4:42pm: And here are today's winners and losers...

 

 

Best and worst performers in the ASX 200 today.

4:42pm:The losses of the past week have consolidated the Australian sharemarket’s woes for 2014. With just 11 trading sessions left the market is now down 2.5 per cent year-to -date, with hopes of the year ending with a “Santa rally” fading fast.

The benchmark S&P/ASX 200 Index lost 2.2 per cent over the past week, while the broader All Ordinaries Index lost 2.1 per cent, to 5219.6 points and 5372.8 points respectively, amid the worst rout in global oil prices for more than 30 years, while domestic consumer sentiment slumped to a three-year low.

When the ASX closed on Friday, major markets in the United States, Europe and around Asia were all tracking lower for the week. Global equities slipped as Brent crude oil slumped another 8.4 per cent to $US63.39 a barrel, down roughly 45 per cent since June.

Despite local energy stocks enjoying an unexpected bounce on Friday, the broad market slipped 0.2 per cent as the biggest banks and miners tumbled in tandem as Federal Treasurer Joe Hockey warned that next week’s mid-year economic and fiscal outlook will include more spending cuts and said not to expect a budget surplus till 2018.

In other economic news on Friday, analysts jumped on comments by Reserve Bank of Australia governor Glenn Stevens who told Fairfax Media that he hopes the currency will continue its recent slide toward US75¢, but implied he wants to avoid cutting rates again.

“It remains to be seen whether stronger language around the dollar but an implied reluctance to cut rates to support that strategy will be successful,” Westpac economist Bill Evanssaid.

All of the country’s biggest oil and gas producers were lower for the week.

Resources giant BHP Billiton slipped 6.4 per cent over the week to a five-year low of $28.46. Main rival Rio Tinto lost 6.1 per cent to $53.67 as the spot price for iron ore, landed in China, slid 3.4 per cent to $US69.37 a tonne - down nearly 50 per cent year-to-date.

Westpac lost 2.9 per cent to $32.05 over the week, while ANZ fell 3.4 per cent to $31, and NAB slipped 1.4 per cent to $31.95. CBA eked out a 0.1 per cent gain to $81.74.

Telstra rallied 0.5 per cent over the week to $5.70, while Medibank added 6.1 per cent to $2.28. Woolworths fell 3.2 per cent to $29.86, while Wesfarmers, owner of Coles, lost 1.5 per cent to $41.42.

4:22pm: Shares have wallowed to a third straight day of losses despite an against-the-odds rally in energy stocks, with miners weighing heaviest on the index.

The ASX 200 is 11 points lower, 0.2 per cent, at 5219.6, while the All Ords fell a similar amount to 5196.9. The benchmark index was 2 per cent lower for the week.

BHP fell 1.9 per cent and Rio Tinto dropped 2.5 per cent after a senior iron ore executive at BHP said the days of $US100/tonne prices were over.

Banks were also a drag, with each of the Big Four falling around 0.5 per cent.

Energy was the best performing sector in spite of further falls in the oil price, as Origin charged 3.3 per cent higher and Woodside closed 1.2 per cent up. Santos added 2.3 per cent and Oil Search climbed 1.6 per cent.

Not panicking ... Reserve Bank governor Glenn Stevens Photo: William West

3:35pm:Take a chill pill and go have a confidence Christmas, says BusinessDay columnist Michael Pascoe:

Next week marks a year since Treasurer Joe Hockey turned up his "budget emergency" rhetoric to eleven as he delivered his first mid-year economic and fiscal outlook.

But today the Reserve Bank governor Glenn Stevens definitively ruled out that there is now, or ever was, a "budget emergency". So next week Hockey will go more softly down that path in what will be his second MYEFO.

Yet it must be frustrating to very carefully spell out exactly what you want to say and then watch an entire industry put its own spin on what it thinks you might have meant to say.

That's what happens when the Reserve Bank governor talks, as he did in the AFR today.

That said, it's only natural that the most newsworthy elements of a long interview grab the headlines. So there's been a tendency to run hard on the angle that Glenn Stevens has told Canberra "to get real" about its accounts.

