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Australian shares had another poor day, with the free-falling oil price weighing heavily on investor sentiment, but staged a comeback in the afternoon.
Wall Street and European markets suffered heavy losses on Friday night and the mood carried over to the local sharemarket this morning, with the broader All Ordinaries Index falling 0.62 per cent to 5164.60 and the ASX 200 down 0.64 per cent to 5186.10.
But the market clawed back some ground from its early morning lows. "It improved considerably from the opening," said BBY senior private client adviser Henry Jennings. "I think there's some bargain hunting. It got through 5150 and maybe that was a signal for people to start dipping their toes back in the water."Â
Investors snapped up bargains in energy stocks, with Woodside climbing 2.3 per cent to $35.39, Santos soaring 4.2 per cent to $7.46 and Oil Search up 1.5 per cent to $7.26. Origin fell 0.7 per cent to $10.83, Senex rocketed 7.8 per cent to 27 cents, Caltex lifted 1.8 per cent to $32.21, Beach Energy rose 1.7 per cent to 89 cents,and Drillsearch went up 3.6 per cent to 72 cents. Â Â
Morgans director Bill Chatterton said the decline in the oil price to $US56 per barrel for West Texas intermediate had been "incredibly alarming" for investors.
"Oil and gas has been a shocker over the past few months absolutely, no question. The oil price has gone from $US100 per barrel to $US56 per barrel.
"But energy in the ASX200 is about 8 per cent. Transport is a major input cost to most businesses and petrol has come down a long way. There are benefits out there."
Mr Chatterton said the overall market apart from the energy sector had performed "reasonably" despite the crash in energy stocks.
"There are sectors in the market that have done well. You look at the telcos - Telstra has continued to do extremely well and at the same time is paying very good dividends.
"Other areas have done reasonably well. You look at healthcare - you look at CSL, you look at Sonic, Cochlear. Medibank Private has come on very well.
"You've got to consider what the banks have done, you've got to consider what consumer staples have done.
The resources giants were down, with BHP dropping 0.5 per cent to $28.33 and Rio losing 0.3 per cent to $53.50.
The banks lost ground. ANZ slipped 0.77 per cent to $30.76, Commonwealth Bank slid 0.57 per cent to $81.27, National Australia Bank dived 1.47 per cent to $31.48 and Westpac lost 0.72 per cent to $31.82.
And here are today's winners and losers.
Recall is top of the pops after receiving and promptly scorning a $7/share bid from a big US competitor. Looks like investors are betting on a revised, higher offer in the future.
Some energy shares enjoyed a relief rally as the oil price gaines.
Best and worst performers in the ASX 200 today.
Australia's corporate regulator has cancelled the registration of 440 self-managed superannuation fund auditors after they failed to meet competency standards.
The Australian Securities and Investments Commission has also disqualified two self-managed super fund (SMSF) auditors.
The regulator said of the 440 auditors whose registration was cancelled, 373 did not attempt the exam and 67 did not pass the exam. Auditors were given up to two attempts to pass it. ASIC oversees the registration of thousands of SMSF auditors.
"As the SMSF sector continues to grow in popularity with Australian investors, it is critical that SMSF auditors play their key gatekeeping role," ASICÂ commissioner Greg Tanzer said.
"ASIC will continue to administer the registration process to assure Australians that SMSF auditors at least meet base standards of competency and expertise."
The regulator has also separately been looking at Âself-managed super fund seminars for evidence of misleading and deceptive conduct, following a sharp rise in promoters recommending that investors either set up or use an existing fund to invest in property.
ASIC's Greg Tanzer says auditors must be appropriately qualified. Photo: Louise Kennerley
The local sharemarket threatened to break below its October lows before bargain hunters jumped into the mining sector, driving a strong rally that cut early losses by more than half.
The ASX 200 closed 33 points, or 0.6 per cent down, at 5186.1 after trading as much as 73 points down in the morning, driven by banks and miners. Both recovered during the day, particularly the resources sector.
The All Ords ended 32 points lower at 5164.6.
Energy shares also received some relief as the Brent crude price gained - Woodside ended the day 2.3 per cent higher, while Santos jumped 4.2 per cent and Oil Search 1.5 per cent.
