Markets Live: Crimea fears dominate

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March 17, 2014 – 4:38PM

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Shares have finished lower as investors succumb to fears about the fallout from Crimea’s likely annexation, even as one of Australia’s top economists offers a more upbeat view on the economy.

5:17pm: That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

5:14pm:Shares fell as international investors grappled with the implications of Sunday’s referendum in Crimea that showed local support for moves by Russia to seize control of the region from Ukraine.

The worries about volatility in Europe compound concerns about the strength of China’s economy and come ahead of a United States Federal Reserve meeting after the local market closes on Wednesday at which the world’s largest central bank is widely expected to again cut the value of its monthly asset purchases that have been fuelling global liquidity.

The benchmark ASX 200 index and the broader All Ordinaries index each lost 0.2 per cent, on Monday to 5317.6 and 5335.2 respectively. Profit-taking also weighed on the bourse as twenty-seven stocks traded ex- dividends.

“Over the past week Russian funds have flowed out of US institutions due to threats of financial sanctions that could see assets frozen, and that continuing over the week ahead poses a risk to global markets,” E.I.M. Capital Managers portfolio manager John Robertson said.

“It looks increasingly likely Russia will annexe Crimea but the impacts on global markets will be marginal,” Mr Roberston said.

China remains the main macro-economic concern for the Australian market, he said. Late last week China’s Premier Li Keqiang said hitting the nation’s target of 7.5 per cent annual GDP growth was less important than achieving the underlying primary goal of creating new urban jobs.

“That leaves scope for Western markets that are expecting China to grow at 7.5 per cent this year to be disappointed,” Mr Robertson said. “In late 2013 China’s services sector exceeded the size of its manufacturing sector, that shift means GDP growth will slow and be less raw material intensive.”

Read more.

5:03pm:Qantas boss Alan Joyce will face his second senate inquiry in five days as unions step up their opposition to the scrapping of foreign-ownership restrictions, warning it will lead to a break up of the airline and the loss of jobs.

Mr Joyce’s scheduled appearance on Tuesday night comes after he told a separate senate inquiry on Friday that Qantas has set up 250 projects to look at ways it can slash costs by $2 billion over the next three years.

Under pressure from unions to reveal more details about planned job cuts, Mr Joyce said the 5000 positions to be axed represented just a quarter of the total cost reductions planned.

Qantas has outlined to unions how it intends to shed about 2500 jobs, which include 1500 from mostly back-office roles and 300 from aircraft maintenance operations.

Mr Joyce said the remainder would be the result of ”fuel, fleet simplification and efficiencies”, citing the retirement of Qantas’ Boeing 767 plane fleet by early next year. The latter will impact flight attendants and engineers.

He will appear before the Senate Economic Legislative Committee on Tuesday night in Canberra, which is weighing up the impact on the aviation industry and the broader economy of a relaxation of the Qantas Sale Act.

Read more.

 Alan Joyce

Alan Joyce Photo: Louise Kennerley

4:48pm: Time for the best and worst, and no surprise to see a number of gold mining names in the top 10.

G8 Education was also up a hefty 5.7 per cent, perhaps as a result of a potential competitor for investors’ dollars deciding not to go ahead with an IPO (see post at 12:01 below).

Embattled miner Lynas Corp continued to drop, while Ten Network was back to usual programming – down 4.8 per cent. Investors in Acrux seem to have lost heart, while some of the steam came out of‘s share price.

Today's best and worst performing stocks in the ASX 200.

Today’s best and worst performing stocks in the ASX 200.

4:25pm: Despite briefly pushing its head above water around midday, the market failed to find any traction and finished 0.2 per cent lower, with the ASX 200 falling 12 points to 5317.6 and the All Ords dropping by a similar amount to 5335.2.

Miners had offset the losses early, but they too succumbed to the skittish mood among investors and in the end were among the worst performing sectors. BHP closed 0.5 per cent lower and Rio 0.4 per cent.

Gold producers were the exception, as they enjoyed the haven effect of the precious metal; the sector was up 1.7 per cent.

Woolworths was the biggest single contributor to the falling market, as it dropped 2.3 per cent as it went ex-dividend.