He has said that, but try this on for size first:

"We have got, I guess, you could say the need for the public accounts to be put on a sustainable basis over the longer run. I don't actually think that's, you know, a short-term emergency, but it is a medium-term issue that we have to grapple with."

Hard to hear the sound of wailing sirens of the emergency services in that paragraph.

Read more.

3:05pm:Treasurer Joe Hockey has confirmed Monday’s mid-year budget update will include new spending cuts, but insists they won’t have a negative impact on the economy because it can’t “cope” with a fresh wave of fiscal constraint.

He also confirmed for the first time that the return to surplus would be pushed out beyond 2018, although he declined to nominate a specific year.

Mr Hockey said he wanted 2015 to be the year in which Australia has a “deeper conversation” about tax and meeting future budget challenges.

He warned, however, that expanding or raising the goods and services tax was not a “silver bullet for the economy at all” and that the budget was now too tight to reform the tax without cutting other taxes – particularly income tax – to ease the burden.

“I don’t have any desire to cut the cost of living for Australians without being able to properly cope with that ... and the budget has little scope for that,” the treasurer told Sky television in an interview broadcast today.

Next week’s mid-year economic and fiscal outlook – known as MYEFO – is expected to include the forecast average for iron ore to be downgraded to around $US60 a tonne, resulting in a revenue write-down of more than $9 billion, and pushing back hopes of the budget returning to surplus.

Mr Hockey dismissed this week’s slump in business confidence, saying it varied from week to week, adding that the recent drop was linked to commentary on the September quarter accounts.

He emphasised the economy would strengthen next year, with job ads strong and a new infrastructure programme picking up speed.

“Next year we’re going to see cranes all over the county ... and that’s a positive sign.

“You’re also going to see very strong housing construction.

“The fact is the Australian economy is fundamentally strong.

He said the spending cuts to be announced on Monday would have “no negative impact on the economy”.

“They’re modest savings because our [extra] expenditure is modest,” he said.

The government’s update is set to include new spending on national security, and there has been widespread speculation it plans to offset that by again dipping into the foreign aid budget.

Treasurer Joe Hockey in Parliament: "Next year will be better than this year". Photo: Alex Ellinghausen

2:42pm:

The US House of Representatives on Thursday narrowly passed a $US1.1 trillion spending package that would fund most government operations for the fiscal year after a rancorous debate that reflected the new power held by Republicans and disarray among Democrats in the aftermath of the midterm elections.

The accord was reached in a 219-to-206 vote amid last-minute brinkmanship and bickering that has come to mark one of the capital’s most polarized eras.

The split in the Democratic Party dramatically came into view when Representative Nancy Pelosi, the minority leader and one of Mr. Obama’s most loyal supporters, broke with the administration over a provision in the bill that would roll back regulation of the Dodd-Frank Act, which Ms. Pelosi said was a giveaway to big banks whose practices helped trigger the Great Recession. She spoke on the House floor in the early afternoon, asking Democrats not to vote for the bill.

2:26pm:Click here for economics and markets reporter Mark Mulligan decoding of the key topics and takeaways from RBA governor Glenn Stevens' latest in-depth interview, during which he said the Australian dollar would "probably be better" being closer to US75¢ than US85¢.

Stevens talked about providing confidence to businesses and individuals by being "steady and predictable" with monetary policy, his thoughts on falling oil prices, talk of an "income recession", as well as on the budget surplus, the currency and crackdowns on risky mortgage lending.

RBA governor Glenn Stevens. Photo: Louie Douvis

1:56pm:Asian shares are higher, shrugging off lower oil prices, amid speculation China’s government will take more steps to boost economic growth and ahead of this weekend's elections in Japan.

The Shanghai Composite Index is 1 per cent higher at 2953.9. The benchmark Chinese mainland measure is up close to 20 per cent over the past month.