Wesfarmers and Woolies both dropped 2.2 per cent as Cole admitted to unconscionable conduct in relation its dealings with suppliers.
The 38,000-tonnes-per-year Ravensthorpe nickel operation has been shut down following a chemical spill.
"The plant is currently shut down and on the basis of information received to date, no adverse environmental effects are anticipated," a spokesman for owner First Quantum Minerals of Canada said.
Treasurer Joe Hockey’s budget update has lent a further dovish element to the economic outlook which will support the case for interest rate cuts in 2015.
Having confirmed the blow-out in the budget deficit this fiscal year on account of a commodity price crash, the selling of the Mid-Year Economic and Fiscal Outlook will be equally important in cushioning the blow to skittish consumers.
May’s federal budget was so unpopular that it reversed consumer confidence for months, such were the savings demanded.
Canberra won’t want to make the same mistake again, said CommSec economist Savanth Sebastian. “I think the government’s got to really look at how it sells this budget going forward, that’s been an area where they’ve really struggled,†he said.
Sebastian highlighted that the last consumer confidence survey showed the weak gross domestic product number and the budget debt were “top of mindâ€.
“This mid-year budget update just highlights there’s open doors for the Reserve Bank if they deem it’s necessary [to cut],†he said. “If anything it adds a slightly dovish tone for the economy.â€
CommSec still forecasts the RBA will keep rates on hold at 2.5 per cent, and the next move will be up.
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With nine days left to do Christmas shopping, large sections of central Sydney are all but deserted, stoking fears the siege could further dampen already subdued consumer sentiment.
"I don't want to be prophet of doom and gloom but you do worry about how this could affect spending," said Australian Retailers Association chief executive Russell Zimmerman.
While major retailers such as Myer and Woolworths said their stores in Sydney's CBD were trading as normal, David Jones is believed to have closed the doors of its flagship Elizabeth St store - which is less than two blocks from the besieged Lindt Cafe - and customers and staff have left the building.
Many specialty retailers in the area around Martin Place have also been forced to close and consumers have been prevented from accessing the centre of the city.
"For Sydney city retailers it's going to be a huge drain on cash flow and a huge issue for them," said Zimmerman.
"In the short term people will question whether they go into the city to do their shopping," he said. "You could also get people questioning whether to shop where there are major crowds."
Siege in Martin Place. Photo: Daniel Munoz/Fairfax Media
Oil prices have bounced back by more than a dollar, after hitting 5-1/2-year lows of $US60.28 earlier in the session, as traders began pricing in expectations of improving manufacturing data to be published later this week.
Brent fell as much as 2.5 per cent this morning after the International Energy Agency forecast further price falls and OPEC's chief defended the group's decision not to cut its output target.
Oil producers group OPEC can ride out a slump in oil prices and keep output unchanged, its head Abdullah al-Badri said on Sunday, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators, pulling down prices in early Asian trading.
But the market recovered to $US62.95 a barrel as traders said the market was pricing in expectations of improving global manufacturing data to be published this week.
"With preliminary manufacturing PMI scheduled to release this week, it may give some support to falling oil prices," said Singapore-based Phillip Futures. "Expectations for this month's PMI are favourable which should prevent a further drop for the week. Provided manufacturing PMI figures are favourable, we expect to see a slight recovery to $61.81 for WTI Feb '15 and $63.26 for Brent Feb '15 for this week," it added.
Brent crude for January delivery is trading up 0.8 per cent at $US62.34 a barrel. The benchmark fell to $US60.28 right after the start of the electronic session, the lowest since July 2009. US crude for January delivery was up 0.6 per cent at $US58.16 a barrel, after hitting a low of $US56.25, down 2.7 per cent, the lowest since May 2009.
The ASX 200 is now down 2.8 per cent for the year against an 8 per cent gain for the S&P 500. Indeed, our benchmark index is also lagging most international markets. Why? Morgan Stanley analysts have highlighted three reasons:
1. THE CURRENCY
“While a lower Australian dollar helps restore Australian competitiveness, and lifts corporate profitability, in the transition it induces asset selling by foreign investors and Australians looking to diversify offshore.