CBA, Westpac and NAB all closed down, but ANZ enjoyed a 0.6 per cent rise.

Insurers had a great day – QBE was up 1.3 per cent, Suncorp 1 per cent, IAG 1.1 per cent and AMP 0.6 per cent.

4:05pm: This from The New York Times’s media columnist David Carr who sees a new model for music at the trendy South by Southwest music festival in Texas – big bands, big brands:

I like Doritos as much as the next guy. More, probably. And I admire Lady Gaga for her handcrafted rise to the top of pop culture. In Austin last week, the salty, cheesy wonder of Doritos was brought to you by the sweet, uplifting allure of Lady Gaga. Or was it the other way around?

That blend of sweet and savoury, corporate and personal, commerce and art at this year’s South by Southwest festival, also known as SXSW, was a reminder that music can no longer pay its own way. In a streamed world where music itself has very little value, selling out is far from looked down upon, it’s the goal.

Don’t blame Lady Gaga, SXSW or even Doritos. The consumer wants all the music that he or she desires — on demand, at a cost of zero or close to it — and we now live in that perfect world.

It doesn’t feel perfect, though. At this year’s festival, historically a place of artistic idiosyncrasy, music labels were an afterthought and big brands owned the joint.

Read more.

Big bands, big brands: Lady Gaga has a deal with Doritos.

Big bands, big brands: Lady Gaga has a deal with Doritos. Photo: Gareth Cattermole

3:47pm:Australian exporters are set to benefit from the spike in wheat prices, as ongoing concerns about the crisis in Ukraine, supply delays in the Americas and fears about the United States’ winter wheat production lift the commodity to its strongest yearly start since 2008.

Wheat prices have surged by more than 13 per cent this year, and soared to a new high for 2014 on Monday. Chicago Board of Trade (CBOT) May wheat rose to US692.75¢ per bushel on Monday.

“There’s a lot of balls up in the air and no one has any confidence precisely in the way they are going to land,” CBA agricultural commodity strategist Luke Mathews said.

“The reality is the market as we sit here today has built in a significant risk premium, recognising the uncertainty that exists.”

The Crimea crisis has boosted wheat prices as Russia and Ukraine are the world’s fifth and sixth largest wheat exporters in the world, and make up 20 per cent of global wheat and corn exports, Mr Mathews said.

“Obviously, there’s significant concern that any escalation in tensions within the region could disrupt the flow of grain out of Russian and Ukrainian ports, and therefore contribute to a near-term shortage in grain markets.”

But there have been no disruptions in grain exports from the two countries so far, Mr Mathews said, adding that “exports have continued at a very rapid pace even with these tensions rising”.

“That said, the market is still trading off the perception that perhaps disruptions could occur in the future.”

Read more.

3:14pm: Massive about-turn by Westpac on rates: chief economist Bill Evans has dropped expectations of two further rate cuts this year, predicting a rate rise in 2015.

“Our dominant theme in this cycle has been that a weak labour market would undermine consumer spending which in turn constrains investment, employment and incomes,” Evans writes in a note:

  • We still see those forces operating to moderate growth and inflation pressures but now assess that better news on employment; consumption; and business confidence will dampen those contractionary forces to exclude a sufficiently strong case to cut rates.
  • This is in the context of a high hurdle from the perspective of the Reserve Bank to further cutting rates

Evans together with Alan Oster over at NAB was until today one of the most bearish interest rate forecasters, citing weak domestic demand for expectations of further easing.

Evans’ views have been closely followed by traders because he was the only economist to successfully predict the last turn in the economic cycle when the RBA began easing. He went out on a limb in June 2011 when he forecast the RBA would cut interest rates; though the central bank didn’t cut until November that year when more economists shared that view, Evans still got the credit.

The dollar has just jumped to the day’s high of 90.50 US cents, up nearly one-fifth of a cent since the note was sent out.

The Evans effect?

The Evans effect?

2:42pm:Leave a gap under the door too small for a cockroach to crawl under and a financial engineer will still install an empire, Michael Pascoe writes (providing a strong candidate for quote of the day):

Float the dollar and spawn the forex trading bucket shops of the 1980s. Enable agricultural managed investment schemes to offer a tax angle and you grow Great Southern and Timbercorp and their failed mates.