“Stocks will be consolidating as we had rallied for a while,” said Zhang Haidong, an analyst at Tebon Securities in Shanghai. “The weak economy gives rise to expectations of more rate cuts next year. That’s good. But in the short term, stocks have surged too much so some investors will be staying away to avoid risks.”

China’s state media is turning from pushing stocks to warning about risks from a share rally that has been spurred by the increased use of leverage. A stock market that has sharp increases and declines is not a healthy one and is very worrying if it relies on leverage to create a miracle, the official Xinhua News Agency said in a commentary today.

Elsewhere in the region, Japan’s Nikkei index is 1.3 per cent higher at 17,477.6 ahead of a weekend election as the yen weakened against the dollar and after the US reported the biggest jump in retail sales in eight months.

“With US consumption remaining firm and the employment environment positive, some have pointed out that perhaps this week’s volatility was simply profit-taking ahead of Christmas rather than the drop in oil prices or other reasons,” said Juichi Wako, Tokyo-based senior strategist at Nomura Holdings. Japanese stocks “will rise today with the election on people’s minds.”

Japan heads for an election on Dec. 14 after Prime Minister Shinzo Abe last month called for a referendum on his economic policies. The value of the stock market has almost doubled in the two years under his watch, though the economy has been mired in a recession since an April sales-tax increase.

Japan's Prime Minister Shinzo Abe. Photo: Bloomberg

1:23pm:Westpac chairman Lindsay Maxsted has responded cautiously to David Murray’s call for banks to hold more capital, saying the need for strong banks must be balanced with the costs imposed on the economy.

In the first comments from a major bank boss since the Murray inquiry was published on Sunday, Mr Maxsted also criticised the report for not devoting enough attention to the question of how Australia funds itself.

Separately, Mr Maxsted reiterated the bank’s view that the Reserve Bank of Australia would cut interest rates in 2015 and that there were would be further falls in the value of the Australian dollar.

The financial system inquiry, chaired by Mr Murray, this week recommended banks be forced to hold more capital to make them more resilient to shocks – a change that could hit profits.

Until now, bank bosses have been silent on the issue, but on Friday Mr Maxsted argued Australia’s banks were already strong, and the report should have focused more on the question of funding.

“We also consider that the Inquiry gave insufficient focus to funding the Australian financial system on a sustainable through-the-cycle basis. It was positive that the FSI referred the current tax distortions on interest earnings on deposits to the Tax White Paper process, but we feel the funding issue could have received greater attention.”

Alongside these comments, Mr Maxsted backed the report’s recommendations to develop a clearer objective for the superannuation system and to improve standards in financial advice.

1:00pm:James Packer's Crown Resorts has paid $50 million for an interest in land behind its Melbourne casino on which it will build a tower housing offices, apartments and the complex's fourth five-star hotel.

The tower will be built in a joint venture with Melbourne property developers Schiavello Group, which controls the land.

The deal between the two companies is yet to be finalised, but Crown said agreement had been reached in principle that following the development Crown will have the right to acquire and manage the hotel and Schiavello will have the office and showroom area.

The development, which is subject to negotiations over planning, financing and a construction contract, adds to a long list of domestic and overseas projects that Crown is pursuing. The company has a pipeline of projects worth over $6 billion, excluding the latest Melbourne expansion.

Crown's domestic casinos have been performing poorly as a result of weak consumer spending. However Mr Packer, Crown's executive chairman, said the project reflected the company's confidence in Melbourne "as a world-class tourism destination."

"While Crown continues its domestic and global expansion, Crown Melbourne remains our flagship resort and this project will ensure it remains the best integrated resort in Australia and amongst the best in the world," he said in a statement.

Mr Packer said the new development would be a crucial boost to room supply.

Crown shares are down 0.4 per cent to $13.05.

Read more.

Melbourne's Crown Casino Photo: Source: JLL

12:38pm:Profitability is starting to return to the Australian coal sector, with the number of loss-making mines reducing on the back of a weakening Australian dollar and sliding oil price.

The world's biggest producer of seaborne thermal coal, Glencore, estimated earlier this year that sliding commodity prices and high costs had rendered about 36 per cent of Australian coalmines unprofitable.

