5:02pm:A rally in Telstra shares and better-than-expected jobs data helped the local sharemarket more than halve early losses, but that wasn't enough to offset another hefty drop in the energy sector after oil prices plunged again.

The benchmark S&P/ASX 200 fell 28 points, or 0.5 per cent, to 5231. The broader All Ordinaries lost 29.7 points, or 0.6 per cent, to 5207.4.

Energy was the worst performing sector on the market, tumbling 2.7 per cent, while telcos rose 1.2 per cent, led by a strong rise in Telstra.

Equities Trustees head of asset management Paul Kasian said with resources struggling, thanks to falling oil and iron ore prices, and banks fully valued, it was getting tough for investors.

"You've really got to say, 'where do I put my money? Do I go for higher yield, lower for longer?'," Mr Kasian said.

"And, you've got to buy US dollar exposure because this low oil price will stimulate the US economy, because they don't have all these taxes, that low oil price will flow through to petrol prices."

Among the banks, Commonwealth Bank slipped 0.2 per cent to $82.19, ANZ fell 0.9 per cent to $31.21, Westpac dropped 0.9 per cent to $32.24 and National Australia Bank finished 0.7 per cent lower at $32.09.

The price of oil slumped heavily overnight in the United States on Wednesday, with Brent crude dropping 3.9 per cent. The price recovered slightly in the local Australian session to be trading around $US64.80 in late trade on Thursday.

Energy stocks on the Australian market struggled once again.

Santos shares plunged 8.3 per cent to $7, as the oil producer announced it was slashing its capital expenditure budget for 2015 by 25 per cent and that asset sales were still being considered. Santos' market value has roughly halved since early September.

Origin Energy increased a loan facility to $7.4 billion to help the company provide a bigger buffer against the falling oil price. Origin shares dipped 2.1 per cent to $10.56.

The dramatic downward move in oil prices hasn't been a bad for all those in the industry, with Caltex Australia flagging that its profits may increase by as much as 42 per cent thanks to cheaper crude. Caltex shares jumped 2.9 per cent to $31.26.

Read more.

4:49pm: And here are today's winners and losers among the top 200 names.

 

 

Best and worst performers in the ASX 200 today.

4:28pm:Embattled iron ore miner BC Iron has quietly axed staff from its Nullagine joint venture and Perth head office as it continues to cut costs in the face of the crashing iron ore price.

BC Iron managing director Morgan Ball said that over the last two months 10 to 15 per cent of the miner’s 70 direct employees had been made redundant.

The number of contractors on site has also been reduced from a base of around 200 but it remains unclear as to by how much.

“In relation to people, we are a small operation, we only have 70 direct employees and approximately 200 contractors. But unfortunately in light of the market conditions, with our direct employees, we have had to reduce that in the order of 10 to 15 per cent,” Ball said.

BC Iron lowered its all-in cash cost guidance for the remainder of full year 2015 to $US54 to $US61 per wet metric tonne.

Shares closed 1.3 per cent higher at 40 cents.

The Pilbara miner is the third mid-tier iron ore operator to shed jobs in the past week, following hundreds of job losses at Atlas Iron and Mount Gibson Iron.

BC Iron is the third mid-tier miner to shed jobs in the past weeks. Photo: Tamara Voninski

4:28pm: Shares closed lower after energy stocks slumped again as the oil price continued to drop, with no immediate end in sight.

The sharemarket managed to recuperate much of the early losses, inspired by a torrid night on Wall St, as banks pared some of their decline and investors piled into Telstra and CSL (both finished 1.3 per cent higher).

The ASX 200 closed 28 points lower, or 0.5 per cent, at 5231, but was at one stage down 71 points. The All Ords closed down 30 points to 5207.4.

The energy sector slumped 2.8 per cent, with Santos whacked another 8.3 per cent, despite coming out and telling the market it wouldn't need to raise capital and that it was all going to be OK.

Origin, which also felt the need to front the market with reassuring words, fell 2.1 per cent. Woodside dropped 2 per cent.

BHP dropped 1.3 per cent and Rio 2.4 per cent.

The banks started terribly, but finished merely badly. Westpac and ANZ closed 0.9 per cent down, NAB 0.7 per cent and CBA 0.2 per cent.

Gold miners enjoyed the turmoil: Newcrest added 3.4 per cent.

4:11pm:Brent crude has ticked higher but remains below $US65 per barrel, not far from a five-year low hit in the previous session, with the market's bearish tone largely intact.

