Interpac Business and Migration Solutions Melbourne Australia

(October 18, 2011)

Australian shares give up much of yesterday's solid gains after investor concerns about Europe's debt crisis flared anew overnight.

2.47pm: Good news for the Barry O'Farrell government in NSW. S&P has affirmed the triple-AAA rating for the state's debt and given an 'outlook stable' view on the future.

2.35pm: Even less reason to stray to the competition: Australian to charge for all online content. (To be sure, Fairfax Media - publisher of this website - competes with News Corp/Ltd)

2.25pm:  Bit of a change of pace, but here's a link to one of our Small Business blogs, on a couple of entrepreneurs trying to cash in on the marriage game.

2.20pm: Still, if you've held Fortescue shares for five years, you've more than quadrupled your money (versus gains for 54 per cent for BHP and 12 per cent for Rio):

2.10pm: We mentioned earlier that Fortescue would come under selling pressure if China's growth rate disappointed. Fortescue Metals stock is off about 9 per cent in recent trade, making it the second-worst performer for the top 200.

2.01pm: The AGM season is in full swing. Stephen Mayne has a look at some of the more interesting one, particularly why Rupert Murdoch prefers the American way on pay.

1.57pm: Meanwhile, here's a bit more on China's economic growth now at its slowest pace in two years.

1.21pm: Meanwhile, Qantas says it will ground another two aircraft and cancel a further 80 domestic flights over the next month in response to industrial action by its engineers.

• The grounding of two wide-body Boeing 767 is expected to cause 80 flights, mainly between eastern states and Perth, to be cancelled.
• That takes the number of aircraft taken out of service by Qantas to seven, and the number of flights cancelled as a result to about 500.

Qantas shares are trading 4.5 cents, or 2.9 per cent, lower at $1.495.

1.11pm: The lower than expected Chinese growth figures have pulled the local market further down, with the ASX200 now trading below 4200 points. China is Australia's biggest trading partner.

Accordingly, miners are leading the losses, with the materials sector down 3.3 per cent.

1.04pm: Chinese data coming in now, and the GDP part is a bit lower than expected.

• The economy grew 9.1 per cent in the third quarter from a year earlier, falling to its slowest pace in two years. Economists had tipped 9.3 per cent. GDP grew 9.5 per cent in the second quarter.
• But industrial production was stonger than expected, rising 13.8 per cent in September, compared with a 13.4 per cent forecast and a 13.5 per cent rise in August.
• Retail sales also showed strong growth, climbing 17.7 percent in September from a year earlier. The market had tipped a 17 per cent rise, euqalling the previous month's 17 per cent gain.

12.57pm: Seven West Media has finalised a new $1.95 billion credit facility to reduce debt, reaching an agreement with 12 domestic and international lenders, including all four major Australian banks.

'‘These new facilities ensure the group has sufficient long-term funding to meet its business objectives while providing the flexibility to steadily reduce the overall level of debt over five years from the cash flows of the business,’’ chairman Kerry Stokes said in a statement.

Seven West Media shares were recently up 5 cents, or 1.6 per cent, at $3.13.

12.49pm: Some recent stock prices: BHP was $1.12, or 3 per cent, lower at $36.53 while Rio Tinto lost $2.87, or 4.1 per cent, to $67.08. Fortescue Metals Group shares have been hit harder, falling 42 cents, or 8.2 per cent, to $4.69.

Among the financial stocks, Commonwealth Bank shares were 82 cents, or 1.7 per cent, lower at $47.49. ANZ shares were 17 cents, or 0.8 per cent, lower at $21.19. National Australia Bank shares were 37 cents, or 1.5 per cent, lower at $24.38 while Westpac shares had given up 22 cents, or 1 per cent, at $21.77.

Telstra was up 5 cents, or 1.6 per cent, at $3.16, after shareholders voted to accept the NBN deal.

12.33pm: The dollar is still nursing its heavy overnight losses ahead of the Chinese data release. The Aussie was recently hovering just below $US1.02, down from Monday's high of $US1.0372.

The RBA's minutes have cemented market expectations for an interest rate cut as early as next month. Interbank futures continue to imply a two-in-three chance of a 25 basis point rate cut next month.

12.21pm: Investors are starting to brace for the Chinese data dump, expected at 1pm, which is predicted to show that while growth is slowing, fears of a hard landing are unwarranted.

• The focus will be on third-quarter GDP growth, which is expected to have slowed slightly to 9.3 per cent, from 9.2 per cent.

"While the contribution from net exports should be almost zero or even negative, domestic demand and investment should have sustained growth, thus reducing concerns of a hard landing," ANZ says. "As such, GDP growth for all of 2011 should also remain robust at above 9%, compared with the government’s target of 8%.  Indeed, domestic demand indicators are expected to remain robust.

