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Markets Live: ASX trims losses


That’s it for Markets Live today.Thanks for reading and for your comments.See you tomorrow from 9am.Australian shares pulled off early lows to end with mild gains on Thursday, as investors focused on earnings from some of the country’s biggest companies.The S&P/ASX 200 index rose 13 points, or 0.2 per cent, to 5890 while the broader All Ordinaries rose by the same point and percentage amount to 5995 and the Australian dollar traded at US78.22¢.The Australian share market started out in the red after a volatile session overnight on Wall Street where shares eventually ended the trading day with small losses.Investors are still nervous following the savage sell-off that took place at the start of the week as markets attempted to adjust to the idea of higher bond yields and higher interest rates.According to RBC strategists, the US Federal Reserve probably welcomed at least one development stemming from the selloff.“What the recent market rout did that the Fed will probably view as a welcome devolvement is realign financial stability as evidenced by the sharp move in financial conditions indices,” the strategists said.“This reprieve means the Fed can stick with its mantra of gradual rate increases. In our view, this includes an outlook where they can go 4 times in 2018 – something that gets them to ‘neutral’ by year-end – but frees them from having to overreact to ‘frothing’ asset valuations,” the strategists added.Financials were helping the Australian market to advance on Thursday and were the strongest sector in points terms, adding 15 points to the index.NAB shares climbed 2.3 per cent to $28.90 after it said it was on track to meet it targets as it reported a 3 per cent rise in first-quarter cash profit.Elsewhere in the financial services sector, AMP shares rose 3.6 per cent to $5.21 after the financial services firm’s full year underlying profit more than doubled to $1.04 billon.Origin shares fell 2 per cent to $8.77 after the firm said that it would take a $533 million write down related to its gas operations.Other companies reporting earnings included AGL which lost 2.1 per cent to $22.01 after it posted a 26.7 per cent rise in first-half underlying profit.Tabcorp dropped 6.7 per cent to $4.76 after posting a 58 per cent drop in net profit following a poor result from its UK start-up operation Sun Bets.Domino’s Pizza shares are up 3.7 per cent at $48.92 today.The company’s results are due on February 14 and Morgan Stanley analysts said they believe the market will react positively to the earnings.The analysts are expecting the firm to report first-half underlying net profit after tax growth of 13.9 per cent, with the figure rising to 27.9 per cent in the second half.“Investors shouldn’t be alarmed by relatively soft first-half profit growth relative to the approximate 20 per cent full year profit growth guidance,” they said.The analysts, who are overweight on the stock, broke down how they expect growth to accelerate in the second half:“We step through the drivers of the growth differential with the Japan put option contributing 3.8 per cent, FX impacts 0.9 per cent, faster second-half store growth 2.7 per cent, greater second-half same store growth of 3.7 per cent , Hallo Pizza earnings contribution at 1.3 per cent and operating leverage at 1.5 per cent.”.China’s overseas shipments held up despite the stronger yuan and rising trade tensions with the US, while import growth surged reflecting calendar effects and higher commodity prices.Exports rose 6.0 percent in January in yuan terms from a year earlier, the customs administration said Thursday. Imports increased 30.2 percent, to leave a trade surplus of 135.8 billion yuan ($21.6 billion).Factories and offices close for weeks around the Lunar New Year, distorting economic data for the first two months of a year. This year’s holiday runs Feb. 15-21, later than last year, when it began in January.External demand has remained intact amid a synchronised global expansion, helping to offset the yuan’s continued surge.Imports have otherwise shown signs of weakness since the last quarter as campaigns to curb debt and pollution have intensified, weighing on domestic activity.Still, the world’s largest exporter faces uncertainty. Trade friction between the two biggest economies has ratcheted up recently, with China probing sorghum imports from the US after the Trump administration slapped tariffs on solar panels and washers, which Beijing called a “misuse” of trade measures.Trade friction will likely intensify this year, but a trade war is unlikely, according to UBS economists led by Wang Tao in Hong Kong.“Targeted tariffs and restrictions may hurt related stocks or sectors, but the macro impact on China’s exports or GDP growth will be very small as a stronger global recovery helps to drive 2018 export growth,” she wrote.It took less than a day to debunk the longstanding mantra that financial markets are in an era of low volatility. As the shockwaves ripple out from this week’s ructions, another truism of recent years — that investors should “buy the dip” — faces scrutiny.Robust global economic growth and the momentum that corporate earnings have favour holding equities, some analysts and investors say, even as interest rates rise and central banks slowly retreat from an era of very supportive monetary policy.