“Beyond the transition, however, a mid-to-high 70’s AUD should be a material positive for the market.â€
2. COMMODITY PRICES
“A second factor driving Australian underperformance has been falling commodity prices. As a large net commodity exporter, sharply lower oil, iron ore and other commodity prices have [hurt] energy and materials stocks, pushed the currency lower and raised growth concerns.
3. POLICY MOVES
“Finally, policy risk has adversely affected Australian market performance, whether it be concerns about macro-prudential controls on the property market, increased capital ratios for the banks, or stalled budget reforms.â€
As ever, not all selling has been rational. One stock that looks oversold, reckon the MS analysts, is Origin Energy, which has done much to put the market’s mind at ease recently by shoring up its balance sheet and providing clarification around the future profitability of it APLNG project, saying its break-even price for oil is a very low US$40-45 a barrel.
A falling Aussie dollar, plunging commodity prices, and some bank-unfriendly policies have led to the local sharemarket underperforming this year.
The blow-out to the budget deficit does not endanger Australia’s triple-A rating, Standard & Poor's has confirmed:
The federal government's mid-year fiscal update provides greater visibility on the budget impact of the sharp falls in the prices of Australia's key export commodities over recent months, the ratings agency says in a statement.
‘‘While ongoing price falls were expected due to rising Australian and global supply capacity, these falls have been greater than were assumed in the government's May 2014 budget,’’ S&P says.
Despite a higher deficit and lower revenue projections for the following years, budget performance over the next few years still appears likely to improve.
‘‘While weaker, these revised budget forecasts remain broadly consistent with our base case assumptions that deficits will be moderate and declining, and they do not alter our view that general government debt will remain low relative to GDP.’’
We pointed earlier to the troubles now plaguing parts of the IPO market with today's debut of Australian Careers Network leaving its original investors underwater, joining the recent IPO of Estia.
During trading today eCargo slumped 20 per cent to 20.5 cents, putting it below its recent IPO price of 25 cents, joining the earlier float of Speedcast, a satellite service operator, trading off 0.5 per cent at $1.75 which is well south of its IPO price of $1.96.
It generates a fair portion of its revenue from the resources sector, including oil, which has soured sentiment here.
Here's a nifty chart from the ABC on how the budget forecasts have changed over time - head to the national broadcaster's website for the interactive graphic.
MYEFO is forecasting a budget deficit of $40 billion for the current financial year - up more than $10 billion compared to the budget forecast, released seven months ago. Source: ABC
The ability of James Packer's Crown Resorts to pay for a bulging pipeline of new casino developments could be at risk because of weak high-roller activity around the world.
That's the view of Credit Suisse gaming analyst Larry Gandler, who has slashed his investment recommendation on the $10 billion casino operator to "underperform" because of the risk of a prolonged global slowdown in VIP activity. He also reduced his 12-month price target for the stock to $11.40, from $15.20.
Crown added a new Melbourne five star hotel to its long list of projects on Friday. The company has yet to provide detailed plans for the hotel. But with an estimated price tag of $1 billion, this would take the total for developments that Crown and its Macau joint venture Melco Crown have committed to, up to $7 billion.
Mr Gandler said an ongoing slump in VIP activity in the world's largest gambling hub Macau raised a number of questions about the sustainability of the market segment in Australia. "About $7 of our Crown valuation is exposed to global VIP gaming and Macau," he said in a note to clients.
"There is, of course, Macau and the Australian VIP revenue streams, but there is also the planned Vegas casino and the planned Sydney casino. Both of these ventures are expected to be very dependent upon VIP patronage."
In early trading Crown shares fell as much as 6 per cent, but had recovered slightly in late morning to trade 41 cents, or 3 per cent lower, at $12.69, a new 12-month low. The stock has lost about 20 per cent over the past year.
The company's development commitments spread across three countries. Crown revealed in August that it had bought nine hectares on the famous Las Vegas strip, on which it would build a new luxury casino.
The federal government has announced a $40.4 billion deficit for 2014-15 after plunging commodity prices and slower wages growth led revenues to fall by $7 billion this year alone.
The deficit, outlined in the Mid-Year Economic and Fiscal Outlook, is $10 billion worse than the $30 billion forecast in the May budget.
Deficits for this and the next three years have all blown out, pushing out until at least the end of the decade any return to surplus.
The forecast of a balanced budget by 2017-18 in May has blown into a deficit of $11.5 billion.