• Other data expected: retail sales (Average forecast: +17.0% y/y), industrial production (Forecast: 13.4% y/y) and fixed asset investment (Forecast: 24.8%) are all expected to record solid rates of growth.

12.13pm: The results of the Telstra vote are in: shareholders have voted overwhelmingly in favour of plans for the telco to hand back its copper network to the government for $11 billion, with more than 99 per cent saying 'yes'.

Shareholders lodged 6.43 billion proxy and advance votes in favour of the deal, and just 4 million against the resolution, which was discussed and voted on before other matters at today's annual meeting. The final result will be released to the sharemarket later today.

11.51am: Spot gold is trading little changed at $US1670.39 an ounce, easing from a three-week high of $US1694.60 hit in the previous session.

11.45am: In reaction to the RBA minutes, RBC Capital Market Su-Lin Ong notes the real shift in tone was already in the actual statement delivered with the October interest rate decision:

• In the minutes there is confirmation that the changes in seasonal adjustment and weights have confirmed the slightly lower starting point for underlying inflation.
• The RBA is clearly waiting for inflation numbers next week and global financial markets before any rate decision.
• The rates decision was made before the stronger retail sales, labour and trade data that have been released since then.

11.42am: More from the minutes: The RBA said that the Australian Bureau of Statistics' readjustment of the methodology of seasonal adjustment of inflation figures could contribute to a more benign reading on price increases when they are released on October 26.

These revised measures showed recent outcomes for underlying inflation lower than those previously published," the RBA said. "The ABS had also updated the expenditure weights in the CPI for the first time in six years, with the new weights to be applied from the September quarter release.

"The staff estimated that underlying inflation over the year to the June quarter would have been 2.25–2.5 per cent, rather than 2.5–2.75 per cent," the RBA said.

11.37am: The dollar slipped slightly after the release of the minutes, trading at $US1.018, from $US1.02.

The Aussie fell more than 1 US cent overnight to below $US1.02, in the wake of the latest round of euro-zone debt anxiety.

11.34am: As hinted at in the RBA's statement directly after the last rates decision, the board at its meeting two weeks ago saw scope to reduce the cash rate if needed as a slower domestic economy eased inflation concern and amid deteriorating global conditions.

'‘It was likely that growth over the forecast period would be somewhat slower and that the labour market would be less tight than forecast,’’ the meeting's minutes released today show. ‘‘This prospect, as well as the lower starting point for inflation, meant that the inflation outlook appeared less concerning than was the case a few months ago.’’

The RBA was still positive about the local economy at the board meeting, even as the board acknowledged that economic growth had eased.

‘‘While there remained good reasons to expect solid growth over the medium term, indications were that the pace of near-term growth was unlikely to be as strong as earlier expected, reflecting both global and local factors,’’ the RBA minutes said.

The meeting was two weeks ago and at the time, there was turmoil in financial markets amid worries the euro-zone government debt crisis would spread from Greece to other nations like Italy and Spain, both of which are considered too big to bail out.

However, in the past week, markets became optimistic that the crisis would be resolved after German chancellor and the French president vowed to come up with a solution by the end of the month.

This optimism helped the Australian dollar rise from its recent low of 94 US cents to go as high as $US1.0350 early on Monday morning.

11.28am: The RBA will publish the minutes of its last board meeting any moment now. Investors will keep an eye out for more details why the central bank moved from a neutral stance to paving the way for an easing of monetary policy.

After the meeting two weeks ago, RBA governor Glenn Stevens said in a statement accompanying the board's decision to leave its target rate unchanged at 4.75 per cent that “an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary”.

11.25am: AMP Capital Investors' Shane Oliver says the market's slump this morning is just a knee-jerk reaction to comments out of Europe that there won't be any easy solution to Europe's problems.

"The market had been rallying strongly over the last couple of weeks, on hopes for some sort of resolution of the European problems, the message from various, mainly German, officials was that there is no magic bullet and it's going to be a long slow process," he says.

11.19am: Telstra's AGM is gathering pace, with executives making the case for the company's NBN deal. Chief executive David Thodey has called today's annual meeting a ''historic event...that will deliver long term strategic benefits to our company", posts BusinessDay's Lucy Battersby, who is following the AGM.

"We ... believe the current proposal protects shareholders under current government policy and very importantly in terms of any future government policy changes," Thodey said. "The NBN is a transformational event in the history of this industry and therefore it does provide us, Telstra, with new strategic opportunities as we go forward."

Shareholders are expected to question Telstra's directors about the deal, which chairwoman Catherine Livingstone said was ''arguably one of the most complex transactions in Australian corporate history''.

Director Nora Scheinkestel, who chairs the board's NBN Committee, told shareholders "I can assure you that the process was exhaustive, comprehensive, rigorous and continues right up to this moment''.