Comments by the Saudi Arabian oil minister shrugging off an output cut yesterday renewed worries of a global glut that has slashed oil prices by more than 40 per cent since June.

Brent crude is up 55 cents to $US64.79, more than a dollar away from the previous session's low of $US63.56 - the weakest since July 2009. Brent fell almost 4 per cent overnight.

"This is a bit of a return to a more normal pattern of trading for us in this time zone," said Michael McCarthy, chief market strategist for CMC Markets in Sydney. "Often we reverse the overnight moves as the shorter-term trading interests take a profitable cut out of their positions."

Traders are now eyeing an increasingly competitive battle for market share among OPEC exporters, for clues on when and at what price they would step in to help balance oil markets.

Leading the challenge is Kuwait, which has set the official selling price for its crude sales to Asian buyers for January at $US3.95 a barrel below the average of Oman/Dubai quotes, a trader said, the lowest it has been since December 2008.

Global demand for OPEC crude in 2015 is expected to fall to its lowest in more than a decade and far below current output, the group said, indicating a hefty supply surplus without OPEC output cuts or a slowdown in the US shale boom.

3:55pm: Mining products maker Bradken is letting Bain Capital and Pacific Equity Partners conduct due diligence, a sign that its interest in the private equity giants' cut-price $872 million takeover proposal is serious.

Bradken said it would let Bain and PEP "undertake confirmatory due diligence" and would "engage further with the consortium in order to determine if a transaction capable of board recommendation can be developed".

The company has received "additional inbound inquiries since the announcement", which it will also consider, Bradken added.

Shares are down 1.5 per cent to $4.50, short of the $5.10 indicative offer price and far off a high of $9.59 in January 2011, at the peak of the mining boom.

A week earlier the company, whose profits have halved since 2012, saw its shares jump 40 per cent when it disclosed that it was considering the Bain-PEP buyout proposal.

3:44pm: Oaktree Capital, the world’s biggest distressed-debt investor, is buying bonds of energy companies as oil prices plunge, co-Chairman Howard Marks said.

“Prices of energy-related debt have fallen, in some cases substantially,” Marks said overnight at Goldman Sachs Group’s financial-services conference in New York. “If your product falls in price by 40 per cent, there are a lot of levered businesses that aren’t going to service your debt. We have been investing.”

Energy is likely to be a better investment now than at any time in the next five to 10 years, Carlyle Group co-founder David Rubenstein said at the same conference.

“This is a great time to buy,” Rubenstein said. “The bottom hasn’t been hit yet. Oil prices will probably stay low for a while.”

High-yield bonds of energy companies have declined 11.5 per cent since June 19, when oil prices peaked this year. Brent has since tumbled about 42 percent because of slower growth in global demand combined with surging production in North America. A sustained slump in crude may trigger a significant rise in the number of energy companies defaulting, Deutsche Bank credit strategists Oleg Melentyev and Daniel Sorid said in a report this week.

About a third of companies rated B or CCC may be unable to meet their obligations should oil prices drop another 15 per cent to about $55 a barrel, according to the analysts.

“What you should look for in the energy area are companies with more stability than the investment community thinks, where the negativism is overdone,” Marks said.

Oaktree, based in Los Angeles, plans to raise as much as $US1 billion for its fourth power fund, two people with knowledge of the matter said last month. Its third fund started investing in 2010 and was producing a 13 per cent annualised return after fees as of Sept. 30.

Oaktree Capital Management chairman Howard Marks – one of the world’s savviest investors – sees value in the devastated energy sector. Photographer: Thomas Lee/Bloomberg

3:31pm:Easy monetary policy from the world’s biggest central banks has pushed asset prices higher - that's not news to most.

The bottom line on valuations: “We have picked the low hanging fruit and are now high up on an increasingly shaky ladder, reaching for the remainder”.

We turn again to BlackRock (see post at 1:54), this time plucking directly from their investment outlook piece

“It is an accident waiting to happen—unless we occasionally take a few steps back to make sure the ladder is well balanced.”

The chart below shows valuations against historical averages across a range of assets. “Valuations range from sky-high (safe-haven government bonds) to average (most credit and developed equities),” summarise the BlackRock researchers.

Aussie shares look slightly cheap on BlackRock's measure, which uses a combination of historical earnings yield, cyclically adjusted earnings yield, trend real earnings, dividend yield, price to book, price to cash flow and forward 12-month earnings yield

Bonds have done well again this year, defying all the odds as calculated this time last year, and investors have chased the performance.