The government has allowed the deficits to blow out rather than chase the falling revenue with cuts but it has taken the axe to foreign aid to cover some of the new spending since the budget, namely war and national security.
On top of the $7.6 billion cut from foreign aid in May, another $3.7 billion has been axed over four years to pay for the military deployment in Iraq, the $630 million boost to the domestic security agencies to fight terrorism and the recent $200 million contribution the Green Climate Fund.
The foreign aid cuts do not need legislation nor will they harm the domestic economy. They represent a significant defeat for Foreign Minister Julie Bishop who was assured by colleagues after the May budget there would be no more aid cuts and she fought these vigorously.
Treasurer Joe Hockey is hoping the deteriorating budget position shakes the Senate into passing stalled structural budget savings such as cuts to welfare, universities and Medicare he says are essential - along with stimulating growth - to restoring the budget.
The MYEFO also paves the way for next year’s restructure of child care and paid parental leave, which will include Mr Abbott scaling back his controversial scheme and the possible introduction of a means test for the child care rebate, which would be a broken promise if done before the next election.
MYEFO shows the child care rebate and benefit will blow out by $2.4 billion more over the next four years than forecast in the budget. And despite being wound back in the May budget, Family Tax benefit payments will balloon by $3.2 million more over the same period.
The MYEFO has also axed or consolidated another 175 government agencies, costing thousands of jobs and saving $500 million.
The hit-list is in addition to the 76 agencies scrapped in the May budget.
Supermarket chain Coles is facing penalties of $10 million and has offered to refund certain payments to suppliers after admitting that it engaged in unconscionable conduct.
In a major mea culpa, managing director John Durkan said today that Coles apologised unconditionally and accepted full responsibility for its actions in dealings with suppliers.
“I believe that in these dealings with suppliers, Coles crossed the line and regrettably treated these suppliers in a manner inconsistent with acceptable business practice,†Durkan said. “These suppliers were not treated with the transparency and respect they should be able to expect,†he said. “Coles sincerely regrets and apologises for its conduct in these dealingsâ€.
Earlier today, Coles reached agreement with the ACCC to settle two separate legal proceedings involving unconscionable conduct against suppliers that were brought against Coles in May and October this year following a two year investigation.
The ACCC is seeking penalties of $10 million – $3.7 million in relation to Coles’s demands that suppliers pay extra rebates to fund the cost of a supply chain improvement program and $6.3 million in relation to claims for payments made against five suppliers to fill so-called ‘profit gapsâ€.
Shares in Coles’ parent, Wesfarmers, are down 1.5 per cent to $40.80.
Mea culpa by Coles: the supermarket giant has apologised for 'crossing the line' in dealings with suppliers. Photo: Supplied
Why global investors view of falling oil prices has completely changed, the FT explains:
Oil prices are falling, at a historic rate. Crude prices have more than halved since their post-crisis high, with almost all of that fall coming in the last five hectic months, and their descent is accelerating.
This is a huge economic readjustment. And it prompts the question — in line with the old English history textbooks — of whether this is a Good Thing, or a Bad Thing. Even though oil is far less critical to the developed world’s economies than it was in the 1970s, cheaper oil should be a net benefit. It reduces costs for most businesses, while freeing up consumers to spend more.
That is why falling oil prices have been accompanied usually by rallying stock prices, particularly in the US, where most Americans are still wedded to the automobile. This week, however, investors’ attitude has pivoted. Oil prices are still falling, but now that is viewed as a Bad Thing.
The critical moves are in bond markets. In the US, 10-year treasury yields have dropped well below 2.2 per cent once more, and below the level at which they closed on October 15 — the “flash crash†day in the bond market when yields suddenly dropped below 2 per cent, triggering consternation.
In the eurozone, German five-year inflation break-evens — the inflation forecast that can be taken from subtracting the yield on fixed income bonds from the yield on inflation-linked bonds — dropped below zero this week. Traders expect deflation in the eurozone for the next five years. In the US, inflation break-evens for the next 10 years have dropped to 1.62 per cent, their lowest since the autumn of 2010 — when falling break-evens prompted the Federal Reserve to launch the “QE2†round of bond purchases.
This demonstrates unambiguous alarm that the world economy — even after the stimulus from a 50 per cent oil price cut — is slumping.