“Clearly the well of optimism that led US equities to new highs has run dry, at least temporarily.” says Craig Burelle, an analyst at Loomis Sayles. “But the global economy remains on firm footing, and that has not changed over the past few trading sessions.”And given the magnitude of the surge in volatility and wild swings in share prices, sentiment will probably remain febrile as the market takes time to find a footing, echoing the reaction after previous shocks in August 2015 and early 2016.Michael Arone, chief investment strategist at State Street Global Advisors, says: “We had an incredibly rapid ascent in risk assets. We were all wondering when we would have this sell-off, everyone was expecting it and now we are starting to see it.”The Cboe’s volatility index, which slumbered below its long-term average of 20 for much of the past decade, breached 50 this week.The losses inflicted on those investors who had bet — sometimes using exchange traded products — on volatility in US stocks staying low raises concerns about other risks embedded in financial markets.Read the full Financial Times storyAnalysts believe Rio Tinto can continue growing dividends and buybacks in future years, but the company has told shareholders not to assume that all proceeds from asset sales will be converted into shareholder returns.The sale of coal assets in New South Wales bolstered Rio’s returns to shareholders in 2017, when the miner passed through virtually all of the $US2.69 billion ($3.44 billion) it received from Yancoal for the assets.That gift came on top of an existing $US1.5 billion share buyback program and confirmation this week of the biggest dividend in the company’s history; $US2.90 per share in total over 2017.Macquarie analyst Hayden Bairstow pointed to Rio’s exceptionally low debt and the rumoured sale of coal and aluminium assets in Queensland, plus the possible divestment of the company’s stake in the Grasberg copper mine in Indonesia.Mr Bairstow said that combination of factors pointed to continued strong returns to shareholders.“Given the company’s low gearing ratio, strong cash flow and potential proceeds from the sale of its Queensland coal assets, we believe further increases to cash returns are likely in 2018,” he said in a note.Peter Ker reportsShares were lower at lunchtime but off their worst levels of the session.The S&P/ASX 200 index declined 9 points, or 0.2 per cent, to 5867 while the All Ordinaries lost 8 points, or 0.1 per cent, to 5973. The Australian dollar traded at US78.25¢.Miners remained weak, with BHP down 1.5 per cent and Rio Tinto lower by 1.6 per cent.Financials were gaining, however, with NAB up 2.3 per cent and AMP up 2.9 per cent after updating investors on earnings.On the downside of earnings-related news, Tabcorp lost 7.1 per cent, AGL fell 2.5 per cent and Origin lost 2 per cent.It was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors.Now newfangled investments linked to volatility in the stock market — until a few years ago, obscure niche products — have exploded in spectacular fashion. The shock waves have only just begun.How these investments proliferated is a classic story of Wall Street salesmanship and old-fashioned greed.In a few short years, financial engineering transformed expectations about the ups and downs of the stock market into an asset class that could be marketed and sold — as tradeable as stocks but, it turns out, sometimes far riskier.Call it the volatility-financial complex. All told, financial players have created more than $US8 billion ($10 billion) of products tied to one index alone. In a low-interest-rate world, investors desperate for returns snapped them up, and bankers collected fees along the way.But, as with mortgage investments a decade ago, complacency — in this case, over a history-defying period of market calm — masked potential dangers.No one is saying the wild swings of late presage a broad collapse like the one that hit in 2008. But the fallout nonetheless provides a glimpse into the myriad products, and growing complexity, driving global markets a decade after the last debacle.Read more herePresident Donald Trump has broken his silence on the stock market.Mr Trump has commented frequently on market gains during his tenure, but stayed silent on Monday as the Dow Jones industrial average suffered its biggest one-day drop ever. He remained quiet as markets around the world swung wildly over ensuing days but elected to air his thoughts on Wednesday.In a tweet, Mr Trump said “In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”The government reported last Friday that the economy created 200,000 jobs in January and that wages grew at the fastest pace in eight years.The tweet came as Wall Street remained on unsteady footing on Wednesday as the bout of volatility that’s gripped global financial markets persisted. In the “old days,” when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!— Donald J. Trump (@realDonaldTrump) February 7, 2018 The Australian results season has been overshadowed by the recent rout in global equity markets, Deutsche Bank’s Australian equity team noted.The strategists commented that through 2017 they watched the ASX trade well above their base case index targets and embrace bull case multiples.“The ASX 200 was out of sync with the earnings recovery seen in regional and global markets but participated in the global trend towards paying up for earnings,” they said.