner Mineral Resources has told IOH of the delay in trucking and shipping ore from this month to early in the last quarter of calendar 2014. IOH said Mineral Resource had advised it was making all reasonable efforts to facilitate profitable trucking and shipping of Iron Valley products, subject to further movements in commodity prices and exchange rates. The miner said the market conditions demonstrated one of the key benefits of its proposed...
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Big money calls for carbon price

keep-calm-and-get-the-fuck-out-of-my-country-1 From the AFR: The globe’s largest investment funds, worth a collective $20 trillion, have called on world governments to move urgently on climate change policy and provide a stable setting for green investment before a key United Nations summit next week. The group of 300 investors, which includes Australia’s Investor Group on Climate Change as well as international giants BlackRock, the California Public Employees’ Retirement System (CalPERS) and Deutsche Asset & Wealth Management, also called for stable and “economically meaningful” carbon pricing. Wrong country...
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Fortescue & Atlas break down as Chinese futures blasted

.oin Another bad day for miners despite the falling Australian dollar. Fortescue and Atlas have both broken support and are at 2014 lows: Goldman slapped a 4o cent price on AGO this morning so maybe that did it. Arrium is still selling as well but MGX has a bid because it's about to go ex-dividend and the yield is a cool 10%. Not enough! Here are the up to date relative performance charts with juniors converging on zero: The majors are down 1% today but are still doing superbly in the circumstances: Thus the idiocy spread is intact: And the cause of today's carnage? Chinese markets...
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Australian dollar pole-axed on Scottish “no”

png The Aussie has resumed its tumble this morning after Scotland has voted "no" to independence, once again proving that life is stranger than Mel Gibson produced fiction: It's not terribly clear why but the removal of Scottish risk appears to have reverted markets to the mean, which is pricing US interest rate tightening and a rising US...
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Forex and equity volatility diverge

5733482-ski-resort-in-the-high-mountains-with-ski-lift by Chris Becker An interesting chart from John Kicklighter regarding market volatility as we pass through the maelstrom of an ECB cut, the Fed FOMC meeting and the Scottish referendum while at the same time, making new highs in the US S&P500 last night: Another view using the CBOE VIX or fear gauge: The only fear is the Fed pulling the plug, a longer term view shows why: Locally, the dynamics are somewhat different as the reality of looming Fed tightening lowers the AUDUSD and bites the market's confidence in yield plays. The XVI Index over the ASX200 is starting to...
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Vale building an edge over Fortescue?

imgres See above a new CNBC video that makes an important point I've been driving home for readers. Now that iron ore has become a battle for market share, it is the relative competitiveness between companies that matters not a simplistic assessment of a falling dollar equals higher profits. Here is the UBS all-in  break even chart for the cost curve: FMG must get below Vale or others or it will be the one cutting production once the juniors die. This is another reason why it is Australia that must address its competitiveness across the board and not wait for the US Fed to do it for us by...
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Cable flies on Scotland pike (UPDATE)

images by Chris Becker What was that quote about "fighter pilots make movies, but bomber pilots make history"? It seems referenda may make good headlines, but its currency markets that move the real world. Last night's independence vote for Scotland is looking set to be a "No" (or Nein Nein Nein, depending on your view!), according to exit polls - but the recent move in Cable (GBPUSD) and its crosses showed this result was baked in before the polls even opened. Here's a little recent history on Cable using the daily chart going back to mid June this year: A pretty spectacular fall - over...
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Moodys warns on iron ore fallout

imgres From Moodys: Iron ore, Australia’s largest export commodity by value, has been experiencing sharp  price declines since the start of 2014 due to large increases in supply and lower growth  rates for steel production in China. Overcapacity has grown on the Chinese Mainland as  GDP growth slows. The current price of around USD84 per metric tonne (mt) for 62%  Fe iron ore CFR is down over 35% from the beginning of 2014. » This trend will exert a direct negative impact on Moody’s rated Australian producers  over the next 6-12 months. Atlas Iron Limited’s (B2 stable) credit profile will be...
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Daily iron ore price update (crushed cat)

anvil Here are the iron ore charts for September 18, 2014: The dead cat bounce is falling to earth with a thud. Paper and physical are headed for a test of last week's low. It is a brave man that thinks they will hold. In news today, the Globe and Mail has a salutory piece on Chinese steel: Subsidies accounted for four-fifths of the profits reported by Chinese steel companies in the first half of this year, a dramatic increase in reliance on state support that illustrates starkly the industrial weakness that is an increasing drag on the economy. The headwinds faced by China’s massive...
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China’s housing bust is go

China-Bubble-300x200 Good material today from around the web on China's deepening housing bust. From China, there is gloom, via Investing in Chinese Stocks comes the latest from Pan Shiyi, CEO of developer SOHO, real estate rock star and former bull: Summery: real estate not at the turning point, business isn't good this year, only IT firms are supporting the commercial rental market. SOHO is doing well, capturing the IT demand for rental space. Also from Ifeng via Investing in Chinese Stocks comes a report nicely summarising the double bubble: China has two different housing bubbles. In the first-tier cities,...
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The Arrium lesson

images Stephen Bartholomeusz today argues that the Arrium capital raising went wrong because: ...Arrium announced the institutional component of the issue had raised $367 million -- only about 79 per cent of the institutional entitlements were taken up. The rest were cleared in a bookbuild at 48 cents, so the institutions that renounced their entitlements get nothing. The placement raised the $98 million sought, taking the proceeds so far to $465 million. Unsurprisingly in the circumstances, the Arrium share price crashed, falling to 40 cents. If it stays there the retail component -- about $290 million...
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Hockey, RBA mull macroprudential

imgres From the AFR: The Reserve Bank of Australia is weighing up whether to force banks to adopt New Zealand-style limits on mortgage lending to cool an overheating housing market. ...Joe Hockey conceded on Thursday there were “clearly significant” price gains in parts of Sydney, Melbourne and “to some degree” in Brisbane...“obviously the Reserve Bank will look at some of the macro-prudential issues”. ...“I don’t really accept this suggestion that if there is a boom that ­government needs to step in immediately to try control the speed [of the price gains],” he said....
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Break up the banks!