“Inflows into exchange-traded bond funds looked set to beat the previous bumper year of 2012, when the eurozone crisis triggered a dash for safe-haven bonds,” write the BlackRock analysts. So far more than $US70 billion has gone into such funds this year – more than twice the inflow of last year. In 2012 the figure finished at $US70 billion.

Relative valuation across a range of global assets - Aussie shares look average value against history. Source: BlackRock

3:27pm:China Communications Construction Co is poised to sign a $1 billion deal with Leighton Holdings to purchase its John Holland construction unit, the AFR's StreetTalk column is reporting, quoting unnamed sources.

The situation remains fluid but it’s believed China Communications is keen to gain an Australian foothold as governments at all levels promise to deliver substantial infrastructure projects in the next five years, StreetTalk says.

The two parties have been in exclusive talks for the past month after China Communications saw off rival bidders ATEC Rail Group and Samsung.

Melbourne-based John Holland, which has $4.7 billion in annual revenues, was acquired by Leighton in 2000 and is chaired by Janet Holmes à Court.

Leighton shares are down 1 per cent at $21.385.

3:19pm: Markets around the region are lower, after oil’s collapse to a five-year low triggered the biggest loss for US stocks since October:

• Japan (Nikkei): -0.95%
• Hong Kong: -1.2%
• Shanghai: -0.6%
• Taiwan: -0.1%
• Korea: -1.1%
• ASX200: -0.7%
• Singapore: -0.2%
• New Zealand: -0.5%

 

‘‘Given how high the market was and now you have a combination of worries about oil and what’s happening in Greece, this is likely to be just a profit-taking market,’’ said Nader Naeimi, head of dynamic asset allocation at AMP Capital Investors. In the longer-term, ‘‘you should see falling inflation expectations, and at the end of the day, it should have a stimulatory effect globally. Next year is likely to be far more volatile than 2014.’’

3:15pm: The People's Bank of China is easing enforcement of quotas and loan-to-deposit ratios to encourage banks to quicken lending as the economy slows, Reuters is reporting, quoting sources with direct knowledge of the matter.

Sources said that the central bank had begun loosening official lending quotas in October, and that the regulator has also halted strict enforcement of loan-to-deposit ratios, freeing up additional cash for credit creation. It also has set a target of 10 trillion yuan ($US1.62 trillion) in total loans for 2014, the sources said.

The PBOC did not immediately respond to calls requesting comment.

The central bank surprised markets by cutting interest rates on November 21 for the first time in more than two years to shore up the cooling economy and ease the burden on debt-laden companies.

Analysts had expected further support measures as China's economic growth looks set to slow to its weakest in 24 years.

‘‘Liquidity conditions appear to be improving since yesterday afternoon,’’ said ANZ economist Zhou Hao. ‘‘The market strongly expects the PBOC to cut the reserve requirement ratios soon after the low inflation figures.’’

China's central bank has been injecting money into the market. Photo: Brent Lewin

3:08pm: From Caa1 to AAA: Australia is likely to keep its triple-A ratings even as the looming budget review is set to show a marked deterioration in finances, two of the big three ratings agencies say.

The mid-year budget review is due at any time and will likely show the budget deficit for the financial year to end June 2015 had blown out by around $5 billion to nearly $35 billion.

Analysts suspect shortfalls for the following three years could be as much as $10 billion larger per year and the goal of reaching a budget surplus will have to be delayed again.

Yet, ratings agencies see no reason to change the nation's top notch credit ranking and its stable outlook.

"We don't see any immediate pressure, provided the government remains committed to improving budget performance and getting back to a broadly balanced budget," said Craig Michaels, an analyst at Standard & Poor's.

Australia has one of the lowest levels of government debt among Western nations at a gross $348 billion, while net debt amounts to only 12 percent of gross domestic product compared to an average of over 50 percent for the developed world.

"The ratio debt-to-GDP would have to be significantly higher than where it is now before we even consider a ratings change," said US-based Steven Hess, an analyst at Moody's.

2:47pm:Swaps traders are almost certain that Venezuela will default and bond prices are at a 16-year low as the rout in oil prices pressures government finances.

Benchmark notes due 2027 dropped to 44.4 cents on the US dollar yesterday, the lowest since September 1998, as crude extended a bear market decline.