Take your eye off our own version of dubious shadow banking and up pops the whole mezzanine finance industry from Estate Mortgage on through Westpoint and the rest. Allow your alleged watchdogs, ASIC and the ACCC, to fall asleep and a con as blatant as Firepower fuel pills thrives, with its perpetrators allowed to get away with the money and the mildest of feather slaps.

And in the way of such things, the government is busily opening another crack or two for exploitation by the usual suspects. Assistant Treasurer Arthur Sinodinos, perhaps unwittingly, is laying the groundwork for another generation of Great Southerns and Westpoints.

The main focus of criticism of Sinodinos’ extraordinary kindness towards our big banks in watering down consumer protection in the Future of Financial Advice (FoFA) legislation has been on re-admitting commissions into the game. Incentivise someone to flog something and they will, whether it’s in the buyer’s best interests or not.

Whether it’s a bunch of CBA “financial advisers” churning and burning clients or the CBA, Macquarie and Bank of Queensland providing unconscionable loans for Storm Financial victims, that’s how the product-pushing culture of bankers works.

Read more

2:28pm:The world’s most-profitable banks have never been so unloved by stock investors.

China’s four-biggest lenders, which reported $US126 billion of earnings in the 12 months through September, sank to the lowest valuations on record in Hong Kong trading last week.

The shares of the state-controlled banks known as China’s Big Four – ICBC, China Construction Bank, Agricultural Bank of China and Bank of China – have lost $US70 billion of value this year, equivalent to the size of New Zealand’s entire stock market, even as US and European peers rally, Bloomberg has calculated. Wells Fargo and JPMorgan Chase have knocked ICBC from its ranking as the world’s biggest bank by market value.

The banks are getting squeezed by slower economic growth and rising bad debts just as policy makers open up China’s financial system to non-government competitors.

“The market is concerned about future profitability” in China, Diana Choyleva, the head of macroeconomic research at Lombard Street Research, said. “I would not be investing Chinese bank shares just yet. They have further to go.”

The MSCI China Financials Index has dropped to an almost decade low versus the global industry benchmark while the market value of ICBC, the nation’s largest lender, fell below net assets for the first time on March 12.

2:07pm: Senior Labor and Liberal figures including Assistant Treasurer Arthur Sinodinos stood to make tens of millions of dollars from a company linked to the family of crooked former powerbroker Eddie Obeid, an explosive corruption inquiry has heard.

Senator Sinodinos, the then NSW treasurer of the Liberal Party, was installed on the board of the Obeid-linked Australian Water Holdings (AWH) in 2008 “to open lines of communication with the Liberal Party”, the Independent Commission Against Corruption heard on Monday.

“There will be evidence that he tried to do so,” counsel assisting the inquiry, Geoffrey Watson, SC, said in his opening address.

The senior Liberal was earning $200,000 a year for “a couple of week’s work” and would have “enjoyed a $10 or $20 million payday” if Australian Water had won a lucrative contract with the state government.

Senator Sinodinos has since abandoned his rights to shares in the company and denies any wrongdoing.

Read more.

1:35pm:Japan watchers are starting to wonder whether the recent strength in the yen and weakness in the Nikkei, along with stalling inflation numbers and some mixed economic data, will prompt the Bank of Japan to engage in another round of money printing.

There had been precious little indication of it, but over the weekend BoJ governor Haruhiko Kuroda made comments reported in the press “designed, it appears, to keep the faith that his team will do more policy easing if required, and will be more responsive to events after the April tax hike,” writes Greg Gibbs, a currency strategist at RBS.

The consumption tax rate increases to 8% from 5% in April.

The final lines in the reference Asahi newspaper article says Kuroda “indicated that consideration for further measures would be made at an early stage depending on how the economy reacts to the higher consumption tax rate.”

The article then quotes the BoJ governor saying: “There would be no need to wait until all data (showing a worsening of the economy) is available.”