But the near halving in the oil price since June has dramatically reduced the cost of powering equipment and mine sites, as well as helping to reduce the cost of shipping to Asia.

Further support has come from the Australian currency, which has declined by 12 per cent since July 1, and effectively reduced the cost of labour and other essential aspects of operating a mine.

In new estimates published this week, Glencore said the percentage of Australian coalmines that were losing money had fallen to about 25 per cent.

The Swiss miner estimated that falls in the currency and fuel prices were adding an extra $US5 ($6) of profit margin to every tonne exported.

Like iron ore miners in Western Australia, the coalminers of eastern Australia are enjoying dramatically cheaper costs of shipping their product to buyers, with the freight rate from eastern Australia to China falling 33.3 per cent over the past year to $US11 a tonne this week.

Read more.

Turnaround: Things are looking up for coalminers on the back of plummeting oil prices and a weaker Australian dollar. Photo: NIC WALKER

12:26pm:Southern Cross Media could deliver a 23 per cent uplift to Nine Entertainment Co’s earnings per share while buying WIN Corp would lift Nine’s earnings by 10 per cent to 18 per cent, according to Credit Suisse analysts.

Credit Suisse has taken a detailed look at the acquisition scenarios, ahead of a legislation repeal day in March that could see some changes to media regulation.

The analysts reckon a Southern Cross [SXL] acquisition could be 23 per cent earnings accretive, based on a $1.20 a share offer price and funded with 75 per cent scrip and 25 per cent cash.

The offer price would represent 9-times forecast 2015 financial year earnings before interest, tax, depreciation and amortisation, and 12.6-times forecast profit, Credit Suisse said.

“NEC would be unable to fund an acquisition of SXL from debt and we would expect a large scrip component to any deal,” the analysts told clients.

“This would enable current SXL shareholders to benefit from the upside in the combined group (Macquarie Group owns 26% and Allan Gray 18%).

“We note that the deal structure outlined above would result in existing NEC pre IPO hedge fund investors (Oaktree and Apollo) being diluted down from 36% to 26%. Macquarie Group would have a 7% stake in the combined group based on our assumptions.” 

Credit Suisse warned Ten Network would also be interested in buying Southern Cross, and Ten’s ability to make the acquisition may be enhanced under a new ownership structure.

Ten’s board and advisers are considering a number of takeover offers, and are due to report back to suitors shortly.

If Southern Cross was too expensive or competitive, Credit Suisse said Nine could re-focus on WIN.

The analysts reckon WIN would be worth $200 million to $450 million, or four-to-eight times earnings.

“The acquisition of WIN would be a smaller/easier deal and could be funded with cash,” Credit Suisse said.

“However, an acquisition of WIN does not offer the same revenue uplift as SXL as there is no ability to switch programming.

“We calculate potential EPS accretion from an acquisition of WIN at anywhere between 10-18% (FY15F proforma) depending on the price paid.” 

12:13pm:TPG shares are down 1.5 per cent to $6.63 following the government's outline of the new framework which will regulate those internet service providers which plan to take on NBN Co.

TPG will need to functionally separate next year and in 2017 will need to structurally separate their wholesale and retail divisions in order to rollout out their own fibre-to-the-basement network.

TPG will also not be allowed to charge more than a wholesale price of $27 per month for 25/5Mbps access to other providers.

NBN Co will also be able to compete with TPG on wholesale pricing, with the government getting rid of the uniform system.

Those networks competing with the National Broadband Network in more commercially viable areas, such as metropolitan apartments, will now pay a levy to subsidise regional and rural Australia.

11:50am:Energy shares are getting some support and have pushed the sharemarket into the black, with the sector reversing an early fall and now 1.4 per cent ahead. Here's a list of the main names:

• Origin Energy +2.3%
• Woodside +0.9%
• Santos +2.1%
• Oil Search +0.9%
• LNG Ltd -2.6%
• Beach Energy -0.6%

11:44am: The competition regulator and Coles are believed to be in confidential discussions to settle unconscionable conduct cases relating to the supermarket's treatment of suppliers.