The upfront cost of contracts to insure Venezuelan debt against non-payment for five years has jumped to 60 per cent, pushing the implied probability of default to 94 per cent, the highest in the world.

This year’s 42 per cent plunge in oil prices has exacerbated concerns that Venezuela is running out of dollars needed to pay debt, pushing bond prices to levels investors haven’t seen since the 1998 Russian financial crisis spurred a selloff in emerging markets.

At $US21.5 billion, the nation’s reserves are at their lowest levels in a decade and cover only about 40 percent of total debt due over the next five years.

‘‘It’s very hard to think of a new marginal buyer for Venezuelan debt,’’ said Mohammed Grimeh, head of financial markets at Standard Chartered. ‘‘The hedge funds aren’t buying it and the dealers aren’t taking risk.’’

The drop in oil will cause the nation’s trade balance to fall into a deficit of 2 per cent of gross domestic product next year, according to Moody’s.

That will ‘‘make the country even more reliant on scarce capital inflows to cover the deficit and maintain its ability to service foreign-currency debt,’’ Moody’s wrote earlier this week. Venezuela is rated seven levels below investment grade at Caa1 by the ratings agency.

The oil price plunge has pushed Venezuela closer to a default. Photo: Bloomberg

2:29pm:The Bank of Korea kept its benchmark rate unchanged for a second month, opting to gauge the impact of recent cuts on an economy that faces headwinds from a weak Japanese yen.

The central bank held the seven-day repurchase rate at a four-year low of 2 per cent, it said in Seoul today, after cuts in August and October.

The won appreciated to a six-year high against the yen this week, increasing pressure on South Korean exporters that compete with Japanese companies. Tumbling oil prices and the yen’s slide are increasing uncertainty for an economy that’s shown signs of weakness in exports and industrial production in recent months.

On balance, the Bank of Korea's statement turned slightly dovish, ANZ says.

ANZ - which had tipped a rate cut at today's meeting - is now expecting the central bank to move in the next quarter, due to falling inflation and crumbling global commodity prices.

2:17pm:Saxo Bank has given us its ‘outrageous predictions’ for next year (see 12.58pm), BlackRock’s were a bit more conventional but still pretty gloomy (1.54pm), plenty of other outlooks have been mentioned over the past days in this blog.

We’d like to hear from you - what are your predictions for financial markets in 2015? Where will the ASX200 be at the end of the year? which sectors will be winners? will the Aussie dollar tumble below 70 US cents?

Take a look into the crystal ball and post your expectations, outrageous or purely rational, in the comment section. We’ll feature a few over the next days.

2:08pm:Airbus Group, which has failed to find a new airline buyer for its A380 superjumbo this year, is at a crossroads that leaves it with two directions: spend heavily to improve the plane - or let it go.      

This year is shaping up to be the first since the doubledecker entered service without a new airline customer. Its only buyer was a leasing company that has yet to line up a single carrier to take any of the 20 planes it ordered.

The backlog remains as thin as it is fragile, highlighted by the cancellation of six jets ordered by Japan's Skymark Airlines, with two close to handover.

In its seventh year in operation, the aircraft that cost $US25 billion ($30.1 billion) to develop threatens to become a costly misstep.

While popular with travelers, most carriers prefer smaller twin-jet models that are more fuel-efficient and can access more airports.

Emirates is the only stand-out sponsor, having ordered 140 units, while other airlines have either backed off or are struggling to fill the two decks of the jumbo.      

"It's an excellent plane but it only works for the right destinations," said Air France-KLM chief executive, Alexandre de Juniac, who aims to cancel the last two of a dozen A380s on order and swap them for smaller models.      

Airbus has so far ruled out a technical upgrade of the aircraft's engines that might make it more attractive to new buyers.

Read more.

Emirates seems the A380s only friend as most airlines prefer smaller planes. Photo: AFP

1:54pm: The largest equities manager in the world has predicted that global markets will be characterised by a return to volatility in 2015, as they warn investors to take a cautious approach when dealing with divergent risks.

The BlackRock Investment Institute‘s 2015 Outlook states that caution will be key to navigating global investment markets in the year ahead.

“Valuations in most markets are rich and investor faith in monetary policy underpinning asset prices is high, with many investors now embracing momentum investment strategies. Such valuations and a voodoo-like belief in momentum raise the cost of mistakes,” states the report to be released later today.

BlackRock’s Australian strategist Steven Miller warns that equity and fixed income markets could fall in tandem, challenging traditional diversification.