The US bond market's favoured inflation gauge, the breakeven inflation rate for inflation-linked bonds, shows the impact of falling oil and global growth worries on expected price rises.
First forecasts in from the mid-year budget update (MYEFO):
- Jobless rate to hit 6.5 per cent next year, up from 6.25 per cent in May estimate
- Deficit to hit $40.5 billion this financial year, up from $29.8b estimate in May
- Inflation to rise towards 2.5 per cent next year, up from 2.25 forecast last May
- Iron ore price to average $US60 a tonne over the coming two years
- GDP growth estimate for 2014-15 stays at 2.5 per cent
Are we seeing the IPO market effectively shut down - or are the problems specific to a couple of specific issues or sectors?
Hard on the heels of the savage treatment meted out to the retirement home operator Estia, who's shares are trading well below its recent IPO price of $5.70, this morning's float of Australian Careers Network has tanked.
It slashed to $54.4 million from the original IPO target of $100 million, but its issue price of $1.70 proved to be wildly optimistic, with the shares trading at $1.37, after hitting an opening low of $1.25.
The Australian dollar brushed fresh four-and-a-half-year lows this morning as market jitters around the siege in Sydney's financial district and the threat of a new budget blow-out weighed on the local currency.
In late morning trade, the Aussie was fetching 82.17 US cents, towards the lows of the first week in June 2010. The currency has not slipped below 82 US cents since then.
However, recent jawboning by Reserve Bank of Australia governor Glenn Stevens, Australia's declining terms of trade, China's slowing growth rate and broader unease about the domestic economy have conspired to drive the local unit ever closer to that level in recent days.
A growing band of economists and foreign-exchange strategists now see the local currency moving easily below 80 US cents over the next 12 months.
A softer growth outlook for China had the Aussie opening local trade down slightly on the same time on Friday, before it dived suddenly - to as low as 82.05 US cents - as news trickled out about a siege apparently involving arms and hostages in the heart of Sydney's financial district.
Markets were already braced for confirmation of the nation's widening Federal budget deficit in Joe Hockey's mid-year economic and fiscal outlook (Myefo). In the event, the Federal Treasurer suspended the planned 12.30pm presentation because of the Sydney siege.
The security alert in the CBD doesn't seem to have had any discernible impact on sharemarket sentiment so far. The benchmark S&P / ASX 200 Index was down about 0.8 per cent, a fall that is within its normal trading range and not as big as the losses predicted overnight amid the rout in global oil prices.Â
Morgans director Bill Chatterton says the overall market apart from the energy sector has performed ''reasonably'' despite the crash in energy stocks:
- There are sectors in the market that have done well. You look at the telcos - Telstra's continued to do extremely well and at the same time is paying very good dividends.
- Other areas have done reasonably well. You look at healthcare - you look at CSL, you look at Sonic, Cochlear. Medibank Private has come on very well.
- You've got to consider what the banks have done, you've got to consider what consumer staples have done.
- Oil and gas has been a shocker over the past few months absolutely, no question. The oil price has gone from $US100 per barrel to $US56 per barrel - it's incredibly alarming.
- But energy in the ASX200 is about 8 per cent. Transport is a major input cost to most businesses and petrol has come down a long way. There are benefits out there.
Looks like the mid-year budget update will be presented at 1:30 AEDT. This from Fairfax's Peter Martin:
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Paul Krugman believes the Fed won't lift rates in 2015.
Paul Krugman, challenging the consensus of economists and the Federal Reserve’s forecasts, says policy makers are unlikely to raise interest rates in 2015 as they struggle to spur inflation amid sluggish global economic growth.
“When push comes to shove they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge’,†the 2008 Nobel laureate said in Dubai. “It’s certainly a real possibility that they’ll go ahead and do it, but probably not, and for what it’s worth I and others are trying to bully them into not doing it.â€
Krugman, author of “End This Depression Now!â€, has criticised the US government and central bank for not doing more to revive the economy after the financial crisis, and his position now pits him against most Fed officials.
Krugman said financial markets are signalling that policy makers will delay raising borrowing costs. His remarks build on arguments he’s made in his New York Times column. On December 10 he wrote that the Fed risked “letting itself being bullied into doing the wrong thing†by raising interest rates prematurely.