While the Australian Competition and Consumer Commission and Coles declined to comment, one source close to the supermarket said: "There are some discussions going on to come to an agreement.

"It's the natural thing to do in these cases. Coles doesn't want these things dragging on."

The ACCC recently alleged Australia's second-largest retailer breached the law by engaging in unconscionable conduct against five suppliers. It alleged Coles forced suppliers to pay "gaps" in the profit it made and the profits it wanted to make on products such as frozen food, potato chips and shower cleaner, even when it had no legitimate basis to do so.

In May, the ACCC accused Coles of unconscionable conduct by using unfair tactics and misleading information to force about 200 suppliers to pay extra rebates to fund the cost of a supply chain improvement program.

One competition lawyer told Fairfax Media the ACCC could pursue two tacks: litigation or a confidential settlement.

"If it was a cartel case, they'd be seeking a penalty. Here that might not what the ACCC is after. Maybe they're after something more akin to what's contemplated in the code of conduct."

One grocery industry source said there was "certainly speculation around the industry they might be trying to settle" and this had intensified when Bob Every, the chairman of Coles' parent Wesfarmers, said recently there was "no doubt Coles has made mistakes in the past" in its dealings with suppliers.

"That's the first time Coles has acknowledged that," the source said.

Wesfarmers shares are up 0.2 per cent at $41.70.

Read more.

Keen to move on: Industry sources believe Coles has nothing to gain from a drawn-out battle. Photo: Nic Walker

11:26am: The impact of cheaper oil is sinking in for Australia, writes BusinessDay columnist Elizabeth Knight:

The fall-out from the savaging of oil prices saw Australian LNG majors, Santos and Origin, reassuring investors that financing and expenditure would be reconfigured and that the economics of their massive projects still worked.

Their response was credible enough to convince the market  there was no impending doom on the horizon. But life for these companies has become tougher and the gloss is fading.

Thus Thursday's announcements were not sufficient to assuage investor concerns about the prospects for the energy sector. And the market took a tumble in the absence of enough good news from elsewhere.  The big mining stocks drifted lower and a lift in Telstra's share price when combined with sluggish performances from the banks, wasn't enough to drag up the index.

Origin has finessed its funding options extending the size of its facility and lengthening the repayment terms. It hosed down concerns the effects on returns, from the fall in the oil price  would be especially damaging,  telling the market that at the $24.7 billion Australia Pacific LNG project would throw off cash even when the oil price fell as low as US$40 to US$45 per barrel.

But it also said that its share of distributable cash flow from APLNG is expected to average more than $900 million a year from the 2016-17 financial year - down from the estimate of about $US1 billion a year that Origin gave in May this year.

Santos said on Thursday it had cut its 2015 capital expenditure from $2.7 billion to $2 billion at it battens down the hatches to deal with the financial buffeting resulting from the oil dive by 40 per cent this year.

Despite their attempts to calm investor fears the share prices of these and other Australian LNG companies continue to take heavy fire.

Read more.

The fall in oil prices comes off the back of news that OPEC has cut its demand forecast for next year.

11:06am: In the market mayhem of the past few weeks, stocks with a big US focus such as James Hardie have been largely overlooked, especially amid ongoing concerns over the blow out in asbestos compensation claims on its bottom line.

Its fortunes reside largely on the outlook for the US housing market, and US industry leader Toll Brothers made it clear in its latest earnings released overnight the level of housing starts there remains under par.

"We believe the housing recovery has many years to run. Housing starts, through ups and downs from 1970 through 2007, have averaged about 1.6 million annually," the executive chairman, Robert Toll, told analysts overnight.

"According to Harvard University's Joint Center for Housing Studies, 'Despite the rebound in the last two years, home sales and starts are still nowhere near normal levels… [2014] was the sixth consecutive year that starts failed to hit the 1 million mark, which was unprecedented before 2008 in records dating back to 1959',"

All well and good at the macro level, but the issue in the US is the fall-out from the slump in oil prices, especially since James Hardie has two of its eight US plants located in Texas.