“Pockets of volatility are likely. It will be key for investors to develop a plan to prepare for a return to a more normal volatility regime. Relative value strategies and alternative investments can help,”  Miller said.

BlackRock strategists are forecasting that soft global growth in 2015 will hold back company earnings, thereby making it difficult for equity markets to push ahead.

“Around the globe, the recovery from the 2008 financial crisis has been unusually tepid, with nominal growth in 2015 expected to be below the 15-year trend in most economies, except for the United States and Japan,” the report states.

According to BlackRock’s strategists, the US economy is poised to accelerate, strengthening the currency and thereby weakening the Aussie dollar.

“A rising US dollar will likely be the key financial market trend of 2015, bringing a de-facto tightening of global financial conditions because the greenback is still the world’s premier funding currency,” the report states.

BlackRock are tipping a switch in the types of US equities that are outperforming away from defensives and towards cyclical earners.

While the upturn in Europe is forecast to be much weaker, the swing to cyclical stocks is also tipped to play out on that continent, with luxury good makers and oil majors due for a comeback.

High valuations and a voodoo-like belief in momentum raise the cost of mistakes, BlackRock strategist Steven Miller warns. Photo: Louie Douvis

1:38pm:Santa may come early for shoppers if Myer and David Jones decide to bring forward their Boxing-Day clearance sales after weeks of patchy trading.

Industry sources say David Jones has pallets of clearance stock ready to roll out in the event that management decides to launch post-Christmas sales a week early to boost foot traffic and sales.

Myer is believed to be watching its big rival closely and is likely to pull the trigger on its clearance sale as soon as David Jones makes the first move.

David Jones and Myer have already been discounting more heavily than usual before Christmas to lure ambivalent shoppers into their bricks-and-mortar and online stores.

Here's more

The department stores have already been discounting more heavily than usual before Christmas to lure shoppers. Photo: Christopher Pearce

Not a strong jobs report: TD Securities

1:22pm:Wow, the economy added 42,700 jobs in November!

“Really?” asks TD Securities’ Annette Beacher, who is advising the broker’s clients to “fade” the latest ABS employment numbers.

Her conclusion is that this “isn’t a strong report,” despite the headline figures.

First off, the ABS’s seasonal adjustments remain “under a cloud” after their jobs data clanger earlier this year.

Second, the preponderance of part-timers in November’s new jobs number “is a drag on household incomes and is unlikely to spark consumption growth,” reckons Beacher – see the top chart below.

Only 1800 full-time jobs were added, the ABS reported, while part-time employment jumped by 40,900.

12:58pm: 'Tis the season for outlooks, and amid the flood of worrying to outright gloomy forecasts for the coming year, Saxo Bank has once again flagged its most "outrageous predictions" for global markets.

Each year Saxo Bank analysts highlight 10 unrelated events that, should they come to pass, would have significant consequences for global markets.

While the annual list of controversial scenarios are unlikely, many have a habit of coming true, like the 2014 prediction that "Brent crude drops to $US80 per barrel as producers fail to reduce production."

"2015 will be a tough year, but potentially also the year we look back at as the low point in everything," said Saxo Bank chief economist Steen Jakobsen.

Among the predictions:

• China devalues the yuan by 20 per cent as deflationary risks loom, joining Japan in its fight to import inflation and demand.
• Mario Draghi quits the ECB to allow for full quantitative easing to continue under the hand of a new president, Jens Weidmann of Germany's Bundesbank. Draghi sets his sights on Italy, where President Napolitano requests that he succeed him.
• Demand for chocolate continues to rise and the world consumes far more cocoa than it is producing, leading to record high prices of more than $US5000 per tonne.

 

Here's the full list

Will chocolate become unaffordable in 2015?

12:33pm: Travellers are expected to benefit "substantially" from lower oil prices, with global airlines forecast to drop average return ticket prices by 5.1 per cent next year after adjusting for inflation, according to the latest airline industry forecast.

The International Air Transport Association (IATA) said global airlines were expected to post a collective net profit of $US25 billion in 2015, up from a forecast $US19.9 billion this year, despite lowering fares.

The profit increase will be driven mainly by lower oil prices and stronger global economic growth, but it still represents a net profit of just $US7.08 for each passenger flown.

Qantas and Virgin Australia are both expected to post better financial results in the current financial year, with Qantas this week telling the market it expected a first half underlying pretax profit of $300 million to $350 million.

IATA's latest profit forecast of $US19.9 billion is higher than its $US18 billion expectation in June when oil prices were higher.