Yields on 10-year US Treasuries are at the lowest level since mid-2013, and inflation expectations have dropped with the slump in oil prices. The Federal Open Market Committee, which next meets to set rates on December 16-17, will take energy costs into account in its assessment of inflation and the economy.
Joe Hockey will "shortly" release the mid-year budget update, the PM says.
Meanwhile, the ASX has just sent out an email confirming that all markets remain open.
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Recall is the best performer on the ASX 200 so far today - up 18 per cent to $7.56 after rejecting a bid for the company by larger US rival Iron Mountain (see post at 9:44).
Investors must be betting on a better offer appearing, as the bid valued Recall at $7 per share.
And more on oil: the collapse in the oil price will inevitably feed through to lower spending throughout the Australian oil and gas sector, although the $200 billion of investment going into new liquefied natural gas projects is unlikely to be affected.
The second LNG projects under construction around the country have LNG sales contracts they have to meet “so they need to ramp up as quickly as possible to start earning cash,†said Graeme Bethune at consultancy EnergyQuest.
“The lower oil price will flow on to lower LNG prices and lower returns on Australian projects. However, it is unlikely that any LNG project was sanctioned assuming US$100/barrel oil prices,†Bethune said.
The comments came as crude oil prices reached new lows not seen for over five years, as the sell-off in the market continued apace.
Brent crude has dropped as much as 2.5 per cent to $US60.28 a barrel in Asian trading today, breaching Friday’s low of $US61.35. Prices were $US115 a barrel as recently as June. The US benchmark, West Texas Intermediate, slid as much as 2.7 per cent to $US56.25, also breaching its low of Friday.
The slump in prices took a further toll on stock prices throughout the sector, with Santos shares dropping as much as 2.8 per cent to $6.96. Santos has already advised of a 25 per cent cut to its 2015 capex budget, to $2 billion, and advised it will consider assets for sale.
Oil Search has also advised it is reviewing spending, as has Cooper Basin player Senex Energy.
“We are already seeing capital spending being cut across the sector,†Bethune said. “Industry costs went up with the higher oil price and now need to fall with the oil price.â€
Spending on oil and gas exploration in Australia reached a record $1.4 billion in the June quarter, according to a report released by EnergyQuest. Spending on development also remained strong, at $14.7 billion, it said.
No bottom in sight for the oil price, as Brent continues its plunge today. Photo: Getty Images
As falling oil prices continue to dominate market news, everyone is waiting to see what happens next. A deep bounce in price to $US0 per barrel and below; stagnation in the $US60-$US70 range; or the start of a slow and long recovery? The alternatives are many, and the permutations endless, but some trends seem well established, for now.
The oil aristocrats of the Arabian Gulf have chosen their path. They will allow the fundamentals of demand and supply to sort out any disruptive influences in the markets. This move is based on a deep confidence in their certainties: that they are the industry's low-cost producers ($US1-$US10 per barrel); have the largest resource base and the biggest fields; and they still have the supermajors queuing up to invest.
On the downside, they have the knotty problem of very demanding domestic shareholders in the form of the state, a fear of domestic instability and a raging conflict on the horizon. But still things seem under control. This is familiar territory - at least, they hope it is.
In contrast, there are few certainties for the arriviste shale oil players. Estimates of the cost of shale oil supply range from $US40-$US80 per barrel, dependent on resource quality, operator capability and cost of capital. Talk of technology-driven cost improvements is not significant on the scale of a $US40 per barrel swing in price.
Perhaps more importantly, the continued flow of capital into shale to sustain its growth trajectory is in question. As debt covenants become challenged by reduced cash flows and continued volatility undermines broader investor confidence, we are seeing valuations halve and the first pure shale company bankruptcy. Today, it is not clear whether the cost of shale oil supply or a constraint on the flow of capital will bite first, but both issues are in play.
What is likely is that pre-drilled well capacity and existing finance will provide a buffer of three to six months before true reality is exposed. This is certainly not familiar territory to the shale players, and the industry waits to see how they will deal with it.
The oil aristocrats of the Arabian Gulf will allow the fundamentals of demand and supply to sort out any disruptive influences in the markets.