The impact of the oil price downturn has quite some way to play out, and with James Hardie shares trading this morning at $12.34, up 0.5 per cent, they are a long way from their 12-month high of $15.54 touched in March.

10:51am: The iron ore price is unlikely to see $US100 a tonne again, as any rise in demand from India is unlikely to compensate for the rapid increase in supply and economic slow-down in China, according to BHP Billiton’s president of iron ore, Jimmy Wilson.

“I have learnt never to say never, but certainly if you use basic economics then $US100 [a tonne] appears high going forward,” Mr Wilson told the The Australian Financial Review in Shanghai.

Mr Wilson said indications from the futures market that next year’s price would be settle around $US65 a tonne were “appropriate”.

After falling 50 per cent this year, the key steel making commodity is trading at $US68.50 a tonne.

The sober outlook for next year came as BHP celebrated shipping its one billionth tonne of iron ore to China, with a gala dinner in Shanghai on Thursday night.

BHP began shipping iron ore to China in 1973 and it took 30 years for the company to export 100 million tonnes.

But it took just 12 years for the world’s biggest miner to ship its next 900 million tonnes.

On current rates the next 1 billion tonnes will take just 5 years.

“That gives you a real sense of the growth in demand,” said BHP’s president of marketing, Mike Henry, who was also in Shanghai for the occasion, as was chief executive Andrew Mackenzie.

Both Mr Henry and Mr Wilson agreed that such a rapid spike in demand driven by China over the last decade was unlikely to be seen again.

“There has been a big change in India. They are on the cusp of being a net importer [of iron ore]... but not a significant one,” Mr Wilson said.

BHP expects Chinese economic growth of around 7 per cent in the coming years.

BHP’s Jimmy Wilson... “I have learnt never to say never, but certainly if you use basic economics then $US100 [a tonne] appears high going forward.” Photo: Philip Gostelow

10:36am: Shares in troubled drill contractor Boart Longyear are down a quick 2.8 per cent at 18c on its latest profit downgrade, with no end to its misery in sight.

Weak margins and the downturn in the Australian dollar prompted it to slash its 2014 profit forecast, saying it will undershoot analysts estimates with little prospect of a near term improvement.

In particular higher maintenance and rig mobilisation/demobilisaton costs will weigh on future earnings it warned.

The group said its 2014 gross profit, as measured by earnings before interest, tax, depreciation and amortization, will likely come in at $US30 million, which is well below analyst forecasts of a profit by this measure of between $US34-48 million.

Revenues are buoyant, estimated at the higher end of analyst estimates of up to $US852 million for the year to December, it said.

It highlighted pricing pressures, even though rig utilisation rates "have stabilised", it said.

10:21am: Shares have suffered another poor start, with the ASX 200 down 17 points, or 0.3 per cent, at 5213.6, as energy stocks wilt further under the falling oil price and miners and banks drive losses.

The under pressure Santos has slid 0.3 per cent, while Woodside is down 0.5 per cent. Oil Search has been harder hit, down 2.3 per cent early. Origin is up 1 per cent.

BHP is weighing heaviest on the index, down 1.8 per cent, while Rio is 1.2 per cent lower.

The banks are all lower, with Westpac, ANZ and NAB down by between 0.8 and 1 per cent, and CBA has eased 0.4 per cent.

Aside from those sectors, more stocks have advanced than fallen. Lend Lease is an early leader, up 2.9 per cent, while insurers (aside from QBE) have gained, along with healthcare stocks.

9:54am: The People’s Bank of China injected 400 billion yuan ($US65 billion) into the banking system, according to a person familiar with the matter, pressing ahead with targeted steps to add liquidity as the economy slows.

The injection to the country’s banks began yesterday via China Development Bank, according to the person, who asked not to be identified because the news isn’t public. The Wall Street Journal reported the injection earlier, and the PBOC didn’t respond to a faxed request for comment.