And this is Gibbs’s investment take: “We continue to look for opportunities to buy USD/JPY. With USD/JPY approaching lows for the year, this article may be a sign that the BoJ is about to step up its rhetoric to increase expectations of further easing. This may help stabilise the USD/JPY and suggests it is time to again take a long position.”

The US dollar has been fewer and fewer yen this year - will the BoJ act to weaken the Japanese currency?

The US dollar has been fewer and fewer yen this year – will the BoJ act to weaken the Japanese currency?

1:16pm: A pretty subdued Monday around the region:

  • Nikkei down 0.4%
  • Hang Seng down 0.2%
  • Shanghai Composite index down 0.1%
  • Taiwan’s TAIEX is flat
  • Korea’s KOSPI up 0.12%
  • Thai index up 0.1%
  • Jakarta Composite index down 0.3%
  • Kiwi shares down 0.1%

12:44pm: The yuan has slipped in early trade, after the central bank doubled the currency’s daily trading band. The greenback is fetching 6.01575, up 0.12 per cent.

China’s stock-index futures jumped 1.5 per cent on the move, which underscores pledges to make the exchange rate more market based and promote freer movement of capital in and out of the country for investment purposes.

The yuan will, from today, be able to trade as much as 2 per cent on either side of a daily central bank reference rate, from 1 per cent previously, the People’s Bank of China said in a statement on its website on Saturday. The band was last widened in April 2012 from 0.5 per cent, and before that from 0.3 per cent in May 2007.

‘‘Chinese equities are becoming very, very cheap,’’ said IG markets strategist Evan Lucas. ‘‘And the with the bank widening the band – it may see extra inflows’’ in the medium to long term,’ he said.

One way no more ... the US dollar against the yuan over the past five years.

One way no more … the US dollar against the yuan over the past five years.

12:30pm: The ramp-up of production at all three of the huge liquefied natural gas projects being built in Queensland is likely to be slowed by shortages of coal seam gas supplies, according to new research from Citigroup, as reported in The Australian Financial Review.

Citigroup is now forecasting a shortfall in needed gas supplies for 12 months from the fourth quarter of 2015, when all six LNG production units at the three projects are in operation.

Some $70 billion of investment is being sunk in the three coal seam gas-based LNG projects being built in Queensland, the first of which, BG Group’s $US20.4 billion Queensland Curtis venture, is due to start production in the December quarter this year.

Concerns about the adequacy of coal seam gas supplies through the ramp-up phase have been dogging the projects for some time, and Citigroup’s research is the latest to delve into the supply situation.

BG’s QCLNG venture and Santos’s GLNG project have already committed to buying in some third-party gas to help meet the rapid increase in supplies necessary to feed their plants. However, Citigroup calculates that Origin Energy’s Australia Pacific LNG project will also face some difficulties.

The start-up of the three Queensland LNG projects is set to more than triple gas demand on the east coast by 2016, driving rapid price increases in the wholesale market. Prices have surged from a historical level of about $3 a gigajoule to past $8 in recent contracts, with some analysts warning they could spike higher before softening again.

Citigroup said the short-term shortages in coal seam gas supplies for the Gladstone projects means wholesale prices may spike to $10-$12 per gigajoule for 12 months before returning to about $8 longer term.

Read more.

'The next big thing': Australia is poised to be the biggest exporter of LNG in the world by 2017.

‘The next big thing’: Australia is poised to be the biggest exporter of LNG in the world by 2017. Photo: Bloomberg

12:11pm:Sales of new motor vehicles edged up 0.1 per cent in February but were still down on the same month last year.

Figures from the Australian Bureau of Statistics showed new vehicle sales rose to a seasonally adjusted 92,799 in February, after falling 4 per cent to 92,706 the month before. Sales were down 3.5 per cent on February last year.

Sales of passenger vehicles increased 0.8 per cent in February, while those for sports utilities fell 0.3 per cent. Sales of other vehicles, including trucks, dropped 1.0 per cent.

12:01pm: Childcare centre owner Stirling Early Education has cancelled plans for a $200 million public float after it failed to attract investors.

The company said that it was considering its options.

The decision to shelve one of the first floats of the year, flagged by the AFR’s StreetTalk column on Friday, comes as several Australian private equity firms have said they will look to IPO markets to exit investments.