Joe Hockey has postponed the release of this year's mid-financial year update due to the siege unfolding in Sydney.
The Mid-Year Economic and Fiscal Outlook was scheduled for release at 12.30pm but will now be released at a later time after the government swung its attention to the dangerous situation unfoldng in Martin Place.
The statement had been foreshadowed to outline a serious write-down in Commonwealth revenue forcing the Abbott government into the same situation it had criticised the previous Labor government for.
Treasurer Joe Hockey is a member of the National Security Committee.
The ABC is tweeting that the PM is holding a press conference at 12:30 about the hostage situation unfolding in Martin Place in Sydney's CBD.
Maybe the budget update - due then - will be delayed.
The Japanese sharemarket is 1.1 per cent lower, after falling as far as 1.9 per cent in early Tokyo trade, following the reelection of Prime Minister Shinzo Abe over the weekend (see post at 9:27).
The Nikkei index is at 17,186.4.
The yen is slightly weaker at 118.53 per US dollar.
Elsewhere around the region:
- Hang Seng -0.3%
- Shanghai Composite +0.4%
- Taiwan TAIEX -0.5%
- Korea's KOSPI -0.7%
- NZX 50 -0.8%
NBN Co chief executive Bill Morrow is confident that more Australians will have faster broadband sooner thanks to the new $11 billion deal signed with Telstra and Optus to acquire their cables used to deliver pay television.Â
The new deal, part of the Coalition's multi-technology National Broadband Network rollout, replaces the previous agreement with the Labor government.
Telstra and Optus will progressively hand over their hybrid fibre-coaxial (HFC) networks to NBN Co, Â which will allow the government broadband infrastructure provider to connect more homes with much less construction than the original fibre-to-the-premise NBN rollout.
NBN Co anticipates the deal will be passed by the regulator towards the end of the first quarter, or early in the second quarter, of 2015.
"This agreement enables us to shave years off the rollout schedule and save billions of dollars at the same time. The majority of homes across the country will no longer need to have their gardens dug up, their driveways broken apart or equipment mounted on their homes," Mr Morrow said.
In one scenario outlined by NBN Co in its corporate plan, HFC could account for 27 per cent of the entire rollout.
Under the Coalition's multi-technology model, NBN Co is aiming to hit 1.9 million homes by the middle of 2016. This is in large part thanks to the plan to start rolling out fibre-to-the-basement (FTTB) to 20 multi-dwelling units per month in the near term.
However, this does not include Telstra and Optus's HFC networks, meaning even more people could be connected by this date.
Mr Morrow said that the HFC network would be able to provide the minimum requirement 25 Megabits per second download speed required in the rollout and expects to begin testing on the networks soon.
NBN Co chief executive Bill Morrow is confident more people will have faster broadband soon. Photo: Edwina Pickles
In a major backflip, supermarket chain Coles has offered to refund certain payments to suppliers after admitting that it engaged in unconscionable conduct.
The Australian Competition and Consumer Commission has confirmed that it was seeking orders from the Federal Court in Melbourne - including declarations and fines - after reaching agreement with Coles to settle two separate legal proceedings involving unconscionable conduct.
The orders being sought include declarations, based on admissions by Coles, that Coles engaged in unconscionable conduct with respect to a number of suppliers in 2011, in contravention of the Australian Consumer Law.
As part of the settlement, Coles will give an enforceable undertaking to the ACCC which provides for an independent review of the eligibility of suppliers in both proceedings for possible refund of certain payments made to Coles.
The ACCC said it was up to the court to decide whether it was prepared to make the consent orders sought by the parties.
As reported in Fairfax Media on Friday, Coles has been in talks with the ACCC for several weeks in a bid to settle the cases, which have shined a spotlight on the Wesfarmers-owned retailer’s heavy-handed tactics against suppliers.
The ACCC took legal action against Coles in October, alleging that Australia’s second-largest food and liquor retailer breached the law by engaging in unconscionable conduct against five suppliers.
The commission alleged Coles took advantage of its superior bargaining position by demanding money from suppliers to which it was not lawfully entitled.
Coles is alleged to have 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.
Coles initially denied the allegations and said it would vigorously defend both cases.
Wesfarmers shares are down 0.6 per cent at $41.22, while Woolies is 1.7 per cent down at $29.37.