imgres From the AFR, Ex-Goldman chairman Alastair Walton: ...argued that the banking oligopoly allowed the major lenders to focus on home lending and neglect financing innovative businesses critical for future prosperity. ...“Would Australia as a whole be ­better off with eight to ten banks, each . . . rated A (like almost every other bank in the OECD) and primarily rely on domestic deposits to fund their lending activities....Or continue ad infinitum with four ‘too big to fail’ banks each of which [is] rated AA-, and utilise the sovereign ­support of the Australian government (either...
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Pascometer guides Hockey to $2 billion killing

imgres Weeoo, weeoo, weeoo. From The Pascometer: Joe's had a big win at the Forex casino. ...Hockey loaded up last financial year's "Labor" budget with an $8.8 billion capital injection for the RBA. The RBA didn't ask for it, didn't really need it, but certainly went for all it could carry when the offer was made as it removes the annual tussle between the bank and the Treasury about how to divvy up the profit. By maxing the RBA's balance sheet last year, Hockey gets to take back to Canberra all of the RBA's annual profit – and a great deal of that can come from the revaluation of the bank's foreign...
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Charting the city-country employment divide

ScreenHunter_4299 Sep. 18 17.04 By Leith van Onselen Yesterday, the Australian Bureau of Statistics (ABS) released its detailed monthly labour force statistics, which includes breakdowns of employment and unemployment across Australia's capital cities and regions. According to this release, the unemployment rate in Australia's capital cities was 5.7% in August in raw terms, down 0.1% from July. By comparison, unemployment in Australia's rural and regional areas was 6.5%, which was unchanged from July. The below chart, which is presented on a rolling 12 month average basis to smooth volatility, illustrates the trends in...
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RP Data weekly Australian house price update

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen In the week ended 18 September 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, fell by 0.11%. It was the third consecutive week of falls (see next chart). Home prices fell in three major capitals and rose in two (see next chart). Values are up down by 0.70% so far in September, again with all major capitals except for Adelaide falling (see next chart). Since the start of the year, home values nationally have risen by 5.47%, with all major capitals except Perth rising (see next...
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Who is losing their head in this lightning war?

playing_2 Can anyone remember an Australian war that took off so fast? It was August 21 that we got out first beheading WTF and under one month later boots are on the ground, planes are dropping bombs and household raids are happening across Australia to prevent alleged truncations at home. It's all happened before there is any debate, any strategy, any international coalition, any thought.  Prime Minister Abbott is off to New York to try to figure it all out in retrospect: The final plans to wage war against Islamic State will be co-ordinated in private meetings between world leaders in New York next...
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Links 19 September 2014

reynard Global Macro / Markets / Investing: Seth Klarman warns of 2007 like bubble - Business Insider UN creates emergency mission on Ebola - Bloomberg US stocks make new highs, but "more crash prone than ever" - ZH Investors missing 6 key uncertainties to global economy - El Erian Its a low growth world - Reuters (get used to it, even amid massive CB juicing) North America: Oracles Larry Ellison steps down - BBC Housing starts for August disappoint - Calculated Risk But weekly unemployment claims falling - Calculated Risk Hedge fund complexity complicates taxing them -...
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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 Global markets are now entering the eye of the storm as far as event risk is concerned. The first major event of the week has already brought some volatility, with the FOMC meeting resulting in the USD extending its gains. It has been all about the USD over the past 24-hours or so as investors reacted to the outcome from the FOMC meeting. While the initial comments were mostly construed as dovish, it is clear from the price action there has been a hawkish shift in sentiment. Initially, focus was on the fact the Fed maintained...
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Bill Evans says “no” to macroprudential

SMARTI INVESTOR 6TH August 2013  photo by louise kennerley Bill Evans Wespac From Westpac's Bill Evans today: The minutes of the Reserve Bank Board’s Monetary Policy meeting of September 2 have raised the level of concern that the Bank is now signalling around Australia’s residential property boom. Specifically the Board notes: “policy also needed to be cognisant of the risks to future growth that could accompany a large further build up in asset prices, particularly if that was associated with an increase in leverage;”and: “Credit growth for investor housing was running at around 10 per cent per annum. Housing prices were continuing to increase in...
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China launches breathtaking stimulus! (not)

images101-200x20011 More action from the PBOC this afternoon with the Chinese central bank cutting the 14-day repurchase rate by 20 basis points to 3.5 per cent. This is more easing though again questionable as stimulus. From ANZ via the SMH blog: We think the market should consider this as an important move as China has relied more on managing short-term market interest rates to push forward interest rate liberalisation. In our view, this is another policy easing effort following yesterday’s liquidity injection via Standing Lending Facility (SLF). However, none of the commercial banks or the central...
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