The move comes as a previous PBOC injection of 500 billion yuan comes due this month. The PBOC had said it pumped that amount into the economy in September with a term of three months and a rate of 3.5 per cent. Another 269.5 billion was added in October with the same terms, it said.

The central bank cut the benchmark interest rate for the first time in two years Nov. 21, spurring an 18 percent gain in the Shanghai Composite Index. The stock market rally has also been driven by speculation that the PBOC may cut Chinese banks’ required reserve ratios.

The latest injection and the stock market gains may signal that an RRR cut is less likely this month, according to Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia.

“The PBOC is worried about adding fuel to the fire on the stock market,” Shen said.

Reserve Bank govenor Glenn Stevens. Photo: Louie Douvis

9:51am: The Australian dollar touched a new 4 ½-year low early this morning after Reserve Bank of Australia governor Glenn Stevens again talked down the currency in an interview with The Australian Financial Review.

Mr Stevens indicated the local unit should be trading closer to its traded-weighted fair value at about US75¢, compared with a recent range either side of US83¢. Mr Stevens’s target level would be more in line with the sharp decline in Australia’s terms of trade this year, he said.

Although depreciating more than 7 per cent against the greenback this year, the Aussie has eased less than 1 per cent on a trade-weighted basis.

The Australian dollar is fetching US82.63¢, after having touched US82.15¢ immediately after online publication of the interview at midnight AEDT.

“It’s quite likely that it [the Australian dollar] will a year from now be lower than it is today, on the basis of the facts that we presently have,” Mr Stevens said.

“And, yes, a year ago I said probably US85¢ was better than US95¢. And if I had to pick a figure now, I would say probably 75 is better than 85,” he said.

The Aussie, however, quickly bounced from the overnight low on Mr Stevens’s efforts to downplay the possibility of cuts early next year to the cash rate, which the RBA has maintained at 2.5 per cent since August 2013.

“I don’t think we see many people at all saying ‘look, the cost of money is too high, or I can’t get money’,” Stevens said.

“I don’t think that’s really the problem now.”

He said despite recent weakness in consumer and business sentiment and jobs figures, economic growth and employment levels were running close to official RBA forecasts.

Market traders are pricing in at least one reduction in the RBA’s benchmark rate in the next 12 months, and both National Australia Bank and Westpac have recently revised their own forecasts to include two 25 basis point cuts, rather than increases late next year or early 2016.

A range of other investment banks and asset managers have also downgraded their growth outlooks for Australia next year, while predicting further cuts in the cash rate.

Although playing down the chance of a cut in the short term, Mr Stevens was careful not to rule out further easing.

“If at some point we can be more helpful for confidence by doing something different, then obviously that will be on the table, and we will take a fresh look at all these things in the new year,” Mr Stevens said.

ANZ said in a note on Friday morning that Mr Stevens’s comments had backed its own forecasts that rates would stay on hold for the foreseeable future.

“Stevens’s interview makes us more comfortable with our view that the RBA clearly would prefer a substantially lower exchange rate to lower interest rates, and while it hasn’t closed off the possibility of a rate cut, at the moment it seems less than convinced that a lower cash rate is necessary,” the bank said.

9:39am:Leighton Holdings has confirmed the sale of its John Holland construction business to the China Communications Construction Company for $1.15 billion to strengthen its balance sheet.

The sale comes as Leighton’s new chief executive, Marcelino Fernandez Verdes, restructures the company to focus on public private infrastructure projects and contract mining.

The restructure follows the acquisition of Leighton by Spanish construction group ACS, one of the world’s largest construction companies, earlier this year.

The sale will reduce Leighton’s gearing, which was 37 per cent in the six months to June, by 10 points, and will cut its group revenues by some $3.7 billion.

“The divestment of John Holland supports our focus on further reducing gearing and strengthening our balance sheet so we can be sustainably competitive,” Mr Fernandez Verdes said. “Proceeds will be used to finance future growth, particularly in PPPs.”

The sale marks the arrival of the first large Chinese construction company in Australia as state governments call for tenders to build billions of dollars of new road and rail projects.