11:55am:Sydney and Melbourne have both fallen down the rankings of the world’s leading financial centres, falling further behind Asia’s business hubs.

In the latest Global Financial Centres Index, Sydney has been overtaken by Chinese cities Shenzhen and Shanghai, as it slides from 15th to 23rd in the rankings. Melbourne has slipped from 33rd to 37th, falling behind Osaka and Abu Dhabi.

‘‘Sydney is now an Established Transnational centre having been a Global Leader, although it is on the borderline and may well regain Global Leadership status in the near future,’’ the report, which was released by London-based think tank Z/Yen, said.

The GFCI is a ranking of the competitiveness of 83 world financial centres. The survey of 3246 financial services professionals takes a number of different measures into account, including skill set of workforce, quality of education, flexibility of the labour market, regulation, tax rates, corruption levels as well as things like the price of real estate and public transport.

London, for the first time since the survey began in 2007, has been knocked-off the top by New York. The top four cities remain the same: New York, London, Hong Kong and Singapore.

Sydney ranks 7th in the Asia-Pacific region, while Melbourne just falls out of the top 10, ranking 11th.

‘‘There is a ‘shakeout’ in Asia with the leading centres – such as Hong Kong, Singapore, Tokyo, Seoul and Shenzhen – doing significantly better than the weaker centres. For example, Kuala Lumpur, Manila, Jakarta and Mumbai,’’ the report said.

Global Leader no more ... Sydney has fallen down the ranks of top financial centres.

Global Leader no more … Sydney has fallen down the ranks of top financial centres. Photo: Getty Images

11:32am:Quantitative analysts at Credit Suisse have crunched the numbers to identify which companies with June year ends appear to be placing a heavier than normal emphasis on second half earnings.

The analysts pithily call this group their “2H skew club”.

They then cross-check the results of their screen with their fundamental research team members for their opinions on whether these companies can achieve the guided skews.

In short, the following stocks look more likely to disappoint:

  • SMS Mgt Technology
  • Wotif
  • Fleetwood
  • Sandfire Resources
  • Goodman Fielder
  • Mount Gibson
  • Cochlear


While here’s the only one likely to pleasantly surprise investors:

  • Macquarie Group

11:02am: Luxury shoe designer Jimmy Choo could be heading for a 1 billion pound London stock market float, according to news reports in Bloomberg and the London Telegraph among others.

Labelux, the Swiss group that owns the company, is understood to have held meetings with bankers as it attempts to raise finance for an Asian market expansion.

Jimmy Choo, which has more than 150 outlets in 32 countries made pre-tax profits of £26.9m in 2012, was bought by Labelux in 2011 for £525m.

A Labelux spokesman said: “Jimmy Choo is a clear success story with strong momentum. We regularly review the status of our investment. However, no decision has been taken as yet.”

Jimmy Choo, which was was founded in 1996 by the shoemaker of the same name, could be valued at about 1 billion pounds ($1.7 billion) in the mid-range of the estimated IPO pricing, according to the news reports.

Quick turnaround: Jimmy Choo was bought for over 500 million pounds in 2011.

Quick turnaround: Jimmy Choo was bought for over 500 million pounds in 2011. Photo: AFP

10:59am: Investors in pain management drug developer QRxPharma face a nervous wait until May for a decision from the US regulator that could make or break the company.

An application for the company’s Moxduo Immediate Release pain drug, which is a combination of ­morphine and oxycodone, will be either approved or rejected by May 25, ending a long and bumpy ride for investors in the biotechnology stock.

The United States Food and Drug Administration has knocked back the drug twice before, first in June 2012 when the regulator asked for more data as a result of the drug’s dual structure, and again in August 2013 after a data mix-up.

Although the June 2012 knock-back shaved 58 per cent off the share price in one day, to 70¢, and the August 2013 result sent the stock down 19 per cent to 88¢, neither response from the regulator was seen as a knock-out blow for QRxPharma.

A number of investors have stuck by the company, which has sunk 23 per cent over the past year to a market value of $143 million, hoping it can gain a foothold in the lucrative pain relief market.