“A push through the key sentiment level of 6000 left us with the view that we had achieved index levels that required a pickup in EPSg – something we struggled to forecast,” they added. “There were also cautious signals developing outside of Australia – most major markets were flashing downside index risk when compared to strategist bases cases and the sustainability of rich valuations in many asset classes had led both our US and EM strategy teams to call a heightened risk of correction,” they said. Fair value is now in reach, the strategists said. They have a target of 5800 for the ASX.The strategists said that a further period of sentiment adjustment is required before calling a trough in this correction.“For Australia we would be buyers of weakness in energy and global growers, embrace value over bond proxy defensives and stay cautious on domestic cyclicals.”The NAB business conditions index rose 1 point, to +15 in the fourth quarter to a level the bank said was well above the long-run average.The index rise was driven by improvements in employment, while trading conditions eased slightly and profitability was steady, the bank said.Employment conditions have been holding up at levels that suggest likely further improvement in unemployment over coming quarters, NAB said.Meanwhile, the NAB business confidence index eased slightly from +8 to +6 points in the quarter, a little above the average.NAB Group Chief Economist Alan Oster commented: “The monthly survey suggested that confidence improved a lot towards the end of the quarter, so we are not too concerned about the softer outcome.“However, when we ask firms about the factors having the biggest impact on confidence, those indicating a deterioration in confidence appear to be most concerned about wage pressures, despite the fact that we have only seen fairly modest wage growth in the economy to date.“It is unclear whether this means we are likely to see a pick-up in wages from here, or conversely, even more restraint as firms attempt to preserve margins.”The dollar was at US78.25¢ after the survey was released.Tesla said on Wednesday it was sticking with Chief Executive Elon Musk’s revised production targets for its Model 3 electric sedan, but posted its worst-ever quarterly loss, and warned that spending would increase slightly this year.Shares of the Palo Alto, California-based company were barely changed in extended trading.Money-losing Tesla’s long-term viability depends on annually selling billions of dollars of Model 3s, the new sedan that starts at $35,000, about half the price of its flagship Model S. . Tesla said that net reservations for the new model were stable during the fourth quarter.Production delays have curtailed deliveries of the vehicle to customers – only 1,550 deliveries in the fourth quarter, far below the 4,100 vehicles expected by analysts – meaning revenue from the highly anticipated vehicle has yet to hit Tesla’s bottom line.Tesla’s biggest-ever quarterly loss, however, was not as wide as analysts were expecting, and revenue also just topped targets.And Musk said the company would turn a profit during 2018.Net loss widened to $675.4 million, or $4.01 per share, for the fourth quarter ended Dec. 31 from $121.3 million, or 78 cents per share, a year earlier. Total revenue rose to $3.29 billion from $2.28 billion, just above the $3.28 billion expected by analysts, according to Thomson Reuters I/B/E/S.Mirvac, one of the country’s biggest residential developers, has reported a fall in half-year profit to $465 million due to property revaluation gains and the timing of residential settlements.The first-half profit for the same time last year was $508 million.The group reaffirmed its operating earnings per security for the full year of between 15.3¢ and 15.6¢, equal to growth of 6 to 8 per cent.Mirvac announced plans for an on-market buyback program for up to 2.6 per cent of its register as part of its capital allocation strategy.An interim dividend of 5¢ will be paid on February 28.Mirvac is a diversified real estate investment trust that generates revenue from investments in office towers, shopping centres, warehouses and funds management, as well as the housing sector.Caroline Cummins reportsThe tumble in cryptocurrencies that erased nearly $US500 billion ($639 billion) of market value over the past month could get a lot worse, according to Goldman Sachs Group’s global head of investment research.Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by a small set of future competitors, Goldman’s Steve Strongin said in a report dated February 5.While he didn’t posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different tokens to move in lockstep wasn’t rational for a “few-winners-take-most” market.“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”Today’s digital coins lack long-term staying power because of slow transaction times, security challenges and high maintenance costs, according to Strongin. He said the introduction of regulated Bitcoin futures had not addressed those concerns and he dismissed the idea of a first-mover advantage – noting that few of Internet bubble’s high fliers survived after the late 1990s.“Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors,” Strongin said.