"The industry outlook is improving," IATA chief executive Tony Tyler said. "The global economy continues to recover and the fall in oil prices should strengthen the upturn next year."

But he said a $US25 billion profit still represented a net profit margin of just 3.2 per cent, which did not leave much room for a deterioration in the external environment before profits were hit.

IATA is forecasting the oil price will average $US85 per barrel next year. If correct, that would be the first time since 2010 that oil has averaged under $US100 a barrel. Back then, the average was $US79.40 a barrel.

Things are looking up for global airlines. Photo: Steve Cassell

12:21pm:Origin Energy has given itself a bigger cushion on its funding position to bear the impact of the slump in crude oil prices, by increasing a loan facility to $7.4 billion and lengthening out repayment terms.

The company has also sought to reassure the market about the impact of the collapse in crude prices on the economics of its $24.7 billion Australia Pacific LNG project under construction in Queensland, saying it will throw off free cash flow that can then be distributed to shareholders at oil prices down to $US40-$US45 a barrel.

“Origin’s return on its investment in APLNG remains robust,” the company said in a presentation released on the ASX today.

“Whilst lower oil prices will have an inevitable effect on this year’s profits, based on Origin’s existing liquids production of around 3 million barrels per year it will have minimal impact on Origin’s ability to fund APLNG.”

Origin reiterated it had “no requirement to raise equity”.

Origin shares dropped by as much as 4.7 per cent this morning, pressured by a further drop in global crude oil prices, but have since recovered and are now 1.2 per cent lower for the day at $10.66.

Origin said that based on the forward curve for oil prices, its share of distributable cash flow from APLNG is expected to average more than $900 million a year from the 2016-17 financial year. That is down from the estimate of about $US1 billion a year that Origin gave in May this year.

It noted that its returns on the APLNG project are higher than the returns made by the venture itself because Origin benefits from contributions made into the venture by its partners ConocoPhillips and Sinopec.

12:12pm: Some early reactions on the strong jobs growth.

RBC Capital Markets senior economist Su-Lin Ong:

A mixed report. The headline employment a lot stronger but it was entirely part-time jobs. The unemployment continues to creep up slightly to the highest level since the middle of 2002. There looks to be a reasonable amount of labour market slack and if anything, it looks to be increasing a little and is consistent with an economy travelling at sub-trend pace.

For the RBA, numbers like this will keep them on hold for the foreseeable future. If that trend in the unemployment rate higher accelerates, that would open the door to further cuts. We have unemployment in the sticky and fairly elevated range of 6.25-6.5 per cent.

JPMorgan chief economist Stephen Walters

On balance, slightly firmer than expectations. There's a potential that there's a bit of distortion here from the G20 gathering in Brisbane that month. Unemployment barely moved and a very strong employment outcome, so on balance a bit firmer.

The next RBA board meeting is not for another two months, a lot could happen between now and then but on balance when you get a broadly unchanged unemployment rate and a much better employment outcome it lessens the chance somewhat(of a rate cut) particularly with the currency being back down at 83, 84. That makes the RBA's job a bit easier if the currency is doing the work.

CBA senior economist Michael Workman

It's a hell of a lot better than expected but the devil is always in the detail. The unemployment rate ticked up so I think the market will still be of the view that the employment is pretty weak.

Between those areas that are pulling the economy back and those that are expanding rapidly, the battle is still not convincingly won by either side. But the net outcome is a labour market that is just not providing all the jobs that are required for the new entrants, so we get this gradual drift upward in the unemployment rate. It is quite slight, but it's enough for the market to think in the bigger scheme of things maybe the risks are biased towards a rate cut early next year.

12:00pm:Was the selling of Primary Healthcare on concerns over the proposed cuts to GP payments earlier in the week overdone?

Certainly Citi and Morningstar think so, with Morningstar telling clients it thought these concerns were "overblown".

It reckons Primary generates an estimated 20 per cent of its revenues from GP payments of which 30 per cent could be exposed to the proposed changes. It estimates the fair value for its shares is around $5.

Citi estimates the changes are "equivalent to a 0.35 per cent cut to group revenue and a ~2 per cent cut to EPS. This assumes PRY does not implement a co-payment for these patients and patient volumes remain identical."

However Primary Healthcare continues to build market share and revenues so it should be able to offset any impact, it told clients. It has a target price of $5.77.

Shares are up 0.5 per cent at $4.54.