Americans spend $US8 billion a year on prescription opioids.

Moxduo IR sits in the acute pain relief category, which accounts for $US2.6 billion ($2.9 billion) of that spend.

Read more ($).

10:41am:Profit at market data technology company IRESS has fallen 38 per cent to $24.2 million for the 2014 financial year due to delays in benefits from better market activity and the costs of its biggest acquisition to date.

The company paid a final dividend of 24.5 cents, the same as a year prior, but 80 per cent franked this time rather than 90 per cent franked.

But by its preferred measure of “segment profit”, the company’s earnings rose 5.8 per cent, while underlying group profit, a third measure, was down 2.3 per cent to $53.2 million.

Segment profit – which tallies up the profits of divisions and excludes one-off costs, share payments and “strategic amortisation” – got a big boost from the $370 million purchase in September 2013 of UK-based wealth management software Avelo.

This boosted revenue growth from 4.2 per cent to 21.2 per cent.

However, the costs of the acquisition, including integration costs of $5.5 million hit the statutory results as did large investments in its financial planning software due to changes forced by the previous Labor federal government’s Future of Financial Advice reforms.

CEO Andrew Walsh said the Avelo purchase was a “step change” for the company and that he expected segment profit to rise by more than 20 per cent for 2014 compared to 2013, once a full year of revenue from the company has been received.

IRESS’s financial planning platform Xplan has increased its lead over rival Coin, according to ratings by Investment Trends.

The company’s stock is trading marginally lower at $9.11.

10:27am: Australia’s economy is only generating a third of the amount of jobs it should be, given how fast it’s growing, says SMH economics editor and columnist, Ross Gittins:

Don’t be misled by last week’s better-than-expected figures for employment in February. If you peer through the statistical haze you see the problem is the reverse: employment is weaker than you’d expect. Follow that through and it takes you to – of all things – the mining tax.

The job figures were better than expected for two quite silly reasons.

First, because economists are hopeless at predicting month-to-month changes in employment and unemployment. Their guesses are wrong most months.

Second, because it suits the vested interests of the financial markets and the media to ignore the Bureau of Statistics’ advice and focus on the volatile seasonally adjusted estimates rather than the more reliable trend estimates.

The markets like volatility because it makes for better betting; the media like it because it makes for sexier stories.

If we put understanding ahead of thrills and spills and use the trend estimates, they show total employment grew by a paltry 58,000 over the year to February, an increase of just 0.5 per cent. Worse, within that, full-time employment actually fell by 24,000.

Read more.

10:22am: The local market has opened lower, with the ASX 200 index down 15 points, or 0.3 per cent, to 5332, despite an upbeat start for miners, while the All Ords is down a similar amount to 5332.

BHP and Rio are 0.3 per cent higher in early trading, while gold miners are enjoying a boots from investor appetite for the precious metal. Newcrest is 2.5 per cent higher, and the gold mining sector is the best performing in the market, up 2.8 per cent.

Some big names going ex-dividend is proving a drag, as Woolworths has fallen 2.1 per cent, while James Hardie is down 2 per cent and Leighton is 3.8 per cent lower.

All the big banks are down between 0.3 and 0.5 per cent, while Telstra is 0.2 per cent lower.

9:59am: Fund managers are shifting money away from new media stocks such as Seek, and REA Group with rapid share growth pushing valuations too high for comfort.

Seek, and REA Group are all trading on one-year forward PEs that are double, or more, the benchmark SP/ASX200.

“The new media stocks are trading at multiples that we haven’t seen for many years, if ever,” Wilson Asset Management chief investment officer Chris Stott said. “We think this is a reflection of the lack of growth in the Australian market.”

While the local market is trading on a forward earnings multiple of 14.9, REA, Seek and Carsales are trading at 42.6, 33.8 and 28.4 projected earnings.

Fund managers see little room for further gains until earnings begin to justify these multiples.

“The multiples that the new media stocks are trading on are pretty racy,” Tyndall portfolio manager Michael Maughan said. “It would appear that their domestic businesses are reasonably mature, and especially in the case of Seek, quite cyclical.”