“At the same time, it probably does mean that most, if not all, will never see their recent peaks again.”Read more hereShares declined in early trading after a late retreat sent Wall Street to a lower close overnight.The S&P/ASX 200 index declined 36 points, or 0.5 per cent, to 5839 while the All Ordinaries fell 27 points, or 0.5 per cent, to 5953. The Australian dollar traded at US78.16¢, sliding against a stronger US dollar.Strength in the greenback pressured commodity prices and the Australian resource sector was the worst performing sector in early trading.BHP dropped 1.9 per cent, RIo TInto lost 2.8 per cent and Newcrest fell 2.4 per cent.Origin fell 1.7 per cent after detailing a $533 million writedown, while AMP shares jumped 3.2 per cent after reporting a surge in profit. NAB shares slipped 0.5 per cent.Tabcorp shares dropped 5.1 per cent after reporting results while AGL rose 0.2 per cent after updating shareholders on its results.Australian diversified gambling operator Tabcorp Holdings said on Thursday that half-yearly profit fell more than 20 per cent, hurt by a spike in expenses for the period.Underlying net profit came in at $82 million for the six months ended Dec. 31, compared with $102.7 million a year ago, the horse-race betting company said. Analysts had forecast $89 million.The statutory net profit fell about 58 per cent to $24.6 million due to significant items including costs from the acquisition of Tatts Group, Tabcorp said in a statement.The company said operating expenses for its Wagering and Media business, which is its key breadwinner, rose about 4 per cent.Tabcorp was expected to complete a marathon $4.7 billion takeover of lotteries operator Tatts at the end of the six-month period after lengthy delays gaining regulatory clearance.The deal, the companies’ third attempt at a tie-up, was designed to create a gambling powerhouse at a time of rising competition from foreign largely online rivals such as Britain’s William Hill and Ireland’s Paddy Power.Tabcorp said Sun Bets, its British-focused online betting venture business, would remain under review after it clocked a wider loss in the interim period.Australia’s top power and gas retailer Origin Energy said on Thursday it expects to book a post-tax impairment charge of $533 million for its half year results, due next week.The aggregate charge includes a non-cash writedown of $360 million for its Ironbark gas field, due to a downgrade in Ironbark reserves and a revised development plan, the company said in a statement.Origin also expects to book a post-tax impairment charge of $173 million, as a result of recognising Lattice Energy earnings from July 1 2017 up to the Jan. 31 2018 completion date.The US dollar index was poised for its biggest increase since October; it was 0.8 per cent higher at 90.254.“FOMC voter Dudley shrugged‑off the recent turbulence in financial markets stating ‘my outlook hasn’t changed just because the stock market’s a little bit lower…'” said CBA FX strategist Elias Haddad.“While the fundamental USD downtrend is intact, USD has scope to recover further in the short‑term as US interest rate futures reflect greater odds of three 25bps Fed funds rate hikes this year.“A bipartisan budget deal struck in the US Senate also offered USD some support. US Senate leaders have reached a bipartisan budget deal that will keep the government funded for two years, avoid a cycle of budget crises and avert a government shutdown this week. The US House of Representatives must approve this deal before Thursday’s budget ceiling deadline (NY time).”Meanwhile, ECB policymaker Ewald Nowotny, who heads the Austrian National Bank, said in an interview with the Wiener Zeitung newspaper that was carried out on Feb. 1 “the US Finance Ministry is deliberately pressuring the dollar and wants to keep it low.”He added that the European Union should band together more to serve as a counterweight to the administration of US President Donald Trump but that the bloc is divided in many areas for reasons including Britain’s planned secession from the bloc.AGL Energy said its first-half underlying profit rose 26.7 per cent as bottom-line net income almost doubled.Profit before one-time items rose to $493 million, just short of forecasts by Citigroup and Morgan Stanley, while sales climbed 7 per cent to $6.45 billion. Net profit for the six months ended December 31 almost doubled to $622 million from $325 million in the year-earlier period.AGL in December reiterated its full-year guidance for underlying profit after tax of between $940 million and $1.04 billion and confirmed that forecast on Thursday.It will pay an interim dividend of 54¢ – up from the year-earlier payout of 41¢ – on March 26 to shareholders of record on February 23.Angela Macdonald-Smith reportsThe Australian dollar has fallen sharply against its US counterpart, trading at US78.12¢,  down from US78.77¢ on Wednesday.Westpac’s Imre Speizer says the US dollar has had one of its better days of recent months.“The USD outperformed all the majors, the US dollar index is up 0.9 per cent on the day,” he said in a morning note.“Commodity currencies were hit hard,” he noted.The key event risks for the currency on Thursday were Reserve Bank of Australia’s governor Philip Lowe’s speech at the A50 Australian Economic Forum dinner and National Australia Bank’s fourth-quarter business survey.He said he could not see the local currency gaining much ground on Thursday.“(It) retains downward momentum, with minor support at US78.10¢ vulnerable given commodity weakness and USD strength overnight”.The Aussie dollar is also lower against the yen but higher against the euro.


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