Offices are being evacuated in the immediate vicinity of a hostage drama taking place at a cafe in Sydney's Martin Place (you can read live updates here).
The Opera House has been evacuated, while there are reports that David Jones staff in their Elizabeth St HQ are not allowed to leave.
The sharemarket hasn't responded to the news, although the Aussie dollar has fallen around 0.3 US cents to 82.3 US cents.
Coca-Cola Amatil and its major shareholder, The Coca-Cola Co, are pressing ahead with the sale of a 29.4 per cent stake in CCA’s Indonesian bottling business for $US500 million ($606.5 million).
The Coca-Cola Company, which owns 29.4 per cent of Coca-Cola Amatil, has received TCCC board approvals to acquire a similar-sized stake in Coca-Cola Bottling Indonesia (CCAI) – satisfying one of several conditions of the deal.
The agreement is also conditional on Indonesian regulatory approvals and approval by Coca-Cola Amatil’s minority shareholders at a meeting in February.
CCA is expected to release scheme documents later this week.
The proceeds of the deal will be used to fund accelerated capital expenditure and market development in Indonesia. CCAÂ plans to expand production, warehousing and cold drink infrastructure, broaden its product offering and offer a wider range of affordable soft drink packages.
CCA is estimated to have invested $1.3 billion in capital in Indonesia over the past 22 years and now commands about 60 per cent of the soft drink market.
However, the Indonesian business remains cash-flow negative and earnings have been falling for several years in the face of competition from new competitors and rising costs.
If shareholders approve the sale of the stake to TCCC, CCA expects returns in Indonesia to cover cost of capital by 2020.
Coca-Cola Amatil shares are down 0.8 per cent to $8.84.
The chase for yield will remain a force in the local sharemarket against the background of a low growth environment and an ageing population, reckon analysts at Baillieu Holst.
The broker’s team have updated their quantitative screen that highlights stocks with a high and sustainable yield.
BHP is the top large-cap pick, while among small caps top picks are litigation funder IMF Bentham and engineering contractor RCR Tomlison.
The analysts screen average earnings and cash flow per share growth of below 10%, an average of price-earnings and price-cash flow below 10, a dividend yield above 5% and a buy rating.
Also passing the screen among the 20 biggest listed companies are: The big four banks and Telstra; among the mid-caps: Perpetual and Myer; and among smaller names: Northern Star Resources, Hills, Webjet, Platinum Investment Management, Mortgage Choice and GDI Property Group.
The country's biggest Telco has done well from the new deal with the NBN, writes BusinessDay columnist Malcolm Maiden:
The juice for Telstra shareholders in Sunday's announcement of a new deal between Telstra and the NBN Co is the news of negotiations for Telstra to take over a large part of the design, construction and maintenance of the network.
NBN and Telstra are believed to have agreed on the broad terms of this side deal. It will see Telstra win large design, construction and maintenance contracts from the NBN Co, as long as it meets the price other companies are prepared to charge.
Details have not been disclosed, but large chunks of the project are in effect going to be reserved for Telstra if it charges market rates.
The reserved portions of each area of work vary, and are largest for design, an area of Telstra expertise. The amount of work that is Telstra's for the taking if it meets the market rate is, however, significant in each of the three project areas, and much more in total than the early work it has been doing on design and construction for NBN Co.
It comes as no surprise that a deal described as one that "keeps Telstra whole" is actually one that promises to tip more dough into its pocket.
As Communications Minister Malcolm Turnbull observed on Sunday, Labor's original deal with Telstra for the construction of a national fibre to the home network envisaged that Telstra would progressively transfer its customers to the NBN. NBN Co did not actually acquire either Telstra's copper wire network or the hybrid fibre cable networks that Telstra and Optus built in the mid-90s when they launched their pay TV services.
The Coalition's hybrid, mixed technology solution includes fibre that terminates at neighbourhood nodes, or junction boxes – but Telstra still owned the copper wire that is needed to connect the neighbourhood nodes to premises.
The core deal sees Telstra retain a net present value of about $11 billion. Photo: Daniel Munoz
Shares are steeply lower at the open, as mining and energy stocks are whacked by lower oil and iron ore prices.
The ASX 200 and All Ords are down around 53 points each, or by 1 per cen