11:44am: While local regulators dip their collective toe in the macro-prudential pool, many of our Asian neighbours have had in place policies designed to curb house price growth, such as limits on loan-to-valuation ratios, since 2000.

China, Hong Kong, India, Indonesia, Singapore and South Korea are among a longer list of Asian economies that have been “active” users of LVR limits, according to the IMF.

Over the past decade, house prices have steadily increased in the vast majority of the 30 countries that make up the IMF’s house price index for emerging markets. Following a lull in the aftermath of the GFC, house prices in EM countries has increased for nine consecutive quarters, reports the IMF, a run-up in prices that was “four times as fast as that in advanced economies”.

Is EM housing price growth a worry? History says surges in home values can be a cause for concern when married with a strong increase in the availability of credit. The IMF chart below shows an increase in overall credit growth in many emerging markets.

“In particular, since 2009, house price increases have been higher in countries (eg, China) where there has been a more rapid growth in credit availability,” writes the IMF economist in a blog post.

“Statistically, credit growth can account for nearly half of the variation in house price increases across countries since 2009.”

Hence many EM countries pursuit of macro-prudential tools to lean against an incipient overheating in national property markets – a lesson the RBA, APRA and ASIC are taking to heart.

“But there are important nuances," notes Zhu. "Measures to curb credit growth were less effective when high demand for houses from foreign buyers using cash instead of borrowing from the banking system."

“Likewise, dampening house price acceleration was not always successful unless the measures were fairly targeted. For example, Korea had to specifically target the Gangnam (yes, that Gangnam) suburb to curb speculative pressures on house prices.”

Credit has been growing strongly in emerging market countries, supporting strong house price growth. Source: IMF

11:33am:The Australian dollar briefly jumped a quarter of a cent to 83.7 US cents, before falling back to 83.4 US cents. The jobs data should provide some relief to the battered currency.

It's about a cent above a four-year low hit earlier this week.

11:31am: The employment data is in and it's quite a surprise: the economy created 42,700 new jobs, against expectations of just 15,100, but the jobless rate still climbed to 6.3 per cent, as predicted.

The participation rate edged higher to 64.7 per cent.

But it's not all good news, as nearly all of the new jobs (40,800) are part-time.

11:20am:Santos has acted rapidly to rein in spending and ease pressure on its balance sheet in the wake of the collapse in oil prices, announcing its 2015 capital expenditure budget has been slashed by 25 per cent, and advising that asset sales are under consideration.

Capex next year will now be just $2 billion, down from the $2.7 billion flagged last month, Santos said on Thursday.

Santos has been the worst hit of the larger ASX-listed oil and gas majors by the collapse in crude oil prices, now own more than 40 per cent since June. Santos’s market value has roughly halved since early September and the shares slid another 8.1 per cent in early trading on Thursday after a further drop in global crude oil prices overnight Australian time.

Chief executive David Knox moved to reassure investors about Santos’s financial position, noting in today’s statement that Santos was on track to realise cash flow benefits in 2015 and 2016 from its investments in growth LNG export projects, the PNG LNG project and the GLNG venture in Queensland.

“The PNG LNG project is producing at full capacity,” Mr Knox said.

“The GLNG project is 90 per cent complete and remains on track for first LNG in the second half of 2015. First commissioning gas is expected to be introduced to the LNG plant before the end of 2014. Offtake agreements are in place with large, well-capitalised buyers.”

Santos reiterated it has about $2 billion in available cash and undrawn debt to meet its spending commitments to complete the $US18.5 billion GLNG project and other needs.

“To be clear, the underlying performance of our business remains strong with production continuing to grow in the second half of this year,” Mr Knox said.

“The company has no present need or intention to raise equity.”

Santos shares are down 6 per cent at $7.18.

Read more.

Santos CEO David Knox...“The PNG LNG project is producing at full capacity.” Photo: David Mariuz

10:51am:Goldman Sachs has surpassed $US1 trillion in mergers and acquisitions for a single year for the first time since the financial crisis.

The US investment bank passed the closely-watched benchmark for 2014 following transactions this week, according to data from Dealogic.

The last time a firm surpassed $US1 trillion in a year came in 2007, when Goldman also breached the level.

Goldman's latest big deal was Merck's $US9.5 billion takeover of Cubist Pharmaceuticals, unveiled on Monday. Goldman has also worked on the $US66 billion purchase of Botox-maker Allergan by Activis and the $US48.5 billion acquisition by AT&T of DirecTV.