Mr Lu Jianzhong, the president of CCCI,said there were “significant growth opportunities” in the Australian market.

“From our perspective, ownership of John Holland is the optimal way for CCCC to participate in this dynamic market as part of our aim to be a global transportation infrastructure business.”

Some 4100 John Holland employees will transfer to CCCC International Holding Limited, a subsidiary of CCCC.

The sale, which requires the approval of the Foreign Investment Review Board, comes after Australia struck a free trade agreement with China in November.

The agreement allows for Chinese workers to be brought into ­Australia to help build projects.

CCCC, a state-owned company that ranks as the fourth largest construction group in the world, is listed on the Hong Kong and Shanghai stock exchanges and has a market capitalisation of $23.5 billion.

Read more.

Leighton: on the project hunt. Photo: Bloomberg

9:26am:US stocks rebounded from the worst day in seven weeks, as better-than-forecast data on retail sales and unemployment boosted confidence in the economy to overshadow a renewed selloff in oil.

Benchmark indexes retreated from their highs of the day as oil dropped below $US60 a barrel for the first time since 2009, erasing a rally in energy shares.

“The path of least resistance is lower,” Mike Wittner, head of oil research at Societe Generale in New York, said. “This week we’ve had the Saudis cut prices to Asia, OPEC reduced the call on its crude and [Saudi Arabian Oil Minister Ali al-Naimi] reiterated that they aren’t cutting output and letting the market do its work. They all reinforce the bearish message.”

The S&P 500 added 0.5 percent to 2,035.3 after climbing 1.5 per cent earlier. The Dow Jones Industrial Average rose 63.2 points, or 0.4 per cent, to 17,596.3, trimming a prior gain of 1.3 per cent.

“When you see a big decline like we did yesterday we’re poised for a little bit of a bounce back and retail sales are helping,” Larry Peruzzi, director of international trading at Cabrera Capital Markets, said. “Globally, we’re still one of the bright spots. Retail sales are always an indication that consumers are feeling good.”

West Texas Intermediate crude fell 1.6 percent to settle at $59.95 a barrel, after yesterday plunging 4.5 per cent. The rout caused concern over the strength of the global economy.

Investors are gauging economic data before the Federal Reserve’s policy meeting next week.

Retail sales in the US rose the most in eight months as shoppers benefited from an improving job market and cheaper fuel. The 0.7 per cent gain in purchases matched the highest estimate of economists surveyed by Bloomberg and followed a 0.5 per cent advance in October that was larger than previously reported, Commerce Department figures showed.

9:10am: Local shares are poised to open flat though Wall Street is holding strong gains after the latest retail sales data beat expectations.

Here's what you need2know:

• SPI futures down 8pts at 5224

• AUD at 82.61 US cents

• On Wall St, S&P 500 +0.5%, Dow +0.4%, Nasdaq +0.5%

• In Europe, Euro Stoxx 50 +0.3%, FTSE -0.6%, CAC flat, DAX +0.6%

• Spot gold up $US2.23 to $US1228.54 an ounce

• Brent oil down 24 US cents to $US64.00 per barrel

• Iron ore up 23 US cents to $US69.37 a tonne

What’s on today:

• NZ manufacturing index, Japan industrial production, China retail sales, China industrial production, Euro zone industrial production, Euro zone employment, US producer prices, US University of Michigan confidence.

Stocks to watch:

• Westpac AGM

• The Australian budget will take a $9b hit from the lower iron ore price, reports The AFR

• BHP says it is shifting its focus of new project investment to copper from iron ore

• China Communications Construction Company will purchase Leighton Holdings' John Holland for an enterprise valuation of approximately $1.15 billion.

• Energy companies may come under further pressure.

• Seven is out of buyback bullets and fund managers are asking where Kerry Stokes and right-hand man Don Voelte can find fresh ammunition, Street Talk reports.

• CBA is “neutral” on APA Group with a price target of $7.20 down from $7.30 a share.

• Bell Potter reiterates a “buy” recommendation on Pioneer Credit with a price target of $2.05 from $1.95 previously.

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