“Many of these companies certainly appear to be priced for perfection and therefore if they disappoint they have a long way to fall,’’ Pengana fund manager Rhett Kessler said. “Then again, if you’re patient and you wait three to four years and if they deliver on everything they’ve anticipated then they’ll look cheap again.”

Comparatively, traditional media companies are trading on relatively low multiples. Nine Entertainment is trading on a forward PE of 15, while Seven West Media is down at 9.4 and Fairfax Media is trading on a forward earnings mutiple of 16.5.

‘‘Traditional media has been priced as though the businesses are not going to exist in five years time. The thing we’d remind people of is there is nothing wrong with the demand for those products,’’ Auscap Asset Management portfolio manager Tim Carleton said.

9:50am:US stock futures have opened lower, but aren’t getting smashed. SP500 and Dow futures are both down about 0.2 per cent.

Meanwhile, the yen is continuing last week’s ascent, with the greenback fetching 101.32 yen this morning, down 0.2 per cent. That’s likely going to mean a softer opening for the Nikkei, which tends to follow the yen’s movements.

The USDJPY cross is also seen as an indicator for global risk sentiment – the stronger the yen, the lower the risk affinity.

9:27am: A record drop in US Treasury debt held in custody at the Federal Reserve is fuelling speculation that Russia may have shifted its holdings out of the US as Western nations threaten sanctions.

The Fed reported on Friday that its weekly custody holdings of Treasuries held by foreign entities plunged a record $US105 billion for the week ending March 12 to a 15-month low of $US2.855 trillion from $US2.960 trillion.

As of December, Russia held $US138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 per cent of the $US12.3 trillion in marketable Treasuries outstanding.

“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “If Russia did it, then they may have transferred the holdings to another bank outside of the US.”

Given the magnitude, and if we assume the withdrawal all occurred in one day, we estimate the withdrawal happened last Tuesday, Nomura writes.

“Given the lack of market reaction to such a large drawdown, we suspect the majority of $US105 billion reduction is not selling, but instead seems like securities were moved elsewhere.”

The yield on the 10-year US Treasury bond dropped to 2.61 per cent on Friday, down sharply from last week’s peak of 2.82 per cent in the wake of better than forecast US jobs growth for February.

Weekly change in Treasury holdings by foreign central banks at the Fed. iSource: Nomura, Federal Reserve/i

Weekly change in Treasury holdings by foreign central banks at the Fed. Source: Nomura, Federal Reserve

9:26am:Hochtief, the majority shareholder of Leighton Holdings, has warned that jobs in the Australian group’s 56,000-strong global workforce could be cut and operating brands such as John Holland and Thiess merged or ditched as it urged investors to accept its $1.2 billion takeover offer.

”As a result of the general review by Leighton already under way, some employees may become redundant,” Hochtief said in its bidder’s statement.

Hochtief, which last week secured the recommendation of Leighton’s board after lifting its initial bid 35¢ to $22.50 per share for up to 74 per cent of the construction group, also flagged plans to change the structure of Leighton’s five operating companies after reviewing its business model.

Former Leighton executives have already raised fears that Hochtief will aggressively reshape the company, selling assets to pay down some $2 billion in net debt. Analysts forecast Hochtief will replicate its new operating structure in Germany, dividing Leighton into new divisions such as infrastructure, mining and services.

New Leighton chief executive Marcelino Fernandez Verdes is cutting up to 1000 jobs in Hochtief’s core construction business, Hochtief Solutions, after selling non-core investments in airports and real estate.

Read more. 

9:16am:Global markets are poised for further weakness as investors react to the outcome overnight on Sunday of Crimea‘s contested referendum, which is expected to lead to heightened tensions between Russia and the West.

Australian shares, which are down 0.43 per cent this year, are expected to fall at the start of trading on Monday with the SPI futures pointing to a drop of 18 points or 0.3 per cent.

”It will probably be the dominant factor this week driving markets,” said Shane Oliver, from AMP Capital, of events in Crimea.

”The focus is now how Russia responds, and whether there will be a further escalation”.

”The big event of the week would probably have been the Federal Reserve Board but Ukraine will dominate.”