Polls opened at 9am, but the outcome of the vote will not be known for several hours.

11.09am: Regional markets are opening and the prevalent colour is red, which is likely to put some more pressure on local stocks.

Japans Nikkei has fallen 1.6 per cent, down from a six -week high, while in Seoul, the Kospi sank more than 2 per cent in early trade, after posting eight consecutive sessions of gains.

11.06am: Meanwhile, oil is trading lower on speculation that US crude supplies rose last week and Europe’s consumption may falter as it struggles to contain its debt crisis.

WTI crude for November delivery was at $US86.25 a barrel, down 13 cents, this morning, after falling 42 cents to $US86.38 overnight. Brent oil for December settlement fell $US2.07, or 1.8 per cent, to $US110.16 a barrel yesterday.

10.58am: Other US blue chips reporting overnight included Citicorp and Wells Fargo. Citi topped expectations but gave a cautious outlook, which contributed to its shares falling 1.7 per cent, after earlier rising as much as 3.8 per cent. Wells Fargo came in slightly below estimates.

10.50am: In after-hours trading on Wall Street, IBM shares fell 3.8 per cent, which would take approx 54.2 points off the Dow Jones index, Goldman Sachs notes. Big Blue reported third-quarter sales that just missed analysts’ estimates, on slowinsg revenue growth at its software, hardware and services businesses.

Profit on an operating basis rose to $US3.28, beating the $US3.22 average estimate, so the news wasn’t really all that bad - but IBM shares did hit a record just on Friday.

10.39am: In another sign that the euro-zone debt woes are far from over, France is at risk of losing its cherished AAA rating.

Ratings agency Moody’s warned France that it may place a negative outlook on its credit rating in the coming months as the government’s financial strength ‘‘has weakened’’.

The annual credit report is a shot across the bows for the second largest economy in the euro zone and came as Germany dampened expectations that an upcoming EU summit will finally provide a solution to the eurozone debt crisis.

‘‘The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating,’’ Moody’s said in its report.

10.21am: Telstra shares bucked the market's drop, rising as much as 3 cents or 1 per cent, to $3.14 in recent trading. Cochlear, though, fared less well, dropping more than 3 per cent.

10.17am: Other corporate news out today: Australian bionic ear maker Cochlear said the recall of its Nucleus 5 hearing implant will cost between $130 million and $150 million.

• Executives told the annual shareholders meeting the recall cost would include non-cash items and the after-tax impact would be $20-$30 million.
• Last month Cochlear recalled the unimplanted Nucleus 5 implant range, its biggest-selling product, after an increase in the number of Nucleus 5 implant failures. The news pushed its share price down 20 percent.

10.13am: More on the Telstra dividend plan here. Interesting to note that Telstra shares went into today as the 4th best-performing among the top 50 companies in 2011. Up 11.5 per cent, compared with a fall of almost 10 per cent for the top 50 overall.

10.11am: Fortescue Metals is down 5.6 per cent. May come under more selling pressure later if Chinese economic figures due out later today fail to impress.

10.10am: Early falls include BHP off 2.5 per cent, Rio 3.5 per cent and the major banks less than 2 per cent in early trading.

10.03am: Standby for more from Telstra as the AGM gets underway. Meantime, stocks have opened lower, as you can see in the chart, but also follow in this live table of market indexes.

10.00am: Telstra chairwoman Catherine Livingstone says the telco giant intends to pay a fully franked 28 cent per share dividend in both 2011-12 and 2012-13.

‘‘I can confirm that it is the board’s intention to maintain a 28 cent fully franked dividend for fiscal 2012 and fiscal 2013,’’ Ms Livingstone said in prepared remarks to shareholders at Telstra’s annual general meeting in Sydney.

‘‘This is, as always, subject to the usual process for the declaration of dividend at each half year, and there being no unexpected material events.’’

9.56am: Here's an indication that the markets are far from settled, in case you needed an illustration. It's the VIX gauge of market volatility, and as you can see, there's a rise overnight - from a level that's already well above the average for the year:

9.45am: Good morning. As you may have seen in our morning wrap of the markets - need2know - we are in for a down day at least at the start. Here's the top of that article if you've missed it:

Australian shares are poised to open lower after Germany dampened expectations that an upcoming EU summit will finally provide a solution to Europe's debt woes.

This morning, the December share price index futures contract was down 70 points, or about 1.7 per cent, to 4214. The ASX200 yesterday added 1.7 per cent with the broader All Ordinaries gaining 1.6 per cent.

German Finance Minister Wolfgang Schaeuble said that while EU leaders were set to "provide cover for uncertainty in financial markets", a permanent solution was unlikely to arise out of Sunday's summit.

The comments sent Wall Street and Europe's major markets sharply lower.