JPMorgan Chase ranks second with $US741 billion in deals and Morgan Stanley is third with $US692 billion in deals. Barclays is the highest ranked non-US firm with $US540 billion in deals, the data shows.

10:32am: In response to a reader request, here's a chart comparing the All Ords in the final few months of last year and what we've had since Oct 1 this year.

An accurate roadmap for a better-late-than-never Santa rally?

Will we get last year's Santa Rally?

10:21am:Energy shares have led a broad sharemarket rout in early trade after the oil price tumbled further overnight.

The ASX 200 is down 70 points, or 1.3 per cent, at 5188.6, while the All Ords has dropped 68 points to 5169.2.

No surprise that oil and gas-related stocks are being hit the hardest, with the sector 2.3 per cent lower. In terms of individual names:

• Woodside -1.5%
• Oil Search -3.5%
• Beach Energy -3.4%
• Santos -6.4%
• LNG Ltd -10.4%
• Sundance Energy -12.8%
• Horizon Oil -16.7%

Caltex is up 3.2 per cent after reporting earnings boosted by lower oil prices. Qantas is also enjoying cheap fuel, up 0.4 per cent.

Miners are lower, with Rio off 2.4 per cent and BHP 2.6 per cent.

Banks are also lower and are actually contributing the most to the sell-off, given their size. The Big Four are all down by between 0.9 and 1.2 per cent.

10:07am: Glencore chief executive Ivan Glasenberg has stepped up his attack on the big iron ore producers including potential merger partner Rio Tinto, describing the industry’s decision ramp up production as a “big bet” that could “kill” smaller miners.

Glasenberg wasted little time during the Swiss resources giant’s investor day in London criticising major iron ore producer such as Rio, BHP Billiton and Brazil’s Vale for ramping up production at a time when weaker Chinese demand had seen the price halve this year.

“Capital misallocation, not a lack of demand, remains a key issue for the sector resulting in a clear need to differentiate by commodity,” he said. “We will continue our disciplined approach to capital allocation, based on the supply-demand fundamentals.”

“We don’t want to oversupply and cannibalise our own business. If we do generate cash and we don’t find better ways to deploy it, we are owner-managers and we are happy to pay back some money to ourselves.”

Glasenberg and other senior executives are among the largest shareholders in the company. The South African has been keen to differentiate Glencore, which markets but does not produce iron ore, from some its rivals which he believes are oversupplying markets with key commodities. Glencore will close down its Australian coal mines for several weeks over Christmas in the face of low prices and glut of supply.

Producers such as Rio and BHP, whose iron ore mines in the Pilbara are the lowest cost operations in the world, believe their expansion plans are in the best interests of shareholders. They argue a cut in supply would simply result in less efficient producers of the key steel-making ingredient filling the gap in the market.

This strategy has been welcomed by some analysts and shareholders but has drawn criticism from politicians such as WA Premier Colin Barnett as well as higher-cost junior producers.

“Whether they believe they [BHP and Rio] believe they are going to kill the highest cost producer, I’ve heard some of the statements, I don’t know,” Glasenberg told media after the analysts briefing. “They may be right. They may kill the highest cost producer and then the market will turn around. The big question is how many high-cost producers will they knock out of business? I don’t know they answer to that.”

Glencore's Ivan Glasenberg says ramping up iron ore production in the current environment is a big bet than could kill smaller miners.

9:55am: In local corporate news, the slump in crude oil prices is set to contribute to a lift in Caltex Australia’s profit this year, which the fuels supplier has flagged may increase by as much as 42 per cent.

Benchmark net operating profit, the figure most watched by analysts, is expected to increase to between $450 million and $470 million in 2014, up from $332 million last year, Caltex said.

The marketing business is expected to deliver another record earnings performance, up 6 per cent to about $810 million, while the drop in crude oil prices will bring the refining supply business back into the black, to report earnings before interest and tax of between $10 million and $30 million.

In 2013, the refining business posted a loss of $171 million, which continued into the first half of this year, when it was $65 million in the red.

“The sharp decline in Brent crude oil prices in recent weeks has been a major contributor to the stronger refiner margin in the second half as product prices have not fallen as quickly as the crude price,” Caltex said.

The Caltex refining margin, the gross profit the company makes from turning a barrel of crude oil into a barrel of fuels such as petrol and diesel, is set to average about $US12 a barrel in 2014, up from $US9.34 in 2013.