Haven assets, such as gold, continued to benefit from the move away from equities, with the spot price up 0.48 per cent to $US1379 an ounce, hitting another six-month high amid elevated trading volumes.

The gains here are helping to put a floor under gold miners globally.

”The Ukraine situation is still very volatile, so any news out of there could push gold higher,” Alfonso Esparza, senior currency analyst at Oanda Corp, said.

”We are seeing people move towards the risk-averse instruments like gold in the uncertain environment.”

Read more.

9:08am:BHP Billiton is planning a multi-billion dollar return of cash to investors within months as Chinese demand for resources fuels to miner’s increase in output.

BHP chief executive Andrew Mackenzie has reaffirmed the company’s $US5.5 billion ($6.1 billion) cost-cutting target by the end of this year and a reduction in debt to $US25 billion, in an interview with London’s The Sunday Times.

”When we get that number ($25 billion), we will have a serious and practical conversation on how we might increase cash returns to shareholders,” Mr Mackenzie said.

Analysts have previously said BHP cutting gearing levels to below 30 per cent would trigger shareholder buybacks or investments in further growth.

”Management believe they can achieve an average internal rate of return of over 20 per cent for the major project options. We see further project approvals with the 2014 full year results,” said Deutsche Bank analyst Paul Young.

Mr Young suggested the Spence copper project in Chile or the Pilbara iron ore business were the most likely candidates for investment funding.

Read more.

9:04am: China’s central bank loosened its grip on the yuan on Saturday by doubling the daily trading range for the currency, adding teeth to a promise it would allow market forces to play a greater role in the economy and its markets.

Analysts said the move was a sign of confidence that the central bank had successfully fought off a plague of currency speculators, and at the same time signalled that regulators believe the economy is stable enough to handle more promised reforms going forward.

But as far as Beijing’s project to encourage the international usage of the yuan is concerned, there is less consensus, with some warning that more volatility could discourage firms from using the yuan in the short run.

The People’s Bank of China (PBoC) said the exchange rate will be allowed to rise or fall 2 per cent from a daily midpoint rate it sets each morning. The change is effective from today.

“This is a major step towards building more market-oriented exchange rate mechanisms in China, signifying a gradual withdrawal by the central bank from regular intervention in the foreign exchange market,” said Fu Qing, head of foreign exchange trading at Standard Chartered Bank in Shanghai.

“However, with more volatility in the yuan’s exchange rate created by the reform, Chinese companies will face an uphill task learning how to hedge their currency risks.”

Many market participants have long viewed the yuan as a one-way appreciation bet. Authorities are trying to change that by demonstrating that it is now more of a genuine market that can go up and down like any other.

9:03am: Local stocks are poised to open lower with investors shunning riskier assets as the world awaits the results of a referendum on whether the Crimean region of Ukraine will become a part of Russia.

Here’s what you need2know this Monday morning:

  • SPI futures down 18 points, or 0.3 per cent, to 5307
  • AUD at 90.15 US cents, 91.29 Japanese yen, 64.86 Euro cents and 54.19 British pence
  • On Wall St, SP500 -0.3%, Dow Jones -0.3%, Nasdaq -0.4% 
  • In Europe, Euro Stoxx 50 -0.5%, FTSE100 -0.4%, CAC -0.8%, DAX +0.4%
  • Spot gold at $US1382.85 per ounce
  • Brent oil at $US108.21 per barrel
  • Iron ore  at $US110.10 per metric tonne


Data releases today:

  • New car sales


Stocks to watch:

  • London’s The Times says BHP’s CEO Mackenzie is set to announce a share buy-back.
  • Broker BBY has started coverage of Dick Smith and rates it a “buy”.
  • NIB Holdings is rated a new “buy” at Deutsche, with a price target of $3.
  • Virgin is rated a new “speculative buy” at BBY.
  • Among the stocks trading ex dividend today: Ausdrill, Cardno, Envestra, James Hardie, Leighton Holdings, Macquarie Atlas, Primary Health Care, SkyCity Entertainment, Telecom Corp of NZ, Woolworths.


Read more.

9:03am: Good morning and welcome to the Markets Live blog for Monday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

BusinessDay with wires.


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